THE IMPACT OF EUROPEAN SUPPORT PROGRAMMES ON THE AUDIOVISUAL INDUSTRY IN LITHUANIA

Publisher The MEDIA Desk Lithuania, 2009 Vilnius Reproduction is authorised provided the source is acknowledged Concept and production Renata Šukaitytė Assisted by Agnesta Filatovė Design Jurga Juodytė

Language editor Birutė Kazlauskienė Printing KOPA Support The European Commission, Directorate-General Information Society and Media The European Audiovisual Support Programme MEDIA The Ministry of Culture of the Republic of Lithuania

Special thanks to Soon-Mi Peten, The EACEA Monica Galeriu, The EACEA Anu Ernits, The MEDIA Desk Estonia Lelda Ozola, The MEDIA Desk Latvia Agnė Silickaitė, Cultural Foundation of the Republic of Lithuania Indrė Blūšiūtė, Ministry of Culture of the Republic of Lithuania Saulė Marija Mažeikaitė, The International Cultural Programme Centre

INFORMATION ON THE EUROPEAN AUDIOVISUAL SUPPORT PROGRAMME MEDIA: • The website of the European Commission related to MEDIA: http://ec.europa.eu/information_society/media/index_en.htm • The website of the EACEA http://eacea.ec.europa.eu/index.html • The website of the MEDIA Desk Lithuania: www.mediadesklithuania.eu

The Impact of European Support Programmes on the Audiovisual Industry in Lithuania

The Study prepared by KEA European Affairs in association with Dr. Norbert Morawetz

June, 2009 VILNIUS

Table of Contents: 1.

Executive Summary 2.

Introduction 2.1 The Assignment 2.2 Methodology 3.

Context 3.1 The Value of the Audiovisual Sector 3.2 The European Context 4.

The State of the Lithuanian Audiovisual Industry 4.1 Comparative Overview 4.2 The Lithuanian Cinema Market 4.2.1 The Exhibition Sector 4.2.2 The Lithuanian Box Office 4.2.3 Film Festivals 4.2.4 Audiovisual Production 4.3 Training and Education 4.4 Broadband Connections, Video On Demand (VOD) and Digital Cinema 4.5 Determinants of the Lithuanian Film Industry 5.

Lithuania’s Participation in European Funding Programmes 5.1 MEDIA Programme 5.1.1 Single Project Development Funding 5.1.2 Slate Funding and Funding for Interactive Works 5.1.3 Broadcasting Funding 5.1.4 Distribution 5.1.5 Festivals/ Exhibition/ Promotion 5.1.6 Training 5.1.7 Funding for Sales Agents, Pilot projects, I2I 5.2 The MEDIA Desk 5.3 Barriers to Participate in MEDIA 5.4 Eurimages 6.

Findings and Recommendations 6.1 Lithuanian Operators’ Participation in EU Funding Programmes 6.2 The Need for an Audiovisual Skills and Talent Strategy 6.3 Rethinking Lithuania’s Audiovisual Strategy Appendices

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1. Executive Summary Background The audiovisual industry is an important promoter of each country’s culture and language and can enrich its citizens’ lives by deepening their understanding of the world, its history and its diversity. Financial support allocated to film production allows a nation to showcase its talent to its own citizens and around the world, meeting the demand of domestic audiences who want to see stories that are relevant to them in their own language.

lar strength in documentary film-making. It also includes the Lithuanian Film Studios, a strong, local player in servicing foreign productions, as well as associated production service companies. The Lithuanian film distribution sector is relatively concentrated, consisting of three major players, as is the exhibition sector, with Forum Cinemas – active in both sectors - playing an increasingly dominant role.

Increasingly, the audiovisual industry is also recognised as an important future industry that can generate economical growth and employment. This argument is based on a systemic view of the so-called creative industries, described by the World Bank as one of the fastest growing sectors of the world economy. Besides a direct employment growth in the sector, public support for the audiovisual industries generates multiply effects in the economy, leads to a positive spill over effects from the creative sector to a wider economy, as well as exerts positive impacts upon the development of tourism as it markets a country to a wide audience abroad.

The Lithuanian emerging games sector consists of one major operator and a number of small and micro businesses. A significant share of the sector’s activity comprises enhancing support for international projects.

Given the growth potential of the video games industry, some companies have expressed deep interest in developing their own projects for the Lithuanian market.

On these grounds, support for the audiovisual sector has expanded in the past decade in most European countries, seeking to take advantage of the benefits offered by a growing audiovisual sector.

The Lithuanian Audiovisual Sector Lithuania’s film sector proves to be an important cornerstone of the country’s cultural and creative ecosystem and – notwithstanding the fact that it has been entrenched in a small language market – this sector has the potential to make significant contributions to the country’s economy.

The Lithuanian Box Office has tripled in size between 2005 (EUR 3,768 million) and 2007 (EUR 10,320 million), following an increase in the number of cinema screens.

The market share of Lithuanian films is relatively small (2,7% in 2008), mainly as a consequence of the low number of Lithuanian films being produced and released each year (2-4 annually). However, the production of Lithuanian films such as The Loss (Nereikalingi žmonės) or Forest of the Gods (Dievų miškas) have shown, there is a strong demand for Lithuanian language films in the country. This is also reflected by the success of US animations at the Lithuanian box office, which have been dubbed into Lithuanian.

The Lithuanian production sector consists of a first tier of established and prolific production companies, a second tier of younger production companies, and a few smaller, emerging companies. The sector has a particu8

The Sector’s International Dimension Europe’s fragmented audiovisual industries are dependent on international collaboration in the context of strong Hollywood competition. As a result, EU co-production is an important feature of the European audiovisual sphere. Alongside the national support schemes for film sector, the Lithuanian audiovisual industry is also influenced by different European audiovisual policy structures, most notably included in the MEDIA Programme as well as into Eurimages.

The Impact of Lithuania’s Participation in the MEDIA Programme and Eurimages This short study evaluates the impact of the participation of Lithuania in different support strands of the MEDIA Programme and in Eurimages. Its focus lies primarily within the Lithuanian film industry, encompassing operators in film production, film distribution and film exhibition, as well as the Lithuanian games sector.

The report shows that Lithuania’s participation in the schemes has made a strong impact on Lithuanian audiovisual industry in multiple ways. Firstly, training and professional information provided and/or co-organised by the MEDIA Desk Lithuania, as well as through the Summer Media Studio, currently fills a gap in Lithuanian audiovisual industry. Pursuant the results of the findings, this has furthered the professionalisation of the local film sector. Moreover, this professionalisation has also been fostered through the participation of Lithuanian film professionals in various MEDIA supported programmes such as EAVE and others, which have directly contributed to adoption of an international perspective and mindset.

Secondly, MEDIA has contributed a lot to development and production of a number of films. This could not have been done without MEDIA’s financial support.

Thirdly, the MEDIA Programme has made a strong contribution to the circulation of European films in Lithuania.

MEDIA’s distributed support has increased the diversity in Lithuanian cinemas, with the number of released films increasing by 26% since 2002.

Fourthly, MEDIA funding has contributed to securing and fostering the existence of Lithuanian cinema institutions, such as Cinema Centre SKALVIJA and the International Film Festival Cinema Spring (Kino pavasaris), wich are targeted at the promotion of European film in Lithuania.

Finally, the MEDIA Desk Lithuania meets the industry’s satisfaction on a relatively high scale. The MEDIA Desk plays an important role in creating a local film sector networking and, consequently, a significant proportion of stakeholders regularly attend its events.

Lithuania’s competitiveness in MEDIA Lithuanian operators have been successful in accessing MEDIA funding through several of its specialised support schemes. However, as described in the main part of this report and, despite some recent signs of better performance, Lithuania has continuously underperformed its comparative countries (Latvia, Estonia, Slovenia) in gaining MEDIA project development support. Thus, there is room to improve this situation. There are several reasons for this weak performance, which are linked to a wide range of issues:

• A lack of experience and/or professional mindset on the producer’s side

• An industry structure that does not operate clearly along the lines of development and production, partly because of a lack of funding on national level for development, partly because of confused/delayed production cycles

• A lack of talent in screenwriting that would allow projects to take better advantage of development funding opportunities

• Weak support/ no reward from national funding bodies to seek out MEDIA funding The main body of this report further examines these challenges and possible answers in detail.

neither access to MEDIA support – which is dependent on national co-finance – nor Lithuania’s European coproduction activity is high on the agenda of major funding institutions and some important players of the sector. As a result, the current national funding mechanisms support operators in a sub-optimal way, especially when pursuing MEDIA funding and co-production finance. For example, maintaining a single, annual deadline for funding applications appears to be a rather restrictive procedure for internationally operating companies. The main part of the study includes a set of practices which should be reviewed in this context.

However, the future success of Lithuania’s audiovisual sector does not only hinge on its participation in the MEDIA Programme. Its ability to gain more market share is also dependent on a progressive audiovisual policy that encompasses economic as well as cultural arguments to fostering film and reflects on the sector’s relevance to areas such as trade, tourism and its inter-linkages with other creative industries.

Importantly, the sector would benefit from a national audiovisual skills and talent strategy. Such a strategy would include a focus on media literacy and film education in schools, the expansion of training and education provision for film professionals, as well as production support for emerging, first-time and second time directors. The report illustrates how a skills and talent strategy can help small countries, such as Lithuania, to maintain a dynamic audiovisual sector.

A reassessment of Lithuania’s audiovisual strategy finally cannot stay clear of examining the importance that the state gives to the sector. In 2008, Lithuania spent only 0.85 EUR per citizen on its audiovisual industry - compared to 2.71 EUR by Latvia and respectively 5.06 EUR

by Estonia, which constituted one of the lowest annual state supports for the film industry per capita in Europe.

Lithuania also remains the only country in the European Union that does not operate its own dedicated, independent National Film Centre. There is, therefore, a need to re-examine Lithuania’s approach to film and games and to recognise the socio-economic and cultural impacts on a more dynamic audiovisual sector in Lithuania.

Brussels, 8th of June 2009 Author: KEA in association with Dr. Norbert Morawetz

Recommendations and Future Strategy How can Lithuania ensure that its audiovisual sector further benefits from MEDIA in the future? As this report shows, it is intrinsically linked to the need to rethink the country’s current strategy. Consultations showed that 9

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2. Introduction 2.1 The Assignment In January 2009 KEA European Affairs was commissioned by the MEDIA Desk Lithuania to undertake a short study to evaluate the impact of the participation of Lithuania in the following European audiovisual support programmes: MEDIA Plus, MEDIA Training and MEDIA 2007 on the Lithuanian audiovisual industry.

The wider aims of the study were as follows:

• To establish qualitative and quantitative indicators of the efficiency of the MEDIA Programmes to strengthen Lithuanian audiovisual industry;

• To establish favourable and unfavourable factors determining participation of operators of Lithuanian audiovisual industry in the MEDIA Programmes;

• To establish competitive opportunities for operators working in Lithuanian audiovisual industry in contesting for the funding allocated by MEDIA Programme and the EURIMAGES European Cinema Support Fund with operators from other countries, which participate in the programme;

• To establish the contribution of the MEDIA Programmes Office (2003 – 2007) and the MEDIA Desk Lithuania, a unit of the International Cultural Programme Centre (2008) in the encouragement and support of the participation of operators of Lithuanian audiovisual industry in the MEDIA Programmes.

Furthermore, the study was to expound the importance of the MEDIA Programmes and the EURIMAGES European Cinema Support Fund to encourage co-operation among the European, trans-European operators, and the ones working in the Lithuanian audiovisual industry, as well as to establish favourable conditions for the MEDIA Desk Lithuania to disseminate information concerning the MEDIA Programme.

2.2 Methodology The data presented in this study have been collected in the following way: Firstly, desk research has been used to collect reliable, secondary data from sources such as the European Audiovisual Observatory, the MEDIA Program, the MEDIA Desk Lithuania, the Baltic film platform, as well as the International Movie Database. Secondly, primary data have been collected by consulting key stakeholders of the Lithuanian audiovisual sector over the telephone, using a semi structured interview sheet. Thirdly, in March 2009, KEA conducted a three-day fact finding trip to Lithuania. During this study visit, KEA invited 5 representatives from cultural and industry support institutions to participate in a workshop, aimed at discussing the participation of Lithuanian film industry in various 12

European support programmes. In addition, further 4 in person consultations with stakeholders were organised (see list of consultees included in appendices).

The sample of stakeholders used in this study has been compiled following the suggestions provided by the MEDIA Desk Lithuania, as well as the recommendations presented by Lithuanian film professionals. The comparative countries selected for the study are Latvia, Estonia and Slovenia.

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3. Context 3.1 The Value of the Audiovisual Sector No other medium today captures the imagination of audiences like film and other audiovisual content. Film, for example, is universal because it is visual - it connects people within and across nations, cultures, age groups and religions. It is entertainment, education, and a source for inspiration for audiences at the same time, making the audiovisual sector a crucially important carrier of national culture and identity. Films and television programmes that reflect domestic realities give people a sense of self and an ability to locate themselves in society. They are an important element of the social fabric of the contemporary nation state and contribute to cultural diversity and social cohesion.

Because of its high visibility and public impact, audiovisual content allows countries to disclose a nation’s talent, its cultural heritage and way of life to the wider world. The position not to produce an audiovisual image of one’s society, on the contrary, means not being seen by other countries, and worse, not promoting its own citizens’ culture. This, then, also implies not documenting national culture for future generations, but accepting instead the notion that an essential part of culture is originated and manufactured elsewhere.

A central aspect of national film production with respect to cultural identity is language. For small countries, such as Lithuania, films produced in Lithuanian have an invaluable educational potential as a high prestige promoter of oral culture. They connect the linguistic community and is a reliable vehicle of exposure to national linguistic variety.

However, the economics on film production and its distribution strongly favour film industries with large language markets, in which operators can take advantage of economies on a large scale. In 2008, the average US studio motion picture was budgeted at USD 70.8 million in total, aiming to recoup a multiple of this figure from domestic and international markets. One of these markets is Lithuania, where a highly successful film (the top 15%) can expect to gross around EUR 200,000 at the domestic box office. Lithuania has a very limited language market and the commercial potential of film produced in the Lithuanian language is therefore limited. In order to benefit from the above cultural contributions of the audiovisual industry, Lithuania – similarly to all other European member states – supports financially and encourages the film sector and international co-productions.

However, although the production values of Lithuanian films are ultimately only a fraction of Hollywood studio pictures, within the Lithuanian language market, Lithuanian films have proven time and again that they can 16

compete with US blockbusters. For example, films such as The Loss (Nereikalingi žmonės, 2007) or Forest of the Gods (Dievų miškas, 2005) are popular within domestic audiences who want to see relevant to them stories in their own language, as well as with European cinemagoers, interested in different voices.

Supporting national film productions, therefore, create the public’s value, as these films satisfy a demand otherwise not met by the market. While these cultural benefits might be difficult to measure, consent on this matter is share globally by 148 countries, all of which have signed the UNESCO Convention on Cultural Diversity (2005) to protect their audiovisual industries.

Besides playing a vitally important cultural role, the audiovisual sector has also drawn the attention of an increasingly large number of policymakers in the past fifteen years for its recognized potential as a future growth industry that can generate growth and employment for the economy.

The evidence for this claim has first come from countries, such as Canada and the UK, which have both been able to create significant employment numbers in the audiovisual sector by introducing fiscal (tax) incentives for film production, with the aim of attracting a high budget US studio productions (“runaway productions”) to their territory. Attracting foreign productions has consequently been equalled to attracting a foreign direct investment, with multiple countries around the world also introducing tax incentives. This strategy has proven to be very successful for some smaller countries, such as Ireland, Belgium, Hungary and New Zealand. Lithuania has benefited to some extent from the growth of the mobile productions market, with the Lithuanian Film Studio bringing, for example, the production Dungeons and Dragons to the country on the basis of cost competition.

However, in recent years the competition for runaway productions has become increasingly intensive, leading to the introduction of ever more expensive incentives across Europe, thereby strongly reducing the viability of this audiovisual strategy.

In recent years, the economic argument for film has moved beyond direct benefits to the economy through attracting location shooting towards a more systemic view of the audiovisual sector and its inter-linkages with wider creative industries. Supported by growing research evidence, the cultural sector is now understood to be one of the fastest growing world economy sectors, stimulated by increasing demand to create content on new technology platforms (broadband, mobile telephony, television and cable). The World Bank estimates

that in G7 countries the outputs from creative industries compose more than 50% of the total consumer spending, and expects that in future global demand for creative products will continue to grow rapidly (Ryan, 2003).

In the Lisbon Strategy, the EU has recognized that the creative sector is a major contributor of the EU growth and employment, with more than 5.8 million people generating some EUR 654 billion annually (EC, 2006). Of these, about one million people are employed in the audiovisual sector within the European Union.

This fact has drawn again the attention of European policy-makers on growing domestic film industries, synthesizing cultural and economic arguments. Investment into the audiovisual sector is firstly understood to lead to economic multiplier effects in the rest of the economy.

This is evidenced by a number of economic impact studies, with the British Columbia Film Commission (2001) estimating the economic multiplier of investing in film at 1.6 (for every EUR spent, in addition EUR 1.6 are generated in the economy), and the Australian film commission (AFC, 2006) determining the multiplier effect for Australia at a factor of 1.8 (2006). In both cases, the multipliers are significantly higher than the multiplier of traditional manufacturing industries (1.35). This suggests that stimulating audiovisual production is economically more beneficial than subsidizing many other industrial sectors.

Secondly, film production exerts a positive impact on tourism growth and marketing a country to a wide audience abroad. Following to the findings, films can strongly increase public awareness to plan one’s holiday destination and can create a long - lasting impact on a country’s image abroad. Furthermore, tourism organisations can use films as springboards for marketing campaigns, with films generating a number of marketing opportunities, ranging from the film premiere at a festival, to reaching a wide audience over a long period of time. Because of the longevity of a film, images of locations are usually retained for a long time in the audience’s mind, making audiovisual products also one of the most cost-efficient communication tools of modern media. In addition “film tourism” (visiting film locations) is a growing global phenomenon that is fuelled both by the growth of the entertainment industry and the increase in international travel (See Appendix 1 for 2 case studies).

Thirdly and less tangible, but nevertheless real, economic benefits also accrue through film production by increasing awareness abroad of a country’s reputation for creativity and innovation, and through spillover effects from the creative sector to the wider economy, such as encouraging creativity and innovation in other sectors, encouraging creativity among the public, developing talent and developing media literacy.

Public support for the audiovisual industry can unleash 1For a summary see Hudson and Ritchie, 2006.

these mutual economic, social and cultural benefits, placing audiovisual policy high on the agenda of policymakers. Consequently, in a survey conducted on behalf of the Copenhagen Think Tank for Film and Film Policy (DFI, 2006), more than half of respondents from European national support institutions stated that fostering national culture as well as stimulating employment and commercial activity for production were key rationales for funding film. Lithuania currently is among the European countries whose principal motivation for funding film is still very much focused on cultural aspects. For example, the Ministry of Culture is responsible for film policy in Lithuania. There has not been established any strategic framework, which would encompass additional policy areas, such as trade, economic growth and tourism.

3.2 The European Context Alongside national support schemes for film, the Lithuanian audiovisual industry is embedded in European policy frameworks for the audiovisual sector, most notably, the MEDIA Programme. The multi-annual MEDIA Programme was initiated in 1991, and is currently in its fourth instalment MEDIA 2007 (2007-2013). The aims of the MEDIA Programme are to strive for a stronger European audiovisual sector, reflecting and respecting Europe’s cultural identity and heritage; to increase the circulation of European audiovisual works inside and outside the European Union; and to strengthen the competitiveness of the European audiovisual sector by facilitating access to financing and promoting the use of digital technologies.

MEDIA funding concentrates on areas that are often underfunded on national level, such as development funding, the training of audiovisual professionals, as well as the support of distribution and festival initiatives.

In 2007, an evaluation study of the MEDIA Programme found that projects from New Member States (most of which fall into the category of countries with a “weak production capacity or limited geographic and/or linguistic area), have been relatively over-represented in gaining access to MEDIA funding, with 33% and 40% of the budgets between 2001 and 2005 flowing to these countries, relative to their weight in the European audiovisual sector (between 11% and 15% of the market share on European film entries between 2001 and 2005).

The importance of the European integration process for national audiovisual industries is further underlined when looking at one of its key structural features – coproduction. More than 30% of all films made in Europe are made as co-productions, with co-production activity accounting in some countries, such as Belgium, for up to 80% of total production activity. This points to a changed perception of co-productions in Europe. While co-productions were dreaded in the 1980s as “Euro-pud17

dings”, the development of better frameworks and specialist markets has made this form of production a natural extension to national film industries in Europe, and a real opportunity for contemporary filmmaking. The European Audiovisual Observatory (2008) has found in its Krakow report that co-productions outperform national productions with respect to audience success (number of admissions), finding that;

• Co-productions enable producers to raise financing for larger budgets as they can tap into a larger number of financing sources, resulting in higher production values that in turn can attract larger number of spectators than a film with a lower production value.

• International co-productions benefit from each co-producers’ established relationships not only with national funding bodies but also with local distribu-

tors and broadcasters, which can significantly improve a film’s chances of being released in the respective territories.

• Projects, made as co-productions, have a broader cross-border appeal than content that primarily attracts national audiences in a specific territory.

While co-productions are not a panacea, national film industries have much to gain from a European model of production, which - as the US industry has done for a long time – embraces funding opportunities and markets that lie beyond domestic borders. Whether small film economies cooperate with each other or partner with larger countries is, thereby, not of primary importance, both allow producers to leverage finance, tap into new markets, develop essential production expertise and, ultimately raise the profile of their film.

Case Study: Finnish Ministry of Education Reacts to Financial Crisis with Increase in Film Support As part of a stimulus package to support Finnish economy, the Finnish Ministry of Education has increased the funding of the Finnish Film Foundation by EUR 3 million for the production and distribution of feature films, TV dramas, documentaries and short films. The Ministry has argued that the funds will maintain and create employment within the audiovisual industry and will increase the level of know how, which otherwise might depreciate through growing unemployment. As maintaining employment is a key objective of the measure, projects applying for the funds have to include employment measures in their application (measured by the number of paid man-days per each 100,000 EUR of the production budget; and the number of paid man-days per each 100,000 EUR of the given subsidy. A separate grant of EUR 2 million will be awarded in Spring 2009 as part of the stimulus package for the modernisation and digitalisation of Finnish cinemas.

Source: Finnish Film Foundation, 2009

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4. The State of the Lithuanian Audiovisual Industry 4.1 Comparative Overview

(Sources: Baltic Films, 2009; SFI, 2009; Cineuropa, 2009)

4.2 The Lithuanian Cinema Market 4.2.1 The Exhibition Sector The Lithuanian Box Office has experienced significant growth in the past four years, nearly tripling in size between 2005 (EUR 3,768 million) and 2007 (EUR 10,320

million), and increasing almost 12% in 2008 to EUR 11, 547 million.

Figure 0-1 Development of Gross Domestic Box Office in EUR million

(Source: European Audiovisual Observatory, 2008)

Until 2007, box office growth was driven by a strong increase in the number of admissions, which doubled more than twice from 1.216 million in 2004 to 3.233 million in 2007. Growth of admission slowed down in 2008, increasing only marginally by +1,14% to 3.270 million. The

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Growth of box office between 2007 and 2008 can hence be explained with a strong increase in average ticket prices, which increased by more than 10% between 2007 (average ticket price EUR 3.19) and 2008 (average ticket price EUR 3.53).

Table 0-1 Development of Average Ticket Prices

(Source: Baltic Films, 2009)

While the overall number of cinemas has declined dramatically in Lithuania in the past fifteen years (in 1995, there were 209 cinemas, compared to 46 in 2008), the loss of seat capacity has been compensated for by the growth of multiplex cinemas, as is evidenced by the decrease in the number of inhabitants per screen since

2005. Nevertheless, Lithuania continues to have a significantly lower screen density than the average European country (on average 16,782 inhabitants per screen in EUR27), indicating that the Lithuanian cinema market is not yet saturated but continues to have strong growth potential.

Table 0-2 Number of Cinemas in Lithuania 2004 – 2008

(Source: Baltic Films, 2009; European Audiovisual Observatory, 2008)

As indicated by an industry expert interviewed for this study, a leading Lithuanian cinema chain will open two further multiplex cinemas in Lithuania in the coming year, adding another 10-15 screens to the Lithuanian exhibition sector. It remains to be seen whether this additional capacity (15% increase in the no of screens), will translate in a corresponding further growth of box office.

As to be expected, cinemas and cinema going in Lithuania are concentrated in larger cities, with Vilnius having

a significantly higher number of cinema admissions per capita (2.5) than the national average of 0.98. As is furthermore visible in the table below, the 16 cinemas in Lithuania’s biggest cities account for almost 85% of box office, with the remaining 30 cinemas accounting for only 15% of national box office. In this light, the continuing decline in the overall number of cinemas and the increase in the number of multiplexes have to be seen as a necessary consolidation, that nevertheless threatens the outreach into the regions.

Table 0-3 Distribution of Lithuanian Cinema Going

(Source: Cinema Centre SKALVIJA, 2009)

The number of films released in Lithuania is comparable to that of Latvia (2008:152) and Estonia (2008:165), but lags behind Slovenian distributors who released 349

films in 2008. As can be seen, the number of films circulated in Lithuania has increased since it joined the MEDIA program, with the total number rising 26% since 2002.

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Table 0-4 Number of Films Released in Lithuanian Theatres 2002 – 2007

(Source: European Audiovisual Observatory, 2008)

While the low number of films released might prompt critical questions with respect to the diversity of cinema programming in the Lithuanian exhibition sector, the breakdown of released films by origin reveals that inde-

pendent cinema product finds its way into Lithuanian cinemas, although it has to be noted that specialist releases are mainly concentrated in arthouse cinemas in Vilnius.

Table 0-5 Breakdown of Film by Origin 2008 (Premieres)

(Source: Baltic Films, 2009)

The leading player in the exhibition market in Lithuania is Forum Cinemas, who currently operate 4 cinemas across Lithuania. A key cultural institution in the Lithuanian cinema market is the Cinema Centre SKALVIJA in Vilnius, which shows a varied repertoire of European and international films and is also home to the International Film Festival Cinema Spring (Kino pavasaris). The now defunct legendary cinema “Lietuva” in Vilnius awaits conversion into a block of flats, however it has been agreed that one theatre will be preserved for public use.

The Lithuanian distribution market is highly concentrated, led by Forum Cinemas and independent distributor ACME, followed by the Warner Bros Affiliate GPI (Garsų pasaulio įrašai) and minor independent player Meed Films. While the strong position of Forum Cinemas in exhibition as well as distribution could potentially lead to an abuse of market power, no such indication or worry has been voiced by the stakeholders consulted for this report.

4.2.2 The Lithuanian Box Office In any given week, on average 20 films will be on release in Lithuania (on 81 screens). With on average 2-4 new releases per week. The number of screens available for new releases is limited, and screens are primarily allocated to high grossing Hollywood blockbusters. Similar to other countries, the distribution of the Lithuanian Box Office is highly skewed, with the top 10 films (marked by the black line in the graph below) accounting for 24.6% of total box office and the top 50 films accounting for almost 71.7% of the total box office. In 2008, the average gross per film was roughly EUR 66 000 (around $100,000), however only 37% of films earned more than 24

this average and only 14.7% earned double this figure. In order to make its distribution costs (print and advertising costs) back, a specialist (“arthouse”) film typically has to reach a box office of around EUR 19,000, based on the release of 2 new prints and a small scale marketing campaign (Source: Interview). As can be seen, about 25% of all released films struggle to meet the break-even point, making the release of non mainstream films without distribution support a financial gamble for distributors.

Figure 0-2 Distribution of Lithuanian Box Office Revenue 2008

(Source: Data compiled from IMDb and Box Office MOJO, 2009)

Case study: B ox Office Reveals Strong Taste for Lithuanian Language Product In 2007, the top films at the Lithuanian box office were The Simpsons Movie (1), Ratatouille (3), Shrek the Third (4) and Surf’s Up (5).

In 2008, the top four grossing films were Madagascar: Escape 2 Africa (1), Kung Fu Panda (2), Wall-E (3) and Dr. Seuss’ Horton Hears a Who! (4).

What do these films have in common that makes them so popular?

Apart from being animations, of course.

The answer is that each of these 8 features has received a professional dubbing into Lithuanian.

In a market dominated by foreign language films, they thus do not so much speak of audience taste, but indicate a real preference of Lithuanian audiences to see a film with their family in their own language.

The Lithuanian Box Office is dominated by the US product, which accounts for about 77.4% of box office. This means that the market share of European films (including domestic films) of 18.7% is significantly lower than the European average of 28.8% (European Audiovisual Observatory, 2008). This can be explained with the relatively low market share of Lithuanian films, with Lithu-

anian films taking only 2.8% of domestic box office in 2008.

As stated by the stakeholders consulted, the DVD market in Lithuania is in general very small, and certainly not a significant source of revenue for Lithuanian films.

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Figure 0-3 Market Share of National, European and US Films

(Source: European Audiovisual Observatory, 2008)

In 2008, two Lithuanian films performed well, The Loss (Nereikalingi žmonės) distributed by Forum grossed about EUR 207,000 and 5 Day Scam (5 dienų avantiūra), distributed by Forum grossed EUR 71,000. However the Collectress (Kolekcionierė) only grossed EUR 3,500 and Perpetuum mobile - a EUR 600,000 Lithuanian-French co-production – grossed only EUR 4,000. In 2008, Lithu-

anian films therefore accounted for only 2.8% of national box office, in absolute values for about EUR 300,000, a relatively low figure. These box office figures are also reflected in the foreign trade balance of Lithuania. As a net importer of audiovisual products, Lithuania runs a trade deficit in cinematographic goods of about EUR 11.7 million annually.

Table 0-6 Foreign Trade Balance - Photographic or Cinematographic Goods

(Source: Bank of Lithuania, 2009)

The DVD market for Lithuanian films in Lithuania has to date been negligible, as is the case with the European market for Lithuanian films. Due to the low distribution of Lithuanian films, the Lithuanian film industry is almost unaffected by various forms of content piracy.

A potential growth market for Lithuanian films is the Russian market. During the Soviet times, Lithuanian

films were revered in Russia, however, in recent times very little audiovisual exchange in audiovisual products has taken place between the two countries. Given the tremendous growth of the Russian domestic box office in recent years, a theoretical opportunity to cross over into the Russian market is yet to be realised by a Lithuanian audiovisual player.

4.2.3 Film Festivals Lithuania is host to a number of film festivals and events.

The prime festival event is Cinema Spring (Kino pavasaris) that brings carefully selected pictures from other international film festivals such as Cannes, Venice, San Sebastian, Toronto, etc. to Vilnius. Started in 1995, Cinema Spring attracted in 2007 about 47,295 people. It 26

has received support from the MEDIA since Lithuania joined the program. SCANORAMA, the Scandinavian Film Forum, takes place in Vilnius, Kaunas and Klaipėda and showcases features, short films, documentaries and films for children (the festival received MEDIA support in 2008). The Kaunas Film Festival features films and docu-

mentaries from around the world, with a special focus on a particular country (e.g. Ireland). In October 2009, it attracted about 7,000 visitors. Other film events include the Short Film Festival Tinklai, that takes place in Vilnius, Kaunas, Klaipėda, Šiauliai, Panevėžys, as well as the Inconvenient Cinema (Nepatogus kinas) organized by the Lithuanian Human Rights Centre and Vilnius Documentary Film Festival organised by Cinema Centre SKALVIJA.

4.2.4 Audiovisual Production Historical Development The history of Lithuanian cinema falls into two distinct periods – Soviet and post-Soviet. Until the break-off from the Soviet Union in 1990, Lithuania used to produce on average seven feature films, 40 documentaries and two animation films annually. Finance for films was allocated to projects following the script’s approval by Moscow, imposing ideological restrictions both on the content and form of the films. Nevertheless, with a guaranteed theatrical and television market (Gosteleradio) throughout the Union, Lithuanian cinema thrived and developed a strong artistic basis.

With the restoration of Lithuanian independence, audiences and therefore finance for the Lithuanian film industry were no longer guaranteed, calling the viability of the former studio production system strongly into question. The Lithuanian studio production system, which in the Soviet Union held a monopoly over talent and technical infrastructures, was therefore overhauled, and a number of more flexible, private production companies have emerged.

Market Size and Industry Structure The Lithuanian film industry is characterized by high concentration and corporate integration in the profitable parts of the audiovisual value chain (distribution, exhibition), but low integration between these sectors and production – a typical feature of audiovisual industries worldwide, including the US. Similar to other European production companies, Lithuanian production companies are typically small in size and focus on producing one feature film project at a time, lacking the size as well as the resources to implement sustainable, long-term business strategies.

The top grossing film in Lithuania 2008 was US production Madagascar 2, grossing about EUR 480,566, the highest grossing Lithuanian film was The Loss (Nereikalingi žmonės) (ranked 15 on the list of top grossing films, outperforming e.g. Indiana Jones and the Crystal Skull), with gross box office revenues of around EUR 200,000.

As in most EU countries, Lithuanian audiovisual content suffers from a lack of access to other markets, and there-

fore revenues of Lithuanian films from distribution outside Lithuania have been negligible to date.

Statistically, the success of box office for a single film is highly unpredictable, with legendary screenwriter William Goldman famously coining the phrase “Nobody knows anything” to describe the film business. The uncertainty of demand makes it extremely difficult for producers to raise finance for a single film project from private investors, as only very few films will make their money back while the vast majority will remain unprofitable.2 In the case of Lithuania, a producer operating on a strictly commercial basis could not make films with production costs of above EUR 200,000 and would need every of his films to be a smash hit to sustain his business. However, even assuming that such a magic formula for success could be found, it would not be possible to produce films at such low costs (the average budget of a Lithuanian film lies between EUR 400,000 and EUR 800,000 already well below the European average for a low budget film of around EUR 1-2 million)3, nor would it be feasible to sustain a production base on such low production budgets: Like in any other industry, operators in the audiovisual industry need a minimum amount of throughput to maintain an efficient organization, maintain the standard of professional expertise by practicing their craft, warrant the investment in technical infrastructure to support production. If this minimum throughput cannot be supported, the industry’s potential to develop further and become internationally competitive is severely limited. As a consequence of the small size of the domestic (language) market, the Lithuanian audiovisual industry depends on public support for film production, making the output of the Lithuanian film industry directly dependent on the amount of funding supplied by national and European funding bodies.

The main governing body for the film industry in Lithuania is the Ministry of Culture. Funding decisions for production and development are made once per year by the Film Board, which consists of representatives from independent production, film distribution, Lithuanian private broadcasting, Lithuanian public broadcasting, the Ministry of Culture, as well as of Lithuanian filmmakers. The Film Board is composed of nine members who are delegated by the Lithuanian Cinematography Union, the Association of Independent Producers, Film Distributors and Film Exhibitors as well as the Lithuanian Radio and Television Association, the Lithuanian National Radio and Television and the Ministry of Culture of the Republic of Lithuania.

2 In some film economies, producers have sought to overcome this problem by offering investors a slate of films they can invest in (a bundle of 6-18 films), with the idea that the blockbusters will offset the lossmakers, resulting in an overall positive return of the portfolio. However even Hollywood studios have in the past decade highly dependable on government soft money to finance risky production.

3In 2007 average budgets in the UK were EUR 10 million, in France EUR 5.6 million.

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Table 0-7 charts the development of state support for the Lithuanian film industry between 2005 -2008 Table 0-7 Development of Annual State Support for the Film Industry in Lithuania 2005 -2008

While between 1990 and 2004 on average only 1 – 2 domestic films were released in Lithuania each year, the doubling of funds in the past four years has had a direct

(Source: Baltic Films, 2009) effect on the Lithuanian film industry, with a record number of 6 features being released in 2008.

Table 0-8 Number of Feature Films Produced 2003 -2007

(Source: European Audiovisual Observatory, 2008)

However, it has to be noted that direct comparator countries Latvia and Estonia have spend in 2008 with EUR 6.14 million (Latvia) and EUR 6.59 million (Estonia) more than twice as much on the audiovisual industry than Lithuania.

This comparative under-funding of the Lithuanian film industry is even more dramatic when considering the annual state support for film industry per capita. In 2008, Lithuania spent only 0.85 EUR per citizen on its audiovisual industry - compared to 2.71 EUR by Latvia and 5.06 EUR by Estonia. As a consequence, film output in Lithuania is lower than in the comparator countries, as is the average market share of domestic films. In 2008, the market share of domestic films was 2,7% in Lithuania (2007: 0.3%), compared to 7,6% in Estonia (2007: 13%) and 1,9% in Latvia (2007: 7%).4

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While this report does not want to indicate that it is possible to simply buy market share for the domestic film industry by raising subsidies, it is safe to assume that the currently low level of Lithuanian audiovisual output does not meet the demand for Lithuanian films (as indicated in the success of Lithuanian language product), and that hence an increase in the quantity and/or quality of the produced films through an increase in support would very likely also lead to greater box office share.

In addition to a comparatively low level of overall funding, a key issue affecting the Lithuanian audiovisual production sector is also how the available funding is allocated between projects. The table below lists the most important funding categories and funds awarded.5

4Sources: Cineuropa, 2009; Baltic Films, 2009; Estonian Film Foundation, 2009; Box Office MOJO, 2009.

5This list does not include all funding categories.

Table 0-8 Number of Funding applications and Projects Funded by the Ministry of Culture, 2008

(Source: Ministry of Culture of the Republic of Lithuania)

As can be seen, the amount of funding that is awarded to new projects each year is severely constrained by a large number of running projects in need of completion funding that are prioritized for funding (100% success rate).

The practice is the direct result of past funding decisions, with projects either not receiving the full amount of funding requested in the first place so they have to come back for funding in the following year, or the result of producers deliberately understating budgets in funding applications, well aware that they can come back for the rest of the finance to the state in the consecutive year.

cipal markets and expand film and video production in the Baltic Countries. In 2007, Lithuania became the latest country to join the European Cinema Support Fund EURIMAGES.

This practice has lead to situations in which principal photography is split across two or more funding periods, with highly detrimental effects to the quality of the finished project that suffers both in artistic and commercial integrity. This system also creates a production industry that is out of sync with the wider market, making international collaboration more difficult as production cycles are lagging behind.

Unlike the majority of European countries, Lithuania does currently not have a film fund on regional/ municipal level. The opportunity, therefore, exists for a region or city to create such a film fund and attract funding provided on national and European level to its territory (see case study).

International Outlook/ Co-productions/ Foreign Location Productions As described in chapter 2, and as is the case with many sectors, the European film industry is becoming more international. International collaboration is getting more important to produce features with higher production value and tap into foreign markets. At the same time, the increasing institutionalization of co-production markets in Europe (e.g. the co-production markets in Berlin, Rotterdam or Tallinn) means that finding co-production partners has never been as easy and cost-efficient for producers as it is now.

Lithuania is participating in the MEDIA Programme since 2003; in 2005 it has signed an agreement with Estonia and Latvia to cooperate under the name Baltic Films to jointly present Baltic film and video production in prin-

Despite these commitments, and despite highlighting the importance of co-production in the Film Act, stakeholders consulted for this study have pointed out that some of the more established Lithuanian producer’s were not strongly interested in co-productions, but underlined that an equal number and the majority of young producers fully understood the necessity of having an international outlook and was actively pursuing co-production opportunities.

One of the reasons given for the lack of producer’s international ambition was that stakeholders felt co-productions were not sufficiently supported and rewarded by national funding decisions, with especially minority coproductions being felt at disadvantage. For this reason, producers preferred to concentrate instead on national funding initiatives, which require less work than putting together a complex co-production deal that might not find funding in the end.

For Lithuanian producers interested in co-production, a second limitation is the amount of domestic funding available for film in Lithuania in general. As European coproduction structures are based on reciprocity (typically funding in the producer’s country is matched by funding agencies in the co-producer’s country) Lithuanian producers are relatively unattractive for foreign producers, as they do not bring enough financing to the table. The bias against minority co-productions hits particularly young producers, who have the most to gain from collaborating with more experienced co-producers from abroad and need to establish partnerships for their future career. In terms of its co-producing partners, Lithuania is seeking collaboration mainly with the larger European countries (particularly France, Germany, Spain and Scandinavia), with little co-production activity taking place with its direct Baltic neighbours.

With respect to attracting foreign productions, Lithuania benefits from the production infrastructure left behind from the Soviet past. The Lithuanian Film Studios have 29

been successful in attracting a number of TV movies (mainly British and German), commercials, music videos and cinema productions (Dungeon’s and Dragons, Highlander) each year, and also co-produce domestic features such as The Loss (Nereikalingi žmonės) or Whispers of Sin (Nuodėmės užkalbėjimas).

The main advantage for a foreign producer to move production to Lithuania is the low cost base of its trained

technical personnel. However, the competitiveness of Lithuania as a cheap production location is increasingly called into question by countries offering equally costefficient production services plus a fiscal incentive (such as for example Hungary, which offers a 20% tax incentive for film). In 2008 business for the Lithuanian Film Studios has somewhat slowed down, but is expected to pick up again with the opening of a new production complex in 2009.

Case study: success of Hungarian Tax Incentives In 2004 the Hungarian government introduced a 20% tax incentive for film production, resulting in a rapid increase in the money spent on film productions (see tables below). The rationale given for the introduction of the scheme was to […] “increase the number of films produced - partly or entirely - in Hungary, therefore to strengthen the Hungarian audiovisual industry, to increase the production capacity of the country and the number of experts employed in this sector, thus to generate a positive impact on the entire economy.” (Film Hungary, 2007).

Table 0-9 Number of films that have benefited from the tax scheme in Hungary

Table 0-10 Increase in foreign spending because of the tax incentives (In EUR Million)

(Source: Strategics, 2007, p.93)

4.3 Training and Education The Lithuanian Music and Theatre Academy (LMTA) is the sole provider of audiovisual training for aspiring audiovisual professionals in Lithuania. The LMTA graduates every four years about 12 directing students, 12 cinematographers and 12 producers. Satisfaction with the current standard of training at the LMTA was rather modest among several stakeholders consulted. The Academy itself indicates in its Strategic Action Plan for 2008-2010 that it suffers from “perpetually insufficient financing”, which increasingly poses a threat to its competitiveness in the international market of artistic education.

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Non-degree training for audiovisual professionals is virtually non-existent in Lithuania, but for training organized by the MEDIA Desk Lithuania. The lack of professional training opportunities is mainly compensated by on the job training, but makes it difficult for entrants with non-degree backgrounds to progress into the relatively small industry.

Since 2007 the Cinema Centre SKALVIJA has been organizing short courses for high school students, but as noted by stakeholders, the government needs to devel-

op a stronger framework for film education and driving media literacy in schools.

Taking the comparatively small size of the Lithuanian

audiovisual sector into account, a cost efficient way of increasing service provision might be through closer cooperation with training institutions in other Baltic countries, such as the Baltic Film and Media School in Tallinn.

Case study: The Danish and British Skills Strategies for the Audiovisual Sector Ensuring a healthy pipeline of talent into the workforce is a vital strategy to increase the productivity and competitiveness of any sector. However in project-based industries, the incentive of companies to invest into training and skills development is reduced, as freelance workers will move to the next project after completion. As a consequence the responsibility for training largely rests with the freelance professional, who is often not in a position to finance a formal training and learns instead on the job. The situation is compounded in the audiovisual sector, where the prevalence of very small companies means that even permanent employees hardly ever receive any formal training; and in small industries, where irregularity of work, and long pauses between works, mean professionals even have limited opportunities to learn on the job. This poses a threat to the productivity of the industry and affects its competitiveness, artistically and commercially.

Recognizing that investing into the capability of individuals is one of the foremost ways to add economic value, most European countries have developed a talent (ensuring that talent gets promoted from an early stage) and skills (ensuring that professionals have the opportunity to develop their skills) strategy for their audiovisual industries.

In Denmark, the Danish Film Institute has developed a “Talent Development Chain”, a support system that has strongly contributed to the success of the Danish film industry, which has increased its national market share in 2008 to a record of 33%, producing some 28 films, 6 of which were co-productions. The idea behind the talent development chain is to foster media literacy from an early stage at school, provide a strong media and film training offering at film school level and beyond, and give emerging filmmakers the chance to showcase their talent by supporting them through the New Danish Screen production support program.

The UK government has responded to the lack of training in the audiovisual industry for example by setting up a dedicated sector skills council - “Skillset” - which is in charge of influencing the development of skills and training in TV, film, radio, interactive media, animation, computer games, facilities, photo imaging and publishing. Skillset offers training grants for individuals and companies, actively supports the growth of entry-level employment, certifies training courses and also provides career services for the media industry.

4.4 Broadband Connections, Video On Demand (VOD) and Digital Cinema With about 40% of households having broadband access, Lithuania currently lags slightly behind the average of 50% in the Euro zone (see table below).

Table 0-11 Percentage of households having a broadband connection (Lithuania and comparator countries)

(Source: Eurostat, 2009)

The rapid uptake of broadband connections is empowering the distribution of films online. VOD is an emerging market that is attracting a significant amount of new commercial operators (primarily ISPs, telcos and broadcasters, but also publicly supported initiatives by producers and distributors), and has also been the target

of MEDIA funding to encourage the circulation of European films online.

Currently the VOD market is characterized by a high number of competing business models using different approaches to rights ownership, digital rights manage31

ment and digital distribution. The novelty of the market means that there is a lack of historical data rights owners can use to estimate the potential revenues they can achieve online. In addition many rights owners fear that online distribution might cannibalize the sales and rentals of DVDs, a market that is well understood and more easily to control than online content, which can be pirated more easily. A functioning future VOD market is likely to give consumers a greater degree of choice in choosing which films to watch (the “long tail” effect), and could hence potentially promote diversity and benefit Lithuanian film which is seldom shown in theatres, on television and in DVD windows. However, due to piracy and due to the uncertainty whether VOD will not hamper stakeholders’ strategies to increase their revenues by means of versioning (exploitation in different windows and across territories) the current financing structure of the audiovisual industry is strongly entrenched in traditional industry structures. The audiovisual sector is therefore not necessarily in a position to retain VOD rights when negotiating financing deals and little interest exists on the side of financiers to support them in establishing new VOD ventures for the moment.

It is yet unclear whether a Lithuanian owned VOD platform will emerge (e.g. in cooperation with a public service broadcaster), or whether the Lithuanian audiovisual industry will be served in a consolidated market by a foreign operator (one Lithuanian production company – Tremora – is a supporting partner in the MEDIA supported venture Onlinefilm.org). As DVD sales and rentals have never been a critical source of revenue for Lithuanian film distributors, successful VOD uptake can be expected not to cannibalize existing markets, but to add a new revenue stream to distributor’s businesses. As such the future growth of VOD in Lithuania has the potential to be less disruptive and more complementary to the existing distribution market as is the case in other European countries.

As has been the case in countries such as the UK, Lithuanian film producers might want to convince Telecom operators to co-finance films in return for distributing the film exclusively online, or release a film -with the support of broadcasters - simultaneously in cinemas, on TV and online to maximize the impact of marketing spend.

However, until VOD revenue models are more established and are viewed as a stable source of film revenue and hence film financing, VOD is not expected to significantly impact on the Lithuanian production sector.

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4.5 Determinants of the Lithuanian Film Industry Critical Acclaim Audiovisual content from Lithuania has a greater market potential as is currently the case, indicated by the critical acclaim that films receive internationally and at local festivals. Lithuanian fiction and documentaries are in high demand in the international festival circuit, and are nearly always accepted at the leading international festivals such as Cannes, Venice or Berlin. While a certain “rarity bonus” certainly helps Lithuanian productions to be selected for festivals, their selection is nevertheless a strong indicator for their critical acclaim and artistic integrity. Recent successes include director Saulius Drunga winning the MEDIA New Talent Award in 2007 for his film Anarchy in Zirmunai (Anarchija Žirmūnuose), and Inesa Kurklietyte winning the Award for Best Directing at the Olympia Film Festival for Lake of Crows (Varnų ežeras).

As previously mentioned, the market share of Lithuanian film in Lithuania itself is rather small. However, the success of film festivals that showcase domestic stories, such as International Film Festival Cinema Spring (Kino pavasaris), indicate that there is an untapped market for Lithuanian language film.

Cinematography Lithuania has a strong tradition of cinematography, with consulted stakeholders unanimously agreeing that strong visuals are the foremost feature of Lithuanian films. A number of stakeholders have voiced concerns that talented artistic and technical personnel might leave the country due to the weak production environment, fearing a “brain drain”. Many Lithuanian directors are also cinematographers and the Cinematographer’s Union is the strongest trade body in the Lithuanian film industry. Its esteem and importance for the industry is reflected in the fact that it is the only party to send three representatives to the Film Board. In contrast, film producers only sent one representative to the Board, and a producer’s association is yet to be fully established.

Documentaries A particular strength of the Lithuanian audiovisual industry is documentaries. Lithuania has a longstanding tradition of successful documentary filmmaking, including films such as the Before Flying Back to the Earth (Prieš parskrendant į žemę) by Arunas Matelis, to the acclaimed films of Audrius Stonys, to the television co-production The Bug Trainer (Vabzdžių dresuotojas), that was supported and distributed by partners in Poland, Japan, The Netherlands, Finland, Denmark, Sweden, Norway, Estonia and Switzerland. Documentaries are comparatively

cheaper to produce than feature films, and thus represent a form of audiovisual product in which Lithuania can compete on similar production values with other European countries. Arguably, Lithuanian documentaries are even superior in production value to documentaries made by other European filmmakers, as it is still commonplace in Lithuania to shoot documentaries on 35 mm film stock, while European documentary filmmakers predominantly now use more cost-efficient and practical HD digital formats.

Limited Access to Market Despite these opportunities, Europe’s audiovisual sector is essentially shaped by cultural and linguistic preferences and Lithuania is a small language market. Companies creating films based on Lithuanian stories and language therefore often find it difficult to reach enough audiences in Lithuania to break even. As a result, the Lithuanian film sector resembels a cottage-industry, where micro- and small scale companies often work on a single project over several years. In addition to this, Lithuania’s film industry is dominated by strong vertically integrated Hollywood studios, as is the case with all European audiovisual industries. It is this limited access to markets and the marginalisation of the sector which is the most dominant determinant shaping the Lithuanian film industry.

Lack of Audiovisual Cross-sector Collaboration A number of stakeholders have pointed towards the weak linkages between Lithuanian public television and the film production sector as a key issue for the Lithuanian film industry. In many countries in Europe, public broadcasters are required to invest a certain amount of their budgets into financing domestic feature films. In Lithuania, the national broadcaster LTV is currently investing into Lithuanian films only on an in kind basis, providing productions with desk space, equipment and transport. LTV’s unwillingness to make cash investments into films can firstly be attributed to the broadcasters own financial situation, with LTV being among the least well funded national broadcasters in Europe, building its non-government funding on a market-share of about 20% in an already small language market. Secondly, as one of our consultees mentioned the market value of broadcasting rights in the Lithuanian market is in general very low, with high-quality prime-time television shows costing as little as EUR 30,000 to produce, and broadcasting rights to US film content being even much more inexpensive.

In contrast to most European countries, where producers are typically active both in producing for television and for cinema, Lithuanian producers rarely cross over from one sector to the other. A closer cooperation between the two sectors could be mutual beneficial and could be

encouraged through a joint initiative (e.g. a drama series developed by young talent).

Low Visibility of Lithuanian Film According to consulted stakeholders, a further perceived shortcoming of the Lithuanian film industry is its low visibility in cinemas, television and public life in general and regardless of audience demand. A number of causes have been cited for this issue, ranging from the low number of films produced, to the shortage of film critics discussing film in Lithuanian media, to the lack of media literacy and film/ cultural education in schools, to the lack of a dedicated Lithuanian Film Centre, that could serve as the focal point of the Lithuanian film industry. A number of initiatives, such as a Talent Award ceremony for Lithuanian producers, are currently in planning that could work towards improving the profile of Lithuanian cinema.

Training and Education Training and professional education has been cited as a weakness of the Lithuanian film industry, with the LMTA being in a weak position to meet the required training demand. Furthermore, to our understanding, the Academy’s practice to graduate a number of film directors in multi-annual intervals rather than on an ongoing basis creates a glut of talent supply at particular times, which makes it then difficult for graduates to find their way into the industry. The lack of dedicated schemes for first time directing/producing teams exacerbates the situation, as the current funding mechanism does not necessarily favour first time feature film directors, leaving students little choice but to seek employment either in the television or the advertising sector. Finally, the limited existence of further training initiatives for established film professionals (but the rare opportunities and seminars organised by the MEDIA Desk Lithuania) further complicate Lithuania’s ability to retain its industry’s skills level.

More cooperation with training institutions and initiatives across the EU, and possible with a focus on the Baltic Countries, might be useful to establish a more varied training and education offering (see. 4.3).

Script Development As stated by nearly all stakeholders consulted, a continuously perceived weakness of the Lithuanian film industry is the dearth of high quality scripts, and scriptwriting talent. This weakness partly stems from the fact that scriptwriting has not been a core discipline at the Department of Theatre and Film of the Lithuanian Music and Theatre Academy to date; with 2009 marking the first year the LMTA will have a specific intake for dramatic writing.

As criticized by some stakeholders, the LMTA has until recently refused to teach scriptwriting technique and structure as part of its curriculum, encouraging instead 33

aspirations of directing students to become writer/directors. With a strong leaning to the auteur school, this philosophy places the LMTA in a unique position among European and international film schools, all of which are running screenwriting programs along directing programs, emphasizing that it is a distinct craft that requires as much training as the other disciplines. A second reason for the lack of high quality scripts in Lithuania is the lack of script-writing teaching material in Lithuanian language, which has been cited as an obstacle for further education of audiovisual professionals. Nevertheless, self-critical stakeholders have argued that the lack of domestic resources does not excuse producers from seeking advice from specialist scriptwriting consultants abroad, as is common practice in other countries.

Public Support for the Audiovisual Industry A high number of stakeholders have cited the comparatively low amount of public support, as well as the current system of how national funding is awarded in Lithuania as an obstacle for the growth and success of the Lithuanian film industry. Firstly, the system has been criticized for favouring established producers over industry newcomers. As a result, young producers may be less likely to submit their own applications to the Cinema Council, but instead sometimes ask established producers to apply for funding under their name. This leads to a circle whereby both the knowledge of how to prepare successful applications, as well as the highly important networks remain in the hand of incumbents, while new talent becomes ever more dependent on them. Secondly, a number of stakeholders have also criticized that the current system

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does not encourage producers to seek co-production finance or alternative sources of investment, as national funding applications require less preparation, and does not require a sophisticated distribution and promotion plan. This creates a lack of commercial ambition among producers and directors, resulting in films that are neither successful at festivals nor with audiences.

As is recognized by the most successful support institutions in European Cinema, such as the Danish Film Institute, critical and commercial success are not mutually exclusive, and these institutions have made the inclusion of a high quality marketing and exploitation plan a condition for the awarding of funding to any film project. With respect to the criticism that the funding board places not enough emphasis enabling producers to benefit from foreign funding sources, it has to be noted that this might in part be a reaction to the appearance of so called “fake co-productions�, in which a producer claims he has a co-production partner when applying for funding, however after funding has been awarded, no real co-production is carried out. Thirdly, stakeholders have criticized the current funding decision process as lacking strong priorities, leading to a climate of distrust and to allegations that applications are not assessed in terms of their quality, but in terms of the producer’s networks.

Fourthly, stakeholders have unanimously agreed that a single, annual deadline for funding applications is highly restrictive, especially for producers who also have to coordinate other international funding deadlines for coproduction funding and MEDIA funding.

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5. Lithuania’s Participation in European Funding Programmes 5.1 MEDIA Programme Overview6 “Over the past 16 years, MEDIA, the EU’s support programme for the European audiovisual industry, has supported the development and distribution of thousands of films as well as training activities, festivals and promotion projects throughout the continent. From 2001-2006, more than half a billion euros were injected into 8.000 projects from over 30 countries.”

The new MEDIA 2007 programme (2007-2013) is the fourth multi-annual programme since 1991 (previous programmes) and has a budget of EUR 755 million. Its core objectives are:

• to strive for a stronger European audiovisual sector, reflecting and respecting Europe’s cultural identity and heritage

• to increase the circulation of European audiovisual works inside and outside the European Union

• to strengthen the competitiveness of the European audiovisual sector by facilitating access to financing and promoting use of digital technologies MEDIA 2007 is divided into five action lines: Training of Professionals MEDIA Continuous training scheme supports the creation of pan-European training networks to help professionals in the audiovisual industry enhance their competence in the international market. MEDIA Initial training scheme aims to encourage exchanges and cooperation between film / audiovisual schools and universities and the audiovisual industry. This should contribute to the networking and mobility of students and trainers in Europe, and facilitate the integration of students in the professional sector.

Development of Production Projects and Companies The MEDIA Plus programme provides funding for independent European producers of audiovisual projects with a European dimension, both upstream of production stage and during production. The funding is designed to help producers of audiovisual and interactive works to cover the costs of project development, financing and television production .

films, European sales agents and publishers of European DVDs. MEDIA also supports the distribution of European audiovisual works at two other levels: Support for cinemas (to encourage networking of cinemas screening European films), as well as support for television broadcasting.

Promotion of Cinematographic Works and Audiovisual Programmes Including the Support for Film Festivals MEDIA funding supports all kinds of promotion to help European independent producers and distributors gain access to and participate in the key European and international events and to promote European work in major international markets. Every year the MEDIA Programme supports more than a hundred festivals in Europe notable for their particularly rich and varied programme of European films; their efforts to engage with the general public; and their activities involving professionals in large numbers.

Pilot Projects In addition, the MEDIA 2007 programme also seeks to ensure that the latest technologies and trends are incorporated to the business practices of beneficiaries of the programme through dedicated funding schemes (e.g VOD, digital cinema).

5.1.1 Single Project Development Funding Lithuanian producers, participating in MEDIA since 2003, have struggled to date for a number of reasons to fully take advantage of the opportunity that is provided to them in the form of MEDIA development funding. In the first MEDIA funding call (2008), only one Lithuanian project (Saula from company Art Box) was awarded funding of EUR 24,150, a significantly lower figure than that of the comparator countries, with Latvia winning EUR 208,012.00, Estonia EUR 139,187, and Slovenia EUR 91,447. This makes Lithuania the worst performing country among the comparator group with respect to the ratio of the amount of MEDIA development funding applied for, and the amount of funding awarded.

Distribution of Cinematographic Works and Audiovisual Programmes MEDIA encourages the circulation of European audiovisual works among the different countries participating in the programme. Support is given to distributors of European 38

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The following information has been taken from the MEDIA Programme website http://ec.europa.eu/information_society/media/ index_en.htm

Table 0-12 MEDIA Development Funding Applications and Amounts Awarded (Single Project) 2008, in EUR

(Source: MEDIA Desk Lithuania, 2009)

It has to be noted that the success of receiving development funding can vary quite strongly for an individual country from Call to Call (in the 2006, Slovenia achieved for example a success rate of 63%, Estonia 43% and Latvia 96% and Lithuania 14%).In the most recent funding call

(December 2008) the Lithuanian results have improved, with Uljana Kim Studios being awarded EUR 25,000.00 for the project The Twins, and UAB Artbox EUR 21,742.00 for SANTA.

Table 0-13 Results December Call 2008, Single project development funding awarded

However, as the following table demonstrates, in the case of Lithuania the results of the first 2008 Call can not be easily discarded as a “bad year�. Lithuania has consistently underperformed both Latvia and Estonia in winning develop-

ment funding, with both comparator countries receiving in the past five years more than four times the amount of development funding awarded to Lithuania.

Table 0-14 Amount of MEDIA Funding Awarded 2001 -2008 for Single and Slate Development

(Sources: Compiled from MEDIA Programme, 2009; MEDIA Desk Lithuania, 2009)

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While in the first 2008 Call Lithuania submitted less projects to MEDIA than, for instance, Latvia and Slovenia (see next table), and competition for MEDIA funding is be-

coming more competitive each year, Lithuania’s consistent underperformance cannot be easily explained with these factors. Instead, the statistics suggest that the quality of submitted Lithuanian projects was not competitive

enough to be awarded funding.

Table 0-15 Number of Projects Submitted to MEDIA Development Funding 2008

(Sources: MEDIA Desk Lithuania, 2009)

Stakeholders consulted for this report have indicated the following reasons for the potential weakness of submitted applications:

• A lack of experience and/or professional mindset on the producer’s side

• An industry structure that does not operate clearly at the lines of development and production, partly because of a lack of funding on national level for development, partly because of confused/delayed production cycles

• A lack of screenwriting talent that would allow

5.1.2 Slate Funding and Funding for Interactive Works

Due to the comparatively small size of the Lithuanian audiovisual industry and its operators, Lithuanian producers

projects to take fuller advantage of development funding

• Weak support/ no reward from national funding bodies to seek out the MEDIA funding

• Limited national funding, which makes it difficult to find co-producing partners in Europe As indicated by some stakeholders, the number of applications for single-project development funding from Lithuania could fall in the near future, as Lithuanian producers might reduce their efforts in preparing applications further after having failed to achieve funding on more than one occasion.

have so far not been in a strong position to apply for slate development funding. As can be seen below, Lithuania remains the only comparator country that has no submitted an application for the MEDIA funding in the past three years.

Table 0-16 MEDIA Slate development funding 2006-2008

Number of projects submitted (Number of projects awarded funding)/Amount applied for/Amount awarded (Source: MEDIA Desk Lithuania, 2009)

The Lithuanian games industry consists of one major operator, Ivolgamus. Ivolgamus currently employs about 40 people in Vilnius and also operates a studio in Buenos Aires, Argentina. While the company has looked into applying for MEDIA funding before, it has decided against seek-

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ing grants and operates mainly on commercial finance.

Due to the small size of the Lithuanian industry, the MEDIA funding stream for interactive works has to date not been taken advantage of.

Case study: Supporting the Games Sector The MEDIA Programme supports the development of interactive works for computer, internet, mobile phone, games consoles including handheld devices, as well as new format concepts destined for digital television, the internet or mobile handsets where interactivity and narrative elements are significant.

Unlike in the film industry, the distinction between development and production phase is less obvious in games industry, with the development phase typically ending at the point when production finance can be secured from a publisher. For a console title, “development” may therefore refer to the first 5% of the entire project, while a mobile game project typically has to be 50 - 90% finished before being considered by a publisher. The costs of producing a game vary strongly between platforms and can range from several thousands in the case of a mobile phone game to EUR 2-3 million for an average console game, and a multiple (EUR +20million) for a top end game. In 2007, first day sales of Xbox Game Halo 3 reached $170 million in the U.S alone, indicating that individual games titles can outperform even the top-grossing Hollywood films.

Games production is a high value added activity, and is more stable than film production, employing creative workers for a prolonged period of time. A number of countries such as Canada and France have started to offer tax incentives for games production, in an attempt to attract companies from other leading games industries such as the UK and the US. In Europe, Norway and Denmark operate dedicated funding schemes for the games industry.

5.1.3 Broadcasting Funding The MEDIA television broadcasting funding stream seeks to encourage independent European audiovisual production companies to produce work (fiction, documentaries or animated films) that involve the participation or cooperation of at least three broadcasters -and preferably more- from several member states. Lithuanian producers

have succeeded three times in obtaining Broadcasting funding, with Studio 2 receiving EUR 30,000 for their documentary New Martyrology (Tas, kurio nėra), ARTeta receiving EUR 148,000 for their series 42 and Era film receiving EUR 118,000 for their feature documentary Bug Trainer (Vabzdžių dresuotojas).

Table 0-17 MEDIA Broadcasting Funding

(Source: MEDIA Desk Lithuania, 2009 (number in brackets represent inconsistencies in data supplied))

With respect to the MEDIA broadcasting scheme, Lithuania has received approximately the same amounts of MEDIA funding as Latvia and Estonia. The lack of submitted applications in 2008 represents an opportunity missed for the Lithuanian audiovisual industry.

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5.1.4 Distribution The MEDIA program provides a number of different support schemes for film distributors. The selective support scheme is aimed at groups of at least five European com-

panies distributing a European film outside its home country. Automatic support is granted to European distributors to invest in the co-production and distribution of films

from other European countries.

Case study: How MEDIA funding enables distribution At leading distributor ACME, MEDIA funding enabled the distributors to dub European films Arthur and the Minimoys, as well as the latest instalment of the Asterix franchise for the Lithuanian market - a risk they would have otherwise not been able to take due to the high costs involved. Localising allowed ACME to position these dubbed European features alongside Disney and DreamWorks features, and contributed strongly to the success of these features.

Cinema Centre SKALVIJA has recently entered the distribution market with an interest in bringing specialized films to selected audiences, typically by using 1 or 2 prints. For their recent release of Estonian film Klass by Ilmar Raag, they received EUR 1,500 selective distribution support from MEDIA. Co-operating with the youth help-line “Jaunimo linija”, the film gained attention on TV and found the right target audience in schoolchildren and teachers, attracted more than 5,000 spectators in 13 weeks.

Lithuanian distributors have been successful in gaining MEDIA support for distribution, with particularly the independent distributor ACME and the Cinema Centre SKALVIJA repeatedly winning funding. In 2008, film distributors received a total of EUR 145,129 through MEDIA funding: EUR

100,629 through the Automatic support scheme (ACME and Cinema Centre SKALVIJA) and EUR 44,500 through the Selective Support Scheme (ACME, Cinema Centre SKALVIJA, Forum Cinemas and FINKINO YO“.

Table 0-18 Amount of MEDIA Funding Awarded for Distribution (selective) 2008

Out of the Baltic countries, Lithuania has thus received the highest total amount of funding both from the selective, as well as from the automatic funding scheme.

Case study: Future Diversity in Distribution in Danger In 2008, on the basis of its strength in distributing European films, Cinema Centre SKALVIJA was awarded EUR 16,000 from the MEDIA automatic distribution scheme. Under the scheme, the organisation is obliged to invest the funds into the distribution of new European titles until October 2009. While audiences have become used to the opportunity of accessing diverse European films in Lithuanian cinemas, this very diversity is now in danger as the cinema lacks the match-funding to distribute the films. As a consequence, Cinema Centre SKALVIJA will have to return the European funding – a step back for Lithuania’s audiovisual landscape.

In other small countries such as Austria, Hungary or Northern Ireland similar problems have prompted the introduction of small funds for art-house film distribution. Such schemes are also in discussion in Latvia and Estonia, representing a low-cost/high-impact measure through which governments can safeguard diversity in cinemas.

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Table 0-19 Amount of MEDIA funding Awarded for Distribution (Automatic) 2003 -2008

(Sources: Compiled from MEDIA Programme, 2009; MEDIA Desk Lithuania, 2009)

5.1.5 Festivals/ Exhibition/ Promotion The highly popular International Film Festival Cinema Spring (in excess of 50,000 admissions) has been supported by the MEDIA programme for the first time in 2003/2004 (EUR 10,000), and again in 2007 (EUR 25,000).

In 2008, for the first time, Kino aljansas (Cinema Alliance) received financing for its cinema showcase SCANORAMA (EUR 20,273).

As part of the EUROPA CINEMA network, the Cinema Centre SKALVIJA received MEDIA funding in 2008 (EUR 13,831).

The network has also been joined in 2009 by Cinema Centre GARSAS. In Estonia, the Tallinn Black Nights Film Festival (Pimedate Ööde Filmifestival) has received funding from MEDIA since 2004 (on average EUR 35,000). In Latvia, MEDIA has sponsored the International festival of Film Actors “Baltic Pearl”, as well as the Film Forum Arsenals by the International Centre of Cinema. In Slovenia MEDIA is funding the Ljubljana International Film Festival.

Table 0-20 Festivals supported by MEDIA in Latvia and Estonia

Both the Tallinn Black Nights Festival as well as the Arsenāls film festival attracts a similar audience size as the Cinema Spring (Kino pavasaris), however, the Estonian festival lasts 10 days longer and screens a larger number of films than the other two festivals.

The absence of a film market event in Lithuania has meant that Lithuania has not yet sought funding from the MEDIA

(Source: MEDIA Desk Lithuania, 2009) Promotion scheme. In Latvia, MEDIA is funding under this scheme the Baltic Sea Forum in Riga (2007: EUR 40,000; 2008: EUR 47,679). In Estonia, MEDIA sponsors the Baltic Film Event in Tallinn, which has s received a total funding amount of EUR 135,000 since 2004, with annual funding increasing in 2008 to around EUR 45,000.

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5.1.6 Training The MEDIA Program has supported the Summer Media Studio in Vilnius since 2003/2004 under its funding scheme “Initial professional education”. The continuous funding thereby speaks of the success of the Summer Media Studio in a funding area that is highly competitive. The Summer Media Studio is an annual intensive international threeweek workshop, which brings together advanced film students and top-level professionals from different film schools and audiovisual industry for an intensive work at a theoretical and practical level. The project is coordinated

by the Lithuanian Academy of Music and Theatre (LT), with the Helsinki Polytechnic STADIA (FI), the NAFTA (BG) and the Latvian Academy of Culture (LV) as main partners. As the only training event of this type in Lithuania, the Summer Media Studio is highly valued by stakeholders.

The MEDIA Desk Lithuania has ceased to administer funding for individual training activities in the past two years. A number of stakeholders has bemoaned the loss of scholarships, and would like to see them brought back.

Table 0-21 MEDIA Training Funding

5.1.7 Funding for Sales Agents, Pilot projects, I2I Through its scheme for New Technologies, the MEDIA program continues to support pilot projects to ensure that the “latest developments on the information and communication technology markets are introduced and taken up by the players of the European audiovisual sector”. However, lacking a strong audiovisual industrial base, none of the comparator countries surveyed in this report has been able to win funding from the scheme, suggesting that it is firmly in the domain of larger film economies such as e.g.

France, Germany or Spain.

This holds also true for the Sales Agent support scheme, which ultimately is not relevant to smaller countries lacking operators that could apply for the scheme, as well as for the I2I funding scheme, that is only of limited value to film operators from small countries producing comparatively low budget films.

5.2 The MEDIA Desk The MEDIA Desk Lithuania was established in Vilnius in 2003. As the other MEDIA Desks, its central aim is to inform Lithuanian audiovisual professionals about support opportunities related to MEDIA, various funding strands and eligibility criteria. The MEDIA Desk encourages participation in training courses, festivals and markets and assists funding application by providing individual consultations and organizing informational seminars and training events.

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(Source: MEDIA Desk Lithuania, 2009)

A high proportion of the consulted stakeholders regularly attend the MEDIA Desk events, and have voiced their desire for the MEDIA Desk to continue and even expand this provision to include more training in the areas of scriptwriting, producing, co-producing, financing, distribution and marketing.

All of those consulted have stated that they are well informed about the MEDIA programme, either by being in regular, direct contact with the MEDIA Desk, or by getting information from its newsletter or online presence. Stakeholders viewed their level of information about European training programs such as SOURCES or EAVE as sufficient, and were satisfied with the level of information provided on training opportunities by the MEDIA Desk.

Nevertheless, two stakeholder groups that are currently not well reached by the information provision of the MEDIA Desk were identified. The first group is audiovisual professionals working in broadcasting, which could be the target of a tailored information campaign. The second group is representatives of the Lithuanian games industry, which are aware of the existence of the MEDIA funding but have so far been less involved in audiovisual industry development programmes. This category falls into two subgroups, the more established players, and a group of emerging talent interested in the field and considering starting up.

With regards to the first subgroup, a number of personal consultations with representatives could increase their knowledge of the available funding streams, which could

lead to a re-evaluation whether they want to pursue MEDIA funding or not. The second group, entrepreneurial talent considering starting up companies developing interactive works is more difficult to identify, but also stands the most to profit from the respective MEDIA funding schemes. This target group could be reached through an information campaign in association with specialized training providers and higher education institutions.

5.3 Barriers to Participate in MEDIA A number of stakeholders have suggested that MEDIA’s eligibility criteria are stopping them from applying for MEDIA funding. Particularly the condition that an applying production company should be at least a year old and needs to have a track record of at least one distributed film has been stated as an obstacle in the Lithuanian market by young and emerging producers.

A second barrier to access MEDIA development funding, concerns taxation in Lithuania. As indicated, the Lithuanian tax authority currently considers treating (television) pre-sales as a form of revenue, rather than as a source of finance. This misinterpretation of the pre-sales financing concept could be a major threat for producers applying for MEDIA broadcasting funding, essentially rendering the scheme obsolete. By providing information how other European tax authorities treat pre-sales, the MEDIA Desk Lithuania could support the domestic audiovisual industry.

Stakeholders in distribution have cited the necessity to complete an audit for each grant received as a barrier for applying for selective distribution funding. As indicated, the uncertainty how much and when funding will be awarded, as well as the organization of cost-intensive audits often does not warrant the hassle of applying for MEDIA funding for a small release.

Stakeholders who have not been successful in winning MEDIA funding have indicated that they might not be as interested in applying for funding in the future as before.

It will be important to discuss with unsuccessful applicants the quality of their application and ensure, perhaps through individual consultations, that the quality of submitted applications is raised further.

Finally, the current operation of national Lithuanian funding schemes, most notably the single annual deadline for funding decisions, as well as the lack of explicit support for MEDIA funded projects has been cited as a key obstacle by stakeholders for pursuing MEDIA funding.

5.4 Eurimages In May 2007, Lithuania has become the 33rd country to join Eurimages, the Council of Europe-supported film coproduction, distribution and exhibition fund. In 2008, Lithuania submitted 3 projects to Eurimages and gained support for 2 projects, UAB Tremora was awarded EUR 160,000 with is German partner for Low Lights (Artimos Šviesos), and the VILANIMOS FILMU STUDIJA and its Latvian partner Rija Films was awarded EUR 350,000 for the animation feature Zelta Zirgs (Golden Horse).

This represents a major success for the Lithuanian audiovisual industry, with Lithuania paying around EUR 150,000 in annual membership fees to Eurimages, but managing to receive about EUR 300,000 in funding. However it remains doubtful whether this success can be continued, as the lack of co-production projects from Lithuania means that in the second year of funding only one project was submitted for funding.

Case study: The Bug Trainer (Vabzdžių dresuotojas) –

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Lithuanian MEDIA success story threatened by cash flow problems and tax inspectorate The Bug Trainer is an international documentary film about puppeteer Ladislas Starewitch (1882 – 1965), who amazed early cinema audiences across Europe (and America) with his own, unique methods of animation, never disclosed to others. Considered to be a genius, he was raised in Kaunas, working later in his life in France and Russia. The producer and director of The Bug Trainer, Rasa Miškinytė, wanted to introduce Starewitch to modern audiences for a long time, thinking about the project for almost 9 years until MEDIA funding finally enabled her to develop the project through the Eurodoc program in 2003-2004. Winning MEDIA Development funding for The Bug Trainer allowed her to secure support from the Lithuanian Ministry of Culture and enabled her to attract international co-production partners and broadcasters. MEDIA TV Distribution completed MEDIA’s support for the film. The film has to date been screened at festivals in Poland, Latvia, Russia, Germany, Taiwan, Estonia, Iran, Bulgaria, the UK and has been broadcasted in Japan, Sweden and the Netherlands.

Besides the success of having the film made and showcasing Lithuanian talent and history to worldwide audiences, The Bug Trainer has however left its producer struggling and in severe financial distress, for mainly two reasons.

Firstly, as Lithuanian banks have not been willing to provide loans to the project even upon providing contracts from MEDIA, the Ministry of Culture of the Republic of Lithuania, as well as letters of commitment from broadcasters, the producer had to temporarily cash flow the production with her own money. The situation has been exacerbated by MEDIA funding being released in instalments, with 30% of funding awarded upon signature of the contract, 20% after delivery of an Interim Report and the remaining 50% being proving upon delivery of the Final Report. In case of The Bug Trainer, difficulties with co-producers have meant that although the film has been completed, this final report has not yet been signed off, putting the producer in financial distress and resulting in deferred payments for service providers and the people involved in the film production. A service (e.g. provided by a film centre) providing information to involved banks about the risks and opportunities of film finance could help to resolve such problems in the future (as MEDIA funding is guaranteed to the project, banks should have recognised that credit default of the producer is highly unlikely and provided the loan).

The second financial threat to The Bug Trainer comes from the Lithuanian Tax Inspectorate, who has, in an unusual move, categorized pre-sales of films as a taxable income, rather than as the source of production finance they are. As the Bug Trainer is the first Lithuanian project of its kind involving complex MEDIA financing structures, it can be assumed that the Lithuanian tax authorities will change their standpoint and adopt European best practice following this case. However, without the institutional support that e.g. a Film Centre can offer to inform local authorities about the complexities of film financing, it is left to a single, pioneering producer to represent the interests of the whole industry without financial assistance.

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7 Obtaining bank loans to cashflow productions can be a major obstacle for smaller audiovisual operators, even though they have obtained guarantees

from distributors and government funders. As the problem can be expected to intensify with the tightening of credit markets, a government loan assistance programme for the audiovisual sector might become necessary.

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6. Findings and Recommendations 6.1 Lithuanian Operators’ Participation in EU Funding Programmes Lithuanian operators’ participation in MEDIA and Eurimages has benefited the sector in several ways, including the development and production of a number of successful projects, a professionalisation of the industry and an uptake of EU films’ market share in Lithuanian cinemas.

However, as highlighted in the report, Lithuanian audiovisual policy does not currently facilitate co-productions sufficiently, and does not encourage producers to submit applications to European funding schemes. While in other European countries productions that have gained MEDIA support are often treated favourably in terms of accessing co-funding of national schemes, this is not always the case in Lithuania.

A system that would provide an incentive for producers to pursue co-productions and/or to apply for MEDIA funding; and a system that takes the complexities of finding and working with international partners into consideration (e.g. by addressing the issue of the single funding deadline) would create further public value for Lithuania, by

• providing learning and knowledge exchange opportunities for Lithuanian audiovisual professionals

• providing opportunities to raise Lithuania’s international profile

• encouraging producers to take better advantage of the funding opportunities provided by MEDIA

• by enabling producers to raise more finance and foreign investment through co-production and therefore increasing production values and competitiveness Addressing these points should be a key priority for the Lithuanian audiovisual sector. If the Lithuanian audiovisual industry is to grow, its national support framework has to be aligned to make complementary funding on European level more easily accessible to its operators. Likewise, with support from the MEDIA Desk Lithuania firmly in place, Lithuanian audiovisual professionals have little excuse not to step up their ambitions and develop more successful applications for MEDIA development funding.

6.2 The Need for an Audiovisual Skills and Talent Strategy In the past two decades, the entrepreneurial spirit of its film professionals has been driving the Lithuanian film industry. In order to take the ambition developed by these filmmakers further, it is necessary for Lithuania to develop a comprehensive skills and talent strategy, which also takes into account emerging young professionals.

Firstly, filmmakers need to be given access to appropriate training opportunities to develop their talent and craft.

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None of the consulted stakeholders has been completely satisfied with the current training provision in Lithuania.

This suggests that the Lithuanian audiovisual industry is in need of a strategy that addresses the quality and/or the lack of training opportunities. The success and high demand for MEDIA’s training activities underlines this point.

A governing body, such as a film centre, could be charged with the task of collecting information on skills gaps in the industry, and allocate funding to the most pressing training areas - such as scriptwriting. The Lithuanian Music and Theatre Academy should be encouraged to examine its training provision and structure in relation to the real demands of the sector. More international partnerships with other film schools should be welcomed.

In addition to these potentially large scale changes, a number of smaller measures could be adopted to address the perceived lack of quality scripts, such as:

• Making a number of core texts on scriptwriting technique available in the Lithuanian language.

• Assisting Lithuanian producers to evaluate the quality of scripts, if necessary by helping them to gain access to script development consultants abroad in the short run.

• Creating an online resource for the audiovisual industry, that can point Lithuanian filmmakers to the plethora of material on scriptwriting craft online.

• Raising awareness in the Lithuanian audiovisual industry about drama and scriptwriting as a distinct craft from directing; questioning the predominance of writer/ directors in the Lithuanian audiovisual industry to encourage professionalisation of both disciplines

• Placing a higher emphasis on script development in the development process.

•Stronger collaboration with training and HE institutions involved in audiovisual sector in the Baltic Countries, such as the Baltic Film and Media School in Tallinn.

Furthermore, film professionals should be encouraged to participate in MEDIA supported training programs such as SOURCES and EAVE. Consultations showed that those professionals that have been able to receive support for such participation have considerably benefited and developed a more professional and outward looking approach to developing their projects.

Finally, young filmmakers need to be given the opportunity to showcase and develop their talent. Lithuania currently lacks a national funding scheme for emerging, firsttime and second-time directors and producers – its system favours established directors and incumbent production companies with strong networks. A review of how funding is allocated with respect to providing opportunities for

young filmmakers is therefore needed, to avoid a potential “brain drain” of Lithuanian talent, anticipated by a number of stakeholders.

6.3 Rethinking Lithuania’s Audiovisual Strategy To develop a more sustainable and successful audiovisual sector that caters for audience preferences in Lithuania and at the same time promotes the country’s creative brand in Europe and abroad, the country needs to rethink its approach to supporting the sector. Such approach should be more systemic and encompass considerations concerning cultural and social matters as well as more economic considerations, which touch upon trade, tourism, as well as the sector’s connections with other creative industries.

Lithuania’s film and games sectors can be important promoters of creativity and employment and this has so far been too little reflected in audiovisual strategies.

A number of factors’ should be taken into account when developing such strategy.

First, it needs to be acknowledged that if Lithuania wants to maintain an audiovisual industry some form of government assistance will be required, as one of Lithuanian audiovisual companies’ fates is to primarily operate in a small langue market. However, as has been continuously argued throughout this report, it is vital for a small country with such distinctive cultural and linguistic background to promote ones audiovisual culture and to encourage the creation of stories that lay at the heart of Lithuanian every day life. This rationale underpins state intervention in the audiovisual industry in most European Member States and contributes to Europe’s unique creativity and its ability to innovate.

However, we believe that the government support can be optimised so as to increase the market share of Lithuanian films.

The Lithuanian box office has undergone a period of rapid growth in the past few years, and is set for future growth with a number of new cinemas planned to open in the near future. However, Lithuanian films are currently not able to capture a substantial share of this growing market, partly due to the low number of films produced annually, partly – as some stakeholders have criticized – because some films are not intended to be viewed by wider audiences in the first place. As a result, little of the money spent on cinema tickets by Lithuanian consumers is retained in the country.

Yet, as the success of some Lithuanian language films and that of dubbed animations has shown, there is a strong demand for Lithuanian language product that is currently not served by the industry. Audiovisual policy should thus 8

enable local film companies to meet this demand and to support the production and distribution of high-quality content covering stories that matter to Lithuanian audiences’ lives (as the most successful films show, it is perfectly possible to fulfil both criteria). In order to ensure that filmmakers keep the audience in mind, more emphasis should be placed on a marketing and distribution plan of projects in the funding selection process.8 On the demand side, and as suggested in the previous section, audiences for Lithuanian films could be further increased by facilitating film literacy among citizens and especially consumers of a young age, beginning with a strategy for film education in schools. On a different level, introducing a support scheme for the distribution of art house films should be considered as an option to further increase audience demand for films of European and local origin.

Making the economic case for the Lithuanian audiovisual sector, the question should also be addressed as to whether the current size of the industry is viable as it is, and whether it can achieve what is expected of it with the current level of funding. As anecdotal evidence collected for this study suggests, the current level of funding does not facilitate efficient, sustainable industry structures. There is neither enough throughput to develop and maintain a high skilled production base creating competitive products, nor is there enough competitive products to build and sustain the markets necessary for such products. In addition, the malpractice of having to fund last years film projects with this years funds means that the real increase in funding that has been given by the Lithuanian government to the industry in the past few years has yet to trickle down to current productions.

While this report does not want to raise unrealistic expectations, we believe that on this basis an increase in public funding can be expected to significantly improve the currently very low domestic market share of Lithuanian films.

This in turn would increase commercial revenues for the audiovisual sector, and also reduce the deficit in audiovisual trade, albeit not to a huge degree.9 In total terms, increasing support for audiovisual companies in Lithuania does not necessarily translate into a loss of government revenues as it would be balanced by new employment and turnover for the audiovisual sector and related industries.

Finally, Lithuania’s attractiveness as a location for foreign production shooting could be increased by setting up a “Film-in-Lithuania” website, listing the advantages of shooting in the country, representing the industry and providing a directory of contacts for production and location scouting. The majority of countries interested in attracting foreign productions (e.g. Estonia) have such as a first-point-of-contact in place, a cost efficient measure to attract outside investment, typically operated by the national film centre.

An alternative would be the introduction of an automatic film funding scheme that rewards success.

9 In a medium case scenario, a sufficient funding increase could increase domestic market share to 5% of box office, resulting in an additional EUR 300.000 being injected into

the audiovisual sector through box office takings, while reducing trade deficit by the same amount.

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As regards the development of Lithuania’s games sector, the countries’ renewed audiovisual strategy should consider reaching out to this new sector, which continues to look at significant growth cycles and is characterised by an entrepreneurial spirit, thereby incorporating two important determinants for future success.

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Conclusion A number of stakeholders have voiced concerns that culture will be marginalised as a result of the current financial crisis, fearing cuts in public support for the sector for years to come. Maintaining a lively domestic cultural sphere, as this report suggests, is key to maintaining creative, democratic and dynamic societies – especially in relatively small countries such as Lithuania and especially in times of turbulent economic and social transformations. Moreover, the benefits of a lively film sector are both cultural as well

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as economic. Film is a high value added economic activity, and a well-funded, strong domestic audiovisual industry can be an excellent springboard for facilitating economic growth and innovation in other sectors of the economy.

As illustrated by the example of Finland at the beginning of this report, the current financial crisis should, therefore, not be seen as a factor that calls public spending on the audiovisual sector into question, but as an additional reason for its support.

Appendices Case Studies of Film Tourism Nord Pas de Calais: Bienvenue chez les Ch’tis The French film Bienvenue chez les Ch’tis, supported by CRRAV, was released in February 2008. The film, directed

by Dany Boon, was the second biggest hit in the history of the French Box Office. The success of the film had an immediate impact on the image of the Nord-Pas de Calais region of France, since most of the film takes place here. The number of tourists in the region increased by 30-50%. The main beneficiaries are the cities of French Flanders, which has noticed an increase of around 50% in the number of French visitors from outside the region.

Up to July 2008, 45,000 people had visited the town of Bergues, which is twice the amount of visitors throughout the previous year. The number of visits on the website of the city of Bergues (www.bergues.fr) tripled since the the-

atrical release of film.10 Tourists were also highly interested in Armentières, where the director of the film, Dany Boon was born.

Following the huge success of the film, interest in the cheese Maroilles was such that supermarkets ran out of stock.

However, the film also had a strong impact on social cohesion by giving local people a sense of pride in their “Ch’ti” identity. The film played a large role in stimulating a sense of identity and boosting confidence of inhabitants of the region. According to a survey11, 90% of local people saw the film, 93% liked it and 70% thought the region’s image had improved.

Film i Skåne: Wallander, a Swedish detective story increasing regional tourism In 2004, the production of 13 full-length feature films about the life of Inspector Wallander was launched. The script was based on the best-selling detective stories written by Henning Mankell. The films were shot in and around Ystad, the hometown of Inspector Wallander.

Rapidly, the close link between the popular novels and the city became apparent to viewers, particularly those in Germany. Indeed, during the shooting of the 13 Wallander films, a lot of media coverage in Germany was related to Inspector Wallander. German viewers thus realised that Inspector Wallander’s hometown really existed and that it was possible to “drink a beer or two in the same bars and cafés as the main character.” 12 The immediate impact of this phenomenon was the increase of German tourists in the region by approximately 30%, the head of the Ystad tourist department revealed. Another analysis related to the marketing impact for Skåne also concluded that film, as a marketing tool, promoted regional tourism. The analysis concluded that the marketing of the Wallander movies resulted in an increase in tourism of 1-3% each year or by 4-9% between 2006 and 2008. In terms of commercial guest-nights the increase was evaluated at between 200,000 and 500,000 and the overall economic value of the increase in tourism was EUR 30-75 million between 2006 and 2008.

10 http://www.lavoixdunord.fr/Region/actualite/Secteur_Region/2008/07/30/article_tourisme-bergues-continuea-profiter-dela-ch-ti.shtml 11 Survey by TNS Sofres and “La Voix du Nord” 27 January 2009 – 800 persons were consulted.

12

Korsås C.-J., “FiIm – a creative industry for regional growth and development”, The City of Ystad, Skåne, Sweden

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Additional MEDIA Data Table 0-22 List of projects awarded MEDIA single project development funding

Table 0-23 Total MEDIA Funding awarded to Lithuania 2003 – 2008

Table 0-24 List of distributors awarded MEDIA selective distribution funding

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Summary of the Lithuanian Film Act The Film Act of 5 March 2002 (No. IX-752) is designed to lay down provisions concerning national films and to regulate the distribution and broadcast of Lithuanian and foreign films.

The Act begins by defining terms such as “co-production”, “producer” and “film production”. It also lays down the criteria for determining whether a production is a “national film”. For example, it should be taken into account whether the content of the film reflects the life, culture or traditions of the country or whether the principal protagonists are Lithuanian citizens. Under certain circumstances, co-productions with other countries are considered as national films and it is stipulated that a film can only count as a “national film” if it is filmed in Lithuanian (although other lan-

guages are permitted if they are contained in the script).

The Act also requires the creation of an institution responsible for its implementation and for tasks such as preparing draft legislation and managing the film register. It also makes provisions for the establishment of a Film Council, which is meant to have an advisory function.

A separate chapter is devoted to film financing. Sources of funding include state and municipal funds, national film aid programmes, etc. Finally, the Act contains provisions on the protection of the cinematographic heritage.

(Source: European Audiovisual Observatory, 2009)

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List of Consultations Conducted:

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Sources Australian Film Commission (2006). The economic contribution of a film project – A Guide to Issues and Practice in the Use of Multipliers.”

Baltic Films (2009). Facts and Figures.

DFI (2007). Think Tank on European Film and Film Policy. The Copenhagen Report. Copenhagen: DFI. Estonian Film Foundation (2008). Film Distribution 2007. [online] http://www.efsa.ee/public/files/Film%20distribution%202007.pdf [retrieved 20 April 2009].

European Audiovisual Observatory (2008a). Yearbook 2008.

European Audiovisual Observatory (2008b).Martin Kanzler, M., Newman-Baudais, S. and A. Lange (2008). The circulation of European co-productions and entirely national films in Europe 2001 to 2007. Report prepared for the Council of Europe Film Policy Forum co-organised by the Council of Europe and the Polish Film Institute Kraków, 11-13 September 2008.

European Audiovisual Observatory (2008c). Focus 2008: World Film Market Trends.

Finnish Film Foundation (2009) Ministry of Education supports the Finnish film and audiovisual industry with extra funding of 3 Million Euro. [online] http://www.ses.fi [retrieved 20 April 2009].

Film Hungary (2007). The new film tax. [online] http://filminhungary.com/object.ed29a811-0146-4ef1-81ce-202d4be8f428.ivy [retrieved January 17, 2007] MEDIA Program website, http://ec.europa.eu/information_society/media/index_fr.htm MEDIA Plus and MEDIA Training final evaluation – 2007 Ryan, P. (2003). The Creative Economy: Creative Clusters Key to Knowledge-Based Economy? Marubeni Economic Report Tokyo: Marubeni Corporation Economic Research Institute.

(Strategics) Tavares, R. J. (Eds) (2007). The Insider’s Guide to Film Financing & Film Marketing. Luxembourg: Strategics.

UNESCO (2005). Convention on the Protection and Promotion of the Diversity of Cultural Expressions. Paris, 20 October 2005. [online] http://unesdoc.unesco.org/images/0014/001429/142919e.pdf [retrieved August 2008]

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Notes

INFORMATION ABOUT AUDIOVISUAL SUPPORT PROGRAMME „MEDIA”: • MEDIA http://ec.europa.eu/information_society/media/index_en.htm • MEDIA Desk Lietuva www.mediadesklithuania.eu • EACEA http://eacea.ec.europa.eu/index.html 62

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