Spanish Producers Forced to Embrace an Uncertain Future

"Los Ojos de Julia"

Pushed by leaner times and two new film laws that have substantially changed local production guidelines, Spain's film industry is in the midst of an overhaul that could drastically change how financing for film projects will be assembled in the future.

Thanks to the new rules, which went into effect in May, producers can no longer finance movies by inflating figures and securing bottomless subsidies, complemented by handsome TV rights deals. The Culture Ministry's order forces producers to decide whether a film will be a low-budget art pic or a commercially viable title, with a point system for festival awards, box office revenue and new directors.

In practice this means smaller films can be almost fully financed between subsidies -- capped at $1.4 million -- and prebuys from pubcaster Television Espanola, in conjunction with backing from regional broadcasters.

For bigger films, however, projects will be evaluated based on market needs, meaning free TV broadcasters like Television Espanola, Telecinco, Antena 3 and Mediapro are still the model of choice for commercially minded producers in need of financing.

"I don't see any downside to co-producing with a broadcaster," says Vaca Films producer Emma Lustres, whose co-production with Morena Films and Telcinco, "Cell 211," was a hit at the local box office last year and whose "Even the Rain" is Spain's bid for the foreign-language Oscar. "Not only do they contribute a great deal to the financing of the film and -- and in the case of Telecinco offer much on the creative level and with respect to knowledge of the market -- but their promotional machinery and support of the product are crucial for success."

While broadcasters, obliged to invest 5% of revenues in local production, see themselves as producers and not financiers per se, they nevertheless have a pool of producers they regularly turn to for projects. The biggest and most ambitious of the broadcasters' film divisions is Telecinco Cinema, which produced three of Spain's top-grossing Spanish films in 2009, and is known primarily for big-budget extravaganzas like Guillermo del Toro's "Pan's Labyrinth" or Alejandro Amenabar's "Agora."

Telecinco Group CEO Paolo Vasile says the new rules have led to some conflicting opinions about how money will be invested.

"The law forces us to co-produce with independent producers that don't have the ability to finance their films," he says. "Many of the young producers have a lot of talent and we're happy to work with them. [But] the 5% law has generated confusion. Producers were showing up as if they were going to a bank. That's not the way Telecinco operates."

Still, some independent producers balk at the broadcasters' self-proclaimed role as producers, complaining that their creativity is compromised by television financing.

"I like to decide to be in the creative process of a film from the idea [stage], but the reality is that we are becoming seekers of money," says Gerardo Herrero, producer of this year's foreign-language Oscar winner "The Secret in Their Eyes" and Venice's award-winning "The Last Circus." "We depend too much on the [TV] financing. For a few years now, it's become very complicated. Too much time is lost in bureaucracy. You depend on the taste and whim of too many people."

For that reason, pubcaster

TVE is considered the hope for local indie producers because it doesn't take equity and just buys the broadcast rights.

"Our goal is to participate in titles with the potential to become successful film events," says TVE head of film Eva Cebrian. "But above all, we need films that can cover other needs, films that have enough quality and that can help us fulfill our objective as a public service."

To that end, the pubcaster will help finance 44 films this year -- 11 more than last year -- including Pedro Almodovar's "The Skin I Inhabit," Chema de la Pena's "23-F," Jaume Balaguero's "Sleep Tight" and Alex de la Iglesia's "A Lucky Day."

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"Free TV presales are always needed," adds LaZona producer Ignacio Salazar-Simpson. "It has become almost impossible to finance a production without TV backing up the project. Pay TV presales are becoming harder to obtain and weigh less in the finance plan, whereas international presales are gaining importance and will probably be a must in the future.

Indeed, these days foreign financing through international sales is the holy grail of Spanish producers' financing strategy. Recent examples of how Spaniards make it work include Bayona's "The Impossible," which has a presale deal with Summit Entertainment; Rodrigo Cortes' thriller "Buried," which sold to Lionsgate; and Guillem Morales' $6.5 million "Julia's Eyes," which benefits from exec producer del Toro's first-look deal with Universal.

Elsewhere, a third financing model exists in the form of a special interest 18% tax break designed to attract private investment in film.

While Arcadia Motion Pictures, Morena Films and LaZona Films are spearheading the sector's ability to tap into private sector financing, Spanish banks are skittish about chipping in. The Official Credit Institute is backing only 14 loans in the first half of the year, for instance. As a result, producers are increasingly turning to individuals and medium-size companies.

"It's easier to find individual investors since their tax rate is higher and the decision making is quicker, companies need time to convince their board, have a lower tax rate and have more means of obtaining tax incentives," Salazar-Simpson says. "The greatest challenge is finding the private investors."

But while the production sector sees the 18% tax incentive as potentially promising in the long run, the lingering effects of the global economic meltdown means the time isn't exactly ideal to be looking for private investment.

"The number of profitable companies that have to pay taxes has been reduced drastically this year due to the economic crisis," Morena's Juan Gordon says, adding that attracting private investors "takes time to establish a trust-based relationship between the two parties."

Meanwhile, Spain's producers lobby, FAPAE, is negotiating with the country's biggest company -- Spanish telecom giant Telefonica -- to create a film investment fund that would invest tens of millions of dollars in the local film industry and offer the company a tax break. Additionally, Telefonica would bolster its troves of content for its various windows.

"The idea is to use the big companies that are present around the world, that at this time traditional advertising won't serve their purposes," FAPAE president Pedro Perez says. "They can use films or other programs as vehicles to reach viewers in a different way than they are right now."

While the effectiveness of that strategy remains to be seen, the future of Spain's production sector is going to depend on how willing local producers are to break with the status quo.

"We're trying out new ways of financing," Perez says. "Instead of looking to the government, we're looking to ourselves." 

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