Publisher The MEDIA Desk Lithuania, 2009 Vilnius Reproduction is authorised provided the source is acknowledged

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2 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

3 INFORMATION ON THE EUROPEAN AUDIOVISUAL SUPPORT PROGRAMME MEDIA: The website of the European Commission related to MEDIA: The website of the EACEA The website of the MEDIA Desk Lithuania:

4 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

5 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 The Exhibition Sector The Lithuanian Box Office Film Festivals 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 Single Project Development Funding Slate Funding and Funding for Interactive Works Broadcasting Funding Distribution Festivals/ Exhibition/ Promotion Training 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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8 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. 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. 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 particular 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. 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. 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 ME- DIA Programme and Eurimages This short study evaluates the impact of the participation of Lithuania in different support strands of the ME- DIA 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. 8

9 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 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 ME- DIA 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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12 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 ( ) 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. 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. 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

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16 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 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 16

17 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 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 ( ). 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-pud- 1 For a summary see Hudson and Ritchie,

18 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 distributors 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,

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22 4. The State of the Lithuanian Audiovisual Industry 4.1 Comparative Overview 4.2 The Lithuanian Cinema Market The Exhibition Sector (Sources: Baltic Films, 2009; SFI, 2009; Cineuropa, 2009) 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 million in 2004 to million in Growth of admission slowed down in 2008, increasing only marginally by +1,14% to million. The 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). 22

23 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 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 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 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 (Source: Baltic Films, 2009; European Audiovisual Observatory, 2008) a significantly higher number of cinema admissions per capita (2.5) than the national average of 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 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

24 Table 0-4 Number of Films Released in Lithuanian Theatres (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 independent 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) 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. (Source: Baltic Films, 2009) 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. 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 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 (around $100,000), however only 37% of films earned more than 24

25 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 Lithuanian films taking only 2.8% of domestic box office in 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. 25

26 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, Lithuanian 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 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 (Source: Bank of Lithuania, 2009) 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 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 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- 26

27 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 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 therefore 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. 3 In 2007 average budgets in the UK were EUR 10 million, in France EUR 5.6 million. 27

28 Table 0-7 charts the development of state support for the Lithuanian film industry between Table 0-7 Development of Annual State Support for the Film Industry in Lithuania 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 Table 0-8 Number of Feature Films Produced 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 (Source: European Audiovisual Observatory, 2008) 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 Sources: Cineuropa, 2009; Baltic Films, 2009; Estonian Film Foundation, 2009; Box Office MOJO, This list does not include all funding categories.

29 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. 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 principal 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. 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