Opinion on the draft decree on audiovisual production

After deliberation, the French Superior Audiovisual Council (Conseil supérieur de l'audiovisuel) has been asked to give its opinion, in accordance with the amended law no. 86-1067 of September 30, 1986 on freedom of communication: Based on the constitutional principles governing freedom of communication, and in accordance with the missions entrusted to it by the law of September 30, 1986, as amended in article 1, the French Superior Audiovisual Council has been guided in formulating this opinion by the constant concern to ensure the improvement of program quality and diversity, the development of national audiovisual production and creation, and the exercise of free competition, while maintaining as a priority objective the guarantee of viewers' freedom of choice.
The Conseil takes note of the objectives set by the legislator to encourage the development of a dynamic and diversified production market, and to promote the independence of audiovisual and cinematic production from broadcasters. He is convinced of the need to improve the circulation and exhibition of works and to develop a second market. He notes that the draft legislation, which gives concrete form to the principles set out in the law, contains advances in this direction.

I-Observations

Before examining the proposed schemes, the Board would like to make a number of preliminary observations.

1) It notes that the fact that the draft decrees relating to the obligations of the various categories of broadcasters in terms of contribution to audiovisual and cinematic production have been staggered over time hinders the economic and legal readability and perspective of the draft submitted for opinion, which concerns only publishers of television services broadcast free-to-air by terrestrial hertzian means in analog mode. As a result, the Conseil does not have all the information it needs to form a coherent overall view of the scheme implemented in application of 3° of article 27 and article 71 of the amended law of September 30, 1986. As a result, it is unable to assess the full scope of the project, which is summoned to form the first element of a more global managerial framework governing relations between all producers and all television service editors.

2. The Conseil notes the highly detailed nature of the draft legislation, despite the fact that the first paragraph of article 27 of the law refers to the decree only the setting of "general principles defining the obligations" concerning the contribution of service editors to the development of production, and not the detailed definition of these obligations. It also considers that the complexity, even sophistication, of the draft decree risks provoking, in addition to certain unintended side-effects, the development of practices that circumvent the obligations. In addition, the implementation and control of some of the schemes will be made more difficult.

3. The Council suggests that, beyond the adoption of the draft decree, a study be undertaken to compare current regulations and their effects in the main European countries, and to simplify the French scheme.

4 It would like the decree to make more room for schemes that ensure the flexibility and rapid adaptation required to keep pace with developments in the sector. From this point of view, the agreements signed with private broadcasters, as well as the terms of reference or contracts of objectives and means for public broadcasters, seem more appropriate. The Conseil recalls that it already expressed this position in its opinion of April 12, 1999 on the draft legislation amending law no. 86-1067 of September 30, 1986, as amended, concerning obligations relating to the contribution of service editors to the development of cinematic and audiovisual production.

5. The Conseil observes that the regulatory power leaves little scope for the conclusion of inter-professional agreements between broadcasters and producers, even though agreements between certain broadcasters and professional organizations have already been negotiated. On certain points, the draft decree could define general obligations, leaving the detailed arrangements to interprofessional negotiations.

6. The Conseil considers that the new production obligations for service editors set out in the draft decree can only be fully effective in strengthening national production capacities if they are accompanied by resolute action on the part of the players concerned to curb the sharp rise in certain aspects of the production costs of works, which affect the competitiveness of national production already handicapped by the small size of the French-speaking market.

7. More generally, the Conseil considers that the amount of broadcaster investment in production is also conditioned by two determining factors with repercussions on their operating accounts. On the one hand, the release of new resources to remedy the chronic inadequacy of the various means of financing national broadcasters could mechanically generate additional investment in audiovisual and cinematic production. On the other hand, the leeway that these national broadcasters could free up with regard to other operating costs, in particular the rights to show certain sporting events, would contribute to improving the financing of programs with unchanged overall revenues.

II-Advice on the proposed schemes

The Council makes the following comments on the various measures proposed by the draft decree:

1. Basis of obligations
With regard to the definition of the base used to calculate broadcasters' annual audiovisual and cinematic production obligations, the Conseil de la Cinématographie considers it inappropriate to cap the deduction of advertising management costs, on the grounds of alignment with the system that prevails for the tax and levy on television services that feed the support account managed by the Centre national de la cinématographie. This alignment entails the risk of assimilating the broadcaster's production obligation to a tax-type obligation, and constitutes an additional indirect burden on the obligation. Consequently, the Council notices that the deduction of actual production costs should be maintained.
It also notes that the effect of raising to 14 million the population threshold for deducting programming costs for regional programs will give a competitive advantage to any channel spending money in the Paris region.

2. Service editors' contribution to cinematic production
2.1. The Conseil takes note of the relatively moderate 0.2% increase in service editors' contribution to cinematic production, which is likely to boost the sector's economy. However, in view of the objective of limiting the dependency links between producers and broadcasters, it has reservations about the appropriateness of the compulsory allocation of this supplement to the film distribution sector. The Conseil suggests that service editors be left free to decide whether to allocate this supplement to production or distribution, which would be entirely in line with the provisions of article 27, paragraph 3 of the law, which opens up this possibility of aid to distribution without making it an obligation.
With regard to the implementation of this distribution contribution, the Conseil considers that, in the absence of details on the breakdown conditions for payments made to the fund provided for in 2° of article 7, it is not in a position to assess whether they are in line with the objective pursued by the legislator. Nevertheless, it wishes to emphasize the concern expressed by broadcasters that their new obligations to distributors should not detract from their business rationale, as well as the demand from certain producers to be directly involved in contracts between broadcasters and distributors.
2.2. Article 6, which lays down the criteria for taking into account the amounts invested by service editors in cinematic production, introduces a new criterion, relating to payment deadlines for co-production and on-air shares. Such a criterion would appear to infringe contractual freedom unjustifiably, in view of the legislative empowerment given to the regulatory authority by article 27, paragraph 3 of the Act, which makes provision for the decree to set "the general principles defining the obligations concerning [...] the contribution of service editors to the development of production [...]". The only legal basis for such a provision would be article 27, paragraph 4, which allows for "the acquisition of diffusion rights" to be regulated by decree. However, this is not the purpose of the present decree.
2.3 Finally, in accordance with the scheme set out in article 71 of the law, and following the example of what already exists for audiovisual production, independence criteria linked to the work are defined in article 8.
The Conseil approves of the objectives underlying this new scheme, but questions the possible effects of some of the measures adopted. In particular, the limitation of mandates is the very type of measure whose consequences are impossible to assess in the absence of a general vision of the overall scheme, which may make provision for specific rules for each category of broadcaster. In this respect, the Conseil will ensure that the principle of equal treatment is respected, and that any risk of distortion of competition is avoided, when examining future draft decrees concerning other categories of broadcaster.

3. Service editors' contribution to audiovisual production
The Conseil approves the objectives of developing broadcaster financing of audiovisual production and fostering the development of a diversified fabric of creative companies, within which an independent sector should be preserved. It points out, however, that while cyclical developments in the advertising market and a significant increase in public funding have in the past led to an increase in the base on which the obligations of free-to-air channels are calculated, and hence their financing of production, there is no guarantee that this development will continue over the next few years.

- Rules governing the overall obligations of channels
The Conseil notes that the 1% increase, spread over two years, in the channels' annual contribution obligation, taking it to 16% of the previous year's sales, has been partially and mechanically offset by a broadening of the expenses taken into account in the channels' audiovisual production obligations. In addition to pre-purchases, purchases and co-production shares, these can now include rights buy-outs, as well as expenditure on writing and development work.
With regard to the obligation to broadcast 120 hours of original French-language or European works during prime time, the Conseil fully endorses the more flexible measure allowing several original French-language or European works to be shown successively during the first half of the evening, up to a maximum of 180 minutes per evening. It sees this as a positive incentive to diversify cultural expression and expose different formats of works, particularly 52- and 26-minute works, which are more likely to find their place on international program markets.
On the other hand, while the Conseil approves the principle of giving broadcasters the choice of subscribing to a production commitment of over 16%, it notes that the optional system is now becoming less appealing, insofar as most of the previous compensatory measures have disappeared or been integrated into the general system. It therefore recommends that, in return for an increase in a broadcaster's rate of investment in audiovisual production above 16%, the amount of expenditure earmarked for independent production should not be correspondingly and proportionally increased, and should not exceed the amount made provision for under the general regime.
Concerned to ensure program diversity and the development of audiovisual creation, the Conseil regrets that no measure has been taken to guarantee a minimum annual volume of orders for new works, a measure that has always been at the heart of the scheme designed to encourage creation. Consequently, it suggests introducing the principle of a provision of this kind in the draft decree, the terms of which would be defined in the agreements of private channels and the mission and responsibility specifications or objectives and means contracts of public channels.

- Rules governing independent audiovisual production
The French Superior Audiovisual Council fully subscribes to the objectives set out in article 71 of the amended law of September 30, to promote the development of a strong audiovisual production sector, independent of broadcasters, in order to ensure the diversity and plurality of the program supply.
The Conseil considers that defining the criteria and regime for independent production is an essential element in the search for a new balance between producers and broadcasters.
It notes that the draft decree adopts a relative definition of production company independence, which must be assessed for a given work in relation to the commissioning broadcaster alone, and not in absolute terms in relation to any television service editor. This concept of relative independence enables a producer who comes under the control of a service editor to claim independence when producing for another broadcaster. This concept, formulated in articles 27 and 71 of the law of September 30, 1986, in the version resulting from the law of August 1, 2000, which was already included in decree no. 90-67 of January 17, 1990, now has far more far-reaching consequences for broadcasters, both in view of the upheavals that have affected the media universe since that date, and in view of the new constraints imposed by the draft decree in favor of independent production.
The French Superior Audiovisual Council considers that this definition runs the risk of encouraging the development of complex cross-interests between broadcasters and producers, resulting in partial and tolerated vertical integration, without guaranteeing the survival of truly independent production companies vis-à-vis all service editors. In the long term, this could pose a problem in terms of equal treatment for the various players operating on this market.
The Conseil is aware that the current context of globalization and increased international competition requires the mobilization of substantial resources for ambitious production projects, particularly in the context of international co-productions. However, the essential development of solid producers, backed by large groups within a framework of vertical integration, must not at any price shut down the existence of small independent companies, which are a breeding ground for vitality, creativity and diversity in the production field.
The Conseil recalls that the notion of independence adopted by the draft decree must be consistent with the legal manager set out in recital 31 and article 5 of the amended European Television without Frontiers Directive of October 3, 1989, which seems to favor an absolute definition of the independence of the production company from any service editor. It is nevertheless aware of the developments likely to take place at European level on the issue of independent production as part of the process of re-examining this directive initiated by the European Commission.
Lastly, the Council notes that, in an era of network and content convergence, the independence of producers should also be assessed in the future, not only with regard to any national or European television service editor on traditional media, but also with regard to operators responsible for distributing these services on new digital networks.

- Scope of rights assigned
The Conseil approves the criteria for assessing the independence of the work, referring to the reduction in the duration of rights and the number of diffusions, the principle of setting a price for each rerun and separate contracts for secondary exploitation, and the elimination of co-production shares. It considers that these measures can significantly improve financing conditions for independent production and encourage the development of a second market for works.

- Specific production obligations
The Conseil notes that it is still possible to set specific production obligations for each genre of work, in particular drama, documentary, animation and live performance, in agreements and specifications, both in terms of the overall amount of the obligation and the proportion reserved for independent production. It is indeed important to safeguard broadcasters' programming flexibility, which guarantees differentiated editorial lines, and hence program diversity. The Conseil suggests that, for public broadcasters, any such obligations should be negotiated in their contracts of objectives and means, rather than set out in their mission statements.

- Proposals for technical modifications
The Conseil wishes to draw the Government's attention to the need to also mention digital mode in 2° of I of article 11 of the draft decree, in addition to the analog mode concerned by the rights required to operate the service broadcast by terrestrial hertzian means.
It also proposes the following changes, designed to take greater account of the reality of contractual practices between producers and broadcasters:
- for the purposes of calculating the period of validity of the rights provided for in 1° of I of article 11, the date of delivery of the work should be replaced by the date of acceptance of the material to which the contracts refer;
- with regard to the procedures for allocating expenditure to a given financial year, as set out in article 13, the Council suggests the following amendment: "The amounts invested under 1°, 2° and 4° of III of article 10 are taken into account during the financial year in question, for the total amount of each work included in the contract, once the service editor has begun to fulfill his financial commitment".

4. Transitional and final provisions
The Board considers that the transitional and final provisions may give rise to certain legal or practical difficulties.
For example, the abrogation by the present decree of decree no. 90-67 of January 17, 1990 will remove the regulatory basis for the definitions adopted for the obligations set out in decree no. 95-668 of May 9, 1995, in particular for the assessment of independent audiovisual production applicable to certain terrestrial or satellite television services, until such time as a new decree defines the regime for these services.
In addition, the procedures for calculating expenditure on independent production, which will have to take account of the rights provided for in each contract for each work, make it difficult to introduce such a scheme during the financial year.
What's more, the four-month period made provision for amending existing agreements and specifications in order to introduce the derogation system and genre-specific obligations means that certain specific obligations will not come into force for some time, and that verifying compliance with them will be even more complex.
Finally, a reasonable timeframe is essential to enable broadcasters and producers to adapt to such a profoundly new legal manager.