The French-American Cultural Exception

It is often difficult for a production company to finance a film and support the workload that such a creative process requires on its own. Co-production facilitates the meeting of both the creative know-how and financial resources of each of the parties invested in the project. If the film cannot be financed domestically or if the shooting requires filming in a foreign country, international co-production is a vital alternative, with each producer receiving additional financing in return for an undivided share of the rights attached to the work. This share, proportional to the respective contributions of the parties, is most often coupled with an exclusive allocation of the film’s distribution rights in the territories where the co-producers are established.
In order to facilitate the use of international co-production, France is signatory of about fifty binational co-production treaties, all of which aim to promote cooperation with the signatory country. These agreements allow an audiovisual work produced by several producers established in the signatory states to be qualified as a ‘national audiovisual work’ in order to benefit from the advantages and public incentives of each of the countries.
Thus, France remains the country with the largest number of film agreements in the world. This French willingness to support the world’s cinemas is part of a true cultural policy to promote the diversity of cinemas while preserving the French cultural exception.

But therein lies the French paradox, with, on one hand, the defense of French cultural expression and, on the other, the will to encourage and promote the diversity of international cinema through the prism of these treaties, from which American cinema is excluded today. How can we explain the exclusion of a film industry that is as rich as it is complex, which confronts powerful studios and an extremely fragile industry of independent productions? Wouldn’t this same American independent production also deserve to be encouraged through a treaty between The French-American Cultural Exception France and the United States in order to bring out the talents of tomorrow in both countries while allowing French talents and films to gain visibility in the American territory (and market)?
We can first try to explain this lack of agreement by a diametrically opposed conception of the use of international co-production, the use of which for Americans is mainly structured in three systems, with one party investing in the production in return for either an equity stake, or exclusive distribution rights (on the national territory or internationally), or when there is still a creative collaboration between the parties. The first system is the simplest to understand because it is a 50/50 co-production where both parties co-finance and share the revenues equally. The second system, the most widely used, is equivalent to the distribution mandates known in France. In return for a pre-license of distribution rights – called a “minimum guarantee» in France – the distributor acquires a credit as co-producer. The investment and the relationship between the producer and the distributor are then based on the acquisition of distribution rights attached to a specific territory, with revenues limited to that territory alone. The third and final hybrid system is one in which each party brings specific expertise and possible financing to the project, with the foreign party offering, for example, lower production costs (thanks to low-cost labor and/or attractive tax incentives) and the American party offering a wide range of know-how (development, etc.). If the foreign party wishes to obtain a share of the film’s revenues or distribution rights in its territory of operation; the agreement will be structured as a co-production. The French partner should be able to easily find his place in one of these three systems, provided, however, that the aid he receives at the national level can be injected into the co-production – which, even today, is impossible under French positive law.

How to access to French incentives

Indeed, there is no doubt that what can motivate an American producer to co-produce with a French producer is the possibility for the latter to benefit from his/her national co-production incentive system, in particular to finance the development period of a project. As a reminder, this national incentive is notably constituted by the support to cinematographic creation and is largely financed by a funding account (‘compte de soutien”) financed by the taxes levied on any theatrical entrance tickets. In other words, the more films, both French and foreign, are seen in France, the greater the funding account. The CNC divides this support into automatic and selective incentives. Selective incentive differs from automatic incentive insofar as it takes into account subjective criteria, particularly qualitative and cultural criteria. The CNC’s activity report for 20194 states that 288 companies mobilized €75.7 million in automatic incentive and selective incentive for film production and creation to €51.9 million in 2019. The automatic incentive procedure begins well before the film is released in theater. The executive production company (‘producteur délégué’) applies to the CNC for investment approval before the film is shot. Once this approval is granted, the production approval is awarded after the film’s release visa has been issued.

The number of tickets sold in theaters for the film is then used to calculate and generate the automatic incentive. In short, the investment approval establishes the film’s provisional status with regard to the financial support scale. An account is opened with the CNC for the production company and the money is only allocated if the film obtains production approval. This financial incentive must be reinvested within a defined period of time in the production of new feature films (regardless of the language in which the film was shot), in the preparation of feature films (writing), in the production of short films or in the promotion of films abroad.

Requirements for automatic incentive

There are four eligibility requirements for automatic incentive. First, the production company must show that the film was mainly made by a French or European technical industry (shooting location, studio, laboratories, shooting, post-production, etc.). Second, the consideration of ‘European scale’ taking into account the French or European origin of the artistic professionals (authors, directors, scriptwriters, dialogue writers, cinematographers, sound engineers, editors, etc.) and technical professionals (laboratories, studios) must be completed. Third, the ‘financial support scale’ must be satisfied (at least 25 points out of 100). Thus, the executive production company must prove that the film’s direction, shooting and post-production were actually carried out in France or in Europe. Last but not least, the criterion of the French or European ‘nationality’ of the producing structure must be met. It is precisely this last requirement that created difficulties in the famous Un long dimanche de fiançailles case, in which the director of the CNC challenged the granting of approval to the company 2003 Productions, producer of the film. In this case, the Conseil d’Etat concluded that the company producing the film, although established in France, was in fact controlled by the American company Warner Bros. Consequently, this company could not claim the automatic support conditioned by the European nature of the producer.

The ‘nationality’ of the production company refers to several conditions set by decree. First, the director, president or manager of the production company must be French, European or, under certain conditions, a foreign resident. Similarly, the production company must have its headquarters in France and, above all, must not be controlled by a non-European company. This last point was inserted only at the beginning of the 90s. Before that date, automatic incentive was granted to non-European companies, in particular to American ‘majors’ that co-produced French films through their French subsidiaries. Indeed, the criteria defining control of a non-European company appeared with the implementation of the ‘TSF Directive’ into French regulations. At the end of the 90s, certain ‘majors’ were unable to obtain automatic incentive because of this new exclusionary criterion. Some of them then devised complex financial arrangements to circumvent the requirements of the 1999 decree, because of the financial windfall that this production incentive represented. The example of the creation of the company 2003 Productions, a front for the American ‘major’ in the case of Un long dimanche de fiançailles, is an excellent illustration.

As for selective incentive, it was created after automatic incentive and aims to allocate incentive by taking into account more subjective criteria. This consideration makes it possible to direct funding towards projects chosen according to qualitative criteria, which automatic incentive does not allow. As with automatic incentive, the Commissions issue an opinion and the Director of the CNC makes the final decision. There are different types of industrial incentives. If the film must be shot mainly in French, there is a specific mechanism of incentive for foreign-language films produced by at least one production company established in France, and for which the use of the French language is not a condition for obtaining this support. As such, an American producer can theoretically benefit from this incentive via a French co-producer, though the financial stakes are limited because the amount of this incentive is capped. This type of selective incentive mainly takes the form of advances that are refundable by the production company that received them. The advance is then attributed by contract and the conditions of reimbursement are fixed by the contract.

Selective incentive also provides grants (non-refundable) for the following: script rewriting, the creation of original music, financial incentive for production (and post-production), as well as the writing and development of immersive or interactive projects. Since automatic incentive and most selective incentive mechanisms are totally unavailable to any Franco-American co-production, the renewed interest of American producers in France can be explained in other ways.

Why choose France as a co-production partner?

Several factors explain the renewed interest of American producers in co-producing with France. First, the attractiveness of the French territory is an important criterion in the choice of producers to shoot in France. Indeed, Paris (Emily in Paris, Mission: Impossible Fallout, The Eddy), the landscapes of Normandy (Dunkirk) or those of Marseille (Stillwater), to name but a few, are attracting filming locations, and all the more so with the recent reinforcement of the International Tax Credit (TRIP), which is much more competitive than in the past compared to the Belgian, German and British Tax Shelters. Indeed, the TRIP concerns works whose production is initiated by a foreign company and whose production takes place in France, in whole or in part. These works must include elements related to French culture, heritage or territory. It is granted selectively by the CNC to the company that carries out the executive production of the film in France. The TRIP is applicable to 30% of the film’s eligible expenses in France, and can reach a maximum of €30 million per film. To be eligible for C2I, a film/ TV series must meet all of the following criteria:

– Be a work of fiction or animation, cinematographic or audiovisual (unit or series). Documentaries, films used for advertising or institutional purposes are not eligible;
– Not to be eligible for financial support for film or audiovisual production managed by the CNC;

– Not to be a work of pornographic nature or incitement to violence;
– Realize at least 250,000 € of eligible expenses in France, or 50% of the global production budget if it is lower than 500,000€;

– For a work of fiction, at least 5 days of shooting in France;
– For a work of fiction, obtain at least 18 points from the ‘Fiction’ scale, including 7 points for ‘Dramatic Content’ and for a work of animation, obtain at least 36 points from the ‘Animation’ scale, including 9 points for ‘Dramatic Content’.
To be eligible, the expenses mentioned below must be incurred by the French company that is responsible for the line production of the film in France and that has applied to the CNC for the TRIP. Generally speaking, these expenses must directly contribute to the needs of the production of the work. The tax credit, capped at 30 million euros per work, amounts to 30% of the following expenses, excluding tax:
– Wages and salaries of French and European authors, actors, technicians and workers, and related social charges. For actors, the amount of compensation taken into account for the tax credit is capped at the minimum compensation provided for by the collective agreements for film or audiovisual production;
– Expenditures related to the use of technical industries and other providers of film and audiovisual creation ;
– Transportation, lodging and restaurant expenses strictly necessary for the production of the work.

In addition, France’s attractiveness is also explained by the strength and worldwide reputation of its VFX technical providers, particularly in the animation sector. Indeed, there are more than sixty companies active today in VFX services in France, all sizes and all fields combined. Five companies stand out (Autre Chose, Buf, CGEV, Mac Guff, Mikros Image) for the cinema and audiovisual activity. From 2000 to 2010, several French companies (including Mac Guff, Buf, Duran Duboi) provided services for American production. The development of international offerings, notably around post-production studios benefiting from strong tax incentives, has made the French opportunity less singular and more inclusive. In addition, France has some of the best schools in the world for all animation and VFX professions, even though a very large proportion of the talent trained in France goes abroad. French professionals are sought after not only because of their high level of training but also because of their productivity and autonomy when faced with complex creative-technical tasks. The implementation of TRIP and the use of technical service providers are limited by the framework of an executive production contract between an American producer and a French executive producer who will request TRIP from the CNC and make the expenditures on behalf of the American production.

The system is different from the co-executive co-production system where each producer assumes financial and artistic responsibility for the film and guarantees the film’s successful completion. It is this latter system of co-executive co-production that will have to be part of a bilateral treaty, in order to replicate the treaties France has with many countries in the world. In this scenario a French-American co-production would be eligible for automatic support.
Also, even though examples of cooperation between the two countries exist, the many challenges to such collaboration explains their rarity. Firstly, the American film industry, all powerful at the world level, does not need to develop partnerships, other than strictly financial relationships with other countries. Indeed, the contractual mechanism of co-production, and the resulting sharing of rights, is not the most adequate to respond to the strictly financial logic of the industry. In addition to differences in cultural policy, the conflict of intellectual property laws can also explain the weak cooperation between the two countries, since French copyright law is more protective of authors than American law, particularly in the audiovisual field. Indeed, where French law expressly recognizes the ‘droit moral’ of authors and grants the director the famous ‘final cut’ on his/her film, the logic is different in the United States where, under the copyright regime, the author transfers his/her work to the producer under ‘work for hire’ who, as a result, becomes the sole owner and decision-maker (the ‘final cut’ no longer exists) of the final cut of the film as shown to the public.

From a regime of prohibitions to a regime of obligations

Our analysis shows that the Franco-American co-production is currently part of a prohibition regime, despite certain marginal tolerances, that limits its real potential for cooperation between the two countries. Thus, independent American producers can contract with a French distributor in order to obtain a “minimum guarantee” providing impactful financing for the film. In exchange the French distributor receives exclusivity to exploit the film’s value in France, and often Europe, for the duration of the negotiated contract. In addition, at the end of this period, the agreements may provide for the film’s ownership to be returned in full to the American producer, who will then keep the film in his/her catalog.
The U.S. producer may also opt for a straightforward transfer of the project to a French producer and obtain an associate producer credit, although this latter option is quite rare. Finally, the American producer can choose to contract with a French production company, without control over it, so the French company builds the project within the framework of a European co-production, with the American producer transferring the rights to a script, for example, in exchange for a transfer price, the future fee of a producer’s salary, and a percentage of the film’s revenues. Wouldn’t it be more relevant and effective to orient this prohibition system towards a virtuous system organized around obligations, where each partner would be obliged to respect the standards enforced in its partner’s national territory? This question, which deserves to be asked, is all the more relevant today with the recent implementation of the AVMS Directive into the SMAD decree, which sets the terms and conditions for the contribution of SVOD platforms to French creation, or which, for example, subordinates the allocation of financial incentive from the CNC to the inclusion in the contracts concluded with the authors of cinematographic and audiovisual works of standard clauses ensuring the respect of the ‘droit moral’ recognized to authors.
In return for these new obligations, platforms are currently negotiating a more favorable position in the media chronology, with potential of participating in the automatic incentive system. We could then conceive of a bilateral treaty between France and the United States in which the CNC’s approval of investments would be conditional on the American producer’s compliance with French law, which would oblige the latter to sign copyright assignment contracts subject to French law. Would it be such a great sacrifice for the American independent producer to have to apply French ‘droit moral’ if, in return, he/she were to benefit from the financial contribution of the French producer resulting from the incentive system described above?

The future of French-American co-production

The concept of co-production is directly related to that of nationality, as the producer must obtain a certificate of nationality for his or her film from the relevant administrative authority in order to be eligible for most national public benefits. The laws governing nationality certification in each country are relatively protective of their respective film industries, especially with regard to the percentage of foreign investment and the national cultural content and contribution to the film (language, film location, etc.). These elements are used by film institutions to help define the boundaries between a majority and a minority co-production. But such regulations are, above all, put in place with the aim of blocking access to national subsidies for de facto foreign productions shot in the country, and for national producers shooting abroad in order to hinder capital flight. Also, the implementation of a bi-national treaty between the United States and France would have the advantage of opening the current regulations on film nationality, making it easier for producers to obtain nationality certificates in both countries when it is a co-production carried out within the framework of an ad hoc agreement, and thus guaranteeing access to the respective national grants. It should be remembered that France has recently strengthened the international tax credit system precisely in order to attract foreign producers to film on its territory. One could then imagine the automatic granting of the said incentive to the American co-producer involved in a coproduction with a French partner. The difficult question of sharing the economic rights to the film would follow the percentage of investment by each party.
Although it is unlikely that such a treaty would be validated by the American majors, it could nevertheless be very well suited to independent production in need of financing, and with budgets often similar to those of French production. These American producers would benefit from French financial programs (pre-license of broadcasters, for example) while French producers would enjoy greater visibility on North American territory through the benefit of a privileged distribution network. Currently, French productions that have been successful in the United States are purchased outside the framework of co-production by a powerful distributor, who is responsible for ensuring optimal promotion of the film on North American territory. In France, certain major studios also invest via their subsidiaries by pre-licensing works, which allows them to directly control the distribution of the film. We are therefore more often in a asymmetrical relationship of acquisition rather than one of creative collaboration between two partners. Finally, the difficulty relating to the law of the contract is not irremediable, even if the American partners will have to give up imposing the Copyright Act to be able to benefit from automatic incentive through their French co-producer. This co-production treaty between France and the United States could also allow for the revival of French heritage works by promoting remakes of our great classics. It would allow new talents from both countries to emerge, creating films with their own identity, which would then be promoted by major international festivals such as Sundance, Deauville and the Cannes Film Festival.

Finally, this treaty would allow French producers to get out of the limited relationship of line co-producer in which they find themselves today in relation to the Americans, by placing them at the same level as executive co-producers. In the end, cooperation between the two countries is limited today to initiatives to promote the cinema of one country in France or the United States. Indeed, in March 1996, Sacem signed an agreement with the two American professional guilds representing audiovisual creators (Directors Guild of America – DGA, Writers Guild of America West – WGAW, joined by the Motion Picture Association – MPA), to create a cultural fund intended to promote and teach the art of cinema. The Franco-American Cultural Fund (FCFA) is currently carrying out actions to promote French films, to encourage links with American distributors and to facilitate access to the North American market for the many French filmmakers and producers. It would therefore be interesting to go beyond the sole framework of promoting one cinema over another to position the production actors on that of supporting creation and the emergence of authentic Franco-American talent.

Julien Brunet and Karine Riahi (Spring Legal)