EUROPEAN COMMISSION

Brussels, 02.08.2013 C(2013) 4991 final

In the published version of this decision, some information has been omitted, pursuant to articles 24 and 25 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […].

PUBLIC VERSION

This document is made available for information purposes only.

Subject: State aid SA.36106 (2013/N) – Czech Republic

Czech cinematography support scheme

Sir,

1. PROCEDURE

(1) The Czech authorities notified the scheme mentioned above by submission dated 21 January 2013.

(2) On 8 February, 30 April and 8 May 2013, the Commission sent requests for information to the Czech authorities. The Czech authorities replied by submissions dated 10 April, 28 May, 10 June, 21 June, 24 June, 26 June, 27 June, 28 June and 5 July 2013.

2. DESCRIPTION OF THE MEASURE

2.1. General provisions

(3) Objective: The objective of the overall film support scheme is to support culture and heritage conservation by funding projects relating to audiovisual works (cinematography).

Vážený pan Karel SCHWARZENBERG ministr zahraničních věcí Ministerstvo zahraničních věcí České republiky Loretánské náměstí 5 118 00 Praha 1 Česká Republika Commission européenne, B-1049 Bruxelles – Belgique Europese Commissie, B-1049 Brussel – België Telefon: 00 32 (0) 2 299.11.11

(4) Sub-programmes: The scheme is divided into two sub-programmes as follows: 1) Support for cinematography 2) Film incentives: This sub-programme is already in force and was approved by the Commission as a separate scheme on the Film Industry Support by decision in case N 98/2010 of 17 June 2010 until 31 December 2015. The purpose is to incorporate this sub-programme into a single framework and align the timing of both sub-programmes. There are no substantial differences between the Film Industry Support Programme, as approved by Commission Decision N 98/2010, and the film incentives based on the new Act 496/2012 (for differences see points 28 to 31 below). The film producer can apply for both the support for cinematography and a film incentive. In that case he must fulfil all the criteria and procedural requirements of each sub-programme. The total support cumulated from both sub-programmes cannot exceed the maximum aid intensity of 50% of the total production costs or for difficult films, the maximum aid intensity of 90% of the total production costs.

(5) Legal basis: The legal bases for the scheme are Act 496/2012 on Audiovisual Works and Support for Cinematography, State Budget Rules Act 218/2000 and the State Cinematography Fund’s statute.

(6) Duration: The duration of the scheme is from the date of this decision until 31 December 2018.

(7) Form of aid: The aid will be financed in the form of direct grants.1

(8) Granting authority: The granting authority for both sub-programmes is the State Cinematography Fund (hereinafter referred to as "the Fund"). The Fund’s bodies include the Director of the Fund, the Council and the Supervisory Committee.

(9) Beneficiaries: The beneficiaries of the aid must be registered in the Czech audiovisual register. Foreign entities can register under the same conditions as Czech entities. They need not have a permanent residence or seat in the Czech Republic. The requirement of the applicant's registration is limited to having an agency, even on a temporary basis, at the time of payment of the aid.

(10) Financing of the Fund: The income of the Fund consists of contributions from the State budget of the Czech Republic, obligatory contributions of entities defined by the law (audiovisual charges and charges for broadcast advertising) and revenue generated by the Fund. The entities obliged to pay the obligatory charges to the Fund use audiovisual works for their business activities (television broadcasters, cinema operators, distributors of audiovisual works on media and by other means of public distribution, and retransmission providers).

(11) Audiovisual charges shall include:

a) fee for cinematographic performance, b) fee for provision of on-demand audiovisual media services, and c) fee for television rebroadcasting.

(12) The fee for cinematographic performance shall be charged from the organiser of a

cinematographic performance on the admission fee for the public presentation of the cinematographic work. The rate of this fee shall be 1%.

1 The money from the Fund intended for support for cinematography shall be provided as subsidies or as

profit-sharing subsidies.

2

(13) The fee for television rebroadcasting shall be charged from the operator that operates rebroadcasting on the price for the provision of television rebroadcasting. The rate of this fee shall be 1%.

(14) The Act 496/2012 constituting legal basis of the scheme foresees also the fee for provision of on-demand audiovisual media services, which shall be applicable as from 1 January 2016. However the Czech Republic withdrew on 5 July 2013 the notification in respect of this particular levy and declared that it will not implement it in its foreseen form. This levy is therefore not covered by the scope of this decision and therefore not assessed in this decision.

(15) Apart from the above audiovisual charges, the Fund's revenue includes the charges for broadcast advertising which are charged from television broadcasters on their revenue from advertising. The rate of these charges is 2%.

(16) The Fund's revenue from the above obligatory charges imposed on private entities is showed in the following table. The full amount of the estimated CZK 225 million (approximately EUR 9 million) is used to finance sub-programme Support for cinematography. This amount represents 45 % from the maximum annual budget of this sub-programme or approximately 17 % from the maximum annual budget of the notified scheme as a whole.

Fund's estimated annual revenue from extra-budgetary sources

SOURCEESTIMATED

AMOUNT

Audiovisual Charges - fee for cinematographic performance (1 %)10 million CZK

(~ 0.4 million EUR)

Income from the use of cinematographic works40 million CZK

(~ 1.6 million EUR)

Charges for broadcasting advertising (2 %)150 mil. CZK

(~ 6 million EUR)

Audiovisual Charges - fee for television rebroadcasting (1 %)25 mil. CZK

(~ 1 million EUR)

TOTAL225 mil. CZK

(~ 9 million EUR)

2.2. Sub-programme Support for Cinematography

(17) Support for cinematography from the Fund may be provided for the implementation of projects under the following headings:

a) development of a Czech cinematographic work, b) production of a Czech cinematographic work, c) distribution of a cinematographic work, d) project in the field of technical development and innovation in cinematography, e) promotion of a Czech cinematographic work, f) publishing activities in the field of cinematography and activities in film science, g) preserving the national film heritage and making it accessible to the public, h) education and training in the field of cinematography, i) film festival and film show in the field of cinematography, or j) protection of the rights related to cinematographic works and the recordings thereof.

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(18) Decision making body: The decisions on the supported projects and aid amounts are taken by the Council of the Fund on the basis of an independent expert analysis. The Council shall have nine members. Council members shall be elected and dismissed by the Chamber of Deputies upon the proposal of the Minister of Culture, and shall be chosen from among recognised and experienced practitioners in the cinematography sphere. Council members are nominated by professional organisations. When evaluating an application for support for cinematography, the Council shall take into account the analyses prepared by independent experts (at least one analysis by an expert on contents and one analysis by another expert on financing) for each project. The experts are chosen by ballot from a public list established by the Fund. They are appointed by the Minister of Culture on the proposal of professional organisations.

(19) Budget: The annual expenditure for the cinematography sub-programme is planned to be up to CZK 500 million (approximately EUR 20 million). This maximum amount of CZK 500 million includes the estimated amount of CZK 225 million (approximately EUR 9 million) contributed by private entities. The overall amount of the scheme is up to CZK 3 billion (approximately EUR 120 million).

(20) Aid intensity: The aid intensity is, in principle, up to 50 % of the total project's costs. This aid intensity may be increased up to 60 % of the total project's costs in case of European co-productions and up to 90 % of the total project's costs for difficult works or projects2. The maximum aid amount per project and per heading is outlined in the table below. The Czech authorities have confirmed that the 90% maximum aid intensity will be reached only exceptionally, in case of a difficult project. They expect that the average amount of support will be kept at a limit of 20% - 50% of the total project budget.

Headings

Maximum amount of grant per 1 project in

million CZK (EUR)

Maximum % share of the total Fund´s budget intended

to Support for cinematography (set up annually,

maximum CZK 500 million)

Maximum annual

amount per heading in million CZK

(EUR)

a) development of a Czech cinematographic work 6 (0.24) 10% 50 (2)

b) production of a Czech cinematographic work 40 (1.6) 90% 450 (18)

c) distribution of a cinematographic work 5 (0.2)10% 50 (2)

d) project in the field of technical development and innovation in cinematography 10 (0.4)

20% 100 (4)

2 Culturally difficult cinematographic work/project is a work/project whose chances of economic success are

limited because of its experimental nature, highly artistic or technical solutions or artistically difficult nature. The production/creation of such work/project is desirable for its cultural value even though it is difficult to secure funding for such work from other sources because of its cultural difficultness. The fact whether the project meets such criteria is always decided by the Council. Because of difficult financing such works are often low-budget works, i.e. works whose budget does not exceed the average production costs of a cinematographic work in a given year. The amount of these costs is determined by the Council.

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e) promotion of a Czech cinematographic work 6 (0.24) 10% 50 (25)

f) publishing activities in the field of cinematography and activities in film science

6 (0.24) 10% 50 (25)

g) preserving the national film heritage and making it accessible to the public 30 (1.2) 20% 100 (4)

h) education and training in the field of cinematography 8 (0.32) 10% 50 (2)

i) film festival and film show in the field of cinematography 8 (0.32) 10% 50 (2)

j) protection of the rights related to cinematographic works and the recordings thereof 6 (0.24) 10% 50 (2)

(21) Cumulation of aid: The total support cumulated from different sources cannot

exceed the above maximum aid intensity.

(22) Eligibility: The aid can be obtained only for a cinematographic work that is defined as an audiovisual work intended for public performances. Cinematographic performance is defined as public theatrical presentation, or other similar form of release, of an audiovisual work. Consequently, reality shows or similar commercial works are not eligible for funding. Similarly, audiovisual works having an advertising nature are not eligible.

(23) Territorialisation: In case of projects relating to development and production, (falling under headings a) and b) mentioned in point 17 above), the beneficiary of the aid is required to spend 50% of the aid on goods and services supplied by entities that have their tax residence in the Czech Republic; however in case of projects that meet the definition of a complex work,3 the Council may in exceptional cases reduce this percentage. As regards other types of support (falling under headings c) to j) mentioned in point 17 above), no territorial requirements are applicable.

(24) Evaluation criteria: Criteria for assessing the applications are generally divided into two basic categories which are further divided into various sub-categories with a fixed score: artistic quality and creative input of the project in which the project can receive up to 60 points and organizational and financial security of the project and the applicant’s credit where the project can receive up to 40 points. Overall, each project can receive a maximum of 100 points while the projects that receive less than 60 points cannot be supported.

(25) The criteria of artistic quality and creative input of the project under different types of film support include:

i. artistic or documentary quality of the project; creative and technical support of the project; contribution and importance for the Czech and European cinematography (relevant for projects under headings a), b) and c) of point 17 above)

3 For the purpose of territorialisation, a complex work is defined as a project whose artistic or technical

solution requires the purchase of services abroad (e.g. purchase of technical equipment abroad which is not available on the Czech market under the heading project in the field of "technical development and innovation in cinematography" or "promotion of a Czech cinematographic work" in the form of a presentation of a Czech film abroad).

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ii. technical proposal of the project; method of exploitation in the Czech cinematography; importance and benefits of the project for the presentation of films (relevant for heading d) of point 17 above)

iii. value and importance of the work, i.e. potential to represent the Czech cinematography, culture and society abroad (relevant for heading e) of point 17 above)

iv. professional quality of the project, i.e. inventive nature of the topic and relevance of methodological solutions, academic standard processing, and preference to basic research projects (relevant for heading f) of point 17 above)

v. degree of preservation of the national film heritage; degree of access to the national film heritage (relevant for heading g) of point 17 above)

vi. training and educational quality of the project; target group; creative and technical support of the project; contribution and importance to the film and media education and education in the Czech Republic (relevant for heading h) of point 17 above)

vii. quality of the project; uniqueness of the festival in the Czech Republic, the European Union and the world (relevant for heading i) of point 17 above)

viii. degree of protection of cinematographic works and their records; scope of protection (relevant for heading j) of point 17 above)

(26) Eligible costs: Eligible costs relate to the definition of the activities included under individual headings listed below. All the following activities and costs relating thereto arise from the fact that their support is directly linked to the creation of a cultural project and without the support it would not be possible to create the cultural product. The level of the support related to the overall budget of the work concerns only the items directly linked to the cultural character of work. The basis for calculating the share of the Fund's support on the overall budget are all costs of the project that are necessary, proportionate and appropriate for the creation of a cultural project in a quality, in which the project was approved by the Council.

a) development of the Czech cinematographic work – eligible are, in particular, the

costs of activities aiming at the creation of scripts or scenarios, on the basis of which the cinematography work will be created, and at obtaining the authorization for their use (license), including pre-existing works (rights to adapt them), costs of activities aimed at securing sources for funding of the production of a cinematographic work and the creation of possible co-production structures4 and costs of activities aimed at preparing the production of a cinematographic work5;

4 Activities that aim to ensure the funding sources of production of a cinematographic work and the creation of

possible co-production structures consist of: � creation of promotional materials relating to the shooting of the film, including a possible teaser, preparing

the graphics, print materials, film teaser (technical support, royalties, etc.) � translation of the theme, synopsis, script, director / screenwriter explications for the international promotion

and search for foreign partners � presentation of the theme of the film through these materials at national and international festivals, pitching,

works in progress, workshops organized by the MEDIA programme, etc. (and the related costs of travel,

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b) production of a Czech cinematographic work – eligible are costs of activities involving the preparation of filming, filming itself (services and rents of camera, lighting and grip equipment, services of artistic components - make-up artists, costume designers, actors and casting) and audio and visual work aiming at the creation of a cinematographic work;

c) distribution of a cinematographic work – eligible are costs of activities aimed at making a valuable cultural and cinematographic work accessible to the public, regardless of forms and technologies of such disclosure, including the technology works, and promotion, without which it would be impossible to make them accessible;

d) project in the field of technical development and innovation in cinematography – eligible are, in particular, costs of activities aiming at the development, acquisition, installation, launching and operation of technology or other cinematographic equipment or activities aiming at the development and application of the procedures leading to the provision of technological standards;

e) promotion of a Czech cinematographic work – eligible are mainly costs of the activity aiming at the promotion of a Czech cinematographic work and making the Czech cinema visible for the Czech and foreign public;

f) publishing in cinematography and film science activities – eligible are costs of an activity aimed at preparation (editorial works, royalties, and the like), publishing (print, graphics) and distribution of periodical or non-periodical publications and activities aimed at implementation of scientific research (personal, licence costs) and presentation of its outcomes in the area of the film science;

g) preservation and accessibility of national film heritage – eligible are mainly costs of an activity aimed at digital re-mastering, renovation, long term preservation and finally accessing national film heritage including its promotion;

h) education and training in the field of cinematography – eligible are mainly costs of an activity directed towards creation of educational, conceptual, methodological and promotional materials and activities aimed at production of educational projects in the area of cinematography (personal costs, leases, technical backup, promotion, etc.);

i) film festival and film-show in the field of cinematography – eligible are costs of

an activity aimed at realisation of a festival or show including their preparation (personal costs), purchase of licence and technology (leases, subtitle device, projection equipment, etc.), organizational backup or marketing;

accommodation and registration fees) for the purpose of developing a theme and finding co-production partners in both the Czech Republic and abroad.

5 Activities that lead to the preparation of the production of a cinematographic work consist of: � refund of rights in case of adaptation � dramaturgical and scenario work on the screenplay � casting, inspections of the locations and the other places for shooting and the consequent prevention of

complications during filming, � costume design, visual and architectonical design of decoration, development of literary scenarios to

technical scenario � technical activities in sense of preparation, selection, and agreement on camera, grip and other techniques

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j) copyright protection of cinematography works and their recordings – eligible are mainly costs of an activity related to research, development, production and promotion of projects aimed at education, public enlightenment and promotion in the area of copyright protection including data collection and activities aimed at production of projects resulting in reduction of piracy negative impacts.

2.3. Sub-programme Film Incentives

(27) This sub-programme is already in force and was approved by the Commission as a separate scheme on the Film Industry Support by decision in case N 98/2010 of 17 June 2010 until 31 December 2015. The purpose is to incorporate this sub-programme now into a single framework and align the timing of both sub-programmes. Under sub-programme for film incentives aid can be granted for: a) pre-production, b) production processes, and c) dissolution of production. The primary purpose of the provision of film incentives is to support the production of audiovisual works in the Czech Republic and to foster the future development of Czech cinematographic culture. The sub-programme for film incentives remains essentially unchanged compared to the description provided in points 3 to 19 of the 2010 decision6, apart from the following modifications.

(28) Decision making: Decision making with regard to film incentives will take place through a three-part process:

• The Application for Registration of an Incentive Project is the initial notification to the Fund of an application to the programme; this application focuses principally on whether the project satisfies the cultural test.

• The second stage, the Incentive Project Record Application, provides financial information on the project.

• The final application, the Application for a Film Incentive, is only possible once the two prior applications have been approved by the Fund.

(29) Decision making body: The Director of the Fund shall decide on the grant of film incentives. Applications for Registration are evaluated by the Film Incentive Commission, a panel of experts of recognised standing in the field of audiovisual industry. Commission members are nominated to the Minister by professional organisations.

(30) Budget: The annual budget is up to CZK 800 million (approximately EUR 32 million). The overall budget of the scheme is therefore up to CZK 4.8 billion (approximately EUR 192 million). No part of this budget is financed through the obligatory contributions imposed on private entities described in points 11 to 15 above.

(31) Cumulation of aid: An applicant is not entitled to a grant if the project has already been awarded an aid of 50% of the project implementation costs (or 90% for difficult films) from other sources.

6 http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_n98_2010

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3. ASSESSMENT OF THE MEASURE

3.1. Existence of aid within the meaning of Article 107(1) of the TFEU

(32) According to Article 107 (1) of the TFEU, “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market”. It follows that in order to be qualified as State aid, the following cumulative conditions have to be met: 1) the measure has to be granted out of State resources, 2) it has to confer an economic advantage to undertakings, 3) the advantage has to be selective and distorts or threatens to distort competition, 4) the measure has to affect trade between Member States.

(33) Presence of State resources: The funds are either directly provided by the State budget or from other sources, including parafiscal charges imposed on certain entities, which, however, constitute the revenues of the Fund. Since the Fund is a state-owned legal entity, whose activities are governed by law, these revenues are permanently under the control of public authorities and at their disposal. Consequently, State resources are clearly involved in this scheme.

(34) Economic advantage to an undertaking: The beneficiaries under the present scheme benefit from a financial advantage in the form of direct grants. They would not receive grants under normal market conditions and would have to bear the entire costs of their activities without State funding. Therefore, the scheme provides an economic advantage to the aid beneficiaries.

(35) Selectivity and distortion of competition: The scheme is selective in nature as the beneficiaries of the aid are operating in the audiovisual sector. The beneficiaries compete with other undertakings involved in activities in the field of cinematography, which do not necessarily benefit from the scheme. Consequently, the scheme distorts or threatens to distort competition.

(36) Effect on intra-EU trade: Since audiovisual work productions are traded at an international level, the financial advantage granted on the basis of the scheme could affect trade between Member States.

(37) It cannot be excluded that certain types of activities supported under headings g), h) and i) of point 17 above, such as preserving the national film heritage and making it accessible to the public, education and training in the field of cinematography, and support for certain film festivals and film shows in the field of cinematography may not qualify as economic activities in the Czech context.7

(38) In such case, support for these activities would not constitute State aid within the meaning of Article 107(1) of the TFEU. Nevertheless, even if some of them were considered to be economic activities, they can be declared compatible with the internal market, as demonstrated below, in sections 3.2.6 to 3.2.8.

7 For the Czech authorities' description of the national context of film culture, see points 77 to 79 below. See

also Commission decision of 13 February 2008 in case N742/07 Estonian film support scheme, point 42, and Commission decision of 11 August 2011 in case SA.32836 Audiovisual Fund Slovakia, point 23.

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(39) Therefore, the Commission considers that, with the possible exception of the support for certain activities mentioned in point 37 above, the scheme constitutes State aid within the meaning of Article 107 (1) of the TFEU. It is therefore necessary to assess its compatibility under the provisions of Article 107 (3) of the TFEU.

3.2. Compatibility

(40) The legal basis: The 2001 Cinema Communication8, as prolonged for the last time in 2009, expired on 31 December 2012. However, the Commission expects to adopt a new Communication shortly on assessing State aid for films and other audiovisual works. In the interim, the aid should be assessed directly on the basis of Article 107 (3) (d) of the TFEU. The Commission considers that it is appropriate to apply the assessment criteria set out in the 2001 Cinema Communication for assessing State aid to cinematographic and audiovisual production under Article 107 (3) (d) of the TFEU. Accordingly, the assessment criteria of the Cinema Communication are applicable to audiovisual production projects under sub-programme 1, headings a) and b) and sub-programme 2 mentioned in point 17 above.

(41) Headings c) to j) of sub-programme 1 mentioned in point 17 above are aimed at supporting the distribution and promotion of audiovisual works, technical development and innovation, publishing activities and film science, preserving the national film heritage and making it accessible to the public, education and training, film festivals and film show as well as protection of the rights related to cinematographic works. These types of activities take place after the production phase of the audiovisual work and therefore they do not directly fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of these aid measures directly on the basis of Article 107 (3) (d) of the TFEU.

(42) Given that the distribution and promotion of audiovisual works are linked to the production of audiovisual works, the Cinema Communication is regarded as a pertinent reference when assessing the compatibility of State aid also for the types of activities under sub-programme 1 headings c) and e).

(43) Financing of the scheme through parafiscal levies: Given that part of the scheme is financed through parafiscal levies, the Commission must in the light of the longstanding jurisprudence9 take into account the method of financing of the aid in case where that method forms an integral part of the measure, and, if so, whether the levies are applied to imported films.10

8 Communication from the Commission to the Council, the European Parliament, the Economic and Social

Committee and the Committee of the Regions on certain legal aspects relating to cinematographic and other audiovisual works (COM(2001)534 final of 26/9/2001, OJ C 43, pp 6-17, of 16/2/2002), prolonged in 2004 (OJ C 123, pp 1-7, of 30/4/2004), 2007 (OJ C 134, p 5, of 16/6/2007) and 2009 (OJ C 31, p 1, of 7/2/2009) until 31 December 2012.

9 See e.g. case C-333/07 Societe Regie Networks. 10 For the Commission's past practice, see Commission decision of 22 March 2006 in case NN 84/2004 and N

95/2004 – France – Régimes d'aide au cinema et à l'audiovisuel, part III, points 20 to 37; Commission decision of 16 May 2006 in case N 505/2005 – Poland - Polish audiovisual fund (Program dofinansowania przez Polski Instytut Sztuki Filmowej przedsięwzięć z zakresu kinematografii), point 24; Commission

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(44) For a levy to be regarded as forming an integral part of an aid measure, it must be hypothecated to the aid under the relevant national rules, in the sense that the revenue from the levy is necessarily allocated for the financing of the aid and has a direct impact on the amount of the aid.11

(45) In the current case, the Commission considers that the parafiscal levies form an integral part of the aid measure as the revenue from these levies is transferred directly to the Fund, is necessarily allocated for the financing of the aid and has a direct impact on the amount of the aid. This conclusion is not altered by the fact that there is an upper limit to the amount of aid available for each type of activity and that the revenue from the levies does not cover the operating costs of the Fund. The amount of aid transferred from the State budget to the Fund is independent from the amount of revenue from the levies (according to the Czech authorities, it is not realistic that this revenue would increase considerably over the lifetime of the scheme). In other words, the higher the revenue from the levies, the higher the overall amount of aid available and the lower the revenue from the levies, the lower the overall amount of aid available. The amount of the state contribution depends on the annual state budget act and the concrete amount of the state contribution cannot therefore be guaranteed. In any case, the total annual aid amount of sub-programme Support for cinematography, which is the only sub-programme funded (partially) from the levies, cannot be higher than CZK 500 million (approximately EUR 20 million).

(46) As the levies form an integral part of the measure, it has to be carefully analysed whether they are imposed also in relation to the use of imported products, as in such a case the levies could constitute a charge having an equivalent effect to customs duties contrary to Article 30 TFEU (if the advantages stemming from the use of the proceeds of the levy in question fully offset the burden borne by the domestic product when it is placed on the market) or, if the levy only partly offset the burden borne by domestic products, it may be incompatible with Article 110 TFEU to the extent to which it discriminates against imported products.12

(47) As regards the fee for cinematographic performance, only cinema operators inside the Czech Republic are subject to the levy. The 1% fee is charged from the cinema operator, but the final payer is the viewer. The price of the ticket is the same regardless of the origin of the film and depends on various elements (including e.g. location and equipment of the cinema). The system works through the communication between the cinema operator, Czech distributor and foreign sales agent/distributor who is in contact with the film production company that has the rights to the film. On the basis of a general distribution agreement, the Czech distributor offers to the cinema operator works in relation to which he is the holder of a license. In such a general agreement, there is not a list of films, but films are provided sucessively and fitfully. The price paid by the cinema operator for the license equals 50% of the income from the sale of tickets.

decision of 10 July 2007 in case N 192/2007– France - Modification de NN 84/2004 - Soutien aux secteurs du cinéma et de la production audiovisuelle en France - Modernisation du dispositif de contribution du secteur télévisuel au compte de soutien au cinéma et à l'audiovisuel, points 16 to 19; Commission decision of 10 December 2008 in case N 477/2008 – Germany – German Film Support Scheme, points 55 to 57.

11 See joined cases C‑393/04 and C‑41/05 Air Liquide Industries Belgium, paragraph 46 and the case‑law cited.

12 See joined cases C-78/90 to C-83/90, Compagnie Commerciale de l'Ouest.

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(48) For cinematographic performance, the levy therefore takes the form of a tax on admission to the cinemas rather than a tax on the films themselves. The percentage is fixed (1%) regardless of the origin of the film. Consequently, it can be concluded that this levy is not a tax on imported products.

(49) As regards the fee for television rebroadcasting, the levy is imposed only on cable and satellite broadcasters established in the Czech Republic. The levy is charged on the price that is charged for having access to the broadcasting of these platforms, regardless whether Czech or foreign films are broadcasted or how often a film is viewed - many times or never. The operator buys licenses for individual programmes for a fixed amount from the licensor. The contract is for a certain period or number of broadcasts - different in each single case. The price is given by supply and demand. The 1% fee is charged on the subscription fee and there is therefore not a direct connection between the charge and a particular film.

(50) Regarding the fee for television rebroadcasting, this 1% levy is therefore imposed onto the subscription price to platforms providing rebroadcasting services in the Czech Republic. Consequently, it can be concluded that this levy is not a tax on imported products.

(51) The payers of the charges for broadcast advertising are television broadcasters. The revenue from the advertising is not divided according to the advertising linked to a film, TV news, TV shows, sports, music events etc., it is linked to the program structure as a whole. Moreover, this revenue is not linked to cinematographic works. The payer is every broadcaster that provides free-TV broadcasting (excluding municipal and regional TV broadcasting) with broadcasting licence issued by the Broadcasting Board of the Czech Republic. The levy is charged on revenues from advertisement sold by the TV broadcaster and is calculated as 2% from the total annual income of the broadcaster. As the levy is calculated from the total annual income, there is no direct connection between individual programs and the levy charged upon the broadcaster.

(52) The charges for broadcast advertising therefore take the form of a tax on advertising linked to the program structure as a whole rather than a tax on the advertising programmes themselves. Consequently, it can be concluded that this levy is not a tax on imported products.

(53) In addition, the aid provided under the scheme is available to productions and co-productions from all EU Member States. As an example, a Czech distributor can receive aid for distribution of a French film in the Czech Republic.

(54) Consequently, it can be concluded that there is no discriminatory taxation of imported products.

(55) In consequence, the provisions of point 2.3 a) of the 2001 Cinema Communication relating to parafiscal taxes are met.

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3.2.1. Sub-programme 1, headings a) and b): development and production of audiovisual works

(56) The aid for development and production of audiovisual works can be justified if it

complies with the general legality principle and the four specific compatibility criteria set out in the Cinema Communication.

(57) General legality principle: As stated in point 2.3 a) of the Cinema Communication, the Commission must verify that the scheme does not contain clauses that would be contrary to Treaty provisions in fields other than State aid. On the basis of the information provided by the Czech authorities, none of the two notified sub-programmes does raise any issues in this respect. The Czech authorities confirmed that it is sufficient for the beneficiary to have a temporary agency established in the Czech Republic at the time of payment of the aid.

(58) Cultural content: According to point 2.3. b) 1. of the Cinema Communication, the aid must be directed towards a cultural product. Each Member State must ensure that the content of the aided production is cultural according to verifiable national criteria (in compliance with the application of the subsidiarity principle).

(59) The cultural content of all film projects is assessed according to the criteria set out in point 25, sub-paragraph i. All of these criteria refer to verifiable aspects of the cultural content of the resulting film. Consequently, the Czech authorities have established verifiable national criteria within the meaning of point 2.3.(b)1. of the Cinema Communication and the aid is therefore directed towards a cultural product.

(60) Territorialisation: According to point 2.3. b) 2. of the Cinema Communication, ”the producer must be free to spend at least 20 % of the film budget in other Member States without suffering any reduction in the aid provided for under the scheme.”

(61) As regards the requirement to spend 50 % of the aid on goods and services supplied by entities that have their tax residence in the Czech Republic, these entities are able to spend the aid on goods and services outside the Czech Republic without the reduction of the amount of the aid. In addition, the aid beneficiary is free to spend the remaining 50 % of the aid in other Member States. Therefore, territorial restrictions imposed on aid provided for projects under headings a) and b) of sub-programme 1 mentioned in point 17 does not raise concerns and therefore the territorial criterion of the Cinema Communication is met.

(62) Aid intensity: According to point 2.3 b) 3. of the Cinema Communication, ”Aid intensity must in principle be limited to 50 % of the production budget with a view to stimulating normal commercial initiatives inherent in a market economy and avoiding a bidding contest between Member States. Difficult and low budget films are excluded from this limit. The Commission considers that, under the subsidiarity principle, it is up to each Member State to establish a definition of difficult and low budget films.”

(63) For projects under headings a) and b) of sub-programme 1 mentioned in point 17 above, the general maximum aid intensity amounts, in principle, to 50% of the

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total project costs. Higher aid intensities can be applicable in case of European co-productions, where the aid can amount up to 60% and for difficult works, where the aid can amount up to 90 % of the production budget of the audiovisual work. The development costs and aid for development are included in the production budget and the production aid intensity calculation. The total support cumulated from the support for the development and the support for the production cannot therefore exceed the maximum total aid amount of 40 million CZK (approximately 1.4 million EUR) or the above maximum aid intensities of 50%, 60% or 90% of the total production costs.

(64) The Commission further considers that the Czech authorities have established definition of difficult films in accordance with the Cinema Communication. Culturally difficult cinematographic work is considered to be a work whose chances of economic success are limited because of its experimental nature, highly artistic or technical solutions or artistically difficult nature. The production of such work is desirable for its cultural value even though it is difficult to secure funding for such work from other sources because of its cultural difficultness. The fact whether the project meets such criteria is always decided by the Council. Because of difficult financing such works are often low-budget works, i.e. works whose budget does not exceed the average production costs of a cinematographic work in a given year. The amount of these costs is determined by the Council.

(65) Aid supplements for specific activities: According to point 2.3 b) 4. of the Cinema Communication, ”Aid supplements for specific film-making activities (e.g. post-production) are not allowed in order to ensure that the aid has a neutral incentive effect and consequently that the protection/attraction of those specific activities in/to the Member State granting the aid is avoided.”

(66) Headings a) and b) of sub-programme 1 mentioned in point 17 provide support to the costs linked to the film production process as a whole, without foreseeing any aid supplement for specific film-making activities. This complies with this criterion of the Cinema Communication.

(67) Conclusion: In view of the above, the Commission has concluded that the State aid granted by the Fund for development and production of audiovisual work projects under headings a) and b) of sub-programme 1 mentioned in point 17 above is compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU as it fulfils the conditions set out in the Commission’s Cinema Communication.

3.2.2. Sub-programme 1, heading c): distribution of audiovisual works

(68) This type of activity essentially takes place after the production phase of the audiovisual work and therefore it does not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU. However, given that the distribution of audiovisual works is linked to their production, the Cinema Communication is regarded as a pertinent reference when assessing the compatibility of State aid for this type of activity.

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(69) General legality principle: The support for the distribution of audiovisual works foreseen under the scheme does not raise concerns from the point of view of the general legality requirement referred to in point 57 above.

(70) Cultural content: Under the notified scheme, projects have to meet the criteria described in point 25, sub-paragraph i. The relevant criteria aim at supporting Czech culture, promoting general cultural heritage or strengthening European culture. The application of these criteria involves an evaluation by the Member State of a number of aspects related to the cultural content of the supported projects and ensures that the aid will be targeted towards a cultural product. The distribution support can be granted only as regards films with cultural content.

(71) Territorialisation: As regards the support for the distribution of audiovisual works, the measure does not foresee any requirement concerning the territorialisation of the expenses. Therefore, the relevant requirement of the Cinema Communication is fulfilled.

(72) Aid intensity: As far as the support for the distribution of audiovisual works is concerned the aid intensity amounts in principle to 50% of the project costs. In case of difficult projects, as defined in footnote 2, the maximum aid intensity could amount to 90%. Therefore, the scheme complies with the aid intensity rules of the Cinema Communication.

(73) Aid supplements for specific activities: No supplements for specific distribution activities are foreseen. This complies with the conditions of the Cinema Communication.

(74) Necessity and proportionality of the measure: As aid for the distribution of the audiovisual works does not fall within the scope of the Cinema Communication, the Commission needs to assess the necessity and proportionality of this type of support.13

(75) As indicated in point 3 above, the objective of the scheme is to support culture and heritage conservation. In particular, the scheme aims to support the distribution of Czech audiovisual works as well as European audiovisual works in the Czech Republic. Moreover, the evaluation of the fulfilment of cultural criteria relating to distributed audiovisual work and described in point 25, sub-paragraph i. by an independent expert supports this objective.

(76) This objective is in line with Article 167 (1) of the TFEU, which provides that “the Union shall contribute to the flowering of the cultures of the Member States, while respecting their national and regional diversity and at the same time bringing the common cultural heritage to the fore". Pursuant to Article 167 (4) of the TFEU, "the Union shall take cultural aspects into account in its action under other provisions of the Treaties, in particular in order to respect and to promote the diversity of its cultures".

13 For necessity and proportionality assessment of distribution support see Commission decisions N742/07

Estonian film support scheme of 13/02/2008, paragraphs 60 to 66, N202/08 Hungarian film support schemes of 16/07/2008, paragraphs 192 to 199, N233/08 Latvian film support scheme of 16/07/2008, paragraphs 51 to 62, N477/08 German film support scheme of 10/12/2008, paragraph 91 to 95 and SA.32836 Audiovisual Fund Slovakia of 11/8/2011, paragraphs 39 to 48.

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(77) The Czech authorities justify this support by the specific characteristics of the distribution market in the Czech Republic, which is limited to 10.4 million people. Distribution of audiovisual works in cinemas in the Czech Republic is influenced by the size, structure and performance of the distribution market. This market reports the trend of continual decrease in main indicators according to the size and potential of the market. In the Czech Republic, the numbers of cinemas and seats have been decreasing in a long-term period.

(78) The following table illustrates the market shares according to the country of origin of individual audiovisual works screened in the Czech Republic in 2012:

Country of origin # of

shows Admissions Box office

# of films

Share in admissions

Share in box

office

USA 252 451 6 757 964 810 805 573 392 60,44% 63,56%

Czech Republic 82 824 2 721 375 274 282 993 406 24,34% 21,50%

Great Britain 28 668 899 513 97 629 998 76 8,04% 7,65%

France 17 845 381 004 41 056 616 90 3,41% 3,22%

Germany 4 204 76 205 7 967 160 37 0,68% 0,62%

Australia 4 292 71 265 8 396 185 6 0,64% 0,66%

Slovak Republic 3 050 33 045 3 364 821 9 0,30% 0,26%

Other 8 860 241 480 32 093 143 179 2,16% 2,52%

TOTAL 402 194 11 181 851 1 275 596 489 1 195 100,00% 100,00%

(79) The above data illustrate significant disproportions in the structure of the

distribution market. These disproportions are limiting factors in ensuring content and cultural diversity of audiovisual contents. Therefore, providing aid in the field of distribution is essential for the preservation and development of a more balanced structure of the distribution market.

(80) The average grant amount will respect a limit of 20% - 50% of the total project costs. A higher percentage will apply for instance to support for alternative distribution-intensive works and documentaries. In addition, the maximum aid per one project is 5 million CZK, i.e. approximately 200 000 EUR.

(81) The Commission considers that the distribution support is necessary to achieve the intended objective. There are no conditions on the geographical origin of the audiovisual works selected for the distribution support. Moreover, taking into account the above mentioned aid intensity requirements and also the budget of this sub-programme, the aid will have limited effect on trade or competition within the EU. Consequently, the Commission considers that the aid for audiovisual work distribution under the scheme respects the proportionality principle.

(82) In view of the limited commercial interest in sponsoring distribution of audiovisual works, the limited maximum amount of grant per project, as well as the fact that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the maximum aid intensity is proportionate to the stated objective.

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(83) Therefore, the Commission considers that the distribution support within the scheme is necessary and proportionate to the objective pursued and does not distort competition to an extent which would be contrary to the common interest in line with Article 107(3)(d) of the TFEU.

(84) Conclusion: The Commission has therefore concluded that the State aid granted by the Czech Republic under heading c) of sub-programme 1 mentioned in point 17 above, related to the distribution of audiovisual works, is compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

3.2.3. Sub-programme 1, heading d): technical development and innovation

(85) Technical development and innovation does not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU.

(86) Necessity and proportionality: As the Cinema Communication is not applicable to the support to technical development and innovation, the Commission needs to assess the necessity and proportionality of this type of support.

(87) Aid granted under this heading is aimed mainly at digitisation of the village and small town cinemas that have no access to commercial funding. If the digitisation is not done in the few following years, these cinemas will be closed without any compensation for the inhabitants of the rural area. The aid will not be granted to undertakings which would either have made the necessary investment in full without the State aid or which would have been able to obtain digital projection equipment through alternative commercial business models.

(88) The support for the digitization of cinemas will only be granted for cinemas in rural areas, by which municipalities under 20 000 inhabitants are meant, or for cultural projects which have an added value in sophisticated programming and develop cultural life in their area. The support for larger cities is directed to art-house cinemas, whose mission is to make available mostly art-house production, works for demanding viewers and other works that have no chance to be in the mass distribution of multiplexes.

(89) The support can also be provided to film associations and film schools and universities for the acquisition of equipment for animation and digitization restoration as well as to the National Film Archive for the acquisition of equipment for digital restoration of the national cinematographic heritage.

(90) The support will not be provided for the development and modernisation of film studios.

(91) The aim of the cinema digitization support is to facilitate access to culture in the regions, especially in the remote areas. It should be noted that in those areas the cinema is the only cultural venue closely connected with local educational institutions. There is an enormous social impact of the cinemas in the regions and the projector in the school dining room is not a substitute. This type of support for cinema on the local level is important in the overall promotion of culture and

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access to valuable cinema and in such places where there is no other kind of regular cultural activities.

(92) According to the Fund's statute, the support will be provided only upon condition that the cinema will show at least 20 % of European films (including Czech).

(93) The estimated cost of installing digital projection equipment is CZK 2.5 million (approximately EUR 100 000). The overall aid amounts spent on projects in the field of technical development and innovation in cinematography had been in the last three years as follows: CZK 29.2 million (approximately EUR 1.2 million) in 2010, CZK 23.3 million (approximately EUR 0.9 million) in 2011 and CZK 25.3 million (approximately EUR 1 million) in 2012. It follows that approximately ten cinemas are digitised throughout the country every year. As the number of single screens in the Czech Republic in 2012 was 597 (classic permanent cinemas, outdoor cinemas, cinema-cafés, itinerant cinemas, other cinemas), digitisation of ten cinemas annually is considered proportionate and not distorting competition to an extent which would be contrary to the common interest.

(94) Furthermore, the aid is technologically neutral, without reference to any preferred technology. The Fund does not recommend a specific vendor of the technology. Moreover, most of the beneficiaries are owned by municipalities and therefore must comply with Act 137/2006 on Public Procurement.

(95) Support for these projects will usually reach the range of up to 20% - 50% of the total project costs. Exceeding this limit may occur only in case of a project with offset for the whole Czech cinematography. In addition, the maximum aid amount per 1 project is CZK 10 million (EUR 400.000).

(96) In view of the limited commercial interest in digitising cinemas, as well as the limited maximum of aid per one projects and the fact that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the maximum aid intensity is proportionate to the stated objective.

(97) Conclusion: The Commission has therefore concluded that the State aid granted

by the Czech Republic for projects under heading d) of sub-programme 1 mentioned in point 17 above, related to technical development and innovation, is compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

3.2.4. Sub-programme 1, heading e): promotion of audiovisual works (98) This type of activity essentially takes place after the production phase of the

audiovisual work and therefore it does not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU. However, given that the promotion of audiovisual works is linked to their production, the Cinema Communication is regarded as a pertinent reference when assessing the compatibility of State aid for this type of activity.

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(99) General legality principle: The support for the promotion of audiovisual works foreseen under the scheme does not raise concerns from the point of view of the general legality requirement referred to in point 57 above.

(100) Cultural content: Under the notified scheme, projects have to meet the criteria described in point 25, sub-paragraph iii. The relevant criteria aim at supporting Czech culture, promoting general cultural heritage or strengthening European culture. The application of these criteria involves an evaluation by the Member State of a number of aspects related to the cultural content of the supported projects and ensures that the aid will be targeted towards a cultural product. The promotion support can be granted only as regards films with cultural content.

(101) Territorialisation: As regards the support for the promotion of audiovisual works, the measure does not foresee any requirement concerning the territorialisation of the expenses. Therefore, the relevant requirement of the Cinema Communication is fulfilled.

(102) Aid intensity: As far as the support for the promotion of audiovisual works is concerned the aid intensity amounts in principle to 50% of the project costs. In case of difficult projects, as defined in footnote 2, the maximum aid intensity could amount to 90%. Therefore, the scheme complies with the aid intensity rules of the Cinema Communication.

(103) Aid supplements for specific activities: No supplements for specific promotion activities are foreseen. This complies with the conditions of the Cinema Communication.

(104) Necessity and proportionality: As the aid for the promotion of the audiovisual works does not fall within the scope of the Cinema Communication, the Commission needs to assess the necessity and proportionality of this type of support.14

(105) The projects under this heading, i.e. promotion of Czech cinematographic works, are focused primarily on the support of Czech cinematography and culture abroad through the support of participation of Czech films at international festivals, publications on contemporary Czech cinema, promoting awareness of Czech cinematography and culture. Support of Czech culture abroad whose integral part is Czech cinema is one of the fundamental roles of the state and cultural policy. It also helps to promote the Czech cinema at the international market and shape the environment, so that in the long run it allows the Czech audiovisual works an easier penetration of the international market.

(106) Promotion of cinematography is the way how to make the art of cinema available to all people given that culture is a fundamental part of the knowledge-based society and an important development factor in expanding cultural potential. Promotion enables to use artistic potential and provide cultural services and presentation of the film art in the context of the existing co-production films. Promotion helps to ensure new extra-budgetary resources for the film co-productions.

14 Support for the participation of Spanish films in festivals was assessed in Commission decision in case N

587/2009 – Spain. Support for promotion of Polish film-making and dissemination of film culture was assessed in Commission decision in case N 505/2005 – Poland.

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(107) Aid under this heading is granted for promotion carried out by small non-profit organizations. A major commercial involvement in such promotion is not desirable, as the projects supported should represent and promote the entire Czech cinematography, not one single audiovisual work or a company providing private funding.

(108) The beneficiaries of this aid may receive support for projects relating to the

Czech cinematography under different programmes. This fact makes it difficult to grant the aid under the "de minimis" regulation15. For example, the DOC Alliance Film (see table below) is a project in the area of promotion as well as in the field of documentary film education (the cummulation limit of 90% applies). Such projects are non-profit where the potential revenue (particularly admission fees) of the project is part of the implementation budget and in any case is so low that it does not and never will generate profit.

(109) The total amount of support granted for promotion activities in 2012 was 15.9

million CZK. Here is an example of two supported projects ("Doc Aliance Film" is an educational platform for film makers (authors), whereas "Support of Czech documentary films" is a platform for distribution of documentary films):

Project Support of Czech

documentary films Doc Aliance Film Total project budget in CZK […]∗ […] State aid in CZK 1 000 000 280 000 State aid support in % […] % […] % (110) The average support for projects will be in the range of 20 - 50% of the total

project costs. Exceeding the limit of 50% may occur only in case of a project with a fundamental importance of such support to promotion of the Czech cinema at international level. In addition, as described in point 20, the maximum amount of grant per project is 6 million CZK, i.e. approximately 240 000 EUR.

(111) In view of the limited maximum amount of grant per project, as well as the fact

that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the maximum aid intensity is proportionate to the stated objective.

(112) Therefore, the Commission considers that the promotion support within the

scheme is necessary and proportionate to the objective pursued and does not distort competition to an extent which would be contrary to the common interest in line with Article 107(3)(d) of the TFEU.

(113) Conclusion: The Commission has therefore concluded that the State aid granted by the Czech Republic under sub-programme 1, heading e), related to the promotion of audiovisual works, is compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

15 Commission regulation (EC) 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of

the Treaty to de minimis aid (OJ L 379, 28. 12. 2006). ∗ Data omitted on grounds of confidentiality has been replaced by […].

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3.2.5. Sub-programme 1, heading f): publishing activities and film science

(114) Publishing activities and film science do not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU.

(115) Necessity and proportionality: As the Cinema Communication is not applicable to publishing activities and film science, the Commission needs to assess the necessity and proportionality of this type of support.

(116) Support for projects under heading “Publishing activities in the field of

cinematography and activities in film science” focuses primarily on academic journals and periodicals and non-periodical publications contributing to the spread of information and expertise in the field of cinema. Furthermore, this heading supports projects in the field of film science such as scientific research projects whose results will be used as methodical material summarizing and enriching the new knowledge and practices.

(117) The support of publications fosters involvement of Czech film critics and film

studies in the European cinematography environment; support for publication of professional periodicals is of national and international significance.

(118) It is evident that the above mentioned need for the aid relates to the fact that

publications of this type for a narrow range of consumers cannot be published without state support. According to the Czech authorities, the average number of issued copies is up to 600, the price of CZK 300 is the maximum price for which it is possible to sell such publications and this price does not cover the total production costs of such professional literature. In case of absence of support it would not be possible to issue such non-commercial publications at all.

(119) Support of publications in the field of cinema and film education helps to

develop the inherited cultural, material and spiritual wealth of non-commercial artistic exchange and preservation of the cultural heritage of the Czech Republic contributes to the creation of European cultural space.16 Publication activity helps to support projects that deliver knowledge, the possibility of self-education and spending of quality leisure time.

(120) Support for publications in the field of cinema is necessary because of its

narrow range of consumers that do not provide the necessary revenue. The publications are mostly translations of foreign publications, highly professional and educational books which would serve in the film education not only for the needs of professional schools.

(121) In any case, they are not books with commercial potential which production

costs could be covered through sale. (122) The Ministry of Culture supported 11 projects - publication activities in 2012

in the total amount of CZK 1.6 million. Here is the example of two supported projects ("Film a doba" is a trimestrial journal on cinematography of a given year,

16 See Article 167(1) of the TFEU.

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whereas "Cinepur" is a monthly journal on cinematography of an educational and scientific nature):

Project Film a doba Cinepur Total project budget in CZK […] […] State aid in CZK 500 000 500 000 State aid support in % […]% […]%

(123) Support will be in the range of 20 - 50% of the total project costs. Exceeding

such limit may occur in cases where there are reasons for avoiding funding from other sources as this could lead to obstacles to the independence of the content of publications or scientific work and the Fund’s Council also acknowledges the need for the development or existence of such a work for Czech cinematography. The exceptional nature of such projects is decided by the Council of the Fund. In addition, the maximum aid amount per one project is 6 million CZK, i.e. approximately 240 000 EUR.

(124) In view of the limited commercial interest in publishing activities and film science, the limited maximum amount of grant per project, as well as the fact that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the maximum aid intensity is proportionate to the stated objective.

(125) Therefore, the Commission considers that the support for publication activities and film science within the scheme is necessary and proportionate to the objective pursued and does not distort competition to an extent which would be contrary to the common interest in line with Article 107(3)(d) of the TFEU.

(126) Conclusion: The Commission has therefore concluded that the support granted by the Czech Republic under sub-programme 1, heading f), related to publication activities and film science is compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

3.2.6. Sub-programme 1, heading g): preserving the national film heritage and

making it accessible to the public

(127) As explained in point 37, the types of activities (preserving the national film heritage and making it accessible to the public) benefitting from the support under the sub-programme 1, heading g) may not, under certain circumstance, qualify as economic activities. However, if any of them were considered to be an economic activity, they can be found compatible with the internal market in line with Article 107(3)(d) of the TFEU for the following reasons.17

17 Support for the conservation of film heritage was assessed in Commission decisions in case N 587/2009 –

Spain - Spanish national film support scheme, and in case N742/07 – Estonia - Estonian film support scheme.

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(128) This type of activity essentially takes place after the production phase of the audiovisual work and therefore it does not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU.

(129) Necessity and proportionality: The projects under this heading are aimed at

the digital restoration of the cultural material and cataloguing of the film heritage. Currently, the digital restoration is necessary because of technological developments in exploitation of works. The national cinematographic heritage is indeed properly archived and treated, however it is necessary to make it accessible in the field of education.

(130) The Fund is the administrator of the cinematographic works produced during the monopoly of film production in the communist regime. These films are property of the state and the Fund is only an administrator. These works were released from 1965 to 1991.

(131) Large quantities of Czech films are conserved in the National Film Archive in specific conditions to prevent further degradation (fungi, vinegar syndrome, etc.), however they are not in a state that allows to make them accessible. The intention of the Fund is to restore these works digitally over a period of time. It is necessary to make Czech film heritage accessible to new audiences. Making these films accessible has also educational importance.

(132) A copy of each aided film suitable for long-term preservation will be deposited in the National Film Archive.

(133) Support will be in the range of 20 - 50% of the total project costs. However, in case the support will be focused on the preservation and accessibility of cultural heritage assets of the State, the aid may be higher than 50%. The maximum aid amount per one project is 30 million CZK (1.2 million EUR). This maximum amount of aid is justified by the high technical demands on the digitization of cinematographic works (about 2.5 million CZK per work). If the Fund receives adequate financial resources in the future and decides to proceed with the digital restoration conceptually and thus to preserve and make available national film heritage, then the maximum aid amount per project is justified by processing several movies within one project. Indeed, under this heading, one film individually, but even more films together, such as the restoration of Milos Forman´s films, can be digitally restored.

(134) In view of the limited commercial interest in the digital restoration, as well as

the fact that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the maximum aid intensity is proportionate to the stated objective.

(135) Conclusion: The Commission has therefore concluded that if the support

granted by the Czech Republic under sub-programme 1, heading g), related to preserving the national film heritage and making it accessible to the public, were to constitute State aid within the meaning of Article 107 (1) of the TFEU, it would be compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

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3.2.7. Sub-programme 1, heading h): education and training

(136) As explained in point 37, the types of activities (education and training) benefitting from the support granted under the sub-programme 1, heading h) may not under certain circumstance, qualify as economic activities. However, if any of them were considered to be an economic activity, they can be found compatible with the internal market in line with Article 107(3)(d) of the TFEU18.

(137) Education and training does not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU.

(138) Necessity and proportionality: The projects under the heading “Education and

training in the field of cinematography” are intended to support systematic education of a film viewer, systematic training of individual cinema and the film industry participants - authors, editors, producers, distributors, cinema operators, film clubs and preparation of necessary educational materials and facilities. The part of the support under this heading is also focused on a year-round support of organizations within the film industry that perform a wide range of activities in support of Czech Cinematography whose integral part is education and training. Support for education of film viewer is primarily directed to support quality awareness and the importance of Czech cinema culture, the educational support for professionals delivers the results especially in the long run by allowing improvement of work at all levels of cinematography.

(139) Film training has the following aims:

a) reinforcing the importance of film and cinematography for the general public, b) strengthening the relation of public to quality films of different genres and types, c) safeguarding and promoting the national/regional coordinators of film training

(methodology, logistical support, teachers training, etc.), d) greater public participation in film training, e) dealing with copyrights in teaching and extracurricular educational work, f) promoting respect for copyright in film education, g) increase awareness of the existence of film education curriculum.

Film education has the following aims: a) professionalization of the film industry at two levels - film professionals (cameramen, producers, directors, editors, etc.) and the decision makers at the various segment levels of cinematography (government, public television, etc.), b) maintenance and update of knowledge of film and special know-how, c) support of all segments of the film from development topics (including producer dramaturgy) through production professions to support of film exploitation (including foreign trade) and training of cinema workers, d) anchor (also financial) of film education in the system of cinema and its active role.

18 Support for educational activities was assessed in Commission decision in case NN 70/2006 – Finland.

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(140) The necessity of support for education in the field of cinematography is strongly linked to education in the culture. Cinematography is the only platform that can bring together education in the field of literature (Marketa Lazarova), Czech and European history (Tmavomodrý svět, Skřivánci na niti, Schindler's List, Downfall), music (Amadeus), social importance (Ucho, 4 Months, 3 Weeks and 2 Days). It is necessary to strengthen the relationship of general audience to quality films of different genres and types in the context of linking with other segments of the culture. It is necessary to ensure and support the national/regional coordinators of film education (methodology, logistical support, teachers training, etc.). There is a need to preserve the diversity of film education activities (schools, non-governmental organizations, etc.).

(141) The support for education is adequate given that education is one of the main

pillars of a functioning state and cinematography plays an important role in shaping the personality of young people. The need for generally educated nation includes the film education. The educational process is usually non-commercial activity. For this reason, the lack of state support for the education would completely eliminate the educational support in the field of cinematography.

(142) The Ministry of Culture supported 17 projects - education activities in 2012 in

the total amount of CZK 2.3 million. Here is an example of two supported projects (MIDPOINT is an educational platform for film makers for presentation and financing of their projects, whereas DOCIncubator is an educational platform for film makers for development of projects with an international potential):

Project MIDPOINT DOCIncubator Total budget in CZK […] […] State aid in CZK 750 000 200 000 State aid support in % […]% […]%

(143) The support will usually be in the range of 20 - 50% of the total project costs. Exceeding such limit may occur in cases where there are reasons for avoiding funding from other sources as this could lead to obstacles to the independence of the content of educational or training project, there are no other sources of funds and the Fund’s Council also acknowledges the need for the realization of such project for Czech cinematography. The exceptional nature of such projects is decided by the Council of the Fund. In addition, the maximum aid amount per one project is 8 million CZK, i.e. approximately 320 000 EUR.

(144) In view of the limited commercial interest in education and training, the

limited maximum amount of grant per project , as well as the fact that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the maximum aid intensity is proportionate to the stated objective.

(145) Therefore, the Commission considers that the support for education and

training within the scheme is necessary and proportionate to the objective pursued and does not distort competition to an extent which would be contrary to the common interest in line with Article 107(3)(d) of the TFEU.

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(146) Conclusion: The Commission has therefore concluded that if the support by the Czech Republic under sub-programme 1, heading h), related to education and training, were to constitute State aid within the meaning of Article 107 (1) of the TFEU, it would be compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

3.2.8. Sub-programme 1, heading i): film festivals and film show

(147) As explained in point 37, film festivals and film shows benefitting from the support under the sub-programme 1, heading i) may not, under certain circumstances, qualify as economic activities In any event, the film festivals and shows supported under this heading can be considered compatible with the internal market in line with Article 107(3)(d) of the TFEU for the following reasons.19

(148) Film festivals and film shows essentially take place after the production phase of the audiovisual work and therefore do not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU.

(149) Necessity and proportionality: There are various international film festivals in

the Czech Republic. The biggest and most famous are IFF Karlovy Vary20 (since 1946), IFF of films for Children and Youth Zlin (since 1960), Summer Film School in Uherske Hradiste (since 1963), IFF of Documentary Films Jihlava (since 1997) and Documentary Film Festival on Human Rights One World (since the middle of 90’s). Except for these well-known festivals, more than 100 other festivals, exhibitions, screenings and other similar events are taking annually place in the Czech Republic.

(150) The following table illustrates in details the characteristics and financial results of major subsidized film festivals in the Czech Republic in 2011:

19 For necessity and proportionality assessment of support to film festivals see Commission decision

SA.32836 Audiovisual Fund Slovakia of 11/8/2011, paragraphs 49 to 60. Support for organising film festivals was also assessed in Commission decisions in case N 587/2009 – Spain - Spanish national film support scheme, and in case N742/07 – Estonia - Estonian film support scheme.

20 Please note that until today, IFF Karlovy Vary has not applied for the funding from the Fund, but as a part of the Czech cinematography they could be eligible, whereas their contribution to the Czech cinematography is primarily in large retrospectives and restoration of Czech film classics.

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IFF Zlin21 FS U.Hradiste22 IFF Jihlava23 One World24

Location Zlin U.Hradiste Jihlava Prague and 40

townsDuration in days 8 10 6 10Admissions […] […] […] […]Total budget in CZK […] […] […] […]State aid in CZK 12 000 000 2 000 000 4 700 000 5 500 000State aid support in % […]% […]% […]% […]%Ticket revenue in CZK (approximate) […] […] […] […]

(151) The audience of the largest international film festivals in the Czech Republic is generally local as well as international. These festivals are focused mainly on target groups which are children (Zlin), students and intellectuals (One World and Jihlava), or film school students, members of film clubs and film fans (U. Hradiste).

(152) Film festivals and other public film events are focused on artistically valuable films and therefore festivals and other events represent a “cultural alternative” to the standard film distribution. Programme film selection is usually oriented on films which are not released in Czech cinemas in common. Majority are low-cost or difficult films which do not have any substantial relevant market share in local and international film distribution market. Festival screenings give a unique opportunity of public presentation to this kind of films. From that point of view film festivals and other public events in the field of audiovisual culture enlarge market space for European films and support blending of film cultures between Member States.

(153) Film festivals and other events usually include film education components into the festival programme – e.g. retrospectives of film artistic personalities, showing of national film heritage from the Czech Republic and abroad, thematic or genre special selections and other.

21 International Film Festival for Children and Youth in Zlin is one of the oldest and largest film event of its

nature in the world. The target groups are children and youth of all ages. There are four competitive sections and several non-competitive sections.

22 Summer Film School in Uherske Hradiste is the only - and therefore the largest Czech - non-competitive festival. The objectives of this ten-day event is primarily focused on education and training, presentation of the history and present of Czech and world cinema. Dramaturgy is based on thematic sections which are often very rich and the subjects are deeper than it could be affordable at the normal competitive festival. Movies are presented with an introductory lecture. The organizers also focus on thematic discussions, workshops, film seminars, etc.

23 International Documentary Film Festival Jihlava was founded in 1997 as the spontaneous activity of the local grammar school. Since that time, it has reached a major national reputation. The uniqueness of the festival lies in the fact that it focuses solely on documentary films.

24 One World - Documentary Film Festival on Human Rights - is presenting contemporary documentary cinema and the state of human rights and civil society. One specific feature of the One World is certain formal diversity. Film screenings penetrate outside cinemas (most frequently to schools). In addition to film screenings, the festival organizes significant professional and educational workshops and conferences. Since 2012, the festival is associated with the East Doc Platform - project for professionals in the field of documentary film.

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(154) In view of the low revenues and limited participation of non-Czech audience, the aid provided to certain small regional or specialised film festivals and other events is unlikely to distort competition or have a negative effect on trade between Member States. State aid for public presentation of audiovisual works is essential for the scheme's objective of supporting and promoting Czech and European audiovisual culture. Principally, support of public presentation of an audiovisual work completes the effect of support provided to the work’s creation and production.

(155) From this point of view support for film festivals is necessary as its aim is:

- to promote and present the Czech and European culture, alternative art distribution

- to support diversity of Czech and European culture

- to educate via festivals in terms of projections for children, schools

- to support social character of the regions

- to establish new relationships for the purpose of European co-production

- to financially stabilise the most important festivals in the Czech Rep.

(156) The average amount of support will be kept in the range of 10% -50% of the total project costs while in case of major festivals the support will move to lower limits, and in case of smaller festivals (that play an important role in specific genres, dramaturgical sophistication, generic definition) will move to upper limit. Exceeding such limits may occur in cases where there are reasons for avoiding funding from other sources as this could lead to obstacles to the independence of the content of the project, there are no other sources of funds and the Fund’s Council also acknowledges the importance for the realization of such project for Czech cinematography. The exceptional nature of such projects is decided by the Council of the Fund. In addition, the maximum aid amount per one project is 8 million CZK (320.000 EUR).

(157) In view of the limited commercial interest in sponsoring film festivals and film shows, as well as the fact that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the maximum aid intensity is proportionate to the stated objective.

(158) Consequently, given the Czech context noted above and that the Czech authorities have demonstrated that State aid for film festivals and film show is necessary and proportional, in view of the scheme's objective of supporting and promoting Czech audiovisual culture, this support is necessary and proportional.

(159) Conclusion: The Commission has therefore concluded that if the financial support by the Czech Republic under the sub-programme 1, heading i), related to film festivals and film show were to constitute State aid within the meaning of Article 107 (1) of the TFEU it would be compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

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3.2.9. Sub-programme 1, heading j): protection of the rights related to cinematographic works

(160) This type of activity essentially takes place after the production phase of the

audiovisual work and therefore it does not fall within the scope of the Cinema Communication. Consequently, it is appropriate to assess the compatibility of the aid measure on the basis of Article 107 (3) (d) of the TFEU.

(161) Necessity and proportionality: The support for projects under heading

“Protection of rights related to cinematographic works” is necessary as it promotes education and awareness of copyright, promotes legal offer of films and supports studies on the subject of copyright protection, piracy, legal offers, etc.

(162) The types of projects foreseen under this heading include: projects mapping out the situation of audiovisual piracy in the Czech Republic with an impact within Europe; collection of relevant data in terms of research options; projects to reduce the negative impact of piracy (restrictions but also education, definition of positive steps, alternative distribution settling with the real existence of audiovisual piracy). It is a condition of this heading that the supported projects may not interfere with free trade and circulation of works in the EU.

(163) Support will be in the range of 20-50% of the total project costs. The reason for an excess of these percentages may be exceptionally high quality project that would not be produced without greater support from the Fund. In addition, the maximum amount of aid per one project is 6 million CZK, i.e. approximately 240 000 EUR.

(164) In view of the maximum amount of grant per project , as well as the fact that the 50 - 90% aid intensity could be reached only exceptionally in case of a difficult project, the aid intensity is proportionate to the stated objective.

(165) Conclusion: The Commission has therefore concluded that the support granted

by the Czech Republic under sub-programme 1, heading j), related to the promotion of the legal offer of cinematographic works and the related material is compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

3.2.10. Sub-programme 2: film incentives

(166) The envisaged measure is a prolongation of an aid scheme including only limited changes (see points 28 to 31) not relating to its substance and which has previously been approved by the Commission under Article 107(3)(d) of the TFEU as compatible with the internal market.

(167) The Commission’s assessment in its approval of the scheme on 17 June 2010 (N 98/2010) was based on the 2001 Cinema Communication.

(168) The changes made to the film incentives scheme by the Czech authorities do not affect the Commission's previous assessment of the scheme’s compatibility under the criteria of the 2001 Cinema Communication. Consequently, the

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Commission’s earlier assessment remains valid. The Commission notes that the Czech authorities have committed to modify the aid scheme if the State aid rules change subsequently.

(169) Given the conditions for providing the film support under the aid scheme at stake have not changed substantially, the notified sub-programme for film incentives is compatible with the criteria of the Cinema Communication.

(170) The Commission has therefore concluded that the support granted by the Czech Republic under sub-programme 2, related to the film incentives for audiovisual worksis compatible with the internal market on the basis of Article 107 (3) (d) of the TFEU.

4. CONCLUSION

(171) In view of the above, the Commission finds that the aid granted on the basis of the measure in question is compatible with the internal market in accordance with Article 107 (3) (d) of the TFEU and has accordingly decided not to raise objections to the notified measure.

(172) The Commission requests the Czech authorities to submit annual reports on the implementation of the scheme. The Commission further reminds the Czech authorities that any plans to modify this scheme must be notified to the Commission.

(173) The Commission notes that the Czech authorities have committed to amend the scheme if required by changes in the relevant State aid rules during the lifetime of the scheme.

If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within fifteen working days of receipt. If the Commission does not receive a reasoned request within that deadline, it will be deemed that you agree to the disclosure to third parties and to the publication of the full text of the letter in the binding language on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm.

Your request should be sent by encrypted e-mail to stateaidgreffe@ec.europa.eu or, alternatively, by registered letter or fax to:

European Commission Directorate-General for Competition For the attention of the State Aid Registry 1049 Bruxelles/Brussel BELGIQUE/BELGIË

Fax No: +32 229 61242

For the Commission

Joaquín ALMUNIA Vice-President