The Rise of Co-Productions in the Film Industry: The Impact of Policy Change and Financial Dynamics on Industrial Organization in a High Risk Environment
The main aim of this study is to examine the interrelationship of finance and government intervention in explaining the rise of co-productions in the international film industry in the time period between 1997 and 2004. Mainstream economic geography literature presents the film industry typically as a case study for embeddedness and agglomeration effects, with successful industry clusters drawing their strength from process knowledge, networks and local interaction. However, there is an increasing disparity in the literature between what mainstream theory suggests, and what empirical studies find with respect to the importance of cluster-external relations and dynamics. This, as I will argue, is particularly evident when looking at the picture of the whole film industry production system that emerges from the literature, which fails to include the alternative and complimentary pattern of co-productions. Co-productions are collaborations between film producers from at least two different countries, pooling their resources across distance to produce a feature film project. In the past fifteen years, the number of films made as co-productions has risen continuously in Europe, with co-productions accounting for more than 30 per cent of European film production activity. As a mode of production based on temporary, cross-border collaboration that is supported in its coordination by temporary clusters, such as trade fairs and industry events, the coproduction phenomenon poses a conundrum to economic geography literature and challenges its explanatory framework. As I will argue, in order to arrive at a satisfactory understanding of the phenomenon, it is necessary to look beyond social factors associated with locality, and to examine instead dynamics impacting on the industrial organization of the whole production system. I will argue that in the context of the pervasive demand uncertainty characterizing the film industry, the analytical focus should be on financial dynamics, as production activity and its organizational form are ultimately dependent on finance as an enabling force. Based on a description of the film financing process as the primary process in which the relationship between the economic categories of financial and production capital are played out, I propose that in order to explain the growth of co-productions empirically, it is necessary to examine changes in the film financing environments of the increasingly interrelated European and US film industries. As the State is the most important provider of financial capital in the European film industry through the provision of public aid, the focus will lie in particular on the consequences of a paradigm change in the rationale of State intervention in Europe moving away from funding film for cultural reason, to supporting the industry on economic grounds since the mid 1990s. As will be shown, the most important consequence of this paradigm change has been the introduction of tax incentives to encourage investment into film in a number of European and international countries within a short period of time. As will be demonstrated, this has led to the formation of significant, locally confined capital pools that can dis-embed production; and to the emergence of a distinct capital cycle in international film financing, which has strongly impacted on the productive system of the film industry. Finally, a dynamic explanation for the growth of co-productions in Europe in the time period between 1997 and 2004 will be provided. I will argue that co-productions have firstly grown in order to overcome a lack of finance, but have in the context of a capital cycle based on tax incentives from Germany and the UK, increasingly become driven by the opposite dynamic, namely an abundance of financial capital seeking profitable investment opportunities. The study will conclude with a discussion of policy implications, a summary of contributions to the literature and a brief overview of future research opportunities.