German Election Results Put Biz In Waiting Mode

Political maneuverings in Berlin over the next few weeks could determine whether the upheaval caused by the end of Germany's film funds will prove a boost or a bane for the local German industry.

After two weeks of bickering in the wake of Sept. 18's photo-finish election and following Sunday's vote in Dresden, which had been delayed due to irregularities, Germany's main political parties can finally begin the real policy negotiations needed to form a new government.

Most expect the conservatives, under Angela Merkel, to form a coalition with the social democrats. Chancellor Gerhard Schroeder is expected to resign.

Top German media players will be watching closely for hints of how the new government reacts to the end of the funds, the tax-driven private investment vehicles that have pumped more than a billion dollars annually into international film production.

That the lucrative German funds are history is no longer a matter of debate. Last week, the final major holdout — top German fund VIP — imploded. The Munich-based group pulled its two remaining funds from the market in the midst of an investigation by German tax authorities (HR 9/28).

But even before the VIP collapse, Germany's film funds had become politically untenable. Local politicos no longer supported the idea of tax breaks for film production when some 90% of the money flowed out of the country, most of it to Hollywood.

The real question now is will the indigenous German industry be able to salvage some of the mounds of private investment cash — €1.5 billion last year alone — that poured into the film funds?

David Groenewold, head of film fund GFP, argues that the investment potential in Germany is sufficient to support an annual production volume of more than €500 million ($596 million). That capital will move elsewhere, Groenewold warns, if German authorities do not introduce new tax incentives to make investment in film and TV production financially attractive.

For the better part of a year, several top media investment players, including Groenewold, have been lobbying the German government to come up with a model to replace the film funds. Proposals have ranged from a sale and leaseback system based on the U.K.'s, to tax breaks for film funds provided all the money is spent in Germany.

So far, none of them have caught on. That's hardly surprising. With record unemployment and empty state coffers, few German politicians are going to come out in favor of tax breaks for filmmakers or financiers.

There is even a fear that the one concrete new proposal to come from Schroeder's government — a three-year, €90 million ($107 million) venture capital fund to back local production — could be in danger now that Schroeder looks likely to resign.

But it isn't all doom and gloom. Conservative leader Merkel is pro-business and pro-investment.

Before the election, her media policy spokesman, Bernd Neumann, assured the industry that the conservatives would set up "fiscal parameters" to insure private capital continues to flow into the German film industry.

With the results of the voting finally in, the industry waits to see what exactly that will mean.