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Eduard Anatolyevich Pichugin

Eduard A. Pichugin, the general director of Lenfilm Studios.
He is a board member of the Union of Cinematographers in Russian Federation; President of "Kinoalliance", the National Association of the Cinema Professional Organizations; the board member of the Producers Guild of Russian Federation. He has been engaged in promoting movie presentations and building cinema theaters since 1999. He holds a degree as a Candidate of Economic Sciences, wrote and defended the thesis on “Cash Flow Management in the Cinema Industry” within the framework of his major – “Finance and Credit”. He is a founder of the federal movie theater chains "Kronverk Cinema" and "KINO CITY".

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Transcript of the meeting of the Government Council for the Development of Domestic Cinematography

01/02/2011

V.V. Putin: Good day, my dear friends and colleagues!

Today, the meeting of the Government Council for the Development of Domestic Cinematography is held in a very special place, dear to the hearts of everyone who loves the world of cinema – the Gosfilmofond building, one of the world’s largest film archives. The Director of this institution has just informed me that over 60 thousand films are stored in this collection, which reflects not only the Russian cinema, but also global motion picture arts and sciences.

Of course, each generation produces its own kind of films, and portrays its own kind of heroes. In many respects, our own times will probably be judged according to screen images… hopefully, not only at the cinema, but in many respects, through its medium. To a great extent, our times will be remembered through films.

Of course, it is also very important for us to make sure that the Russian film industry will become not only a national heritage, but also an essential part of global culture. Naturally, the answer to this question depends to a great extent on the people who have gathered here today, on you yourselves, on cultural activists, and, of course, on the State, which should support the cinema industry, create favorable conditions for its development, and for the implementation of the nation’s creative potential, and not just the sector on its own.

One year ago, we discussed in detail the situation, which had then developed in the system regulating State support of motion picture arts and sciences, and we all came to a general consensus, that the practice, which existed at that time, did not meet the requirements of that period, and that the Russian film industry was in dire need of new, appropriate, and modern-day forms of cooperation with the State.

One of the most important steps in reforming this system became the creation of the Federal Fund for Social and Economic Support of Domestic Cinematography. Our council has decided that this fund should have the right to produce and promote national feature films, and cooperate closely with the most perspective film companies with stable and creative reputations.

Dear colleagues, I would like to remind you of the following fact: the fund was created by a resolution approved by the Government of the Russian Federation on December 31, 2009. Financial backing for the film industry, which constitutes the main task of the fund, will be directed towards partial financing of leading companies, whose projects have brought in considerable proceeds and film bonuses; this means that they are in a position to return financial expenses to the State. Financial backing will also be directed towards incentive premiums (bonuses) for pictures, which have been viewed by more than one million spectators, and towards the production of socially-meaningful films – both patriotic and educational, focusing mostly on young people.

The Ministry of Culture will continue to study questions related to children’s films, first feature films, documentaries, and animated films, as well as organize cinema festivals and competitions.

This was a step, which was a response to actual trends in the global cinema industry, and to objective problems related to the development of the domestic film industry, whose main task should be directed towards creating striking and competitive Russian films, and forming a stable and profitable film market in our country.

The fund started operating at the beginning of 2010. Considering the specific character of film production and distribution, the first results of this work can be summed up only in the fall. However, I suggest initiating a discussion on what has actually been done up to this very date, and how the development plan, designed by the fund, has been implemented so far.

I would like to emphasize that the State is investing important funds to support the film industry. Therefore, more than 4.3 billion rubles have been allocated from the 2011 Federal budget for these objectives; about 1.4 billion of these rubles will be allocated through the Ministry of Culture. And, some 2.9 billion rubles have been specially allocated to implement the actual fund.

The most important question is whether these funds will be used effectively. Today, many people say that the key problem of the Russian cinema is that the final results of a picture should be measured by its public resonance. Yes, even if all the investors’ expenditures are covered, this is not so important, and does not always correspond to real criteria of success. In fact, the old system of support did not require anyone to win over an audience anyway; it was quite possible to get fairly good proceeds from the production process itself.

The film industry is a powerful business. It is undoubtedly so, but it is also a great art. This has been proved more than once by leading world-famous figures of the film industry, who continue to shoot gripping stories, and produce masterful professional films.

This has also been confirmed by statistics, according to which, for example, only 69 films out of a total of 338 released films were made in our country. This is not only due to the fact that fewer films were shot, but because film production companies refused to have anything to do with unprofitable and boring pictures. I will come back to this subject once again; we will talk about this matter once more.

Unfortunately, I am not only talking about domestic and foreign films showing in cinemas. I am convinced that we should definitely not set up artificial limits, or establish quotas – in one word, we should not make choices. But, the choice should be left to the spectator, that is, who better than the spectator can assess the quality of a film? More than once have we seen pictures with loud and catchy names splashed across posters by serious-minded PR-businessmen and multi-million budgets with public funds included, but which are largely ignored by the general public. At the same time, we see that very modest and inexpensively produced films can sometimes stir up a lot of interest among the Russian audience, and this interest is often confirmed when these films receive the most prestigious international awards.

Today, representatives of different generations of people working in the motion picture industry, including young, talented, and promising individuals, have been invited to our meeting. I think that without them, any discussion about the future of Russian cinema would be incomplete. I also wish to ask all the people present today to share their opinion on the state of affairs in the film industry, and how you think that it should develop in the future. Oh yes, and here is something that has just popped into my mind – the actual infrastructure for presenting and distributing films.

Today’s situation can be most clearly illustrated by statistics. So, there were 2,246 cinema theaters in Russia in 2010. All of them are concentrated in 137 cities. But, there are more than a thousand cities in Russia. I have just mentioned cities, but let’s not forget about urban settlements, and other types of settlements. According to preliminary estimates, and in order to satisfy present-day demands, we should open at least just as many cinema theaters. But, this will still be less than in developed market economies, where many more theaters are available to the public. Even if we increased the number of cinemas by two times, there would still be 3-3.5 times more of them in the USA!

Now, it is important to understand that it is necessary to create networks of infrastructures for cinema theaters and film distribution not just to make money in a primitive way. Our key task is to make art more accessible to the general public, in this case, the motion picture arts and sciences, which can be a powerful educational stimulant. Such stimulants - and I think that you will agree with me here – are very much in demand nowadays as they serve to promote high civil and moral values, and teach mutual respect and tolerance in our multi-national and multi-denominational country.

The cinema is essentially much more than just plain entertainment. We all understand this perfectly well. It represents an important resource for education, dialogue and communication, and personal development. And, considering that the cinema has always been so very popular, especially with young people, such a resource should be exploited to the full.

I know that concrete suggestions for building new and modern cinema theaters have been prepared for this meeting. Fedor Sergeevich (F.S. Bondarchuk) will tell us about this today, and we will discuss this question further. Just before my arrival, I had the opportunity to talk not only with the Minister of Culture, but also with the Minister of Finance. Several things should be taken into account here.

Now, let’s get to work. I would like to ask Aleksandr Alekseevich Avdeev to make a statement.

 

A.A. Avdeev: Thank you! Dear friends of the Government Council! The main event of the previous year in film industry management was the introduction of the new mechanism for providing State support of cinema production. Vladimir Vladimirovich has just told us about this, emphasizing that it was the main event in cinema management.

The Ministry of Culture has had the opportunity to distribute some of the funds as grants, but the Cinema Fund, created by the Government, has become an independent source for financing film productions from the State budget. The creation of this fund is not just an important step towards improving the mechanisms of film production. Civil society starts getting involved in the distribution of public funds to the cinema industry, and the State transfers some of its functions to this part of society. In this sense, it seems to me that the fund represents an important phenomenon in the development of civil society and attitudes in our country. Such practices exist in all developed film industries.

Cooperation between the Ministry of Culture and the fund is proceeding very well, in a business-like, but friendly atmosphere. There are no problems between us; we have an excellent mutual understanding. The Ministry believes that we should continue along this line, namely, working and cooperating amicably, but very naturally.

At the same time, if we sum up the analytical results, we should consider not only the positive aspects, but also the rough edges that need to be smoothed out for these new mechanisms for financing the film industry. I really feel obliged to bring this up, Vladimir Vladimirovich. The cinema community continues to talk about the criteria of selection by the group of eight leaders; as a whole; it has adopted a very careful attitude with regard to turning for money not to the State itself, but to a private company. Our countless meetings at the Ministry with cinema activists … producing children’s movies, documentaries (these constitute our customers), feature films, young cinematographers – everybody says that we should all get used to addressing “the great group of eight”, and not the State, as it was done earlier.

V.V. Putin: Do you think that when the State is addressed directly, then everyone has an equal chance?

A.A. Avdeev: More of a chance than with the “group of eight”, because, when they are approached, it is necessary to make a specific request, present the project to a private company, a private enterprise.

V.V. Putin: In my opinion, it’s just a matter of criteria.

A.A. Avdeev: Yes.

V.V. Putin: Criteria for selection. I’m sorry for interrupting you.

A.A. Avdeev: Yes. There is simply too much caution. I wish to emphasize that we should get rid of these cautious attitudes, and replace them with better cooperation with our fund and improvements to the fund’s work operations so that all these cautious attitudes will disappear in due time. I would like to emphasize once more that two warning signals have now appeared in the cinema community – first, it has now become indispensable to approach a private company in order to request money and present the script; second, the criteria of selection are laid down by the group of eight. Very much has been said about this; very much has been written about this in the press. However, we and the fund intend to improve these criteria of selection so that they may be as consensual as possible, and convince our cinematographers that turning to a private company, which receives money from the fund, is no less …. what is the correct word to use here?... risky? No, not risky, but no less appropriate, no less humiliating than requesting money from the State.

V.V. Putin: That’s right… because the money belongs to the State after all.

A.A. Avdeev: Yes, that’s just the point.

V.V. Putin: Nobody will approach a private company with an outstretched hand, with a cap in hand. That money belongs to the State. The question that remains is all about criteria and objective selection. Let’s speak about that now. If you or anyone in this audience thinks that there are any flaws here, let’s consider all these questions concretely and objectively, and bring in some corrections.

A.A. Avdeev: Vladimir Vladimirovich, the passage of time will correct these flaws. We will work out this mechanism. Everything will be fine. After all, this is only the first year… it’s all completely normal. There are still a few natural rough edges, but we should not worry too much about them. You have just mentioned that the money belongs to the State, so that is why everything is perfectly fine. I would like to go on to the second problem, which concerns inequalities in taxation. Because the taxation system for the money, which we allocate to young cinematographers and independent filmmakers, is very different, and much heavier than the taxation system for government budget finances, which transit through the fund.

We have now come to an agreement with the Ministry of Finance that we will have to do something about this injustice, that is, we will make it better and fairer for cinematographers, so that taxation of the funds, which we (the Ministry) allocate, for example, to young cinematographers and independent filmmakers will be just as appropriate and easily handled as the taxation of money, which is allocated by the fund.

Sergey Dmitrievich Shatalov is here today. He is the Deputy Minister of Finance, and he has promised that this will be done.

V.V. Putin: Sergey Dmitrievich, what seems to be the problem here? Is it due to the fact that these funds are coming from a public organization?

S.D. Shatalov: No. The fact is that the taxation structure on profits is such that it is necessary to pay for the difference between proceeds and expenses. Regarding the money, which goes through the fund – and we have studied this question very closely – we have decided that they will be able to consider these proceeds together with expenses for a three-year period. And, accordingly, when the year comes to an end, the unspent funds will not be viewed as profits.

By extending this period to three years - something that just does not exist today for budget funds - we will be able to eliminate the problem completely, even for the three-year period.

 

V.V. Putin: Well, of course, this should definitely be done because the production of feature films is a long process. It cannot be done in five minutes, so this should be done without fail.

A.A. Avdeev: There is a price for this question, Vladimir Vladimirovich – 20% taxation on the total amount. The percentage price is still rather high. I would like to draw your attention to the fact that, in recent years, we have received awards and first prizes at festivals and competitions thanks to independent filmmakers. Independent films have remained an important Russian cultural heritage in the field of cinematography. They are absolutely magnificent! By the way, many film directors, first-prize winners at these festivals, are present today. The Ministry finances independent films.

I would also like to add that we are getting less and less money for independent films. Why is that? Because it has so happened that we received almost 300 million less through the Federal Target Program than last year; nevertheless, we transfer the amount, which was fixed by State resolution during the preceding year, directly to the fund. This means that we leave less for ourselves, and consequently, there are variations in the ratio between the money, which is transferred to the fund, and the money, which is left for us to allocate to independent films and children’s movies. So, accordingly, we have fewer and fewer possibilities to finance independent films, children’s movies, documentaries, and first feature films.

Fourth… Last year, the council issued resolutions, underlining the necessity to help out educational institutions. This year, we decided to make an experiment, when we had the graduate students of the All-Russian State Institute of Cinematography shoot a full-length feature film completely by themselves. This had never been attempted earlier. The screening will not only be the director’s grand debut, but it will involve other specialists working in the cinema industry. If everything goes well, we will be able to generalize and expand this practice. Moreover, every year, we plan to allocate a certain amount of money to the graduates of this Institute so that they will have enough funds to cover their preparations for shooting and producing their next feature films.

During the last session, the Ministry and other departments were entrusted with creating scientific and educational centers based on the All-Russian State Institute of Cinematography and the Saint Petersburg State University of Cinema and Television. As of today, we have managed to resolve the question only with the All-Russian State Institute of Cinematography. A government order was issued on this account. As to the scientific and educational center in Saint Petersburg, we ran into some legal difficulties because the organization, which will join up with the State University of Cinema and Television, must have another legal regime. Furthermore, in order to join them together, it would first be necessary to liquidate them, and then probably transfer the property complex to the Treasury, and finally, re-transfer these complexes once again. In other words, this procedure worries us as all real estate and the property complex will be “suspended” for a moment, whereas we should transfer them exactly where we want them to be, which means that we will have to get Rosimushchestvo (Federal Agency for State Property Management) involved. We are handling this situation, Vladimir Vladimirovich. We do not have any specific requests for the time being.

However, we do have a serious problem, which drew our attention during last year’s session. We should review all the expenses connected with the upkeep of two cinema universities. We are maintaining them on short rations; their salary fund is very low and it is more than clear that these expenses should be increased for the upkeep of both the All-Russian State Institute of Cinematography and the Saint Petersburg State University of Cinema and Television. We plan to make this possible by 2012; unfortunately, our budget for 2011 did not allow us to accomplish this.

The resolutions approved during the last council session provide for developing offers to modify the legislation of the Russian Federation, directed towards restricting the illegal propagation of audiovisual materials on the Internet. We are working in close collaboration with our colleagues at the Ministry of Communications, the Ministry of Internal Affairs, the Ministry of Economics, and the Ministry of Justice under several instructions from the Government. The problem concerns not only the cinema, but also electronic libraries, museums, archives, and the contents of television broadcasting.

Last year, we conducted several educational and practical actions, formulated principles for using protected objects on the Internet, whereas a private legal research center drew up a project for the most pressing changes to be made in civil legislation. We plan to make these changes. Several difficulties arose with regard to the allocation of targeted grants as of 2011 for State support of Russian producers and directors, who plan to take part in educational programs throughout all of Russia, as financing such events is not provided for by the legislation on State support of cinematography.

Ninth… With regard to creating a film production complex in Saint Petersburg based on a State and private partnership, located on the premises of the Lenfilm Film Studio and the Systems JSFC Film Studio.

In 2010, this question was reviewed jointly with the Ministry of Economics, Rosimushchestvo, and the Antimonopoly Service. The most acceptable solution seems to be the creation of “Obyedinionnaya Kinostudiya Lenfilm”, Open Joint-Stock Company (Incorporated Lenfilm Film Studio OJSC), whose members will include the State and the “Vsemirnye Russkiye Studii” (Global Russian Studios), which will introduce the property complex of the Saint Petersburg cinema studio as a share of the authorized capital. The share of the established joint-stock company belonging to the State should make up at least 25% plus one more stock. In order to register the final resolution, the President must issue a decree on the establishment of a new studio, and the introduction of 100% of Lenfilm stocks in the authorized capital, with a relevant order approved by the Government. The bills for these legal acts were introduced in the Government last December.

Tenth… Concerning the possibility of banks accepting rights to use produced films commercially as security for extended credits. The Ministry of Culture and Systems JSFC have worked out this question. Last year, we dispatched our offer to the Government concerning the mechanism for extending credits to film productions, which would attract additional non-budget funds. We also worked out the cooperation scheme for participants using this mechanism. The main problem of using films as security for bank credits is the guarantee that shooting will be completed, and the assessment of its costs, as an intangible asset and a mortgage. We created a study group to work on this matter; we would like to get some independent experts involved, representatives of companies extending guarantees for the completion and production of films. Unfortunately, private commercial banks, and insurance companies react very cautiously to the idea of extending credits to film projects, and insuring risks connected with their commercial solvency. Therefore, we feel that it is necessary to extend the timeframe in order to have this question fully researched by a work group comprised of representatives of government authorities and commercial companies.

Vladimir Vladimirovich, that sums up everything that I have to say with regard to the results of the work done on the resolutions approved by the last session of the council.

V.V. Putin: Thank you very much. I now suggest listening to Sergey Aleksandrovich Tolstikov, the Executive Director of the fund. 

S.A. Tolstikov: Thank you. I will not repeat the reasons for creating the fund; I prefer to refer directly to my report.

The fund started operating in a different capacity in connection with….

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