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European Commission - Press release
State aid: Commission asks Spain to recover €265 million from Ciudad de la Luz film studio complex
Brussels, 8 May 2012 - The European Commission has concluded that €265 million public funding granted by the Valencia Regional Government to the Ciudad de la Luz film studio complex was not provided on market conditions and needs to be paid back by the beneficiary. Following an in-depth investigation (see IP/08/217), the Commission concluded that no private investor would have accepted to invest on the same terms and that the public funding massively distorts competition between major European film studios.
Joaquín Almunia, Commission Vice President in charge of competition policy, said: "Spain's cinema sector is dynamic and competitive. Not only is there no need to spend public money to finance a new operator, but above all, this penalises the existing players and potential new entrants, who have to operate without state funding. In the current economic climate, the consequences can be disastrous."
In 2008, following complaints, the Commission opened an in-depth investigation into the financing of Ciudad de la Luz film studios by the Valencia Regional Government (see IP/08/217). On the basis of the original business plan, the Spanish authorities considered that the public support was not caught by EU state aid rules, as a private investor would have invested on the same terms.
The Commission's investigation found that the market for large film studios in Europe is very competitive, and even increasingly so following the accession of 12 new Member States to the EU in 2004 and 2007 and the setting up of major new studios. The Commission had serious doubts that, in this competitive environment, a decision to invest in a greenfield project away from the big centres of audiovisual activity such as Madrid and Barcelona could result from commercial considerations. This was supported by reactions to the Commission's call for comments on the measure.
Both an internal economic in-depth assessment conducted by the Commission and an independent external study of the business plans concluded that a market investor would not have provided 100% funding for Ciudad de la Luz on the basis of the business plan.
The investment, therefore, constitutes state aid within the meaning of the EU rules. Such aid can be found compatible if it pursues an objective of common European interest, such as regional, economic or cultural development. However, Spain has not demonstrated that the benefits of the project for regional development would outweigh the distortions of competition brought about by the large amount of public funding. Indeed, several film studios already exist in the EU and there is rather a risk of oversupply, which would have been aggravated by the publicly funded construction of Ciudad de la Luz.
Investments by public authorities into companies carrying out economic activities are in line with EU state aid rules when they are made on terms that a private player operating under market conditions would accept (the market economy investor principle, MEIP).
In 2000, the Valencia Regional Government decided to invest into the Ciudad de la Luz project, which includes the construction, management and operation of audiovisual and cinematographic facilities. The complex opened for filming in August 2005. According to its business plan of 2000, Ciudad de la Luz was aiming to become the studio complex with the second largest capacity in Europe and to attract Spanish as well as several international film productions per year.
In practice, the national and international targets have not materialised. Out of 33 films shot in Ciudad de la Luz between 2005 and 2009, 28 were Spanish and 5 EU co-productions. As a result, the commercial operation of Ciudad de la Luz has been increasingly loss-making to date.
The assets of the complex are owned by Ciudad de la Luz SAU, which is entirely owned by the Valencia Regional Government via 'Sociedad Proyectos Temático de la Comunidad Valenciana'. In 2007, the Commission received complaints about the public funding of Ciudad de la Luz from unrelated companies in two different Member States.
The non-confidential version of the decision will be made available under the case number C8/2008 in the State aid Register on DG Competition's website once any confidentiality issues have been resolved.