The Fundin F ng inffluencce on Film F I Indust try A research of Danish Fillm Instiitute Date: 30. 05. 2013 Group 300: Yizhuo Wang Supervisoor: Yasir A Al-Gailan ny House 211.2 Internatiional Sociaal Sciencee Basic Stu udies 4th Semeester, Spriing Roskild Universite U et i
Abstract Danish films have gained a range of successful records in the international market, with film awards from Oscar, Cannes, and many other film festivals. Some film producers say the huge accomplishment is mainly because they have the money to do so. At same time, as a government arm length agency, the Danish Film Institute allocates subsidies for the development, production and distribution of Danish films. Does the money DFI give have an impact on the film supply and moreover the success of the film? What does this mean to Danish film production? This project will set research on Danish film s supply and demand, DFI s decision making pattern and the transaction costs in film production. The theories from micro-economics and organization is applied, with a combination of qualitative and quantitative methods, descriptive data and correlation analysis test the theory and the relation between these factors. At the end the findings show that DFI involves in the film supply as a significant finance source and it decides the direction of the supply of the Danish film; the Domestic Danish film market share looks greater than other European countries, the statistic data shows high concentration on commissioner film supply but does not prove the strong relation between DFI s subsidy and the films commercial success. ii
Table of Contents ABSTRACT II BACKGROUND 1 1.1 DANISH FILM S HISTORY 1 1.2 DANISH FILM INSTITUTE 3 THEORETICAL FRAMEWORK 6 2.1 PROBLEM AREA 6 2.2 PROBLEM FORMULATION 7 2.3 CRITICAL REALISM APPROACH 7 2.4 METHODOLOGY 8 2.5 ONTOLOGICAL CONSIDERATIONS 9 2.6 EPISTEMOLOGY 11 2.7 DELIMITATION 12 ANALYSIS 13 3.1 DANISH FILM INDUSTRY 13 SUPPLY OF DANISH FILM 13 DEMAND OF DANISH FILM 16 3.2 DECISION MAKING 17 RATIONALITY CONCEPT FOR DECISION MAKING 18 DECISION MAKING MODELS 18 THE PRACTICAL REFLECTION IN DFI 21 3.3 FROM PRODUCER S PERSPECTIVE 29 TRANSACTION COSTS ECONOMICS 29 DANISH FILM PRODUCTION S TRANSACTION COSTS 29 3.4 THE RESEARCH 32 DANISH FILM SUBSIDY INFLUENCE ON FILM SUPPLY 32 DFI S SUBSIDY INFLUENCE ON FILM S DEMAND 34 THE DISCUSSION 37 4.1 DANISH FILM S DEMAND AND SUPPLY 37 4.2 DFI UNIQUE DECISION MAKING PATTERN 38 4.3 THE RESEARCH FINDINGS 39 4.4 THE MARKET CONTRACT TRANSACTION COSTS IN FILM PRODUCTION 39 4.5 CONCLUSION 39 REFERENCE 41 iii
Background 1.1 Danish Film s History From silent films to the talkies, from escapism to social realism, from family comedies to the Dogme film, from mainstream to avant-garde, from action flicks to documentaries, Danish film has developed it all through the history since 1900 s. In the early century, Danish director Carl Th. Dreyer is considered one of the most uncompromising geniuses of film history, known for his masterpiece of emotion that drew equally from realism and expressionism. However it is not until 1980s that Danish films start to draw audience s attention. In the late eighties Gabriel Axel and Bille August both won Academy Awards and later, Lars von Trier won Golden Palms at the Cannes Film Festival. Danish films have also experienced a revival in the domestic market, where a wave of young talent has prompted audiences to choose Danish films when they go to cinema. 1 Leading by Lars von Trier and Thomas Vinterberg, Dogme 95 movement has brought Danish film industry a huge international appeal because of its realism discipline. The most successful one from the movement was a romantic comedy Italiensk for begyndere, which won the Jury Grand Prix Silver Bear at the Berlin Film Festival, the Golden Spike Award for the best film of the year at the Seminci film festival in Valladolid, Spain, and the Audience Award at the Warsaw International Film Festival in Poland. It has also achieved commercial success in domestic market, sold 828,730 tickets in domestic market (See Table below), became one of the most seen Danish films in recent Danish film history. Top Danish Films in National Market 1991-2010 Danish Movies Year Sold Tickets KRUMMERNE 2 - STAKKELS KRUMME 1992 537,429 1 The Danish Film Industry Annual Mapping 2005, Copenhagen Business School 1
KONGEKABALE 2004 552,251 ANJA & VIKTOR 2001 572,052 EN KORT EN LANG 2001 584,067 OLSEN BANDENS SIDSTE STIK 1998 628,801 FLAMMEN & CITRONEN 2008 673,764 ITALIENSK FOR BEGYNDERE 2000 828,730 KLOVN - THE MOVIE 2010 838,881 DEN ENESTE ENE 1999 843,472 KRUMMERNE 1991 859,383 ÅNDERNES HUS 1993 940,700 Source: Danish Film Institute, based on All films in Danish Cinemas 1976-2011 2. Not long after the Dogme films declined, Danish films have boomed again. In 2011, Susanna Bier won an Oscar for In a better world; Melancholia directed by Lars von Trier won an award for the leading actress s performance in Cannes, meanwhile another Danish director Nicolas Winding Refn won the director award for his first American production, Drive. And then Danish scooped up 5 prizes at the European Film Awards in Berlin, including Mad Mikkelsen received special prize for European achievement in world cinema. The year 2011 was definitely astonishing for Danish films. Meanwhile, influenced by Dogme films, Danish documentary films have also began to gain ground in the market along with CPH DOX, Copenhagen International Documentary Film Festival s 10 years growth. Long, creative documentary films are selling well abroad. So confirm figures from the Danish public service channel, Danish Broadcasting Corporation (DR), which often co-produces the films, while also handling distribution and sales for many of them. We are seeing increasing demand for Danish documentary films. The numbers sold have steadily increased over the years, says Helene Aurø, head of DR International Sales. 3 2 http://www.dfi.dk/service/english/films-and-industry/statistics/search-options-at-statistics-denmark.aspx 3 Focus Denmark no 3. 2012, Anne-Marie Mosbech 2
Besides that there are also Danish film directors travelling abroad to direct films---bille August, the first Danish Oscar winner is positioned as art director for a Chinese media company Tianpeng, Niels Arden Oplev, hired by the Swedish film production company yellow bird to direct The Girl with the Dragon Tattoo, which turned out to be the most popular Swedish film, sold to more than 30 countries in total till 2009. 4 From all of these, we can clearly see that Danish films have achieved an international success with its unique realism identity in the contemporary history. 1.2 Danish Film Institute About the organization The Danish Film Institute (DFI) is Denmark's national agency for film and cinema culture, a government body under the Ministry of Culture and operates in accordance with the Film Act of 1997. It is one of Europe's most thoroughly structured film organizations, helping Danish films take a substantial share of the domestic audience as well as a good export record. It is also a member of European Film Promotion, which aims to improve the competitive potential for European films in the international market, facilitate the market entry for European film professionals, support the development of new markets for European film, increase the distribution opportunities for European film and provide knowledge and experience of EFP s members via its network DFI allocates subsidies for the development, production and distribution of Danish films as well as international co-productions, support programs including film education and international promotion. The DFI archives include a library, a stills & posters archive and a film archive. Furthermore, DFI also runs a Filmhouse, which is open to the public, including the Cinematheque. 4 http://www.yellowbird.se/index.php?option=com_content&view=article&id=49:men-who-hate-women-to-open-on -us-cinemas&catid=1:press&itemid=7 3
The DFII s structure is based on n these differrent function ns. Types off productionn support 1. Featuure films Film Coommissioneer Program Support S for films of artiistic merit 4
Market Program Films with broad audience appeal Minor Coproduction Program for Danish producers who are investing in international productions 2. Short fiction & documentary films Film Commissioner Program Support for films of artistic merit 3. New Danish Screen Fiction Talent development program Documentary Talent development program DFI s position in public sector Ministry of Culture National Film School Danish Film Institute Danish Broadcasting Corporation/ DR TV -Financed through license fees TV2/Danmark -Majority of finance from advertising Media Coucil for Children &Youth According to the ministry of culture, DFI is an independent organization in the public sector, as they do not hope films support political. In order to ensure freedom of expression in art and culture, grants to artists are given with no political strings attached and, of course, criticism of the establishment is permissible. Therefore, independence and the arms-length principle are fundamentals of Danish cultural policy. 5 The relationship between DFI and ministry of culture is based on the arms-length principle, which means neither politicians nor the Ministry of Culture are involved in 5 http://kum.dk/english/cultural-policy1/independence-and-the-arms-length-principle/ 5
concrete subsidy allocation or act as arbiters of taste. The ministry s role is only to act as an architect of the framework for an overarching cultural policy and, in collaboration with the Parliament, to set the objectives and to create the structures that form the basis for cultural policy in Denmark. 6 Thus, neither politicians nor public administrators but independent professional groups grant money to the industry. Under the Ministry of Culture, at the same level, there are other originations supporting the film industry. National film school train film talent, DR and TV2 support distribute the films through broadcasting. Media council for children and youth promote and support films for children and youth. Theoretical framework 1.3 Problem area Different from America s Hollywood commercial model, most European film industries are usually financed through a combination of public and private sources. (Jäckel, 2003, p.43) In Denmark most film production activity is focused on or passes through the Danish Film Institute, which accounts for a primary funding source for the Danish film industry. According to DFI s facts and figure 2012 7, in 2011 it allocated subsidy to 19 feature fiction films and 37 documentary films, this accounts 38.6% of the total budget share. Sigrid Dyekjær, a producer and co-owner of production company Danish Documentary, whose company has produced award-winning and commercially successful documentaries such as Free The Mind,j Ballroom Dancer and The Good Life says on a documentary film festival: I think one of the reasons why we are among the most accomplished is because we have the money. The films are well produced, the camera work is excellent, and we go a long way to achieve very high quality. 8 It seems like Danish Film industry would be very fragile without the organization s 6 http://kum.dk/english/cultural-policy1/independence-and-the-arms-length-principle/ 7 http://www.dfi.dk/service/english/films-and-industry/statistics/facts-and-figures.aspx 8 http://denmark.dk/en/lifestyle/film/the-age-of-reality/ 6
support. As its support include not only finance in domestic films but also distribution and marketing internationally. The relation between DFI s support and the film market is thus worthy to look at. How does DFI decision making influence the film production and film s commercial success? To answer this, DFI s decision behavior has to be analyzed and research in the relation between its decision and the film market has to be conducted. 1.4 Problem Formulation 1. How does DFI make subsidy decisions economically and organizationally? 2. How is the total film subsidy distributed by DFI among recent year s released Danish films? 3. Does bigger subsidy recipient likely to attract more audience? 4. How is the structure of transaction cost to the production company? 1.5 Critical Realism Approach In this project we hope to utilize the critical realism perspective. Critical realism does not commit to a single type of research but rather endorses an extensive variety of research methods which are chosen according to the type of the project and the aims of the study. Critical realism is quite unique in that respect because its stratified ontology allows for the legitimate combination of qualitative and quantitative methods. (Zachariadis, M., Scott, S. and Barrett, M.) This project aims to study the current relation between DFI decisions in film subsidy and the film market; this research will be conducted through utilization of economic and organizational analysis. This content leads us to a position that both quantitative and qualitative facts have to be collected. 7
1.6 Methodology Quantitative and Qualitative research approaches will be used to analyze the relation between DFI support and the film market. According to Smith.P, quantitative and qualitative researches are modes of inquiry that use different methods to acquire answers to social phenomena. (Smith.P, 2012, p.1)hence, qualitative method will be used to investigate DFI decision making pattern. Our qualitative approach will be based on the documents-- DFI s funding terms and books related to the decision making problem field. Quantitative method approach on descriptive statistics and correlation will help us to test the theories. However we are aware that, using two different methods could bring us to the stage where we face contradictory or unrelated findings of the same phenomena. Anyway, we are expecting that it also could bring huge benefits for the project- it is likely that quantitative methods and qualitative methods will eventually answer questions that do not easily come together to provide a single, well-integrated picture of the situation (Patton, 1990, pp. 464-5). Deductive approach: Arguments based on laws, rules and accepted principles are generally used for deductive reasoning. Formal logic has been described as the science of deduction. We are focusing more on the deductive approach as it has been used in the most part of our project: Micro-economics and Organizational theory. Moving from rationality theory and decision making mode, and its qualitative reflection in DFI, it lead us to a hypothesis that if there is a strong relation between DFI s decision on subsidies and the market impact. The generalized outcome gives us confirmation and conclusion. We have already acquired different data about DFI decision making and the market impact, for example subsidy ratios, the number of subsidy recipient, the admissions of the supported film, etc. The data will be tested to prove the theory. By utilizing the theories, we get aware of the relation in between, and then we will use qualitative information and data analysis to test the theories. In the part of data analysis, we are 8
using deductive approach since we would like to test the relation between DFI decision on subsidy and the film supply, furthermore the film s commercial success. Through descriptive statisticss and correlation analysis, it will confirm the strength and direction of the relation between DFI s subsidy ratio and the commercial success. Furthermore test the theory analysis before. In critical realism the identification of multiple mechanisms influencing reality is central to the paradigm. As so, we will utilize deductive and inductive reasoning in order to facilitate different disciplines (Micro-economics and Organization). 1.7 Ontological Considerations In order to develop our epistemology and methodology, it is crucial that we consider the ontological aspects of the fields of knowledge we are talking about as well as the ontologies we will assume as we carry out our research. Micro-economics is a field of knowledge we will almost constantly be referring to and utilizing throughoutt the processs of creating this project, and it contains many fundamental presuppositions. The ontology of micro economics can be defined, at the most basic level, with concepts such as the demand and the supply, the chain of production and the transaction costs. In our use of economic theory we will agree with the existence of these concepts in the real world, contrary to some post-modern theorists 9
who are re evaluating these ideas 9. Since we ourselves are students of Business Administration, the ideas have been strongly ingrained into our understanding of reality, particularly in the case of this project where we are collecting data from secondary resource, which means these conceptualizations we carry with us will not be challenged by experience. The other major ontology we will be taking on in this project is that of organization. In the same fashion that economics has integral ideas such as the assumed rationality in optimizing, Organization has close conceptualizations such as the bounded rationality and contingency. In the case of this project, rationality, and how it exists in decision making will be a major ontological concern. This can present a challenge because rationality is theoretical notion that exists in a unique practicing form in every organization or firm that claims to adhere to it. As we have chosen to utilize critical realism as the philosophical basis for our research, we will have to consider epistemological, ontological, and methodological aspects of this paradigm. The essential principle of critical realism is that reality exists, and is possible for people to conceptualize and create theories around. Simultaneously, it does not attempt to provide a comprehensive perspective for completely understanding any issue or phenomenon. It is also unique as it considers all knowledge fallible because human beings can only describe certain aspects of phenomenon. Essential to the ontology of Critical realism is how reality can be separated into different domains with unique aspects and tendencies. For example in the domain of the empirical we can observe experiences, which are the visible observations of the phenomena we are studying. These experiences make up parts of the events (which are part of a concrete reality). These events are themselves part of mechanisms that exist in reality that many researchers attempt to identify. 9 Ontological presuppositions of Sustainable Economics, Hilkka Pietilä 10
The ontological value of utilizing critical realism in this problem is it offers us both a framework in which to make our conclusions and contextualize our observations. Furthermore, it allows us to create what we will believe, with a degree of skepticism of course, conclusions about the market trend, DFI s decision model and transaction costs realities in Danish film industry. Another useful aspect of Critical Realism with respect to ontology is it allows for the fusion in a sense multiple disciplines ontologies through its emphasis on understanding mechanisms in reality, which each unique discipline contains. Which will ultimately provide a more nuanced perspective for us to build our conclusion on. 1.8 Epistemology Epistemology is the principles of how knowledge is made: How we get to know, and what is the relation between our knowledge and the world it refer to. 10 It concerns the link between ontology and methodology as well as between that reality (ontology) and researcher. Findings probably true- researcher is value-aware and needs to triangulate any perceptions he or she is collecting - R. Sobh, C. Perry. It is very important in our project to be as much not bias as we can. Therefore we chose multiple investigation both qualitative and quantitative approaches. We are aiming to investigate our research objects, phenomenon, subjects and address research questions by using different approaches. The possibility of knowledge: From theories and models, possible knowledge of deductive type will help us understand DFI s decision making and the transaction costs in the film production. The limits of knowledge: We are only creating knowledge from economic and organizational view; we are not able to collecting the film data by ourselves, as there too many factors involved in such as the tickets sold, the subsidy amount and the subsidy 10 Philosophy of social science(2005), Gerard Delanty, page 12 11
scheme. Knowledge we gained will be based on existing knowledge from DFI s facts and figures in recent years. The origin or source of knowledge: The source about DFI will be drawn from the organization s website; the data of the film supply and film demand will be collected from DFI s Danish Film facts and figures, same for the data of subsidy factors. Literature about rationality, decision making models will be also drawn. The presuppositions of knowledge: theories will be explained first, with qualitative information testing the theories and models, and empirical data analysis follows to confirm, we suppose it results in inductive knowledge. The structure of the knowledge situation: we as the researcher capture the reality as what it is. Findings are probably true as the researcher is value aware and needs to triangulate any perceptions he or she is collecting. 1.9 Delimitation In the process of creating this project, we have attempted to stay as focused and concise as possible by narrowing down our research to two specific academic field Micro economics and Organization, which will be utilized to understand the phenomena that we are researching. A majority of this project will concern the market and DFI s decision making, which will be done through demand and supply analysis, decision making analysis, as well as transaction cost analysis Outside of this, we will research on how DFI s decision in film subsidy influence the film supply and its relation to the film s commercial success. In order to research this we will apply descriptive statistics and correlation analysis. As information and data about DFI s film subsidy and the market is highly available and it is impossible to collect in reality as a student, our project will be entirely based on theoretical literature and secondary sources, we will not utilize research methods such as interviews nor conduct any kind of primary data. However, the dataset will be a remake to address the 12
relevant research question, hence independent data analysis. The dataset may have some limitations regarding sample size, which will be addressed among the text. Being primarily students of Business Administration, we will utilize the theories and research methods we have studied from economics and organization. We believe this can provide an accurate and revealing level of understanding about the economic situation in the Danish film market, and more specifically how organizations like DFI influence the film supply and the film s commercial success under the circumstances of public agency. However, we are aware of that the micro-economic theories as explanation to firm s behaviors may not explain a public organization enough. 2. Analysis 2.1 Danish Film Industry Demand and Supply is Microeconomics foundation. In this chapter, demand and supply in Danish Film Industry will be analyzed to give a basic view of Danish Film Industry. Supply of Danish Film To analyze the supply of this industry, several actors will be taken in account. The investors The Danish Film Institute have a significant large share 43% in the film funding sector, producers finance 17% themselves independently, DR/TV2 support 19% of the total, while the rest rely on other channel such as Pre-sales to other countries, other foreign investments and other foreign co-producer. The supply of capital is highly concentrated in investor sector. Funding share of Danish-produced Danish-language feature films in 2003 Source of funding Amount in EUR % 13
The Danish Film Institute 848,650 43 DR/Tv2 Invest 151,290 8 DR/Tv2 pre-sales 211,460 11 Pre-sales 183,330 9 Producer 339,190 17 Foreign co-producer 50 2 Other foreign investment 60 3 Funds etc. 130 6 Total 1,959,780 100 Source: DFI Facts and Figures 2004, figures based on 17 films supported in 2003 The Production Companies/Producer There are 18 feature film production companies in Denmark, according to Danish Producers Association 11 Nordisk film is north Europe s biggest film production and distributes company, mostly produce big budget commercial films. Zentropa is started by Lars Von Trier, best known for Dogme-films and other artistic films. In recent years, it has made international successful films such as Melancholia and Hævnen. ASA film produces film series, best known for Far til fire. Nordisk Film has 24% of the market share in the feature film production, Zentropa Entertainments have 12%. The feature film production is highly concentrated in a small numbers of companies Production Share of Danish Feature Film 2011 Feature Film Production Company Films Share of Production Nimbus Film 2 8% Fridthjof Film A/S 2 8% 11 http://pro-f.dk/medlemsliste 14
Nordisk Film A/S 6 24% Zentropa Entertainments 3 12% Other 12 companies 1 film / 4% / company company Source: Based on DFI Facts and Figures 2012 s Feature Film Production The Distributors There are 4 major distributor companies have distribution share over than 10%, and they count 50% of the market share. The distribution sector is highly concentrated on a small number of companies. Distribution share of Danish Films 2010 12 Distributor Films in Distribution Share of distribution Nordisk Film 95 15% Walt, Disney Denamrk 53 8% SF-Film 90 14% Sandrew Mentronome 70 11% UIP 75 12% Scanbox Film 38 6% Other 220 34% Total 641 100% In conclusion, Danish feature film s financing heavily relies on DFI and its production mainly contributed by Nordisk Film and Zentropa Entertainment. The total film distribution concentrates on 4 companies. 12 DFI Facts and Figures 2011 15
Demandd of Danish Film In domeestic market Compare to other Scandinaviaa Countries,, Danish fillms has higghest domesstic market share in average. National market sharres in Scand dinavia 20000-200913 1. 2. 3. 4. 5. Compare to 5 big E European co ountries, Daanish films has high doomestic shaare as well, ranking no.2 from yyear 2000 to 2009 in aveerage. Nationall market shaares, Denmaark and the bbig five 2000 0-200914 In Internnational Marrket Distributtion of Daniish feature ffilms abroad d/2003-20099 13 14 DFI Factts and Figures, 22009 DFI Factts and Figure, 20009 16
Danish Release Year Number of Danish feature fiction films released in 2003 2004 2005 2006 2007 2008 2009 Average 24 19 31 22 27 28 27 25 Danish Cinemas Hereof number of Danish feature fiction films sold 17 10 17 13 8 17 14 14 abroad In the international market, there is obviously demand for Danish Films, as the above table shows that in every release year, there are significantly numbers of films are sold abroad. In average, over 50% of the films are sold abroad. Danish Film have relatively high domestic market share compare to other European Countries, at the same time there is significant demand of Danish Films in the international market. Danish Films Industry is quite successful in sales compare to the rest of Europe. As a primary supplier of finance source to the whole industry, the Danish Film Institute inevitably has influence on the film supply and demand. Its decisions making of subsidy supply thus is worthy to look at. What s more, the further research of the influence will be conducted. 2.2 Decision Making The basic challenge facing public organizations is how to use resources efficiently and how to serve their publics effectively. To accomplish their missions, organizations must be served by complete leadership that facilitates the performance of numerous fundamental managerial functions, such as decision making. (E.Jreisat, 1997, p.132) The literature of decision making in public organization and in business includes the work of political scientist, statisticians, economists, sociologists and mathematicians as well as academics of public and business administration. In this project, the research object is DFI, a public organization rather a firm. Therefore, economic approach may 17
have some limits. The analysis of DFI s decision making will be mainly based organizational view and certain economic consideration as well. From organizational view, rationality concept and different decision models comparison will be applied, at the same time, rationality concept will be also explained from economic view. Rationality concept for decision making In Economics, rational decision-making is about weighting up the marginal benefit and marginal cost of any activity (Sloman, 1991). In Organizational behavior theory, Rationality requires clear definition of values and goals to be maximized by the decision as well as complete knowledge of the alternatives and their anticipated consequences. (Jamil E, 1997) In this type of decision, analysis is comprehensive and takes into account every important relevant factor. The rational decision-making process is made as follows: Define the problem clearly and accurately Develop all relevant alternatives Gather complete information about alternative Establish complete criteria of cost, time and other specifications Evaluate the criteria according to the goals Asses each alternative on each criterion Calculate and select the alternative with the optimum value (Jamil E, 1997) Decision making models In organizational behavior theory, there are different models of decision making. According to contingency theory, there is no single best way to organize, to teach, to do 18
research, or to make decisions. However, some approaches are more effective than others. The best approach is the one that fits the circumstances (Hoy and Miskel, 1991). According to C.John Tarter and Wayne K.Hoy s Toward a contingency theory of decision making 15, there are 6 different models of decision making in different organizations. The decision model depends on the circumstance. The matching of these six decision models with situational contingencies is summarized in the table below. Circumstance Narrow, specific problems; complete Model Optimizing information Incomplete information; definable Satisficing satisfactory outcomes Incomplete information; complex Adaptive satisficing decisions; outcomes uncertain; guiding policy Incomplete information; complex Incremental muddling decisions; outcomes uncertain; no guiding principles; short-term strategy until policy guidelines are established To understand fortuitous decisions To understand irrational decisions Garbage can Political The optimizing model is based on neo-classical theory of firm, which assumes clear goals, complete information, and the cognitive capacity to analyze the problem. 15 Journal of Educational Administration 36,3, 19
Herbert Simon arguments that human behavior is intended to be rational, but only limitedly. Simon maintains that organizational behavior is the theory of intended and bounded rationality it is about the behavior of humans who satisfices because they do not have the abilities to maximize. Whereas neoclassical economic man maximizes selects the best alternative from among all those available to him organizational man satisfices looks for a course of action that is satisfactory or good enough. (Mahoney, 2005) An individual s decision is rational if it is consistent with the values, alternatives, and information that were analyzed in reaching it. An organization s decision is rational if it is consistent with its goals, objectives, and information. The organization should be constructed so that a decision that is rational for the individual remains rational for the organization when reassessed from the organizational perspective. (Tarter & Hoy, 1997) Amitai Etzioni suggests a pragmatic approach to then complexities and uncertainties in decision making. He proposes an adaptive strategy, mixed scanning, which synthesizes the administrative and incremental models (Etzioni, 1988; Wiseman, 1979a, 1979b). It is an adaptive strategy that combines the rationalism of the satisficing model with the flexibility of the incremental model. Mixed scanning is driven by basic policy, incremental change, and limited information. (Tarter & Hoy, 1997) Policy is determined at the top of the organization, although decisions are made at all levels. (E. Jresat, 1997, p.144) Based on Tarter and Hoy s Towards a contingency theory of decision making 16, the mentioned 4 models features are as the table below. Comparison of decision making models 16 Journal of Educational Administration 36,3, 1997 20
Classic Administrative Mixed-scanning Incremental Setting goals Organizational Objectives usually are set Policy guidelines are set Objectives and alternatives objectives are set prior to alternatives prior to alternatives are intertwined prior to alternatives Means-ends Always begins with a Frequently begins with a Broad ends and tentative No means-ends analysis. analysis mean-ends analysis means-ends analysis, but means focus analysis Means and ends are not occasionally ends change separable Test of a good The best means to an A satisfactory A satisfactory Decision makers agree that decision organizational end organizational outcome organizational outcome the decisions are in the right decision Guiding Theory Theory, experience Theory, experience, Experience and principles comparison comparison The practical reflection in DFI Rationality reflection on DFI s decisions From Economic View: DFI is a government agency, its mission is to allocate subsidy to Danish films and its goal is to support the development, production and distribution of Danish films. The economic rationality does not apply to the organization s overall subsidy decisions, mainly because this organization does not have actual production function for making profits. Unlike firms its operating cost is allocated by its supervisor the ministry of culture, the organization does not have cost-benefit consideration for itself. From Organizational View: In commissioner scheme, according to DFI s Internal Guideline for Film Commissioner, The application is first assessed based on its content and the artistic potential of its concept and story. Next, the potential of the people who wish to realize it is assessed. In this part, there are a few values are choose as the factor of assessment so the choice can be rational, but at the same time there is no clear 21
measurement or function to assess the factor such as artistic potential and the potential of the people. The circumstance of DFI s subsidy decision Information completion The applicants apply for a screenplay subsidy at very beginning stage of its film production, earliest with the story and wishing casting list, according to Internal Commissioner Guidelines 17. Later on, along with the production process, DFI may require more information which includes crew list, budget plan, and production contracts, to decide on further subsidy in development or production. As a rule of thumb, a project qualifies to receive subsidies from the screenplay fund if the commissioner sees so much potential in the project that it could, in the most fortunate of cases, qualify for later production subsidies. 18 If the commissioner sees so much potential in the screenplay, it will be further processed to development evaluation, at this moment a production company join with a budget plan, it will be assessed by the DFI producer, and it is adjusted opinions will often diverge as to how expensive the development project should be. Opinions may also diverge as to how large a share of the costs should be covered by the DFI. 19 The information is obviously incomplete at the assessment stage, when a recommendation is passed on to the management, the information appears more complete. It is therefore hard to define the completion of the information, as it evolves during the process. However, we can still see it is incomplete at the begging of decision process. At some point, DFI participate in adjusting the information. 17 http://www.dfi.dk/service/english/funding.aspx 18 Internal Commissioner Guidelines, DFI 19 Internal Commissioner Guidelines, DFI 22
Definable satisfactory outcome The outcome is defined in some aspects by the Film Act. According to the Film Act 20, In the annual Finance Acts special allocations shall be made for the production of feature films and short films and documentaries, respectively. At least 25 pct. of the funds allocated for the production of feature films and short films and documentaries shall be used for films for children and young people The outcome of DFI s decision in subsidy is satisfactory if it covers 3 types of films and 25 percent of children film. It defined a satisfactory total outcome regarding decision in subsidy allocation as a whole. In DFI s regulations and rules, different terms and conditions are set in different types/schemes of films, including Terms Feature Film, Terms Documentary Film, Terms Short Fiction, Minor Co-production Feature Films, Minor Co-production Short Fiction & Docs, New Danish Screen, Support to Video Games. According to DFI s funding terms 21, a satisfactory outcome of the choice is usually artistic, new talent potential or market potential, and furthermore the potential consistence in the budget plan and actual production. In conclusion: Based on above, DFI is facing incomplete information and definable satisfactory outcome; the circumstance should match Satificing Model in theory. Identify DFI s actual decision model To further identify DFI s actual decision making process, factors in above table of comparison Model is applied. Setting goals Firstly, there are objectives for DFI s subsidy decision 20 http://kum.dk/english/services/legislation/film/the-film-act/ 21 http://www.dfi.dk/service/english/funding.aspx 23
Film Act in 1997 clearly defined Danish Film Institute s organizational structure, task and objectives for film subsidy, where it shows close tie to the ministry of culture. According to the Film Act, the top management member is heavily decided by the Minister of culture by appointing for position or nominating to be expertise. Besides Film councils (Council of films, the Council of short films and documentaries and Museum Council) and the Liaison Committee advises the management of the organization on its activities. This decides that the subsidy decision is processed through whole organization. In the Film Act, Chapter 2 defined several tasks for Danish Film Institute, among them subsidy relevant ones can be seen as: subsidize the development, preparation of scripts, production, launches and showing of Danish films and to ensure distribution of Danish films 22. Except from this, DFI is also responsible for several other activities that promote film culture. This define DFI s objective, but the means are not clear. As the film act also point that The Executive Committee shall determine its own rules of procedure. Furthermore, according to the Film Act it is Film Institute's main objective is to promote film art, film and cinema culture in Denmark by the following tasks: To provide financial support for screenplay preparation, development, production, release and distribution of Danish films. To raise the awareness of Danish films in the domestic market and to promote sales and awareness of Danish films internationally. To maintain the conservation of film and documentary material about movies, the collecting of movies and television literature, the researching accessible to the public. To provide a wide range of activities for film audience. To ensure a continuous relationship with the film industry and major user groups on 22 http://kum.dk/english/services/legislation/film/the-film-act/ 24
Film founding. To promote professional experimental cinema and film talent through the operation of workshops. There are also some objectives regarding subsidy decision from the Film Act. The consultants shall undertake the final artistic evaluation of script and production proposals and submit proposals to the Management regarding the allocation of the funds available for the preparation of scripts and production of feature films and short films and documentaries and for the purchase of short films and documentaries. 23 This described a frame for the procedure of subsidy decision making. In accordance with rules issued by the Minister for Culture in the statutes stated in section 10 the Danish Film Institute may grant funds to cover a maximum of 60 pct. of the costs of the production of feature films without previous consultant assistance. 24 This defined clear amount limitation of the subsidy. In the annual Finance Acts special allocations shall be made for the production of feature films and short films and documentaries, respectively. This defined the type of the outcome. At least 25 pct. of the funds allocated for the production of feature films and short films and documentaries shall be used for films for children and young people 25 This defined certain amount of specific outcome. Secondly, according to DFI statement, the present subsidy terms and conditions are set down by the DFI s management in accordance with the DFI s rules and regulations. Decision process is clearly described under the management. Subsidy application are processed to different units feature film, documentary film and New Danish Screen. In feature film, it is processed through 2 schemes-----commissioner and market. It starts 23 http://kum.dk/english/services/legislation/film/the-film-act/ 24 http://kum.dk/english/services/legislation/film/the-film-act/ 25 http://kum.dk/english/services/legislation/film/the-film-act/ 25
from the commissioner or project coordinator s assessment, passed on to DFI producer, the producer evaluates the budget plan and its consistence to its initiative, then the recommendation is passed to the management. Furthermore, the film s distribution opportunities and audience potential are assessed in cooperation with the promotion consultant. The DFI also strongly encourages international partnerships and allows for seven to nine minor co-productions in feature film and four to six minor co-productions in documentary film per year. Based on above facts, there are objectives set to priority, both from the Film Act and the top management. Means-ends Analysis In DFI, depending on different scheme, the choice from film leads to different ends. Commissioner scheme promote films with artistic potential, New Danish Screen promote new film talent with artistic potential, Market scheme promote films with commercial potential, Documentary scheme promotes documentaries and short films with artistic potential. Amounts of subsidy are set to certain limitation in the different stage of approved film production. For example, subsidy amount of documentary films production depends on the minutes. According to DFI s Documentary Films Film Commissioner scheme, +75 minutes: DKK 400,000 52-58 minutes: DKK 325,000 38-42 minutes: DKK 250,000 24-28 minutes : DKK 175,000 Under 15 minutes: DKK 100,000 The means are only clear when it come to be measurable. The subsidy amount is simply 26
defined while choosing a satisfactory film to the correspondent subsidy scheme is more complex. When deciding the film s potential, the ends can not be optimized. It can only be satisfying. The commissioner or the coordinator can only make assessment based on his or her experience and knowledge of films. Here the information is important for directing the choice, which could be as follows. Breakdown/pitch Screenplay The director s intentions The producer s intentions Production concept Production schedule Crew list Cast list CVs of key project participants Two examples of productions directed by the director, links to productions A production for which the writer has written a screenplay, or a screenplay, or a work in which the writer has had a significant creative function. The DFI does not do make frequent means-ends analysis. They simply evaluate the information, make an assessment about its strength and weakness and then process it further. 27
Test of a good choice There is no optimizing from the selection of films. The films are processed to subsidy is simply satisfying in artistic potential or audience potential and the potential s consistence in budget plan. Guiding principle The commissioner does not have specific program for evaluation, rather he or she judge the potential on important relevant information. For example, in New Danish scheme, the quality of the project is assessed independently and in terms of whether the project is judged to qualify, develop, and strengthen the applicants singular talents in future projects 26. In DFI, the process of decision-making remains on the consultants/commissioners and DFI producer s experience. In summary: Film Act decided DFI s organizational structure and total subsidy allocation objectives. The organizational structure decided the employees task and therefore decision process, which is from consultants to the executive committee. DFI s rules and regulations set more subsidy objectives into different film scheme. Frequent means-ends analysis does not apply when choosing a satisfactory film to subsidize. The test of a good choice is its artistic potential or audience potential, and the consistence in its budget plan. Its guiding principle for choosing a film to subsidize is the consultant/commissioner and the DFI producer s experience. DFI s decision model does not fully match the models in theory. 26 Terms to support New Danish Screen, 2012 28
2.3 From Producer s perspective Transaction Costs Economics The purpose of applying this theory is to analysis the nature of individual transaction links and how these relate to the nature of the production firm, A transaction occurs when a good or service is transferred across a technologically separable interface (Williamson, 1985, p.1) Chain of production will be represented as a series of distinct production process linked by a series of transactions. In general terms, the choice of a firm was either organizing the transaction by itself or leaving the market, usually governed by a contract, to organize the contract. (Cashian,2007,p.110) The neo-classical economic assume that the most effective and efficient means of organizing transactions is via free markets, as it is perfectly competitive market structure in the long run. To further explain this, the governance structure and the sources of transaction costs will be explained. Danish Film Production s Transaction Costs Chain of production According to DFI s funding terms and facts and figures, the chain of production in Danish film industry is as follows: Process 1 Input -Director/Writer s Ideas -DFI s R&D and subsidy Production Director/Writer/Production Company Produce Screenplay Transaction 1 Output Screenplay 29
Input -Director/Writer/Producti on s screenplay -DFI s subsidy for development -Other finance source Process 2 Production Production Company prepare crew, budget, equipment, site rental Output Contracts with crew, site and equipment supplier Input -Production 6. Company s Crew, site, equipment -DFI s 7. subsidy for production 8. and other funding -Distribution Presales -Other finance source Process 3 Production Production produces and edits films Transaction 2 Output Films Among every production process, there is a transaction. For different production companies, the production starts from different stage, however latest in the process 2. The first transaction is usually from screenplay and finance source to contracts regarding film production, the second transaction is from contracts and finance source to the actual films. Governance Structures According to Williamson 27, governance structures refer to the means by which the output of one production process becomes the input to another. (Cashian, 104, p.104) There are 3 types of governance structures: Free Market, Intra-Firm, Market Contract In free market governance, there should be independent buyers and sellers and the transaction is coordinated by market price. In intra-firm governance, there should be buyers and sellers within the same firm and 27 An American Economist, receipt for Nobel Memorial Prize in Economic Sciences 30
it is coordinated by management within the firm. In market contract governance, there should be independent buyers and seller and the transaction is coordinated by mutually agreed contract. According to the chain of production above, in Danish film market, there are independent buyer (the production company) and seller (writer) of screenplay, independent buyer (the production company) and seller (film crew, site & equipment renter) of film crew source. It is governed by a negotiated agreement, which determine the quantity exchanged and price. The governance structure of transaction in Danish film production is Market Contract. Transaction costs According to Williamson, there are three sources of possible friction that may arise when using a market to link production process in the chain of production: Bounded rationality, Opportunism and Asset specificity (Cashian, 2007, p.115) A specific asset is an asset that is owned by a firm but it only fulfills a limited number of users. In this case, DFI have limited amount of subsidy, the subsidy recipient have promotion support as well. However the number of subsidy recipient is limited, so the subsidy becomes a specific asset. This situation referred to as a hostage problem or a hold up situation (Cashian, 2007, p.118) It is risky for both the subsidy supplier and the subsidy recipient, but as the subsidy supplier DFI is a public organization rather than a firm, the subsidy is simply allocated, it is not likely that it cause risk in the film s price. At the time, the finance source choice is limited, it rely mostly on distribution presales to DR or Tv2 in the local market, this makes small production companies hard to control the market, while distributors have advantage for film production, therefore film production companies who take the transaction cost of finance inside, have more control over the market. 31
2.4 The research Danish Film Subsidy influence on film supply How is the total film subsidy distributed by DFI among recent year s released Danish films? DFI allocate the subsidy through different film schemes and production process sage -Distribute through film schemes: Feature film are subsidized through Market schemes, Commissioner, apart from that, other films subsidy are distributed through Documentary scheme, New Danish Screen Scheme and others depend on the film s special situation, such as low budget scheme and minor co-production scheme. -Distribute through production process stage: screenplay preparation, the development, production and marketing. This will show a group of qualitative data. Data Collection: As data of feature film is more complete from DFI, the sample will only take feature film into account. To make the sample efficient enough, we take more observations from a wide range range of year 2006 to 2011. Data Analysis: Among the released films from 2006 to 2011, there are 97% movies were made with DFI s subsidy, which means DFI s subsidy supply dominates the film production. Looking at the DFI budget 2011, 42 percent of subsidy funds are allocated to the production and development of feature films, another 14 percent to short fiction and documentary production, while talent development is allocated 8 percent, leaving 10 percent to Public Service Television Fund and 8 percent to Video Games. Frequency Table is a grouping of qualitative data into mutually exclusive classes 32
showing the number of observations in each class (Lind, 2013, p23) As a technique of descriptive statistics, it shows the general pattern of the data, identify where values tend to concentrate and also expose the extreme or unusual data values. The frequency table of the number of feature film in each film scheme is shown as below. Feature Film Scheme Frequency Relative Frequency Consultant/ Commisioner- Production 62 0.3444 60/40 Market Schme Production 42 0.2333 Documentary Production 22 0.1222 Minor Production 14 0.0778 New Danish Screen Production 14 0.0778 Marketing Support 8 0.0444 Low Budget Production 5 0.0278 Other 8 0.0444 Consultant/Commissioner-production subsidy has the highest relative frequency, with market scheme production subsidy follow behind. To have a more clear view, the frequency is presented in the below bar chart, which shows the qualitative classes film subsidy type on the horizontal axis and the film subsidy type frequency on the vertical axis. The class frequencies are proportional to the heights of the bars. 33
70 60 50 40 30 20 10 0 Number of films supported by Scheme 2006-2011 The subsidy highly concentrates on commissioner scheme, market scheme and documentary scheme. Among the supported feature film, commissioner scheme has a relative frequency 0.3444. As we mentioned before, commissioner film subsidy are given to films with artistic potential, market scheme is given to films with audience potential, we can say that Danish feature film give more subsidy to artistic and commercial films, therefore 97% of the total film (3% without Danish film subsidy) supply are artistic and commercial films from year 2006 to 2011. DFI s subsidy influence on film s demand Does bigger subsidy recipient likely to attract more audience? This research question brings us to the relation between the DFI subsidy ratio of the total financing and its audience amounts---admissions. As it is a relationship between two variables, the correlation analysis will be applied. Correlation is a group of techniques to measure the relationship between two variables. (Lind, 2013, p.392) Data collection: Here we would like to discover the relationship between Danish film s 34
success and DFI subsidy. The success is considered in the number of admissions (sold tickets) of films. Based on top 20 films rank in Danish market in 2010 and 2011 28, 10 top Danish films in the range are chosen as sample data to conduct the test. The sample size may be not big enough, but the sample represents the most successful films, which are feature films as well. Top 10 Danish films in DK (2010-2011) DFI subsidy Admissions Dirch 35.40% 471,819 Klassefesten 30.30% 462,026 Far til fier---tilbage til naturen 29.50% 385,824 Alle for en 10.70% 368,110 Superclasico 31.90% 187,559 Orla Frøsnapper 31.20% 168,435 Klovn 35% 554,382 Far til fier på japansk 25.10% 417,343 Hævnen 25.50% 406,435 Olsen Banden på de blonde gulv 37.10% 327,767 Data Analysis: In Statistics, correlation analysis offers numerical measures to express the relationship between two interval or ratio-scale variables. The first step is to start with a scatter diagram, which will provide a visual presentation of the relationship between the variables. The next step is usually to calculate the correlation coefficient, which will provide a quantitative measure of the strength of the relationship between two variables. Designated r, it is often referred to as Pearson s r and as the Pearson product- moment correlation coefficient. 28 DFI Facts and Figureshttp://www.dfi.dk/Service/English/Films-and-industry/Statistics/Facts-and-Figures.aspx 35
The correlation coefficient s characteristics are as follows: 1. The sample correlation coefficient is identified by the lowercase letter r. 2. It shows the direction and strength of the linear relationship between two interval or ratio-scale variables 3. It ranges from -1 up to and including +1. 4. A value near o indicates there is little relationship between the variables. 5. A value near 1 indicates a strong direct or positive relationship between the variables. 6. A value near -1 indicates a strong inverse or negative relationship between the variables. (Lind, 2013, p.393) As we want to find out the DFI subsidy ratio s influence on the admissions of the film, DFI subsidy ratio here is taken as independent variable and number of admissions as the dependent variable. The independent variable is the predictor variable and the dependent variable is the variable that being predicted or estimated. (Lind, 2013, p.393) With the scatter diagram of correlation we can surely see how well DFI subsidy predicts the success of the film. 36
Film's Admissions Scatter Diagram 600.000 500.000 400.000 300.000 200.000 100.000 0 0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00% 40,00% DFI Subsidy The scatter diagram shows graphically that above 368,100 admissions, more DFI subsidy tends to make films more admissions. While there are other 3 movies does not follow the trend. The relation may not be strong. To measure the strength and direction of this relationship between two variables, the correlation coefficient will be determined. Based on the dataset, Correlation coefficient r=0.0343737. The value is near 0, which indicates a weak positive correlation. This means that DFI s subsidy decision does not necessarily lead to a film s commercial success. The films it supported may not meet the demand from the market. 4. The Discussion 4.1 Danish film s demand and supply Danish feature film s financing heavily relies on DFI and its production mainly contributed by Nordisk Film and Zentropa Entertainment. The total film distribution concentrates on 4 companies. In the international market, there is obviously demand for Danish Films, as the above table shows that in every release year, there are significantly numbers of films are sold 37
abroad. In average, over 50% of the films are sold abroad. 4.2 DFI unique decision making pattern When making decisions for subsidy allocation, DFI as a government agency, its mission is to allocate subsidy to Danish films and its goal is to support the development, production and distribution of Danish films. The economic rationality does not apply to the organization s overall subsidy decisions, mainly because this organization does not have actual production function for making profits. Unlike firms its operating cost is allocated by its supervisor the ministry of culture, the organization does not have cost-benefit consideration for itself. However, there are a few values are choose as the factor of assessment so the choice can be rational, but at the same time there is no clear measurement or function to assess the factor such as artistic potential and the potential of the people. DFI has following circumstance when make decisions: It is hard to define the completion of the information, as it evolves during the process. However, we can still see it is incomplete at the begging of decision process. At some point, DFI participate in adjusting the information. The outcome of DFI s decision in subsidy is satisfactory if it covers 3 types of films and 25 percent of children film. A satisfactory outcome of the film choice is usually artistic, new talent potential or market potential, and furthermore the potential consistence in the budget plan and actual production. In practice: there are objectives set to priority, both from the Film Act and the top management. The DFI does not do make frequent means-ends analysis. They simply evaluate the information, make an assessment about its strength and weakness and then process it further. Its guiding principle for choosing a film to subsidize is the consultant/commissioner and the DFI producer s experience. Its pattern does not follow any of the 6 models: classic optimizing, administrative, mixed scanning, incremental, grab can or political. 38
4.3 The research findings The subsidy highly concentrates on commissioner scheme, market scheme and documentary scheme. Among the supported feature film, commissioner scheme has the highest relative frequency 0.3444. 97% of the total film supply is artistic and commercial films from year 2006 to 2011. There is a weak relation between DFI s subsidy ratio and the film s audience attractiveness. DFI s subsidy decision does not necessarily lead to a film s commercial success. The films it supported may not meet the demand from the market. 4.4 The market contract transaction costs in film production There are two transactions during the film production process. The first transaction is usually from screenplay and finance source to contracts regarding film production, the second transaction is from contracts and finance source to the actual films. The governance structure of transaction in Danish film production is Market Contract, which is based on a negotiated agreement with people in the crew and the supplier of shooting site and equipment. The finance source choice is limited, it rely mostly on distribution presales to DR or Tv2 in the local market, this makes small production companies hard to control the market, while distributors have advantage for film production, as they can take the transaction cost of finance inside, have more control over the market. 4.5 Conclusion Under a situation like this: DFI involves in the film supply as a significant finance source and it decides the direction of the supply of the Danish film; the Domestic Danish film market share looks greater than other European countries, the statistic data shows high concentration on artistic commissioner film supply but does not prove the 39
strong relation between DFI s subsidy and the films commercial success and there may be a mismatch between the Danish film s supply and demand, to prove this potential market growth, it requires further research on the demand. 40
Reference Jäckel, 2003, European Film Industries Cashian, 2007, Economics, Strategy and the Firm Jreisat,1997, Public Organization Management Sloman, 2009, Economics Lind, 2013, Basic Statistics for Business & Economics Anne-Marie Mosbech, Focus Denmark no 3. 2012, C.John Tarter and Wayne K.Hoy, Toward a contingency theory of decision making, Journal of Educational Administration 36,3 Film Act 1997 DFI Facts and Figures 2006-2011 The Danish Film Industry Annual Mapping 2005, Copenhagen Business School http://www.dfi.dk/ http://kum.dk/ http://pro-f.dk/medlemsliste http://denmark.dk/en/lifestyle/film/the-age-of-reality/ 41