What is the Motion Picture Act about?

Necessity of the Act

In view of the fact that, apart from being a separate line of arts, film is also considered an enterprise of the entertainment industry that has one of the greatest communication powers. These days, people spend most of their leisure time consuming products of the motion picture culture and motion picture industry in cinemas, on TV, video, DVD, computers and other intermediary devices to be enabled in the future. A film is a subject of a business enterprise for the industry and the producer, but it is also a communication opportunity for parties contributing to the production apart from the producers, as well as states supporting film production.

On the other hand, apart from the multinational nature of the business activities including production and presentation as films, films are productions which are closely related to nations due their artistic characteristics. Therefore, in almost all cases, films can be connected to the culture of a particular country or nation, and they are closely related to their national identity. Consequently, a film is an effective and clear culture mediator, one of the most suitable tools for a country to present and adjust its image in front of the world, to maintain its name and culture, enriching it in a cultural dialogue between countries.

As markets in small countries have a limited market, they are unable to create an internationally competitive motion picture culture with only the private sector without any state assistance. If it is acknowledged that there is a need for Hungarian motion picture, with which the cultural market of the world can also be targeted, the need for the involvement of the state must also be recognised. In order to determine the method and degree of this involvement, the dual nature of the motion picture culture, involving artistic and industrial features, must be considered as a basis. Although business and market requirements apply in other areas of culture, too, the economic results induced by motion picture and the audio-visual industry in a wider sense exceed the similar impacts of other lines of arts. Consequently, this relatively extensive need for state support brings the business economic and budgetary benefit for the state in this sector.

However, the available favourable economic impacts cannot lead to any careless use of state subsidy and public funds, or slack control. The government deciding on subsidy and the trade organisations distributing the subsidy must account for the amounts used by the sector in accordance with strict principles, presenting their use for cultural and economic purposes. The state must therefore allocate funds to the film industry in a way that the autonomy of art and effective use of public funds can both prevail at the same time. This is the most important aspect of the regulatory role of the state, and the Act on motion picture determining the legal and organisational principles of this regulatory role.

Classification Of Films, Explanatory Provisions

One of the basic issues of national film subsidy systems is how the concept of national films eligible for support is determined in a given state. However, the significance of this issue is gradually decreasing as film production activities performed within the single market of the European Union are also qualified to be business activities, particularly in terms of the single European audiovisual market and co-production type co-operation. States provide high-priority support to their own film industry, whereas EU organisations tend to eliminate national borders and protective measures in this area as well.

The Hungarian model applies a score-based classification for films, substantially following and somewhat extending the system of the European Convention on Cinematographic Co-Production. Benefits thereof include, besides the actual definition of qualification as national or co-production work, the fact that it is suitable for indicating the degree of Hungarian participation in the works to be classified. This latter gains significance at specifying the degree of support, for instance.

The three categories applied by the Act on motion picture (Hungarian film, co-production with Hungarian participation, and film with other Hungarian participation) are primarily important in terms of access to different types of support. In line with the practice already applied in international co-production conventions, the regulation declares that co-production films with Hungarian participation shall be entitled to receive equal support to Hungarian films. The third category of classification plays a role in the application of indirect support, that is, tax allowances. Those productions in which Hungarian participation falls behind the degree required by law can only count on indirect support, unless they can be qualified as financial co-productions by virtue of an international contract.

The score table applied by the Act enables productions created by foreigners to be qualified as Hungarian film products, provided that the score required for a national film is reached due to the great number of Hungarian elements in such productions (authors, players, location of works, etc.).

Basic Principles Of The Act

In the preliminary negotiations, participants in the motion picture industry expressed their specific demand to make an extended and detailed statement of the objectives of the Act, because for them it is a guarantee that the governments in power shall acknowledge the values of Hungarian film culture and considers it important to ensure its retention and increase besides sustaining the independence of the profession. Problems in the operation of the distribution system so far induced legislators to detach daily politics from the resource distribution and institution systems at the level of basic principles of the Act as well as by detailed regulations later on, besides the professional independence already mentioned.
Experiences of recent years have shown that the Hungarian film industry cannot survive and cannot become internationally competitive without any state assistance. Yet, the creators of the Act hope that there will be a considerable private capital influx in the film industry sooner or later, after an initial state intervention. Therefore, the first sections of the Act contain all the objectives and basic principles providing a framework for the role of the state and guidelines for practical implementation of the Act.
When defining the principles of support distribution, legislators had three main objectives: first, to increase the amount of funds available; second, to distribute them in accordance with the special characteristics of the film industry; and third, to achieve controllability of the use of such funds from the granting of support to settlement.

In view of this triple objective, the Act establishes new institutions and raises the existing ones to a statutory level. The tasks and the operation of the organisations under the Act are generally specified by legal regulations of lower orders. The main reason for this is that an increasing number of players are likely to become involved in the Hungarian motion picture industry as economic conditions are changed, and legislators did not intend to hinder this by a rigid regulatory environment.

Support principles are based on the active co-operation of supporters and those supported: supporting agencies must Act in accordance with the principles and specific rules as set forth in the Act; whereas market players should strive to perform professionally all the (administrative, financial, etc.) conditions required to receive support.

The combination of adequate proportions of normative and selective support represents a balance in the prevalence of economic and artistic considerations. Among others, the objective of the Act is to encourage producers of so-called "success films" with normative support to produce new films that are popular among the public. Selective support will be made available for the support of productions that are less viewed by the public, but contain major artistic values. As a result of the motion picture Act, new Hungarian cross-border films may be granted a share of the financial resources ensured by the Hungarian state and works produced so far may be protected.

The support system rests on two basic pillars: direct and indirect state support. Although the latter is regulated by other legal regulations, primarily tax legislation, it was important to state in the motion picture Act that indirect subsidies were important and indispensable elements of the development of the motion picture industry.

The Hungarian Motion Picture Public Foundation
As The Main Organisation To Distribute Support

As the Hungarian Motion Picture Public Foundation has played the main role in the distribution of motion picture industry subsidies so far, the majority of state funds allowed to be distributed will continue to be concentrated at the Public Foundation, as the Act provides that the Public Foundation shall primarily be assigned to distribute funds allocated in the state budget for film industry purposes. As both funds and tasks are expanded, the responsibility of the Public Foundation will also grow; therefore it is important that this organisation operate in an effective, transparent, and lawful manner. In order to ensure this, the Public Foundation shall publish its plan for applications for the given year, determining the objectives of the motion picture industry it wishes to support during the given year together with the limit amounts for each objective by the end of February each year. The same is the deadline for publishing the system of conditions for normative subsidies.

The Public Foundation must draw up support regulations including the general conditions for applications and support as well as the mechanism for distributing subsidies. Such support regulations shall be approved by the Minister for National Cultural Heritage and published in “Kulturális Közlöny” (Cultural Gazette); this shall be binding upon the Public Foundation.

The Public Foundation must develop and implement an annual strategy to activate the highest amount of funds possible in the sector. Given the current status of the Hungarian film industry, it should assist the implementation of quantitative and economic objectives as set forth in the Act as well, at the same time the production of as many high-standard films as possible.

Co-Ordination Of Support

The Motion Picture Co-ordination Council was established by the Act with the participation of public and non-public organisations interested in the film industry, which is intended to manage a problem left unsolved for a long time: co-ordination of support objectives. Development of the film industry has been seriously hindered in recent years by the lack of co-ordination between the tenders invited by public organisations providing support (e.g. Ministry of National Cultural Heritage, National Cultural Basic Programme, National Radio and Television Board, Hungarian Historical Motion Picture Foundation, and some ministries).

The Council shall monitor movements in the professional environment as well as determine the framework of the film support system on an annual basis and make its operation effective. One of its most important tasks is perhaps the preparation of the applications calendar each year, providing an overview of the plans of supporting agencies for the given year.

As a long-term objective of the Act is to make the private sector interested in the development of the film industry and make spendings on film production – under the media Act – more effective, national commercial TV programme providers also participate in the Council.

The Council shall Act in the form of consultation as it is primarily intended for promoting communication between players; therefore it shall only formulate recommendations which shall not have a binding force. The Council may determine its own rules of procedure and publish these in the “Kulturális Közlöny” (Cultural Gazette); however, it may not set obligations for third parties.

Rules Of Support

With a view to the fact that the majority of the film industry regulated by the Act is operated by a state support system, it is not an exaggeration to state that the most important part of the Act on motion picture is the chapter on the rules of support. Definition of the activities eligible for support is indended to specify the areas of public responsibilities; this obviously indicates which motion picture industry activities may be granted public support. At the same time, this exclusive listing represents an obligation for the Hungarian Motion Picture Public Foundation assigned as the main organ of distribution: the Act provides that the Public Foundation must provide support for all activities specified.

According to the European Commission recommendation on legal issues related to film productions and audio-visual products, in the case of individual film productions, the proportion of state support cannot be higher than 50% of the budget of the given film. Member states, however, allow considerable derogations from this principle on a regular basis. This is actually permitted by the recommendation, stating that in the case of films with a low budget and so-called "difficult" films (artistic films and films originating from countries with a limited language territory) total support is also possible. In view of the fact that in the case of Hungarian films both categories can be applied, the Hungarian Act sets the general degree of support intensity at 80 %, but it allows even 100 % support if artistic and financing factors otherwise justify it. It is important to note that these proportions only represent the maximum; support ratios may be defined at lower levels by supporting agencies in their own internal regulations.

The Act reserves central budgetary support for Hungarian productions and co-productions with Hungarian participation. But as there are many cases when a Hungarian film producer only participates in a production by financial contribution, meaning that the film concerned would not be qualified as a co-production by the score received, the Act also allows direct support for such films if they can be qualified as co-productions within the given interstate relationship. (The European Convention on Cinematographic Co-Production permits that such films be recognised as financial co-productions.)

Another EU reference is made in the section stating that the supporting agency may prescribe that beneficiaries must spend up to 80% of the support granted within Hungary. The majority of motion picture ”superpowers” in Europe (France, the United Kingdom, Italy) use the opportunity of territory-linked support; at the same time, the European Commission intends to restrict such special terms and conditions in member states. According to the reform plans submitted in early 2004, each state may impose territory-linked provisions only on the support granted by itself and may not specify the ratio of territory-linked spendings in relation to the total budget of the film. It is really an old observation that support spendings are required to be localised in order to boost film industries and to protect local labour force; at the same time, it is at least as important to include in the regulation the openness towards co-productions in the case of small countries. By only allowing for disposal over the support granted or 80% thereof, the Hungarian Act reflects this opennes and is in line with the principles of the single EU market.

A long-standing demand in the film industry is catered for in the Act on motion picture by specifying and standardising the conditions of exclusion from support. There was no earlier legal regulation by virtue of which a motion picture applicant accumulating unsettled debts with one supporting agency would have automatically been deprived of additional film industry allowances by another supporter, as the other supporting agency did not even have the opportunity to check for debts in general. There are at least two things required to rectify this problem: a legal regulation valid for all stakeholders and an information base accessible for supporters. This latter is the task of the National Film Office.

Another long-formulated concept is realised by including rules of normative support in the Act. All governments responsible for their central budgets providing resources for state support would like to ensure guarantees that allowances provided from taxpayer’s money yield perceivable, perhaps measurable results, even in such a subjective, therefore hardly assessable area as film production. Such a measurable result may be an increase in the number of viewers of Hungarian films, with the restriction that this single principle must not exclusively prevail at the time of distributing support as a whole. The Act does not specify the proportion of support to be distributed on the basis of the number of viewers reached; hovewer, it prescribes the obligatory application of normative allowances of such type as well as those due on the basis of awards at film festivals. Accordingly, reference-based support is prescribed for producers or directors of films with a certain number of viewers or festival success – in order to produce their next film.

Provisions of normative support for distribution in the Act represent proper recognition of the significance of film distribution. There is a consensus about the fact that no successful national film industry and motion picture art can exist without effective film distribution. Legislators are confident that distributors will always have their own resources for distributing popular success films; and special distribution support is provided for getting culturally valuable works to viewers and to promote movie theatres showing such films, also on a normative basis.

The National Film Office

A National Film Office needs to be established for performing authority tasks related to the operation of the film industry. These tasks should definitely be separated from the support activities of supporting agencies. On the other hand, these tasks should be organised, so that the certain data and services be accessible for all organisations acting in the film industry as supporters. Considering the public administration hierarchy, the Office is an agency reporting to the competent Ministry and shall possess the knowledge and skills required for performing public administration activities in the film industry. The Office performs two groups of tasks: on the one hand, it performs classification, registration, and data certification (that is, authority-type) activities; and on the other hand, it provides other film industry services.

Age Limits And ”Art” Classifications

There are two committees operating in the framework of the National Film Office: the Age Limit Committee, classifying film productions according to age limits; and the Motion Picture Committee, providing films with ”art” qualification.

Documents of European institutions on the protection of minors stress the importance of providing sufficient information to viewers at the time of access to audio-visual products in relation to the contents of the production and its potential harmful effects on the personal development of children. Government programmes in recent years also prioritized the suppression of violence spreading in the field of motion picture, therefore regulation of the age classification of movies has become an obvious task in this Act.

In relation to amendments in Act I of 1996 on Radio and Television, introduced in 2002, the Media Act was supplemented with provisions for age limits. In order to have a standard audio-visual age limit classification, these age limits are also extended to all productions of the film industry in the Act on motion picture. (Of course, film products published in television broadcasting will continue to fall within the sphere of authority of the National Radio and Television Board.)

Members of the Age Limit Committee – selected by an open tendering procedure and appointed for a period of three years – shall be educators and psychologists with motion picture experience; a representative of film distributors is also to be a member of the Committee. The age limit category specified by the Committee shall be indicated clearly on each copy of the film product. If the age limit is not, or is falsely indicated, the Office shall impose a fine on the party responsible. Unpaid fines shall be deemed as public debts; this is important because persons or entities with public debts may not be granted support under the Act on motion picture.
Besides providing information to the public, age limit classification has other functions as well: film products classified into Category V – those containing pornography and / or unjustified violence – may not receive direct or indirect state support.

The ”art” classification of film products is intended to ensure normative support for the distribution of culturally valuable films and the operation of movie theatres showing such films. Although the introduction of the category ”art” enables support for not only European film products, experiences of recent years show that movie theatres operating as ”art” movies compile their programmes mainly from European works.

The Motion Picture Committee shall consist of five members, who are to be appointed for a term of three years following an open tendering procedure. Committee members must have qualification and practice in the field of motion picture art, motion picture science, or motion picture teaching.

Registration And Other Tasks

In the section on the rules of support, a reference has been made that a proper registration and information system is required for tracing film support in order to provide access to basic information on various film subsidies (fact of settlement, debts) for all supporting agencies. A basic condition for this the registration of supported persons and organisations, productions granted support, and support data.

Details of providing authentic film distribution and attendance data are set forth in a decree by the competent ministry on the operation of the Office. It is also required for the proper operation of the system that these data be public, so that not only public supporting agencies but anyone can have access to them (with particular regard to the fact that this register is intended for the transparency of the use of public moneys).

Among the registered data, the data on settlement of support are the most important for the legality of applications for support as they allow for deletion from the register. This involves the consequence of ban on further support for a determinate period of time in accordance with the regulations on distribution of support.

One of the most important tasks of the Office is to issue support and investment certificates entitling to tax allowances. This is a precondition for companies providing film production support and making film production investments to get the tax allowances specified by law, as these certificates contain the amount of direct film industry production costs incurred in Hungary as included in the budget of a given film production.

National Film Assets

The Act states that the Hungarian National Film Archives is the asset manager of films belonging to and owned by the state, i.e. forming part of the national film assets. A condition for the implementation of this provision is that ÁPV Rt. acquire the copyright of Hungarian films owned by film studios and film companies representing part of its enterprise assets, as well as ownership title to negative copies from such companies in the form of contracts, following the legal assessment, audit, and evaluation of the film assets, and then transfer them to the Hungarian National Film Archives.

The Act only declares that the asset management right related to national film assets, defined in the interpretation provisions, shall be transferred to the Film Archives, because only this belongs into its regulatory competence. In the same section, the Act also contains a guarantee provision, namely that the Film Archives cannot sell, transfer, or encumber the national film assets included in its portfolio.

The Act does not specify the manner of utilising film assets; therefore it does not exclude the possibility, either, that the parties formerly entitled participate in utilisation. In the course of utilisation, it should be ensured that the parties entitled (authors, legal successors) should be able to receive a fair share of revenues from the utilisation of the films and to create funds for other purposes of the film industry as well (production, copy reconstruction, digitalisation). Consequently, the Act provides that the detailed rules of multi-channel and effective distribution of films contained in the portfolio of the Film Archives, and the method of allocation of revenues from distribution shall be regulated by the Minister in a decree.


Authors: Dr. Szilvia Láng and Dr. Balázs Zachar
Ministry of National Cultural Heritage
Audiovisual Division