'We are in the business of culture, not the culture of business,' says Mark Cosgrove, head of programme at Bristol's Watershed cinema complex in the UK. It is a distinction that is relevant in Europe in a way that would seem extraordinary to much of the world and particularly the US.

Europe's film industries walk a complicated line between art and commerce that can sometimes seem surreal. And that has never been truer than at this month's major conferences of European independent exhibitors and distributors against a backdrop of serious business concerns.

The Europa Cinemas conference in Paris and its equivalent, Europa Distribution in Estoril, Portugal, are trying to find solutions to problems that mean walking the tightrope of customer demand and the ability to unlock support as cultural institutions.

And there is also an undeniable subsidy culture. Europe is increasing its production levels every year and now churns out around 1,000 features aimed at theatrical release annually (see chart, above). That level of production could not remotely be achieved without serious public incentives. There is a consensus in most territories that it is part of their cultural remit to support film that could not be sustained by the free market.

This is in spite of the fact that distribution means the subsidised product has little chance of reaching those who pay for it. Most of those films will have a tiny release in their own country, never mind making it beyond their national borders. Even with subsidies, the situation for independent producers is critical - and that owes much to a blockage in the rest of the value chain.

Distribution for independent films has always been tough but it is now reaching a critical point. The bright spot on the horizon for more ambitious features has been the prospect of the emergence of a new middle-tier of multi-territory distributors following the PolyGram model.

The effect of a deepening credit crisis may have a serious impact on some of those plans.Equally, television money has rapidly declined and the advance of DVD has all but come to a standstill even if the format is proving resilient. Studios are waiting anxiously to see if consumers are going to upgrade to the new Blu-ray discs in a recession. Throw in the patchy growth of video on demand and other forms of new media access - not to mention piracy - and the outlook seems gloomy.

Speaking at the Europa Cinemas conference in Paris, distributors said they simply had to reduce the amount of European arthouse cinema on their slate.

The ray of sunshine during these stormy times has been a sturdy centenarian technology called the cinema.

Cinema remains consumers' first choice

A survey this week from UK legal firm Olswang showed consumers still believed the cinema is the pre-eminent place to watch film even given the trend towards broader choice and control. Cinema, they said, was an 'experience' that could not be replicated in the home. That status as a third place between work and home is proving a serious plus.

The annual survey is conducted in conjunction with YouGov, and is based on interviews with 1,162 UK consumers and a series of in-depth online focus groups. Even given national variations - and the UK is having an exceptional year at the box office - the broad conclusions seem largely true.

And digital cinema promises to ratchet up the experience. At one end the reaction to the ever increasing quality of home viewing is to turn up the volume and contrast of the theatrical alternative.

Disney announced this week that it had signed its first Imax deals for a 3D version of Charles Dickens' A Christmas Carol - and revealed earlier this year that all its key animation features would acquire a new dimension. James Cameron's Avatar is building buzz at a fearsome rate.

Then digital cinema is bringing new kinds of content that are proving very strong. Opera has been a huge hit, with premium-priced tickets to live feeds becoming a serious income generator in some arthouses. Others are looking at sport and gaming.

The Europa Cinemas conference heard about a series of innovations, including a fascinating effort to capture the YouTube generation by screening audience-generated or sourced shorts from YouTube on the big screen. Some efforts are also being made at cinema on demand, where customers choose their own programming.

All of which would be a big boost to an industry with a chronic mismatch between product and distribution if it was not for one big problem - the switchover to digital screens is not only small but is actually slowing.

D-cinema company XDC notched up a rare win with Portuguese chain ZON Lusomondo announcing it had signed up to a 180-screen deal. But when such a relatively small initiative makes headlines, it serves to highlight the slow progress. And as Screen has previously exposed, there is now a serious threat to the future of independent and arthouse cinemas struggling to pay for the change - which brings us back to the art-commerce split.

National governments across Europe have made it clear they will not simply pay for the switch and the cut-off point between who can and cannot be subsidised opens up serious issues of competition. Indeed, the Europa Cinemas delegates heard that virtual print fee deals - set up to share costs - could be scrutinised by competition lawyers.

Responses to the digital cinema issue as with so much of European film policy is hopelessly fragmented - legally, technically and politically. But European funding may be forthcoming from other sources (See box, right). Accessing that finance, however, is a peculiar exercise.

Sometimes the finance will be unlocked because cinema qualifies as a small business. Sometimes it can make a case for funding as an important contributor to a regional culture. While public finance is uncertain, Europa Cinemas exhibitors, like others around Europe, are taking some matters into their own hands.

Room for improvement

The initiatives suggested in Paris fell into a few clear areas:

  • Environment: Design, architecture, lighting, multimedia access, food and showing times can be improved in many areas.
  • Cooperation: Working with other exhibitors means sharing economies of scale. At a grand level, that may include joining one giant pool for European funding of D-cinema. At a more day-to-day level, initiatives have included opera.
  • Nurturing new audiences: Finding and nurturing new audiences is not an easy task - particularly with competition from the big multiplexes where the young are the critical audience. Initiatives discussed in Paris include film clubs in schools, screenings of young film-makers' own work and a more friendly film environment

All these approaches make sense, although to really work they need the flexibility that comes with digital cinema - and that of course is the problem.

The conclusion of a number of key speakers at the Europa Cinemas conference was that the current impasse may provide thinking time and some serious planning at local, national and international level. Critical issues like release windows can be considered. Recent experiments such as Curzon Artificial Eye's day-and-date release with BSkyB of both The Edge Of Heaven and Julia in the UK are significant.

But time is severely limited - the studios have their timetable, a prolonged recession will move goalposts and even more than that, consumer patience has a limit.