French agencies and production companies are reeling after last week's announcement by president Nicolas Sarkozy that he plans to scrap advertising on public TV.

Last Tuesday Sarkozy announced that state-owned channels France 2, France 3, France 4 and France 5 would cease to host commercials. The loss of revenue will be replaced by increased tax for private television channels, and he claimed that the adoption of a BBC-style model would improve the quality of television.

An estimated €800-900 million advertising revenue is set to be lost annually by the public TV channels. And according to Georges Bermann, Partizan's global executive producer, the biggest victim will be France's film and commercial production sector. "Advertising agencies don't care - it's just going to mean they will spend more money on online or print. The only people really concerned about this are commercials producers, film producers and some people in TV who are a bit wiser and know that they can't get that €900 million from anywhere else," he said.

The withdrawal of revenue from commercials may also have a knock-on effect for the French movie industry. Many feature directors and production companies rely on the bread-and-butter work of advertising to fund film projects. "It will be a huge drain of talent," warned Bermann, who has produced, among other things, Michel Gondry's Science of Sleep. "It's not going to affect it right now, but in five or ten years' time there will be a big difference."

The announcement came as a surprise to many in the industry, including Jean-Luc Bravi, president of DDB France, as such plans had not been mentioned in Sarkozy's election manifesto. "The Sarkozy announcement last week was a big bang in the advertising world. It wasn't predictable and both agencies and advertisers were not expecting such an incredibly fast decision - but then our president likes unpredictable decisions. It wasn't necessary, state TV channels have just eight minutes of ads per hour," said Bravi. "As usual it's an 'announcement effect' to let people think that he is 'reforming the country', so everything looks good for him."

Rémi Babinet, Founder & Worldwide Creative Director, BETC EURO RSCG, agreed that advertising has been used as Sarkozy's fall guy. "This decision strikes a blow against positive perceptions of French advertising. As an industry it fuels economy and culture. This scapegoat aspect is dominant," he said. "Quality TV programming is associated with the absence of adverts, whereas it is the programme funding that affects the quality, not the media that surrounds it."

Moreover, Sarkozy's close friendship with owner of private TV channel TF1 Martin Bouygues has led some to question his motives. Shares in TF1 jumped by 10 per cent following the announcement and the lack of competition will allow private stations to charge more for advertising.

That's a view shared by Babinet who pointed to cronyism and a touch of 'Gaullian nostalgia' as factors behind Sarkozy's announcement. "He's in love, so he's not thinking straight!" he added.

But Olivier Altmann, creative director at Publicis Conseil is less worried. "He [Sarkozy] had to find a solution to finance the public services. On the one hand he didn't want to raise the taxes for public television, and on the other hand he didn't want to authorise more breaks for advertising on public TV. They needed to find a new financing model."

Francois Chillot, executive producer of Paris-based production company Les Producers gave an equally measured response. "My immediate reaction is negative. The government has to be told about what this move implies and it has to listen," he said. Chillot was keen to stress that while he was worried, it all depends what the government has in mind - simply removing ads from state TV could be disastrous but a well thought out media overhaul may not. "I believe advertising is absolutely essential to a good economy," he added.

According to prime minister Francois Fillon, the French government is already drafting the law and the measures are likely to come into effect on January 1 2009.