It is a sign of how Italian cinema, traditionally reliant on public funds that have halved since the 2007-2008 financial crisis, is seeking different sources of support. And its new sponsors often want something in return.

In an advertising deal the Rome company proudly describes as unprecedented, Taffo Funerals paid to be a central plot device in "The Worst Christmas of my Life", which hinges on a main character who is mistakenly believed to have died.

The product placement becomes a punch line when the funeral home manager telephones the hero and soberly intones: "Taffo, funerals since 1940". The film is the highest-grossing Italian film this season.

The placement has prompted some hand-wringing in Italy, once famous for some of the world's greatest works of film and the home of directors Federico Fellini, Pier Paolo Pasolini, Vittorio de Sica and Sergio Leone.

"It's certainly not in great taste, but every film has these advertisements now," said fur-coated Gabriela Rossi, 73, as she left a Rome cinema after watching the movie. "But I'm not sure it will work. I don't think that, in a moment of grief, I will remember the name of a funeral home I saw in a film!"

CALLING THE TUNE

Embedded advertising has long been a fixture in international cinema. Dutch beer brand Heineken's sponsorship of the latest James Bond blockbuster sparked concern among fans that the hero's time-honored tipple of a martini "shaken, not stirred" had been replaced.

But in Italy, product placements have become increasingly prominent since a 50 percent drop in public funding for films in the past five years, according to the head of Turin's film funding board, Steve Della Casa.

"Whoever gives money to a film wants to have their say," Della Casa told Reuters. "But this is normal. We have had mafiosi making films, racists, fascists... you can't make films without money."

In some cases, the product has become the film's raison d'etre.

The beautiful but often overlooked region of Basilicata spent 350,000 euros ($455,000) of a European Union Regional Development Fund to pay for a film, 2010's "Basilicata Coast to Coast", to promote itself.

The name of the comedy about a group of musicians on a road trip stresses Basilicata's selling point as the only Italian region with coasts on two different seas. It grossed $4.6 million at the box office, a respectable return for Italy, making it the 16th most successful Italian film that year.

And "Benvenuti al Sud", a remake of French film "Bienvenue chez les Ch'tis" about a post office worker transferred to Italy's south, became the occasion for the privatized Italian postal service to introduce viewers to its new ATM card service, Postamat.

"My friend opened a Postamat account. Now his pension is paid to the account and he can withdraw it conveniently," declares one character in the 2010 film, whose success at Italian box offices was second only to James Cameron's "Avatar".

CHANGING ITALIAN CINEMA

The demise of Cinecitta film studios, which once gave Rome the moniker "Hollywood on the Tiber," is seen as symbolic of a change in Italian cinema. Demonstrators occupied the studios for several months this year to protest a plan to redevelop the site to include a theme park and luxury hotel.

While funding remains tight, lighthearted comedies like The Worst Christmas of my Life that are commercially successful in the home market are those most favored by investors, the film's director Alessandro Genovesi told Reuters.

"In this moment I am obliged to make commercial films that have big economic returns," Genovesi said. "There is a growing taste for pure escapism... this has to do with the historic moment we are living. A moment of suffering, of economic malaise."

Italian films that do well domestically are quite different to those that succeed abroad.

Perhaps the most internationally successful Italian film of recent years, 2008's "Gomorrah", a mafia tale that won the Grand Prix at the Cannes Film Festival, in Italy took less than half the box office receipts of "Christmas in Rio", the 12th sequel of the raunchy slapstick "Christmas in" series.

Alessandro Taffo of Taffo Funerals said it was a proud moment when he heard the name of the family business announced in his local cinema.

"Funeral homes are often portrayed as incompetent in films. This was a chance for us to show our business in a good light," Taffo told Reuters.

"We are absolutely delighted."

(Reporting by Naomi O'Leary; editing by Philip Pullella and Paul Casciato)

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