TUESDAY 29 APRIL 2003

MR MICHAEL KUHN, MR JEREMY THOMAS AND MR BARNABY THOMPSON

  Q48 Chairman: Gentlemen, thank you very much for coming to see us. Mr Kuhn, we saw you last time round and we saw Mr Woolley last time round but Mr Woolley is a prisoner of Virgin Trains at the moment, which is a fate I would not wish on many people. Mr Kuhn, last time round we saw a predicament. You had views and indeed solutions on that predicament. Why are we now in a predicament once again? Is it the same predicament? Is it a different predicament and what can we do about it this time?

  Mr Kuhn: It is the same predicament. To have a sustainable British film industry you have to have control to a larger extent than we have had before on the marketing and distribution of our films in the majority of those countries, about 14 of them that account for the vast majority of revenue for films. Without that, it does not matter what anyone does. We will not have a sustainable film industry in the common meaning of that phrase.

  Q49 Chairman: All of you plus Mr Woolley have remarkable track records of success and you have made a huge impact. Yet—please contradict me if I am wrong—unlike, say, your counterparts in the United States film industry, you are victims of circumstance in the way that they are not. I do not know if any of you happened to see the profile of Lew Weissman in The New Yorker. The United States film industry has reformed itself on the basis of integration of production, distribution and exhibition in a way that the anti-trust laws prevented and they put themselves together again in that way. That is one of the reasons why they are now responsible for films which cost and make great sums of money. We had, on a very much smaller scale, that same kind of integrated system and we do not have it now. Is there any way of putting that back together again? My guess is no. If there is not, what do we do about it?

  Mr Kuhn: I think there is no way of doing it in one giant leap but there is a way of building towards it which I think the Film Council could have a role in. That is to set up a method of underwriting the marketing and distribution of marketable films in North America and in some key European territories, thereby beginning the building of an international marketing and distribution expertise and power base, using the funds and the stated intention of the Film Council, which is to get more into distribution and marketing and into production, or having a more equal balance.

  Q50 Chairman: We would very much welcome hearing from the other witnesses.

  Mr Thomas: I have been making films here for 30 years. The question is: is there a British film industry? I have a small film business which is self-sustainable and a private business. I entered the movie business a bit earlier than my contemporaries because my family was in the film business and I entered the business when I was a teenager. By the time I was in my early twenties, I had established a business and worked out that the only way to do it from the UK was to be truly independent and try and build up some way of treating your own income stream and stream of rights. I got in a very good window to do that. Today, I do not think film producers are empowered to be entrepreneurs. It is very difficult for a film producer to get ahead enough to be able to be entrepreneurial in spirit. Even from the national system that supports any film producer—ie the Film Council—it is very difficult for a film producer to come out at the end of it with any money to go towards his next film to develop it. When he starts developing his film, he is completely weak. His first building block he has to give away and he is never able to get ahead to become an entrepreneur. That is the atmosphere for people entering the film business here. That needs to be addressed. The people who gave evidence before were canvassing heavily for section 48 which has now developed an enormous amount of money for independent producers so they can come to the table and say, "I can put 20% down. Let's make a deal." For the first time that I can remember there is a dealing weapon for British entrepreneurial producers and to lose that would be everybody shooting themselves in the foot yet again. It will be another five or ten years before something else can come and take the incredible position that has happened. Admittedly, at the beginning it did not happen correctly but now it is going for single feature films and it is not being abused. It is getting into the hands of film. I am lobbying for that. Of course I have been using it myself but it is being used by all those films you see. They all take advantage of that.

  Q51 Mr Bryant: You talk about entrepreneurial skills almost as if they were more important in the job than the creative skills. Is that the role of the producer? It sounds a bit like putting it together in Sondheim's musical.

  Mr Thomas: It is a balance of business and art. Why we are different to Americans is because we are British. I find it hard to think of making Hollywood in Britain. I wish we could but we are good at making original, unusual films which, because the rest of the market is so bland, we get a chance of getting into the market place.

  Q52 Mr Bryant: Sexy Beast, which I thought was a wonderful movie, fits that bill. Tell us how that came together financially and what role the broadcasters had in it.

  Mr Thomas: To digress, that film was opened in the UK with 20 prints because the distributor had no faith in the movie. It went on to sell hundreds of thousands of DVDs and had incredible ratings when it was shown on television. At my stage in the film industry, I look at theatrical distribution as like a rock concert to sell records. You make incredible PR; you do your rock concert. You put your band on the road for 20 gigs and then you put the DVD out and then television. A major company can invest millions of pounds and knock everybody off the pitch and put 900 prints on the screen. It is a different concept. On Sexy Beast, the script was a great script and the director, although he had never directed a feature, was very hot in the commercials world. He made the Guinness ads. Americans picked up the American rights for millions of dollars before we even had a star. It was a lucky story. It came back and sold various rights here and that was the optimum situation because an American company bought the film first.

  Q53 Chairman: I agree with Chris Bryant; I thought it was a wonderful film. Obviously there are all kinds of business compromises that you always have to make but to make that movie you did not decide that you needed a bankable Hollywood star. You made a film which was a very British film which had its own indigenous, lively character, which found an audience here and which took off in the United States as well. There is a very salutary story in that, is there not?

  Mr Thomas: I am not looking to work with stars unless I find a star that wants to do my movie for $1 million. I want an actor who wants to do my movie because it is great. It is a decision of taste and the type of product I want to make. I believe that there is a market for it and I have proved it. Although it is modest, it is real.

  Q54 Mr Bryant: Part of the film was filmed in Spain. Is the process of making a film easier in other countries in Europe than it is in Britain?

  Mr Thomas: It is the same everywhere in the world with camera, lights and sets, talented people, non-talented people and cash. It is all the same everywhere. Shooting a film in Spain means that you can exploit various other coproduction treaties. I did not have to compromise the story by putting it into Spain. It was set there.

  Q55 Mr Bryant: Can I ask Mr Thompson about studio capacity? Is there too much studio capacity in Britain? Is there too little? Is it a difficult business trying to make a studio work?

  Mr Thompson: We bought Ealing Studios about two years ago. We were buying it principally because we believed it was the great name in British cinema in terms of content rather than as a facility. We run it as a facility and it does perfectly fine, but we are a small studio. We are not competing for the next James Bond film so we have completely different issues to, say, Pinewood or Shepperton who are principally in that business. What we are primarily interested in doing is finding a way of building a new kind of content producing and distribution studio that is a mirror to some extent of our Hollywood counterparts, but obviously completely different, because the environment here is completely different. The primary challenge of producers is to move the film business from being a cottage industry with seasonal workers who drift from one production to another to building some larger, financially secure companies that are able to build some kind of consistent outflow. The Hollywood studios spend millions of dollars and make 15 to 25 movies a year. That is not our world. I think our world can be one where we have six to eight reasonably financed companies in this country who become umbrellas for lots of individual producers and can provide talent with the home. The principal thing that raises us out of the primordial slime of show business is ownership of rights. The tragedy of the film industry is, because we are under-funded at the most basic level, usually we have given away those rights just in order to get 30 or 50 grand to develop the script. A decision I made in coming back from America very early on was to spend my own money on developing scripts so therefore I could hang on to the rights. When you take them into the market place, you are free and clear to do the best deals. That is the way Jeremy has survived and that is the way most of us who have been able to hang on to the ownership of our films have survived. We are raising money for Ealing at the moment and we can talk to financial institutions because they understand intellectual property rights.

  Q56 Mr Bryant: You have made some very different films from Spice World and Wayne's World to The Importance of Being Ernest. It seems as if at the moment you are in a phase of more a Merchant Ivory world of films.

  Mr Thompson: I am currently making an animated film called Valiant which is about carrier pigeons in the Second World War.

  Q57 Mr Bryant: Is it more difficult to make the figures stack up for something like The Importance of Being Ernest than for something like Spice World, or is it just different?

  Mr Thompson: It is just different and the primary task of a producer is to understand the market that you are going for. There has always been, largely speaking, a niche market for films like The Importance of Being Ernest and An Ideal Husband. It is a recognisable market. It is a market the distributors know how to aim product at and, as long as you are making a film for the right kind of price, it can make a lot of sense. An Ideal Husband and The Importance of Being Ernest were not Spiderman, but for the budgets we made them for everyone has made their money back and more. Similarly with Spice World. There was a market there. It was about understanding who the film was being made for.

  Q58 Mr Bryant: For those different markets presumably it breaks down differently in terms of whether you are going to be making money out of people seeing it in the cinema, people seeing it on DVD, people watching it on television, or is it remarkably similar?

  Mr Thompson: It is essentially the same game in that you put together a package, whether it be Spice World or The Importance of Being Ernest, and you make it as attractive as possible. You presell it around the world so hopefully you are only licensing the rights for a certain period of time. With most of those films the theatrical provides the promotional window. If you break even theatrically, you are doing very well. If you make money, you are doing exceptionally well. Then it is DVD and television. The Importance of Being Ernest and An Ideal Husband did very well on the airlines.

  Q59 Chairman: Tell me if I am wrong but it all has to start by cinematic exhibition, has it not, ie all the rest of the spin-offs are DVD and video sales, airlines, TV, merchandising, in some cases theme parks. All of that is dependent upon a movie being shown in cinemas.

  Mr Thompson: Absolutely.

  Mr Thomas: It is rather like a pyramid. There are two pyramids in the movie business. There is the pyramid of exhibition outwards, theatrical exhibition and how you decide to use it. Then there is the content and "it" which is movies. The best movies are the top of the pyramid and then this is about: is there a British film industry. Movies get shown on TV and they get fantastic ratings on Christmas day. They are a place that everybody aspires to and they are much loved and inform many people's ideologies of cinema. Yet the TV companies do not contribute very much historically and have eaten an enormous amount of film. There is a terrible imbalance between the satellite stations and what they pay for independent feature films and what they pay to the major studios. It is the same product with the same degree of success. If it comes from an independent, you pay X; if it comes from a mainstream company or one of the five majors you pay Y. It is very unfair. I now think of selling my British films to an American company to come into the British market place because I get a much better rate by going through an American company than going through a straight British company. There is something like a cartel going on which I am sure you understand. You cannot get in there.

  Mr Thompson: The whole area of TV is interesting. When Goldcrest were around they would get 10% of their budget that came from the BBC on a licence. So if you were looking at a $20 million film like The Mission, that would be $2 million on licence. Now the BBC and Channel 4, the most they will pay is around £500,000, for which they want television rights in perpetuity.

  Mr Thomas: Including satellite TV.

  Mr Thompson: Including satellite TV rights. As a British film, apart from the theatrical life, the most important long-term value is television rights because if a film is shown two or three times on TV as a first run then they have to buy it for a second run or a third run. What we are being asked to do now is basically sell those rights and we are kissing goodbye to any kind of long-term revenue. As Jeremy was saying, Sky, who as we all know nowadays have seen off ITV Digital, once more have a licence to print money and none of them are in any way significantly contributing to the film business. If they were to pay us the same on a per hour basis as they pay for a normal TV series then that would be a huge improvement. That is a whole area where we talk about the British film industry but if we are talking about a British film industry where in a sense the first call is the making of British films for British people, the two most important areas are theatrical distribution, where the split between distributors and exhibitors in this country is the lowest anywhere in Europe and much lower than America. In America you get 40-45% whereas here it is 27, it is a huge differential.