Is there a British Film Industry?

  This is the formal reply that we wanted to give to the Committee's invitation to submit information and a view with regard to the current state and direction of the British film industry. For purposes of the invitation, and so that the Committee may receive our views in an accessible fashion, we have decided in the first instance to provide a response to each of the questions the Committee has set out in its invitation dated 22 November 2002. Following on from this, we would like to offer a summary of our observations and some detail of what we perceive to be the priorities facing the industry and all those who share an interest in its welfare.

What direct and indirect contribution does the film industry make to the UK economy?

  We are sure that the Committee will be familiar with the essential statistics associated with the British film industry—box office admissions, number of films made, number of people employed, number of big-budget American films shooting at UK studios etc. It is not our intention to repeat or indeed interpret these in any painstaking manner. However, there are certain things which our experience working within the British and increasingly international industry tell us.

  On a recent business trip to Los Angeles and an audience with the MPA and MPAA, we were struck by the manner in which their industry conducts itself in relation to Government and the international market. What struck us was their considerable professionalism in promoting and supporting the American film industry on a consistent and all-round basis. Overall the impression was of an industry which takes its business very seriously indeed, and has managed to impress upon Government its significance—quite probably because of the sheer scale of its contribution to the US economy.

  Now obviously this is crucially underpinned by a comprehensive worldwide distribution system, something which the UK industry does not or cannot hope to have in the foreseeable future. However, our own industry has a potential to penetrate the US market not afforded to other countries because of commonality of language—this should not be an obsession as studio distribution deals mean that profitability tends to stay Stateside—distribution holds the control and the money.

  Therefore we feel it would be an error to focus on competing with the US directly (some grand and highly admirable studio-size ambitions have fallen by the wayside in recent years), but that we should appropriate its professionalism in seeing the British film industry in economic terms, and work with Government as to how we identify more precisely the economic frameworks it should be working in. Areas for growth, specific fiscal incentives based around creating sustainable film/business entities which contribute to the UK economy on an ongoing basis rather than simply making films, and a recognition and in some circumstances possible correction of the market conditions which prohibit us reaching sustainability. This is we feel absolutely key to improving the economic performance of the British film industry. We shall come onto the specifics of these in relation to subsequent questions.

Is it important to seek to preserve a capacity to make British films about Britain in the UK?

  The easy and immediate answer is absolutely. It is of course a matter of balance. There are cultural issues which should inform any such discussion, and we're sure that the Committee is aware of how a vibrant and diverse film culture can correspond strongly with an economically viable film industry, and the hope is always to marry cultural vibrancy with economic effectiveness.

  As an independent film distributor we are acutely aware of the problems which exist in finding a space for British films within a market still dominated by American product—we are frequently repeating a mantra to producers that they must think of their projects not in relation to other British films, but in relation to the films they will be competing with in the market as a whole. We have to remember that we cannot match the Americans in some ways—the sheer scale that their budgets can bring to their product. These budgets are supported by the size of their own market and the distribution overseas—if we seek these it is crucial that partnerships with other major territories be forged, and even then it is hard to imagine it being as systematic.

  What we do have is established technical expertise and an emerging marketing expertise—we feel that in particular independent distributors in the UK are having to use nimble marketing as a competitive tool when faced with US studio movies which may come with huge marketing budgets but are delivered with a lack of local autonomy—budgets are determined from Los Angeles. We also have improvements (which must be developed strongly) in a producing community which has historically been perhaps too focused on getting films made rather than understanding their place within a wider economic context.

  This notwithstanding, the preservation of spaces for British films (and we make very deliberate use of the plural—it is essential) is an economic imperative as much as a cultural one. Not just for them to be made but for them to be distributed and exhibited appropriately through all revenue streams/platforms. It is perhaps a tired comparison to make, but the French have always viewed their film industry in a more inclusive way—with distribution and exhibition incentives (which apply through the windows of exploitation and not just through theatrical) tied to anything they do to protect a production "space". They also see the broadcasters as part of their film industry, rather than separate from it. This has much to do with their historical competitiveness—their industry has enjoyed much domestic and international success over recent years. Maybe the French come at it from a cultural perspective, and the Americans from a business perspective, but there are clearly elements of both which can underpin economic success.

  The Committee will no doubt receive good reasons allied to notions of cultural and geographic diversity as to why it is in all our interests to provide a platform for British films about Britain—and not least because our films have historically enjoyed their greatest success when they are clearly presented as "British". It is also no great imaginative leap to link the encouragement of new talent from the nations and regions with success internationally. Yet the key remains encouraging these films through the distribution and exhibition pipeline so that they can compete within the international marketplace—within all revenue streams.

What is the relationship between the film industry and the rest of the creative industries including the broadcasters?

What should the relationship be between British broadcasters and the film industry?

  Being competitive within all revenue streams is the single biggest obstacle facing British films and the British film industry, and the relationship the industry has with broadcasting is the single biggest problem. The current pay-TV situation in the UK works against the British film industry in several ways, most particularly by the anti-competitive practices which prevent UK based independent distributors and the British films they might be inclined to invest in from playing on a level playing field.

  All the US studios have output deals which secure considerable figures for all of their theatrical movies from Sky regardless of box office performance—indeed films which perform poorly in the US, and are thrown away theatrically in the UK, are still afforded a pay-TV deal. There is no competitive correlation between the success of independent UK movies and American studio movies in terms of their pay-TV revenues. Independent companies like ourselves have been known to acquire UK rights to studio movies for theatrical and home video in the knowledge that the film can be put back through the studio deal for television.

  On the other hand, with British movies which are successful at the box office and home video, the independent UK distributor is faced with a pay-TV reality that however successful their movie, it will get less than the going rate for the studio movie—the pay-TV platform can opt to lose the British movie because it has the studio volume, and the British feature is forced to accept a lower revenue or go without a deal at all. Pay-TV platforms which have claimed to invest in the British film industry have in fact done no such thing, giving preference to American studio product.

  Now as an independent distributor we are not looking for a handout, although we do suggest that the pay-TV platforms should be encouraged to look toward a fairer system of access, with some kind of formula which allows British movies to have the opportunity to accrue TV revenues similar to their American counterparts, and some financial incentive for the broadcasters to offer more slots for British films within their schedules. As for Sky, we find it difficult to believe that they cannot accommodate this given the relative monopoly they now enjoy. We can appreciate that considerable expense has gone into the setting up of this platform, but would argue that a wider programming of British and independent product would actually enhance its position—would their customers not prefer to see successful and well-supported theatrical product, and not as much studio fodder which has barely registered at the box office?

  Given the widespread assumption that TV revenues have underpinned much of European film-making over the past decade, and the departure of FilmFour as an integrated entity in the UK, Government perhaps should look to the part it can play in bringing the industries together. The picture is not all bleak, and we would argue that strategically-minded broadcasters could also strengthen their assets by forging closer ties at this stage, simply because the DVD explosion is both sweetening the pay-TV pill, and because the short term value of this explosion, coupled with the mid-term value of VoD and PPV (which should afford more "democratiç access for independent companies), makes UK distribution more viable than it might have been.

  This is crucial to any understanding of the British film industry—one should always remember that the American film industry is essentially distribution-led. The future economic viability for the UK rests upon at least an understanding and accommodation of this. A healthy British film industry, certainly in economic terms, is one which includes several successful UK distributors (not studio subsidiaries) of varying sizes and ambitions. Distributors who have the autonomy to make the key revenue and marketing decisions themselves, and use their UK strategy as a launchpad for an international strategy, not just the UK as one more relevant but minor territory. Ownership is not the only issue—how could it be—we're currently Canadian owned, other companies are part French and German owned. What we're talking about is helping to create conditions where UK-based companies can exist as international entities, not mere subsidiaries. And indeed part of that discussion is to think of the means whereby we can incentivise those companies.

Does the film industry merit support from Government, if so, how can existing support be improved?

  It's clear, then, that the industry requires incentives, and perhaps that carries with it less of a subsidy image than the notion of support. One problem of perspective may be that it isn't some nebulous idea of a British Film Industry which requires support, but certain market failures within it. Clearly one hotly-debated area of "support" for the industry has been fiscal incentives for film production, and many would argue that such incentives remain key at a time when broadcaster support is at a low ebb.

  But providing such support for production alone does not guarantee a set of competitive films emerging from the UK—indeed there may be an argument that it allows certain projects to pass the quality control threshold when they may not otherwise have done. In a distribution-driven industry, should not certain DCMS criteria apply to the distribution of British films, allowing tax deferrals on distribution to encourage market-attuned UK distributors to be more aggressive in the promotion of British films at the UK and international box office?

  Films live and die on their distribution, and given that distributors are likely financiers of films anyway, what if the incentives were here, on an understanding of matching or more funding from the distributors? The distributors would have to show sufficient investment themselves, and therefore be forced to rely on their market expertise, but it would encourage them to give suitable British films P&A expenditure which would compete with studio pictures. This could also help those independent films that the broadcasters traditionally ignore gain some kind of profile in a theatrical marketplace, and offset the risk of investing in a British film for which there is no clear TV deal.

  Careful consideration would need to go into any such proposals to limit their abuse. For instance, should deferrals be set against any distribution costs? Or should they be limited to non-backroom costs? Should they be set against frontline P&A, or could they apply to minimum guarantees paid for rights also? Should they be factored against other qualifying factors eg training and equal opportunities investment? Our contention would be that the possible pitfalls for all these eventualities could be explored, but that the industry at large should not expect government just to agree to make things easier for them. Any such distribution companies likely to benefit from such incentives should be obliged to offer something in return, and that possibly could be the investment in training aforementioned. This could also create real sustainable jobs. Companies would possibly have to show some direct consequence of the tax incentives doing this.

How can the production, distribution and exhibition of British films be improved in the UK? Is the right balance being struck between these elements of the industry?

How effectively has the Film Council contributed to a sustainable industry since 2000?

  Many of the reasons why such incentives might be so desirable is that they would fall into line with emerging trends within the industry which have gathered apace in the past couple of years. There is a sense that the production community does not now work in isolation from its distribution counterpart—indeed the flight of the broadcasters will force them more to seek partnership with the theatrical distributors. As they be factored against other qualifying factors eg training and equal opportunities investment? Our and TV companies), it seems beholden upon distribution to drive closer co-operation. That is what we have been trying to work towards these past few years.

  There are conflicting signs emerging from exhibition. The multiplex chains, as the growth in build slows, are arguably focusing too much on short-term audience share, thereby saturating big Harry Potter type releases and crowding out mid-range titles. This cannot be for the long-term good of the industry, which in purely capital build terms is perceived to have reached saturation. There are many cinemas which have many screens but play too few films. The market seems wider rather than deeper, which means there are more and more copies of any given film out in the market, but sometimes fewer films with a proper and exploitable play run. This second point is crucial—tokenistic one day performances do not address the issue of choice or accessibility.

  Additionally, short term market share on studio titles does nothing to build a British film industry. It really is about meeting the demand for the latest fad. But it would be unfair just to castigate exhibition for this. Part of the problem is the very issue of P&A raised earlier—exhibitors understandably have some reluctance about supporting films with low marketing spends, the spends themselves dictated by the market conditions described earlier in relation to ancillary revenues. Safer to have a fourth screen of the blockbuster than three screens and a small British film in the fourth. Many distributors and exhibitors could furnish several examples of such scenarios.

  Some things are getting better—one multiplex chain has made a clear commitment to "range", agreeing to play specialised films in a proper, supported environment (others are dipping their toes but remain half-hearted). Crucially this chain sees the initiative as part of their overall business development, not as some vague concession to the notion of choice, and is willing to swallow occasional short-term loss of market share on individual titles.

  Other initiatives, coming out of the Film Council, are hoping to accelerate this slow and rather painful breakout of diversity. If anything, the main problem is that they are overdue. The Film Council is now set to deliver a more coherent distribution and exhibition policy to complement its successes in production. Again, the main problem is that such initiatives didn't come hand in hand, but they are still now welcome all the same. Moves to offer some small matching P&A support for specialised titles, plus the still contentious notion of creating virtual circuits for specialised product, promise to open up the marketplace to greater diversity. Certain British films will inevitably fall into such a sector, and should benefit. And with the commercial arena, we still await floated proposals about a discretionary reward scheme to incentivise distributors to be more aggressive in launching British films (one possible school of thought would be that this particular measure might help British films in the UK marketplace, and that tax-based incentives could help British films and distributors in the international marketplace).

Does the Council have the right strategy and approach?

What has the Council contributed to education about, and access to, the Moving Image?

What should the Council do with the bfi and the Museum of the Moving Image?

  Thus, the feeling grows that certain factors are working in the industry's favour, and certainly the Film Council appears to be working diligently and constructively towards creating a truly sustained industry. Given that they inherited the lottery franchises, they have at least brought a greater thoroughness to public investment in film production, whilst trying to introduce a more coherent overall distribution and exhibition policy. The main frustration currently about this has been the delay in this going into fully operational mode. Whether the recent appointment of distribution and exhibition representatives to the Film Council board will have the desired effect remains to be seen.

  The effect is clear when one considers the position of the Film Council in relation to these various sectors. If you are an independent producer looking for finance, few would doubt that it would be an important port of call on your rounds, be it looking for money in development or production, or indeed overall guidance. If, however, you are an independent distributor or exhibitor, there is currently little for them to offer you. We understand that will change, but this aspect of their strategy remains undelivered. Alan Parker's keynote address some weeks ago suggests they do not want it to remain that way.

  Certainly the creation of the Film Council, as a deliberate attempt to introduce an industry figurehead for the UK, should be welcomed. The UK desperately needs a body which acts as a conduit and stimulant for various sectors of the industry (as opposed to the film culture). We need a body which reflects well against the professionalism and zeal of say, the MPAA and the CNC in France. We need a body which also acts with a remit as advocate/lobbyist to government on behalf of the industry. If anything, and admittedly somewhat from an outside perspective, we need more of this. This becomes clear in relation to the lack of transparency in how the industry may seek legislative change, for instance. There seems no clear mechanism by which the industry as a whole, or the individual company, can present their concerns to government, or no ready sense that the Film Council has the government's "ear".

  The council has clearly achieved much within a relatively short space of time, and needs the opportunity to build its central place within the industry, and to (re)present the UK industry worldwide.We would argue that as a day-to-day operational priority, the Council should focus on its industrial responsibilities, on being the conduit for the concerns of those in the industry, and aggressively representing it internationally. Short-term at least, this might leave other areas under the supervision of others. This would possibly create a clear space within which the bfi might operate with a certain degree of autonomy, concentrating on the curatorial, educative and archive duties it has traditionally undertaken.

  This might avoid the blurring of responsibilities which currently can be confusing. What exactly is the relationship of the bfi to the Film Council? Obviously, education and training becomes a contentious point here, although one might argue that a natural split of responsibilities opens itself up, with the Film Council concentrating in training within the industry (realising and implementing industry-specific training schemes), and the bfi taking up the role of the moving image within the overall education culture. Our own dealings with both bodies have suggested to us that this is where their strengths may lie.

SUMMARY

  What characterises the British film industry may be the willingness of many of its participants to offer, unsolicited or otherwise, an opinion on what is wrong with it! We make no bones that our reply here is indeed an opinion—although we have also tried to focus on some of the things that are right. We are an independent distribution company that has met with considerable business success over the past few years, and sometimes the feeling has been that this has been despite rather than because of any prevailing public policies in relation to the industry.

  What we have found unfortunate is that our accommodations to the market have not perhaps best served the British film industry—a very high proportion of our successful investment decisions have been in non-British films, and these decisions have often not been an issue of quality but economic exploitability. That said, we have invested, and continue to invest in British films because we think there is a lot of talent in the country, that we have experienced UK box office success with British films, and that the predominance of the English language offers an international upside to UK product.

  We'd like, if anything, more encouragement to do so. We cannot be more emphatic in reiterating our concerns about the anti-competitive TV market—it represents a real obstacle to the building of fully integrated independent companies operating out of the UK. Our avowed business aims show us that we are attempting to be just the kind of British film company that the Film Council says it wants to encourage, a company with a strong track record in UK distribution, but with an emerging international presence. A company ready to re-invest not only in British films on a consistent basis, but re-invest in training, in creating a generation of able executives through in-house development, and offering to contribute where required to overall training initiatives throughout the industry.

  We also think that certain changes in market conditions, most particularly the DVD explosion but also the various initiatives seeking to make the industry as a whole more coherent, mean that there remain grounds for optimism in creating a sustainable industry. We would make the central point that a key means of realising this is the sustenance of British film companies with both small-scale UK driven ambitions and real international aspirations, and not just creating the conditions whereby it is easier to get films made. Only by looking at the obstacles to coherent and lucrative distribution and exhibition through all platforms, and addressing them through each individual platform, can we really start to talk in long and proud terms of a British film industry.

December 2002