Growing the UK Film Industry – an Investor Perspective

Martin Smith

What’s wrong with the UK film industry? At first glance, it might appear not much. Great directors, great actors, great producers, great production facilities, world beating special effects, one of the world’s best film schools, and record levels of inward investment. No less a figure than Harvey Weinstein, speaking before the 2014 Oscars, declared “It’s the best period for British film I’ve seen in my career.”

Crucially, however, what we don’t have is significant independent film business capacity – that is to say sustainable, domestically owned production and distribution businesses operating at scale.  Rather, the British film industry is dominated by American players.  In 2013 the top 20 films by gross box office in the UK & Ireland were all American to a significant degree, with thirteen of them being entirely Hollywood affairs.  Out of 239 films produced last year, 81% of total UK production spend came from just 37 US inward investment projects.  No other British industry is this dependent on American money. And, of course, with ownership rights of the great majority of these films being located in the US, this is where the lion’s share of the earnings and tax revenues are booked. This is the case even with such iconic ‘British’ films as the Harry Potter franchise.

Given that this is an industry in which both capital and talent are exceptionally mobile, these numbers signify that we are highly vulnerable to changes in US investor sentiment.  Sentiment has for some time now been positive, driven by the tax credit regime here but also by the excellence of our facilities and skills base. However, sentiment has not always been so positive, and one variable is capable of trumping all others – the dollar/sterling exchange rate.

Consider the following graphic, which tells the story of feature film production in Britain over a one hundred year period:

Number of Feature Films Produced in Britain, 1912-2008

film graph
Source: Dr Gerben Bakker, “Soft Power: The Media Industries in Britain since 1870” in R. Floud, J. Humphries and P. Johnson eds., The Cambridge Economic History of Modern Britain (Cambridge, Cambridge University Press, 4th edition, July 2014).

Note the sharp fall in domestic production in the early 1980s when the pound rose to $2.42 on the foreign exchange markets.  Note also the lumpy recovery in domestic production as sterling falls back over the following two decades. This data leads me to suppose that we would be in serious trouble if the pound were to rise again to the $2 mark or higher.  Currently it is $1.65, its highest level for six years, and is on an upward trajectory.

For reasons that are not entirely clear, in film, as in the popular music industry, the UK has lost positions of global leadership over the last half century or so.  This is not true of the publishing industry which, like film and music, is a royalties-based business.  Nor is it true of public broadcasting, a sector which has of course been framed by very large-scale economic intervention. But there is nothing inevitable about this loss of position and our film industry has not always been so comprehensively outsized by the Americans: during the 1940s J Arthur Rank was bigger than any of the US studios.

We must not abandon the idea that we could once again compete in the big league of production and distribution, rather than acting as an off-shore facilities-and-talent hub for the US studios.  To that end we would all benefit from a sharper focus on film business economics.

I am not alone in taking this view.  Welcoming the recent Pinewood film studio expansion announcement The Times observed that “Britain’s film industry will still be an oddly-shaped beast.  It has the big head and hands of great talent, with the stunted lungs and legs of minimal finance and distribution.  Memo to closet luvvies in the City: we need to raise our game in those departments too.”

There are two pre-conditions for becoming more commercially competitive.  We must attract more business talent into the sector, and raise more domestic investment.  These two factors – business skills and investment – are completely intertwined: we won’t deliver the latter unless we succeed in achieving the former. Any government seriously concerned with the future of our film industry needs to move beyond the short term ‘arms race’ of tax credits and subsidies that nations pursue to attract major international film productions, and instead undertake the much more difficult but ultimately more rewarding path of investing in skills, including creative business skills, specialist media finance and enterprise support that could, over time, turn the UK once again into a truly competitive film economy.

 

Martin Smith is MD of West Bridge Consulting and an adviser to the Ingenious Group

 

 

 

The Creative Workforce: Improving Standards, Improving Culture

Marice Cumber

Growing the size of the creative industries has been a stated ambition for government for more than fifteen years now. But why? To boost employment is the most obvious answer, but ultimately all sectors and businesses generate jobs. When it comes to the creative industries we should be asking not whether the sector generates jobs, it clearly does, but whether those jobs are any good or not, and whether they reflect an increasingly diverse population. Continue reading

The Creative Industries and the Big Society

Julian Sefton-Green

It might be hard to believe now, but the advent of a government headed by David Cameron was something which many in the voluntary sector met with, at the very least, cautious optimism. After all, the concept at the heart of the vision of modern Conservatism was the Big Society: a political philosophy that gave voluntary, community and grass roots organisations a central role in how public services were delivered, citizens interacted and the vulnerable supported. Continue reading

The Other March of the Makers

Jocelyn Bailey

George Osborne should be pleased with himself for coining the phrase ‘the march of the makers’. He has certainly rolled it off his tongue plenty of times, and it has usefully reminded us all that we shouldn’t forget about manufacturing, which has for so long been cast into the policy wilderness. But the government’s support for the ‘makers’ has been more about attracting investment in the automotive industry, rather than bolstering an army of craftspeople tinkering in sheds. For the creative industries, the term ‘makers’ signifies something quite different from what the Treasury might think. Not steel magnates, chemical suppliers or factory owners, but artisans and inventors. Continue reading

Digital Infrastructure: Getting the Provision Right

Iain Bennett

Ten years ago, discussions around creative industries infrastructure were focused around artists’ studios, production facilities and performance venues. Affordable workspace might remain a problem, but no one today would exclude issues around access to digital technology and, in particular, high-speed internet. And yet, although recognised as crucial to the future of the creative economy, there are still major flaws in how government, and policy debates more generally, are addressing this. For all the hand-wringing over market failure, rural provision and local monopolies, the real challenge is being missed. Continue reading

Creative Regeneration Renewed

Alexandra Jones

In a cash-strapped climate, those working in the creative economy need to make their case for investment against competing demands. As pressure on public resources grows, this will require the creative economy to become increasingly sophisticated in the case it makes and in the role it plays in a wider strategy to help places become more resilient, able to survive, adapt and grow in the face of ongoing economic change. Continue reading

Creative Britain, Creative Europe

Callum Lee

Two of contemporary commentators’ more popular mantras are that Britain’s economic future is in our knowledge economy sectors such as the creative industries, and that it is in emerging markets, such as China, where the demand for these lie. There are few things that today’s politicians like doing more than being photographed in Mumbai or Beijing, leading media and technology trade delegations and urging British businesses to seize the commercial opportunities. But many of the creative businesses themselves will tell you another story. Continue reading