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





3 thoughts on “Growing the UK Film Industry – an Investor Perspective

  1. Thanks for this intelligent piece Martin,

    Business skills and more investment in film (both in terms of scale and in a greater level of competition of investors) would be a good thing.

    But there are some structural reasons why we don’t have a big studio system in the UK, like the US. Film businesses as vehicles for individual film productions hardly incentivise producers to develop a long-term view. Changing this means dismantling the whole current structure of film finance.

    Alternatively, it’s arguably time for some high-rolling moguls to come back into the UK film business to help kick-start US-style studios, like Geffen, Speilberg and Katzenberg did with Dreamworks.

    Time for another J Arthur? 🙂


    • Hi Jon

      Apologies – I’m only three months behind with this response!

      I agree. The key point is to acknowledge that we have a structural problem. This is an unpopular point of view, not least in DCMS, because it sits in a box marked “too difficult”.

      It’s Oscar nominations day today as it happens. Two Ingenious films – “Mr Turner” and “Thelma” – get nods, which will doubtless be interpreted as evidence that we are “punching above our weight” and other clichés. But really we need to be much more self-critical, as you suggest, and be prepared to think radically.

      By the way, one reason why J Arthur was so successful (and unpopular) was that he had fantastic access to bank finance being (1) privately wealthy and (2) a very experienced businessman in another sector. Might be a clue there somewhere.

      best regards


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