17/02/2003

2002 was another recession year for a traditionally cyclical industry, but it's not all doom and gloom. A look at the state of health of the British film industry and its future prospects.

Slower but still going strong

“We had the boom and now we’ve got a bust. Sound familiar?” Alan Parker made the blunt remark during his November 2002 speech to British film industry professionals when he presented the Film Council’s vision of the future of the British film industry. His words reflect the harsh reality the British film community has become accustomed to dealing with.

2002 was another recession year in a very cyclical industry that is thriving to build solid foundations. Affected by a global economic downturn, spending on UK productions fell by 5 per cent and the independent sales sector found itself fighting for survival. Two major TV backers, Granada Films and Film Four, closed down. Despite all that, the picture is far from gloomy.
The US majors returned in force to the UK last year with blockbusters like James Bond’s - Die Another Day and Lara Croft, Tomb Raider 2 helping to sustain inward investment levels. Soft money in the form of subsidies and tax breaks offered a welcome alternative to traditional equity financing, bringing UK filmmakers closer to their European counterparts. UK cinema attendance was the highest since 1972 and numerous British films won major international awards.

Cineuropa examines the state of the British film sector and what to expect in the near future.

1. Facts & Figures

First the reality, with figures from an analytical survey of UK production published by trade magazine Screen Finance. Last year, some 84 films with major or minor British involvement went before the cameras for a total investment of £565.68m.(Euros848m circa), a 5.2 per cent drop on 2001 when 83 films were made for a total budget of £596.75m (Euros895m circa) although this was a huge improvement on 1995 when only 52 films were made.
As usual, Hollywood productions were the driving force behind the increase in inward investment into the local film industry. A total of six US films were wholly or partially shot in the UK with a combined budget of £138.96m (Euros 208m circa). They include the £65m (Euros 97m) Lara Croft, Tomb Raider 2 and the £40m (Euros60m) Jackie Chan vehicle Shanghai Knights, which, together with the £90m (Euros135m) James Bond film Die Another Day - which was majority-produced by UK outfit Eon Productions for MGM/UA - were responsible for up to 34.4 per cent of all investment into the UK.
The heavy involvement of US studios in British filmmaking can however be problematic when having to decide what actually makes a British film. This emerged very clearly at the last BAFTA nominations when Stephen Daldry’s The Hours was nominated in the ‘Outstanding British film of the year’ category in spite of being totally financed by Miramax and Paramount Pictures. Heavy US involvement might also seem like a cultural and economic threat to the rest of Europe. But the UK film industry has learned to live with this situation and make the best possible use of it. Alan Parker summed this up when he said: “We have to stop worrying about the nationality of money. We want to encourage investment into our film industry from anywhere in the world, without tearing up the roots of cultural film production”.

Nevertheless the other trend that emerged in 2002 was the relentless fall in the number of indigenous productions, from 51 films in 2001 to 41 in 2002, less than half the number made in the boom year, 1997 (84 films).
The average budget for a British production was £4m (Euros6m), a little higher than the 2001 average of £3.5m (Euros5.25m). However two titles made a significant contribution to pushing up the production average and the total spent on local film production: the £25m (Euros 37.5m) Bond spoof Johnny English starring Rowan Atkinson and John Malkovich, and the £20m (Euros30m) romantic comedy, Love Actually, directed by Richard Curtis and starring Hugh Grant. Most interestingly, both films were produced by Britain’s most prolific production company Working Title, responsible for four titles in 2002.

2. "Soft money" market buoyant

In spite of fewer local films being made, many experienced British professionals who weathered the film production crisis of the late 1980s are not worried about the current downturn in local film production. “We did loose some good sources of financing in 2002 with the closure of Film Four and Granada Films," commented Ken Loach’s habitual producer Rebecca O’Brien, "but I wouldn’t say we are in a production crisis". A similar point of view was expressed by producer Nik Powell: "Today there is more money in the UK than there has ever been before. Yes, the pre-sales market is weak, but the tax/subsidy-based market and the co-production market are very strong".
Indeed, public funding is now very much in the generous hands of the Film Council which pumps around £50m (Euros75m) annually – most of it Lottery money – mainly into film development and production. Regional film funds such as Scottish Screen, the Glasgow Film Fund, or the Isle of Man Film & TV Fund represent an alternative or complementary source of public financing for UK and foreign producers.
In 2002, 11 films were supported by the Film Council and the National Lottery franchises, including five European co-productions: the French/UK film Helen of Peckham and The Magic Roundabout, the UK/Luxembourg film The Girl With a Pearl Earring [+see also:
trailer
film profile], the Irish/UK film Intermission and the UK/Norwegian film One Love. The most dynamic Regional fund last year was Scottish Screen which used its annual £1.3m (Euros1.95m) budget to co-finance six films including two European co-productions: the UK/Norwegian film The Bum’s Rush and the Danish/UK co-production Skagerrak.
Over the last five years, tax breaks through sales and leaseback, or production equity schemes have also helped counterbalance the gradual disappearance of traditional equity financing and attract more foreign investors to the UK market. Over £1.6 billion (Euros2.4b) were raised by various tax-breaks in 2001. Since last summer, TV productions are no longer eligible for tax breaks and so the search for potential investors at home and abroad has further escalated.
Typically, the sales and leaseback scheme, Section 48 of the Finance Act introduced in 1997 and extended until July 2005, provides a 100 per cent first year write-off for investment in productions or acquisitions of British films with budgets under £15m. Section 42 offers less tax relief but doesn’t put a limit on budgets. Co-productions falling under official treaties with the UK (including France, Italy, Germany and Ireland) or under the European Cinematographic Convention only need to spend a minimum of 20 per cent of the production costs in the UK, and only 10 per cent for three-way co-productions.
If producers can secure valuable front-end financing for at least 10 per cent to 13 per cent of their budgets via sales and leaseback, they can then access other tax-based production schemes (which flourished in 2002) that claim to offer investors as much as 50 per cent of a given film’s budget in equity financing. Inside Track for instance, the new equity fund from established UK tax financier Ingenious Media, said it was ready to raise as much as £50m (Euros75m) to finance 15 films before the end of the current fiscal year in April 2003. In 2002, Inside Track backed two Pathé Pictures titles: Suzie Gold and Girl With a Pearl Earring, and the Icon Entertainment International film, Blackball. To attract a higher volume of foreign investors (notably from the Continent), Ingenious Media has just appointment Simon Perry, the former head of British Screen as their new director of co-production.

3. Increase in co-productions

If more foreign producers have tried to tap into the UK ‘soft money’ haven over the last couple of years, the lure of attractive tax breaks or/and cheaper labour and post-production facilities in countries such as Canada, Australia/New Zealand, Ireland, Germany, Luxembourg or Eastern Europe have also encouraged more British producers to film abroad. In 2002 in particular, the trend was towards fewer international films made in the UK (17 in 2001 and 15 in 2002) while twice as many co-productions were shot abroad (28 in 2002). The most active international co-production partners for British producers were France and Canada (six films each) followed by Germany and Ireland (4 films each), Italy, Denmark, Norway, Luxembourg (3 films each) and The Netherlands and Eastern Europe (2 films each).
The growing international nature of the film industry highlighted by the large number of co-productions being made abroad in 2002, was underlined by the Steve Norris, the British Film Commissioner, who reiterated the Film Council’s blueprint for the future: “If we are to build a stable-and-growing film industry in the UK, then we need to ensure that we continue to offer the skills and infrastructure necessary both to attract overseas filmmakers to use them, and to make attractive, world class films of our own, which will be distributed and seen internationally as well as in the UK”.
In the near future, the British film industry must prepare for major changes due before the end of 2003 when the UK TV market is scheduled for deregulation, and by 2005 when production tax breaks are scheduled to end.
The Film Council will continue to work hard this year on shifting the emphasis of its support from production to distribution and exhibition. It also intends lobbying the British government to introduce two new measures that will, it is hoped, contribute to strengthening the local film industry: distribution-led tax breaks (under which P&A costs could be factored into sales and leaseback production deals) to replace the existing production tax breaks, and quotas for broadcasters to force them to invest in local film production, as happens in many other European countries.