A government commission has published a report on the state of the British film industry. Here are its conclusions.

Politicians support tax incentives

On September 18, a UK government think tank published its comprehensive report on the state of the British film industry aimed at addressing the challenges facing the industry within the highly competitive international marketplace, and identifying where public support could be increased. The inquiry came to the same conclusions as those put forward by the main UK film agencies: UK film tax incentives must be maintained, even improved, and UK broadcasters (in particular the BBC) must commit to a heavier and on-going support to local films.
Cineuropa takes a closer look at the House of Commons' report and main findings and recommendations that will now be submitted to the UK Government.

1. There is a UK Film Industry

At the end of last year, a group of 11 MPs (majority Labour) were asked by the UK government to look into the state of the British film industry in a wider examination into the expenditure, administration and policy of the Department of Culture, Media and Sport (DCMS).
From the broad question 'Is there a British film industry?' the DCMS Select Committee under Labour chairman Gerald Kaufman narrowed six areas on which they decided to focus their attention: -the industry's contribution to the UK economy;

-the importance of British films about Britain in Britain;
-the relationship between the film industry and UK broadcasters;
-the nature of Government support for the industry;
-the structure and performance of the industry
-the performance of the UK Film Council and the British Film Institute.

After six months research and interviews with over 100 UK and US film and TV professionals (including producers Michael Kuhn, Eric Fellner, Tim Bevan, Jeremy Thomas, director Gurinder Chadha) and government representatives, the Committee came to the following conclusion: there is a British film industry extremely important to the country both culturally and economically.

If last year the total spend on filmed entertainment around the world amounted to $63 billion, the UK's share of this market was 5%, a low percentage compared to the US (80%) but a high level compared to the 15% captured by the rest of the world. In financial terms, the British film industry generated up to £1.7 billion in overseas investment and £1.1 billion in domestic investment over the last five years, and the total cost of all film-related tax relief over that period was around £860 million.

The most lucrative area for the local film industry is the provision of services for Hollywood studios coming to the UK to make big budgets movies and to take advantage of attractive tax incentives, quality cast and crew, facilities and a shared English language. In 2002, 19 major feature films were shot in the UK with inward investments estimated at £234m; £165m was spent for the making of 42 domestic features in the UK, and £133m for 43 co-productions shot abroad.

2. Production-Led Industry

However, according to the report, the sector is still an 'under-capitalised cottage industry based around entrepreneurial individuals driving single-project vehicles'. The production-led industry has meant that insufficient emphasis has been put on distribution, both domestically and internationally. The UK distribution market is particularly difficult with lower film rental revenue for the distributor than elsewhere (between 25-40% depending on the film and the exhibitor), amongst the highest advertising costs in the world and US majors vertically-integrated companies dominating the market.

The lack of support from UK broadcasters (BBC, ITV, Channel 4 and Granada) is another major drawback for UK filmmakers compared to other European countries such as France, Germany or Spain where broadcasters are legally bound to invest in local films. In the report, the UK Film Council heavily criticised UK TV's current support for the film industry as being 'lamentable' in financial terms, a view shared by many in the industry including Stewart Till (UIP) and Anthony Minghella as Head of the British Film Institute. Indeed the BBC and Channel 4 each invest around £10m per annum (around 1% of the BBC's annual budget) and ITV openly told the Committee its reluctance to invest in a sector regarded as being 'too risky'.

3. Tax reliefs essential

In response to the film industry's many challenges and 'long standing chronic difficulties', the Select Committee identified a number of key areas that need to be addressed by the Government, with two key priorities:

-the continuation -and improvement- of the current tax regime for film
-the need to increase the level of investment from public broadcasters.

Introduced in 1997, the Section 48 scheme gives 100% tax relief for investment in production or acquisition of British qualifying films with budgets less than £15m and can represent around 12-14% of production budgets. As stressed by the Committee, "for the Hollywood studios and other foreign film-makers, these tax reliefs seem to have created a level playing field between the UK and other popular destinations for film-making such as Canada, Ireland, Australia, New-Zealand and the Czech Republic".

For indigenous UK films, the tax deferral has also given them something to bring to negotiations as veteran producer Jeremy Thomas explained to the Committee. " Section 48 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 negotiating weapon for British entrepreneurial producers and to lose that would be everybody shooting themselves in the foot again".

Based on all evidences received from UK and US professionals, the Committee thus concluded that the current tax incentives are of 'indispensable importance in maintaining a healthy throughput of large productions from overseas and of equal importance in promoting a critical mass of indigenous film-making'. The MPs also urged the Government to speed up the debate over the future of the Section 48 tax relief -supposed to expire in July 2005- but also to commit to its 'evolution' into a so-called 'son of 48' which would include a new focus on distribution. The British Screen Advisory Council (BSAC) told the Committee that the current tax incentives "should be evolved by tying the distribution function and its marketing sensibilities into production decisions by tailoring tax breaks in such a way that you get that relationship going so much earlier". Barry Jenkins from the Cinema Exhibition Association also stressed that "more should be given to distributors to spend on prints and advertising because if there is an injection of money into distributors to bring out more prints of specialised product certainly there are enough screens out there in the country now to show that product". This 'son of 48' tax relief concept is actually being discussed by the BSAC, the DCMS, the UK Film Council and the Treasury, and will be unveiled later on.

In terms of support from UK public broadcasters, the Select Committee said that they wanted to see it increased in particular the BBC's commitment. It was suggested that the newly reconstituted Ofcom (the media regulating body) could play a meaningful action to improve relationships between the UK TV channels and the local film industry, using for instance the Statements of Programme Policy required from the broadcasters.

The report finally praised the work achieved by the Film Council, reiterated the crucial role of the British Film Institute as a guardian of film and TV archives, and recommended the Government to provide adequate funding for both agencies for them to meet their respective objectives. The main UK industry bodies enthusiastically welcomed the report that will now be considered by Ministers. UK professionals are now hoping that the government will endorse the recommendations, just like a previous report from the Select Committee that led to the introduction of tax concessions for UK film investors.