Examination of Witnesses (Questions 60
- 75)
TUESDAY 29 APRIL 2003
MR MICHAEL
KUHN, MR
JEREMY THOMAS
AND MR
BARNABY THOMPSON
Q60 Mr Bryant: Who gets the 45 and the
27?
Mr Thompson: As you know, traditionally
in this country there were companies like Rank that owned both
production and exhibition and it suited them—
Q61 Chairman: And distribution.
Mr Thompson: And distribution.
It suited them to pay their exhibition side much more than their
distribution side because they did not have to share that with
anyone. We still suffer from that historically. For every pound
you pay at the box office the distributor sees 27 pence here whereas
in America they see 45 or 40, and it is a huge difference. If
you add that to the fact that the TV companies are paying a fraction
of what they should, there is a whole area of revenue there which
is British just deciding—I am not saying that British films
should be treated differently from American films in terms of
the exhibition/distribution split but if we want our films to
be economically viable, if we want to say we are making films
for a British audience, then we have to find ways of—This
is not like the Eady Levy, it is not about people giving away
money, it is just about putting us on a level playing field.
Q62 Mr Bryant: How do you change that?
Mr Thomas: What has happened historically
is that previous governments have given this away to more powerful
forces than independent producers, independent production, British
film, British culture, British cinema around the world. You all
read the papers and you know from history as well as I do what
happened between American major companies and the government and
the repatriation of funds and the unlevel playing field and allowing,
yet again, one gatekeeper to get into the satellite-type channels.
There is always one gatekeeper and five companies of one gatekeeper
in terms of the MPAA and Sky is one gatekeeper as far as satellite
TV and yet they show lots of movies on satellite TV, it is a staple
diet, and they pay incredibly low figures for that.
Mr Thompson: A lot of the chains
are owned, or partially owned, by the American majors.
Mr Thomas: The majority.
Mr Thompson: So they have a vested
interest in keeping that balance because, again, they do not have
to share the exhibition money with anyone else. I do not know
what the mechanics are at a political level in terms of how you
change that. To me it seems to be one of the things that stands
out as being something that we should be able to solve easily
and would make an enormous difference to the business, both to
producers and to independent distributors, because more money
would come back. As Andy said, it is tough if you are a distributor,
you have a to put a million or £2 million bet on a film in
terms of P&A and when you are getting such a small percentage
of the box office back it affects your ability to back films.
Q63 Chairman: I suppose in a sense if
you are looking at the huge American corporations it does not
matter how it balances out because whatever their internal accounting
may be the money goes home to the same place in the end, whereas
British film making is very different because it is essential
if you are going to have, as it were, refinancing for further
films that the producers get money back. In the United States
I suppose Warner Brothers, AOL Time Warner, do not care all that
much what the balance is between revenues from distribution and
exhibition since they own the lot.
Mr Thompson: No, they prefer money
to come in through exhibition because they do not have to share
it with—
Mr Thomas: It points to profitability.
Often these actors have incredibly rich deals like 10% of the
gross receipts. Even on the 27% we talked about, they have 10%
of all that. So as not to have to pay them their royalties they
would rather put it through the cinemas that they own so they
do not have to pay the royalties and it is a much purer gross.
It is all about the money, it is dollars and cents. They have
teams of people working feverishly around the clock trying to
work out how to get an edge on every deal. Of course, the animus
that has been created through UK producers is very unhealthy.
Chairman: Michael, I hope you have taken
on board what Mr Thomas says because you are going to have to
find the solution to it when we draft the report. I will hand
the questioning over to you.
Q64 Michael Fabricant: You were saying
how the whole situation has shifted in the percentage of the amount
of money that was being made available previously and I just wonder
if it is going to shift any more, do you think, as the Communications
Bill becomes an act? Do you think that will affect the film industry,
although that is essentially to do with media ownership and television
ownership?
Mr Thomas: Monopoly is something
which brings out certain traits of patterns of business, so I
hope that that Bill will address the inequities and the iniquitous
state that we sit in.
Q65 Michael Fabricant: I am not so sure—I
was on the Committee stage of the Bill—that we actually
talked a great deal about the film industry but it is interesting
and in a way I wish we had this hearing before the Committee stage
of the Communications Bill. One of the impacts, or one of the
effects of it, if it is enacted, and I am sure it will be enacted,
will be the ability, and this has been in the papers, for people
like Rupert Murdoch, Sky to take over Channel 5, for example,
although equally it would also permit newspaper groups to take
over Channel 5. It will not be a monopoly but it will certainly
go more towards an oligopoly. How would you like to see legislation
perhaps or the tax regime altered to reflect that change in the
Communications Bill?
Mr Thomas: I think that for the
industry, having got used to the very complex system of Section
48, that is something that is very important. Then I believe that
the TV companies should be compelled to invest some money in future
films.
Q66 Michael Fabricant: Who should be?
Mr Thomas: The TV companies. Regarding
the monopoly of the satellite channels, I do not know what can
be done about that because they own it and I do not know how you
can change their point of view. At the beginning as a cosmetic
they did have a small TV unit at Sky but after it lost probably
40 pence it was closed down and they have no film content there
any more. Anything that can make TV companies invest in cinema,
which they eventually will show after it becomes a" la
Sexy Beast, a film that is known, is to the good but they
have to be drawn to the water and forced to drink, I am afraid.
From my point of view, I want to see a sustainable film industry
which is a modern employer, when Corus and other types of business
are collapsing, and manufacturing we cannot compete on, but we
can compete with our language and our incredible creative base
of writers, of directors, of the best technicians in the world
and a few good entrepreneurs. If you can create an ambience then
I think we can have the most competitive, wonderful film industry
which even under bad circumstances every year throws up incredible
movies into the ether around the world that come out of the UK.
Q67 Michael Fabricant: Earlier this afternoon
we heard the scriptwriters say that some of the film producers,
or even directors, have rather a snotty view about people who
work for television. Would it be right to characterise what you
are saying that really the film industry cannot do without television?
Mr Thomas: I think it is the other
way around. I think that the television industry has a very snotty
attitude towards the film business. As we have seen from the film
festival at Edinburgh, 98% of the income or the value of the Edinburgh
Film Festival is television and the film festival is like some
poor relation who cannot even pay for an actor to come from London
on a train ticket and the TV companies are supping champagne in
the finest Caledonian suites. It is a very different economy and
it is a very different support system because there is the taxpayers'
money, you have to pay the BBC, you have to pay the TV companies,
it is not an independent business, it is a totally different sort
of business, the TV business, from the film business, which is
as we described at the beginning, small independent business people
joined together with no major companies here any more. If it is
to continue, if we want fish and chips on our street and not to
be just a fast food nation, we need some support.
Mr Thompson: I think the important
thing to remember is that the film business has its unique attributes
but fundamentally at a commercial level films can make a lot of
sense in this country. My company has spent in the last seven
years about £60 million producing films, the vast majority
of which has been spent directly in this country.
Q68 Michael Fabricant: You said films
can make a lot of sense financially but can they make a lot of
sense without the support of television? Can they operate in isolation
from television?
Mr Thomas: Television is one of
the arteries.
Mr Thompson: One of the key windows.
Mr Thomas: It also makes you say
"Is anybody out there?" and you want to hear this enormous
response "Yes, we are watching" and one of the principal
ways they can watch is through their television screen and they
are going to be watching more and more through the television
screen.
Q69 Michael Fabricant: Earlier on the
Chairman said, and you agreed with him, that first of all you
have got to have theatrical distribution, it is a sine qua
non to success, although I want to question you about that
in a moment, but nevertheless it has then got to go on to television,
DVD, VHS and all of the other deals that we know about including,
as you mentioned earlier on, airline distribution, where incidentally
I saw that movie on an aeroplane, not theatrical distribution.
Can you ever envisage a position in this country where you would
never need to have film distribution on the cinema because in
the United States, and I think I am right—correct me if
I am wrong—a movie can make a big profit, big returns, even
before it is distributed on television?
Mr Thomas: It is the desire for
your film. When I make a film my desire is that it is shown in
the cinema because I grew up with celluloid and I like the cinema
as a shared experience. It is something that I feel for, that
I grew up in and I like it but it is inevitable, unfortunately,
that I will have to change my point of view that I gave the Chairman
earlier that, in fact, a digital showing of a movie probably will
be sufficient. This rock concert will no longer be Wembley Stadium,
it will be a little venue in a pub or something like that. Things
are going to change. We hear that the Film Council are trying
to start a digital distribution process and I am afraid that people
who love celluloid are going to have to change a little bit. Looking
to the future, maybe too long for me, theoretically with the right
staff I will distribute my own product myself because it will
become a simpler process and there will not be prints, it will
be more technical marketing based. That is looking to the future,
it is not currently there but something that you can think about
for the future maybe.
Q70 Michael Fabricant: You raise a very
interesting point here because you can still shoot on celluloid
but distribute electronically.
Mr Thomas: To get the best image
you do shoot on celluloid and then go digital.
Q71 Michael Fabricant: Earlier on we
heard about how the costs of producing a film include not only
advertising in newspapers but we heard this afternoon how it would
seem it is very expensive in this country compared to the United
States to advertise a movie or promote a movie per thousand population
but we also heard one of the big costs is the production of the
film prints. Incidentally, do you know off the top of your head
how much a two hour movie costs?
Mr Thomas: About £1,000.
Q72 Michael Fabricant: That is £1,000
per print.
Mr Thomas: Depending on what sort
of quality of print you want.
Mr Kuhn: It is the minor element.
Even in a vast country like the United States, out of a $20 million
print and advertising campaign the prints are probably $2 million.
It comes back to the fundamental thing that why we do not have
a sustainable British film industry is marketing and distribution.
Even if it were really easy and cheap to make a film, getting
it successful requires marketing, and marketing on the ground,
in many countries. I will give you an example. As you probably
know, Rowan Atkinson's film Johnny English came out recently
and is doing 40% better, or so I am informed from the trade papers
today, than his previous film Bean, and Bean did
$240 million at the box office worldwide, which is up there with
any of the major Hollywood studio releases. In order to make that
happen you have the incredible power of UIP and the fact that
Working Title have a position of power within UIP to require them
to find the right date, put the right marketing in, not just in
this country but in all the countries of Europe and the United
States, and to make it happen. Going back to Bean, when
I was pulling those particular levers, we decided that it was
going to happen and it did happen. In the United States I think
it was $40-something million for a pretty much unknown artist,
Rowan Atkinson, and, God help us, in Japan, which was $20 million,
which was massive. We made it happen. We said "It will happen.
We will make it happen" and it happened. Until we are in
that position again we will go on being a little cottage industry
and it is all very well—
Q73 Chairman: Michael, on this fascinating
difference between Bean and Johnny English, you
said you would make it happen on Bean and you made it happen.
Are you then saying that although Johnny English has had
a much better start, it is not going to do as well as Bean
because it is not being made to happen?
Mr Kuhn: No, no. It is going to
do better than Bean but the reason it is able to do better
is, first of all, UIP, owned by Universal and Paramount, have
this incredible power in the marketplace all over the world, not
just in Hollywood but to get out to the French marketing people,
the Germans, the Italians, the Spanish, the Japanese. More importantly,
we have a British based company—Working Title—that
because of their track record of success have leverage within
that system, so although they do not own it they can push the
particular levers of power to make their film get the attention
and have that delivery of marketing power throughout the world.
That shows what we are missing. Unless we are able to do that
then all the rest of it counts for very little. Jeremy and I do
have a difference about that. Jeremy is one of the most respected,
fantastic producers, garlanded with honours, very rich and all
the rest of it.
Q74 Mr Bryant: He is not smiling much
about it.
Mr Kuhn: He is smarter than that.
But he believes that the future of film producers in this country
is a sort of cottage industry where we have entrepreneurial people
doing their thing, and we have heard about it all this afternoon,
whereas I believe there is no reason why we cannot at least have
one studio on a level playing field with the Hollywood studios,
delivering that marketing power not only for itself but for British
films throughout the world. I have given a little paper ahead
of this to show the economics of why that is very important but,
to summarise it to give you just a thumbnail sketch so you understand
it, if you take a typical British film that does tremendously
well, like many that you have mentioned today, they typically
cost five million or so dollars and do $70 million at the box
office, which is the indicator of its total revenues, and you
can take it from me that if that is released by a studio that
makes £30 million profit but it is put together like an independent
producer puts it together, pre-selling the rights and stitching
it altogether, if the British investors see their money back and
a few million dollars more they are thrilled. In itself you say
that is staggering, but look further than that. All movie operations
are about slates of movies, portfolios of movies, not one-offs,
just like all businesses, such as chemicals where you invest in
research and it is one drug that comes out and pays for all the
ones that are no good or one motorcar takes off and pays for all
the ones that are no good, it is the same with movies. Consider
a slate of ten similar movies. If they are all stitched together
like a British typical independent producer and one movie makes
£3 million profit, let us say, and the other nine are all
flops and lose on average £2 million each, the result is,
as Mr Micawber would say, misery.
Mr Thomas: Bankruptcy.
Mr Kuhn: Look at the exact same
slate with a studio, nine flops, minus 18, plus 30 million, happiness.
In a nutshell that is what is wrong with our industry and unless
and until we find a way of putting that right, and it is pretty
straightforward to do, it is very hard. I do not know why but
sometimes when I say this, and I have been saying this for a very
long time, I think I must be speaking a foreign language or something
because people cannot seem to understand it. That seems to be
the single most important thing to grasp about the film industry
and all the rest of it is interesting but if you want a business,
that is it. You would not make a brand new Mercedes car and say
"We can only distribute it in England".
Michael Fabricant: Let me pursue this
before I lose my track—
Chairman: You are not going to pursue
anything because we have reached five o'clock. I will give you
one last, brief question.
Michael Fabricant: Before I was interrupted,
I was going to say that—
Chairman: I am the Chairman exercising
his rights.
Michael Fabricant: You said it is a cottage
industry. The $64,000 question is given that we have now changed
the rules on capital allowances, and at the time it was because
of the consideration that you needed a slate or portfolio of movies
and all the rest of it, as you so accurately and correctly described,
what do you think is the solution to provide an environment whereby
you can create a movie production industry in the UK rather than
these independents? We understand the problem but how do you create
the solution? What can Government do?
Q75 Chairman: In 90 seconds, and no coughing!
Mr Kuhn: I will say it in three
words: ask the Film Council.
Mr Thomas: I am sorry, I cannot
say it in three words. Just to make the right decisions for us,
please, or to encourage the Government to make the right decisions
for us so that we can continue making movies. I admire Michael's
idea for a studio in the UK but I do not know where the resources
are coming from. If somebody from Mars came down and said "Here
is $500 million, let us make a studio" and Michael could
run it then we would have a shot. In the absence of that we need
an atmosphere where independents can thrive.
Mr Thompson: Michael was absolutely
right but it is a tough thing to pull off. I think what is possible
is alliances with the American studios where by creating the right
financial environment in this country we can then be partners
with them rather than subservient to them. I think part of that
is the sale of these factors which have been incredibly important
as everyone has said. I would say the real cost of a film, to
answer Michael, is the cost of the production and the cost of
the P&A. I would say that a sensible way of looking at the
sale of these factors is I would extend it to cover marketing
and distribution costs as well because it is all the same money.
You heard earlier what has been very exciting is these tax incentives
that have created an environment where individuals are now investing
in movies. This is a very, very important area and if we can build
bridges between the film business, individual investors and the
City then we have a chance of creating financially strong companies
that can then invest side-by-side with the American studios in
films and thereby reap the real benefits that Michael talked about.
Chairman: What you just
said, Mr Thompson, was one of the things we heard—not in
those same words and not necessarily identically—when we
went to Warner Brothers at Burbank and it will be very interesting
when we hear from the Hollywood studios how they feel about that
now. I would like to thank all three of you for an incredibly
stimulating session. The fact that we have not got any answers
this afternoon does not mean that this Select Committee is going
to fail in its duty of providing the answers. Thank you very much
indeed.
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