Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witnesses (Questions 380 - 399)

TUESDAY 10 JUNE 2003

MR FRANÇOIS IVERNEL, MR CAMERON MCCRACKEN, MR CHRIS AUTY, MR ALLON REICH AND MR ANDREW MACDONALD

  Q380  Alan Keen: Does anybody else want to add anything before I pass on back to the Chairman?

  Mr Ivernel: I am talking for Pathé. We are a different case again because Pathé is a European company which is very large by European standards but very small compared to the American giants. Pathé was in UK distribution for a number of years before the Franchise was awarded and we feel extremely privileged to have been awarded a Franchise. It has propelled us into being a true player in the field of production of films in the UK, and since the franchise has been awarded we have produced or put in production 19 films. Without being too long I would like just to quote a few key numbers. The total budget of those films is £111 million, of which the Film Council have contributed £27 million and Pathé, out of its own equity, £27.3 million, plus, on top of this amount, marketing, overheads and development totalling £26.7 million. So in short it means that each pound invested by the Film Council has been multiplied by five, and most of this money—almost all of it—spent in the UK to nurture new talent and talent coming back into the business, new DPs, new technicians—a lot of training there obviously. So we think the experience is working for us. Out of the 19 films only 11 have been released as of today, the other ones are in the process of being released or being finished. We think that we have learnt a lot, that we have progressed on the learning curve and that we are now in a position to continue from our own means this production activity in the UK. My Chairman has committed directly to the Chairman of the Film Council to continue production after the end of the Franchise.

  Q381  Michael Fabricant: When Gurinder Chadha came before the Committee she surprised all of us, I think, when she said that she did not make any money at all out of Bend it Like Beckham here in the UK; it was her overseas sales which made the money. Last week we had about 20 meetings (we have been working hard in Los Angeles) and many of the executives there talked about the cost of distribution of films in the United Kingdom—very high advertising compared with that of the United States—and very high sums of money held back by the distributors and not distributed back to the producers. Do you concur with those views, and how do you think we are going to change the structure? Anyone?

  Mr Auty: I can volunteer a couple of observations. The first is it is unquestionably true that as the British economy has been rather successful in recent years costs in the advertising area have remained high. Underlying property costs are high which is reflected unfortunately in the operating costs of the cinemas themselves, and I think you would see that reflected, actually, if you did a like-with-like comparison of retailing in the US generally compared with retailing in the UK generally. So I think there are some macro-economic problems here, which are not susceptible to modification by small amounts of intervention. That said, since, primarily, the American companies have rebuilt the infrastructure for us—which we should all acknowledge over the last 15 years—there are some very important arguments about the diversity of our film culture and access by audiences, and there are some initiatives, if you like, in the specialist end which will, given a decent term and a good run of commitment, say, over five to 10 years, make a significant difference. There is a concept that the Film Council has developed which is to introduce digital screens into a lot of existing sites, so that a much wider range of material can play.

  Q382  Michael Fabricant: That is helpful. Incidentally, you talked about changes in innovation—what is your reaction to the Easy Cinema initiative in Milton Keynes? You are all laughing.

  Mr Ivernel: Maybe I can reply because as a company we have supplied films to the cinema. It is a new experience, it is interesting. The more people get the chance to see films the better. So if it contributes to widen the cinema-going experience it is all for the best. The number of people going to the cinema in the UK has been increasingly constantly in the past few years and they might feel a need for cheap discount prices in cinema. Let us see how it goes.

  Q383  Michael Fabricant: Pathé have been incredibly successful with some of the movies that have come out, which have not only had appeal in the UK but worldwide. Again, a lot of production houses and movie companies in the US are saying to us "For God's sake, don't make movies aimed to be blockbusters in America; make movies that have universal appeal and they will appeal in the United States and elsewhere just as they will in the UK." That advice seems good advice and yet it does seem extraordinary to me that still in the UK the British film industry (and, after all, that is what this inquiry is—the British film industry) is still a very small part within the UK, and that a lot of movies being made here in the UK are funded by the US companies. Is there no structural change, even given the problems that Chris Auty quite properly pointed out, that perhaps the Government could do—not to set up some rival organisation to a movie company but, maybe, acting as a catalyst—that has been overlooked that might help stimulate a true British film industry?

  Mr McCracken: I think that probably the route that people have adopted is the correct one, which is to seek a closer link between production and distribution to try and promote the interface between the market and the people who are actually selecting projects and delivering them, but there is no guarantee that what you make is going to be accepted by the public, so it is always a very high-risk strategy where you are re-inventing the wheel every time.

  Q384  Michael Fabricant: Do you think we are too arty-farty in Britain? One of the things in the US is that they say "Look, we are not making any bones about it: (a), we are a company and we want to make profits and we are here for entertainment."

  Mr McCracken: You can be arty-farty if you work within an arty-farty budget for an arty-farty audience.

  Q385  Michael Fabricant: But arty-farty is a niche audience.

  Mr McCracken: Yes, so if you have got a sufficiently low budget and you know what your audience is then you can take advantage of that. You can still make a commercial success with that, but if you are wanting to appeal to a broader public with a bigger budget then you need to be working with material that is likely to appeal to a broader public.

  Mr Auty: If I may make one other point, there are two salient numbers that may be of some interest to you. If you look at British films at the US box office last year the total earnings were somewhere in the region of $645 million. The top six films, which were all very, very large budget films, accounted for over $600 million of that $645 million. The US market is an extremely tall and narrow pyramid by result. In fact, the budget of each of those top six films, if you include its marketing spend, was larger—any one of those—than the total Film Council, including its Lottery component, budget for the year. Just to give some sense of scale there. If you then look at last year's performance of British films at the box office in Britain, to return to the core of your question, there are two interesting observations to make. The first is that British market share of the British market is actually by international standards (this may be no comfort) quite healthy already—and is improving, by the way. We are certainly not doing as well as the Danes or the French in that regard, but then they do have a language barrier to entry. We are doing nothing like as badly—nothing like as badly—as the Canadians or the Australians in that respect. I do not want to be an over-optimist but all is not complete doom. If, in fact, you look at the films that had some success at the British box office last year that were British films, I do think there is a range of work going on that deserves to be supported—put it that way—with Gosford Park and Bend it Like Beckham both doing extremely well at the top end, but even smaller films like Sweet Sixteen or Last Orders doing quite well at the lower end of the range. That is a range of outcomes that you would not have seen 10 years ago. I cannot say, hand on heart, that that is just a consequence of the Lottery franchise—it clearly is not—but I do think it is largely a consequence of Lottery investment properly managed.

  Q386  Derek Wyatt: Good afternoon, gentlemen. Can I ask Pathé, is there a distinctive difference in the way the French fund and look at their films as part of their culture—government support—than there is the British?

  Mr Ivernel: I think there are differences, definitely. For the French, culture comes first, so it is not even a debate that it must be supported, it is more how to vary the support, but support for the film industry has been for 50 years without really much of a question. In the UK the economic aspect is as important, or more important sometimes, than the cultural aspect. What strikes me, really, being in the UK is that you would think it would be easier to make independent films in the English language, while on the contrary it is sometimes more difficult because France or Spain or the Dutch, or whatever, they are isolated by their language and they can create their own stars. In the UK when a director is successful, or an actor, most of the time they go and work for the US studios. So it is another hurdle that has to be crossed and I think it is one more argument for supporting British films, specifically—even more so than the Spanish or the French or the Dutch.

  Q387  Derek Wyatt: Anyone, if Section 48 is not renewed in 2005, how depressing picture will that be, do you think, for the industry?

  Mr McCracken: I think it would be depressing. I think that the support structure which is a consistent fiscal policy towards production/distribution activity in the UK is a very useful tool which gives a building block to the producers and the distributors so that they know that there is a certain amount of money that they are assured that is automatic, if you like, not dependent on committees of people or bureaucrats but some money that they can say "Ok, it is there and using that I can leverage other finance into my films." So, for me, a fiscal intervention is something that it would be very sad to see lost.

  Mr Auty: The other point worth making is that the existence of the relief may feel as though it has been in existence for a long time, but unfortunately these things do take time to work their way through the system, and we have only really seen a competitive tax financing market in the UK in the last two years, where sponsor margins have been driven down, benefits to the film have been driven up and where education of the private investor base itself has kind of begun to feed through. The Canadian example is quite instructive, actually, if we are talking now about commerce rather than culture—I think signally, as I mentioned earlier, the Canadian market share of their own market is pretty shocking. If we are talking about people employed—that sort of thing—"returns to UK plç, then it clearly is extremely important that the regime, if it is not to be terminated, remains stable for a period of time, because the Canadian example was that after 15 years of a consistent fiscal policy they were able to build a multi-billion dollar business making films in Canada—for the most part, I have to say, American films—but the employment that it generated was exceptional. We have that opportunity, to some degree, but not in quite the same way because you cannot just cross over the border.

  Q388  Derek Wyatt: Is it your instinct, therefore, that actually British films have never been in a better position? If it is or it is not, what is missing that you would like us to recommend in our report? Is the capital market more interested? Is the City more interested? You talked about leverages, but actually is the mood more in favour, so lots of things are moving for you? Or not?

  Mr McCracken: I think the City has been engaged partially through the route of the tax breaks. That has been part of the movement where there are objective criteria that can be seen to work and are transparent, if you like (that is to say, a smooth running tax break encourages equity risk-taking). So I think that that has worked very well. From the point of view of whether things could not be better for British films, I think the problem is that, of course, you are always part of a bigger economic cycle. The pre-sell market—when we make a film we take it out to the market to try to sell it to international distributors to generate the revenues to make the film—that has collapsed because of the collapse in the television market because of the overall recession in advertising, Pay TV consolidation etc etc, so much bigger issues, and because of that the collapse in the international value of the films, UK producers have been greatly supported by having the tax break there which has provided a safety net for the production and distribution activities.

  Q389  Derek Wyatt: DVD sales no doubt help.

  Mr McCracken: Those help very much.

  Q390  Derek Wyatt: Can I ask Pathé too, and Mr Auty mentioned it, about the digital cinema? When will that happen and who is going to pay for the equipment? Is Pathé as a distributor or an exhibitor going to pay? Which side of you will pay? What do you think are the weaknesses? Is there an alternative? In my constituency I have 40,000 people without access to a cinema. We would like to have a community cinema. Is it possible to have smaller versions of this large digital stuff so we could have, as it were, the Easy Cinema but, maybe, at a community level?

  Mr Ivernel: Effectively, the technical solutions are there. You very well define the problem, which is who is going to pay for it and whether in the US or in the UK or in France they say nothing happens so far. Frankly, I do not have the answer. Nobody has it. I think market forces will decide somehow. It makes sense that the exhibitors pay for it but somehow it will be fedback to the distributors. Who knows? It is important to say that the initiative of the Film Council to promote the digital exhibition is a great idea.

  Mr Auty: Under that model that is still evolving—and I am a board member of the Film Council and I do not want to speak on behalf of the Film Council prematurely—it is envisaged that there will be a sharing of costs there between Film Council funds and the exhibitors, and it is precisely to be able to reach out beyond the existing multiplex environment into local cinemas and, indeed, village halls, frankly. There are some key bits of analysis still to be done and there are some issues around costing: is it achievable within a sort of £50-70,000 cost per venue? If it is then speaking entirely personally I think that is fantastic value for money, if you can bring cinema back to a community which probably has not had access to a proper range of cinema since, let us say, the days when the broadcasters used to air large numbers of films on free-to-air broadcasting. That, as we all know, was a long, long time ago. Television transmission of film has largely now become the province of subscriber and pay television, as we know, and that in a sense is also self-restricting because there is an entry cost.

  Q391  Derek Wyatt: Can you just confirm that under the Budget that was introduced two years ago, software and hardware is tax deductible? Is the digital equipment tax deductible for a cinema?

  Mr Auty: It is a very interesting question, but I am afraid I do not have the answer.

  Derek Wyatt: If it was it would be a huge incentive. Maybe that is something we will chase. Thank you, Chairman.

  Q392  Mr Bryant: Monsieur Ivernel, in your submission you point out various elements about the situation in France. One of the points you make is that the policy of the state has been consistent for the last 50 years, which I guess is rather different from Britain. How important do you think consistency into the future is in terms of reinvigorating or strengthening the British film industry?

  Mr Ivernel: I think visibility for the operators, consistency are the first things, really. I believe, from some economists, that it is the most important thing in any public policy, otherwise you are going to increase the bad out of the negative in the public policy (eg administrative adjustments to charge), which is the side effects and not the benefits.

  Q393  Mr Bryant: Presumably, in France, any system is only as good as the government that is in power. Or are you saying that there is such substantial cross-party support in France, unlike in the United Kingdom perhaps, that this is much more reliable in France?

  Mr Ivernel: It has been consistent. I am not saying it is the only one and the only valid one, but it has been consistent and it has provided the film industry with a very large amount of money throughout the years through TV support, through subsidy. So it has been definitely efficient in keeping local films to above 30-35% of the market share in cinemas.

  Q394  Mr Bryant: On a slightly different issue, some of the witnesses who have been before us have referred to the difficulty of getting short films distributed in the United Kingdom, despite the fact that this is one of the ways that many people learn their trade, as it were, on a five or ten-minute film. For some of these, if they had an audience, it would be an appreciative audience, though it might be felicity that they came across it rather than a deliberate "I am going to go and watch this short". I remember when I was a child still that you saw quite a lot of short films before the main feature. Is there anything we can do to change that? Any of you, really.

  Mr Ivernel: We would love to. We like short films. The pressure comes from the exhibitors who want to shorten the time available to use it for ads. We have done, actually, Pathé, as a distributor, an award to get a short film in front of one of our films, once a year.

  Mr Reich: That has always been an issue. I used to commission short films at Channel Four and they were 35 millimetre, looked beautiful and cost a lot of money but you could rarely persuade an exhibitor to put them in front of the feature. Occasionally, a producer would just knock on a door until the executives just gave in and put it on.

  Q395  Mr Bryant: Which executive—the distributor—

  Mr Reich: The exhibitor. They used, in France, to have some kind of subsidy to have French films

  Mr Ivernel: I am sorry to speak—I do not want to sound too parochial but—

  Q396  Mr Bryant: It is all right, we quite like the French.

  Mr Ivernel: Thank you. It is compulsory in France each time you do a feature film to buy a short film to put it in front of the feature film and to be released with it. So every one of the 150 feature films buys one short film. In practice most of the time the exhibitor cuts it, it is not displayed, but there is still some money going to the short film and the short film-makers. So there is a specific system.

  Q397  Mr Bryant: I used to live in Belgium and I never saw in Belgium any shorts being shown either, but did in Spain. You are not aware of a particular reason for that, other than the French situation. Can I ask DNA, in your list of the top British films, gross UK box office, since 1991, what do you count as a British film?

  Mr Macdonald: We count things that qualify under the Film Act. There is a new document from the Film Council on this that has come out this week, which has a different approach.

  Q398  Mr Bryant: The Beach does not feel like a very—

  Mr Macdonald: It was developed here, post-produced here, shot with a British crew, British director and a British writer and an all-European cast except for the star. It qualified.

  Q399  John Thurso: It has become quite apparent during the course of this investigation that, really the British film industry is in two segments. There is, as you referred to, Mr Auty, the facilities business, the straightforward commerce (and certainly in America the studios there seemed to think we were doing a good job and they quite like coming over here) and there is the other business which is, in a way, what we are slightly more interested in, although both are important, which is the production of British films. Can I ask, and perhaps I can start with DNA, with that in mind, in your evidence you said that "in order to be self-sufficient, flourish and grow our small industry must attract international finance, distribution and box office appeal." How do you think we are doing on your three measures?

  Mr Macdonald: I think they have been here working in a title company—the producers. They have obviously done that incredibly efficiently, more efficiently than since the days when a British film could finance itself out of the home market—the days of Rank, etc. I think it is getting better all the time, if you look at what the Film Council have achieved in that field. They have made British film-makers more accountable to the audience.


 
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