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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