Select Committee on Culture, Media and Sport Sixth Report


2  BACKGROUND

What is a British film?

9. Most people would define a 'British' film with reference to obvious cultural elements such as: a setting in the UK or a focus on British people abroad; a predominantly British cast; a storyline about some aspect of British life — past, present or future — or notably by, or based on a work by, a British author. Recent examples include Billy Elliott, about a boy in North East England, and Bend it Like Beckham, about a girl from West London, both portraying particular social issues. The nationalities of scriptwriter, producer, director and, perhaps especially, the 'investment' seem less obviously significant. However, both artistic and financial considerations serve to complicate this issue.

STATUTORY DEFINITION

10. Under present legislation a film certified by the Secretary of State for Culture, Media and Sport as qualifying as 'British' can benefit from advantageous tax treatment (dealt with in detail later in this Report). These incentives were designed to encourage the indigenous industry as well as attracting inward investment in the form of overseas productions. A large number of projects in both of these categories simply would not have been made, or not made here, without these incentives.

11. There are two ways that a film may qualify as 'British' — either under Schedule 1 to the Films Act 1985, examples include the Bond and Harry Potter films, or by satisfying the terms of an international co-production agreement to which the UK is a party.[2] Under the Films Act, for a film to be certified as 'British' by the Secretary of State for Culture, Media and Sport, a number of tests must be met:[3]

    a)  The maker test: the film must be made by a company that is registered and centrally managed and controlled in the UK, in another state of the European Union/European Economic Area or in a country with which the European Community has signed an Association Agreement;[4]

    b)  The production cost test: 70% of the production cost of the film must be spent on film-making activity in the UK;[5]

    c)  The labour cost test:

      i.  70% of the total cost (minus — if desired — the cost of one person whose nationality must be non-Commonwealth/EU/EEA/Association Agreement country) must have been paid to citizens or ordinary residents of the Commonwealth, EU/EEA or a country with which the European Community has signed an Agreement; and

      ii.  75% of the total labour cost — after deducting the cost of two persons whose nationality must be non-Commonwealth/EU/EEA/Association Agreement country, and one of whom must be an actor[6] — must have been paid to citizens or ordinary residents of the Commonwealth, EU/EEA or a country with which the European Community has signed an Agreement.[7]

    d)  Previously filmed material: no more than 10% of the playing time of the film should comprise a sequence of visual images from a previously certified film or from a film by a different maker.

12. Co-production treaty agreements are used to pool 'creative, artistic, technical and financial resources among producers of treaty countries',[8] spread risks, and allow eligible films to benefit from the available incentives in both or all treaty countries. The producers from each country involved in co-production must raise an appropriate share of the total production cost: for bilateral agreements, no less than 40%; for convention agreements, no less than 20%; and for multilateral agreements, no less than 10%.[9]

13. Given that one explicit aim of statutory arrangements (of which British qualification is a part) is to attract overseas productions to make films in the UK it is unavoidable, indeed perhaps desirable, that a number of qualifying films will have limited culturally-British credentials. We recommend that, in reviewing the tax regime for film production within the UK, the Government assesses whether there is a case for the introduction of new terminology to assist the classification of films according to country of origin distinguishing cultural content and financial provenance.

CULTURAL DEFINITION

14. There appears, therefore, to be no official definition of a culturally-British film. As we were told, "the film industry is a mixture of commerce and culture, business and art",[10] and this mix, together with the transnational (predominantly transatlantic) nature of the British industry, serves to complicate clear demarcations on the basis of country of origin. The UK Film Council's Statistical Yearbook relies on the statutory definition but includes data and references identifying nationalities within co-productions where possible. The British Council runs 'britfilms.com' which contains its directory of British films. The Council regards a British film as one where the film had a minimum of three of the following six criteria: 1.British producer; 2.British production team; 3.British director; 4.predominantly British cast; 5.a subject matter that informs the British experience; 6.a British identity as defined by the bfi in the release review in Sight & Sound (or earlier Monthly Film Bulletin). The bfi in Sight & Sound define a film nationality according to the production company or companies that hold the copyright to the film (under the assumption that the most significant production companies involves, either financially or creatively, are those given the copyright). As evidence from the bfi shows, this itself is a complicated judgement to make.[11]

15. One clear distinction that might be put forward is the language that the film is originally made in. But with both the Oscars and BAFTAs distinguishing only between 'films', i.e. English-speaking films, and 'foreign language films' this does little to solve the transatlantic difficulty and nothing to cater for culturally-British films made in other languages. For example the 2001 British-qualifying film Solomon and Gaenor won an Academy award in the foreign language film category - Welsh and Yiddish - but remains a quintessentially British, and British-qualifying, film.[12]

16. None of the criteria set out in law are aimed at the subject matter of the film and some British-qualifying films (i.e. Judge Dredd, Gladiator, Troy, Lara Croft Tomb Raider or One Hundred and Two Dalmatians) therefore do not focus on stories an audience would recognise as particularly 'British'. The reverse situation, a culturally 'British' film that would not meet the statutory tests, would probably be unheard of were it not for the previous criteria which required any studio used for photography or sound recording to be in the UK. However, in 1995 Sense and Sensibility failed to qualify as British — despite its obvious British provenance, scriptwriter, locations and cast — because of post-production work carried out abroad. The criteria have been revised since then.[13]

The importance of a national film industry

17. The evidence is clear that the British film industry is extremely important to the country, both culturally and economically.[14]

ECONOMY

18. The potential global market in 2002 represented a $63 billion spend on filmed entertainment:Table 1: Global spend on filmed entertainment by region:

Market
Spend in 2002 - $ billion
North America
33.5
Europe
15.0
Asia / Pacific
12.5
Latin America
1.7
Middle East / Africa
0.5

Data Source: UK Film Council (briefing for CMSC), 2003

The UK's share of this market was 5% (including all British-qualifying films): low in comparison to the 80% achieved by the US; but high in contrast to the 15% captured by the rest of the world put together.

19. The British film industry generates significant returns for the UK economy through indigenous film-making (£165.25 million in 2002[15]), through inward investment (£234.3 million in 2002[16]), through film exhibition (£755 million in 2002[17]); through DVD and video rental and sales (£2.55 billion in 2002[18]), and through UK film exports (£700 million in 2001[19]; £3 billion over the last 5 years). The UK Film Council estimates that a successful UK film will make up to 65-70% of its revenues outside the UK.[20]

20. In the last five years UK films have generated up to £1.7 billion in overseas investment[21] and £1.1 billion in domestic investment, in total nearly £3 billion. Although not directly comparable, the total cost of all film-related tax relief over this period was in the order of £860 million.

21. The spin-off effect on, and benefits to, tourism throughout Britain have also been identified by VisitBritain, who have been marketing Britain abroad using a Movie Map of famous locations amongst other initiatives. [22]

22. Of the 23 million people who visited the UK in 2001 — spending approximately £11.3 billion — VisitBritain (formerly the British Tourist Authority) estimates that approximately 20% visited the UK because of the way it is portrayed in films or on television.[23] The flow-on-effect from film (i.e. the use of services and purchase of goods by the industry) is thought to be that for every £1 spent on film, there is a £1.50 benefit to the economy.[24]

23. Film is also a key part and driver of the mix of creative industries which have thrived in Britain since the creation of television and film. The creative industries, as a whole, are a major success story for the UK. They are a significant contributor to the economy, accounting for about 7.9% of GDP (of which film contributes approximately 0.3%) and are growing significantly faster that the economy as a whole. In December 2001, estimated aggregate employment across these industries totalled 1.95 million.[25] The UK Film Council emphasised that the film industry was increasingly part of the UK's high-tech sector using, and developing, high-end skills, innovative techniques and new technologies.

24. It is worth noting however, that the Department's memorandum noted that "while the economic contribution of film is welcome, film is a relatively small industry compared to many others. The main reason for Government supporting film, therefore, is its cultural importance. Film is probably the most accessible art-form. The Government believes that it is vital that we continue to make great films in Britain and about Britain, and that a wide variety of films can be seen in British cinemas."[26]

CULTURE

25. In common with the Government and many of our other witnesses, the British Film Institute (bfi) told the Committee that film and the moving image were important for reflecting British culture back to British society and out to the world.[27] Ms Mia Bays argued that:

    "Films as diverse as Billy Elliot, Trainspotting, Bend It Like Beckham and Four Weddings and a Funeral contribute to the widely accepted fact that Britain is one of the world leaders in film-making talent; but they also allow us to reflect on and transform our own notions of a national identity."[28]

26. The UK Film Council, established in April 2000, as the UK's strategic agency for film, agreed with Government that its key aim is: "to stimulate a competitive, successful and vibrant British film industry and culture, and to promote the widest possible enjoyment and understanding of cinema throughout the Nations and Regions of the UK."[29] The Council believes that film promotes our national identity and culture around the world and the Secretary of State for Culture, Media and Sport told us that:

    "There is a role for Government in promoting creativity, in supporting innovation and in building, through investment in culture, a sense of national identity and enthusiasm for culture ... It is an intrinsically good thing that we have good challenging films for people to see."[30]

27. As history demonstrates, film — amongst other art forms — can be a powerful weapon for propaganda (and film production in totalitarian societies has usually been subject to strict state control). The positive side of this coin is the ability of a national industry to provide and promote multiple perspectives on historical events, societal mores and norms. Mr Anthony Minghella, himself a distinguished and highly successful film director as well as Chairman of the bfi, told us,

    "Fiction becomes this sort of cultural bank balance that we can draw from. We can momentarily be a young woman, an old woman, a black person, an Asian person, a Chinese person, and look at the world and argue a position that is not our own for a while — inhabit a position that is not our own."[31]

This experience benefits the audience and, when in a British context, allows people around the world to identify with the story being told. This promotes the image of Britain abroad — an antidote to the domination of English language cinema by Hollywood with its occasionally relaxed attitude to historical accuracy (think Braveheart).[32] Helkon SK wrote that, "it is … important that British culture and British values are represented in the films that British people and the world watch."[33]

The British film sector

Employment

28. The UK has a wide and deep pool of film-making talent: acting, writing, producing and directing as well as all the skills needed behind the camera and in post-production. The Chairman of the UK Film Council, Sir Alan Parker, described the creative skills in the UK as 'outstanding' and the technicians and craftspeople as "the finest … anywhere".[34] This was supported by many of the Committee's witnesses and interlocutors in the US and the UK during informal meetings.[35]

29. Many of the skills needed in film are, to a large extent, interchangeable between that sector and the UK's large television and theatre sectors. Broadcasters described television as the training ground for technicians and actors who go on to work in film.[36] Work on films can be periodic; so employment on a casualised and freelance basis between projects in television, film, advertising and theatre seems to be the norm in order to maintain regular income.[37] The number of employees within the film industry, at any time, can therefore fluctuate greatly. Estimates of employment numbers for 2002 are provided below.Table 2: Total Workforce of film and related Industries 2002[38]

Domain
No. of personnel
Film and video production
29,986
Film and video distribution
4,901
Film exhibition
16,084
TOTAL
50,971

Data Source: UK Film Council Statistical Yearbook, 2002

INFRASTRUCTURE

30. In addition to the rich UK talent pool there is a range of impressive film-making studios such as Pinewood, Shepperton, Leavesden and being developed at Llanilid under the leadership of Lord Attenborough. There are also cutting-edge post-production facilities available in the UK with companies such as Framestore CFC offering world class special effects to global customers.[39] In 2002 the total value of UK film production was £421.45 million.

DISTRIBUTION

31. Distribution is the management of the release of the content created by production — the 'film' — to realise revenues. Management of this 'value' chain, involving negotiating muscle and skill, the sequencing of the various windows, the investment in advertising and print production (physical copies of the film) is the key to maximising returns. The opportunities are: theatrical release in cinemas (the success of which can dictate subsequent demand); airline exhibition and hotel pay-per-view; home video and the now extremely important DVD release; pay-per-view / video-on-demand on TV; pay-TV; and finally free TV.

32. Distribution is therefore a key part of the global film industry but one which is dominated by US companies; including in the UK market.[40] The table below sets out the pattern of distribution in the UK in 2002 (for theatrical release). It shows the domination of 90% of the market by the five US companies and Entertainment, the top UK distributor. It is worth noting that, of the top-performing UK films (British-qualifying), 12 out of 20 were distributed by US-based companies and, of the overall top-performers, only five out of 20 were distributed by a UK company. This reflects a weakness in the British film industry that lies at the heart of the UK Film Council's diagnosis and prescription for the sector as we discuss below.Table 3: Distribution in the UK and Republic of Ireland, 2002

Distributor
  
Market share - %
Films released
Box office £ million
Films in top 20
Films in top 20 UK films
20thCentury Fox
US
17.9
28
146.08
4
2
Entertainment
UK
16.6
19
135.89
4
1
Warner Bros
US
15.4
24
126.11
3
1
Buena Vista
US
15.2
36
124.62
3
4
UIP
US
12.5
29
102.55
1
5
Columbia Tristar
US
12.3
31
100.94
4
0
Pathe
UK
2.1
22
17.39
0
3
Momentum
UK
1.9
20
15.53
0
1
Helkon SK
UK
1.8
4
14.66
1
1
45 others
Mixed
4.3
207
33.82
0
2*

Data Source: UK Film Council Statistical Yearbook, 2002 - * Icon and FilmFour

EXHIBITION

33. In 2002 the UK had 3,258 screens in 668 cinemas — more than at any time since the early 1960s. 70% of screens were in multiplexes with 5% of the total dedicated to specialised (non-mainstream) programming. Four of the UK's cinemas had digital projection — out of the world's total of 113 such venues (with 125 screens). There were 176 million cinema admissions in the UK, a rise of 13% on 2001 and the highest figure since 1971. The total UK box-office in 2002 was worth £755 million, a 17% increase on 2001, and a rise of 275% over the decade." [41] More than two-thirds of the UK population attend the cinema at least once a year, and one in four go once a month. More people go to the cinema in the UK than go to football matches.[42]

34. It can be clearly seen that the exhibition sector in the UK is in good health and continuing to grow. However, it is clear that UK audiences, as elsewhere, are choosing to see Hollywood productions, and co-productions, more than other films. Assigning country of origin to films is problematic but it is clear that:

    a)  US films (including co-productions with the UK and others) in 2002 accounted for 49% of releases and 91% of box office revenues;

    b)  UK films (including co-productions with the US and others) in 2002 accounted for 21% of releases and 24.4% of box office; but

    c)  without US co-productions, UK films accounted for 15% of releases and 6.2% of revenues.

Mr Stelios Haji-Ioannou, Chairman of easyGroup, has recently set up easyCinema in Milton Keynes. With this venture he is attempting to break the mould of current exhibition by varying seat prices. In evidence he described the challenge this presented.[43] Since his evidence, press reports indicate that easyCinema has now received a first run release of Down with Love from 20th Century Fox which will allow the variable ticket price business plan to be tested.[44]

CONSUMPTION OF FILMED ENTERTAINMENT THROUGH DVD, HOME VIDEO AND TV

35. DVD and home video rental and retail are a vital part of the value chain supporting film production. In 2002 the value of this market, at £2.55 billion, was three times the value of UK theatrical releases. It is well documented that DVDs are the fastest-selling electronics product of all time with DVD sales in 2002 increasing by 111% on the previous year. It was clear that, far from being a threat to cinema-going, revenue from the home video/DVD market has provided a vital boost to film production in recent years. DVD in particular has proved so important that indications given to us were that mainstream distributors were reducing the window for theatrical release to get the film on to DVD and into the marketplace as soon as possible. Three hundred and forty-five million videos and DVDs were either rented or bought in the UK in 2002 (with feature films accounting for the vast majority of these figures). Curiously, the rental market does not reflect the pattern of release in cinemas (for the relevant period) while the sales market for 2002 almost wholly duplicates the list of top-grossing box office films for 2001-02. Sales of DVD players and of video cassette recorders virtually kept pace in 2002 at about 3.7 million units of each being bought.

36. Audiences for films on the terrestrial channels remain significant. While the popularity of film with peak time audiences was not high compared to other genres, TV audiences compare well with cinema audiences. The average audience for a peak time film showing was 4.2 million on BBC1 (film representing 7% of peak time programming) and 4.7 million on ITV (6% of such programming). This compares favourably with the median cinema audience for the top 50 films of last year at around two million (which is also roughly the peak time audience for a film on BBC2, Channel 4 or Five). There were also about 10 million cable/satellite/digital subscribers in the UK representing about 40% of TV-owning households in 2002. Multi-channel TV accounted for 22% of the audience share in this year. Sky Premier's average peak time audience is just under 100,000.

Public sector activity

37. There are a number of public sector bodies involved in the film sector. The Secretary of State told the Committee that :

38. Within England, the DCMS has delegated most of the responsibility for film to the UK Film Council, established in 2000. The Council was an amalgamation of the Arts Council of England's Lottery Film Department, the British Film Institute (bfi), the British Film Commission, and British Screen Finance and its associated companies.[46] The UK Film Council received a grant-in-aid of £24.1 million and £32.441 million of Lottery money in 2002-03.[47] The core tasks of the UK Film Council are to create a sustainable film industry in the UK and ensure film culture and education are accessible to all.[48] On a day-to-day basis, the UK Film Council has two main functions: to develop UK film policy/strategy and to advise Government on all film issues including policy implementation; and to administer a total of £56.54 million of Lottery and Exchequer funding to deliver specific objectives.[49]

39. The UK Film Council has created nine Regional Screen Agencies across the English regions, with funding of £7.5 million per annum. Their role is to support local creative, industrial, and educational activities, including the regional film archives, but their records of achievement, so far, are variable. Screen England, made up of the chief executives of the nine RSAs with the UK Film Council, argues that the UK's most successful films are often regionally based and that the RSAs have key roles in: assisting productions; identifying individuals for 'fast-tracking' into the national film arena; and, alongside DTI, DCMS and regional government offices, stimulating growth in the regional screen industries.

40. Through Skillset, the sector skills council for the audio-visual industries — working with the UK Film Council and the industry — the training needs of the sector are being addressed for the first time with a strategy in September 2003.[50] This is a vital area that many in the industry identified to the Committee as in need of increased resources and future development.[51] The principle elements of the training and development strategy are outlined in full below.

41. As was identified above by the Secretary of State, the Chancellor of the Exchequer has a pivotal role to play in relation to the tax relief provided for the film industry in the UK. Such relief is provided under Sections 40, 41 and 42 of the Finance (No. 2) Act 1992 (collectively 'Section 42' relief) and Section 48 of the Finance (No. 2) Act 1997.[52] The former is a longstanding mechanism for attracting large budget films (over £20 million) to the UK. Section 48 was the response of the Chancellor to calls, including recommendations in a report by the National Heritage Committee in 1995, for more support for indigenous British films costing £15 million or less. This mechanism included a 'sunset' clause with the accelerated relief ending in 2005.

42. The Film Export Advisory Group was set up to provide co-ordination and information to the British film industry and Government on film-related export activity. Membership includes: the British Council, Visiting Arts, PACT, Trade Partners UK (an associated public body of the DTI — see below), the UK Film Council (including the British Film Institute), Invest UK, AFMA Europe (the representative association of the independent US film sector), film sales companies and industry experts.[53]

43. British Trade International (BTI) was established in May 1999 and coordinates the work of the Department of Trade and Industry (DTI) and the Foreign and Commonwealth Office (FCO) on trade development and promotion of inward investment. BTI has over 2,500 staff in over 200 posts overseas, in the UK (London and Glasgow) and in the English Regions. It has two operating arms, Trade Partners UK (TPUK) and Invest UK through which it delivers its services.[54] The film unit within BTI is working closely with the UK Film Council and the Film Export Advisory Group to produce an export strategy for film for the future. The Film Export Advisory Group report, on how best to stimulate and support film exports, is due later this year, 2003.[55] Whether this structure works and is productive, is an issue that the Committee may return to.

44. The British Council is involved in promoting British films abroad as part of their wider cultural activities. When Committee members visited the British Council we were told that its primary role is to provide previews of British films for the selectors from major film festivals around the world, enabling them to find British films to include in the festivals. Amongst other things, the Council is also involved in arranging and promoting film premieres for British films all over the world, either working with the local distributors or directly with the film-makers.[56] The Council also maintains an online directory covering the industry and its output (referred to above — britfilms.com).


2   British Film Office website: www.britfilmsusa.com/d_incentives_qualifying.php Back

3   Synopsis of eligibility criteria under Schedule 1 of the Film Act 1985 from www.culture.gov.uk Back

4   Iceland, Liechtenstein, Norway belong to the European Economic Area in addition to the countries of the EU. The EC has Association Agreements with Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. The "maker" means the person (or company) undertaking the arrangements for making the film. Back

5   If the costs of one or two people are deducted from the total labour costs (as described in c) then the same costs must be deducted from the total production before the 70% test is applied. Back

6   The actor should not be engaged in making the film in any other capacity. Back

7   The exceptions within the stipulations relating to labour costs are in recognition of the potential for the large fees paid to single star performers, or prestigious directors, to make meeting these tests extremely difficult if not impossible. Back

8   www.britfilm.com/resources Back

9   www.britfilusa.com/d_incentives_qualifying.php (07/07/03) Back

10   Ev 39 Vol III Back

11   Ev 101-102 Vol III Back

12   QQ 4-6 Back

13   Report by the Advisory Committee on Film Finance, July 1996 Back

14   See Q 168 Back

15   Film in the UK 2002, Statistical Yearbook, UK Film Council, 2003 p 67, Table 12.1. Back

16   Film in the UK 2002, Statistical Yearbook, UK Film Council, 2003 p 67, Table 12.1. Back

17   UK Box Office gross earnings. Film in the UK 2002, Statistical Yearbook, UK Film Council, 2003 p 14, Table1.2. Back

18   Total value of the UK's rental and retail business. Film in the UK 2002, Statistical Yearbook, UK Film Council, 2003 p 53, paragraph 10.1. Back

19   Film exports were made up of £468 million in royalties and £232 million in film production services). Film in the UK 2002, Statistical Yearbook, UK Film Council, 2003 p 47, paragraph 9.1. Back

20   UK Film Council briefing, 2003 Back

21   Ev 184 Vol II Back

22   Ev 2 Vol II. The Movie Map can be found through www.visitbritain.com Back

23   BTA official quoted at http://www.britishcouncil.org.co/english/infoexch/ukfilm.doc Back

24   Ev 227 Vol II Back

25   Ev 186 Vol II Back

26   Ev 187 Vol II Back

27   Ev 206 Vol II Back

28   Ev 76 Vol III Back

29   Ev 221 Vol II Back

30   Q 542 Back

31   Q 581 Back

32   Ev 228 Vol II Back

33   Ev 63 Vol III Back

34   Building a Sustainable UK Film Industry. A presentation to the UK film industry. Sir Alan Parker CBE, Chairman, UK Film Council, November 2002; also see Q425 [Mr McGarry] Back

35   Visit to US Back

36   Ev 113 Vol III Back

37   Ev 122, 155 Vol II. Ev 35 Vol III Back

38   Labour Force Survey. Data covers all persons engaged (employers, employees and self-employed). Video and motion picture workers are not separated in the official data (Standard Industrial Classification 9211). Back

39   Q 187 Back

40   Q 48; Ev 34 Vol III Back

41   Ev 226 Vol II Back

42   UK Film Council (briefing for CMSC), 2003 Back

43   QQ 465-466; 471 Back

44   Sunday Telegraph (Business), page 1, 07/09/2003. Back

45   QQ 525, 541 Back

46   Ev 221 Vol II Back

47   See Annex C  Back

48   Ev 189 Vol II Back

49   Ev 221 Vol II Back

50   Q 425 [Ms Caine] Back

51   QQ 19,41, 76, 148 [Mr Dawson, Mr McVay, Mr Bloore, Mr Castro]; Ev 34 Vol III Back

52   UK Tax Incentives for Film and Music- Baker Tilly Media Brief. www.bakertilly.co.uk Back

53   Ev 46 Vol III Back

54   Ev 88 Vol III Back

55   Ev 46 Vol III Back

56   British Council website: http://www.britishcouncil.org/arts/film/whatwedo.htm also see Q 612 Back


 
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