ANNEX B: DETAILS OF UK VISITS AND SUMMARY
OF VISIT TO LOS ANGELES, JUNE 2003
| Date | Location of visit
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| 11 June 2003 | Ealing Studios, West London.
|
| 25 June 2003 | Framestore CFC, Soho, London
|
| 2 July 2003 | Pinewood Studios, Buckinghamshire
|
| 16 July 2003 | Leavesden Studios, Hertfordshire
|
| Programme | Host
|
| University of Southern California School of Film (USC)
| Dr Richard Jewel, Dean of Academic Affairs
|
| American Film Marketing Association (AFMA) (representing the independent film industry)
| Ms Kathy Morgan (Kathy Morgan International), Chairman, Mr Howard Kaplan (Morgan Creek International), Vice Chairman, Finance, Mr Roger Corman (New Concorde), Director, Ms Jean M Prewitt, President and Chief Executive Officer and Mr Jonathan Wolf, Vice President and Managing Director AFM.
|
| Hollywood Heritage Museum | Mr Robert W Nudelman, Restoration Project Director
|
| Warner Brothers Studios | Mr Richard J Fox, Executive Vice President, International (Warner Bros. Entertainment)
|
| Motion Picture Association of America | Mr William M Murray, Vice President and Chief Operating Officer
|
| 20th Century Fox Studios | Mr Jim Giannopoulos, Chairman, Fox Filmed Entertainment
|
| Metro-Goldwyn-Mayer Studios | Mr Chris McGurk, Vice Chairman and Chief Operating Officer
|
| Walt Disney Studios | Mr Paul Steinke, Senior Vice President, Production and Finance
|
| Paramount Studios | Mr Tom McGrath, Executive Vice President
|
| Sony Imageworks | Mr Tim Sarnoff, President
|
| HBO Films | Mr Colin Callendar CBE, President
|
| Universal Studios | Mr Rick Finkelstein, President and Chief Operating Officer
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| Dreamworks SKG | Mr Mike Grillo, Head of Feature Productions
|
| Columbia Tristar Motion Picture Group (Sony Pictures)
| Mr Gareth Wigan, Vice Chairman |
Summary of discussion
THE US FILM INDUSTRY
Last year, 2002, had produced a 45 year high for
cinema admissions in the US - this was a general trend and spread
across all demographic groups proportionately (this 'modern' peak
remained below historical percentages of the population in, say
the 1920s, going to see films). In terms of consumption of filmed
entertainment across the board - 20% theatre; 40% DVD/video; and
40% TV. The impact and popularity of DVD had not dented theatre-going
but rather increased it (70% of DVD income was from sales and
30% from rental - the increased material on a DVD was likely to
account for the high sales figure compared with video. Last year
about 700 films were produced of which about 200 never got a theatrical
release (on average marketing costs were $30 million for a big
release - 90% of the average print & advertising expenditure).
Film-making was a risky business. The depth of the
library was a buffer for major studios when new films were not
as successful as expected. The US audience was 300 million people
which provided a safety net in the context of uncertain global
market impact. Costs, however, were spiralling (especially star
costs - a third of a typical major production). Other challenges
were the crowding of the marketplace (with between 3 and 8 new
films each week); the crucial importance of a good opening for
subsequent revenue; a consolidating exhibition market; and revenue
from television had flattened out (indeed dropped in the UK) with
competition in pay TV less than expected. The UK did not have
a huge domestic market and British films made for the British
market had to have modest budgets with this in mind. The more
creative studio releases also had to have less financial exposure
- either by modest budgeting or partnership funding. For each
film made by a major studio up to 10 were developed to some degree
with as much as $2 million being spent on a project that ultimately
would not proceed.
Marketing is key to a successful film. If the right
message cannot be transmitted to the public then good films can
suffer and niche films die. Conversely, with the right marketing
a bad film can make a profit. Effective marketing could create
a successful theatrical release without which a movie was likely
to die. Exhibitors could be reluctant to take films for which
marketing budgets were low as this would affect their seat occupancy.
OUTWARD INVESTMENT
Art and business considerations created a, constructively
tense, iterative process in deciding where a film should be shot.
Factors included: creative issues (where was the script based);
practical issues (time of year, length of day, weather) with leading
actors' availability usually dictating the production timetable;
the local crew base; the previous experiences and preferences
of key production personnel; and the financial environment (tax
regime, exchange rates, other incentives). Occasionally other
factors played a part such as the fact that one big production
can occupy a whole country's available facilities and appropriate
crew. The UK, however, had a depth of resources that was not matched
everywhere else. Decisions were made on a case-by-case basis but
the film-makers looked to locate appropriate production overseas
to maximise returns on investment; just like any other manufacturer.
There was a move towards a focus on local subsidiaries seeking
to make lower budget films for the relevant markets where they
were located.
The UK
The UK was an important location of technical expertise
and facilities as well as a good consumer market. There was a
rich pool of acting talent with appropriate technical skills developed
in television, radio as well as repertory and West End theatre.
The British literary tradition was a two-edged sword - in film
parlance 'talking heads' were boring but there was a rich seam
of ideas for stories; especially children's stories.
The distribution market was, however, tough with
historically lower film rental revenue for the distributor than
elsewhere and the highest advertising costs in the world.
The tax incentives for both high and low budget films
were important and made the UK internationally competitive as
a location for production (creative considerations apart). The
shared language made the UK a popular location with US actors,
directors and other film crew personnel. Reducing the incentives
would send a message of reduced commitment to hosting overseas
production above and beyond the consequent alterations to the
bottom-line. The UK arrangements were not simple but the systems
worked fast.
The British film industry
The diagnosis of the UK Film Council seemed accurate
especially support for the current level of tax reliefs with some
extension to distribution and perhaps even print and advertising
costs as well as an emphasis on training and development to protect
the UK's key competitive advantage: its skilled film production
labour force. The best way to develop new talent was to employ
people on productions. Incentives to employ a cameraman and an
assistant cameraman (like an apprenticeship system) was a practical
way to achieve sectoral development. In the US collaboration between
the film schools and the industry was extensive in terms of making
both both resources and personnel available.
There were deep differences between the UK and US
industries although both were in the same business. In the UK
the artist was seen as challenging the status quo while in the
US the artist was often seen as its defender. The rewards in the
UK were modest compared to the potential in the US. Therefore
films that were financed on the basis of their potential within
the UK market alone could not have large budgets.
The UK had tried to mimic the US system without success.
The greatest, but temporary, impacts had been achieved by Goldcrest,
Polygram, Channel 4. Working Title remained very successful but
in terms of structure was in a category of one. The UK's film
successes in the US/global market had been idiosyncratically 'British'
stories - Four Weddings, The Full Monty, and Bend it like Beckham.
Attempts to play the Hollywood game had largely failed.
The Eady levy had made UK broadcasters invest in
British film. Broadcasters also had the resources and systems
to support distribution. The Communications Bill looked like
a missed opportunity for the Government to require more action
from the broadcasters in support of British film.
DIGITAL TECHNOLOGY
Computer-generated imagery
If CGI was invented as a cost-cutting exercise then
it had failed in that aim. The demand for digital enhancement
and origination was a bottomless pit. The end-result remained,
however, a product of the creative skill of the user of the new
techniques being developed. Such techniques raised the possibility
of fundamental changes to the way the industry worked as well
a possible alternative format for making, distributing and exhibiting
films. The roles of various specialties behind the camera (ie
cinematographer) were changing; the interaction of actor and director
could alter with wider and deeper control of performances in the
post-production phase; the synthesis of dead actors (raising complex
royalty issues) was technically possible; creating locations,
characters and 'extras' was almost commonplace beyond what had
been achieved in wholly CGI-animated films.
Exhibition
Digital exhibition had vocal supporters and critics.
It was being encouraged chip manufacturers of the equipment and
resisted by some exhibitors on the grounds that a measure of success
would be that their audiences did not notice any difference. The
main challenges for the development of digital exhibition were:
proving the demand and economic advantages for all parties were
there; establishing common technical standards and healthy competition
between manufacturers of the technology; ensuring security; achieving
quality (including crucial longevity in the archives); and settling
the question of how the costs and benefits of the necessary investment,
and control of the resulting systems, would be shared between
distributors and exhibitors. A significant question was whether
conversion had to be 'big bang' or could it be incremental. Widespread
mainstream digital cinema was perhaps 10-15 years away.
DVD
The popularity of DVD was overwhelming and had given
the inherently risky film business a new lease of life. While
a successful theatrical opening remained vital for creating adequate
demand for the bigger films there was a move to hurry the film
into DVD to capture the value that high sales in that format represented.
PIRACY (UNAUTHORISED PARALLEL DISTRIBUTION)
In 2002 the loss to the US film industry from audiovisual
piracy worldwide was estimated at between $3 and 3.5 billion.
There were lessons to be learned from the experience of the music
industry. The film industry had to look for technical, economic
and legal solutions to the problem, including aggressive litigation.
The pirates were only ever one step behind the distributors in
terms of overcoming technical barriers. The risks would be increased
by moves towards the digital distribution of film, whether over
networks or by supply of physical disks.
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