Memorandum submitted by UK Film Council
1. EXECUTIVE
SUMMARY
1.1 The UK Film Council welcomes the opportunity
to give evidence to the Culture, Media and Sport Committee's timely
inquiry into New Media and the Creative Industries. This submission
highlights an urgent need for the Department for Culture, Media
and Sport to put in place a robust and clear policy and funding
framework in response to the proliferation of new distribution
media. This framework should aim to safeguard and promote the
availability of British and specialised films and the resulting
benefits to the UK's creative economy.
2. OVERVIEW
2.1 The UK Film Council is the Government's
strategic agency for film. It operates as a Non-Departmental Public
Body (NDPB), accountable to the Department for Culture, Media
and Sport (DCMS).
2.2 Its aim is:
"To stimulate a competitive, successful
and vibrant UK film industry and culture, and to promote the widest
possible enjoyment and understanding of cinema throughout the
nations and regions of the UK."
2.3 The UK Film Council welcomes the opportunity
to respond to the Culture, Media and Sport Committee's inquiry
into New Media and the Creative Industries and has prepared this
submission specifically for the Committee's present inquiry.
2.4 We believe that the four issues on which
the Committee is particularly interested in receiving evidence
are very closely interlinked. We have therefore chosen to respond
in the round rather than to answer each question individually.
2.5 Our response is complementary to that
of the British Film Institute (bfi), which is funded by the UK
Film Council to deliver cultural and educational objectives around
film and the moving image.
2.6 We believe that the development of the
new media is transforming the landscape of the creative industries
and film in particular.
2.7 These changes present significant opportunities
to massively enhance audience access to a far wider and more diverse
range of films.
2.8 But equally, it presents large challenges
in respect of rights, windows and financing models, most particularly
for independently-produced British films.
2.9 The UK Film Council believes that, going
forward, there will be substantial challenges for public policy
around the development of these new media with respect to film.
2.10 This will require public policy to
balance different, and sometimes competing priorities, around
the development of the new media. There have already been tensions
between different constituencies around some core issues relating
to new media such as Digital Rights Management.
2.11 The task in respect of public policy
for film will be to determine where forms of intervention are
appropriate and where issues are best left to the market to resolve.
The task will also be to ensure that forms of intervention promote,
rather than stifle, both creative innovation and access for audiences.
3. THE IMPACT
OF CHANGE
3.1 The landscape of the creative industries
is undergoing very rapid change as a consequence of the impact
of new media platforms. These new platforms have been made possible
as a result of the evolution of digital technology. The speed
and scale of change is greater than at any previous point in the
history of film.
3.2 To some extent, this reflects the complexity
of the interdependent, globalised world of the early 21st century,
but it's also a reflection of the fact that digital technology
is having a genuinely transformative effect on all elements of
the film sector and the film value chain.
3.3 But the technology itself is only a
means to an end; what is being changed is both the economics and
culture of film, and the way in which audiences of all kinds relate
to film. Thus the debate about the impact of new technologies
has important consequences not just for the film industry and
film culture and education, but for the way in which we all as
citizens reflect ourselves to ourselves and to others.
3.4 A great deal of energy has been expended
by various stakeholders and polemicists in trying to describe
the likely impact of the new media upon the creative industries.
3.5 On one side some existing and powerful
incumbents have adopted, at least until recently, a largely defensive
approach to the emergence of the new media, apparently in the
belief that the status quo would prevail largely untouched and
that existing business models would remain fit for purpose.
3.6 On the other, some who claim to be speaking
in the name of the citizen have claimed that the impact of the
new media will sweep away all our present assumptions about the
way in which the creative industries, and film in particular,
operate and that in a brave new world of digital plenitude "market
failure" will eventually cease to exist.
3.7 These positions are mirrored, for example,
in elements of the debate around copyright theft and online copyright
infringement. Some powerful interests have behaved at times as
if the only way to fight piracy is through protection of the existing
business model and more extreme forms of enforcement. Some "libertarians",
by contrast, have behaved as if access to any form of intellectual
property at any time for free is a human "right".
3.8 The UK Film Council believes that the
polarisation of debate around new media is profoundly unhelpful,
destructive even. It has helped to prevent the emergence of a
more balanced, rational debate which properly examines the consequences
of change for public policy.
3.9 In truth, the polarisation of much of
the debate thus far around creative industries and the new media
fails to reflect the specificity and complexity of different media.
3.10 In film, for example, it is arguable
that the ability to create and distribute content in a much larger
variety of ways will accelerate the segmentation of the film sector
such that there will be many more different business and cultural
models, each based on different sets of aims and objectives. Just
as the audience's ability to choose between different ways of
consuming product is greatly enhanced by digital technology (eg
the emergence of the video iPod), so too is the ability of rights
holders to create different kinds of models both for content creation
and the dissemination of that content to audiences.
3.11 All sectors of film are being changed
by the impact of new media, but different sectors will change
in different ways, thus accentuating the distinction between them—it
is true that differences are apparent today, such as that between
the business model upon which large incoming portable productions
are based and that on which the typical indigenous British film
is based, but these differences may become more marked over time.
3.12 There will also be significant challenges
around the development of skills for the new media as they relate
to film. The UK Film Council, working in partnership with Skillset,
the Sector Skills Council for the audiovisual industry, is seeking
to ensure that the UK skillsbase is equipped to capitalise upon
the changes to the business and is able to anticipate changes
and calibrate programmes for skills development accordingly.
3.13 Public policy for film and related
audiovisual sectors will need to be supple and flexible enough
to respond to the challenges which arise from the ways in which
different parts of the film sector evolve.
3.14 Such segmentation can best be conveyed
by considering some possible impacts on different parts of the
film sector.
4. THE IMPACT
ON DIFFERENT
PARTS OF
THE SECTOR
4.1 In respect of the large-scale creation
and distribution of film, it is likely that the barriers to entry
to film will continue to operate in a digital world, as will the
advantages of scale. The capacity to create and distribute a consistent
stream of content on a worldwide basis, across a variety of platforms,
buttressed by the ownership of large amounts of intellectual property
in the form of filmed entertainment libraries, will still constitute
a major form of competitive advantage.
4.2 The ability to manage risk by spreading
it across a large portfolio of product will remain a key to success
in a creative business such as film, where the success of any
given investment can never be guaranteed in advance, since it
is subject to a wide range of variables, the most powerful of
which is audience taste.
4.3 This ability to manage risk in the field
of exploitation is, in turn, the key to being able to innovate
at scale in the field of content creation, since the flow of revenues
from the former supports investment in the latter.
4.4 Innovating at scale, for example by
producing and distributing large budget films using globally recognised
creative talent or very sophisticated computer generated imagery,
will be important because it enables certain kinds of film to
stand out in a world more saturated than ever with entertainment
product. While digital distribution may reduce the costs of making
copies of a film, and therefore increase margins, the costs of
creating awareness of product intended for worldwide distribution
to mainstream audiences is likely to remain extremely high for
the foreseeable future—and arguably go higher as it becomes
imperative to secure prominence among an increasingly shrill cacophony
of products all desperately seeking the attention of the consumer.
4.5 Equally though, there will be opportunities
for those who create and distribute specialised films to create
different kinds of business models which take advantage of the
potential of new media to reach a broader and more diverse range
of audiences in new ways.[1]
4.6 The approach of those operating in this
specialised space will doubtless be different to that of large-scale
creators and purveyors of content—though it is likely that
even in this segment of the market, the ability to aggregate content
in some form will represent an important commercial advantage,
since this helps to create ongoing brand awareness to the audience.
The model of an unmediated relationship between producer and audience,
in which the need for a distributor or content aggregator dissolves,
may work for certain kinds of content, but it is difficult to
see this becoming commonplace.
4.7 The different aims and objectives of
those concerned with specialised film however are likely to be
reflected in the approach, for instance, to models of recoupment,
to access to intellectual property and to Digital Rights Management
(DRM), and perhaps in the approach to the windows which govern
the release of films across different platforms.[2]
4.8 Whereas large-scale producers and distributors
of content will understandably be concerned, above all, to ensure
their films are only distributed in a format and via mechanisms
over which they have significant control, smaller scale producers/distributors
may have different priorities—they may, for example, be
less concerned with the quality of the format and more with maximising
access in a variety of different formats using all possible means
available.
4.9 On a third front, those distributing
publicly-owned archive material will principally be focussed on
maximising awareness and access, and will not usually be seeking
a purely commercial return within the UK market. This, in turn,
will entail a different approach to distribution, issues of rights
and the protection of intellectual property.[3]
4.10 A fourth level of content production
and distribution will occur in the form of so-called "user-generated
content"—in other words, content created, edited and
distributed by consumers and citizens using a variety of media
ranging from low-cost digital cameras to mobile phones and games
consoles.
4.11 Such participation in and access to
media represents an entirely welcome "democratisation"
of the media. User-generated material, in the vast majority of
these instances, will not be a repository of economic value; its
importance rather lies in its ability to stimulate the development
of better informed citizens and a more media literate society.
Public policy therefore needs to take account of the development
of user-generated content and to find ways, where necessary, of
encouraging its creation and dissemination to the benefit of the
broader public good.[4]
4.12 Above all, public policy for film will
need to be sufficiently flexible to recognise these differences
of approach across the sector, to support the movement of individuals,
products and companies between these different spheres, and to
find ways of stimulating them that contribute both to the economic
health of UK plc and to the equity and vibrancy of UK society.
5. ENHANCING
ACCESS, CHOICE
AND DIVERSITY
5.1 In a digital world, many of the capacity
constraints which restricted both supply and consumer choice in
an analogue world start to disappear; eg spectrum scarcity is
disappearing as a constraint for broadcasters and pay-television
operators, and online DVD services are not constrained by shelf
space in the same way as a physical retail outlet, even though
they still rely on the postal service as the means to deliver
product and are therefore not yet fully digital.
5.2 Some constraints will remain until the
transition to a fully digital world occurs. Even then, some parts
of the value chain for film will be dependent on physical infrastructure;
for instance, even once digital projection equipment is present
in a large number of cinemas across the UK, access to the theatrical
experience for audiences will still be dependent on the availability
of cinemas, screens and programmes in their locality.
5.3 The theatrical exhibition sector, far
more than other media to which films are distributed and shown,
will remain governed by the economics of scarcity. In the face
of this, the UK Film Council has created its Digital Screen Network
to ensure that the benefits of digital technology are harnessed
to broaden the range of films available to audiences throughout
the UK and especially to improve access to specialised (or non-mainstream)
film.
5.4 It is already clear that digital technology
has significant potential, both within the cinema exhibition industry
and, crucially, across other subsequent areas of the value chain
to massively enhance choice to the benefit of both consumers and
citizens.
5.5 The phenomenon of the "Long Tail"
has already been well-documented in relation to books and other
media. The Long Tail essentially describes a world in which consumer
demand shifts in response to the ability of suppliers to offer
a far greater range of choice as this extract from the original
essay on The Long Tail confirms:
5.6 "The average Barnes & Noble
carries 130,000 titles. Yet more than half of Amazon's book sales
come from outside its top 130,000 titles. Consider the implication:
If the Amazon statistics are any guide, the market for books that
are not even sold in the average bookstore is larger than the
market for those that are. In other words, the potential book
market may be twice as big as it appears to be, if only we can
get over the economics of scarcity. Venture capitalist and former
music industry consultant Kevin Laws puts it this way: "The
biggest money is in the smallest sales."
5.7 The same is true for all other aspects
of the entertainment business, to one degree or another. Just
compare online and offline businesses: The average Blockbuster
carries fewer than 3,000 DVDs. Yet a fifth of Netflix rentals
are outside its top 3,000 titles."[5]
5.8 The impact of the Long Tail is already
being felt even in a world where the sale and rental of DVDs is
conducted through online transactions but in which a physical
product is delivered through the postal service.[6]
5.9 Once the model starts to shift to one
in which the product delivered is a digital file distributed via
the internet, the ability of the supplier to offer an enhanced
range of content will increase exponentially.[7]
The growth in the range of product offered, together with the
use of innovative forms of viral marketing, such as the system
of tailored recommendations used by Amazon is likely to be manifested
in significant shifts in the purchasing patterns of consumers.
5.10 For the moment, the implications of
this radical shift for public policy are difficult to read—which
does not, of course, mean that we should not try to read them.
5.11 While it is likely that commercial
suppliers will seek to maximise the opportunity presented by electronic
delivery, it is far from certain that the private sector alone
will eradicate all of the market failures which exist in relation
to specialised film. For example, although electronic search technology
should enhance the ability of consumers to locate product, it
is likely that commercial imperatives will mean that search engines
may be configured to give certain kinds of mainstream product
far greater prominence. This is, of course, entirely understandable
since commercial companies are seeking to maximise shareholder
value and will therefore be largely focused on the product most
likely to deliver that goal.
5.12 But it may mean that to ensure that
public value is maximised, there might be a role for the public
sector to provide assistance, for example, in ensuring that specialised
material can be easily located. This could involve supporting
ways, for instance, to make such material electronically tagged
in ways that enable it to be found relatively easily.
5.13 While the phenomenon of the Long Tail
is unquestionably good news for consumers and citizens, it will
not in and of itself transform the financing model for British
or specialised films. This is a consequence of the fact that the
Long Tail represents a form of surplus value for the retailer
of content but not for the producer—simply because the Long
Tail of revenue is spread thinly across a large number of products,
but with no single product benefiting to a significant degree.
Even the benefits to the retailer have to be weighed against the
erosion of margins which may occur as a consequence of the fact
that online distribution makes price comparison far easier and
therefore the retail market will be more competitive—which,
of course, is good news for the consumer.
5.14 But the fact that the additional value
created by the Long Tail does not feed back to content producers
has significant consequences in a sphere such as film where the
costs of creating and distributing even a low-budget film are
very much greater than they are for many other kinds of creative
product. Enhanced consumer access and the greater adventurousness
in purchasing patterns which emerges as a result do not axiomatically
translate into enhanced revenues for those who create or control
rights to intellectual property in the form of film.
6. WINDOWS AND
RIGHTS
6.1 There are also major issues around new
media arising from the complex sequence by which films reach audiences
and thereby generate revenues and affect hearts and minds. At
present, the availability of film in a given medium (cinema, DVD,
pay-TV, terrestrial TV etc) is determined by a series of "windows"
which in turn is built on a system of rights, defined according
to generally accepted industry principles. The windows themselves
are agreed in different ways on a territory by territory basis—in
the UK, for example, the windows have historically been agreed
between different sectors of the industry on a voluntary basis.
6.2 The windows between different formats,
for example, between theatrical and DVD have been shortening in
recent times. Nonetheless, the distinctions between the different
windows have not yet been called into question.
6.3 In a digital world, new forms of rights
arise. In an environment which is partly digital, at least four
different rights can be identified in the space between DVD release
and the screening of a film on terrestrial television.
6.4 These rights are:
— Video On Demand (VOD) whereby the
consumer purchases films on a title-by-title basis.
— Pay-Per-View, currently equivalent
to Near Video On Demand.
— Subscription VOD (SVOD) in which
the consumer pays a monthly fee and is able to access an unlimited
or large number of titles against that payment.
6.5 At present, there is no generally agreed
definition of VOD and SVOD rights. There is a need to develop
a clear, rational policy for the film sector in respect of these
rights.
6.6 This is because in the absence of clear,
agreed definitions about how certain specified rights are defined
in a digital environment, it is likely that those who license
rights to digital platforms may see those rights absorbed by the
acquiring platform as an extension of existing rights.
6.7 This would provide very significant
advantages to incumbent platforms who may use their existing market
power to encourage a form of "rights creep" by which,
in effect, they are able to exclude new entrants from the platform
market. This would be to the severe detriment of both consumers
and citizens.
6.8 Such "rights creep" would
also make it far harder, and perhaps impossible, for rights owners
to extract additional revenue against the licensing of those rights.
6.9 Once electronic delivery of films also
starts to replace distribution through packaged media such as
DVD, such inability to extract revenue from the licensing of those
rights would have a seriously detrimental impact on the model
by which independently-produced films are financed.
6.10 This is because these films are financed
in part by the pre-sale (in effect, licensing) of the rights to
distributors who in turn generate revenue from the exploitation
of those rights to a variety of third parties (exhibition chains,
DVD retailers, DVD rental services, pay-TV operators, terrestrial
broadcasters etc). The absence of clear, agreed definitions around
rights would inhibit the ability of distributors to maximise revenues,
most especially in relation to the licensing of rights to content
distributors deploying new platforms; eg those based on VOD or
SVOD.
6.11 Thus, if market forces are allow to
prevail unchecked, there are strong arguments that both consumer
access and the financing model for independent films may suffer
despite the advent of digital services.
6.12 The UK Film Council does not yet have
a position on the best way to avoid the situation whereby the
apparent benefits of choice and diversity which potentially accrue
from a digital world are stymied. The matter requires further
investigation and discussion between all interested parties—the
Government, Ofcom, rights holders and platform owners. There may,
or may not, be a case for public intervention.[8]
6.13 The UK Film Council recognises the
difficulties associated with regulatory interventions in a globalised
and digitised media market in which the limits of national or
European regulation are all too apparent—because for example,
the targets of regulation may simply choose to move the source
of origination and/or dissemination beyond the jurisdiction of
the regulator.
6.14 But the UK Film Council is clear that
the history of technological innovation in the audiovisual sphere
demonstrates that the apparent benefits of new forms of technology
can just as easily turn into disbenefits from the perspective
of public policy and the citizen.
6.15 For example, as the UK Film Council
has argued in a previous submission to this Committee, the market
power of the major operator of pay-television in the UK—BSkyB—created
a situation in which a series of Most Favoured Nations (MFNs)
arrangements with the Hollywood studios worked to the disadvantage
of other, smaller independent suppliers and was thereby detrimental
to consumer choice.[9]
7 FILM THEFT,
INFRINGEMENT, THE
RIGHTS OF
CREATORS AND
THE EXPECTATIONS
OF CITIZENS
7.1 The UK Film Council has consistently
argued that film theft and online copyright infringement represent
a major threat to all elements of the UK film industry and to
film culture.
7.2 Some 5% of UK adults have downloaded
a film and/or a TV show and the quantity of titles illegally downloaded
has risen to an average of between 7-15 per year.[10]
7.3 The very rapid take-up of broadband
in the UK could accentuate copyright infringement by means of
file-sharing. The UK Film Council was active in all the different
components of the Government's Creative Industries Forum on Intellectual
Property. It believes that the recommendations of the Forum, taken
together, constitute a very effective strategy for discouraging
and stemming piracy while encouraging the creation of legitimate
services which take advantage of the new media to make content
available in new ways.
7.4 Clearly, a balance needs to be struck
between the need to protect the economic model by which high cost
content is created and distributed and the need to encourage new
forms of content distribution which respond to consumer and citizen
demand.
7.5 In conclusion, we would argue that it
is too easy to fall into the trap of believing that everything
will change or that nothing will change as a result of the impact
of new media on the creative industries. These positions are,
in fact, symmetrical and each is delusive. We are entering a period
of change in which nothing can be taken as a given but in which
the outcomes are very uncertain.
7.6 This represents a massive challenge
for those who make and deliver public policy around film and related
creative industries. It will require public policies which are
capable of balancing sometimes differing priorities as between
creators and citizens and as between rights holders and platforms.
It will require public policy makers to understand the limits
of intervention and to recognise where markets may, in fact, be
able to deal with issues of conflict more effectively than regulators.
7.7 The ability to get the balance of these
things right will affect not just our capacity to create a successful,
flourishing and creative economy, but our capacity to nurture
an informed and engaged democratic society in the early 21st century.
28 February 2006
1 See Annexe One for the UK Film Council's definition
of specialised film. Back
2
This argument is set out in more detail in the UK Film Council's
submission to the All Party Parliamentary Internet Group's (APPIG)
Inquiry into Digital Rights Management. This submission has not
yet been published by the APPIG but we would be pleased to furnish
a copy to the Select Committee on request. Back
3
As noted in the bfi submission to the Committee. Back
4
The work of the Media Literacy Task Force, of which the UK Film
Council is a member, will be invaluable here. Back
5
http://www.wired.com/wired/archive/12.10/tail.htm. Back
6
Recent research conducted by Screen Digest and Magic Lantern
for the UK Film Council shows that demand in the online DVD rental
market for UK and specialised films has equalled the demand for
the top 25 mainstream films (in terms of total transactions),
while demand for these UK and specialised films was six times
smaller in the cinema and seven times smaller in physical video
rental/retail stores than the demand for the mainstream titles. Back
7
Some online DVD services, such as lovefilm.com, are already offering
electronic downloads. Back
8
The UK Film Council is a participant in the European Commission's
Leadership Summit on Film Online which seeks to identify, "the
opportunities and challenges involved in making film online take
off in Europe." Back
9
See: http://www.publications.parliament.uk/pa/cm200203/cmselect/cmcumeds/667/3062413.htm. Back
10
For a comprehensive overview of issues relating to film theft
and copyright infringement see the UK Film Council report, Film
Theft in the UK, available at: http://www.ukfilmcouncil.org.uk/usr/downloads/Piracy Back
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