Examination of Witnesses (Questions 589
- 599)
TUESDAY 7 NOVEMBER 2006
UK FILM COUNCIL
Chairman: Good morning. This is the last
session of the Committee's inquiry into the challenges and opportunities
for creative industries in new media. Certainly in the first two
sections we are going to be concentrating on film. It is a pleasure
to welcome Stewart Till, Chairman of the UK Film Council, and
John Woodward, the Chief Executive. Can I invite Helen Southworth
to begin.
Q589 Helen Southworth: In your report
for 2005-06 you tell us that you have commissioned research into
the potential of digital platforms to enhance public access to
British and specialised films. Can you tell us a little bit about
what your expectations are for that and how you are hoping things
are going to develop in the next few years.
Mr Till: Obviously it is a very
big question. We are optimists absolutely but there are dangers
attached. I think that we know that the consumer generally enjoys
films, and film as a medium has driven pay television and has
driven DVD, so I think in its widest sense film as a content will
both drive digital and benefit from it. Digital obviously covers
a multitude of areas, from digital screen networks (DVD itself
is a digital platform) through to video on demand, and I think
if you make it easier for the consumer to consume films, then
they will embrace it in larger numbers. For example, the video
rental market-place at its peak worldwide was worth about $20
billion, with all the inconvenience wrapped around renting videos,
which we all know. If you could have all the benefits of renting
videos with none of the inconvenience, and the convenience of
doing it from a laptop or a remote control on a TV, I think that
$20 billion that consumers spent around the world could multiply
by two or threefold without all the distribution costs and manufacturing
costs, so with just that window alone you could add $20 billion/$30
billion/$40 billion to consumer expenditure on a worldwide basis,
which is obviously incredibly exciting. Within that context I
think that British films should do very well for two reasons.
Obviously if people are spending more money consuming films in
this country and around the world where British films are watched,
then obviously, by definition, more people will spend more money
on British films, obviously to the benefit of both British producers
and British distributors. Also we have seen in all the other digital
forms of distribution the "long tail" effect by which
people not only rent or buy or watch the blockbuster films more
frequently, they also delve deeper both into the new releases
or go wider and into catalogue, which again we think will be to
the benefit of British films.
Mr Woodward: I think that last
point is a really important point in the context of the Committee's
interest in British cinema because historically, as you know,
one of the problems with getting British films in front of British
audiences is they are literally crowded out in the market place
whether they are stacked on the shelves at Woolworth's, in the
video store, or on television channels, and the beauty and opportunity
of on-demand and digital delivery of films is that those physical
constraints of things in boxes no longer apply. Therefore the
long tail effect that Stewart has talked about and the economists
have noted suggests to us very strongly that is where the opportunity
really lies for the British film industry and for the British
public because when you give people the opportunity to choose
from a much, much wider range of titles there is evidence already
to suggest that that is what they do. That is why fundamentally
we are very bullish and we think that the digital revolution is
going to be very good for the British film industry. There are
other challenges, as we all know, but overall we are optimistic.
Q590 Helen Southworth: Do you feel
that there is sufficient focus on the economic opportunities?
You are obviously promoting from your perspective with a lot of
vigour but are you getting that same sort of response back from,
say, government departments or regional development agencies?
Mr Woodward: The answer is broadly
yes, but I think it is also true to say, in the same way that
your Committee is currently looking at this issue, everyone is
grappling with the digital revolution. We are all on the frontier
and in terms of running their businesses people are literally
making it up as they go along. That is why we commissioned the
research you referred to earlier on because the film business
is going to have to make a very important and potentially quite
difficult transition from the stable business model that has been
in place for the last 15 or 20 years, whereby whether you are
financing films, or distributing and selling them, you have been
relatively confident about what values you can extract from television
broadcasters, from DVD, and from cinemas, to what has to happen
over the next few years, which is that the industry has to make
a transition to a new business model which is untested which is
about selling films mainly on demand. Nobody is quite sure at
this point whether the audience demand is going to rise or fall—although
we think it is going to rise as Stewart said. Nobody is quite
sure what the volumes will be, and nobody is quite sure where
the profit margins are going to settle. So it is a period of change
but for us we would come back to saying that represents an opportunity
as well.
Q591 Helen Southworth: In terms of
developing an audience for British films what opportunities are
there in terms of school film clubs, for example, or other educational
establishments using new technologies? Are you focusing on that?
Mr Woodward: I am glad you asked
that, as they say. We are currently running a pilot project which
we do not have the funds at present to take through to implementation,
but the ambition is to set up a free-standing charitable body
which has the objective of getting a digital film club into one-third
of schools within the first three years of operation. The idea
would be to work with schools through the extended hours programme
to enable them to have interesting, important, valuable but entertaining
films that children can watch and to support the delivery of the
films through a website and educational materials so the children
can then talk and think about the films in terms of citizenship,
and whatever the issues might be contained in the films. And also,
frankly, to build more of a cinema-going habit amongst children.
As I say, we are piloting and so we hope by March/April next year
to be able to say this is how it would work with the films and
the film industry. But we will still be casting around for the
funds to deliver it in the next CSR.
Helen Southworth: If you are looking
for somewhere to pilot it, Warrington would be a very good place.
The reason I was asking the question is I have been prompted by
young people in my schools who are saying, "What is being
done?" so that we can develop creativity. Thank you.
Q592 Chairman: You say that you are
commissioning the research into the potential for enhancing access
to British films. Digital channels have been around for quite
a long time now. Why are you only commissioning research now and
why have we not got a UK digital British film channel, when we
seem to have channels available for horror films, science fiction
films and every other niche genre imaginable?
Mr Till: It is an evolution rather
than a revolution, but there is a change. In terms of pay television
there was the Sky digital revolution obviously, and probably the
worst thing that happened to the British film industry in the
last 20 or 30 years (which it is important going forward is not
repeated) is the deals that Sky did at the end of the 1980s/early
1990s where they did very rich deals with the Hollywood studios
to try and get the best of the American films and then following
the merger with BSB, having consolidated that and having got the
prime movie channel, then chose to neglect British films. I think
over the last what must be now 15 years the British film industry
has suffered dramatically from not getting a fair price out of
the pay television window. Going forward, obviously there is going
to be a dramatic evolution and it will be literally hundreds of
film channels and a blurring between a film channel, a pay movie
channel where you are paying either a monthly subscription or
part of a subscription package, to video on demand and near video
on demand, to absolute fragmentation, and it is vital going forward
that the British producers and distributors get at least parity
with the American studios in their deals with the various providers
of the video on demand film channels.
Mr Woodward: Also the conceptual
leap that we all have to make is, to try and look five or 10 years
ahead, and we need to probably stop thinking about films being
delivered by channels because the future will be about the availability
of a massive number of films of which British films, we hope,
will be an important part. For the consumer/for the viewer the
key issue is going to be the way in which those films are electronically
ordered for the viewer to look at in terms of the context of the
films, how they are packaged together, and the electronic navigation
to get the viewer to the right screen which says "here are
the best of British films" for example. What we have to move
away from is delivering films to British viewers, possibly British
cinema, in terms of a linear television channel because that is
fundamentally where the industry came from in terms of electronic
delivery of films but that is also where it is moving away from
now. The future is about unlimited choice and the future will
largely be controlled by the platforms who have the job of organising
the data for viewers to make their buying decisions, so the issues
around EPG, which I know you have looked at before, pertain to
the film industry as much as they do to other areas of entertainment.
Q593 Chairman: When we move to an
on-demand world will there be a role potentially for the Film
Council in making available British films?
Mr Till: I hope so. We do not
so much make them available; obviously what we try to do is encourage
British films commercially within the market context. I cannot
foresee a role where the Film Council will say to government,
"Can you dictate the windows and the sequences and the pricing
policies of the various windows," because I think it is a
market. I think the Film Council will need to be more active in
trying to influence and publicise and put the spotlight on certain
issues.
Mr Woodward: Piracy would be a
very good example, Chairman.
Chairman: That leads very neatly into
Rosemary McKenna's questions.
Q594 Rosemary McKenna: First of all,
can I say how much I agree there is a huge opportunity for the
British film industry. However, I think you have to move a lot
quicker. There is a huge catalogue, is there not, of films that
people have not been able to see because of the windows being
so narrow and being pushed out? I think there is a real opportunity
and I hope it is successful. However, those opportunities have
threats as well and that brings us on to piracy, as you mentioned.
You said, Stewart, in your Annual Report that it was a "rampant
pestilence".
Mr Till: Yes.
Q595 Rosemary McKenna: So you want
a drive for IP education and awareness. What are you doing in
that area to make people aware of the criminal aspect of what
they are doing?
Mr Till: Let me, if I may, tell
you the size of the piracy problem and I will hand over to John
to give you some specific thoughts that we have. We calculate
that over £800 million was lost last year, and as much as
one in four/one in five of every pound spent by the consumer in
the UK on film product—going to the cinema or buying or
renting DVDs—was on illegal pirated product, and that one
in four people watched a pirated DVD, and these numbers are only
growing. It is not only in the UK but particularly in the UK and
particularly in Germany within Europe, and it is absolutely a
pestilence and we make no apologies for the emotion of that. It
is a huge problem and growing at very ugly rates.
Mr Woodward: I think to a point
it is accepted in the film business that there is no one magic
bullet to deal with piracy. There are three and they all need
to be fired pretty much simultaneously. The first one is about
people in the business changing their business models in the way
that the music industry has had to change its business model because
piracy is going to move away from physical DVD sales over time
to on-line piracy. The brutal truth is that if you do not give
people the opportunity to buy something in an easy and convenient
way on-line, then the evidence suggests that a large number of
people will steal it. So the industry itself has to react and
change the way it operates in order to be more consumer friendly.
I think that is something the industry is doing and, as Stewart
said, it is an evolution rather than a revolution and people are
very keen in the film industry to learn from the mistakes of the
music industry. I think that is bullet number one. Bullet number
two is about education and awareness. That is very much about
teaching consumers, the public, children, to respect intellectual
property, to understand that stealing a film is as damaging to
the owner of that intellectual property as the theft of anything
else, which is why one of the things we will be using the digital
film club for, we hope, is to take that intellectual property
message into schools, for example. The industry is grouping together
at the moment around the theme of "respect creativity"
as a kind of tag-line. We will be doing a lot of messaging and
marketing over the coming months and years to try and push that
message home. That would be the second bullet and is also a bullet
for the industry to make the running on. I do not think industry
would say it is the role of government to do their advertising
for them to protect their own assets. Where, however, we would
suggest there is a role for government is in the third bullet
which is about enforcement, and I think, to be candid, we would
suggest to you that there is more that might be done by government
in terms of tougher enforcement to sit alongside education and
improved business models. There are particular issues that the
industry has flagged in the past which still remain to be resolved.
In no particular order and very briefly I would mention tougher
enforcement around what are technically called "occasional
sales", what I would call car boot sales. There are thousands
of them up and down the country each week and they are a major
source of physical piracy. We think there is probably an argument
to move towards a review of the damages system to allow for exemplary
damages in the case of copyright infringement, which is not possible
at the moment. We would also suggest that trading standards should
be given powers to enforce copyright infringements in a way that
they are not currently. Fourth and perhaps most obviously of all,
it is still, remarkably, not an offence to go into a cinema in
Britain and camcord off the screen, which seems to us to be not
sensible. We would suggest criminal legislation which would enable
prosecution of people going into movie houses and recording off
the screen for commercial gain to make that a criminal offence.
I would say those, very briefly, are the four big issues that
we believe government has a role in taking forward and obviously
they are things that the industry of itself cannot do.
Q596 Rosemary McKenna: Is it not
really too late? Young people just think it is great fun. I think
the problem is that young people do not see that what they are
doing is taking away anything from anyone. They do not see it
as stealing, which it is, they are stealing from the people who
have created it, and there is a feeling that this is okay and
the same with the car boot sale thing. There is a real problem
there in getting that message across.
Mr Till: Absolutely, that is why
if we were just going to rely on education it would not be enough.
I think you can persuade some people and I do not think you should
give up on the education message, and that is why it should be
and is one of the three planks, but it has got to be alongside
legislation, government action and the industry doing better business
practice.
Q597 Rosemary McKenna: I think the
recording industry discovered that. They spent a lot of money
campaigning against downloading and discovered that they really
had to get involved in selling it. What about simultaneous release;
Spielberg did that?
Mr Till: There have been some
instances, absolutely. The good news about the film industry is
the music industry obviously had a model for decades of retail
sale where they made the product, they put it onto a carrier—vinyl,
CD, cassette—and sold it through stores. The film industry
already obviously has a culture of selling films to the consumer
through a myriad of windows from free, and pay television, cinema
and DVD, so already they are not obsessed about only retail distribution.
I think the challenge facing the film industry is to be smart
and clever about how it organises its window, which is really
only about two factors, timing and pricing. It needs to be very
careful because obviously simultaneous releasing has been experimented
with. The big, big danger obviously is that that could be to the
dramatic detriment of cinema going because cinemas have a very
heavy fixed cost, by definition. We are doing some research into
this, but intuitively we know that if cinema admissions went down
10% or 20% or 30% it would have a much more significant impact
on cinemas than those sort of percentages because of their fixed
costs, at a time when cinema admissions around Europe are increasing,
so it is not as if the consumer is turning his or her back on
cinemas. I would be nervous personally of simultaneous day and
date. Absolutely it would impact on piracy but I think it could
be to the detriment of cinema-going and cinemas. Cinemas obviously
play an incredibly important cultural and commercial part in this
country's entertainment landscape.
Q598 Rosemary McKenna: It is about
getting a balance. Going to the cinema is an evening out and people
do that. Downloading is something that they would do to watch
at a different time. Is there not a balance to be struck?
Mr Till: There is. Absolutely
there is a balance and obviously different balances for different
people in different social situations. I just feel intuitively
that if you went day and date cinema and VoD that would be to
the detriment to some degree of cinema. Obviously people still
go for the social occasion but I think it would be dangerous to
do that. That is the value about timing. Pricing is important
as well. Because the web is a worldwide web decisions are going
to have to be made in the context of worldwide releasing because
obviously what happens in the UK is only part of the impact, particularly
on piracy, and we have already seen much more worldwide simultaneous
release dates and we have seen a closing of the gap between cinema
and DVD and on-line. However, I do not think anyone, as yet, has
got the optimum situation and everyone—British film industry
and Hollywood—is looking at it. I have to come back to where
we came in. If we get it right then we are in a very attractive
position because I do believe that digital will mean more availability
and therefore more demand, particularly for Britain and the British
film industry, but if we get it wrong and get the windows and
the pricing wrong we could cannibalise our industry.
Mr Woodward: Following from that
there are cultural and social benefits to the community from cinemas
as places that people gather, and I think our concern would be
that if the operating margins of cinemas are tight, and if we
start to lose cinemas, we also start to lose in a sense, the USP
of what a film is because what differentiates a film from a television
programme or a single drama is the impact and the scope and the
scale of the way that product is released in the market place
and the impact that the cinema release gives it. So in the short
term it might be in the interests of rights' holders to spend
less time and energy and care with their product in the cinema
in order to increase their on-demand revenues but this balance
is important because if it goes too far the wrong way, you end
up potentially killing the golden goose.
Chairman: We have nearly covered all
the areas we wished to talk about but I will bring in Alan Keen
quickly.
Q599 Alan Keen: You have just been
explaining the things I was going to ask about. Who is it who
is making the decisions? How much do the people who make the films
care about the cinema aspect of it? Obviously you have just been
saying it could damage the whole industry if the balance is not
right. Are you confident that the producers of the films are really
aware of what is happening? Are you aware of discussions? Are
there discussions going on or is it just marketing people who
are going to make the decisions?
Mr Till: Certainly the volume
of the debate is deafening and whatever decisions will be made
will be made very publicly. That does not mean necessarily they
will be rational and smart and sensible decisions, but obviously
everyone hopes they are. There is an emotional commitment to cinema
from a marketing perspective. It is still the platform that launches
the film. It is where the marketing money is spent. It does differentiate
it from high-quality television, as John said, and films are still
made. I am sure 999 directors out of 1,000 when they make their
films, if they have one vision, it will be for the cinema screen
rather than the television screen. People are committed emotionally
but it is important that the industry worldwide does make the
decision that produces the highest aggregate of revenue. Obviously
in a commercial industry that is their motivation, so the hope
is that there will be a rational conclusion.
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