Culture, Media and Sport CommitteeWritten evidence submitted by the Motion Picture Association

1. The Motion Picture Association (MPA) welcomes the opportunity to make a submission to the CMS Select Committee inquiry into support for the creative economy.

2. The UK has one of the strongest content sectors in Europe and the Government has a key role to play in setting a regulatory and tax environment to attract further investment into the creative sector, which has been remarkably successful for many decades.

3. This is a timely inquiry as the Government has recently made a number of regulatory changes, particularly on copyright, which could affect the audio-visual sector quite considerably. These changes deserve scrutiny from parliamentarians if they are to be implemented correctly.

Introduction

4. The Motion Picture Association is the international trade association which serves the interests of the six major international producers and distributors of films, home entertainment and television programmes (Paramount Pictures Corporation, Sony Pictures Entertainment Inc, Twentieth Century Fox Film Corporation, Universal City Studios LLC, Walt Disney Studios Motion Pictures and Warner Bros. Entertainment Inc.) Our members have been established in the UK for many decades, investing consistently in production and distribution. They have a deep understanding of the creative economy in the UK and a strong interest in its good health.

5. Our members are active across the European Union as well as in the US and globally—and are key contributors towards the nearly 1.5 million jobs across the UK creative industries.

6. MPA member companies produced more than 70 films and television programmes in whole or in part in the UK in 2010, with more than £740 million spent locally on those productions. Beyond its direct and indirect contributions to the economy the film industry plays a key role in exporting British talent and crews worldwide and secures the country’s position as a global creative hub.

Summary of MPA Key Points

7. The MPA wishes to address a number of issues raised by the Committee in its call for evidence. In particular issues relating to:

The extent to which the right taxation environment can support the growth of the creative economy.

The impact on the creative industries of the Hargreaves Review of Intellectual Property (IP) and Growth, the Government’s response to it and the implementation of the Digital Economy Act (DEA).

8. The MPA welcomes the Government’s proposal to introduce tax incentives for video game, animation and television production. This approach provides important and valuable support to the film production sector in the UK and should have similar beneficial effects in these other sectors.

9. The ultimate effect of the Hargreaves Review of Intellectual Property is not yet clear, but it can at least be seen that the process, conclusions and subsequent consultations have damaged rightholder confidence in the ability of the UK Intellectual Property Office (IPO) to manage policy for the copyright sector. While the Government has taken some steps to begin to address the problem of copyright infringement, the Review has ignored this major obstacle to growth in the audiovisual sector. However, the MPA values the work of Richard Hooper on the feasibility of creating a Digital Copyright Exchange in the UK and will continue to support the ongoing work on the proposed copyright hub.

10. The attempt to legislate for copyright exceptions by Statutory Instrument in the Enterprise and Regulatory Reform Bill has caused uncertainty and concern to rightholders. While the Government is to be applauded for listening to rightholder concerns, more consideration of the affected sectors’ views prior to the publication of the proposals would have produced better policy. Any exercise of the power to alter exceptions by secondary legislation should proceed by way of separate instruments and impact assessments for each exception.

11. The length of time taken to implement the Digital Economy Act 2010 is causing substantial continuing loss to the copyright sector and the UK economy in general. The MPA would urge that the processes envisaged under the Act be brought into effect quickly, and that the costs are kept as low as possible so as to ensure maximum participation from rightholders.

MPA Response to CMS Select Committee Call for Evidence

The extent to which the right taxation environment can support the growth of the creative economy

12. As the Committee will be aware, the cost of making films and high-quality television programmes is high. Inward investment by non-domestic film companies is prized, on account of the positive multiplier on the local economy and its contribution to the creation of a sustainable film production infrastructure. In recognition of the important cultural and economic contribution made by the sector and its particular characteristics, tax incentives are commonly used across the globe to support sustainable film production. The MPA participated in the discussions with the UK Government leading to the UK film tax credit, which came into effect in January 2007. We are grateful that the present Government has continued this provision, which has provided a strong incentive for our member companies to maintain their historic investment in the UK. Indeed a BFI commissioned report ,by Oxford Economics, assessing the Economic Impact of the Film Industry states that the core UK film industry will attract between 6% and 8% of global film production over the period to 2015, with much of that from MPA member studios. Spending on inward investment is set to maintain or better its record 2011 level of £1 billion per year. The report also estimates that overall UK film production might be reduced by 71% were there no Film Tax Relief.

13. We therefore applaud the Government’s proposal to introduce a similar tax credit for animation, television production and video games. The MPA’s member studios are prominent in all three fields. Apart from the benefit to the local economy, international productions provide opportunities for the local workforce to improve their skills and be exposed to the newest techniques of production. An application of the tax credit concept to this wider field is welcome and in our view will promote further growth in the UK and wider European creative economy.

14. From a broader business perspective, long-term commitment to such measures by the Government is essential. The ongoing and proven support of the UK Government for the film sector has helped to underpin, for example, the decision by Warner Bros. to invest more than £100 million in the purchase and redevelopment of Leavesdon Studios, which opened earlier this year.

The impact on the creative industries of the Hargreaves Review and the implementation of the DEA

Impact of the Hargreaves Review

15. The high-level objective of the Review—to encourage growth in the UK economy through improvements to the IP system—was praiseworthy. However, the MPA shares the concerns of many other representatives of the content industries that many of the Review’s specific proposals were ill-considered and backed by inadequate cost-benefit analysis—or indeed no analysis at all, notwithstanding the Review’s call for fact-based policy making. It is clear that some of the proposals such as the abolition of certain educational licensing schemes and the removal of the ability of publishers to license non-commercial data-mining are part of a strategic effort from search providers to extend the privileges provided by the E-Commerce Directive, so as to insulate their businesses from liability in general. We have urged the Government to be careful to ensure that in addressing the narrow issue of non-commercial data-mining it does not upset the balance created by the E-Commerce and Copyright Directives.

16. It was disappointing that the Review and subsequent consultations more or less turned their backs on the problem of copyright infringement. Intellectual property theft is a major obstacle to growth in the creative economy in the UK, as elsewhere. Indeed, it is particularly important at a time of technological change, when the returns from new modes of distribution are still small, that copyright content is strongly and consistently protected. There is a great deal of work to be done to improve the practical protection of copyright in the UK.

17. While, the UK IPO raised concerns about data compiled by industry as “lobbynomics” and claimed that there was little reliable data to guide policy, the Review then proposed substantial changes to copyright law. This reversal of the burden of proof strikes us as inconsistent with the principle of evidence-based policy making.

18. Some of the changes suggested during the IPO consultation process have the potential to profoundly impact the entire content sector. Indeed the work of the IPO more generally is very important to MPA member businesses and we believe it should be more accountable to Parliament via regular and transparent reporting of its activities, both in the UK and in WIPO to ensure that confidence in the IPO remains strong.

19. Also the MPA firmly believes that responsibility for the formulation of policy should ultimately rest with government ministers; in particular with the one IP minister with overall responsibility for IP strategy and policy across Government. The MPA believes that a strong IP minister, driving an approach to IP policy based on maximising the economic value underpinned by a robust IP framework, would be best placed to ensure the IPO focuses on this core priority.

20. However, we welcome the work done by Richard Hooper, following on from a recommendation of the Hargreaves Review, to assess the feasibility of creating a Digital Copyright Exchange. This was a well-run enquiry in which we felt that our members’ knowledge and expertise were of genuine interest to the inquiry team. The MPA will continue to support the work on this project in the hope that a worthwhile copyright hub can be developed in the UK.

Changing copyright law without primary legislation

21. In order to make policy in a constructive and efficient way, Government needs to engage with the parts of industry most closely affected by its decisions. The traditional process of developing legislation through consultation papers and Green and White Papers works well to ensure that all interests are taken into account.

22. The proposals on copyright contained in the Enterprise and Regulatory Reform Bill touch upon complex areas of the law. They were put forward with very little consultation with affected sectors. Clause 66 of the Bill (as it now is) proposes that copyright exceptions may be changed by Statutory Instrument. Given the lack of discussion with interested parties beforehand, it is not surprising that this proposal caused considerable concern to rightholders. We welcome the fact that the clause has been clarified to meet the concerns of many (though not all) rightholders.

23. We would recommend, however, that if copyright exceptions are to be introduced by Statutory Instrument, each exception should be the subject of a separate Instrument, each with its own impact assessment, so as to allow for a meaningful debate as to the suitability of each proposal.

24. This episode indicates that the attempt to simplify the legislative process by use of secondary legislation can produce bad proposals and confusion. These contribute to uncertainty, a situation which is always damaging to business and investment. As with the Hargreaves Review, there seems to be a new tone of hostility on the part of Government towards the existing legal regime—which has in fact produced a strong creative sector in the UK and high levels of inward investment.

25. The MPA has enjoyed a very productive and mutually respectful relationship with UK governments over the years. We have had confidence in the UK as a place where our members’ businesses would receive sensible consideration, given our common interest in achieving good conditions for the production and commercialisation of films in the UK. Our experience of the Hargreaves Review and what has since followed has made it less easy for us to be so confident.

Failure to implement the Digital Economy Act 2010

26. The MPA recognises and appreciates the efforts of Government and Ofcom to implement the Digital Economy Act 2010. It has to be admitted, however, that the time it has taken even to get as far as we have does not compare well with the progress of similar schemes in France and New Zealand.

27. The effect of the delay has been—obviously—to expose rightholders to larger losses from copyright infringement in the UK than they otherwise would have incurred. Survey evidence has repeatedly indicated that a substantial proportion of infringing users of file-sharing systems will modify their behaviour in response to warnings of infringement. A recent study of the French HADOPI system on behalf of IFPI has produced convincing evidence that such “graduated response” schemes have stimulated the growth of legitimate sales of music in France. The most recent evidence we have (from 2011 by IPSOS-MORI) shows piracy was responsible for an estimated £511 million of losses in the film and television industry in 2011. A 2009 study by Oxford Economics for Respect for Film (a UK representative body for the audio-visual sector of which the MPA was a member) indicated that the annual saving for film and television rightholders would be £142 million, were a graduated response system introduced in the UK.

28. The MPA would urge that the principles and processes enumerated in the Digital Economy Act be brought into practical effect as quickly as possible and that every effort be made to ensure that the cost of using the system be kept as low as possible, to ensure maximum participation by right holders.

29. We also support improvements to the judicial system to allow site blocking orders to be obtained more efficiently under section 97A of the Copyright, Designs and Patents Act 1988, especially taking on board the High Court decision requiring a number of ISPs to block access to the pirate website Newzbin2.

30. Likewise, we support Government’s efforts to tackle online copyright infringement including addressing the activities of rogue websites, reducing the potential for consumers to be led to illegal sources of content by search engines and attempting to involve online payment processors, as well as the online advertising industry with which discussions are well advanced. We strongly welcome these discussions which the MPA are pleased to be part of. We would suggest that, as with the introduction of codes of conduct for collecting societies proposed in the Enterprise and Regulatory Reform Bill, a “back-stop” legislative power to impose codes of conduct on such commercial operators would hasten agreement on fairer and more effective burden-sharing in this area.

November 2012