Culture, Media and Sport CommitteeWritten evidence submitted by the British Film Institute

1. Introduction

1.1 The British Film Institute (BFI) welcomes the opportunity to contribute to this inquiry. This is a crucial time for the creative economy; the reality of convergence is upon us and the resultant challenges and opportunities are creating a great deal of flux in the market. Digital has already provided the means to greatly expand access to film culture and to our heritage. Emerging business models are disrupting the traditional supply chain and while companies experiment with different models to exploit technological developments and consumer trends the future is unclear. This is certainly true in film production, distribution, exhibition and archiving, where much attention is being given to exploring the effects of windows, video on demand and digital cinema and how to fund films in this environment. Access to finance remains a significant issue for the film industry, throughout the value chain. Within this context the BFI, as the lead agency for film in the UK, has a vital role in supporting film within the wider creative economy and doing what it can to ensure that the UK remains a global hub for film making. By supporting British film makers to exploit their IP and build sustainable businesses we can make a significant impact. We note that the recently published Heseltine Review refers approvingly to the Dutch approach of identifying leading sectors to drive growth in the economy and that they specifically include the creative industries.1 A similar approach, with specific prominence given to the creative industries would be welcome in the UK.

1.2 The film industry can deliver growth to the economy and current figures paint a healthy picture. An Oxford Economics report2 into the economic impact of the film industry demonstrated that the core UK film industry supports 117,400 Full Time Equivalent (FTE) jobs, contributes over £4.6 billion to UK Gross Domestic Product (GDP) and over £1.3 billion to the exchequer. Film exports were a record £2.1 billion in 2010 and the average net trade contribution since 2000 has been £380 million. These figures are good for film, but also are good for the whole creative economy. For every person employed in the core UK film industry a further job is supported through indirect and induced multiplier impacts so the jobs created in the film industry also support people employed in companies supplying the film industry.

1.3 But this success is not guaranteed for the future. Film is an increasingly globally competitive industry and in the UK we punch well above our weight creatively, culturally and economically. But in a competitive marketplace where money and talent are in high demand, we will have to fight to maintain this position. Emerging markets are beginning to compete with us on several fronts, notably India and China on skills for the post production and visual effects sectors. We need to ensure that we remain competitive, whilst also looking at how we can seize new global opportunities for film funding, co-production and distribution of British content.

1.4 The digital revolution is having a huge impact on the audience too. Access to film has never been easier and the BFI is playing its part with a plan to digitise and make available a further 10,000 titles from the BFI National Archive and significant Collections around the UK. Digital cinema should enable a more diverse range of titles to be made available in more places around the UK and what the market on its own cannot deliver, the BFI will assist with its ambitious programme to create audience hubs and build the network across the UK. If we can increase the market for films, particularly British films, then we will help secure bigger returns on investment which can be re-invested in British film.

1.5 The regulatory environment is essential in creating a place where people can do business and in the context of the Government’s Communications Review the BFI have urged more to be done to increase or maintain the broadcasters’ contribution to film both in terms of production, distribution and securing the archive for the nation. In addition we have urged the Government to think about the current competition regime for content and whether the scope can be amended to make it more fit for purpose in a digital age.

About the BFI

1.6 In 2011 the BFI became the lead organisation for film in the UK. Its mission is to ensure that film is central to our cultural life, in particular by supporting and nurturing the next generation of film-makers and audiences. The BFI serves a public role which covers the cultural, creative and economic aspects of film in the UK. We have a turnover of £100 million a year. We are the principal lottery Distributor for film and make available around £60 million of Lottery money per annum to support skills, development, production, distribution, exhibition, education and film heritage.

1.7 The BFI launched Film Forever, its plan for 2012–17 on 3 October. The plan sets out our vision and the practical steps that we will take to achieve it. The strategy is based around three strategic priorities:

expanding education and learning opportunities and boosting audience choice across;

the UK;

supporting the future success of British Film; and

unlocking film heritage for everyone in the UK to enjoy.

1.8 Many of the themes in our forward plan mirror the issues raised by the select committee in this inquiry and the rest of the response addresses each of the key issues raised by the Committee.

2. How to Best Develop the Legacy from the Olympics and Paralympics

2.1 The Opening and Closing ceremonies of the London Olympic and Paralympic games were cultural and creative feasts and clear demonstrations to the world of the depth and breadth of creative talent that can be found in the UK. The impressive organisation of the games exhibited our ability to put on a show, and also demonstrated that we have the infrastructure and talent to get things done efficiently and effectively; from large construction set pieces to tiny elements of detail, the UK is an excellent place to do business. The ceremonies also included excellent examples of our visual effects industry, our post production facilities and a host of other creative output.

2.2 The games created a shop window through which we could show the world our strengths. The value of the film industry is that it does the same thing week in and week out through the export of high quality British Films. Films depicting the UK generate around a 10th of overseas tourism revenues worth around £1 billion to UK GDP. References to British films such as “James Bond”, the “Harry Potter” series and “Chariots of Fire” were included in the opening ceremonies in large part because these are stories that resonate throughout the world and attract people to the UK. Half of the top 20 global box office successes of the last decade are based on novels by UK writers; films based on stories and characters created by UK writers have earned more than £12 billion at the worldwide box office.

2.3 In “Film Forever” the BFI highlights the importance of global exports and inward investment. We are keen to make a tangible difference to these activities in a comprehensive and strategic way and announced increased funding for film exports to support the promotion of British films and film talent at key film festivals and in international markets. We are developing with other key partner organisations a new international strategy and our ambition is to position the UK to maximise its place in a global marketplace and reap rewards for the sector to deliver commercial, creative and cultural exchange through increased focus on inward investment, exports and co-production, as well as championing UK film skills and talent. But we must be realistic about the resources available to deliver this. One of the key legacies from the Olympics could be to target resources flowing back from the Olympics to target key markets like China and Brazil and achieve our ambition. We want be at the vanguard of working with partners to shore up investment from these territories in a variety of ways.

2.4 The more that the Government can do to utilise its international networks and support the industry globally, the more that we can capitalise on our more popular brands and enable newer players to establish themselves and gain traction in other markets.

3. Barriers to Growth in the Creative Industries

3.1 Despite advances in technology and how it is used, both in production and distribution, film remains capital intensive relative to most other forms of creative endeavour. In addition to the issues identified around tax, noted at Section 5 below, there are significant problems in relation to access to finance including digital disruption causing uncertainty for those selling distribution rights around the world to finance films, sales of rights, notably because of the decline of DVD. There has also been a marked decrease in the number, scale and range of commercial providers of equity and debt to fund film projects. There are broader challenges around securing investment in new business models for the digital age. There are also issues with intellectual property notably relating to copyright infringement and theft which are noted in Section 4 below.

3.2 Film is a complex industry that the majority of financial institutions struggle to understand. Dealing as it does with the creation and distribution of intellectual property, it relies on providers of finance that understand how to value, securitize and monetise such property. This is especially the case within the fragmented film value chain that characterises the UK’s independent film sector.

3.3 UK small and medium enterprises (SMEs) in general have experienced greater difficulties than their larger counterparts in accessing finance primarily due to the higher risk they represent. For SMEs in creative industries these difficulties have been particularly acute. As SMEs suffer from long-standing challenges in accessing bank and equity finance they have historically been the main target of government action to ease access to finance, but many of those interventions have not benefited the UK Film Industry. While the UK Film Tax Relief and the Enterprise Investment Schemes (EIS) are valuable means of supporting individual film productions, there has been negligible support to help broaden access to finance for the production of slates of films, the domestic distribution and international distribution of films made in the UK or the growth of the corporations that finance, produce, export and distribute UK films; essential building blocks of a successful UK film industry. In particular, the BFI is planning to undertake detailed work to establish what kind of public policy interventions might help stimulate investment across slates of films and support corporate growth.

3.4 There is also a need for access to financial and business advice to support sustainable growth. What is in short supply is strategic business advice, not transactional expertise; there is plenty of the latter available.

3.5 There are also barriers to growth caused by the lack of high-speed broadband. More than any other popular form of content, film is reliant on fast and reliable broadband services to enable online distribution, given the large data requirements: it is audiovisual in nature, feature-length films often run to more than two hours in duration, and consumer expectations of high picture and sound quality are typically higher than for other forms of audiovisual content (such as TV programmes). Our understanding is that minimum bandwidth requirements of 3Mb/s are needed to provide DVD-quality pictures. For these reasons, the rollout of superfast broadband in the UK will have a significant effect on the film sector throughout the UK and its absence in certain areas represents a barrier to growth.

4. Intellectual Property and Growth

4.1 The BFI wants to see an intellectual property framework that benefits the public, audiences and users in research, education, industry and archiving alike, whilst providing effective protection of the interests and investment of rights holders, notably by stemming copyright infringement and theft online In practice, this means ensuring that copyright legislation affecting film achieves the right balance between access and protection. It is now almost six years since Andrew Gowers’ report for the previous Government on intellectual property was published and yet there has been very little legislation introduced in the meantime to update the copyright framework and even the legislation that has been introduced (the clauses relating to online infringement in the Digital Economy Act) has not yet become operational. There is an urgent need for Government action to ensure the intellectual property framework is fit for purpose in the digital age.

4.2 Increased access to film within the framework of the law will have many significant benefits such as helping the BFI and other archives across the UK to make more of the materials they hold available. This will benefit the public, learners, film culture and the creative industries. That is why, for example, we support the proposed measures on orphan works which are contained in the Enterprise and Regulatory Reform Bill.

4.3 As an organisation which invests public money in the production, distribution, exhibition and archiving of films, the BFI is keenly aware that copyright infringement and theft is damaging to the interests of rights-holders and the creative community as well as to citizens generally. Such illegal activity was estimated to cost the UK film sector €308 million in 2008. It is crucial that rights holders are able to make their films available to audiences secure in the knowledge that there is a robust legal framework in place which is designed to significantly reduce copyright infringement and theft—both online and offline. In previous submissions to Parliament, the BFI has broadly welcomed the announcements by Government regarding the next steps for the implementation of the Digital Economy Act (DEA) in respect of measures to curb online copyright infringement, and we wish to see rapid implementation of the measures to significantly reduce online copyright infringement that are contained within the Act. But we have major concerns about the costs of participating in the scheme which has been developed by Ofcom—these costs are such that they would seem to preclude all but the biggest companies from taking advantage of the DEA provisions.

4.4 A key policy objective should be to ensure that new measures are suitably future-proofed so that they are broadly capable of maintaining their relevance given the pace and breadth of change, especially as regards the way in which people wish to use, learn from and share material in a digital age. Like the Government, we strongly believe that all policy should be evidence-based.

5. Taxation

5.1 The Film Tax Relief has been an undisputed success story; supporting the UK film industry and the UK economy. Without it, we estimate that UK film production would be reduced by 70% and there would be an associated average loss of around £600 million per year of total UK film production of which £500 million would be inward investment. The BFI is supportive of the proposed new tax reliefs for animation, high end television and video games and has co-operated with the Government in devising the draft cultural tests. The BFI currently administers the film cultural test and we have offered to carry out the administration of the new cultural tests on behalf of the Department for Culture, Media and Sport, subject to receiving the appropriate resources to do so.

5.2 We expect these new reliefs to have a positive effect on the overall UK content production market but advocate a full evaluation of the effect of the three new reliefs before proposing any further areas of expansion; we need to test the impact of these reliefs, how they work together and how they affect the market. With four reliefs working alongside each other it is important to ensure a net benefit to the UK before proposing further additions.

5.3 There are other non-sector specific tax reliefs such as Venture Capital Trusts (VCT), Research & Development (R&D) and Enterprise Investment Schemes (EIS), which can support the creative economy. The BFI would advocate more exploration about how all these reliefs could be amended to continue to support the creative economy. Of these schemes, EIS is the most beneficial to parts of the film industry because it creates a significant opportunity to attract venture capital for film production. We welcome the recent increased in the value of EIS to investors, the amount that individuals can contribute, and the annual limit on EIS.

5.4 The BFI welcomes recent statements and reassurance from HM Treasury about the legitimacy of EIS schemes and will actively work with the Government to address the perception problem about the validity of these schemes.

5.5 As part of our international strategy, we have identified some key global territories with the most opportunities to secure investment. We would welcome support from the Government in the next phase which is conducting research into really understanding the fiscal value that can be secured through targeting investment opportunities. As part of this strategy, we would also like to explore with the Government whether the fiscal incentives can be adapted to better serve co-production films which don’t tend to attract this investment. Co-production could be the key to unlocking investment from emerging global markets and help us develop a mixed ecology of film investment not overly reliant on one market.

5.6 In addition, more could be done to support philanthropy in relation to Film. The BFI welcomes the new Cultural Gifts Scheme but remains concerned that it will target a narrow definition of “cultural” works which won’t properly reflect the cultural significance of film. The BFI National Archive, along with other film archives throughout the UK, plays a vital role in safeguarding audio-visual heritage. We urge the Government to either consider an extension of the definition to properly embrace film, or create an additional scheme to incentivise the donation of archive footage and film rights to film archives with the BFI playing a significant role.

6. Skills

6.1 Skills are the bedrock of the creative economy and the breadth and depth of the talent base is fundamental to the UK’s ability to compete internationally now and in the future. In our future plan we set out our proposal to partner with Creative Skillset (the Sector Skills Council for the Creative Industries) and the Department for Business, Innovation and Skills (BIS) to develop and execute and advocacy plan to help ensure that investment is adequate. We will also develop a skills strategy based on three priorities: developing new high quality talent; skills that keep pace with technological developments; and entrepreneurship and business skills.

6.2 But we believe that some more fundamental questions need to be raised about supporting skills development. There needs to be a focused and targeted approach to supporting skills needs in growth industries to further the UK’s economic prospects at home and abroad. The balance of skills investment does not fully reflect growth potential so for example, despite film being a growth area, Film Schools are not yet supported by Higher Education Funding Council for England (HEFCE) in the same way as other sectors are; there needs to be more funding that is better targeted to stimulate growth. As BFI Chair Greg Dyke said during the BFI London Film Festival, “The Government has given real support to the cultural industries which it sees as the growth industries of tomorrow. If that’s the case it’s vital that film, art and creativity are taught alongside English, maths and computer studies because it’s the knowledge of all these essential subjects which is needed for kids who want to go into post production, special effects, games and animation.” This isn’t just about film, it applies across the creative sector where there is a lack of investment in the skills we need to compete internationally. The arts and creativity appear to be marginalised in plans for reform of the curriculum in England. The recent Henley Review of Cultural Education in England underlined the importance of creative and cultural education and noted that “there is a risk that the importance of Cultural Education is devalued unless it is seen as part of the entire curriculum offering for young people”. In addition there is a danger that access to the best schools is becoming increasingly elitist so the Government should look at more ways of ensuring access for all, with particular measures—for example bursaries—to ensure that no one is denied access because of inability to pay. The BFI recognised the significance of apprenticeships to support talent development for all sectors of the creative economy.

6.3 The new tax breaks should serve to encourage more production to the UK. One of the benefits of this will be more jobs created in the industry but one of the issues to contend with will be how to ensure that the skills base is large enough to cope. There may be increased pressure on the skills infrastructure and the whole sector will have to collaborate to grow the pool of skilled people to reap the maximum benefits from the reliefs. The BFI will be at the centre of those discussions and our relationship with Creative Skillset will be key.

6.4 Growing that skills pool starts with talent development. The BFI, working with the National Agencies and Creative England, will work with partners to create a talent network throughout the UK to develop and nurture talent. These will create a network with the National Screen Agencies, Film London, and Creative Skillset.

6.5 In addition we are partnering with the Department for Education (DfE) to deliver a 16–19 film academy which will operate across every region of the UK and this will also be a partner in the network supporting talent. This will complement our new £7 million 5–19 programme for education which is currently being developed. In addition we support the recommendations from the Hope/Livingstone report that propose an increased focus on STEM skills at school and which seek to bring about a better fit between the skills developed at university and the needs of the creative industries, notably the Visual Effects (VFX) sector.

7. Clusters and Hubs

7.1 Creating clusters and hubs facilitates innovation and growth but this shouldn’t be at the expense of widening the creative economy to incorporate skills, talent and perspectives from across the UK. Much of the film industry, for example the production sector, has traditionally been concentrated in London and south east.

7.2 One of the BFI’s key aims is to promote diversity and to ensure that people from the whole of the UK have the opportunity to be part of the film industry as well as experience the rich rewards of watching a wide range of films reflecting their own culture and those of people from around the world. We think that the best way of ensuring this reach is to support hubs and build out networks in a comprehensive approach which delivers for people across the UK. Our strategy aims to build on the best of both approaches in several ways including the education offers outlined in section 6 above.

7.3 The BFI welcomes the Technology Strategy Board’s Catapult programme which will establish a network of technology and innovation centres. We would like to actively partner with the TSB in delivering appropriate support to the film sector to build on the potential for delivering growth and exploring new digital business models.

7.4 Through the development awards and the production awards of lottery money made by the BFI, we aim to support films that reflect the diversity of the UK and its storytellers. For example our new development awards will be available to help production companies from across the UK to build their development slates with creative and financial autonomy. We will encourage applications from companies with a particular genre focus or area of expertise such as working with filmmakers outside London.

7.5 Building audiences is a key element of creating support for the creative economy and the BFI is committed to address gaps in provision through building on the capacity of film network hubs and ensuring reach to wider audiences through initiatives such as community venues for films and the audience network. If the Government pursues the recommendations in the Heseltine Review about devolving increased amounts of funding to the regions, then film should be a key beneficiary as a driver of growth.

8. Public Bodies in the Sector

8.1 The BFI is supportive of the aims behind the Creative Industries Council which was to set up to be a voice for creative industries and focus on areas where there were barriers to growth. While we welcome moves to make the Council more industry-focused it is an anomaly that there is no place for the BFI on the Council given our expertise and remit as the lead agency for film; we think this should be addressed and the BFI should be invited to be on the Council as a matter of priority. The Council should focus its efforts on barriers to growth and the BFI would advocate for a less frequent but more impactful relationship with Government Ministers which is geared around delivering specific actions rather than merely discussing issues.

8.2 The BFI itself has undergone significant transformation in the last 18 months and through “Film Forever” it has articulated a new strengthened vision for public support for the film sector. We have been heartened by the initial reaction to this strategy, which was informed by extensive consultation, and are focusing our efforts on the key priorities outlined in the introduction to this paper. The BFI is committed to being open and transparent and to maintaining an on going dialogue with our partners and the sector; we are holding a series of road shows across the UK in November to talk in more detail about some of the initiatives mentioned in our Film Forever strategy.

8.3 We believe that the BFI (one of the few public bodies operating in both the creative industries and in the cultural sphere) has a strong and positive impact on the creative economy and we will continue to work hard to deliver that value to the film industry, the economy and the UK public.

The BFI would welcome the opportunity to give oral evidence in due course.

November 2012