House of Lords - The British Film and Television Industries

The British Film and Television Industries - Communications Committee Contents

CHAPTER 1: The British Film industry

11. This chapter presents a brief history of the British film industry, focusing on the key issues that have continuing relevance to the success of the industry. It then summarises the current state of the industry, looking in turn at the three distinct but related sectors of the industry: production, distribution and exhibition.

The history of the British film industry

EARLY HISTORY

12. The cinema as an entertainment industry emerged from a series of innovations in the late nineteenth century, mostly in the United States, France and the United Kingdom. In the UK, filmmakers established small studios to produce short films for use by travelling showmen and in music-halls. In the first decade of the twentieth century, more than 30 film studios were established in and around London. British films rapidly established a substantial share of the market at home and abroad, including some 15 per cent of the American market by 1910[2]. This initial success rapidly faded as American production took off, with expensive and heavily marketed feature films. The industry's share of its home market fell from half to less than 10 per cent by 1914[3].

13. At the same time as film production was waning, cinema going flourished as a pastime of the British public. Investment in cinemas surged, with the founding of many new companies and investment of £1.5m (£140m at current prices) in cinemas in 1908 alone[4]. The Government recognised the potential of the film industry, initially as a source of revenue, when it included cinema, together with other entertainments, such as music hall and theatre, in the Entertainment Tax, introduced in 1916. The rate, which was initially set at between 25 and 50 per cent of the price of cinema tickets, was reduced in the 1920s and then raised during the Second World War. It was finally abolished in 1960.

FIRST GOVERNMENT SUPPORT

14. By 1925, British film production had declined to a point where fewer than 40 feature films a year were being made, compared with over 150 in 1920. The vast majority films shown here were American. In May 1925, Lord Newton raised the issue in the House of Lords, citing "industrial, commercial, educational and Imperial interests" involved, and calling for a Committee of inquiry[5]. In 1927, the Government recognised the importance of film production to the British economy and its role in stimulating exports of other goods and services and acted to protect the home market from American domination by means of the Cinematograph Films Act 1927. The Act recognised the interdependency of production, distribution and exhibition, and sought to encourage home production by setting quotas for British-made films[6] to be met by both distributors and exhibitors. The Act was a success, in the sense that production of films in the UK more than doubled by the end of the decade, and resulted in the establishment of several new production companies, including British International Pictures at new studios in Elstree, Warner's studios at Teddington and Fox's studios at Wembley[7]. But it was also blamed for creating a market for poor quality, low cost films, churned out to meet the quota requirements (so called "quota quickies").

THE CHALLENGE OF AMERICAN FILM EXPORTS

15. While the Government was quick to recognise the domestic importance of the film industry, and particularly film production, the American authorities were even quicker to recognise its importance as an export industry. American missions abroad were reporting on foreign film market opportunities as early as the 1910s. In 1926, Congress appropriated $15,000 to set up the Motion Picture Section within the Bureau of Foreign and Domestic Commerce of the Department of Commerce, which collected market information through 44 foreign offices and 300 consular offices.[8] The Section also appointed a Trade Commissioner in Europe. At the same time, Harvard Business School started to offer seminar series in the business and management of the film industry, and several other American business schools and universities followed. Domestically, the film industry was responsible for about 2 per cent of over-all U.S. GDP-growth and about 3 percent of overall productivity growth between 1900 and 1938.[9] The Hollywood studios generally broke even on the American market and derived their profits from export revenues.

FIGURE 1

Number of feature films produced in the UK, 1912-2008

Source: 1912-2000: Screen Digest; Screen Finance; British Film Institute. 2001-2008: UK Film Council Statistical Yearbook 2009 (including revised figures for 2002-2007).

Note: The films are all feature films, made in Britain, including co-productions and films made with inward investment.

THE 1930S: BOOM AND BUST

16. The arrival of "talkies" in 1928 had a positive effect on British film production. Their films were protected in the home market and, unlike the French and German film industries, able to compete with American sound films without the need for dubbing. The result was that the industry experienced a boom. The most successful British film production company was London Film Productions, founded by an immigrant from Hungary, Alexander Korda. The company's breakthrough success was The Private Life of Henry VIII (1933). The success of this film in the US helped Korda to establish an alliance with United Artists (the first with a large American studio) who had the commercial muscle to finance his films and ensure American and global distribution. However, by the late 1930s, the boom in British film production came to a sudden end. Over-rapid expansion led to bankruptcies. The number of feature film productions peaked in 1936 at just under 200 and fell by two thirds in the next four years (see figure 1).

17. The quota provisions in the Cinematograph Film Act 1927 had been agreed for ten years and the Act contained a sunset clause. In 1936, the Government set up a Committee chaired by Lord Moyne to investigate what assistance the industry required[10]. Moyne warned of the dangers of foreign (meaning American) control of the industry, particularly the exhibition sector, and recommended both that financial institutions be encouraged to fund film production and that quotas be extended for a further 10 years. It also condemned the "quota quickies" and recommended that the quota rules included a quality test. The Cinematographic Films Act 1938 confirmed the retention of quotas, at 15 per cent for distributors and 12.5 per cent for exhibitors. This was intended to encourage bigger budget films, which could compete internationally. It also encouraged American film companies to make films in the UK, thus getting around the quota restrictions. Warner Bros and Twentieth Century Fox had already established production facilities in the UK. MGM established a British subsidiary, which immediately produced successful films, including A Yank at Oxford (1938) and Goodbye, Mr Chips (1939).

WORLD WAR II AND THE POST-WAR BOOM

18. The British film industry was still in recession at the beginning of the war but, despite the constraints of the wartime economy, it began to flourish. The number of studios available decreased, but cinema attendance rose from 19m a week in 1938 to 30m a week by 1945[11]. A series of popular films were made which helped to shape the image of a nation at war, including In Which We Serve (1942) and Millions Like Us (1943). The immediate post-war years saw a surge in British film production to more than 120 films in 1950 (see figure 1). The numbers were matched by outstanding creativity, with films such as David Lean's Great Expectations (1946) and Powell and Pressburger's The Red Shoes (1948)—the most commercially successful film in the US in its year of release.

19. The 1940s also saw the rise of the first British company to attempt to compete with the Hollywood studios in size and scope. Starting in 1936, J Arthur Rank had built a vertically-integrated film organisation, buying up distributors, cinema chains and production companies. Between 1941 and 1947, The Rank Organisation financed half the films made in the UK, controlled over 600 cinemas and was the largest film distributor. Rank ensured American distribution for their productions and a supply of American films for their cinemas, by securing a 25 per cent stake in Universal film studios through the General Cinema Finance Corporation[12]. Rank provided financial backing to Ealing Studios, which began its series of comedy films in 1948 with Whisky Galore.

20. In 1947, the Government, needing to conserve dollars for imports of food and other scarce commodities from the United States, restricted the Hollywood studios to remitting only 25 per cent of their substantial profits. The Hollywood studios responded by refusing to distribute any new films in the UK. The Rank Organisation tried to take advantage of this boycott by producing a series of high-value films but, by the time the films were ready for release, the dispute was resolved and British screens were flooded with a backlog of American films. Rank's production subsidiary lost £3m. During the 1950s, Rank's film production incurred mounting losses and in 1963 the management took the decision to diversify out of film production and into other areas, such as the joint venture in photocopying with Xerox[13].

THE AMERICAN THREAT AND FURTHER GOVERNMENT INTERVENTION

21. In the late 1940s, the Government had become concerned, once again, about Hollywood domination of the film industry and lack of finance for British film production. In 1948, the exhibitors' quota for main feature films was raised to 45 per cent and the Cinematograph Film Production (Special Loans) Act 1949 established the National Film Finance Corporation (NFFC) to distribute loans for film production. In 1950, the Government introduced the Eady Levy, which was a voluntary levy on a proportion of the price of cinema tickets; half retained by the exhibitors and half going to the makers of films made in the UK, in the expectation that it would be used to fund new British film productions. This arrangement was designed so as not to count as a subsidy under the General Agreement on Tariffs and Trade (GATT), to which competitors could have objected. The Eady Levy was made compulsory in 1957 and remained in place until 1985.

22. During the 1950s, despite the support in place, the British film industry came under increasing competition from new technologies. Increasingly, the public turned to home entertainment, as radio listening reached its peak and television developed. By 1958, eight million households had television licences and many of the film studios were closed or sold to broadcasters[14]. The two major British production companies, Rank and the Associated British Picture Corporation, retreated from the ambitious productions of the preceding decade, and concentrated on war dramas and comedies. The turn of the decade saw the appearance of the Carry On films and Hammer Horror films, which provided low budget work for the British studios for the next 20 years. The James Bond films did the same, but at much higher budgets.

AMERICAN MONEY RETURNS

23. During the 1960s, the availability of Eady funds and American tax legislation encouraged Hollywood studios to shoot more films in the UK. Some American directors, such as Joseph Losey, Richard Lester and Stanley Kubrick based themselves in the UK. The special effects team Kubrick assembled to make 2001, A Space Odyssey (1968) helped to build the UK's reputation for excellence in this area. The production of American blockbusters, Star Wars (1977) at Elstree and Superman (1978) at Pinewood, right up to Moon (2009) made at Shepperton, demonstrated continuing British expertise in special effects.

US WITHDRAWAL IN THE 1970S AND 1980S

24. In the early 1970s, the introduction of an American investment tax credit scheme, new American tax rules on exports and opportunities for Hollywood companies to invest in television led to a severe reduction in American financing of British films. Between 1965 and 1971, annual inflows of American capital for filmmaking averaged £19m. Between 1972 and 1979 they averaged £6m[15]. British filmmakers increasingly turned to period adaptations, such as Murder on the Orient Express (1974), and films based on television programmes, such as Dad's Army (1971). The continued availability of the Eady Levy kept up the number of films made, but the drying up of finance was sufficient for the Government to study once again the requirements of a viable and prosperous British film industry.

25. The 1980s began with a serious industry slump, fewer films being made in 1980 and 1981 than in any year since 1914. The incoming Government removed the special support for the industry: tax rules were tightened, the quota system was suspended in 1983 and the Eady Levy and the NFFC were abolished in the Film Act 1985. The Rank Organisation also withdrew from films, which further reduced the funding opportunities. Despite the rise of Goldcrest Pictures, Handmade Films, Merchant and Channel 4 with a surge of high quality and popular films, including Chariots of Fire (1981), and My Beautiful Launderette (1985), raising British funds was difficult. David Puttnam pointed out to us that he only managed to attract £17,000 of funding for Chariots of Fire from UK sources (Q 746). Through the second half of the 1980s, film production declined, with only 30 films produced in 1989. Several filmmakers switched to production of drama for television.

26. Despite the failure of Rank, the Cannon Group took up the challenge of competing directly with the Hollywood studios. Cannon was active not only in film finance but also production, distribution and exhibition. Cannon bought local distributors, smaller production companies, film catalogues and cinema chains in the United States (where it had a distribution deal with MGM), the Netherlands, Italy and Germany as well as the UK, financed by the state-owned French bank, Credit Lyonnais. For a short time Cannon was a major player in the British film industry, but it overextended itself, leading to bankruptcy.

THE 1990S: RETURN OF GOVERNMENT SUPPORT

27. With film production slow to recover from the low point of 1989, the Government took steps to help the industry. In June 1990, the Prime Minister chaired a one-day seminar on the future of the British film industry. The outcome included commitments to a review of policies to stimulate inward investment and promote British films overseas, and the establishment of working parties on the structure of the industry and related fiscal matters[16]. In 1991, the Government established the British Film Commission. In 1992, it introduced tax relief for production expenditure through the Finance Act. In 1995, it decided to allocate lottery money to film production. At the same time, market conditions improved, with cinema audiences recovering from 98m admissions in 1992 to 164m in 2008[17], following the rise of multiplex cinemas (see figure 2). The video market, and subsequently the DVD market, and the proliferation of television channels interested in purchasing films to show, gave films a significant "tail" revenue and added substantially to films' earning potential (see paragraph 33).

FIGURE 2

UK cinema admissions and number of screens, 1945-2008

Source: Gerben Bakker, Entertainment industrialised: The Emergence of the international film industry, 1890-1940 (Cambridge, Cambridge University Press, 2008), p. 408.

28. The early 1990s also saw another UK-based attempt to break into the international film distribution business, when the Dutch-owned music company, PolyGram, diversified into this area and based the headquarters of its film division in London. This distribution network was fed by films from a variety of production companies in the UK, France and the United States. PolyGram's most important British partner was Working Title, which produced Four Weddings and a Funeral (1994). After nine years of moderate success, Philips Electronics, PolyGram's owner, decided to sell PolyGram to Universal, and the film division, Europe's only international producer-distributor, was absorbed into Universal films. It remains the case that there is no UK-based international distribution company.

THE LAST TEN YEARS

29. The new Government in 1997 took an early interest in the state of the film industry. In the Finance Act 1997 it permitted a hundred per cent tax write-off in the first year for films with budgets of less than £15m, which was intended to help independent filmmakers. In 2000, The UK Film Council was launched, as a non-departmental public body, absorbing a number of public and semi-public bodies involved in supporting the film industry.

30. British film production climbed steadily through the late 1990s to a peak of nearly 180 films in 2002—second only to 1936. This included many accomplished and financially successful films. Working Title, having secured financing and distribution deals with PolyGram and then Universal Pictures, had major international successes, including Bridget Jones's Diary (2001), which earned box office receipts of $254m. While the James Bond franchise continued, a major new series of British-made but American funded films began with Harry Potter and the Philosopher's Stone (2001). Aardman Animations, creators of Wallace and Gromit, made their first feature film, Chicken Run (2000), which also achieved worldwide success.

31. But in February 2004, the Inland Revenue announced that it was closing a loophole in the tax relief arrangements to prevent tax avoidance schemes. These schemes used the provisions in the Finance Act to encourage the investment of lump sums in the certainty of reducing tax liabilities, regardless of whether the film made a profit. The closing of this and other loopholes in 2004 caused the immediate collapse of a number of film projects in production or pre-production at the time, and the resulting uncertainty contributed to a downturn in film production, with employment dropping by 33 per cent between 2003 and 2008.

32. To end the uncertainty, the Government conducted an urgent review of film tax relief and, in 2006, announced the introduction of a new film tax credit, discussed in Chapter 2, to replace the Finance Act 1997 provisions. In the financial year 2007/08, tax relief granted was worth about £105m, which was about 40 per cent of public funding for film in that year.

The current state of the British film industry[18]

33. The film industry can be divided into three distinct but interdependent sectors—production, distribution and exhibition. The aim of this section is to consider how each of these sectors is currently performing in the UK.

PRODUCTION

34. The British film industry is production led. In 2008, the UK was the eleventh largest producer of films in the world, by number of films, and fifth largest, after the United States, Japan, France and Germany, by production expenditure[19]. A total of 111 films were made in whole or part in the UK of which 25 were inward investment feature films, which is to say films financed, and on which the decision to make the film is taken, outside the UK. There were 66 domestic productions and 20 were co-productions. The production expenditure on inward investment feature films was £338m, which was 58 per cent of total production expenditure, with an average cost per film of £13.5m.

Inward investment

35. The British industry is heavily dependent on inward investment, almost exclusively from the United States, and the major productions which this brings (see figure 3). In 2006, spend on inward investment features was £558m or 69 per cent of total British production spend and in 2007 £522m or 68 per cent. The UK's ability to attract inward film investment depends on several factors. Stewart Till, then Chairman of the UK Film Council told us that there were three variables on which Hollywood studios made decisions on where to make a film. The first was the availability of tax relief. The second, and most important was the high quality of the workforce. Mr Till's third variable was the exchange rate (Q 151). Since American films are budgeted in dollars, when the pound appreciates, the UK becomes a less attractive venue for production.

FIGURE 3

Real film production expenditure in the UK, 1992-2008

Source: UK Film Council Statistical Yearbook; 2009: 138. Values have been corrected for inflation using the UK GDP deflator.

36. The Pound-Dollar exchange rate has had great influence on film production costs and decisions in the last few years (see figure 4). The strength of the UK pound during 2007 was a significant disincentive to American producers. Since lead times for filmmakers are a year or more, this disincentive is reflected in the relatively low figure for inward investment spend in 2008. The subsequent fall in the value of the UK pound has seen a bounce back in inward investment in 2009, with expenditure of £686m in the first three quarters of the year, which is about 20 per cent higher than the entire 2008 expenditure[20].

37. The UK actively encourages inward film investment through the work of the UK Film Commissioner. He seeks to ensure that Britain remains an attractive production base for American films by making American studios aware of the resources available to them, including government financial support and professional talent and expertise. He also works with the screen agencies in the UK to strengthen the production infrastructure here.

FIGURE 4

Inward investment in UK film production and the average annual dollar/pound exchange rate, 1992-2008

Source: see Fig 3, and Lawrence H Officer, 'Dollar-Pound Exchange Rate From 1791' MeasuringWorth.org.

British film studios

38. The UK has three large film studios, all in the south east of England: Pinewood, Shepperton (which is part of the Pinewood Studios group) and Leavesden. All have world class facilities and are able to accommodate the filming of several large budget films at any one time. Leavesden is currently used exclusively by Warner Brothers, but there are plans to expand the facilities and make them available to other companies. There are a further seven medium-sized studios (all but one in the south east) and 40 smaller studios around the country. These carry out some film work as well as other activities, such as television and advertising.

Production companies

39. In 2008, the UK Film Council's statistics show there were 202 film production companies active in the UK. Of these, two produced four feature films each, five produced three each, ten produced two each and the remaining 185 produced just one feature film each. So the British production sector contains a few large companies making films with substantial budgets and a long tail of small companies producing mainly low budget films[21]. There are currently seven production companies which have long-term agreements with American studios. For example, Aardman Features, has a first-look deal[22] with Sony Pictures Entertainment, and Working Title, is now owned by Universal Studios. There are two production companies which are film-making arms of broadcasters: BBC Films and Film4 Productions. There are production companies which are also independent film financiers, such as Ingenious Media Investments, and those which have sales and distribution capability. There are also stand-alone independents, such as Qwerty Films.

Post-production

40. The post-production[23] sector is an integral part of the film production process, though it also serves other industries, notably television and advertising. These companies tend to cluster around centres of production, in this case the south east of England, with 90 per cent of activity in and around London, particularly Soho. A survey[24] in 2005 reported that the British film post-production sector was one of the three largest in world, together with the United States and New Zealand, which benefited from the work generated by the Lord of the Rings trilogy. The survey further found that the British post-production sector was growing rapidly both in absolute terms and as a percentage of film expenditure, where in 2005 it represented a quarter of all film production expenditure. Post-production work is easily tradable: firms in Soho can work for clients anywhere in the world, regardless of distance. So firms that produce high quality work are well placed to compete successfully for export business.

DISTRIBUTION

41. As the historical section shows, British companies have struggled to make an impact in international film distribution. The distribution sector has always been dominated by the American multi-national film companies. This is a serious issue for the British industry, in that much of the profit earned on films goes to American companies which have part-financed and distributed them. John Woodward, CEO of the UK Film Council, said that the biggest problem of the British film distribution sector was that it lacked scale. "By and large … we are talking about a relatively small number of pretty small companies. What we do not have in the UK is anything approaching the scale of the Hollywood studio, which has the ability … to select the film, finance it, get it made and then distribute it in all markets" (Q 156). Asked whether a British company could ever compete with the American distributors, Danny Perkins, Optimum Releasing, which has two per cent of the UK market, said "There are some very strong independent companies but they have alliances with American companies. That is the key to it really" (Q 1056). He thought the chances of a Warner Bros or a Universal being created in the UK were "not great" (Q 1057).

42. Films are distributed and consumed in a variety of ways—cinema release, retail sales of DVDs, rental of DVDs, films on television and video on demand. The total market for filmed entertainment in the UK was worth more than £3.5bn in 2008, having peaked at just under £4bn in 2004. In 2008, the UK was the third largest filmed entertainment market in the world after the United States and Japan. The first revenue from a film comes from cinema presentation, but this accounts for only 23 per cent of the total. Cinema revenues grew significantly in the late 1990s, but have levelled out since then. Distribution is dominated by the UK-based subsidiaries of the American studios. In 2008, the six American-owned companies between them had 78 per cent of the market, and the top ten distributors had 95 per cent. The largest UK-owned distributor is Entertainment, which in 2008 had eight per cent of the market, with gross box office receipts of £76m.

43. Few if any films make a profit from cinema revenues alone. Instead they rely on the remaining sources, or "tail" revenues, including merchandising, for real returns. This is one of the reasons why audiovisual piracy, discussed later in this report, is such a major issue for the industry. The biggest single revenue source in the British filmed entertainment market is retail sales of DVDs. Revenue from DVDs peaked in 2004, but they were still the most important revenue source for the industry, accounting for 38 per cent of the filmed entertainment market in 2008. Revenues from showing films on television were the second largest contributor, showing slight growth in 2008. The Video on Demand market remains relatively undeveloped in the UK and makes only a small contribution to total revenues, but this is likely to grow.

EXHIBITION

44. The exhibition sector is similarly dominated by a few large companies, though in this case they are not American-owned. In 2008, there were 3,610 screens (96 more than in 2007) in 726 cinemas in the UK. In 2008, 61 per cent of screens were controlled by three companies: Odeon, Cineworld and Vue. The two largest of these are owned by private equity firms, Terra Firma (Odeon) and the Blackstone Group (Cineworld). Exhibitor revenues, which are made up of box office receipts, concessions and advertising, were just over £1bn in 2008 (three per cent higher than 2007). Although most film are still shown using the standard film print, in 2008, the UK had 310 high-end digital screens, the highest number in Europe, of which 69 were capable of screening digital 3D features.

THE ECONOMIC CONTRIBUTION OF THE FILM INDUSTRY

45. There are various ways of measuring the film industry's contribution to the economy. The basic measure is the gross value added[25] of those companies identified as film companies in the industry statistics of the Office of National Statistics. In 2007, this amounted to £2.5bn, with production accounting for 48 per cent, distribution 36 per cent and exhibition 16 per cent. The 2007 figure was the lowest in real terms since 2003 and a fall of 30 per cent compared to 2006. There are two other estimates, both for 2006, which attempt to take a wider view of the impact of the film industry, and include indirect effects, such as those on tourism. Oxford Economics estimated the "core UK film industry" including flow-on effects to non-film companies (tourism, trade, merchandising), at £4.3bn. By including the business provided to supplier firms, Cambridge Econometrics estimated all film activity in the UK, at £5.3bn.

Exports

46. The British film industry generates substantial export earnings from film rights and film production services. It also imports in both categories, but the film trade has been in surplus every year since figures were collected (the mid-1960s) and thus the industry has been a significant contributor to the overseas account. In 2007, the latest year for which figures are available, film exports were worth £1,050m, of which £646m was royalties and £403m production services. In the same year, film imports were worth £818m, giving a surplus of £232m.

47. The export of production services occurs when overseas film productions use British studios, locations and services, such as visual effects and post-production. Given the flexibility of the labour market in the film industry, due to the prevalence of freelance and part-time working, export of production services make use of spare capacity. Royalty streams do not use up any current British production capacity and so their full value goes into companies' profits.

Employment

48. According to the Labour Force Survey[26] 2009, there were over 35,000 jobs, full-time or part-time, in the film and video industry. Of these, 60 per cent were in film and video production, eight per cent in distribution and 32 per cent in exhibition. This represents a 13 per cent increase in the workforce since 1996, slightly below the average for the overall British workforce, but a decline of 33 per cent from a peak of nearly 54,000 jobs in 2003. The 2005 study of the film post-production and visual effects sector estimated that it provided 4,400 jobs. Employment in the production and distribution sectors is heavily concentrated in London and the south east. Almost half of those working in the production sector are self-employed: in 2008 it was 46 per cent, compared to 13 per cent for the whole British workforce.

Size of companies

49. The number of companies operating in the film and video industries has grown rapidly in recent years, but this growth is almost exclusively in the production sector. In 2008, there were 7,970 companies working in film and video production, as against 1,745 in 1996: more than a fourfold increase. This reflects a sharp increase in the number of small companies in the production business. The proportion of companies with a turnover of between £1,000 and £99,000 is 57 per cent, which is significantly higher than the average for other industries. While in 1996, the film industry had relatively fewer small companies than the UK as a whole, by 2008 the opposite was the case. In comparison, the distribution and exhibition sectors have seen growth in companies and size of companies more in line with the UK as a whole.

Conclusions

50. There are a number of conclusions that may be drawn from the history and structure of the British film industry, which are discussed in the next chapter.

51. The government intervened in the film industry, initially to tax the exhibition of films and then subsequently to protect and support the film production industry. It has been a given for almost all of the last hundred years that it is in the interests of the UK—for economic and cultural reasons—to have a healthy and competitive film production industry and that this requires some government support.

52. The film industry has suffered a cycle of boom and bust throughout its existence despite almost constant government intervention. This has contributed to the emergence of a pattern of informal labour practices, including widespread free-lance and part-time work, which is also found in the television industry.

53. The British industry has been profoundly influenced by the American film industry. The shared language and cultural background has helped those working in film to obtain employment in the American industry or American productions in the UK but the output of the American industry has threatened to overwhelm the UK market at various stages. This is particularly true of the distribution sector, where most profits are to be made.

54. In part to counter the American threat, the government has followed a—largely successful—policy of encouraging American companies to make their films in the UK. This has been assisted by the presence of an English-speaking, skilled labour force that can adapt easily to American working practices.

55. The film industry has been a net contributor to UK exports at least since the early 1960s, largely due to the flow of inward investment, which accounts for about two thirds of average British film production expenditure. This is a reversal of the situation in the 1940s, when the industry's large trade deficit was a concern to the Government.

56. The policy of seeking to attract inward investment has had a positive effect on employment and national income. It has had the disadvantage of provoking a slump in production (and employment) when American companies reduce their production budgets or find more attractive opportunities elsewhere.

57. Despite several attempts, no British company has been able to emulate the American model of a vertically-integrated film company, which has interests in production, distribution and exhibition and can finance its own films. Rank, Cannon and PolyGram have tried and had some success, but they were not able to sustain their position in the market.

58. A model which has proved successful for production companies since the 1930s has been to establish a close association with one of the American majors with the finance and distribution muscle. Under this model, financial independence is traded for financial security but with considerable creative freedom.

59. For fully British independent production companies, finance has always been a problem. The government has assisted, either directly or through encouragement and inducements to potential investors, but the problem remains.

2 Analysis of the annual number of British films in American Film Institute, Catalogue of motion pictures released in the United States. 1893-1910 (New York and London, R. R. Bowker, 1995) Back

3 Gerben Bakker, 'The Decline and Fall of the European Film Industry: Sunk Costs, Market Size and Market Structure, 1895-1926', in: Economic History Review 58, 310-351; 313 Back

4 Rachael Low, The history of the British film 1906-1914 (London, George Allen & Unwin, 1949). Back

5 Political and Economic Planning, The British film industry. A report on its history and present organisation with special reference to the economic problems of British feature film production (London, Political and Economic Planning, 1952), p 42 Back

6 To qualify as British, both the maker (i.e. producer) of the film and the scriptwriter had to be British. The production company had to be legally established in some part of the British Empire, with the majority voting power in the hands of British subjects. Studio scenes had to be shot in a studio in the British Empire and at least 75 per cent of labour costs (excluding copyright payments and the salary of one actor or the producer) had to be paid to Britons or persons living in the British Empire. The quotas started at 5 per cent for exhibitors and 7.5 per cent for distributors in 1928, rising to 20 per cent for both in 1935. Back

7 Warner and Fox: Margaret Dickinson and Sarah Street, Cinema and state. The film industry and the British government, 1927-1984 (London, British Film Institute, 1985), p 56 Back

8 Kristin Thompson, Exporting entertainment. America in the world film market 1907-1934 (London, British Film Institute, 1985), 117-18 Back

9 Gerben Bakker, "Time and Productivity Growth in Services: How Motion Pictures Industrialized Entertainment," Working Papers in Economic History, No. 119 (2009), Department of Economic History, London School of Economics, http://www.lse.ac.uk/collections/economicHistory/pdf/WP119.pdf Back

10 The remit of the Moyne Committee was "to consider the position of British films, having in mind the approaching expiry of the Cinematographic Films Act 1927, and to advise whether, and if so what, measures are still required in the public interest to promote the production, renting and exhibition of such films". Back

11 Office of National Statistics. Back

12 Geoffrey MacNab, J Arthur Rank and the British film industry (London, Routledge, 1992), p. 19-20 Back

13 Sue Harper and Vincent Porter, British Cinema of the 1950s: the decline of deference (Oxford, Oxford University Press, 2003), 35-56, 55 Back