The British Film and Television Industries - Communications Committee Contents

Examination of Witnesses (Questions 853-961)

Ms Gaynor Davenport, Mr Alex Hope, Mr Simon Kanjee and Mr Saul Mahoney

10 JUNE 2009

  Q853  Chairman: Welcome. You seem to be one down at the moment, which is not bad for this morning. Who is missing? It is Mr Saul Mahoney. I am going to ask you to introduce yourselves in a moment and what you do. Basically what we are trying to do is to look at the film and television industries and, in a sense, see what contribution they make both economically and culturally to the UK; and see what can be done to help further, if indeed any help and assistance is required in terms of policy changes. To get us going, could I ask you in a few words just to tell us about your own roles? Gaynor Davenport, would you like to begin?

  Ms Davenport: I am Chief Executive of the UK Screen Association, which is the trade body which supports companies who provide services to the film and television industry. It is quite a diverse sector and, broadly speaking, covers post production, special effects, visual effects, equipment hire, studios and outside broadcast. In terms of the make-up of the sector, as I say it is very diverse. At this time would you like me to go into an overview of the sector?

  Q854  Chairman: No; we will get to your overviews. Mr Hope, you are Managing Director of Double Negative; and just tell us about Double Negative.

  Mr Hope: Double Negative is Europe's largest film only visual effects company. We are based in Soho where the visual effects industry in this country is based. We employ about 520 staff and service both American studio-based films for America and shooting in the UK and a reasonable number of UK independent lower budget productions.

  Q855  Chairman: You think that you are the biggest in Europe?

  Mr Hope: Yes, in staff numbers.

  Q856  Chairman: Is the characteristic of the industry much smaller units—a whole variety of smaller units?

  Mr Hope: I can give you the visual effects overview now, if you like. Basically there are about nine or ten large companies in visual effects globally—and by large I mean employing more than 400 staff, of which three are based in the UK. If you compare that to ten years ago none were based in the UK; so we have seen significant growth in that area and we will supply some outlines on that.

  Q857  Chairman: That sounds very interesting and we will come back to that. Mr Kanjee, let us look to you. You are the Managing Director of Evolutions; tell us about Evolutions.

  Mr Kanjee: Evolutions is London's largest independently owned broadcast post production company. We supply post production services to independent productions companies and broadcasters making television programmes. We have 150 staff; a turnover of around £10 million with 110 edit suites across four sites in Soho.

  Q858  Chairman: Post production takes in everything, does it?

  Mr Kanjee: Yes. Fundamentally we take the tape out of the camera or the disk out of the camera and after a period deliver a finished programme to a broadcaster.

  Q859  Chairman: Just for the record, tell us roughly what that area would include.

  Mr Kanjee: Sitting in an edit suite for a period of anything from two to 12 weeks. In the example of The Apprentice, which is one of the shows we have recently been delivering—

  Q860  Chairman: Not for much longer, I think!

  Mr Kanjee: ... they will spend up to 12 weeks in an edit suite, taking 120 hours of footage from a variety of camera sources and then take that into an online suite where they will spend a couple of days crafting it into a grading suite, where they will change light and colour; and then there is a lengthy audio dubbing process also where we make it sound nice. Then we will add graphics as well. So literally everything from taking raw footage into what you see on your television screens at home.

  Q861  Baroness McIntosh of Hudnall: What about reality television?

  Mr Kanjee: Semi-reality.

  Q862  Chairman: We will go into this as we go through the questions but just give us some idea of the size of the UK post production sector. How big is it in terms of revenue and the rest?

  Ms Davenport: Looking collectively at the services sector or the facilities sector as it is known within the industry—so that is covering post production and effect but also the studios and outside broadcasting, equipment hire, etcetera—we have some 1300 independent companies providing services to the film and television industries. Collectively the sector employs more than 26,000 full time equivalents, of which—

  Q863  Chairman: Your sector does?

  Ms Davenport: Yes. Of which a third of that, just over 9000, are freelance; so individual contractors providing services to the companies. In terms of collective turnover of that sector, it was just over £2 billion per annum in 2008.

  Q864  Chairman: Just to interrupt there, that figure has come from your latest?

  Ms Davenport: From our latest research work.

  Q865  Chairman: Which is not yet published?

  Ms Davenport: It is not published due to the complexity of the sector and because this is the first time anybody has actually attempted to comprehensively map it; so it is taking us a little bit longer to make sure that we get it.

  Q866  Chairman: Since 2003, I gather.

  Ms Davenport: Yes, that is right.

  Q867  Chairman: So is it £2.4 billion or is it 2 billion?

  Ms Davenport: It is over £2 billion and the figure we put in our original submission for evidence was an estimation on where we were at that time with the statistics; so rather than throw in another figure I would rather come back to you. We will be publishing the report by the autumn and sooner if we are able to.

  Q868  Chairman: Are you going up? If you compare it with the last time that there was an authoritative report in November 2003, has there been growth in this area since then?

  Ms Davenport: Broadly across the sector there has. It is impossible for us to do a direct comparison with the previous reports as that looked wholly at the post production and visual effects, whereas this is a much wider report. Overall the sector does show growth and there are areas within the sector that have shown significant growth in that period.

  Q869  Chairman: If you can say this: how does the work break down between film, television and advertising?

  Ms Davenport: Television is definitely the biggest market for the sector; it is roughly half. It is 30 per cent for film activity; commercials production as well is 15 to 17 per cent; then the balance being made up with activities for the corporate sector.

  Q870  Chairman: Of the particular post production activities, which are the most important financially, in terms of revenue?

  Ms Davenport: In terms of revenue and employment, if you look collectively at post production and visual effects it represents 50 per cent of the workforce right across the sector. In terms of high end services within post production you would look to grading the audio services, so the high end work as opposed to some of the commoditised basic services.

  Q871  Chairman: Let me ask the two witnesses on either side of you: are there post production activities in which the UK excels?

  Mr Hope: Visual effects. We won the Oscar last year for Golden Compass. We were nominated this year for Dark Knight. The process by which Oscar selection happens is that they have a long list of seven that goes down to a short list of three and this year half the films on the long list were worked on by UK visual effects companies. If you compare that, as I said, to 1997, that has seen huge growth. There are four principal companies in the UK; their revenues between 1997 and 2004 quadrupled and we hope to be able to demonstrate continued growth—not at that level but sustained and sustainable growth. Just to go on to one of the points that Gaynor raised, one of the challenges that we have in supplying data to you is that this is a rapidly evolving sector. The technology that we are deploying is constantly evolving; the way in which it is used is changing and it changes the practices that our companies employ. When I started working for one of my competitors 18 years ago I did what would now be called TV graphics—flying titles for Barrymore were the state of the art—and now the same technology is deployed for visual effects. So what we are seeking to do is to give you a current representation of our industry and seek to draw comparisons with data that was collected in 2003/2004, but there will be possible anomalies there, which we will seek to explain.

  Q872  Chairman: Are you film only?

  Mr Hope: Yes; our company works exclusively on film. Some of my competitors work on film, television and commercials. The technology we use is the same but the lifecycle of film production will be longer than that of a commercial or a television programme.

  Q873  Chairman: So when you talk about companies in the UK you are saying, are you, that they are ahead as far as Europe is concerned.

  Mr Hope: Yes, absolutely. Today our company employs people of about 32 different nationalities—it fluctuates between low 30s and high 30s. They are drawn from all over Europe—mostly UK but all over Europe—and a smattering from the former Commonwealth and America.

  Q874  Chairman: What about television?

  Mr Kanjee: Television is a much more localised market, given the timeframes involved. So there is very little import or export business for ourselves; we tend to work exclusively for UK-based companies, and equally across Europe that is the case—there is very little movement of production across borders.

  Q875  Chairman: Could you give me one more figure, if this is possible. Do we have any recent figures for post production's contribution to UK exports and inward investment?

  Ms Davenport: Only collectively and not as an export figure—it is a collective figure across the piece—and that would be £800 million of the £2 billion turnover for the whole sector.

  Q876  Chairman: Is what?

  Ms Davenport: Is the turnover for the visual effects and post production sectors in entirety.

  Mr Hope: But in terms of export I would have thought for the visual effects sector that the Film Council would be able to give you the numbers that would reflect that. They do not necessarily publish those but they may be able to help with that. I would suggest that you talk to the office of the British Film Commissioner.

  Ms Davenport: It is something that we have explicitly included in our report.

  Q877  Baroness Bonham-Carter of Yarnbury: Mr Hope, you deal with post production in film.

  Mr Hope: Yes.

  Q878  Baroness Bonham-Carter of Yarnbury: Do you have offices in the United States?

  Mr Hope: No. We have recently opened up in Singapore; we have had an operation in Hungary. Some of my competitors have offices in the States but those are primarily commercials enterprises.

  Q879  Baroness Bonham-Carter of Yarnbury: So something like Framestore, for instance, who know I does have.

  Mr Hope: Framestore have offices in New York; the Moving Picture Company has offices in LA and the Mill has offices in New York. The Mill has just started doing film work again to a small degree, but those are primarily commercials ventures.

  Q880  Baroness Bonham-Carter of Yarnbury: When you are calculating your figures, Ms Davenport, would you take into account offices outside of Britain?

  Mr Hope: We have not been given necessarily by the companies involved a breakdown of turnover by location and the sensitivity of their accounts may preclude that.

  Q881  Baroness Bonham-Carter of Yarnbury: But they go on employing British people, do they, in their overseas offices?

  Mr Hope: British people and locals, yes. It is important to note that all British visual effects companies are working on films for American studios. They will break into two kinds: those that are culturally British and benefit from the tax credit system, and those that come here purely because we are cost effective and do good work. So we are currently working on films with American companies that are not benefiting from the tax credit, and the Film Council does have numbers on that which, as I said, are not published but they should be able to give you an indication.

  Q882  Lord King of Bridgwater: When you said you had some head offices in America, are those sales offices for the production facilities in the UK?

  Mr Hope: They are operational offices, so they are editing suites.

  Q883  Lord King of Bridgwater: You have talked about how price sensitive it is; how much are you affected by the exchange rate?

  Mr Hope: It is a significant driver for film coming into the UK, for film visual effects work coming into the UK. I think that as a sector the UK visual effects industry has responded well to those challenges. You will see that there was growth through the period from 2006 to 2007 when we went up to two to one in the dollar in I think the third quarter of 2006, and you saw growth certainly in our company and the other major companies through that period. So it clearly presents challenges but we are a growth industry, none the less.

  Q884  Lord King of Bridgwater: But it is less of a challenge now because you could grow at two dollars to the pound.

  Mr Hope: The UK visual effects industry has never been busier than it is at the moment and we will see that through the rest of this year and into next year.

  Q885  Lord King of Bridgwater: It would make it sound as though it is not actually price sensitive but it is the quality or service or delivery that you are able to give that is actually getting the business.

  Mr Hope: There are three factors driving it. One is price; the second is the quality of the work; and the third is the scale on which that work can be offered. If you are working on a film like Harry Potter or the Dark Knight—and if I take the Dark Knight as an example—the scale of the visual effects requirement on that film is so large that there are very few companies globally who can deliver it. There are other films where you could get 20 or 30 small companies of ten to 50 people and divide the work up between them. On a film like the Dark Knight where we created a virtual Gotham City and where Framestore created—I do not know if you have seen the film—Harvey Two-Face, who has half his face removed, the complexity of that work means that you need hundreds of people working on it. We had a crew of 180 people at one point working on that film as a team and there are few companies that can offer that service.

  Q886  Lord King of Bridgwater: Have you not already said that there were only four of the bigger companies—

  Mr Hope: In the UK.

  Q887  Lord King of Bridgwater: ... and three of them are British.

  Mr Hope: Framestore, the Moving Picture Company, Double Negative and Cinesite; and in America you have Industrial Light and Magic, Digital Domain, Sony Imageworks, Rhythm and Hughes; and in New Zealand you have Weta. There are other companies like Pixar and Animal Logic. Pixar is exclusively focused on long form animation and that is the direction in which Animal Logic are going in Australia.

  Q888  Chairman: So that we all know what we are talking about—and I think we do—is it possible to give the briefest summary about what visual effects incorporates?

  Mr Hope: Visual effects can be defined as anything that you see in a film that you cannot shoot with a film camera and is then created in post production. So it might be something as small as removing the blemishes on an actress so that she looks more beautiful, to creating entirely digital characters. It is, I would suggest, the biggest growth area in the film industry because increasingly it provides both more cost effective alternatives to building a set. We work with the production team to assess how much it is going to cost to build a set for real, how much it will cost to build it in the computer. The same exercise will go on with regard to creating crowds, which ten years ago one could not create in the computer effectively and now it can be much more effective to do that digitally rather than hire thousands of extras.

  Q889  Lord Maxton: And cheaper.

  Mr Hope: Yes, it is cheaper; that is one driver. Then the second driver is we are doing things that you simply cannot film. So those two things are pushing forward the film industry. Benjamin Button won the Oscar for visual effects this year for creating a digital human being.

  Q890  Lord Inglewood: In your first remarks you explained how the business had expanded in this country over the last eight to ten years. Is that expansion greater than in other places?

  Mr Hope: Yes.

  Q891  Lord Inglewood: What is the particular reason for it? Are we somehow more cunning or is it something to do with the exchange rates, as Lord King pointed to? Why has it happened here?

  Mr Hope: All factors play a part. The British film industry, as I think other people have commented, did well under the previous tax regime; that was clearly not a system that was effective as there were all kinds of leakages and it has been replaced by something that we all feel works very, very well and that incentivises American productions to come to the UK. The exchange rate is a driver but the British visual effects companies, and the fact that they are all located within a ten-minute walk of each other in Soho, is a major attraction to our clients. I commented on the fact that the barrier to entry for smaller companies is not having the scale. Some of our clients view Soho as a kind of collective super facility, so they will split up work between the four major companies and their directors and their production teams are able to spend their day walking between the various companies reviewing work, and that is a big plus to them. But, yes, exchange rates and tax incentives are significant drivers to work coming to this country.

  Q892  Chairman: We will come on to tax. Mr Mahoney, welcome. You probably had a little difficulty getting here this morning.

  Mr Mahoney: A bit, yes. I am sorry for being late.

  Chairman: It is understandable. We are in the foothills, I think it can be said, of our questioning at the moment and we are trying to get an idea of the scale of the industry. Why do you not just listen for a moment and then we will bring you in.

  Q893  Baroness Eccles of Moulton: If we could return for a minute to when the post production input is outsourced by a company, for instance, like Warner Brothers at Leavesden, they have these massive sets and huge studios, etcetera, and I suppose the impression that one would get would be that Warner Brothers look after their own post production work, but from what you say it sounds as if a lot of it is outsourced.

  Mr Hope: Visual effects work will be outsourced. Each film is set up as an SPV—a Special Purpose Vehicle—with its own budget and they will hire crews and those crews are hired as individuals but they will engage companies from which to hire camera kit and to supply visual effects services.

  Q894  Baroness Eccles of Moulton: So they will not actually own that part of the production themselves.

  Mr Hope: No. Warner have owned and Disney have owned their own visual effects companies at times during the late 90s, I believe—PDI were owned by Disney and Warner Digital was owned by Warner; and they also had an interest in a company called Manex, who made The Matrix. But I think they have understood that they have more effective cost control through engaging companies to compete for that work and have a team within the studio who monitor those costs and ensure that creativity and costs are both realised.

  Q895  Chairman: Mr Mahoney, bringing you in for 30 seconds. You are the Technical Director of Disney UK.

  Mr Mahoney: Correct.

  Q896  Chairman: Disney UK is an American company; what is the attraction of the British industry as far as an American company like Disney is concerned?

  Mr Mahoney: We are currently producing a couple of films that are quite big properties to the Walt Disney company in that they are family properties and the attraction to the UK is partially through the richness of the source material. We are making A Christmas Carol and Alice in Wonderland; and because of the nature of these properties we are also using London facilities and UK-based talent. So the attraction really from a production point of view is usually the expertise and the cultural source.

  Q897  Chairman: You find a reservoir of skill here that is attractive to you.

  Mr Mahoney: Again, following Alex Hope's point, production companies or studios such as ourselves will have a deal with a producer who then goes out and outsources their own visual effects companies and talent in terms of film makers. It is generally up to the film makers but we do not have any objection to that.

  Q898  Chairman: The two films you have mentioned are both areas which are very British.

  Mr Mahoney: Correct.

  Q899  Chairman: Perhaps quite difficult to make in Los Angeles, although not entirely impossible; is that fair?

  Mr Mahoney: That is fair to say, yes, and that is one of the reasons that film makers are likely to base themselves here, especially in the instance of Alice in Wonderland, that there is a lot of UK talent, actresses and actors, that they will use.

  Q900  Baroness Bonham-Carter of Yarnbury: I have to interrupt here. Alice in Wonderland is being made in LA.

  Mr Mahoney: A lot of it is being post produced here and Tim Burton is—

  Q901  Baroness Bonham-Carter of Yarnbury: But it is actually being filmed in Los Angeles.

  Mr Mahoney: Okay!

  Baroness Bonham-Carter of Yarnbury: Sorry about that; there is a family connection here!

  Chairman: On that point we will move on. Lord Macdonald.

  Q902  Lord Macdonald of Tradeston: To explore the market a little more, it is the case that London, as you say, is the great dominating cluster in this business but you do have 1300 companies. Film and advertising is presumably based in London and television is more dispersed. What is the geographical split in your 1300 people, Ms Davenport?

  Ms Davenport: The majority of companies are London and Greater London based but there are creative clusters in the regions and nations, most notably in Cardiff, Glasgow, Bristol and Manchester. I do not have a specific split of those businesses but that is something which we can provide for you.

  Q903  Lord Macdonald of Tradeston: But it is difficult to compete in the film market outside of London, I would imagine?

  Ms Davenport: It is much smaller, yes.

  Mr Hope: Yes, it is.

  Ms Davenport: It is a handful of facilities outside London that would be working in that.

  Q904  Lord Macdonald of Tradeston: What is happening with the dynamic with the digital equipment? Is that lowering the entry barriers to allow more people into the 1300 or is the very cost and complexity of it forcing the entry barrier up?

  Ms Davenport: You are absolutely right that the barriers to entry are coming down. We have heard some impressive figures today, but if we consider that 65 per cent of the sector is actually made up of very small businesses employing less than five people; it is looking at the contribution that those smaller companies do make to the whole. Alex was talking about the four major visual effects facilities in London but there are also many specialist boutique companies which actually supplement those work streams, which is a very important part in being able to show the overall capacity for the industry.

  Mr Hope: I think it is a characteristic of our industry over the last ten years that significant creatives have been able to break off from larger companies and set up on their own and that is what we did ten years ago—there were ten of us who started our business—and we have seen that with other smaller companies. I think that that would be a great thing to find ways to encourage; we as a business encourage it by outsourcing work to other companies in Soho. Creating sustainable growth is about supporting those companies. Our clients like it because it creates competition. These are businesses that are set up largely by creative people and if you are looking for areas to support giving those people effective management training and support and easy access to that would be an important thing to do.

  Q905  Lord Macdonald of Tradeston: The independent production sector, PACT, always seem to have a political agenda, which they have been very successful in pursuing. You by comparison have been pretty muted. Are there any demands that you would make of broadcasters, for instance, for outsourcing material to encourage your industry?

  Ms Davenport: Within the industry itself we are also competing with broadcasters and production companies that are setting up their own in-house post production facilities. I think where the independent production sector has done incredibly well is in lobbying for their terms of trade, which really changed the commercial dynamic between their biggest client, the broadcasters and the sector. So having an independent production quota definitely gives the commercial benefit to the sector and there is not parity of that in terms of the services supplied to the independent production companies.

  Q906  Lord Macdonald of Tradeston: So this very vigorous television market that we have in the United Kingdom with this turnover of more than £3.5 billion, is that one of the things that gives you a global advantage or are you at risk from Berlin, Prague or Los Angeles?

  Mr Kanjee: I do not think in the television market we feel that there are any risks or threats from outside our shores; the bigger threats are internal right now with the way that budgets have been cut again and again within every broadcaster. I do not see that we see any threat from outside the UK.

  Q907  Lord Macdonald of Tradeston: Does the cutting back of the budgets mean that if you are more economical more work is going to be outsourced to you from the broadcasters?

  Mr Kanjee: Yes. The problem is that the cuts have become so great that they are eating into all of our margins and the television post production sector is a very, very competitive sector currently—probably over supplied in Soho. There have never been massive margins in the business in which we operate and we are seeing 20 to 30 per cent budget cuts from broadcasters to independent production companies and then obviously at the end of the supply chain we have to deal with it. So I think that is the biggest issues that most of our companies face currently.

  Q908  Lord Macdonald of Tradeston: So it is very labour intensive. You mentioned that you had 150 people working for a £10 million turnover, so presumably your margins are pretty tight.

  Mr Kanjee: Our salaries to sales percentage is between 50 and 60 per cent, which is pretty high. Our business is very much about people; it is a very labour intensive business and it is very much about the person you are sitting next to in a room or who is serving you tea and coffee or who is managing the media across the building; it is not an automated process, sadly.

  Q909  Baroness McIntosh of Hudnall: Can I just follow up on that point about the cost of people as opposed to equipment. Going back to the point that you were making about new start-ups in this industry, what is the sort of relationship of capital investment to the way that the economics of this industry works? On the one hand it appears that you could break away from a larger company and start up with some relatively low costs in terms of overheads.

  Mr Kanjee: Yes.

  Q910  Baroness McIntosh of Hudnall: However, there is presumably the need for a constant reinvestment in capital terms because of the changes in technology and I just wondered what you can tell us about the cost base in capital terms and how that relates to the people side of it.

  Mr Kanjee: A very difficult question. It changes rapidly and, as we have all said earlier, the pace of change technologically is incredibly rapid and the pricing of the capital investment that we need to make also changes. The big issue for companies in my sector right now obviously is High Definition, because that is the latest standard to which we are all going to have to adhere, and the cost of capital investment in that can range in one single edit suite to a quarter of a million pounds, potentially. If you want to upgrade a grading suite, for instance, there is a new monitor out from Sony, which is just a telly that sits in the suite and is £25,000; so the cost of investment can be significant and is not to be underestimated.

  Mr Hope: I suspect the cost per capita in film is less but I do not have numbers on that. As Simon has alluded to, in television you have one person sitting in a suite with lots of equipment. My industry is characterised by somebody sitting at one work station; they will share a render farm between hundreds of people when they process their equipment. The larger companies write a lot of their own software in order to avoid software costs and that is the only way, frankly, in which the model works. If you took the television model and applied it to film you would go out of business because of the capital costs.

  Q911  Baroness McIntosh of Hudnall: Presumably you do have to invest quite heavily in the skills of the people who can do what you are talking about in terms of actually working on the software.

  Mr Hope: That is the significant cost in the film industry and at the moment in the UK the biggest limiter to growth is the lack of skilled staff, which is why we very fortunately have dispensation from Mac for certain grades within our industry. But it is the biggest limiter we have to growth at the moment.

  Q912  Baroness McIntosh of Hudnall: I think we are going to come back to that but can I just take you in a slightly different direction for a moment. The existing studios in this country, Pinewood-Shepperton, Elstree and indeed Leavesden, are turning out a lot of work. I would imagine that some of the people who are providing post production facilities are actually based at those studios and have their working operation there as well as those who are working in Soho.

  Ms Davenport: Yes, that is right.

  Q913  Baroness McIntosh of Hudnall: What is the dependency of the industry as a whole on the success of the UK studios, firstly in terms of having somewhere to be and creating the clusters that you were talking about earlier? Secondly, in terms of the generation of work from the UK studios what proportion—we know from what Mr Hope has told us that there is a lot of work coming into the UK from outside, but presumably there is also a lot of work being generated in the UK both for film and television and how dependent, if you can quantify it, is your industry on a high level of output from those UK studios?

  Ms Davenport: I think it depends on which part of the industry you are looking at. All the studios do television as well as film and, as Simon has already said, in terms of local market television tends to be focused in the UK. In terms of the ability to move data between the studios and facilities in Soho it is increasingly easy to do that. What you have in the studio is being able to offer a full service, which is one of the major attractions of the UK; so an ability to come here and shoot and delver all your post production needs is an extremely attractive proposition, but they are not mutually exclusive.

  Q914  Baroness McIntosh of Hudnall: I do not see any prospect of this happening but if the James Bond franchise, which is currently based at Pinewood and for which special facilities have been built there, were for some reason to move elsewhere would the visual effects aspects of that be likely to go with it or would it be likely that they would stay in the UK?

  Mr Hope: Visual effects are location independent, so work would come back to the UK.

  Q915  Baroness McIntosh of Hudnall: You are confident of that, irrespective of the health and development of the wider UK industry?

  Mr Hope: With the specific example you gave I believe that that work will come back to the UK. With the film like Hellboy II which was shot in Hungary, the post production came back to the UK, and there are countless other examples. Having said that, I think that a strong and growing studio base in the UK is essential to continuing the vibrancy of the UK post production sector because it allows those smaller companies that I have highlighted projects to work on. I think what we will see over the next ten years is the technological evolution of the film making process, so the technologies that we have in post production increasingly being there with you when you are making your film. What I would hope we will see is that the UK is a leader in that field and that the filming and post production process are a single joined-up offering for us to maintain.

  Q916  Chairman: Where does the competition come from in visual effects from elsewhere in Europe?

  Mr Hope: In Europe there are some companies in France—two or three smaller companies in France—and that is it really. There are some small companies in Germany at Babelsberg Studios. Those countries are probably more typical of where the UK was in the 1990s where broadcasting and commercials are supporting companies which increasingly have an interest in film as well and in the UK we have seen visual effects become a significant part of the revenues for certain companies.

  Q917  Chairman: Am I right in my impression that the visual effects companies tend to be in the main bigger than you would get in, say, television in the broader aspect.

  Mr Kanjee: Yes, I think that is fair.

  Mr Hope: As we have highlighted, in London you have four of the biggest in the world. There are other smaller ones; and if you want to LA you would find a lot more smaller ones, and we want to encourage that kind of growth in the UK.

  Q918  Chairman: What do you want to encourage? You want to encourage smaller ones?

  Mr Hope: We want to encourage the growth of the sector and I think that that is best achieved by the growth of the large companies; also, smaller companies as well—ten to 50 staff—providing competition and pushing forward the creativity that we offer.

  Q919  Chairman: But if you have a plethora of very small companies is that not quite difficult to get realistic competition, or am I wrong about that?

  Mr Hope: I gave you two examples of types of films earlier: one a Dark Knight kind of model where you have to have one company working on one type of effect. There are other films where there are lots of different kinds of effects through the film and rather than using two large companies you could use ten smaller companies and that is certainly something that the studios find attractive because it creates competition and they get a better price.

  Q920  Baroness Bonham-Carter of Yarnbury: A slight side question. You have mentioned Soho a lot and that you all work there and so on. It was suggested to me by someone from Pinewood—and you might say, —He would say this, would he not?"—that the infrastructure required for the post production work that you all do is not best served by Soho because it is not properly able to—

  Mr Hope: There is not enough electricity.

  Q921  Baroness Bonham-Carter of Yarnbury: That is right! That is exactly what he said to me. Is this true?

  Mr Hope: It is true.

  Q922  Chairman: The grid is too small, is it?

  Mr Hope: There is not enough electricity. There are brownouts and blackouts in Soho every summer.

  Q923  Baroness Bonham-Carter of Yarnbury: So would it make sense to move to somewhere like Pinewood?

  Mr Hope: The challenge would be that our significant cost and our significant asset is our workforce and the difficulty of encouraging a workforce, as we have discussed, as being very international in moving out of London when one of the reasons for them coming to the UK in the first place is the opportunity to work in Central London.

  Q924  Baroness Bonham-Carter of Yarnbury: So you would like us to recommend more electricity?

  Mr Hope: Yes, please; and I am not joking!

  Q925  Chairman: Presumably this has been going on for some time, has it not?

  Mr Hope: In my case for two years I have been trying to get more electricity.

  Q926  Lord Maxton: Presumably for the air conditioning.

  Mr Hope: And the equipment.

  Q927  Chairman: Who stands in the way of providing more electricity?

  Ms Davenport: EDF?

  Mr Hope: We are at an advanced stage in discussing it with a number of people!

  Q928  Lord Gordon of Strathblane: Ms Davenport, earlier on Mr Hope referred to the dramatic growth in the post production sector. Mr Hope, you mentioned that when you entered the industry there was virtually nothing.

  Mr Hope: I was referring specifically to the visual effects sector, yes.

  Q929  Lord Gordon of Strathblane: How much is this dramatic growth down to the change to the tax credit system?

  Ms Davenport: On visual effects?

  Q930  Lord Gordon of Strathblane: Yes.

  Ms Davenport: You saw tremendous growth under the old tax, the sale and lease back scheme, but I think with the introduction of the new film tax credit what you have seen is actually a much simpler system which is more easily explained and more accessible for people who actually should be legitimately benefiting from the film tax incentive. We saw a slight fall in activity for 2007 to 2008 but we felt that that was really down to external factors outside the film tax credits. So things like the writers' strike, the threatened screen actors' strike, which I understand has been resolved today or yesterday in the States, which is great, and also the exchange rate, the impact of which Alex has already touched on. So on the whole we think that the film tax incentive is working very well and warmly received in terms of inward investment, so US productions coming to the UK. Where we have seen quite a fall off in activity is for co-production and I know that that is something that has been raised with the Committee. So a lot of companies who are operating in the middle strata of the sector—it has been decimated as far as our sector is concerned. But there has been an increase in domestic film production. But if there was one tweak that we could see to the film tax credit it would be to have a recognition for post activity that was taking place outside the UK—sorry, not post activity but where crews and models and things that have been made by UK facilities that are used to be shot overseas, that that could actually contribute as good spend as far as the film tax credit is concerned.

  Mr Hope: The issues of —used and consumed", which I think you have touched on with other people, we would support.

  Q931  Lord Gordon of Strathblane: Can we make sure that we are quite clear about this because at first sight it would seem that this would not be in our best interests to allow people to do their post production abroad and still get the same tax credit—it would not be in the UK's interests.

  Mr Hope: No. What we would recommend and encourage is co-production; and the ability of UK film crews to be able to work abroad, paying their taxes in the UK, seems to us to be a reasonable and sensible thing to do.

  Q932  Lord Gordon of Strathblane: But in terms of visual effects, for example, you are talking about 150 people on one particular project; but you are unlikely to fly them to X, Y or Z.

  Mr Hope: Absolutely not. But if we take Hellboy as an example, we had a crew working over in Hungary and when they were working in Hungary they did not qualify, necessarily; but when they came back to the UK they did. That would suggest that it would be better to have more Hungarians working on that production when it was being shot in Hungary rather than UK labour.

  Q933  Lord Gordon of Strathblane: How do we stop people simply benefiting from the tax credit by transferring one key person and everyone else is employed locally abroad, in Hungary or wherever, and still benefiting?

  Ms Davenport: I think it is making sure that they are British talent and, as Alex said, that they are principally UK-based and they are just attached to a particular production.

  Q934  Lord Gordon of Strathblane: So you would only allow the tax credit for that proportion which employed British people abroad.

  Ms Davenport: Yes.

  Q935  Lord Gordon of Strathblane: Not any local people abroad?

  Mr Hope: Yes.

  Q936  Lord Macdonald of Tradeston: For European film making you said that the visual effects base was pretty weak across Europe. Do you therefore get an increasing flood of European films coming in to be sorted out in Soho?

  Mr Hope: The budgets on those sorts of films are not at the same level as American studio pictures; so they would tend to stay within their respective countries, and my understanding is that the tax incentives in those countries would drive that as well. In visual effects our sector is underpinned by US studio pictures and we will seek to present data to show that—I think that the Film Council can give you their sense of that. Those studio pictures support our sector and allow, as we have described, world beating technologies to then be deployed on lower budget British films which get that benefit.

  Q937  Baroness Eccles of Moulton: Before moving on to asking about the Film Council and public policy with regard to what more can be done to help post production in an international sense, could you just tell me—because it is quite related to tax, the tax credit system—Slumdog Millionaire was shot in Bombay but was the post production work done here in the UK?

  Mr Hope: Yes, it was.

  Ms Davenport: In fact we won both an Oscar and a Bafta for British sound mixing, which was a phenomenal achievement; so we are very proud of that.

  Q938  Baroness Eccles of Moulton: That helps to answer one of those problems, but is there anything more that can be done to improve the international competitive position of the UK in the post production sector, maybe through the Film Council, to assist public policy to make it more attractive?

  Ms Davenport: Our biggest engagement with the UK Film Council is through the Office of the British Commissioner who focuses solely on inward investment features and I think that their contribution to this sector has been enormous. If you married the relatively small amount of resource that that department has within the overall Film Council, if we could see one improvement it would be to see a realignment of resources into that area; or, even better, more resources generally available across the piece.

  Q939  Baroness McIntosh of Hudnall: Can I ask a question about this competitiveness issue because I am troubled by one thing which arises out of something that Mr Hope said earlier? As things stand at the moment the international competition does not look particularly strong, it appears, for visual effects—

  Mr Hope: In Europe.

  Q940  Baroness McIntosh of Hudnall: That is my question. If you project outwards from today towards where the threat might be coming from in ten years' time, first of all where would you anticipate it coming from—would it be from India, would it be from China—

  Mr Hope: Yes.

  Q941  Baroness McIntosh of Hudnall: ... would it be from Singapore.

  Mr Hope: Both.

  Q942  Baroness McIntosh of Hudnall: Secondly, what preparation can the industry engage in, either by trying to influence public policy or through its own activities in relation to what it can provide, to fend off that threat and to remain competitive, because on the face of it some of those economies from where the threat is going to be coming from are going to be considerably more powerful then than they are now, and certainly more powerful than we are.

  Mr Hope: I think you have hit on the significant challenge facing certainly the film visual effects industry, which is all I can really speak for. In answer to your question currently the significant challenges come from the States and from Australia and New Zealand—there are some companies in Canada as well. I think, as you have said, increasingly we will see competition from Southeast Asia, India and China. Just stepping back from that we can perhaps usefully separate two kinds of visual effects work—what might be referred to as commodity work, which might be painting out the wires on a stunt man, or the higher end work of creating a digital character, at its most extreme perhaps. I would suggest that that lower end work will be very price sensitive and that for the higher end work, which is the more skilled work, there are significant barriers to entry. So a policy that focuses skills at that very top end is policy that is going to see a sustainable British visual effects industry and that is all about skills and ensuring that companies, both small and large, understand where there are R & D grants and things like that available to them, of which a lot of smaller companies in my sector are not necessarily aware. And seeing policy that is joined up between universities, the film visual effects industry and the games industry is what I would strongly recommend.

Chairman: I want to move on, if I may, because we are running out of time.

  Q943  Lord Inglewood: The way that you have described the industry in Soho, it sounds to me that it operates on exactly the same kind of economic model as the Grand Bazaar in Istanbul or the Souk in Aleppo or something like that. But within that—and this is the real point of my question—the thing that enables us to do it is the intellectual base and presumably that is protected by intellectual property. Are you in fact vulnerable to people stealing your ideas and just taking them elsewhere?

  Mr Hope: In film visual effects we all use off the shelve software and the larger companies create their own software on top of that. That is constantly evolving; and it may be a few lines of code to hold programmes that we have written. There are certainly risks of leakage of IP which we seek to protect, but we are not typically in the business of selling that software because the market for it is very, very small. You will find that some of the larger companies will go and write papers on what they have done a year or two after they have done it and share it with their colleagues at conventions like SIGGRAPH—Special Interest Group in Graphics—which happens every year in the States, and there is a culture within the industry of shared knowledge. What we are working on now will be widely available in two years time.

  Q944  Lord Inglewood: So in order to retain a pre-eminence it is absolutely crucial to ensure that the cutting edge technological software writing skills are present?

  Mr Hope: Absolutely.

  Q945  Lord Inglewood: And if that fails it dies?

  Mr Hope: It is driven by technology and creativity. You have people writing software but there will be a relatively small number of them and a higher number of technical but very artistic people using that software to create effects. I am sure that it is present in other industries but my ideal recruit would be somebody would have double maths, physics and art.

Chairman: You will have a fair shortage of recruits!

  Q946  Lord Inglewood: Does that mean that potentially your industry could die very quickly? It is not like a car factory where you need an enormous physical infrastructure to do it at all; in certain circumstances the whole thing could just move somewhere else.

  Mr Hope: I think it is about maintaining that impetus and maintaining scale because creating a company like ours and like our three principal competitors has taken time and I feel that we will be able to maintain our position on the world stage. But, yes, it is not like the car industry and there are those threats and that is why, in answer to the question about threats from overseas, I think the focus on the work in the UK needs to be on the very high end work.

  Q947  Baroness Howe of Idlicote: I am going to be rather naughty and go back to an earlier question because it intrigued me, and it is about electricity—you must be huge users of electricity power generally. Do you have to have any climate change targets built into what you do? Is there anything like that involved in your work?

  Ms Davenport: All the manufacturers are very conscious of their environmental responsibilities so we would certainly push back on them to do that, and then within our own environment we are looking at ways in which we can help companies.

  Q948  Baroness Howe of Idlicote: There is nothing tied to tax incentives or anything like that, or any conditions?

  Mr Hope: Not that I believe currently.

  Mr Kanjee: One of the big drivers for the power issue is air conditioning and there are lots of EU regulations on air conditioning.

  Q949  Baroness Howe of Idlicote: It is a major government initiative. I want to ask you about video games and you were mentioning the link-up there. Increasingly video games seem to have either bits of films in them or are inspired by films. What are the synergies between the UK videogames and indeed your own post production organisations?

  Ms Davenport: At the moment we are not seeing a lot of activity in our sector crossing over into games, but I think as the games industry is more sophisticated in the materials it is producing then it obviously makes sense for the industries to be brought more closely together.

  Q950  Baroness Howe of Idlicote: Is that the same for everybody because I must say that I am slightly surprised, given the huge growth in that particular industry?

  Mr Hope: I would agree with what Gaynor has said. I am sure we will see convergence in the future but video games have to render their images on the fly, if that is understood by everybody, and what we do in our world is render images which we can take hours and hours to do and are then played back in real time at a later date. So the drivers behind the technology are very different. As computers get faster the ability for better quality real time rendering grows and so it comes closer to what we do, and at a certain point in time that is going to converge—but I do not think anybody quite knows when. Stepping back from it, people working in video games are using similar software to those in visual effects and graphics so at an early stage in their training there is a benefit from thinking about the two in the same context. At a higher level we have specialists who may rig characters—that is putting the bones inside a digital character—or paint the surface of that character and those specialisms are much more specific to our industry.

Chairman: Can I bring in Lord Maxton.

  Q951  Lord Maxton: In a previous existence down the other end of the building I was on a visit with the Select Committee and we went to Skywalker Ranch, George Lucas' place, where he was developing exactly the sorts of skills that presumably you were talking about. Someone told me there that eventually all the film industry would need would be a photograph of an actress, a photograph of an actor, photographs of particular scenes and they could then make a film. That has not happened; are you anywhere near it?

  Mr Hope: Not yet.

  Q952  Lord Maxton: But you think it will happen? Where is the technology going to take you?

  Mr Hope: There are scenes in the Dark Knight that you would think were filmed with a camera and they are entirely generated in the computer. There are scenes in Benjamin Button where Brad Pitt is entirely created in the computer; so it is happening. It costs too much to do it for an entire film at the moment.

  Q953  Lord Maxton: At the moment, but is that where the technology is going?

  Mr Hope: It has that potential.

  Q954  Baroness Bonham-Carter of Yarnbury: It cannot please Equity.

  Mr Hope: The performance has to be created by somebody; either it is created by an actor or it is created by an animator. You have very, very talented animators but they are not going to necessarily give the same performance as an actor.

  Ms Davenport: You do see the graphic novels which are using a combination of the two.

  Mr Hope: The fact that the three biggest directors in the world—Spielberg, Cameron and ...

  Mr Mahoney: Zemeckis.

  Mr Hope: ... Zemeckis are using performance capture technology to make films—Avatar, Tin-Tin and—

  Mr Mahoney: Christmas Carol, which is entirely performance capture.

  Mr Hope: It gives you a flavour of where filmmakers see the industry going.

  Q955  Chairman: Do you agree with that, Mr Mahoney?

  Mr Mahoney: I do and to highlight performance capture. Conversely, rather than taking an image and making a character out of it, these are very much character-driven films and all the visuals are painted on afterwards; but it is still very much about the performance of the actors.

  Q956  Baroness Bonham-Carter of Yarnbury: Coming to what has been mentioned a couple of times, which is the skills base, and I think you were saying that you are concerned about the lack of the skills base. What would you like to see change?

  Mr Hope: We would love to see as many highly skilled people coming into our sector as possible. We welcome Skillset's initiatives over Screen Academies. You need to learn your skills to release your creative potential and the technology we use is complex; the training that needs to be given is currently supplied to a degree by universities. Certainly speaking for myself, we do a good degree of in-house training and because the technology is moving forward so rapidly the people who know it best are the larger companies. Currently the only training grants available are to SMEs. I would favour a move to bringing industry and higher education closer together, incentivising in-house training at larger companies; incentivise the training of those people giving training in higher education, so that people who are teaching a course in computer graphics have the opportunity to spend some time in a company like ours to learn what current best practice is. Somebody who is being trained now, who has just gone into higher education, is going to come into the industry in three years' time and be useful in five years' time. So determining where the industry is going to be in five years' time rather than what is current best practice is key behind training up our workforce.

  Q957  Baroness Bonham-Carter of Yarnbury: Mr Kanjee, you deal in broadcasting post production: do you think that the large television companies provide enough, in this world that is increasingly multi-skilled apart from anything else?

  Mr Kanjee: Absolutely not. There are no formal training courses within businesses, within broadcasters or otherwise currently, and that is a real issue that we all face. We train our own; we take raw talent that we find from the colleges such as Ravensbourne, and we mould them and each company themselves invest huge amounts of time and money in creating the perfect post production professional. It is expensive and it is time consuming. There was a time when the BBC had a fantastic training course.

  Q958  Baroness Bonham-Carter of Yarnbury: Does that not exist any more?

  Mr Kanjee: No, it has not existed for some years.

  Q959  Baroness Howe of Idlicote: Very quickly on the same point: what about apprenticeships? There is this whole takeoff of apprenticeships; are you involved in that?

  Mr Kanjee: Yes, we absolutely are and, as Alex said, we are trying to bring the training institutions closer to us. We need the training institutions to understand our needs because it is not just about pushing buttons and understanding how software works; there are a lot of soft skills and people skills that are hugely important in what we do.

  Q960  Chairman: This is probably for Mr Hope: if I wanted to make my career in sound—it was illustrated to us when we went to Pinewood how important that is and how crucial that can be—how would I go about that?

  Mr Hope: I know about visual effects; I am afraid I do not really know about sound.

  Mr Kanjee: If you want to go into sound, as with most disciplines within our industry you do some research and you find the leading companies involved in audio post production and you try and get a job there as a runner and start on the minimum wage and learn your trade that way. That is the way that most people will enter our industry, by being trained on the job by people around them with whom they can develop a relationship.

  Q961  Baroness Eccles of Moulton: Can I ask a quick question about skill drain? You train these people and obviously, as you say, it takes two years after they have left wherever they have been. Is there then a drain? Do you find that the people who have not been involved in the training then entice people away from you when you have trained them?

  Mr Kanjee: We do, absolutely, yes; it is a real issue for all of us. We have a very sophisticated in-house training programme and actually the biggest threat we have on that front is preventing those people from being poached by competitors who do not.

Chairman: We have run over our time and we could go on quite obviously for another hour very easily indeed. I would like to thank you very, very much indeed for coming today. Mr Mahoney, I hope you have a more successful journey back than you had coming in. Thank you very much for coming.

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