Examination of Witnesses
Ms Gaynor Davenport, Mr Alex Hope, Mr
Simon Kanjee and Mr Saul Mahoney
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 unitsa 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 globallyand 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
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 industryso that is covering post production
and effect but also the studios and outside broadcasting, equipment
hire, etceterawe 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
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
Q864 Chairman: Just
to interrupt there, that figure has come from your latest?
Ms Davenport: From our latest research
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
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
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
growthnot 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 graphicsflying titles for Barrymore
were the state of the artand 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
Q872 Chairman: Are you
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 nationalitiesit
fluctuates between low 30s and high 30s. They are drawn from all
over Europemostly UK but all over Europeand a smattering
from the former Commonwealth and America.
Q874 Chairman: What
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 casethere 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 figureit is a collective figure across
the pieceand 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
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
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
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
Knightand if I take the Dark Knight as an examplethe
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 createdI do not know if you have
seen the filmHarvey 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
Q886 Lord King of Bridgwater:
Have you not already said that there were only four of the bigger
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 aboutand I think we dois
it possible to give the briefest summary about what visual effects
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
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 SPVa Special Purpose
Vehiclewith 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
Mr Hope: No. Warner have owned
and Disney have owned their own visual effects companies at times
during the late 90s, I believePDI 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
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,
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 agothere were
ten of us who started our businessand 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
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
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 currentlyprobably 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
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
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 proportionwe 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
Mr Hope: In Europe there are some
companies in Francetwo or three smaller companies in Franceand
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
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
wellten to 50 staffproviding 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 Pinewoodand 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
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
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
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 sectorit 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 UKsorry,
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 creditit 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
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
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
thatI 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
mebecause it is quite related to tax, the tax credit systemSlumdog
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
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 fromwould
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 Zealandthere 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 workwhat 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 thatand this is the real point of
my questionthe 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 SIGGRAPHSpecial
Interest Group in Graphicswhich 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
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
Chairman: You will have a fair shortage
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 electricityyou
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
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
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 convergebut
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 charactersthat
is putting the bones inside a digital characteror 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
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 worldSpielberg, Cameron and ...
Mr Mahoney: Zemeckis.
Mr Hope: ... Zemeckis are using
performance capture technology to make filmsAvatar,
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
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
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 soundit
was illustrated to us when we went to Pinewood how important that
is and how crucial that can behow 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
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
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.