King's Speech: BFI gets king’s ransom?

“The King’s Speech represents a great validation for the UK film industry as a whole and an amazing legacy for the UK Film Council,” Tanya Seghatchian, head of the UK Film Council’s Film Fund, commented after Tom Hooper’s film about the stuttering monarch won its haul of BAFTA’s earlier this month.

The legacy that Seghatchian is referring to isn’t just symbolic. The UK Film Council invested £1 million ($1.6 million) in The King’s Speech through its now defunct Premiere Fund (then run by Sally Caplan) and is believed to have a net profit position as high as 34% in the film, which was produced by See-Saw Films and Bedlam Productions. UKFC boarded the project at a relatively early stage, when Geoffrey Rush was already attached but before the casting of Colin Firth.

In advance of this weekend’s Oscars (for which it has 12 nominations), The King’s Speech has already made over $235 million at the box-office worldwide and could (some predict) gross as much as $400 million when its roll-out is complete. Even with the film world’s usually tricky accounting on recoupment, that’s a huge return on a film that cost $15m to make.

“It’s one heck of a dowry,” a UK Film Council spokesperson says of the benefits that may eventually come to the British Film Institute (BFI) via its stake in The King’s Speech when the BFI becomes the Lottery distributor for film in the UK in April. The fact that neither BBC Films nor Film4 invested in The King’s Speech strengthens the Film Council position yet further. (If a broadcaster had been aboard, UKFC’s net profit position would have been far smaller.)

“There absolutely will be real profits and everyone involved in the film expects there to be real profits,” says Tim Smith, Managing-Director of Prescience Film Finance, which co-financed the film through its Aegis Film Fund.

The assumption is that any profits that come the BFI’s way will be invested back into the Film Fund, although this is yet to be confirmed. Given that the share of Lottery funds for film will increase from around £27 million to around £43 million annually by 2014, this could provide a major fillip to British production.

“The BFI will be reinvesting the recoupment from The King’s Speech into making more British films, creating jobs and supporting UK businesses,” Nick Mason Pearson, Director of Press & Public Affairs at the BFI, commented this week.

The BFI shouldn’t start counting its King’s chickens quite yet. “Net profits” are a slippery and evasive concept. Ask a range of experts whether The King’s Speech really will generate the expected king’s ransom for the BFI and for Molinare (the post house which was also an equity investor) and opinions are divided.

“There aren’t that many films that return net profits,” notes Christine Corner, a Partner in Grant Thornton’s media and entertainment group.

The general principle is that the producers will take 50% of the net profits and the equity investors will take the other 50%. Given that exhibitors take 55% commission, the local distributor [in the case of The King’s Speech, Momentum in the UK and TWC in the US] might take 40-50% commission on what it receives from the exhibitor and the P&A costs need to be recouped, the potential for net profits can shrink fast.

“Distributors are extraordinarily good at not recouping,” points out one observer, warning that there may have to be a lot of auditing done in the coming months.

“From theatrical, there might not be much,” one leading UK-based film lawyer says of the likely profits. “There rarely is from theatrical. When the DVD is sold, that’s when overages might start to kick in.”

What gives the BFI grounds for optimism is that The King’s Speech was made for a relatively low budget and has already generated such huge box-office returns. Even given the scare stories about blockbusters that have failed to return any net profits, it would be very surprising indeed if The King’s Speech didn’t generate revenue for its equity investors.

Whatever happens, all those involved in The King’s Speech are bound to reap the benefits…except for the Film Council, which won’t be in existence to enjoy the rewards.

UK distributor Momentum, among the first to support the film as part of the first-look deal it struck with See-Saw in early 2008, didn’t have an equity position in the movie. However, The King’s Speech had made over $60 million in box-office returns in the UK and Ireland by mid-February. See-Saw’s sister company, Sydney-based distributor Transmission, has also done roaring business with the film.

Prescience’s Aegis Fund boarded early and likewise stands to benefit.

“The Aegis Film Fund is very important for Prescience and it (The King’s Speech) will heighten the success of that Fund, which is coming to the end of its second year. It has encouraged new investors into film and hopefully will be able to do so,” says Tim Smith. Prescience, he points out, also has a small profit participation in the film.

Crucially to the film’s financing, The Weinstein Company pre-bought The King’s Speech. It, too, is basking in the film’s success.

As for The UK Film Council, The King’s Speech simply came too late. The irony is self-evident. If Tom Hooper’s movie about Bertie and his speech impediment had appeared with the same fanfare a year earlier, it would have been very hard indeed for the British coalition Government elected last summer to justify dismantling The Film Council in the wake of likely Oscar glory. After all, this is the “biggest recouping project” the UKFC has ever supported. That’s why UKFC representatives past and present will be watching Sunday night’s Oscar ceremony with distinctly mixed feelings.