UK producers get their share

After lobbying by UK producers’ association Pact, the UK’s three major funding sources have all instituted Œproducer equity deals’ as the first step in transforming cottage production companies working for fees into genuine businesses

Imagine a producer presenting to the panel on the business ideas TV show Dragons’ Den.

Producer: “I’d like $3m for 40% of my business.”

Dragon: “Let me get this right: you want $3m of my children’s inheritance so you can spend years developing a slate of projects and assembling the creative elements and finance but, in the unlikely event you have a hit, the exhibitor, distributor, sales agent, bank, broadcasters and even the public funding bodies will recoup before you? And you will probably use your producer fee to cover the shortfall in the production budget?”

Producer: “Er, yes, but have you been to Cannes?”

Arguably the biggest barrier for an independent producer seeking to develop their business is that they rarely secure a significant share in the recoupment chain, or retain intellectual property (IP) rights. It is hard to raise investment when your business doesn’t share the profits when it has a success.

“We have a lot more work to do in ensuring that film producers don’t just get a corridor in someone else’s recoupment but - like the TV sector - are able to retain some IP rights and thereby develop their own exploitation revenues”

The UK film tax credit was aimed in part at addressing this perennial problem, and in the process generate funding for culturally British films. The idea was that the proportion of the production budget covered by the tax credit would be regarded as the producer’s investment, giving the producer a share of revenues. The tax credit generally works well, but on its own it doesn’t always achieve this aim. Rightly or wrongly, private-sector financiers are often reluctant to accept granting the producer a share of revenues.

Following campaigns by Pact, however, the major public or publicly owned sources of funding have stepped in with their own Œproducer equity’ deals, which break down as follows:

• BBC Films offers the producer a 30% corridor within its own equity position (as an advance against the producer’s eventual tax credit recoupment, if this is behind the equity financiers and the producer’s back end).
• The UK Film Council has proposed that it will offer a producer equity corridor, subject to EU approval ‹ in this case, 25% of the first 50% of Film Council funding recouped, and then rising to 50%.
• Film4, which has historically offered producers a smaller corridor, has told Pact it plans to give the producer 20% from first dollar of their equity recoupment, rising to 50% once 50% of Film4’s equity has been recouped, with the producer repaying this from any subsequent revenues. This is payable even if the producer has a separate equity corridor directly against the tax credit.

Attracting private investment

This is a step forward in making a film production company attractive to private investment which can in turn be used to fund culturally British films, and shows how public or publicly owned industry bodies can drive home government policy.

The model for using public intervention to transform a cottage industry working for fees into genuine businesses must surely be the UK television production sector, where the 2003 Communications Act enabled producers to retain a share of the IP rights in their programmes. This gave them an asset that could be turned into an income stream and, hopefully, a profit.

” Public intervention can be influential in film, too: public or publicly backed funds might account for as much as 40% of all production funding for UK films”

The biggest difference between film and TV is arguably the fragmented nature of film’s financing model. Yet public intervention can be influential in film, too: public or publicly backed funds might account for as much as 40% of all production funding for UK films. That’s why the current consultation by the Film Council, not to mention Pact’s broader work looking at public intervention in film in general, is important.

We have a lot more work to do in ensuring that film producers don’t just get a corridor in someone else’s recoupment but - like the TV sector - are able to retain some IP rights and thereby develop their own exploitation revenues. Yet the basic principle behind all these initiatives is the same: if a producer has a hit, the producer should share in the success. Get that right, and investment will follow.