Brexit: what are the ramifications for the film industry?

Although the immediate industry response to Brexit was one of dismay, two months on a new resolve has emerged. In the days immediately after the result, the government and the industry moved quickly: the Department for Culture, Media & Sport (DCMS) contacted the main trade bodies, while the British Film Institute (BFI) immediately set up a screen sector taskforce that held its first meeting in early July. Its findings will be fed into the government.

“We brainstormed onto a big sheet of paper all the areas we were concerned would be affected,” explains Amanda Nevill, chief executive of the BFI.

The British Screen Advisory Council (BSAC) has also established a post-referendum working group, which has been meeting regularly to identify key ‘asks’ for the sector to feed into the negotiations around a new treaty between the UK and the EU. “The UK are generally pragmatists,” says John McVay, chief executive of Pact, the trade association representing the commercial interests of UK independent television, film, digital, children’s and animation media companies. McVay is chairing the Creative Industries working group on the impact of the referendum result.

McVay emphasises the creative industries are a major driver of the UK economy and, at the highest level the government, will not do anything to neglect them. “The creative industries export more than the British arms industry and we don’t kill anyone,” he says.

The DCMS adds its support: “Our creative industries are one of the country’s greatest success stories, producing an extraordinary level of talent recognised and respected the world over. The UK’s decision to leave the EU will not change that, nor will it diminish our reputation for outstanding creativity.”

Open for business

In the short term, as the UK seeks to reassure the international industry, the BFI for one is ensuring it is out in force at upcoming international industry events, including the Toronto and San Sebastian film festivals.

“We are slightly upping our game in Toronto and San Sebastian,” Nevill explains. “In the next two or three months, we’re just going to do a bit more of very overt, ‘Look guys, we are here and everything is fantastic and Britain is a fantastically open and creative place.’”

But there are huge areas of uncertainty — and not just in the UK. The free movement of labour around the EU was one of the issues at the heart of the Brexit vote and if it is limited as part of the UK’s withdrawal, it will be a concern for an industry in which the talent pool in every area is drawn from across national borders.

UK sales agents attending this summer’s festivals are repeatedly being asked for clarity by their international distribution partners. “Practically, the Europeans are trying to work out the impact on themselves,” says Charlie Bloye, chief executive of FilmExport UK. “Down the line, if the UK is not part of Creative Europe [the EU’s current funding programme for the audiovisual industry], it will not be paying into it and therefore the pot for everyone will be getting smaller.”

“Ultimately,” adds Stephen Kelliher, director and head of sales and marketing at Bankside Films, “the prevailing mood is to get the message out that it’s business as usual and to try and limit the period of uncertainty to as short a time as possible.”

Indeed the UK’s status in Creative Europe, running from 2014 to 2020, is a vexed question. But in the short term, nothing has changed and the UK remains firmly part of it. “Informally, we have all the reassurances from the agency in Brussels that we’re in until we’ve left,” says one well-placed source.

If the UK does leave Creative Europe, that would be problematic not only for UK film-makers and distributors supported by its initiatives (see sidebar, right) but for the programme itself. If UK films are removed from Creative Europe, this affects other distributors that have subsidies against UK films. However, there are 39 countries participating in Creative Europe (28 EU and 11 non-EU), so there is plenty of precedent if the UK wants to stay in.

The drop in the value of the pound against the US dollar and the euro following the referendum result is causing the biggest immediate consequences, both good and bad. UK sales agents booking stands at the AFM or planning their trips to Toronto were grumbling about costs that had gone up by as much as 10%. At the same time, they have received immediate dividends since most do their deals in US dollars.

Beneficial exchange

Amid the uncertainty, further beneficiaries include the already-busy UK film studios, which have been humming this summer. “The exchange rate has madeshooting in the UK more attractive for our principal American partners and clients,” says Film London’s chief executive Adrian Wootton. “One thing that is consistent either side of the referendum is that inward investment into the UK, particularly from the US, continues to be very strong.”

But UK distributors looking to license European and US films have seen their costs rise. “Anything you’re looking to acquire has become 10-15% more expensive. Anything we’re looking to invest in, our contribution is suddenly 10-15% less,” Studiocanal’s UK CEO Danny Perkins recently told The Guardian.

“It’s important UK films are still European,” Perkins adds, speaking to Screen. “There is a precedent that Swiss films are European so I have confidence from that. I work with people from all over Europe and those relationships are strong. I got a lovely e-mail from my German counterpart saying, ‘Don’t worry, there won’t be a Europe without you crazy Brits.’ It’s nice everyone still sees us as European. We certainly see ourselves as Europeans.”

Very few in the UK or European film business wanted Brexit but now everyone is looking to make the best of the situation in which they find themselves. As John Graydon, film accountant and tax credit expert at Saffery Champness, says: “I am encouraged by the lack of panic. There’s been a measured response to the whole thing. If I were sitting here talking to you about having to come up with a new incentive because leaving the EU would cause a sunset date to crystallise, that would be a more difficult conversation to have — but that’s not the case.”

Deep Impact: The potential outcomes for a UK outside the EU

European co-productions with the UK

When the UK withdraws from the EU, it will likely have little impact on the UK’s co-production activities. The European Convention on Cinematographic Co-Production is not EU-dependent.

The UK has a number of bilateral co-production treaties, most significantly with France, which are not affected either. “That should be a major point of stability,” affirms Isabel Davis, head of international at the BFI, who is participating in a panel at Toronto International Film Festival to discuss the possible impact of Brexit.

EU — Creative Europe Development funding (single project and slate)

Following the EU referendum result, Creative Europe has been quick to reassure the UK industry via its website: “There are no immediate material changes to the current arrangements for those who have applied, are currently being assessed, or are planning to apply for Creative Europe funding, whether for single project or slate support, in 2016 and 2017.”

UK companies have been major beneficiaries of these schemes in the past. Some 16 UK firms have been awarded $3m (€2.7m) through the slate funding scheme in the first three years of Creative Europe, including Sixteen Films, Number 9 Films and Baby Cow Films; See-Saw Films for fiction slates and Sixteen South for an animation slate. Projects funded in previous years — including through the Creative Europe programme that ran 2007-13 — which were released in 2014 and 2015 include Brooklyn, High-Rise, Carol and I, Daniel Blake.

What cannot be easily predicted is the psychological effect of the referendum result and how it will affect the number of applications made from the UK in the new funding rounds — and how those applications are assessed. “The Creative Europe funding for us on single projects and slates has been very helpful and something we have benefited from. The idea of not having access to that is very disappointing,” says producer Elizabeth Karlsen of Number 9 Films, which has received support for projects such as Carol and the forthcoming Dusty Springfield biopic Middle Of Somewhere.

Eurimages

Roberto Olla, executive director of Eurimages, has made it very clear the UK is welcome to rejoin Eurimages, the Council of Europe’s fund for co-production, distribution and exhibition of European cinema, regardless of whether it is a member of the EU. Several leading UK producers are known to be in favour of a return to Eurimages, which the UK quit in 1996. Nonetheless, this would require the payment of a membership fee, likely to be around $2.6m (£2m) a year. If this were paid from BFI Lottery funds, cuts might have to be made elsewhere.

“I don’t think it is the panacea, I really don’t,” Pact’s John McVay says of Eurimages. “Eighteen months ago, we did some analysis and got a private sector consultancy to do the research and it didn’t come out as a net benefit to the overall film sector. Basically, if you’re going to rob Peter to pay Pierre and you lose some money on the way [in administration costs], that is not a good situation. If you’re going to give money to a third-party agency, would that result in more money coming into the economy year on year? The jury is out on that.”

The BFI’s Amanda Nevill acknowledges Eurimages “has popped back onto the raft of things we need to think about”, but is also wary about where the funding for membership will come from. Rejoining, she suggests, could be seen as “a very cost-effective signal of our commitment to Europe”.

Shooting in the UK

One thing the UK does not need to worry about — for now — is the tax credits for film and high-end TV. “The tax credit legislation is enshrined in domestic legislation,” explains John Graydon at Saffery Champness. “The moment Article 50 is triggered and we leave the EU, nothing will happen as far as the tax credit is concerned.”

It is conceivable the credit could even be tweaked and enhanced as there would be no obligation to abide by EU state aid rules. “If you look at the legislation and what we’re required to do as being part of the EU, the culture test is the main thing,” says Graydon. “That is an EU requirement. So is the 80% cap [on shooting in the UK]. There is potential, if the government chose to do that, to remove both of those things. Or refine the cultural test, change it slightly.”

Given the tax credit is believed to be “very much fit for purpose”, it is questionable whether there will be any moves to change it. “Regionality might be something to look at,” Graydon suggests. “If you look at the theatre credit, something that travels gets a higher incentive than something that stays in London. Could something be done along those lines for film and TV?”

UK plc

The weaker pound has turned UK companies into attractive takeover targets. It was no coincidence Odeon & UCI Cinemas was finally sold to US exhibition giant AMC (itself owned by China’s Dalian Wanda) just two weeks after the referendum. Just as Pinewood was reported as “shrugging off” the “spectre of Brexit” by doubling its profits, in late July the board of the Pinewood Group approved a $427.5m (£325m) deal to sell to asset management firm Aermont, an offshoot of Perella Weinberg’s US private equity firm.

EU financing for the regions and training

There are at present seven UK-based international training programmes co-financed by Creative Europe: Inside Pictures, Impact Producers Lab, TalentX, Developing Your Film Festival, Feature Expanded, Enter Europe and The Pixel Lab. Overall, Creative Europe supports 60 training courses in which UK film-makers are involved, including EAVE, the Media Business School, Torino Film Lab and Screen Leaders. There are also four UK-based markets and co-financing forums: Film London’s Production Finance Market (PFM), BRITDOC Foundation’s Good Pitch Europe, Foundation MeetMarket at Sheffield Doc/Fest, and The Pixel Market run by Power To The Pixel (on hiatus this year). Film London’s Adrian Wootton is determined the PFM, for one, will continue, even if the EU support goes. “If that funding disappears in the next two or three years, my commitment and intention would be to find the funding from another source and keep the PFM going,” he says.

Creative Skillset is a partner on business training and leadership course Inside Pictures which, with Creative Europe support, is now open to European as well as UK executives. Dan Simmons, head of partnerships at Creative Skillset, does not know what will happen with the initiative. “Having that Creative Europe funding has really strengthened Inside Pictures and brought a much larger network,” he says.

Skillset also provides bursaries for individuals to take part in various European programmes. “That should be unaffected,” says Simmons. In the short term, if currency fluctuations mean the bursaries do not cover the full costs, Skillset will look to provide extra support.

EU support for pan-European sales, distribution and marketing of UK films

In the first two years of Creative Europe (2014 and 2015), the distribution and sales of 84 UK films in Europe was supported by a total of $14.1m (€12.5m) through three funding opportunities: Automatic Distribution, Selective Distribution and Sales Agents support. The films to benefit the most were: Pride $1.13m (€1m), Jimmy’s Hall $1.1m (€960,000) and Paddington $750,000 (€660,000).

Creative Europe also co-funds Europa Cinemas, the pan-European cinema network, consisting of nearly 1,000 cinemas in 33 European countries. There are 53 members in the UK and 16 of the top 50 highest-performing films in the network were from the UK in 2015.

“From a [UK] sales perspective, the biggest concern would be the UK leaving Creative Europe, particularly the part enabling European distributors to receive distribution support for British films,” suggests Stephen Kelliher of London-based sales outfit Bankside Films. “If we are no longer in that programme, they [foreign distributors] won’t be able to buy as many British films as they have done in the past because there won’t be the support to release them.”

The UK films these distributors are willing to take a risk on may soon be left on the shelf. If the UK does not stay part of Creative Europe, the knock-on effect on European distribution will be profound. Attempts at boosting the circulation of European films will be undermined if UK titles are no longer counted as ‘European’.

Digital Single Market

The vexed issue of the EU’s proposed Digital Single Market (DSM) will not become any simpler because the UK is leaving the EU. Regardless of whether the UK is in the EU or not, most of its European partners are. If the UK is trying to co-produce with or sell to these partners, the same issue of territoriality of rights will apply. To work with them, the UK will need to abide by their trading arrangements. The UK, like most of its European partners in the film industry, will need to continue to lobby hard for the ‘territoriality of rights’ and to ensure films are licensed on a country-by-country basis rather than made available digitally everywhere at once.

“It is really, really important the British government fully defends the rights of us to sell our product by territory into the single market in order to extract the maximum value back to investing in British content,” says McVay.

The view from the US

When the result of the UK’s EU referendum vote became clear, “everybody panicked” according to one well-placed Hollywood production source. Since then, a mood of calm vigilance has taken hold in the offices of US studio executives. “What’s interesting as time rolls on is that the timetable has become so attenuated for any changes to be made that people have gone back to business,” says Jean Prewitt, CEO and president of the Independent Film & Television Alliance (IFTA).

“The first fall-out is the exchange rate — it starts to disfavour sterling, which makes it a little easier for my US members to produce there. It may make it a little more challenging to conclude sales at the level you want. That’s something the industry goes through all the time. Beyond that, people are primarily concerned about the possible impact on co-productions that may involve multiple countries in Europe and whether or not they expect to be able to cobble together deal-flow in the same way. At this stage, those impacts are not likely to happen for the next two to five years.”

But Hollywood is chronically risk-averse and US executives are monitoring developments closely to see how the UK’s historic decision to leave the EU will affect business.

“We reached out to the British Film Commission to see what they felt it meant and the truth of it is that everybody feels the Brexit issue will be a two-year process and it’s not affected our film-making operations in any negative way at the moment,” says the source. “We can still travel as we want to. The pound declined in value by 10-15%, making [the UK] better value. The pictures we had going there are still there.”

Too good to ignore

Typically, international stars’ fees are negotiated in dollars and paid in dollars, which in the short term at least will delight those US actors residing temporarily in the UK, where the US dollar is very strong against the weak pound. Day players are usually paid in the local currency.

The exchange rate will keep Americans coming to the UK for a while and so far it is understood no US studio has cancelled or is considering cancelling a UK shoot. The crews are too good, the incentives too enticing and the language and infrastructure too convenient for that.

Sony for one has six television shows shooting now in the UK including The Crown, Halcyon and Outlander, which recently wrapped and is expected to return to Scotland for a fourth series. Meanwhile Warner Bros is shooting the US-set Ready Player One and Justice League in the UK, and has a UK base in Leavesden Studios.

The question is what will happen to US films and television shows pencilled in to shoot in the next three to five years, not to mention corporate investments in the UK? Lionsgate is standing by its post-referendum acquisition of a stake in Primal Media TV to make unscripted programmes in the UK. Paramount has a deal with Locksmith Animation, the production house backed by Elisabeth Murdoch.

Meanwhile it is understood that STX Entertainment is continuing to build its London office under the auspices of David Kosse, president of the international division, who will oversee all non-US production and distribution from the UK.

Moving crews from the UK to mainland Europe will not be a problem for the next two years but the clock is ticking and executives will need to address the cost-effectiveness of that before long. “You try not to bring anybody if you don’t have to,” says the production source. “You are trying to handle locals wherever you go and that’s true of the business wherever you go.”

The truth is no-one knows anything for sure and that is rarely a good thing. As Prewitt says: “Uncertainty isn’t great for the industry in general because you’re trying to invest millions and millions of dollars over the years.”