Building Sustainable Film Businesses - The Challenges For Industry

Building sustainable film businesses:
the challenges for industry

and government
An independent research report

from Olsberg•SPI
sponsored by Film i Väst,
PACT and the
Swedish Film Institute
June 2012
This report was prepared by the UK-based
international strategy consultancy
For further information please contact:

Jonathan Olsberg
Olsberg • SPI
Suite 36, Pall Mall Deposit Studios
124–128 Barlby Road
London W10 6BL
United Kingdom
t +44 (0)20 3176 4844
e jonathan@o-spi.com
www.o-spi.com
© 2012 Olsberg•SPI
Building sustainable
film businesses:
the challenges for industry
and government
An independent research report
from Olsberg•SPI
sponsored by Film i Väst,
PACT and the
Swedish Film Institute

the challenges for industry and government 3
Foreword from
the sponsors
The challenge of creating sustainability in the Tomas Eskilsson
independent film sector is an issue for every Chief Executive
country, not just Sweden and the United Kingdom.
The structure and economics of film production Film i Väst
are not particularly well suited to building
sustainable companies wherever one is situated
around the world. Although this is a problem easily
recognised, it is far from clear how to address it let
alone devise solutions, whether for the companies John McVay
themselves or those public sector agencies which Chief Executive
support the film industry.
Producers Alliance for Cinema and Television
So when we were approached by Jonathan Olsberg
with the request to sponsor a new, thorough study
into the topic we immediately saw an opportunity.
Not just to get the report written, but also to
stimulate a discussion on a much wider platform
both within Sweden and the UK and around Charlotta Denward
the globe. Director of Production and Promotion
We hope that you, the reader, find the report to be Swedish Film Institute
a useful contribution to the debate. We certainly do
and we are eager to engage in that debate with you.
Section 10 of the report contains information about
our organisations and how to contact us and we
look forward to seeing the dialogue expand.
4 Building sustainable film businesses:

the challenges for industry and government
Introduction from
Jonathan Olsberg
Ever since we opened our doors in 1992 the SPI has been examining the issue of sustainability
question of how to find the elusive solution to for many years on behalf of its clients wherever they
creating viable, sustainable, independent film are around the world. This has involved advising
businesses involved in feature film development individual companies on their plans for growth and
and production has been constantly on our minds. helping public agencies support independent film
Is the idea of a healthy, vibrant, independent film businesses without making them totally dependent
sector a holy grail that can never be achieved? How on public subsidy.
do film companies become successful, wherever The problem is a perennial one, and will not be easy
they are situated around the world? And how can to solve, particularly in the current financial climate.
governments adapt their policies to achieve greater However, it is the tough economic environment
sustainability in the light of uncertainties over itself which has led us to believe that now is
financial realities and digital change? absolutely the right time to look afresh at the issue
We wanted to take a fresh look at these issues and of sustainability. The global financial crisis has led to
provide our own thoughts and hopefully some very deep cuts, in many countries, in public funding.
solutions, hence this report. So perhaps now it is even more relevant to stimulate
We are hugely grateful to our three sponsors, Film renewed efforts to help the film industry establish a
i Väst, PACT and the Swedish Film Institute for their refreshed business model; a model which will enable
interest in the topic and willingness to make this successful companies to leverage investment from
report possible, although we take full responsibility the private sector and therefore lessen dependency
for its contents. We thank them for permitting us on the public purse.
to express our own opinions and perspectives and
hope they are pleased that they did so. Do they
endorse all of our views – you’ll have to ask them!

Contents
Section 1.0 Section 5.0 Section 9.0

Executive summary 8 Public support for film 19 Where do we go from here? 35
1.1 Introduction 8 5.1 Current trends in incentive 9.1 Achieving ‘investment
1.2 Research and information ‘rivalry’ 19 readiness’ 35
provided in the report 8 5.2 Tendency to focus on projects 9.2 Think company not project 35
over companies 20
Section 2.0
5.3 European Competition Policy Section 10.0
(State Aid) 21 About the sponsors 36
film businesses 9
2.1 What is a sustainable film Section 6.0 Section 11.0
business? 9 Success factors for public systems 22 About Olsberg•SPI. 37
2.2 Definitions of sustainability 9 6.1 A holistic range of initiatives with
consistent levels of support 22 Section 12.0
Section 3.0 Appendices 39
Success factors for building 6.2 Project-based support that
sustainable film businesses 10 motivates activity by 10.1 Australia 39
rewarding success 23
3.1 Sharing in downstream 10.2 Brazil 41
6.3 Where broadcasters are
revenues generated by 10.3 France 43
mandated to invest in
successful content 10 10.4 Germany 45
independent content 25
3.2 Achieving diversified 10.5 Singapore 46
6.4 Uses of levies and quotas 25
revenue streams 11
6.5 Systems that combine well 10.6 Sweden 48
3.3 On-going relationships with
with those in other countries 26 10.7 United Kingdom 50
successful talent 11
3.4 Strong, dynamic leadership 12 Section 7.0
State of the markets 27 Thanks 54
3.5 International and corporate
business relationships 12 7.1 Understanding today’s
3.6 A supportive and consistent audiences for film 27
public policy environment 13 7.2 Global markets meta-analysis 28
3.7 Having more than a fair share 7.3 Distribution trends 28
of luck! 13 7.4 Production trends 28
Section 4.0 7.5 Public source funding 30
Why Governments invest
Section 8.0
in the film sector 15
How digital innovations are
4.1 Production spend: changing the film business 31
the ‘Multiplier Effect’ 15
8.1 Understanding fast-moving
4.2 Employment generation 16 changes in consumer
4.3 Skills and talent development 16 behaviour 31
4.4 Direct investment return 17 8.2 New opportunities to create
4.5 Export earnings 17 relationships with brands
and the advertising world 32
4.6 Increased tourism 18
8.3 Evolving patterns in windows,
4.7 National brand building 18
formats and other forms of
4.8 Film as a driver of the ‘distribution’ 33
creative economy 18
8.4 Breakthroughs in digital
production 34

List of tables
Figure 1:
Company strategies
- success factors 14
Figure 2:
A comparison of selected rebate
incentives targeting international
mobile productions 19
Figure 3:
Support systems success factors
- project based support 24
Figure 4:
US box office gross 29
Figure 5:
Filmed entertainment revenues by
country/region 2010-2015 30
Figure 6:
Distribution windows
(months after theatrical) 33

Section 1.0
Executive summary
1.1 1.2
Introduction Research and information provided
This report presents a case for a renewed effort, in the report
by film production businesses in tandem with the In addition to the chapters which address those
screen agencies that support their activities, to focus themes mentioned above, the report also contains
policy on building sustainable film businesses. Such some research and other information about subjects
focus is already evident in a few such organisations that are relevant to the core goal of company
and indeed (in our view) the sponsors of this report sustainability. This additional research we hope will
are among those that recognise the benefits of be helpful as background to the main findings of
helping companies achieve long term success and this report.
develop robust, sustainable business models.
They include:
Regrettably, we cannot offer the reader one chapter
l A discussion and explanation of the many
which neatly summarises all the answers. This is
because there is no ‘one size fits all’ solution. So benefits that accrue to governments as a result
it may be necessary to dig around a little to find of having a thriving film sector
indicators of solutions that could apply in the l A brief examination of current trends that can be
particular country or region in which the reader observed in public policies aimed at the sector
is based. l A high level analysis of the state of the global
Some common themes do emerge however and markets for film and some of the developments
they are analysed more deeply in the following that are occurring
chapters, such as: l A look at how digital innovations are continuing
l The suggestion that owner/managers of film to change the film producer’s options and
businesses might in future think of themselves opportunities, and finally
not as people who make great films, but as l An examination of conditions in seven countries
people who run businesses that make great films where we have observed some of the most
l The fact that there is much talk about interesting policy and business tendencies:
sustainability without necessarily defining what is Australia, Brazil, France, Germany, Singapore,
meant by it – two different definitions are offered Sweden and the United Kingdom.
in this report; the Investment Ready definition As our kind sponsors make clear in their foreword,
and the Maintained Stability definition all of us involved with this report are keen to see
l The fact that there are consistently recognisable the debate expanded so that the notion of company
factors common to film businesses that have development, in order to reach sustainability,
reached a regular level of success becomes closer to centre stage in policy discussions
l And there are also a number of consistent and strategy formulations, wherever one is located
factors that can be discerned in public support around the world.
systems around the world that also contribute
to this success.

Section 2.0
film businesses
2.1
What is a sustainable film business? Investment readiness depends on an examination of
the financial strength of a business, as indicated by
It has been understood for some time that much of its financial statements including revenue forecasts.
the independent film sector operates on a broken Where a company can show a robust financial track
business model. The dominance of the US majors record and growth potential sufficient to attract
means that independent film struggles for market private corporate finance (whether debt or equity), it
share, is highly risky and delivers relatively low can be considered to be ‘sustainable’.
rewards. Access to production finance is difficult for
Nevertheless, there are film businesses which are
independents. Highly complex multi-party funding
considered both sustainable and successful
structures are required, and producers are forced to
without meeting this very commercial definition.
surrender most or all of their intellectual property
An additional, alternative definition of sustainability
rights to investors and trade partners in order to get
is therefore required.
a film made. This leaves them with little -- if any--
access to revenues generated from the distribution l ‘Maintained Stability’ ‘Maintained stability’
of the film, and prevents them from building on describes the kind of sustainability seen in
prior success since they are left with no equity to companies that do not have the financials to
invest in future projects. meet the ‘investment ready’ definition. However,
they are able to produce high-quality films
In order to address this problem, SPI has been
on a regular basis, by relying on some level of
conducting fresh research into factors that
consistent public subsidy support.
contribute to the success of those independent film
businesses which have achieved sustainability in These businesses have demonstrated that they
some form. are able to continue to supply films to the market
over a sustained period, in countries where public
For the purposes of this report a ‘film business’ is
subsidy of production is an important part of the
defined as an independent company undertaking
film ecology. Their reliance on public assistance is
feature film production as its core – but not
therefore more a result of the system in which they
necessarily only – activity.
are operating rather than any financial or corporate
weakness.
2.2 The key indicator of this kind of sustainability is
Definitions of sustainability that the films being produced meet a market
niche. This is to say that there is a proven audience
SPI has developed two possible broad definitions of
for them, and the production company clearly
the term ‘sustainable’ in relation to film businesses.
understands its market and consistently produces
l ‘Investment Ready’ One generic indicator of a films that meet these audiences’ needs, although
successful business is when a company can be the commercial returns might not be substantial.
considered to be ‘investment ready’. This market- This definition would therefore include companies
driven definition could be applied to any growing producing films which may be considered to be
small to medium sized enterprise in any sector, more ‘cultural’ than ‘mainstream’.
not just in film, if it meets the criteria.

Section 3.0
Success factors for building

sustainable film businesses
The two sustainability definitions describe what 3.1
success might look like for independent film
businesses, but for many companies the question
Sharing in downstream revenues
remains of how to achieve it. generated by successful content
SPI has identified a number of common factors The single most important factor in determining a
which have contributed to building individual company’s potential for sustainability and growth
successful film companies around the world. This is is its ability to take a meaningful share of revenues
based on our experience in advising film production generated by any successful content that it makes.
businesses, and supported by new research we have This has a better chance of occurring when the
undertaken for this report, including interviews with production company has greater leverage in
owner/managers of successful film businesses in a negotiating financing for a project than has typically
number of different countries. been the case for independent film.
These factors are: Such leverage is likely to be based on a variety of
l The ability to share in downstream revenues business factors, such as having equity to invest
generated by successful content in the project, or successfully securing the
separation of particular rights within distribution
l Diversified revenue streams across a number of
or broadcaster deals.
activities, each providing different
risk/return parameters The producer’s negotiating position can also be
affected by the public policy system within which
l On-going relationships with successful talent
it operates. Where the regulatory environment
l Strong, entrepreneurial leadership actively mandates greater IP ownership, or where
l Strong relationships with international public funding is designed to reward producers
business partners and networks, especially for box office success, or where terms of trade
major, corporate players enable producers to take a superior recoupment
position ahead of public funders and broadcasters,
l Working within a public policy environment
production companies can benefit from
system that is supportive, reliable, predictable
downstream revenue generation.
and consistent
Crucially, many production incentive schemes –
l Having more than a fair share of luck!
especially rebate style fiscal incentives – do not
These are explored in greater detail in the enable producers to take a greater share of revenues
following pages. generated. Instead, rebate incentives reduce the
costs of production, thereby reducing the risks for
financiers. These schemes could, however, reward
the producers of a successful project, and contribute
to their sustainability, if they mandate that the
incentive amount be treated as producer equity.

Section 3.0 l Success factors for building sustainable
film businesses
3.2 3.3
Achieving diversified revenue streams On-going relationships with
Of all the activities involved along the film value successful talent
chain, development and production is the most Production companies which have demonstrated
high-risk. Successful production companies are able on-going success have often benefited from long-
to mitigate this risk by engaging in a diversified term relationships with successful creative talent, in
range of activities with lower risk profiles, thereby particular with directors and writers. This appears to
ensuring a more stable revenue stream. be a key factor in enabling a film business to build
Diversification might be horizontal (producing other on prior achievements and strengthen its ability to
forms of media such as television, commercials or get projects off the ground in future.
new media) or vertical (engaging in film sales and The creative dynamic between, for example, a
distribution or providing post-production and other producer and director, can often become the
facilities and services). Ideally a company will have a core of a film business. This might be an exclusive
portfolio of activities with a variety of different risk/ relationship, a first-look agreement, or some
reward profiles. other form of partnership. The obvious benefit to
If companies are to meet the generic definition of the production company is where the talent has
sustainability – i.e. to be ‘investment ready’ – it is become established and can therefore be expected
important that they can demonstrate some revenue to attract audiences. This factor is of particular
streams which are ‘predictable’. If film development importance to companies which have achieved
and production is the only business producers sustainability in the ‘maintained stability’ definition.
are in, it will be a huge challenge to convince an In some cases successful production companies
investor that the business is sustainable. have been in partnership with key creative talent
from the beginning of their career, and in a sense
have benefited from being part of the process of a
director or writer making a name for his or herself,
strengthening the relationship even further.
Additionally, working with familiar creatives on an
on-going basis can help to establish a brand for a
production company, giving stakeholders (public,
private and even consumer) a sense of the kind of
films it produces.

film businesses
3.4 3.5
Strong, dynamic leadership International and corporate
In this context, we mean strategic leadership business relationships
with a clear, corporate vision of how the business Another key success factor lies in the nature of
should be developed. In our work with clients we the business and corporate relationships that
have noticed the frequency with which successful a company enjoys. Our research shows that
companies are led by individuals with experience companies with the strongest international links
of the generic issues associated with company tend to thrive, particularly if those networks include
growth and expansion. larger businesses which are run on more corporate
Most film production companies are owned, lines. It appears that film entrepreneurs who are
managed and run by creative individuals whose involved in these types of business relationships
principal talents and experience lie in the business tend to build strong links, over time, with a few of
of bringing individual film projects to fruition. them and this can lead to more permanent financial,
It is not always the case that these same corporate alliances.
individuals will have the knowledge and experience This key success factor is not surprising: after all,
to push forward the company’s growth because the film business is one of the most global of any
these are essentially different skills. They may creative economy sector. Just about any film from
reside in the individual who also has ‘project’ talent, a mature filmmaking country will have realistic
but not necessarily. ambitions to make an impact in the international
A key recommendation to any film business market. The costly nature of creating the film asset,
with ambitions for sustainability therefore is to and the probability that the domestic market will
secure experienced entrepreneurial leadership. As not be sufficient, for most independent films, to
explained above, this does not necessarily have to fund the project by itself, had led to an increase
be embodied in the owner of the company. It could in international co-productions1. The emergence
be a senior member of the management team, or of new countries as significant film markets also
even an outside adviser, who is given the task of reflects the internationalisation of the business.
devising and delivering a growth strategy, rather Therefore the key relationships for a film business
than addressing project-related issues. might mostly be with trade partners operating
If these skills cannot be found within the permanent internationally, providing access to or funding from,
management team, another way of achieving this global markets, and often based in other countries.
is to appoint a non-executive director, to sit on
the company board, with the sole remit of driving
the business towards investment-readiness. The
right individual might have a background in
corporate finance, or in senior management with
a larger company, even from an unrelated sector,
but crucially will have an understanding of (and
solid connections with) sources of investment.
Remuneration for this non-executive director might
be performance-related, based on his or her success
at achieving that investment.
1.
For most countries – the UK being an exception because of the way
it’s Film Tax Credit is structured.

film businesses
3.6 3.7
A supportive and consistent public Having more than a fair share of luck!
policy environment The term ‘independent producer’ is in many ways
Other than in Hollywood and the Indian film a misnomer. A more accurate description might
industry (‘Bollywood’), most countries with film be ‘dependent producer’ because so many factors
industries operate a supportive public sector involved in a film’s production and distribution are
investment strategy. The reasons why this support out of the producer’s control. Bad weather can derail
is provided are multiple – cultural, social and the shooting schedule; illness can delay production;
economic – and are examined in detail in the an expensive piece of equipment could malfunction
following chapter. or be destroyed. Even when the film is ready to be
distributed, a big Hollywood blockbuster might shift
It is certainly necessary, for a company to have a its release date directly opposite the producer’s
chance to become sustainable, to exist within a lower-budget independent film, draining the
system that provides support that is consistent and audience away.
reliable and operating at a level that is substantial
enough to really make a difference. For an We may call it luck but really it is about lack
independent company to work in an environment of control. There is little doubt that many film
without this type of support decreases the potential businesses operating in the independent sector are
to develop a robust growth strategy. This is in part keenly aware that luck – those factors which are
because the nature of the production business beyond the control of a company – has a significant
model – high risk/potential high reward – requires impact on a business’s ability to become sustainable.
the ability to operate in a predictable system over While it is acknowledged that there is little that
the long term. This reflects the fact that the process can be done by production companies to mitigate
of development and production itself can and does some of these factors, if a company displays some of
take many years for individual projects. the success factors described above, they may find
Some examples are included in the Appendices of themselves more often in a position to benefit from
support structures in a small selection of countries good luck and also in a more robust condition to
that largely meet the criteria of consistency and survive periods of bad luck.
reliability, and size. These are Australia, Brazil, France,
Germany, Singapore, Sweden and the UK and a
commentary is included in each case on some of the
variables that contribute to this sense of reliability
and consistency. These include the overall approach
to public support to be found in each country; the
nature of that support at national and regional
levels, and the role broadcasters play in the sector.
Of course there are dozens of other countries (and
regions) that also fit the criteria discussed above.
The purpose of this report is not to provide a
comprehensive analysis of support mechanisms, but
we do apologise for leaving out the very many other
examples of supportive and consistent systems that
exist around the world.

film businesses
Figure 1
Company strategies - success factors
Factors contributing Public policy support

to company growth mechanisms
Ability to make Project support

successful films Company support
and share in revenues dominates
Diversification
Talent relationships
Leadership
International
and corporate
relationships
Public funding
environment
Luck
OBSTACLES
Market failure:
• Generically high risk activity
• Relatively low rewards
• Typically conducted by small companies
• Dominance of US majors
Policy support:
• Very few public policies focussed specifically on
company growth
• Focus on individual project support
• And other (‘cultural’) areas not directly contributing
to corporate growth
Difficult buiness model, i.e:
• Access to finance
• Limited IP ownership and access to revenues
• Producer often has no finances to invest
• Complex multi party funding structures
• Mismatch of risk and return
• No convincing digital business model

Section 4.0
Why governments invest

in the film sector
Governments around the world have come to 4.1
understand the full range of benefits of a thriving
film sector and the industry has come to accept this
Production spend: the ‘Multiplier Effect’
as the norm in most mature, and many maturing, An Economic Multiplier is used to assess the
film markets. Government support has reached this dynamic impact of an industry2. It measures the
position because both industry and government direct effect of expenditure into the economy by
have realised the significant benefits to be derived a particular industrial activity, the indirect effect
for the agendas of both parties. on suppliers of inputs to the industry, and induced
The cultural and social benefits of a healthy film effects from incomes that are generated for
sector have been recognised for some time. Indeed, individuals and further spending as a result.
early strategies for supporting film emanated In effect, the multiplier is designed to measure the
largely from ministries of culture or the arts. But eventual increase in income resulting from the
perhaps even more important in relation to creating initial boost to expenditure and is normally used by
sustainable film companies are the economic governments who wish to evaluate the economic
benefits of filmmaking. In this report, therefore, it impact of a number of competing sectors when
is appropriate to underscore what these benefits deciding where to commit resources.
are. For the purposes of this analysis they are
For example, in relation to film production, this
categorised as:
would be money spent on all the elements of a film’s
l Production spend; the ‘Multiplier Effect’ production budget (e.g. location hire, transport,
l Employment generation accommodation, catering) which in turn ‘trickles
down’ into suppliers and services to those recipients,
l Skills and talent development
and which eventually spreads through to the wider
l Direct investment return Gross Domestic Product.
l Export earnings Multiplier effects in the worldwide film industry
l Increased tourism tend to range from between an estimated 2.0 and
3.0, although the latter levels have been generally
l National brand building
viewed sceptically when used. The average film
l Film as a driver of the creative economy. industry multiplier effect SPI has found through
publicly available research for this study is 2.34.
2.
Cambridge Econometrics’ definition.

Section 4.0 l Why governments invest in the film sector
However, these multipliers are notoriously difficult 4.2

to estimate as they include so many hard-to-
ascertain costs and other factors. The fragmented
Employment generation
nature of the film economy makes its contribution An expansion of film production activity in
to GDP difficult to quantify. In order to establish a any country or region creates substantial new
multiplier for the film industry in any given country employment. This will include full time employees
requires a sophisticated economic analysis. Even although the majority are likely to be freelance
in some mature film economies, such as France, workers, which is typical for the film industry
multipliers are not taken so seriously because, worldwide. These jobs are normally captured
according to national film commission Film France, in statistics by calculating the Full Time Job
the required economic data to prove them does not Equivalents. The standard definition for this is: total
exist. hours worked divided by average annual hours
Some examples of publicly stated film production worked in full-time jobs.
multipliers are as follows: Most jobs created by production require a highly-
l Australia 2.67 skilled and well educated workforce and this also
stimulates a mobile and flexible labour pool with
l New Zealand 2.55
skills and abilities that are transferable into other
l South Africa 2.50 screen based industries, at home and abroad.
l UK 2.0. Several mature film markets have created important
initiatives aimed at creating this highly skilled
work force. This may start with the traditional
film school education but is even more potent
economically when focussed on vocational training
for professionals employed in the sector.
A 2007 report on the UK film industry3 claimed
that for every person the sector directly employs,
another job was supported by indirect and induced
multiplier impacts.
4.3
Skills and talent development
A key attribute of any nation or region is its human
capital and in terms of the film sector this correlates
with the talent of the individual practitioners and
professionals working in the sector. Film is a modern,
adaptable and vivid mode for the expression of
individual views, stories and opinions. The talent
that works in film has flexible and growing career
opportunities, at home and abroad. The talent pool
is well-educated, has high level, adaptable and
modern skills and this can be seen in many corners
of the world. In addition to the traditional above
the line ‘auteur’ talent of writing and directing, plus
producing, there is an increasing focus on technical
talent development (VFX, animation and 3-D) as well
as many other vocational skills.
3.
By Oxford Economics

4.4 4.5
Direct investment return Export earnings
Most independent film transactions involve private As discussed elsewhere, a film is an asset with
investors, banks and other financiers. There is a significant global market and the value of the
consequently no reliable statistical evidence in the international territories (as defined by the US
public domain of how much revenue the average studios) has been increasing year on year for a
independent film actually generates. And because decade. The importance of international revenues
the independent film business is a business of for UK independent films is underlined by various
prototypes – i.e. each film is a one-off – it would be estimates that non-UK income is thought to provide
reckless to draw conclusions even if average returns anywhere from 50% to 70% of an individual film’s
were made publicly available. net revenues.
A rule of thumb for public film funds is that they The value of the international market continues
rarely deliver over 50 per cent recoupment of to grow as new countries develop audiences and
investment. Of course, this is understandable consumer demand increases for a range of film
because the aims of this ‘soft’ investment are many – genres. In addition to the growth of the BRIC4
cultural, economic and social – whereas pure territories there are a number of other territories
private investment only has financial return as developing their appetite, such as Turkey, Indonesia,
its motivation. Mexico and in the Middle East.
Because the public investment is therefore pushed Film content is relatively unique in that it is a capital
down the recoupment schedule it is difficult to draw asset with a seemingly increasing shelf life, which
conclusions as to return when there are so many continues to grow as new markets emerge around
financiers above them in the ‘recouping waterfall’. the world for filmed entertainment content. This
However, the fact that there is a direct financial expansion is also fuelled by the creation of new
return, in addition to all the other benefits described formats and modes of delivery.
in this section, could be considered an added With many countries having identified growth in
bonus compared to many other public investment exports as a key objective for economic policy, film
initiatives in the creative economy. is increasingly seen as punching above its weight
against these aims. This is not just the case for
countries making films in English, but can also be
seen in more niche markets such as (recently) Iran
and Denmark.
4.
Brazil, Russia, India and China

4.6 4.7
Increased tourism National brand building
Film5 has significant positive effect on tourism as As discussed above in relation to tourism, feature
has been shown by many studies in a variety of films contribute to a wider ‘branding’ of a country’s
countries around the world. Tourist visit decisions inhabitants, society and culture. This can have a
are based on several factors but experiencing a very strong influence on creating a desire to engage
destination through a shared, film entertainment in business transactions as well as tourism visits.
experience can be a major element. The positive The same effects that are experienced by potential
impressions caused in audiences are deep (latent) tourists about a destination are to be found also in
and long-lasting and often repeated as a film works the international business and trade community.
its way through the typical distribution windows. This can assist in building export markets and
The tourism impacts are also valuable for internal inward investment.
tourism as well as foreign-based . There are also geo-political benefits to increasing the
Film and television, of all media, have a great ability understanding of a nation worldwide as a result of a
to touch upon many cultural characteristics. Screen film’s impact. Film can enhance the profile and brand of
products can inform and excite audiences, in the a country or region for creativity, skills and innovation.
same instance, about a nation’s language, history, For example, the Bend It Like Beckham effect was also
literature, society, landscapes and personalities. This important in attracting Chinese students to study at
all happens in the form of a narrative framework UK universities.
which gives the audience an emotional, as well as
intellectual, connection to the country. 4.8
The effect is likely to be most persistent when the Film as a driver of the creative economy
production achieves broad distribution or even
cult status or is part of an existing, wider historical, Many nations have come to realise the substantial
literary or cinematic brand. economic and other benefits to be derived from the
The longer and wider-reaching impact of a expansion of the fast growing creative industries.
film or television programme can outlast and They have become key contributors to GDP7
spread far beyond the initial release of the film growth and are the focus of a variety of initiatives of
itself, delivering messages which contribute to a different types to stimulate the development of the
broader consciousness of a nation’s culture among creative economy.
international audiences. In SPI’s view, the film sector (particularly production)
An interesting example of the film-induced tourism is the most powerful driver of activity in other
effect was found regarding Bend It Like Beckham creative industries. This is because a large scale
and China. According to official UK representatives production normally uses the output of more
in Beijing, Bend It Like Beckham significantly raised creative industries than any other single creative
the UK’s profile in China, the fastest growing tourist industry. Consequently, film is more potent as an
market in the world. Prior to seeing the film, Chinese engine of growth than any other single creative
people had an image of the UK largely derived from industry.
classic films and books such as Sherlock Holmes For example, the UK has 13 official creative industries
and Dickens, as a traditional and reserved country. and film directly drives economic activity in 10 of
They were therefore surprised and delighted by these 13 by using or purchasing their services or
the depiction of multi-cultural harmony in the film output. This includes publishing (writing); performing
and this was a major contributing factor toward an arts (acting and directing); music; photography;
increased number of tourist visits6. design; fashion; software; architecture (set building);
television (medium of delivery) and advertising
(distribution). The only activities not directly involved
are fine arts/antiques, crafts and radio.
‘Film’ includes cinema features, documentaries and television
5.
programmes in this context. In the UK in 2010 the GDP contribution of the Creative Economy
7.
See the SPI report ‘Stately Attractions’ How Films and Television
6. outstripped that of the Financial Services Sector, at around 6.5% of
Programmes Promote Tourism in the UK. national GDP.

Section 5.0
Public support
for film
Because government interventions play such an
Figure 2
important role in helping film businesses become
sustainable, we wanted to look at a couple of A comparison of selected rebate incentives
key areas where such support is undergoing targeting international mobile productions
developments, experiencing changes or stresses
of various kinds.
Maximum
Country Rebate (%)
5.1
Czech Republic 20
Current trends in incentive ‘rivalry’
France 20
Although there are no macro trends in public Germany 20
support for film – apart from certain screen agencies
Hungary 20
facing continual pressure on their budgets because
of global economic difficulties – there are micro Ireland 28
trends focussed on certain areas of intervention, and Italy 25
production attraction incentives is one area where
Malta 22
there is a remakable amount of current activity.
United Kingdom (large budget) 20
Many territories are engaged in a kind of production
incentive ‘arms race’ as to which country can most Non-Europe
successfully attract portable production. Because Australia (international) 16 ½
film spends so much money employing so many Singapore 40
people in a short space of time, governments have
South Africa 20
recognised the trickle-down economic benefits of
hosting film production, let alone the tourism and South Korea 25
country brand benefits noted above.
Countries including Croatia, Abu Dhabi and Malaysia
have all recently launched their own new incentives
for film and many of these schemes also apply to
domestic productions. The following table shows
some examples:

Section 5.0 l Public support for film
5.2 the points raised in this report as a precondition of

making a loan, such as having at least one company
Tendency to focus on projects director with a minimum of five years’ experience on
over companies the board (‘Strong, entrepreneurial leadership’).
Although from a relatively low level of current Reviewing the first two years of the Enterprise
support, screen agencies are increasingly Program, external assessors (of which SPI is one)
recognising the importance of company noted some common factors of applications that did
development as opposed to simply project not succeed: continued overreliance on production
financing. fees for income rather than downstream revenue
potential; a dearth of joint ventures or corporate
A prime example of innovative support is Screen
linkages; a lack of input from business/financial
Australia’s Enterprise Development Program which
mentors and experienced non-executive directors;
since 2009 has provided corporate finance soft
lack of research/analysis into what the market
loans. The mission statement of the program is
wants (excess of ‘supply-push’ strategy as opposed
‘assisting in the development and creation of viable
to ‘demand-pull’) and a lack of up to date market
screen businesses’, in particular through:
intelligence.
l Supporting existing businesses to grow to the
Reviewing other support measures discloses that
next stage
the Swedish Film Institute can award up to €110,000
l Encouraging new business partnerships and for corporate development while Film i Väst meets
alliances four times a year to review strategies and structures
l Developing a strong presence in the international supported by the regional screen agency through its
marketplace Business Audit scheme.
l Encouraging the development of new revenue What these bodies believe is that helping
streams production companies diversify their revenue
streams by expanding into new areas as well as
l Facilitating increased development of quality
overseas is a key plank in creating a sustainable
projects and talent
film industry.
l Encouraging development, production and
Notwithstanding these examples, there are relatively
marketing strategies which address new
few national support initiatives which are targeted
opportunities in digital media and online.
specifically at achieving or supporting corporate
Companies that do not yet have the capacity growth for film production companies. Instead
to access private capital were prioritised in the there is a strong bias towards funding for individual
program’s first year of operation in 2009. Soft projects, the development of project skills, or for
loans of up to AS$350,000 (€274,285) per year infrastructure projects such as studio developments.
for three years were available. The 2011 funding
The training on offer for creating sustainable film
round awarded A$3 million (€2.35 million) to four
business is also relatively hard to locate. Some
companies. The Enterprise Program has awarded
academic institutions such as the National Film
A$15 million (€11.8 million) to 21 companies in
and Television School (NFTS) in the UK and the
total to date.
Australian Film Television and Radio School (AFTRS)
A proportion of the Enterprise funds are treated offer courses in the business aspects of producing,
as a recoupable loan, with the exact amount and as does the Peter Stark Producing Program at USC
repayment mechanism negotiated on a case-by- in Los Angeles. This September the London Film
case basis. School is launching an MA in Independent Film
The scheme operates an application process that Business with Exeter University in England.
opens once a year and applicant companies must The problem is however that often producer
present a strong business plan which addresses business training is about how to convert projects
many of the elements described in the Investment into production and distribution. What is generally
Ready definition of sustainability that is referred to lacking is support for owner/managers who wish
in section 2. to strategically grow and build companies, for
Crucially, the Enterprise Program insists on many of which they need training in strategic company
development and achieving Investment Readiness.

Section 5.0 l Public support for film
5.3 l That the definition of ‘qualifying spend’ causes

particular activities in the film budget to receive
European competition policy a national preference
(State Aid) l That Member States may have local spend
As of the date of this report (May 2012) the requirements of up to 80% of the film budget,
European film industry is uncertain about how which the Commission regards as excessive
current European Commission proposals concerning l That Member States are using public funding
State Aid might be enacted and how they might to compete with each other to attract mobile
affect the way in which screen agencies support the international productions to shoot in their
film sector. territories.
The draft proposals for change have been issued by The Commission believes that these aspects
the EC in pursuit of one of its core responsibilities of Member States’ film support systems distort
under the Treaty on the Functioning of the competition to an extent that is not justified in the
European Union (TFEU), namely the policing of EU pursuit of legitimate cultural purposes.
competition law. In the draft Communication the
SPI believes there is considerable opposition within
EC refers to Article 107 of the TFEU (the general rule
many European governments to most of these
against competition-distorting state aid) and Article
changes but until the issues are clarified there is
107(3)(d), the so-called ‘cultural exception‘.
a cloud in Europe over the flexibility enjoyed by
The draft proposals set out to make a number of nations and regions in their support strategies for
changes to the rules governing state aid to film. the sector.
The most important changes are:
l A proposed cap on state aid to high budget
‘non-European’ films
l A reduction in the proportion of the budget a
Member State can require to be spent within its
territory (territorialisation)
l A new definition of expenditure anywhere within
the European Economic Area (EU members plus
Iceland, Liechtenstein and Norway) as ‘national’
expenditure where the aid is pro rata
to national expenditure
l A proposed rule against allowing state aid to
support particular budget lines.
One of the Commission’s roles is to be the guardian
of competition within the single market. It accepts
that film, as a cultural good, is an exception but
seeks to prevent the ‘cultural exception’ being used
inappropriately as a form of industrial protection.
As expressed in the draft Communication, it has
three particular concerns:

Section 6.0
Success factors for

Public Support Systems
Having identified what film companies can do 6.1
to help themselves achieve sustainability and
longevity there remains a question about what
A holistic range of initiatives with
public agencies wishing to support film as both a consistent levels of support
cultural and economic activity can do that is aimed
In many of the most established, mature film
specifically at strategic company development.
economies around the world there is a public
It is not inappropriate to put public funds into support body, usually at national level but often
helping film businesses become sustainable. also at regional level, providing an integrated set
Business support for SMEs in all sectors is a well- of support initiatives aimed at different points along
established and highly effective strategy used by the value chain.
governments around the world to help enterprises
A holistic range of support mechanisms across
to grow. Independent film companies will inevitably
the value chain might include some or all of the
fall under the definition of a small to medium
following commercially based interventions:
sized enterprise (if not a micro enterprise) and are
therefore eligible for this support. l Development funding for new projects
However, the complexities inherent in the film l Production funding
industry (in particular the challenges to growth l Support for distributors and, where relevant, sales
described elsewhere) mean that business support companies, for example with marketing costs
is not always applicable, and could be more
l Support for independent exhibitors and
specifically targeted and designed to help film
national broadcasters
companies overcome those particular obstacles.
l Initial training for new entrants as well as
SPI has built on its knowledge of and research into
advanced training and networking opportunities
public support schemes for film around the world,
for established film professionals.
and the efficacy of those schemes, to identify a
number of success factors for public agencies A holistic approach usually exists in countries
wishing to support film businesses. These factors where government has a full understanding of the
have done the most to support growing film range of benefits of a healthy screen sector, both
businesses in the independent sector, even though economic (as described in Section 4) and cultural.
they support growth in an indirect way, with the Most important is an understanding that screen
focus still largely on individual projects. production is a major driver of activity in the creative
economy, which is a core element of the knowledge
In summary, these success factors are identified as:
economy that many developed countries are
l A holistic range of initiatives with consistent increasingly turning to for growth.
levels of support
Crucially these policy programmes have
l Project based support that motivates by permanence, or at least real longevity – one
rewarding success example would be in Sweden where the Film
l Where broadcasters are mandated to invest Agreement guarantees support for periods
of at least four years, providing domestic and
l Levies and quotas
international stakeholders along the value chain
l Systems that combine well with those in a measure of security in their business decisions.
other countries.

Section 6.0 l Success factors for Public Support Systems
6.2 making films that have reached a minimum level of

box office. This financial reward for previous success
Project-based support that motivates is then invested in future projects, so contributing to
activity by rewarding success building a sustainable business.
In many regions and countries support for film Recoupment policy
is focused on project-based support only. Such Where discretionary or selective funds do exist, it
schemes can nevertheless encourage sustainability is helpful if the public sector recoupment policy is
of film businesses when designed around certain flexible so that where possible the producer can
characteristics. These are as follows: recoup their investment at least alongside, if not
Project funding ahead of, public sector funders. Another advantage
would be if the public investment is considered as
Project funding, in particular production funding,
producer’s equity (as is the case in Australia, Ireland
should be designed to incentivise both domestic
and to some degree in the UK). This enabling of
independent film production and international
producers to derive revenues alongside public
inward investment projects. It is crucial that the right
investors is crucial since in most cases the producer’s
balance is struck between these two if all of the aims
recoupment position will be behind all other
of a holistic strategy are to be achieved.
financiers, creating a major obstacle to sustainability.
Automatic support
Producer’s equity
Furthermore there is a trend in that public policy
A good example of this flexible approach exists in
approaches have tended toward offering automatic
Ireland, where the Irish Film Board will consider
project support rather than discretionary systems, in
50% of its investment as producer’s equity, i.e. it is
markets that have reached maturity. Discretionary
recouped to the producer instead of the Irish Film
systems are sometimes biased towards assessing
Board. It terms this the ‘internal corridor’ by which
film projects on cultural grounds rather than
a producer can share in the revenues generated
for their commercial potential. By also offering
by a film.
automatic support this can be balanced to enable a
range of kinds of films to be made – whether aimed In the UK producers funded through the British Film
at a niche art-house audience or the mass market. Institute (BFI) currently receive a blended producer
equity corridor of 37.5%. In January 2012 the UK
Diverse voices, new talent Film Policy Review Group recommended that the
However for the sake of a healthy film ecology equity corridor be treated in addition to, not in
it is important that there is a balance between place of, the existing 20% tax credit as producer
commercial and cultural film-making. Funding for equity recoupment. Also, it should recoup pro-rata
cultural or diversity-related content or funding and pari-passu8 with BFI Lottery investment. Under
aimed at the development of new talent is in the recommended system, recouped funds would
general discretionary. The motivation for funding be held in trust by the BFI and handed out for the
these kinds of films differs substantially from that of successful producer’s future projects.
more commercial films, so support for these kinds of
The review group talked about creating a culture
projects is often sourced from a different strand of
of rewarding success. Further, the review also
funding than the automatic support system.
suggested that the BFI itself should have relaxed
Rewarding success policies for its own recoupment targets so that
In the most effective support systems project more money goes towards building sustainable
funding for film motivates producers to make production companies.
films with the potential to connect to substantial
audiences by rewarding box office or other
measures of success with ‘bonus’ financial incentives.
This form of support can be found in European
countries including France, Germany and Sweden.
In some cases this is administered through a
separate block of funding which can be accessed by
producers who have established a track record of 8.
That is, equally ranked.

Slate funding Spend-related rebate

Another mechanism for project funding through Many countries operate an automatic system which
which public support systems can encourage offers a rebate on spend in the country, discussed
sustainability in film businesses is through slate earlier in this report. This acts both as an incentive
funding where public funding is provided not just to inward investment productions, as well as a way
for one film project but for a number of projects of supporting local producers. A direct rebate will
being made by the same company. reduce both the cost of a production as well as the
While this approach might reduce the risk for risks to investors, including the producer where the
the company, slate funding is seen by some as producer is an investor.
increasing the risk for the funding body itself. All of these success factors for project funding
A much larger financial commitment is required, in general apply only to the more mature film
and is placed at the hands of fewer companies, economies. In countries and regions which are at an
rather than spreading the risk/investment across earlier stage of development other priorities than
a number of producers. However, slate funding is company sustainability would dictate the design
a useful supporting mechanism in cases where a of support mechanisms. For example, they might
company has demonstrated its ability to produce prioritise the need to establish a critical mass of
strong commercial films. activity and/or to establish a new pool of talent.
Figure 3
Support systems success factors
- project based support
Country
Overall success factors Aus Bzl Can Frn Ger SthKor Spn Swe UK
Holistic range of consistent, significant,
l l l l l
strategic initiatives
System that rewards project success l l l l l l
Levy on broadcasters or distributors l l l
Levy on box office or exhibitors l l l l

Levy on DVD or digital revenue l l
Broadcasters mandated to invest in film l l l l
Quotas on cinema and/or television l l l l
System combines well with other country support
l l l l l l
(e.g. co-production)
Performance indicators
Production volume 2010 (€m) 292.5 137.8 374.3 1498.0 223.0 223.0 598.7 93.7* 1401.0
Number of films 2010 37 76 74 261 119 152 201 41* 119
Average budget 2010 (€m) 7.9 1.8 5.1 5.7 1.9 1.5 2.9 2.3* 11.8
Source: Olsberg SPI, International Support Systems for Film, June 2010
*Note: Swedish Figures are for 2009

6.3 6.4
Where broadcasters are mandated to Uses of levies and quotas
invest in independent content There are a number of other factors seen in film
In several countries television broadcasters support systems around the world which involve
(particularly public service broadcasters) are heavy regulation but which could contribute, over
required to invest in independent film production, time, towards company sustainability.
through the mechanisms of both license fees and Levies
equity participation. This approach has reaped Levies at the consumption stage, for example on
considerable success in markets like France and ticket sales, are useful for rolling funding back into
Denmark, for example, and in the former it has feature film production. In particular, by using
resulted in a number of major television companies the funds from levies to support the independent
setting up successful film production activities. sector, it is possible for independents to benefit
Studio Canal is a prime example of this. from the success of Hollywood films, rather than
There are even better examples of this strategy being kept out of the market by the US studios.
working well for independents, namely in television Domestic, independent and very ‘cultural’ films,
production. Where public service broadcasters which usually struggle to access markets, are
have been required to show a minimum amount helped into production and this approach, crucially,
of domestic content, a market opportunity is benefits public agencies supporting film since the
immediately created and local television producers programme is self-funding rather than requiring
working with broadcasters have benefitted. This new public investment.
has resulted in real security for those independent However, one drawback to levies is that, at present,
television companies that have been able to it is unclear how they could be applied to new
establish themselves as reliable broadcaster technologies such as video on demand, SVOD and
suppliers. The additional benefit of this approach, other digitally distributed content. In addition,
particularly for film, is that it forces producers and while levies have been used at different times and
broadcasters to work together at the development in different countries for many years, selling the idea
stage, increasing the producers’ understanding of of a new levy to politicians can be difficult as the
the commercial audience he or she is producing for. companies suffering the levy might also own other
However, as film consumption increasingly takes media which puts them in a position of significant
place online there are questions as to whether influence in the political domain.
traditional broadcasters will have as much on-going
Quotas
relevance for the film market, or whether they will
be displaced by over-the-table (OTT) video-on- Quotas are another method of securing
demand or subscription-video-on-demand (SVOD) sustainability for film businesses at the production
movie services. end of the value chain, ensuring that a minimum
level of domestic production is commissioned or
shown in cinemas. These quotas could be enforced
either among exhibitors – cinemas are mandated to
show a minimum number or proportion of locally-
produced films – or among broadcasters, which
similarly are required to show a minimum amount
of domestic content.
China currently only allows 20 foreign films to be
imported each year, although the country recently
agreed to allow a further 14 Imax or 3D titles into
the country annually. South Korean exhibitors are
required to reserve 20% of screen time for locally
produced films and in fact the quota was until a few
years ago even higher than that.

A quota for cinemas is a less popular and useful

mechanism, since it is designed specifically to distort
the market in favour of a particular kind of product.
6.5
Systems that combine well with those
in other countries
A crucial consideration of all for public sector
support for film businesses is that whatever support
is offered must be designed to be easily combined
with support offered in other countries because
most independent film are funded through a
variety of international co-producers and other
networks. This means that co-production treaties,
and memoranda of understanding, are crucial to
enabling local companies to build international
business partnerships and access funding required
to make films for international markets. Where
this simple mechanism is not in place local film
businesses could be severely restricted in the level
of growth that can be achieved.

Section 7.0
State of the markets
We did not want to write a report about sustainable New York. Incumbent Swedish multiplex operator
film businesses without taking a look of some of the SF Bio has targeted the opposite demographic,
key trends that might affect companies’ ability to creating baby and toddler-friendly screens with
become sustainable. Most of these are to do with softer sound and frequent breaks in the film for
trends observed in the various markets for taking care of children’s needs.
film product. According to the World Health Organisation, 10 per
cent of this ageing population will be aged over
7.1 65 by 2025. This ageing population is affecting
Understanding today’s audiences the kinds of films that are being made. In Britain
in particular, the success of The King’s Speech has
for film encouraged one sub-genre: films aged at filmgoers
If the old mantra was ‘content is king’, then today’s aged over 50. Distributors are chasing after the
world sees the consumer as queen. The explosion in ‘silver pound’. Tim Bevan, co-chairman of Working
social media has had a huge levelling effect on the Title (Tinker Tailor Soldier Spy) believes this older
way people see, use and absorb film. By 2015, 380 audience is far more reliable than a younger one
million people globally will view online video via more interested in computer games10.
connected devices such as TVs, games consoles or The changes going on in the global film industry
set-top boxes9 . This new flattened media world is are not only about encouraging consumers to get
affecting the traditional film industry too. out of the home and into the cinema. This would be
Simply put, it is the consumer who will determine a subject for a whole separate report – consumer
how the industry will grow rather than the industry choice – in terms of formats and delivery systems,
pushing change on the consumer. let alone the challenge to the industry of piracy
and illegal download. Some related issues are
This shift can be especially seen in the exhibition addressed in following sections. But suffice it to
business, where cinemas can no longer rely on say, film producers have the opportunity as well as
repeat business. With so many screens competing the need to move closer to the ultimate consumer,
for people’s attention, cinema chains have innovated and understanding (and predicting) consumer
to retain customers. behaviour has become increasingly important for
With an ageing population, chains such as Curzon all forms of digital media content.
in Britain, Village in Australia and Folkets Hus
och Parker in Sweden have innovated to attract
older patrons. Curzon, which operates a chain
of upmarket cinemas across London, has talked
about positioning itself as a niche premium brand.
Australian chain Village runs sophisticated Gold
Class Cinemas within its multiplexes. Rivals Hoyts
and Event Cinemas have their own versions of
the upmarket cinema screen concept with better
seating and waiter service. In Sweden, Folkets
Hus och Parker broadcasts live opera and ballet 9.
Cottle, Giles ‘OTT TV viewers to outnumber IPTV viewers in 2013’
from venues including the Metropolitan Opera in Informa Telecoms & Media, March 22 2011.
10.
Tim Bevan interview, October 31 2011.

Section 7.0 l State of the markets
7.2 Independent producers will be hoping that these

new SVOD platforms will give a lease of life to older
Global markets meta-analysis library titles, generating additional income for them.
Despite deep recession in many countries, film Many, however, are likely to be disappointed. A
has continued to demonstrate its strength as recent Harvard Business Review study of Quickflix
a consumer product. PricewaterhouseCoopers (Australia’s version of Netflix) found that the top
predicts that global entertainment and media 10 movies accounted for 48 per cent of rentals. If
spending will reach $1.9 trillion in 2015. Admissions anything the tyranny of the blockbuster could be
in all major markets have recovered from a small getting worse.
slump in 2007-8, and gross box office has continued
to grow year on year. 7.4
As to which countries will experience the greatest Production trends
growth over the next few years, the BRIC countries
will, unsurprisingly, lead the pack. China is expected The sums involved in making Hollywood
to experience the fastest growth. The Chinese filmed blockbusters are so astronomical (according to the
entertainment sector will grow by 217.6% between Motion Picture Association of America, the average
2010 and 2015, reaching $6.25 billion; India will be studio movie cost $106.6 million to produce and
the second fastest growing sector, with revenue market in 2007, the most recent year for which
increasing by 66.8% to $3.1 billion; and Russia will figures are available) the six Hollywood studios
be in third place with 66.1% growth to reach $2.55 have become ever more risk averse. That is why so
billion11. Brazil meanwhile will see growth increase many of today’s blockbusters are based on existing
by 51.3% to $2.1 billion. properties recognised by audiences. The audience
does not have to be sold an original concept.
7.3 Eighteen of the top 20 highest-grossing movies
of 2011 were based on pre-existing intellectual
Distribution trends property – either books, previous movies or, in the
Distributors have benefited financially from the case of Pirates of the Caribbean 4, previous movies
growth of Subscription Video on Demand (SVOD) based on a fairground attraction. Only two movies,
services competing for new subscribers, pushing Bridesmaids and Rio, were written directly for
up prices paid for film rights. The prospect of SVOD the screen.
services offering film buffs any film from catalogues The independent sector too has realised the value
running into thousands of titles is enticing greater of films based on pre-existing properties. For
viewership. example, Sweden’s Yellow Bird has mined the work
In 2011 SVOD became more popular than free- of Scandinavian crime writers including Jo Nesbo
to-view/catch-up TV in the USA. Screen Digest (Headhunters), Steig Larsson (The Girl With the
estimates there will be 3.3 billion SVOD movie views Dragon Tattoo) and Henning Mankel’s Wallander
in the USA this year, outstripping the number of to adapt into films and TV series. These shows have
physical rentals and DVD purchases combined12. been so successful that Yellow Bird has also co-
No wonder US streaming service Netflix was so keen produced US English-language remakes of some
to launch its UK online video service in January. of the same properties. Independent producers
However, Netflix faces stiff competition from mining existing properties (television, books) for
incumbents Sky and LoveFilm, which has well over film adaptation will be an increasing trend.
1 million customers alone. Informa predicts that by
2015, 27 million people in the UK will be watching
Over-the-Top (OTT) TV services, which also include
the BBC’s iPlayer and YouTube13.
PricewaterhouseCoopers Global Entertainment and Media Outlook
11.
2011-2015.
Hooper, Richard ‘Latest Industry Trends’ Screen Digest/BSAC Film
12.
Conference 2012.
Cottle, Giles ‘OTT Viewers to Outnumber IPTV Viewers by 2013’
13.
Informa Telecoms & Media, March 22 2011.

Figure 4
US box office gross 2011
Rank Title Studio Total gross (US$)

01 Harry Potter and the Deathly Hallows WB 381,011,219
02 Transformers: Dark Side of the Moon P/DW 352,390,543
03 The Twilight Saga: Breaking Dawn Part 1 Sum 281,287,133
04 The Hangover Part II WB 254,464,305
05 Pirates of the Caribbean: On Stranger Tides BV 241,071,802
06 Fast Five Uni 209,837,675
07 Mission Impossible: Ghost Protocol Par 209,081,660
08 Cars 2 BV 191,452,396
09 Sherlock Holmes: A Game of Shadows WB 186,770,428
10 Thor Par 181,030,624
11 Rise of the Planet of the Apes Fox 176,760,185
12 Captain America: The First Avenger Par 176,654,505
13 The Help BV 169,708,112
14 Bridesmaids Uni 169,106,725
15 Kung Fu Panda 2 P/DW 165,249,063
16 Puss In Boots P/DW 149,260,504
17 X-Men: First Class Fox 146,408,305
18 Rio Fox 143,619,809
19 The Smurfs Sony 142,614,158
20 Alvin and the Chipmunks: Chipwrecked Fox 132,046,038
Source: Box Office Mojo

7.5 Other countries outside Europe have, though,

injected fresh money into their film funding systems.
Public source funding In March 2012 The National Film Development
European state film funding has undergone massive Corporation of Malaysia (FINAS) launched a 30%
re-assessment and reform as a result of the global film production rebate as part of its Transformation
economic crisis. In most of Europe, funding will of the Film Industry programme. Singapore has
continue to be restricted for the foreseeable future, completely overhauled its myriad film funding
as core government services place increasing schemes, trying to streamline its previous offer
demands on limited public funds. For example, which had 14 different schemes for film alone.
The Netherlands Film Fund has had its government Brazil’s state-managed film investment schemes,
support cut by 25% while Hungary’s Motion Picture the Funcines, increased their investment by 30%
Public Foundation of Hungary (MMKA) had its 2011 year on year to €80 million in 2010.
budget cut by 80%. So while Europe state film funders in many cases
have their hands tied by the wider economic crisis,
countries further afield continue to realise the value
of a healthy film industry.
Figure 5
Filmed entertainment revenues by country/region 2010-2015
Country/region 2010 revenue (US$) 2015 revenue (US$) % increase

China 1,969 6,254 217.6
India 1,855 3,095 66.8
Russia 1,533 2,547 66.1
Brazil 1,368 2,070 51.3
Other Latin America 559 799 42.9
Spain 1,158 1,638 41.5
Other Central and Eastern Europe 898 1,239 38.0
Mexico 1,146 1,566 36.6
Australia 3,622 4,810 32.8
USA 35,200 45,686 29.8
Middle East/Africa 570 733 28.6
Other Asia Pacific 3,129 3,984 27.3
UK 5,809 7,364 26.8
South Korea 1,541 1,941 26.0
Italy 2,057 2,552 24.1
France 3,805 4,683 23.1
Canada 3,770 4,641 23.1
Germany 3,528 4,241 20.2
Other Western Europe 5,031 5,984 18.9
Japan 7,674 8,932 16.4
Total 86,222 114,759 32.9
Source: PricewaterhouseCoopers, Global Entertainment and Media Outlook 2011-2015, June 2011

Section 8.0
How digital innovations

are changing the
film business world
8.1 Online communities
Understanding today’s audiences Of course where the internet has had its biggest
impact is how films are released. The debate over
for film whether people would watch films on small screens
The internet has created the possibility for via mobile phones and tablet computers now seems
independent producers to reach out to end-users quaint. Internet retailers such as iTunes, Netflix and
directly, for funding and marketing their films. LoveFilm have all enjoyed huge success streaming
movies to portable devices. Amazon-owned UK film
Crowd funding
service LoveFilm announced in March 2012 that
This is a method of raising money through the number of films and TV programmes streamed
numerous micro-investments made via the internet over the web via laptops, connected televisions and
and it has already seeped in to traditional film games consoles was 20% higher than the number
finance. For example, Iron Sky, the Nazi science- of Blu-ray discs and games rented. Other niche film
fiction parody raised €6.3 million of its €7.6 million online streaming services such as documentary VOD
budget through traditional film funding channels services are also picking up steam. Dogwoof.tv aims
including the Finnish Film Foundation, Eurimages, to have 10,000 subscribers by end-201214 .
Screen Queensland, and pre-sales. However, an
Consumers expect to be able to watch films
additional €756,743 came through individual online
anytime and anywhere they want to on internet-
fan donations.
enabled devices.
Meanwhile Kickstarter, the US crowd funding
As other platforms have shown in the past,
website, estimates it will distribute over €114
exclusivity becomes the driver for attracting new
million dollars to its users’ projects in 2012. One
subscribers to these online VOD services. In time,
third of all money raised through Kickstarter goes
as with traditional pay-tv in the past, services may
towards film projects including features, shorts
have to fund production up front to secure content
and documentaries. Thirty one films playing at this
further down the line.
year’s South by Southwest Festival in Austin, Texas
were funded by Kickstarter donations, over 10% of Where the internet is having the biggest impact
those playing. Seventeen Kickstarter-funded films today though for independent producers is reaching
also played at this year’s Sundance Film Festival. out to their audiences directly. The Blair Witch
Kickstarter’s most ambitious project to date has Project (1999) was the first feature to harness the
been Blue Like Jazz, based on Donald Miller’s New internet to create a fanbase. Today many producers
York Times bestseller, which has raised $346,000 identify the particular demographic their film is
through crowd funding. aimed at and target likely cinemagoers through
Twitter and Facebook.
In both cases the sums involved are too small for
most independent production companies but as
the internet becomes even more pervasive, crowd
funding could become another useful tool for film
producers.
14.
Interview, Andy Whitaker, CEO Dogwoof, April 18 2012

Section 8.0 l How digital innovations are changing the
film business world
Unlike broad studio release marketing, social media Embedded branding

enables the independent producer to identify the A subtler use of branding is embedding the brand’s
demographic specifically. For example, the makers values in a film. For example, the entire thrust of the
of the Academy Award-winning documentary film Castaway (2000) is that Tom Hanks, who plays a
Bill Cunningham New York identified 90 fashion Fed-Ex employee, must deliver his package despite
bloggers or ‘influencers’ and reached out to them being marooned on a desert island. One example
about the film. They watched the campaign spread of this kind of embedded branding in independent
virally after that. The UK theatrical campaign cost cinema was Shane Meadows’ Somers Town (2008),
€24,000 compared with the average €122,000- which was fully financed by Eurostar. Mother, the
€244,000 it costs to release a movie in Britain. The London-based advertising agency, approached
opportunity is for producers to target communities Meadows to make a film celebrating the opening
of people interested in what their film is about, and of the new St Pancras International train terminal.
go after them precisely. At no time is the Eurostar brand visible – although
the film does culminate in a train ride to Paris. This
8.2 softer use of branding, reflecting values often found
New opportunities to create in independent film – difference, defiance, unusual
family groupings – would seem a more productive
relationships with brands and the seam to mine than blatant product placement.
advertising world Brand association
There are three levels of branding in the film world Brands are also involved with cinema through
of use to independent producers trying to create sponsorship of allied events, promotions, premieres
sustainable film businesses: and festivals. Orange, the French telco, has become
Product placement synonymous with cinema including through its
sponsorship of the BAFTA awards, while champagne
Although product placement has long appeared brand Moët & Chandon has struck a two-year
in mainstream Hollywood movies, the relationship sponsorship deal with the British Independent
between brands and independent production Film Awards (BIFAs). In both cases the brands are
is more problematic. Vans, the teen shoe brand, associating themselves with the glamour of the film
fully financed indie skateboarding move Lords of industry. Providing a producer has the right kind of
Dogtown (2005), putting up its entire $650,000 film to attract a corporate sponsor, it is not hard to
budget in exchange for 80% ownership of the film imagine a brand sponsoring its premiere in the same
– and ensuring every character wore its shoes15. way that Audi sponsored the US premiere of Iron
The problem with film from a brand’s point of view Man (2008).
is that by the time a film is released, any product
starts to look out of date. Film does not have the In fact, evidence of brand associated funding of
immediacy of television. Studio films can be found worldwide by observing
how McDonald’s have linked with a variety of Disney
(and other) family films to promote Happy Meals.
The commitment made by a production to permit
this kind of association generates funding for both
the production and distribution of a film.
Scmitt, Bernd H, Rogers David L, Vrotsos, Karen ‘There’s No Business

15.
That’s Not Show Business’, Financial Times Prentice Hall, 2004.

film business world
8.3 smaller, independent films with a more limited

P&A budget. There have been steps made towards
Evolving patterns in windows, formats innovation in this area – including for example the
and other forms of ‘distribution’ North American VOD release of Gareth Edwards’
Monsters (2010) one month before its US theatrical
Cinemas are being squeezed by distributors
release.
giving them increasingly less time to show films
exclusively. Six years ago the theatrical ‘window’ was Windows experimentation is more relevant for
shortened from six months to four months. Since low budget films because their box office visibility
then Hollywood studios have pressured exhibitors is generally lower and their theatrical runs are
into accepting ever-shorter theatrical windows as generally shorter. For example, Dogwoof, the UK
they rush to recoup their investment in as short a documentary distributor, released the Academy
time as possible from DVD sales, pay-per-view and Award-winning documentary Bill Cunningham
other formats and outlets. Things came to a head New York on DVD just one month after its theatrical
in February 2010 when three UK exhibition chains release to capitalise on publicity. For independent
refused to screen Alice In Wonderland after Disney producers, the shorter the window between
announced it was releasing the film on DVD 12 theatrical and other platforms the better: consumers
weeks after the theatrical opening, rather than the can be alerted to the film’s availability on other
industry standard of 17 weeks. platforms, capitalising on the theatrical release
campaign and improving cash flow, while removing
While the typical four-month window is appropriate
the need for a separate DVD marketing campaign.
for Hollywood-style blockbusters, it is less so for
Figure 6
Distribution windows (months after theatrical)
US time line
4.5 1.5 (6) 6 (12) 15 (27)
Post- VoD Subscription Free

theatrical
Digital
DTO SVoD
rental
Theatrical
Physical
PPV/VoD PayTV Free TV
retail/rental
12-15
4.5 3 (7.5) 4.5 (12) (24-27)
UK time line
Source: Screen Digest

film business world
8.4 3-D
Breakthroughs in digital production 3D however remains more problematic for
independent producers, being primarily the
Low-budget filmmaking province of the Hollywood spectacle. James
In many ways the history of independent cinema Cameron’s Avatar (2009) was the breakthrough
is one of low-budget filmmaking, from Jean-Luc movie in terms of what technology can do. Despite
Godard’s Breathless (1960) which triggered the costing $280 million to make, the science-fiction
French Nouvelle Vague through to the low-budget film has grossed $2.7 billion worldwide to date.
films of the Danish Dogme movement in the ‘90s. Independent producers have also jumped on the
As digital camera equipment has become cheaper, 3D bandwagon with features such as Streetdance 2
digital outlets for film have also mushroomed. 3D (UK), Asterix and Obelix: On Her Majesty’s Secret
Filmmakers can upload their work direct to YouTube Service (France) and the Australian 3D underwater
creating viral marketing campaigns for their work. action film Sanctum, which has grossed $109 million
Even Hollywood has caught on to the craze for low- worldwide. Because cinema remains for the most
budget documentary-style features: for example part the only place to see 3D films (take-up of 3D
Paramount has created a low-budget horror television sets has disappointed manufacturers’
franchise with its Paranormal Activity series. The expectations), exhibitors have been keen to show
first Paranormal Activity film cost $11,000 to make 3D features.
and went on to gross $193 million worldwide. As Audiences however have become more discerning
with any project, the success of any low-budget film about the kind of 3D film to watch. Where 3D could
depends on execution – imagination, after all, be of more interest to the independent sector is in
costs nothing. documentary film-making. Werner Herzog used 3D
Many national and regional film agencies have been to film Cave of Forgotten Dreams (2010) about cave
good at recognising the potential for low-budget paintings in France. Wim Wenders, whose German
filmmaking. Screen Australia has a scheme for dance film Pina, was nominated for an Academy
funding features budgeted at under A$1.5 million Award, has said he will only make documentaries in
(€1.2 million) while the Swedish Film Institute 3D from now on.
financed five features through its one-off Rookie
Film programme aimed at first and second-time
filmmakers. Rookie Film provided 80% of the
financing for five films with maximum budgets
of SEK 10m (€1.08 million) each.
Identifying talent through these kind of low-
budget film schemes establishes partnerships
between directors and producers, which can then
be leveraged into more solid partnerships in more
sustainable film companies. For example, Vertigo
Films in the UK released Danish director Nicolas
Winding Refn’s Pusher II and Refn went on to direct
Bronson (2009) for Vertigo. The company itself has
continued to become more mainstream, enjoying
hits such as teen dance movie StreetDance 3D
(2010) and its sequel.

Section 9.0
Where do we go
from here?
There is plenty of food for thought in this report So we suggest that a new activity be considered
and in several places we allude to potential or partial by some screen agencies with film expertise: the
solutions to the challenge of building sustainable creation of an advisory function that on a very
film businesses. This would be from the perspectives selective basis would work with film businesses
of both the companies themselves and the with real potential in leading them to strategies for
agencies or governments that are so crucial in their sustainability and then to sources of private funding
supportive role. that they will have identified.
We certainly do not claim, in any way, to have all This is a very specialist function and possibly the
or even many of the necessary answers. The main executives to carry it out might be hard to find. But
reason for writing the report, and for researching the in cases where they can be found, we believe the
topic in the way we have done, is to get the subject activity of ‘investment readiness’ support could act
of sustainability into its rightful place on the film as an effective catalyst to bringing film businesses to
policy agenda. that sustainability goal.
In sections 3 and 6 we have identified key success
factors that we believe are useful for companies 9.2
and governments to bear in mind. Having noted Think company not project
these, there are a couple of additional thoughts we
have for further discussion and perhaps the subject This has been an SPI ‘mantra’ for some time and
of further work by us or others. maybe what we really mean is ‘think company as
well as project’.
9.1 The point to be made here is to encourage owner/
Achieving ‘investment readiness’ managers of film production companies to think
of themselves as individuals whose careers are not
We are very taken with the concept of ‘investment about making great films but running businesses
readiness’ and how it seems easier for companies that make great films.
to reach this state in other sectors rather than film. This encouragement could perhaps be extended to
As previously mentioned we have identified some governments and screen agencies.
corporate success factors that do exist and have In addition to what is suggested in 9.1 above,
been shown to contribute to sustainability, even maybe one way to do this is to propose that
for film businesses. But we believe the public sector whenever an agency is considering any new
has an important role to play in supporting those initiative (or evaluating an existing one) it should
businesses with ‘investment ready’ potential. assess how the scheme could best be adapted to
This is not about providing funds, but providing deliver against the sustainable company agenda.
advice, encouragement and assistance and access This would be done by asking the simple question:
to potential private finance sources. ‘does this initiative build company sustainability
and, if not, can it be adjusted to do so?’

Section 10.0
About the sponsors
Film i Väst is a regional film fund located on the The Swedish Film Institute has been tasked by
Swedish west coast. Film i Väst invests in feature the government to implement film policy in
films, short films, documentary films and TV- Sweden. Its remit is to strengthen film at every
drama productions that are of high artistic quality stage – to support the production of new films,
or can reach a large audience domestically and/ the distribution and screening of films of value,
or internationally. The yearly budget is €11million to preserve Sweden’s film heritage and make it
and Film i Väst has so far invested in more than 350 accessible, and to represent Swedish film at an
feature films. Some recent examples are In a Better international level. The Swedish Film Institute’s
World, Melancholia, The Girl with the Dragon Tattoo, operations are financed partly by state funding
Play, Easy Money and A Royal Affair. Film i Väst and partly through the Film Agreement, which is
has actively been working to create a strong infra- a voluntary agreement between the state and the
structure for film making in Western Sweden paying film and TV industry. Under the film agreement,
special interest in production companies with an the cinemas’ VAT is reduced and in return they
ability to create growth and good content on a long pay the Swedish Film Institute 10% of each
term basis. cinema ticket sold.
info@filmivast.se registrator@sfi.se
PACT is the UK trade association that represents

and promotes the commercial interests of
independent feature film, television, digital,
children’s and animation media companies. PACT
is the largest representative group of screen-
based content producers in the UK and the largest
trade association in the film, television, digital and
interactive media sectors. PACT offers a range of
business services to its members, actively lobbies
government organizations at local, regional, national
and European level and negotiates minimum
trading terms with the major UK broadcasters.
john@pact.co.uk

Section 11.0
About Olsberg•SPI.
SPI is a UK-based, ‘boutique’ strategy consultancy l Trade associations and rights management
that provides high level advice to public and private societies, and
sector clients in the world of screen-based media. l Training organisations and conference organisers
Formed in 1992, it has become one of the leading (Australian Film, Television and Radio School, EMAP
international specialist consultancies in this sector. Conferences, Madrid’s Media Business School, the
For its public sector clients, SPI understands how UK’s Creative Skillset, Screen Training Ireland).
the fast-growing screen industries compete in SPI provides advisory and management consulting
international terms; how important it is to balance services in a wide range of areas, for example:
a healthy, growing indigenous industry with
l Analysis and strategic advice on building healthy
measures to attract incoming productions and how
the screen-based creative industries are a major and sustainable national and regional screen
driver of economic activity. sectors, and recommendations for public policies
to support this
SPI’s commercial clients operate at all points along
l Advice on the creation and evaluation of fiscal
the value chain and SPI is expert in developing
corporate strategies, advising on specific business incentives for production
issues and understanding how changes in digital l Strategic advice on inward investment and
technology are affecting the landscape in exports for national and regional public bodies
these areas. l Comparative costs analyses for small and large
Its recent client list encompasses, among others: film productions around the globe
l State bodies: for example government bodies l The strategic implications of digital media
in Malaysia, Hong Kong, Chile, Finland, Italy, innovation
Sweden, Abu Dhabi, New Zealand, Australia and l The links between growth in tourism and a
the UK nation’s film and television output
l National screen agencies in all these countries, l Strategic advice for screen commissions,
and more including business and marketing plans
l Regional agencies (dozens of film commissions l Marketing and business strategies for small and
from New South Wales, Australia to the Highland large scale film studios
and Islands, Scotland)
l Film and television library valuations
l Supra national bodies such as the Council of
Europe and the MEDIA Programme of the EU, l Mapping and economic impact studies covering
Europe’s CineRegio and the European Film creative industries in the screen sector
Agency Directorate l Business development strategies for screen
l Independent companies involved in all aspects content companies

of the screen business (studios, producers, l Acquisition and divestment advice for owner/
distributors, sales agents, post production, managers of SMEs
animation) l Writing prospectus-style funding proposals, and
l National and international broadcasters l The design and implementation of advanced
(such as BBC and Channel 4) training courses for audio-visual professionals.

Section 12.0
Appendices
The following Section provides an overview of 12.1

public film support in seven territories that are
referred to in the text of the report: Australia,
Australia
Brazil, France, Germany, Singapore, Sweden and Summary
the UK. Each section comments on each country’s
approach to public intervention; describes some of
the national and regional support that is currently Country indicators:
on offer; the role broadcasters play in supporting
OUTPUT
film producers; what key issues are currently
Production volume 2010/11 (€m) 89
being debated, and to what extent public film
policy addresses the creation of sustainable film Number of films 2010/11 17
businesses.
Average budget 2010/11 (€m) 5.3
Domestic film share 2011 (%) 3.9
Country Approach
Since the formation of Screen Australia and the
launch of the Producer Offset in 2008, Australia
has created a simple system of film support based
on automatic rebates for expenditure, with a
reduced budget for selective funding. Australia also
operates an Enterprise Program, attempting to focus
production companies on long-term corporate
development, rather than simply short-term
project finance.
National Level Support
The Australian national agency Screen Australia
was established in 2008, combining the functions
of the Film Finance Corporation of Australia, Film
Australia, and the Australian Film Commission. Its
remit is to support the development, production
and distribution of Australian film and TV content,
and the business development of production
companies. In addition, it also provides support for
the development of video games and interactive
media by film and TV companies.
Automatic support for film productions is provided
via the Producer Offset, which provides a 40% tax
rebate on qualifying Australian expenditure for

Section 12.0 l Appendices
features with significant Australian content, subject funding round awarded A$3 million (€2.35 million)
to a minimum expenditure of A$500,000 (€394,061). to four companies, and the Program has awarded
To date, 633 film, TV, and documentary projects A$15 million (€11.8 million) to 21 companies in total.
have applied for the Producer Offset, representing Other public agencies providing modest levels of
A$4.2 billion (€3.3 billion) worth of production. production finance include the Australian Children’s
The Australian government has awarded A$471.3 Television Foundation, and the Adelaide and
million (€371.4 million) worth of funding through Melbourne Film Festival Funds.
the scheme so far. In April 2012 the Australian
government announced it was to provide a one- Regional Support
off cash incentive of A$12.8 million (€10 million) Australia’s seven State and Territory screen agencies
to ensure Fox’s The Wolverine continued to shoot play an important role in funding film production
in Australia; this has led to suggestions that the though a wide variety of local mechanisms,
Producer Offset might in future be increased for all including payroll tax rebates, incentives, selective
big-budget non-Australian films. equity investment, and distribution guarantees.
Alternative (and mutually exclusive) forms of Between them, Screen NSW, Film Victoria, South
automatic support are provided by the Locations Australian Film Corporation, Screen Queensland,
Offset and the PDV Offset, aimed at foreign Screen West, Screen Tasmania, and the Northern
productions shooting in Australia. The Locations Territory Film Office spent A$12 million (€8.8 million)
Offset gives a 16.5% rebate, subject to a minimum on 22 features in 2009/10. The biggest funder was
spend of A$15 million (€11 million). The PDV Film Victoria, which provided 40% of that total.
Offset gives a 15% rebate on post-production Role of Broadcasters
costs, subject to a minimum spend of A$500,000
Australian broadcasters are not legally obliged to
(€365,000). Initially the PDV offset required an A$5
contribute to film financing, and therefore play a
million (€3.65 million spend, but this was reduced in
limited role in the film industry. Feature films fall
May 2010 to stimulate demand.
within the Australian drama quotas for commercial
Selective support is provided by Screen Australia via TV networks, and the Australian drama expenditure
its Feature Film Production Programme, with awards quotas for pay-TV networks. Total investment
based on a mixture of creative and commercial by Australian broadcasters in film production is
criteria, and provides for a maximum investment estimated to be around €3 million a year.
of A$2.5 million (€1.83 million) per project. To
Other Current Issues
be eligible applicants must demonstrate market
interest, in the form of an Australian distribution or The Australian Government conducted a review of
foreign sales deal, or formal interest in both. Screen the screen production sector in 2010, publishing its
Australia approved 20 films for selective funding conclusions in February 2011. While this painted a
in 2009/10, with total awards of A$31.2 million rosy picture of the effect of the Producer Offset in
(€22.8 million); in the same period, 21 films started boosting production levels, this was largely due to
shooting with $39 million (€28.5 million) of FFPP the impact of just three big Hollywood-financed
funding. films shooting in Australia, and there has been some
suggestion that inward investment has since dried
Screen Australia provides corporate development
up because of factors such as adverse exchange
funding for film and TV production companies via
rates. Reflecting concerns that the Producer Offset
its Enterprise Program, which gives grants of up
is failing to encourage the production of larger
to €350,000 (€274,285) per year for a three-year
Australian films, the Screen Producers Association
period, partially as working capital and partially
of Australia has proposed the creation of a new
as investment. The program supports companies
Commercial Film Fund. This would be a three-year,
which have identified opportunities to expand
A$60 million (€47 million) undertaking which
their turnover, range, and number of projects, or
would offer matching loans of up to A$10 million
their range of business activities. It is intended
(€8 million) to distributors investing in Australian
for companies that do not yet have the ability
projects budgeted between A$7-30 million (€6-24
to access private capital to fund their growth
million). This proposal has won political support
or diversification, and can be awarded either to
from the opposition Liberal-National coalition,
existing companies or new partnerships. The 2011
but not from Screen Australia, which has instead

requested an extra A$30 million (€24 million) in 12.2

funding so that it can raise its A$2.5 million (€2
million) investment cap in order to back more
Brazil
medium-budget films. Summary
Key Conclusions
Despite the relative generosity of the 40% Producer Country indicators:
Offset, Australia is still reaching towards a model
which would foster the more consistent production OUTPUT
of larger indigenous films and the growth of more Production volume 2010 (€m) 138
sustainable companies. The Enterprise Program has Number of films 98
been a positive move in that direction, and there are
signs of a beneficial long-term impact. Average budget (€m) 1.4
Domestic film share, 2011 (%) 12.4
Country Approach
Brazil has an elaborate and highly regulated
system of tax incentives, levies and screen quotas
designed to support the national film industry.
This is balanced between indirect support, in
the form of different tax breaks for investment in
film production, and direct subsidy funded by an
industry tax.
The net effect is that producers can raise almost
their entire production budgets from tax funds and
subsidies, with only a small investment of their own
capital, which acts to sustain a constant volume of
film-making, but does not necessarily guarantee
either quality or commercial appeal.
In the past this resulted in many films being made
without thought for their market value, resulting
in films failing to reach a wide audience, or even
being commercially released. In recent years the
state agency, Ancine, has attempted to address this
issue by shifting its emphasis towards more market-
driven initiatives, such as Funcine equity funds and
the Audiovisual Sector Fund, as well as providing
incentives for commercial broadcasters and foreign
distributors to finance film production.
Ancine operates both as the regulatory authority
for film investment, and as the body responsible
for supporting and promoting the industry. In this
latter role it oversees Brazil’s complex system of tax
incentives for investment in production: any project
wishing to raise money from investors using the
various tax schemes, or to apply for public funding,
must first get prior approval from Ancine.

Ancine approves around 350 projects every year exhibition, and may in future be extended to include
to raise money from investors, although many of script development, training and co-production.
these never reach principal photography. Total In 2010, the FSA invested €13.6 million in feature
investment in 2011 from tax incentives and subsidy films, €8 million in television and €10 million in film
funds supervised by Ancine was R$263 million distribution rights.
(€105 million), comprised of R$169 million (€68 By far the largest amount of funding for Brazilian
million) worth of tax incentives, R$84 million (€34 film production comes from private investment
million) through the Fundo Setorial do Audiovisual, supported by a series of tax incentives, laid down in
R$9.3 million (€3.7 million) through the Prêmio Brazil’s Audiovisual Law. This allows any company
Adicional de Renda (PAR), and R$ 0.7 million or individual based in Brazil to invest part of its tax
(€280,197) through Programa Ancine de Incentivo liability in local film production, while other articles
à Qualidade (PAQ). allow foreign distributors, or Brazilian broadcasters
In 2011 Ancine itself provided only €4 million in who import foreign programmes, to invest 70 per
direct automatic subsidy, through the PAR and PAQ cent of the withholding tax due on payments sent
programmes. The PAR, in place since 2005, rewards abroad. In 2012 the FSA alone will invest €82 million
theatrical performance for Brazilian films released in audiovisual projects, largely because of greater
by independent distributors, while the PAQ, since investment by broadcasters through revisions to
2006, rewards selection for film festivals. The €3.7 this law.
million disbursed through the PAR in 2011 was split Brazil also operates a system of private equity funds,
between producers, distributors and exhibitors; as called Funcines (National Film Industry Funds),
an example of this in practice, in 2009 the producers which are managed by Brazilian financial institutions
of 26 films received PAR funds, in sums ranging from accredited by the Federal Central Bank. The CVM
€110,000 to €6,000. The PAQ pays a flat R$100,000 (Brazilian Securities Commission) must approve
(€44,000) to any film selected for a qualifying the establishment of all Funcines, whose financial
festival, with total payments typically in the region strategy and selected projects must be previously
of €280,000 a year. Ancine also awards about €1 approved by Ancine. Funcines can be established
million via various co-production funds, for Latin in the areas of production, distribution, exhibition,
America, Argentina, Portugal and Galicia. and infrastructure, as well as shareholding
Brazil currently has bilateral co-production participation in audiovisual companies, and the
agreements with Argentina, Germany, Canada, scheme allows companies taxed under the Real
Chile, Spain, France, Italy, Portugal and Venezuela, Profit regime to allocate up to three per cent of
and is also a signatory of multilateral treaties, such Income Tax due as investment. This benefit also
as the Ibero-American Film Integration, and the applies to individual investors, who can allocate up
Agreement for the Establishment of the Common to six per cent of Income Tax due as investment.
Market of Latin American Film. It is also a member The fund’s shareholders benefit from marketing
of RECAM, the national support audiovisual entity and merchandising created for the promotion of
in MERCOSUR; of the Conference of Iberoamerican sponsored projects and may recover the value
Authorities of Motion Picture (CACI); and of invested, obtaining a return over the amount
IBERMEDIA Fund, which finances co-productions invested. Other advantages are: risk diversification,
from 18 countries and aims to strengthen and due to the fund’s investment in a diversified
encourage the distribution of audiovisual products portfolio of projects; investment transparency;
in the Iberoamerican countries. accounting facility; and the fund manager’s
Selective support is available from the Audiovisual experience in negotiating with film producers.
Sector Fund (FSA), worth €34 million in 2010; this There are currently five Funcines with a combined
is funded by the Condecine, an 11 per cent tax €26 million under management.
applied on remittances abroad of profits from the Regional Support
commercial exploitation of audiovisual works.
Brazil has 19 regional film commissions, of which the
Project selection is carried out by a committee
most important is the Rio Film Commission. The Rio
comprising representatives from Ancine and the
Audiovisual Program, launched in late 2009, which
film industry. The aim of the FSA is to support
films with good commercial potential, though includes the film commission, operates its own
it also supports TV production, distribution and Funcine of €8 million.

Role of Broadcasters 12.3

Until fairly recently, Brazilian broadcasters have France
not directly invested in film production. Globo
Filmes, the film arm of broadcast giant Globo, Summary
mostly provides free TV publicity for the projects it
backs, rather than financial investment, although
Country indicators:
its influence is credited in some quarters with
the production of more commercial fare, and the OUTPUT
crossover of high-profile TV stars to the big screen. Production volume 2011 (€m) 1,390
It also supports the main festivals and events of
national cinema. Number of films 2011 272
However, the introduction of Article 3A in the 2008 Average budget 2010 (€m) 5.1
Audiovisual Law has resulted in a significant increase
Domestic film share (%) 41.6
in broadcaster investment into films. This allows
broadcasters to divert 70 percent of the tax levied
on payments for foreign programming into local film
or TV production. 2010 was the first year in which Country Approach
the law into full effect, raising about €17.6 million for Because of it’s overall commitment to film culture,
production. 2010 being a Football World Cup year, France has developed a mature, stable and highly
Globo’s payments for foreign TV rights were higher evolved system for the support of its film industry,
than normal – ordinarily, the firm expects annual with backing across the political spectrum. The
investment of around €5-6 million. most distinctive element of the French film
Key Conclusions support system is the mandatory requirement for
The Brazilian system sustains a constant volume of broadcasters to make substantial investments in
production by providing tax incentives to attract French films. There are no specific public support
finance from private investors and from industry schemes for building company sustainability,
partners, such as local broadcasters and foreign but this is largely because the net effect of its
distributors. This combines with state regulation of interlocking systems of automatic and selective
the market, which is intended to protect investors production funding, plus broadcaster finance, has
rather than to drive an overt cultural agenda. The been to create a robust community of production
Audiovisual Sector Fund and the Funcines are companies with significant capital to invest in their
designed to support production companies with own projects.
sound business plans making films with widespread National Level Support
public appeal. The complexity of this system The Centre National du Cinema et de I’Image
though is criticised, and the entire industry is highly Animee (CNC), founded in 1946, is the state agency
dependent on state support, potentially leaving it responsible for public funding, regulation and
vulnerable in the event of political change. strategic support of the film and TV production
industry in France. It provides two forms of automatic
funding for French film producers, one based on the
market results of their last film, and the other on their
production expenditure in France. The Compte de
Soutien gives producers and distributors a subsidy
for their next film, based on the French box office,
DVD and TV sales of their last film, and paid out €66
million in 2010. The Credit d’Impot is a 20 per cent
tax credit on eligible French production costs (up to a
maximum of 80 per cent of budget), which is capped
at €1 million per project; this was worth €40.4 million
to French productions in 2010. The CNC has also
introduced a new incentive for foreign productions
shooting in France, known as the TRIP, which also

pays a 20 per cent rebate but has a higher cap of €4 Other Current Issues
million per project. The introduction of the TRIP – Tax Rebate for
The CNC also provides selective funding, in the International Production – has caused some ripples
form of the ‘avance sur recettes,’ or advance against in France’s otherwise stable ecosystem of public film
receipts; this is an interest-free loan recoupable support as it is more generous that the CDI. Foreign
from income, which can be awarded either before or producers can access up to €4 million in rebates,
after production. The maximum loan is €75,000, or significantly higher than the €1 million domestic
€150,000 for a first-time director. The CNC’s budget cap; this has reduced the incentive for foreign
for the ‘avance sur recettes’ was €28 million in 2010, projects shooting in France to structure themselves
and is €30 million in 2011. as minority French co-productions, thereby also
The CNC also runs various selective schemes to avoiding the need to meet stringent French cultural
support development, co-production (German, qualifications. French producers are, as a result,
Canadian), Third World cinema, or specific genres, lobbying for the CDI cap to be raised, also noting
including music and animation; these total around that the definition of eligible expenditure for the
€4.5 million a year. CDI is more restrictive than that of other countries,
further restricting its value. Increasing numbers of
France also operates a system of private equity French projects are shooting abroad, in Belgium
funds, called Soficas, which are limited companies or Canada, where tax breaks are supposedly more
for investing in film production. Investors in a Sofica generous. Since inception in 2009, TRIP payments
get a tax break of 40-48 per cent, helping these to large-budget films have totalled €30 million to
schemes invest €48 million into French films in 2010, 31 projects totalling €132 million worth of
up from €35 million in 2009. production spend, with tax credit payments to
The IFCIC, a specialist lending institution for the large-budget films averaging €967,742 million
cultural industry, supports two-thirds of French per claim.
independent films by providing loan guarantees of Key Conclusions
up to 50 per cent for banks providing production
finance. It is a partnership between the French state, Despite agitation over the TRIP, the French system
and public and private banks, and has two active remains the most stable and well-nourished of all
guarantee funds, totalling €75 million – the Cinema national subsidy regimes - it balances incentives for
and Audiovisual Guarantee Fund is used for project private investment and co-financing obligations
finance, while the Cultural Industries Fund can be for broadcasters with a system of automatic and
used for loans to companies. selective public subsidies. This has a proven record
of nurturing strong, well-capitalized production
Regional Support companies capable of investing equity into their
France has a wide range of regional funding for film own projects.
production - 22 regions, five departments and one
city have set up their own film funds, investing a
total of €21 million into production in 2010.
Role of Broadcasters
French broadcasters are legally obliged to invest
a percentage of their turnover in French film
production, according to a formula tailored
specifically for each network. This accounts for
a third of all investment in French films, and
constitutes the single most important source
of finance for French cinema. Total French TV
investment in 2010 was €361 million (up from €301
million in 2009), of which pay-tv network Canal+
accounted for €195 million. This money was mostly
invested in the form of pre-buying rights, but also
included €44 million in co-production finance from
the free-to-air networks.

12.4 To qualify for box office points, feature films must

have been seen by at least 100,000 visitors within
Germany a year of its local release, while children’s films and
Summary documentaries have to be seen by 50,000 filmgoers
within two years. The FFA handed out €19.1 million
in Reference Film Aid in 2011.
Country indicators: The FFA provides selective support in the form of
OUTPUT Project Film Aid. German producers can apply for
Production volume 2011 (€m) 463 an interest-free loan of up to €1 million per project,
repayable from net profits. Funding is awarded to
Number of films 2010 71 projects deemed likely to improve the quality and
Average budget 2010 (€m) 2.73 profitability of German cinema, with the FFA giving
out €16.7 million in Project Film Aid in 2011.
Domestic film share 2011 (%) 21.8%
The FFA also manages the German Federal Film
Note: these figures are for German films backed by the DFFF. Fund (DFFF), a €60 million annual fund provided by
Total number of German films released in 2011 was 123. the Ministry of Culture (BKM) which was launched
in 2007, and which provides a 20 per cent rebate on
German production costs. Projects qualify for the
grant according to detailed economic and cultural
Country Approach criteria. Minimum qualifying spend in Germany is
Following the addition of the Federal Film Fund 25 per cent of budget (or 20 per cent for films above
to Germany’s existing regime of interlocking €20 million), and payments are capped at €4 million
national and regional aid, Germany now has one per project, or €10 million for films spending over 35
of Europe’s most generous subsidy systems for film per cent and with a higher level of German content.
production, and arguably the most accessible to In 2010, the DFFF awarded €59 million to 80 projects
foreign co-producers. Unlike in France, the system including The Three Musketeers, A Dangerous Method
is led by an economic rather than a cultural agenda, and Unknown, which related to €340 million worth
with German producers supported to partner in of production spending in Germany in 2010. Since
commercial English-language projects for the 2007, the DFFF has backed 527 productions with a
global market. total of €297 million in incentives. The FFA estimates
National Level Support that every euro awarded through the DFFF
The Filmfoederungsanstalt (FFA) is Germany’s generates an average of €6.08 of acknowledged
federal agency responsible for the economic German production costs.
support of the national film industry, and is funded The FFA also administers a further €6 million a year
by a levy on film exhibition, video distribution, in production funding from the BKM for ‘small and
and TV broadcast, creating an annual budget of difficult’ films, based purely on artistic criteria.
€76 million. It provided funding for 42 per cent of Regional Support
German films released in 2011, with films backed by
the FFA accounting for 94 per cent of all admissions The States (Länder) play an important role in film
to German films. funding under Germany’s federal system; in this
system regional film boards, typically part-financed
The FFA provides automatic funding via the by local public TV stations, offer production
Reference Film Aid - this is a grant for a German investment which is designed to fit easily alongside
producer towards the financing of a new feature federal subsidies from the FFA. Seven regional funds
project, calculated according to the commercial spent €79.2 million on production in 2011, more
or prestige success of a previous film. Films are than 40 per cent of total public funding. North-
awarded ‘reference points’ according to their Rhine Westphalia, Bavaria and Berlin-Brandenburg
German ticket sales, awards, and selection for are the three most significant and long-established
specified national and international film festivals, players, contributing some €56 million between
and must reach 150,000 points to trigger the them, but MDM (covering Saxony, Saxony-Anhalt,
automatic aid for the producer’s next project. and Thuringia) has recently boosted its budget to a

similar level. Two commissions, Berlin-Brandenburg 12.5

and MDM, also offer slate funding for production
companies.
Singapore
Role of Broadcasters Summary
German public TV stations have played an important
role in the history of German cinema, the 1974 Country indicators:
Film and TV Accord between the government and
public broadcasters having helped to stimulate the OUTPUT
German New Wave. Production volume 2010 (€m) n/a
Since the amendment of the German film law in Number of films 2010 14
2010, broadcasters have been legally required to
Average budget 2010 (€m) n/a
pay a fixed levy towards to the financing of the FFA,
calculated according to the number of films they Domestic film share (%) 2
transmit. Though there is no statutory obligation for
broadcasters to invest directly into film production,
in 2011 German broadcasters nonetheless
contributed 15.3 per cent of the budget for films Country Approach
backed by the DFFF, up from a historic low of 7.5 per Singapore’s ambition is to establish itself as a ‘global
cent in 2009. capital for New Asia media’, to that end Singapore
Regional public stations also make a significant replaced its old film financing model in September
contribution to regional film funds. 2011, reducing the 46 previous schemes (including
14 separate ones for film) with five simplified funds
Key Conclusions crossing all aspects of media and entertainment.
The launch of the DFFF has benefited German Replacing media-specific funding with general
producers both with direct finance for their own schemes reflects a blurring of the boundaries
projects, and by making them attractive partners for between modern media. The new system is
international co-productions. Germany has become intended to eliminate the need for separate
one of Europe’s most popular destinations for applications for every component of a multi-media
international producers, particularly given that the project, and is described by the Media Development
rules are designed to be flexible and accessible to Authority (MDA) as ‘being 360 ready’.
predominantly foreign projects. Crucially, Singapore has abandoned the concept
of co-investment in favour of one of grant in aid;
this is intended to allow better emphasis on script
and content development and to allow Singapore
companies to use government cash to become
equity owners in the film and media products they
create. During the consultancy period prior to the
legislation being enacted, the industry argued
that the old system led to a short-term, project-
by-project mentality, whereas grants allow more
time for content development and can improve
long-term corporate sustainability. To this end, MDA
has started providing grants of between S$250,000
and S$1 million ($192,000-$770,000) as seed capital
for selected companies, requiring a minimum
indigenous shareholding of 30 per cent.
When it comes to project finance, MDA says that its
funding should be matched to and complement
private finance. Production grant funding is
discretionary and cannot be automatically triggered
by rebates or offsets.

MDA finance is finite and projects have to compete

for limited resources. The organisation has not
announced the value of funds available under each
of the five schemes, instead stating that the size of
the cash pools would be ‘dynamic’.
Unlike nearly every other film aid scheme, the MDA
Grant Schemes do not just cover production but
also development (usually the riskiest area of any
creative enterprise) and marketing the finished
product. Unusually, they do not just cover film
and TV but also games, interactive digital content,
music and publishing. MDA pays anything between
S$5,000 and $S200,000 to help develop a project;
the agency will provide grant finance for up to 40%
of Singapore expenditure and provide a further
bonus of 10 per cent if the beneficiary company
starts production within the following 12 months.
Regional Support
Singapore is a unitary City State, and does not
have regions which are comparable with the other
countries studied.
Singapore’s broadcasters do not appear to play a
significant role in film production.
Key Conclusions
The new MDA scheme is less than one year old, and
has yet to announce any investments through the
new five-prong structure; given past criticism about
lack of oversight with its previous funding initiatives,
however, officials are likely to be cautious about
what they invest in. In spite of the circumstances
which led to its creation, the initiative to provide
seed funding for company development as opposed
to solely providing project finance appears to be a
laudable one, and fits many of the recommended
criteria for a scheme to develop sustainable
production companies.

12.6 The SFI operates an automatic reward system based

on box office, called the PRS. Swedish films that pass
Sweden the box office threshold of SEK2.5 million (€275,000)
Summary are eligible to receive a PRS payment of between 50-
100 per cent of their gross, up to a maximum of SEK9
million (€990,000) or 65 per cent of their Swedish
Country indicators: equity, whichever is lower. At current ticket prices,
this maximum payment is reached at about 160,000
OUTPUT
admissions. Children’s films receive 100 per cent of
Production volume 2011 (€m) 23.7
the box office, films with no advance funding from
Number of films 2011 21 SFI receive 75 per cent, and films with advance SFI
funding receive 50 per cent. The total annual budget
Average budget 2011 (€m) 2.6
of PRS is capped at SEK75 million (€8.25 million).
Domestic film share, 2011 (%) 19.8 In 2008/9, the SFI used an unspent surplus from its
PRS budget to launch an experimental ‘market’ fund,
Note: these production figures refer only to films with selective SFI
funding. It is estimated that this accounts for between half and which offered a semi-automatic advance for films
three-quarters of all Swedish films released. in pre-production, filming or not yet released, using
a points system based on the producer’s previous
track record of box office success. The fund backed
11 films, but is no longer open because the PRS
Country Approach surplus has been used up.
The Swedish system is based on a long-standing From January 2013 the Swedish Film Institute
voluntary agreement by exhibitors, more recently will have its budget raised by SEK30 million (€3.4
joined by broadcasters, to fund the Swedish Film million) – half from the state – to reach a total of
Institute (SFI), which provides a mixture of selective SEK380 million (€43 million). Part of the extra money
funding and automatic box office rewards to is earmarked for television drama, children’s film and
support the production of Swedish films. There is shorts and documentaries, while for the first time
no national scheme to develop production Swedish films aimed at DVD or digital distribution
companies, but regional agency Film i Väst plays were allowed public funding.
an important role both in production finance
and company support. The SFI provides selective funding for production
in the form of soft loans, recouped from net
National Level Support profits. These are awarded by the SFI board on the
The SFI has been responsible for the support and recommendation of five film commissioners – two
development of the national film industry and for features, one for children’s films, one for shorts
culture since 1963. Its primary funding comes and one for documentaries. Decisions are based on
from the Film Agreement, a voluntary contract a balance between artistic and commercial factors,
between the State, film exhibitors, broadcasters while the total level of selective funding varies
and other industry stakeholders (i.e., producers according to the SFI’s income from the cinema levy,
and distributors), which is renegotiated every few but is typically around €19 million a year, including
years. The bedrock of the Film Agreement is a 10 €13 million for features and €3.3 million for
per cent levy on cinema tickets, plus a fixed annual children’s films.
contribution by broadcasters; in addition, the Selective funding was awarded to 15 films in 2010,
government provides around 50 per cent of the down from 21 films in 2009, when the SFI funded a
total. The Film Agreement typically provides the larger number of low-budget budgets - the Institute
SFI with a budget of around €40 million a year, of is now trying to concentrate its funding on a smaller
which about €27.5 million is invested in production volume of higher quality projects. At the same time,
via either selective or automatic schemes. The SFI the number of Swedish films being made without
also receives a separate government grant to fund any SFI funding is growing; although precise long-
cultural activities, such as festivals and archives, term figures are not available, out of 77 Swedish
worth around €13 million a year. films released from 2008-10, 17 had no advance
funding from the SFI.

The SFI operates no schemes specifically targeted During this negotiation round, the view has been
at building companies, although its development aired that the current system should be scrapped
fund can award up to €110,000 for corporate and replaced with a new model for public funding.
development. Bengt Toll, acting CEO of the SFI The government commissioned an independent
has said that there are too many production report on future film policy by journalist Mats
companies in Sweden making too few films and Svegfors, which was published in 2009, and
that is not sustainable. recommended that the film agreement should
Regional Support be replaced by a State-run film policy, funded by
raising VAT on cinema tickets from six per cent to
Regional funding is a vital part of the Sweden 25 per cent, and ending the box office levy. This
production system. Sweden has four regional mirrored proposals by the Swedish Film Producers
funds, - Film i Väst, Filmpool Nord, Film i Skane, and Association and Film i Väst.
Filmpool Stockholm-Malardalen; together, these
provide around €12 million a year in equity funding Whatever the new sources of funding, it is expected
for production. The biggest regional player is Film that the SFI will continue to operate a mixture of
i Väst, with a budget of over €7 million, followed automatic PRS funding and selective funding.
by Filmpool Nord (around €3 million). Film i Väst Key Conclusions
is involved in 30-40 feature co-productions a year, The Swedish system is based on a stable and
including many majority foreign projects, while established consensus that all those involved in
Filmpool Nord backs four to six films a year. Film i the commercial exploitation of Swedish films should
Väst also provides a business audit for companies contribute to supporting production by funding the
it supports, which meets four times a year to Swedish Film Institute. However commentators have
review strategies. warned that the Film Agreement system does not
The regional funds regard their investment as always deliver against this aim. They also feel that
equity, but the SFI does not recognize it as such in more state resources are needed if the position of
its calculation of the amount of Swedish equity in a Swedish cinema is to be improved both locally
movie for the purposes of the PRS. and internationally.
Under the Film Agreement, Sweden’s public and
private broadcasters commit to provide funding
for the SFI, but also to invest directly into Swedish
films. State broadcaster SVT guarantees to spend
SEK36 million (€4 million) a year on co-producing,
co-financing or acquiring Swedish films, including
SEK15 million (€1.65 million) on films with advance
SFI funding. TV4 guarantees SEK20 million (€2.2
million), including SEK8 million (€0.9 million) on
SFI films. MTG guarantees SEK1 million (€110,000),
including SEK0.5 million (€55,000) for SFI films. More
guarantees SEK0.5 million (€55,000).
Other Current Issues
The current Film Agreement, which started in
2006, was due to expire at the end of 2010, but
has been extended until December 2012 while the
government and industry negotiates a new version.
One issue is whether internet service providers and
online distributors should be expected to contribute
to SFI funding.

12.7 at 80 per cent of the budget, which means the net

maximum benefit for a film shooting entirely in the
United Kingdom UK is 20 per cent for films under £20 million, and
Summary 16 per cent for bigger films. There is no cap on the
rebate itself, and qualifying expenditure includes
the salaries of non-EU nationals working in the UK,
Country indicators: making it particularly beneficial for big-budget
Hollywood studio films with American talent. To
OUTPUT
qualify, films must pass a British cultural test, based
Production volume 2011 (€m) 1540
on points awarded for material, story content, talent
Number of films 2011 237 and use of UK crews, locations and facilities.
Average budget 2011 (€m) 6.52 The BFI has also taken over the running of the
UKFC’s Film Fund, which offers selective support
UK independent film share, 2011 (%) 12.8 for development and production in the form of
recoupable equity investment, with awards made
Note: figures are for all films receiving UK certification in 2011. This
includes inward investment features, which spent €1.2 million shooting according to a mixture of creative and commercial
in the UK, €72 million worth of co-production. Domestic UK features factors. The fund previously had a budget of £15
spent €238 million shooting in the UK last year. million (€17 million) a year, but this has been
increased to £18 million (€20.3 million) for 2010/11
and to £28 million (€33 million) moving forward.
Country Approach There are currently no specific schemes targeted
at building production companies. The UKFC
The UK system combines an automatic tax credit to
previously ran various different multi-year deals
reward expenditure, and selective lottery funding
to finance slate development, most recently in
for projects deemed to have significant artistic or
December 2008, when 15 companies received two-
commercial potential. At the moment the largest
year Vision Awards to fund creative development,
proportion of public subsidy goes to Hollywood
totalling over £2 million (€2.3 million). In January
studio films using the UK as a production base.
2012, the UK Film Policy Review noted the success
While this is vital in sustaining infrastructure and
of the Vision Awards, and recommended that the
employment in the UK film industry, with associated
BFI should follow with a similar scheme and this has
benefits for local producers, it does little directly
now been confirmed by the BFI.
to create sustainable UK independent production
companies. Although not specific to the film business, the UK’s
Enterprise Investment Scheme is sometimes used
by film companies to raise production finance.
Following the abolition in 2011 of the UK Film Investors in an EIS company receive a tax break of
Council (UKFC), the British Film Institute (BFI) 30 per cent, recently raised from 20 per cent, though
has taken over as the lead strategic agency the maximum amount which can be raised is £5
for supporting the UK industry, including the million (€6 million). A separate Special Enterprise
certification of UK films to qualify for the tax credit, Investment Scheme (SEIS) has also been launched,
and the selective investment of National Lottery enabling producers to raise up to £150,000
money into film production. Although the BFI’s (€183,186) in seed development funding. British
cultural responsibilities include TV, its industrial filmmakers attempted to raise €92 million through
remit is confined to film. the EIS in the 2011/12 tax year.
British films receive automatic support in the form of
a rebate on UK qualifying production expenditure,
which has remained unchanged as responsibility
for its administration has passed from the UKFC to
the BFI. Films budgeted under £20 million (€22.7
million) receive a 25 per cent rebate on qualifying
expenditure, while films above that level receive a
20 per cent rebate. Qualifying expenditure is capped

Regional Support Role of Broadcasters

Creative England was launched on October 3 Public broadcasters in the shape of the BBC and
2011 to provide support for independent creative Channel 4 play an important role in the UK film
businesses and individuals across English regions financing ecology, despite relatively modest
- this nationwide body absorbed the old Regional budgets for film production. BBC Films has an
Screen Agencies, but has broadened their remit, annual budget of £12 million (€13.6 million), while
aiming to offer specialist support to the games, Film4 has had its budget raised by 50 per cent to
digital and creative services, as well as to film and £15 million (€17 million). Investing in independent
television. The agency controls its own Film Culture British film was always a formal part of Channel 4’s
Lottery Fund making £500,000 (€611,000) of BFI remit. Both are key investors in development, as well
Lottery funds available to regional organisations as co-financing production, and exercise a strong
and festivals. The first batch of lottery funding was editorial influence over the projects they back.
handed out in January, with 39 recipients sharing Both have also regularly invested alongside the
£465,972. UKFC, and will continue to do so with the BFI.
More importantly, Creative England will address Commercial broadcasters play no significant role
the issue of creating sustainable businesses through in UK film financing, although ITV and BSkyB have
its new business development programme, aimed both been involved in film production in the past.
at supporting creative and digital SMEs across the In January the UK Film Policy Review recommended
English regions. It will include £5 million that the Government initiates immediate
(€6.1 million) of European funding, which will form discussions with each of the major broadcasters,
the basis of a private sector-led scheme providing including BSkyB and ITV, with the aim of creating
development funding and market expertise to small a memorandum of understanding with each
creative and digital businesses working in cross- broadcaster to set out commitments in support of
platform content and services. Creative England has British film. If this approach proves unproductive,
also secured investment from the Government’s the report suggested the UK government legislate
Regional Growth Fund for Digital Champions, a for more broadcaster involvement.
new scheme to support digital and creative
companies. The audit process for this is presently
coming to a close, and the scheme details are still
to be confirmed.
The national agencies in Scotland, Wales and
Northern Ireland have considerable experience in
supporting their film businesses. They each receive
their share of national lottery revenues to invest in
film production. Northern Ireland also has an annual
fund of around €4 million to provide a 25 per cent
production rebate for film and TV projects shooting
in the province, capped at €1 million per project.
Films shooting in Wales can apply for gap finance up
to €800,000 from the €13 million Welsh Creative
IP Fund.

Other Current Issues The BFI estimates it will have around £57 million
The UK Film Policy Review published in January (€70 million) a year in Lottery funding to invest
2012 has made a number of recommendations in the UK industry a year over the next five years,
towards creating sustainable film businesses. above and beyond its government grant in aid. Last
These include: year close on £350 million (€428 million) worth of
public money was invested in UK film through a
l The introduction of a funding mechanism to mixture of the Film Tax Relief, government grant
enable recycling successfully-returned BFI in aid to the BFI, Lottery money and broadcaster
development funding back to companies that investment.
achieved that success, to be reinvested in further
development funding Key Conclusions
l Encouraging producers and distributors to work UK producers still struggle to build their businesses,
together from the initial stages of financing a film with initiatives targeted at supporting bigger
by creating Joint Venture Lottery funding, to be companies such as the Lottery franchises and
accessed by partnerships between producers and the UKFC’s super-slate deals having had, at best,
distributors mixed results. To date, UK film policy seems to
have done relatively little to stimulate producers
l Enabling producer equity recouped through Film to be media entrepreneurs although the FPR (and
Tax Relief to be recouped pro-rate and pari-passu subsequent BFI response) have some promising
with BFI Lottery investment recommendations.
l That the current level of BFI producer equity
recoupment corridor (PEC) should be maintained,
but that it should be treated as a supplement to
the tax relief as producer equity position
l All recouped funding (tax relief as producer
equity, the additional BFI producer corridor (PEC)
and Joint Venture funding from BFI supported
projects should be held in trust by the BFI to
be made available for reinvestment in future
filmmaking activity by the producer
l That the BFI should relax its recoupment targets
to encourage the rewarding of success and
helping to create a less dependent production
sector.
The BFI’s response to the FPR indicates that some
of these recommendations will be considered for
future action.

Thanks
SPI would like to thank Libbie McQuillan, Kate Milne

and Tim Adler for their contributions to the report
and also Bengt Toll for his support for the project
while at the Swedish Film Institute.

© Olsberg•SPI

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