The 5 per cent plan
Since 1992, one of the main instruments by which policymakers have sought to create a sustainable British film industry is the use of tax relief to support film production. (See here for an overview of the recent history of UK film tax relief). These measures have largely been successful, and the dismal days of early to mid-1980s are now a history lesson to all who wish to learn how not to organise a film industry. The tax reliefs in support of production are important – without them the production of British films would be severely curtailed very quickly – but they are not enough.
One of the first things taught to film studies is students is that the film industry is comprised (primarily) of three sectors: production, distribution, and exhibition. Only when we take these three components together can we speak of the ‘film industry.’ Individually, they are but sectors of a single industry. However, film policy in the UK fails to recognise this. The production sector has become synonymous with the industry as a whole, and so policymakers introduce measures in support of production and claim to be helping the whole industry. When HM Revenue and Customs reformed tax relief back in 2004 it chose not to extend any relief to distribution and to focus on production only. Consequently, the objective of the government in stimulating British film production was achieved, but the aim of creating a sustainable British film industry remains elusive to this day.
Of course, it’s easy to focus on production. It’s creative and fun, glamorous and sexy. You get to travel to many interesting places and meet interesting places. You might get your picture taken with Keira Knightly. Everybody wants to be a movie star, or a director, or a cinematographer. Nobody ever says they want to be a distributor. But the film industry – like all other media industries – is distribution-led and not production-led.
What is needed is some sort of support for the distribution of British films that will make them more attractive in the market, that will increase the likelihood they will find a distributor, and that will get them onto screens where audiences can watch them. This situation is complicated by the recession and the government’s decision to make swingeing cut backs in every area of public spending, including the film industry. It is necessary, therefore, to come up with a plan that will extend tax relief to the distribution of British films without adding to the overall cost of the industry to the Exchequer.
This can be achieved by a simple transfer of a proportion of the tax relief available to producers to distributors. For the sake of argument, let’s say that this figure is 5% of the production expenditure eligible for tax relief. For example, if a qualifying British film can claim a tax relief of £5 million, then the production company would get £4.75 million as it would have before, and the remaining £250,000 would be transferred to the distributor by attaching a certificate to the film. In purchasing the film for release, the distributor would also get this tax certificate to be reclaimed against the cost of releasing the film.
The advantages of such a plan are clear:
- As a British film would now come with a tax certificate it is more likely to find a buyer. (Or, from another point of view, a tax certificate would come with a free film). British films would become more attractive to distributors and more British films would therefore be released. Many British films are produced but not all are released and some only have very limited releases. A tax incentive for distributors would encourage them to release the films they purchase, and this could be further encouraged by setting a time limit on the relief available to distributors so that if they have not used it within 3 years of purchasing the films it expires.
- There is no point in having a tax credit of, say, £250,000 and not spending it all, and the availability of the tax credit will encourage distributors to spend more as it is cheaper for them to promote a British film. The increase in prints and advertising expenditure will see more copies of films available for release and be better supported by a greater level of publicity. Too many British films have no chance of finding an audience because only a handful of prints are made, and the audience simply does not know that the film exists or where it might playing. As the UK Film Council estimated the average advertising spend per film in the UK 2009 at £300,000 this could make a big difference. Obviously, this would also benefit the advertising industry.
- Distributors will be much more concerned with getting British films onto screens, and exhibitors will be more enthusiastic about taking on British films knowing that they have greater advertising support. History tells us that quotas for putting British films on British screens do not work in the long-term, but incentivizing the distribution of British films can get screen time for British films and could be economically sustainable.
- Obviously, the distribution companies that will be best placed to exploit this system will be the major Hollywood distributors – that is why they are the majors; but it will force them to distribute British films rather than low-end American dross as there is now no incentive to release potentially low-earning non-British films in the UK. (There are a lot of crappy British films, but if we are going to have a sustainable film industry in the UK then we need to be screening crappy British films rather than crappy American ones). However, smaller British distributors can benefit too – the tax relief will help with cash flow and make it cheaper for them to release films; and by increasing the level of publicity and screen time for their films they stand a better chance of making some money and achieving some level of financial stability.
- In the short-term, film production companies may find it difficult to cope with the fact that they are no longer receiving the full tax relief they would have previously obtained, but as they would have a better chance of selling their film and a better chance of seeing that film actually screened, it is possible that they might actually make some money in the long-term. As the distribution of British films would be incentivized, the purchase price of British films may go up.
- There may be a small benefit to co-productions because having a qualifying British film would come with the relief for distribution. It would be desirable, therefore, to have a British co-production partner.
- This plan does not require creating a new tax relief, and so it does not require any additional cost to HM Treasury. If the total cost of UK film tax relief from production spend was £200 million, then the total cost would still be £200 million, only £10 million would be in the hands of distributors instead of producers. In fact, in the short-term it spread the tax relief over a number of years as the films are released and the relief claimed.
The main problem to be avoided is that distributors could use this as a means of subsidising the purchase of films by putting the producer in the position of paying to have their film purchased (i.e. the distributor gains the relief at the expense of the producer), but this can achieved by paying a cash rebate on distribution costs only and only after they have been incurred and by not letting distributors claim on the cost of acquiring a film.
It seems ridiculous that nearly 20 years after the first tax credits were introduced to support the British film industry that we still do not have any support for distributors in a distribution-led industry. The only way to give British films an advantage in the market place is to make them more attractive to distributors and the availability of a tax relief is one method of doing this that could have a positive impact on all sectors of the industry rather than just the one that involves Keira Knightly.