What the Autumn Statement could mean for TV & Film - and Channel 4's new dilemma
ScreenPower: where the screen industries meet politics and power
Hello and welcome to ScreenPower: a free newsletter from the intersection of the UK’s screen industries, with Westminster and Whitehall.
The Autumn Statement is just 10 days away - I’ve run through the things Jeremy Hunt could do for the screen sector…
It was a huge week for the future of Channel 4 - I’ll take you through a story you may have missed…
There’s a great film recommendation from Arts & Heritage Minister Lord Parkinson…
And the landmark Media Bill is finally underway. It’s like all our Christmases have come at once. Here we go…
The Autumn Budget Statement
The Chancellor Jeremy Hunt will deliver his Autumn Statement on the 22nd November. Gone are the good old days of just one fiscal event a year under Philip Hammond - this Autumn Statement will be a Budget in all but name.
And if the Chancellor is looking for ways to support the creative industries (one of his five priority sectors), there are a number of current ‘asks’ from the screen sector. I’ve run through the four main ones here, and stuck my neck out to rate their chances of inclusion on the 22nd (almost certainly something I’ll regret):
1. Making the UK a Visual Effects (VFX) hub
VFX is a growing part of film and TV production - and the UK is pretty good at it. We’ve got a young but rapidly growing VFX sector, and London now houses six of the world’s largest visual effects companies.
But because of the way the UK’s film and TV tax relief regime is structured, a lot of potential business is forced overseas. The trade body for VFX - the UK Screen Alliance - explains it better than I could:
“Productions can claim 25% tax relief on their UK spending via the tax reliefs. However, the relief is capped once a production has spent 80% of its budget in the UK. Any UK spending beyond 80% receives zero relief. Often this impacts the VFX spending in the UK, a part of the production process which is easily transferred to another territory, where further tax incentives can be claimed.”
So because VFX is often a 20%-ish sized portion of a production budget, it goes elsewhere to maximise the tax incentives available around the world.
The UK Screen Alliance estimates that at least £330 m per year of VFX work that could be done in the UK, is going abroad.
The proposal put forward by the sector is basically to allow that 80% cap to be extended, solely for VFX work - and only if 5% of the production budget is spent on VFX in the UK. This would fix the problem, and in theory onshore a load of VFX business. HMT will be concerned about deadweight (subsidising activity that would have happened anyway) but the industry say their solution virtually eliminates that risk.
There is another side to this - which is that the UK’s VFX sector has been hit hard by the strikes in the US. UK Screen Alliance estimates job losses to be **40%** as a result of the action - and they don’t expect a recovery until well into Q2 next year. “There will be more layoffs … and for some companies, it will be touch-and-go if they will survive”, says CEO Neil Hatton.
But for the argument around a bespoke tax incentive, the positive case speaks for itself. These are high-skilled jobs of the future, in a sector that is as much ‘tech’ as it is ‘creative’.
How strong is the case to act? 9/10
Likelihood of any news next week? 8/10 (because HMT publicly committed to “consider the case for further targeted support for visual effects work” in March, and promised to provide an update “later in the year”)
2. Supporting Independent Film
There’s a good rationale for some sort of support for independent film. I wrote about this last week - and the case for intervention at some point in the value chain. Bumping up the tax relief for films under a certain budget is the main ‘ask’ - but there are others. I understand more than one proposal is being worked up - and that there isn’t yet widespread industry support behind a single version. Sounds like this one needs some more time to me. There’s also something to be learnt from the VFX case above - making a positive case about the potential ‘gain for UK PLC’ rather than leaning too heavily on ‘support for a struggling sector’.
How strong is the case to act? 7/10 (on the basis that it needs to be better articulated/agreed)
Likelihood of any news next week? 3/10
3. Fixing the ‘Studio Tax’
This is the main one for me - mainly because it’s just so stupid. One part of government (HM Treasury) has a globally-respected screen tax relief regime designed to attract investment from international media companies into the UK - while another part of government (the Valuation Office Agency - part of HMRC) is hiking business rates on film studios, in some instances four or five times their current rate. It’s not joined up, and it’s already had an impact on some investment. There’s understandably huge resistance to this from industry and talks have been going on with the VOA now for months. There’s potential for white smoke on the 22nd - fingers crossed.
How strong is the case to act? 10/10
Likelihood of any news next week? 8/10 (but will it be enough…?)
4. Fixing a huge potential problem with Audio Visual tax relief/credit
This is another one to be filed under ‘annoying technicality that should just get fixed’. It’s called ‘connected party profit’ and I wrote it about it at length in a previous edition of ScreenPower. It’s essentially a small but really significant change to the tax relief that will restrict what can be claimed by productions, and negatively affect the UK’s competitiveness in this space.
This sort of thing sends really unhelpful signals abroad (where it is noticed by senior studio types). I’m told this was raised by film and TV execs in California during the Chancellor’s recent visit, so hopefully the message has been received at HMT.
How strong is the case to act? 10/10
Likelihood of any news next week? 9/10 (hoping common sense prevails…)
These last two are simply about joined up policymaking (incl within departments) and not scaring off investment that has loads of other places to go 🙏 They’re also free (depending what the VOA has already baked in from the studio tax).
Channel 4’s New Dilemma
‘With great power comes great responsibility’ - Spiderman (or maybe Yoda - or possibly Churchill)
I know I’ve written about Channel 4 a few times already - but what can I say, I just love a publicly-owned, commercially-funded, not-for-profit public service broadcasting model. And this week was a huge moment for C4.
Party of Five is coming back? No - but the government outlined plans to allow Channel 4 to make TV shows in-house for the first time in its history. This puts C4 in a potentially tricky spot, creating a new tension between the broadcaster and the production sector.
Wait, rewind: So currently, Channel 4 operates under what’s known as a ‘publisher-broadcaster’ model - which means that it commissions and buys programmes to air on C4, but it doesn’t actually make any of them.
Why is that? Channel 4 was introduced under Thatcher - a great Conservative innovation (that they really ought to be more proud of). Thatcher’s government gave it a model that was thoroughly, well, Thatcherite - one that would allow it to harness the power of the market to deliver a public service both on and off screen. The off-screen part (e.g. its economic contribution to the production sector) is less visible than what we see on screen - but it’s had an equally significant impact.
Supporting producers: By not making its own shows, C4 supports a big supply chain of UK production companies, many of them SMEs and most of them outside of London. It’s essentially - in part - a commissioning body that takes revenue from advertising and pumps hundreds of millions of pounds a year into the production sector (at zero taxpayer cost). DCMS Minister Sir John Whittingdale said last week that C4 had “helped build one of the most successful TV industries in the world” through its support for independent producers.
However…Back in January when the government finally ditched plans to sell the broadcaster, they promised to give C4 new powers to produce programmes in house - for the first time in its 40 year history. And last week they outlined those plans in detail. Here the key things you need to know:
It’s up to Channel 4 whether to use this new ‘power to produce’. That’s a mixed blessing, because of the potential upset it could cause in the production sector, if independent producers start losing business from C4 as a result of any decision the broadcaster makes to produce shows itself. C4’s CEO Alex Mahon says “we are exploring this right offered by the government”. That cautious statement demonstrates that sensitivity - and an attempt to highlight the government’s role in the change. But that might be in vain. PACT (the trade body for independent production and distribution companies) have already taken aim at C4, calling on the corporation to “carefully consider any move into in-house production given the current difficult market conditions”.
The new power is uncapped: The government considered applying a cap to the amount of in-house content C4 could make, but decided against - coming down in favour of ‘flexibility’, despite noting that a cap would have provided “greater certainty to the wider production sector”. It does seem odd that DCMS wouldn’t at least start with a cap, and put that under periodic review - by either themselves or Ofcom. All the responsibility is with C4.
If it happens, it won’t be quick: Channel 4’s Chair Sir Ian Cheshire stressed that “any move Channel 4 may make into in-house TV production will be gradual…By way of illustration, we would expect five years after launch, the total of external commissions will still substantially exceed in-house production spending”. Also, any new in-house production studio will have to be a separate company - with its own Board and financial reporting - to help guard against C4 favouring commissions from its own studio over external production companies.
Channel 4’s independent quota will go up up from 25-35%: This means that 35% of C4 programme commissions (on the main TV channel) must be from indies. This has been welcomed by PACT. But since there’s no cap, this could, one day, be 35% of a much smaller number than now.
Ofcom will assess how this unfolds: The regulator will be given new duties, both to “oversee the measures Channel 4 puts in place to ensure open and fair access to its commissions” - and to “review the impact of Channel 4 developing its own production capability” (through one of its big PSB reviews).
So is this good news? It depends who you ask - and what the question is.
If you just want Channel 4 - as a single organisation - to be as strong as possible and last for as long as possible, then you would arm it with every tool available to be competitive and make as much money as possible in the short/medium term. C4 now has the freedom to diversify its income in the face of the various economic, technological and market headwinds facing broadcasters. That is undoubtedly a good thing for the organisation itself.
But if your question is ‘how can C4 continue to support the production sector, as it has for 40 years’, the answer may not be ‘by redirecting funding from SMEs to its own in-house arm’. Both C4 and DCMS hinted at the downsides for the production sector in their statements. C4 CEO Alex Mahon stressed the need to “mitigate the risks to the UK’s world-beating independent film and TV production sector” - while DCMS Minister Sir John Whittingdale’s said it was important to “minimise any market shocks”. Minimise….mitigate….not eliminate.
But there’s another problem: Channel 4’s support for the independent production sector was the key defence against privatisation last year. It was the one argument that united people from different parties and sectors who opposed a sell-off - i.e. that C4 operates in ways that a profit-led model would not. There weren’t many Conservative MPs sticking their neck out to defend C4’s content - but many did stand up to defend a Thatcherite model that supports small businesses in their constituencies.
So what happens when privatisation inevitably rears its head again in future? By then, the argument about supporting independents will be weaker - and the organisation will look a bit more like ITV. That’s no bad thing in itself - ITV is excellent - but it isn’t owned by the public, nor should it be. Channel 4 might also be a more attractive asset for sale with its own production house.
The dilemma: So does Channel 4 cling to the part of its model that has made it distinct for forty years - or make a decision to become a different type of organisation, with the various risks that entails?
The conservative approach would be to stick with the status quo - but a true conservative also recognises the need for gradual evolution in the face of new challenges - which is the approach I suspect C4 will eventually pursue. Perhaps that’s something Margaret Thatcher would have supported.
If you’re interested, you can find the key detail and statements from C4 and from DCMS here - and the updated Memorandum of Understanding between C4 and DCMS is here.
Top Billing
The Government’s Media Bill - the most important legislation governing our media landscape in twenty years - has finally been introduced to Parliament 🥳.
Credit to Culture Secretary Lucy Frazer - and DCMS Ministers, Officials and Spads - for ensuring the Bill made it into the Kings Speech and that it was prioritised in the legislative timetable (a key ScreenPower ask last month).
As predicted, Section 40 of the Crime and Courts Act was prominent in the government’s rationale for introducing the Bill - and the press are clearly chuffed at seeing that “draconian” law repealed.
The House of Commons’ Culture, Media and Sport Committee conducted pre-legislative scrutiny of the Draft Bill and made several recommendations - some of which have been adopted by the government (see this letter from Lucy Frazer to the Committee’s Chair Dame Caroline Dinenage).
The Committee had expressed concern about the watering down of requirements around specific genres for Public Service Broadcasting. DCMS have updated the new Bill to make reference to “an appropriate range of genres” - but this is still too weak. The word ‘appropriate’ holds little weight unless there is provision for someone/thing to oversee that. This feels like amendment territory to me.
It looks like the Bill is scheduled for Second Reading on 21st November - and DCMS are taking oral questions in the Commons on 16th November - so it should be an interesting few weeks! (I should get a hobby)
Expensively Ever After
As I write this, Disney+ email to tell me my monthly subs will go up from £7.99 pm to £10.99 pm - a **37% increase**.
Most of the streamers are at it - and here is a good piece in Variety about what’s going on. In a nutshell, the emphasis has gone from chasing subscribers to chasing profit. Put that together with the discovery made by many streamers during the strikes - that they can spend less on content while hanging on to subscribers (plus the increase in production costs as a result of strike agreements), and it’s hard to ignore the fact that in future we’ll all be paying more money for fewer new shows and films. Excellent.
This latest hike comes in (for me at least) on 15th December, so I’ve got a month to finally finish The Bear and Modern Family, before commencing my boycott (which, tbh, may not see out the year).
What to watch
This week’s recommendation is from DCMS Minister for the Arts & Heritage Lord Parkinson, who tells ScreenPower….“I’ve most recently enjoyed Emerald Fennell’s ‘Saltburn’ — I missed it at the London Film Festival, but was pleased to catch a preview screening at the Picturehouse in York last weekend. It’s on release from next weekend, so no spoilers, but think ‘Brideshead Revisited’ crossed with ‘The Talented Mr. Ripley’, an excellent cast, and sumptuous setting (Drayton House, Northants. — never used as a film location before).”
I’ve just watched the trailer and it looks great. Can’t wait to see this one!
BBM me
(Anyone else miss Blackberry Messenger?) I’d love to hear your thoughts on any of the issues covered above, so do get in touch with any questions or comments - either by replying to this email or by connecting on LinkedIn.
You can read previous editions of ScreenPower here - and if you’ve been forwarded this email and found it useful, then do subscribe below - it’s free!
Thank you for reading ScreenPower!