In fact, the
Consider the impact of digital technology; it has facilitated piracy (estimated to have cost the
The more entrepreneurial elements of the industry are embracing the opportunities of digital technology, however, at every level of production, from the price of film stock and camera hire to the editing process, digital technology is delivering cost savings. So too in film distribution, digital technology is driving down ‘print’ replication and delivery costs and enabling online video services to offer consumers a greater choice of films than ever before. Digital technology has also helped film marketing strategies evolve and become more targeted: some producers are using secure technology to make test screenings of their films available over the internet which can inform their edit process, help them understand their audience better and build online communities around productions.
What digital technology has not yet done, however, is make independent
The stated ambition of the Government and many of those involved in film in this country is the establishment of a sustainable industry. The reality is that many producers are insufficiently capitalised and still live precariously from one project to the next. The vision for many of these companies must be to seek proper long-term corporate investment to allow them to put in place and execute the long-term business plans that are crucial to turnover an output of productions worthy of the description ‘industry’.
To stay in business, producers will need to become ever more business-like themselves and seek new sources of finance, including corporate finance. Film has always had a creative appeal — relatively intangible elements like a script, cast and crew can often combine to create something unexpectedly special on the screen. Unfortunately they are generally financed in advance and, without the backing of a careful business plan, such unpredictability will hold little investment attraction for a corporate financier concerned by risk and return.
There are signs that film is regaining its attractiveness as an asset class to corporate finance, however, and
These sources of finance still need investment opportunities for their reserves of cash (despite the recent credit crunch) and, with the obvious US options dwindling, production and distribution operations elsewhere, including Europe, are being considered. Goldman Sachs, for example, has bought into the distribution capabilities of Alliance Films in
A major challenge for UK film companies is persuading such financiers that they operate at a scale that is appealing to investors — shares of a market which only spent £842m in total on production last year are not an immediately attractive investment proposition for major corporate financiers. This suggests that
Here, a comparison with the television industry is instructive. Once upon a time, the independent television sector could claim few really profitable businesses, but a raft of ‘super-indies’ with turnovers in excess of £100m has now emerged. Television companies have been entrepreneurial in their approach to finance. Companies such as RDF and Shed have accessed the capital markets by listing on the Alternative Investment Market. Some, such as Shine, have grown by acquisition of prominent producers like Kudos. Others have dramatically scaled up through ambitious use of corporate finance: Amaze TV, which joined forces with European producer D&D Media Group this month to form a global television company backed by a reported £185m of private equity funding from UK-based Palamon Capital Partners, is only the most recent example.
The
This is not to say that all British film businesses have to scale up, rather to emphasise that only the particularly entrepreneurial operations will flourish sufficiently to provide the consistent basis of financial support that our creative talent needs. The recently-formed Slingshot is one
In five years’ time the traditional asset financing models of film may have all but disappeared as collateralisation values remain insufficient. The winners in this market will be the companies that recognise that they need a new way of accessing the immense value that many films can enjoy nonetheless and plan accordingly. n
Nick Owers is an associate in the film and television group at Olswang.