UK independent film sector constrained by level of market failure, Grim BFI report reveals

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A perfect storm of flat production budgets, runaway costs and falling revenues drove the UK independent film sector being so strained as to cause a market failure, a report commissioned by the British Film Institute (IBF) found.

The report, An Economic Review of UK Independent Film, by independent research firm Alma Economics, gives a grim read, with the key and ironic takeaway that the unprecedented global boom in the premium film and TV sector of the country has led to a corresponding negative impact on the independent sector.

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High-end film and TV production spending hit record highs in 2021 to reach £5.64 billion ($6.8 billion), a 63% increase since 2017, and is on track to reach £7.66 billion by 2025. The report finds that the speed and volume of this growth has strained the independent sector so much that it cannot compete with bigger-budget international productions on many levels – from factoring in rising costs from production to securing the cast and crew, and ultimately to reaching the audience.

Specifically, capped production budgets coupled with rising crew, distribution and studio space costs add another 20% to the budget of UK independent films. Meanwhile, revenues from UK independent films have fallen over the past decade and are expected to be more than £100million a year lower if the market only returns to 75% of pre-pandemic levels.

“The numbers show that the model is being tested in three critical areas: budgets are not growing at the pace of the market, revenues are showing signs of stagnation and costs are rising. If left unchecked, these threats have the potential to divert investment and the ability of producers to maintain their creative risk-taking, ultimately leading to a future where the scale and success – and even the independence – of independent cinema will not last,” warns the general manager of BFI Ben Robert in his preface to the report.

Additionally, crew shortages in the UK will reach breaking point unless 1% of production budgets are spent on training, as another BFI study found last month. This has a direct impact on the UK’s independent film sector, which struggles to compete for teams, and also puts further pressure on already stretched budgets. Additionally, COVID-19 protocols have added 10-20% to production budgets and “for independent films with already tight and limited finances, this impact is acute to the point of insurmountability,” according to the new report.

The report contains four recommendations to improve the situation:

• An increase in tax relief for all films (up to a budget cap), incentivizing investment but also providing a budget floor, limiting relief to films considered ‘independent’. Part of the increase could be location related to support the development of the UK-wide screen sector.

In response to this recommendation, the BFI has committed to working with Film4 and BBC Film to review processes and support for the production of independent films; and use the patterns and evidence revealed in the report to create their 10-year strategies and, within the limits of funding, seek to create ways to support better long-term sustainability for film producers.

• Extended tax relief for films to include Prints & Advertising (P&A) for small films and/or UK independent films, making them more marketable in domestic and international markets.

BFI’s response to this is to open discussions with the Film Distributors’ Association to explore how support for distribution could support independent filmmaking, including both public policy and industry-led measures.

• The introduction of a new zero-rate VAT on the exhibition of UK independent films, providing an incentive for exhibitors to screen films, thereby exposing them to wider audiences and greater revenue streams.

In this regard, the BFI will open discussions with the UK Cinema Association to explore the best measures to support the exhibition of independent films.

• An increase in the financial contribution of major streaming services to UK independent films (including SVOD, AVOD and potentially broadcasters), either through a voluntary commitment or a requirement for major streaming services to contribute modestly to a funding pot that they can claim for creativity-focused British films (subject to a budget cap).

The BFI said that as part of its ongoing discussions with streamers, the organization will “establish streamers’ intentions in terms of supporting independent producers, consider how the gaps identified in this report can be addressed, and discuss industry-directed and political solutions.

Roberts said: “As a public funder, distributor and exhibitor of UK independent films, we are seeing the growing pressures which are coming from all angles and have reached the point of creating a perfect storm for the sector. This review gives us important economic evidence and identifies actions as preliminary recommendations that can be unpacked and modeled with the industry to allow it to thrive and continue.

John McVay, chief executive of producer body Pact, said: “The report provides clear evidence of market failure and that this has been significantly exacerbated due to the pandemic. The film industry ecosystem relies heavily on the independent film sector to discover, nurture and support talent. Pact continues to proactively support the very diligent, creative and accomplished independent sector we have in the UK and is prioritizing work on the case for an improved independent feature film tax credit.

Eva Yates, Director of BBC Film, added: “As the UK’s largest independent film funder, the findings of this report unfortunately come as no surprise to us after the growing challenges faced by so many in our industry in recent years. . But there is no doubt that the talent, the know-how and the ideas are here in the UK and need to be protected and supported to thrive.

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