Archive for June, 2010

Those PACT proposals – good for whose business?

Yesterday’s ‘Something for Nothing’ Edinburgh International Film Festival discussion on PACT’s proposal for a new deal between public funders and film producers proved to be quite a lively affair.  Having raised the specific issue of how the proposals might impact on Scottish production (see earlier post) I was invited to be on the panel and contribute to the wider discussion.  Having given them a bit more thought it seems to me that PACT needs to address, and the public agencies need to consider carefully, some key questions and consider a number of safeguards should they take them forward.  There are some other issues, principally of methodology and the evidence required to back up the assertions around cause and effect, much of which could be addressed through some econometric modelling of the proposals, but we’ll leave those for now.  But for new readers let’s briefly recap the key ‘problem and solution’ posed:

a. In essence PACT’s view (and few could disagree with this first point) is that UK film businesses are underperforming – they are under capitalised, too few have any scale and even of those that do there are major obstacles to sustaining their businesses.  PACT also holds that this is not because of any deficiency in the product:  “UK Independent producers consistently make films that work with audiences and critics alike, yet the current business model prevents them being able to benefit.” 

b. PACT believes that a major contributory factor to the above state of affairs is that public film financiers such as the UK film council, Scottish Screen and the regional screen agencies treat their investment in film production as equity and expect to recoup their investment before the producer (albeit many now allow a recoupment corridor e.g. the UKFC’s recently agreed 30%).

c. PACT proposes, therefore, that henceforth public funding should be treated as the producer’s equity and that this would produce the following benefits:

1. producer’s would have increased leverage when seeking private sector finance as they would be seen as investing their own equity

2. production companies profitability would improve as a consequence of being able to secure more finance, on more advantageous terms, added to the direct benefit of being able to reinvest the recoupment revenue stream (of what would now be their equity) ensuring better financed development, less ‘rush to go into production’, the prospect of increased budgets and following those better results in theatrical and other markets.  In short a virtuous circle in which everyone would benefit because:

3. More succesful film companies would become progressively less reliant on public funding as they would increasingly be able to source finance elsewhere and this would in turn allow smaller/newer producers to get an increased share of the public funds thus ensuring that their (other principal) purpose – ensuring a culturally diverse, risk-friendly film financing environment – is not just maintained but enhanced, thus ensuring better public value all round.

It all sounds terribly good but there are one or two catches.  One of them I’ve already raised, the problem of national/regional funders seeing the recoupment stream (small as it is) leak out of their nation/region .  Though its worth noting here as a reminder that out of the £5m in Lottery awards Scottish Screen (soon to be Creative Scotland) made in 2007, 55% (£1.9m) went to London-based companies and while they might well, under the suggested new rules, be inclined to reinvest revenues returned by virtue of their (publicly donated) equity in Scottish talent/projects, without some safeguards in place there is no guarantee that would happen.

An even bigger issue, however, is the credibility of the idea that over time the call on public funds from the growing, more profitable, production companies would decrease.  At present, taking PACTs own argument at face value, there is a significant disincentive to better-capitalised, more market friendly companies seeking UKFC or Scottish Screen investment precisely because it is likely to dilute their equity position and reduce overall revenues.  Take away that barrier and it is difficult to see why any rational film business wouldn’t try to get as much public money into their projects as possible since in effect it would become a grant and increase their equity to boot.

On this point several panelists suggested that since the public bodies have the right to choose which projects to invest in they could choose not to invest in projects whose producers might only be trying to ‘milk’ the system.  However to do so there would need to be a criterion for determining which projects were ‘genuine’ and which were trying it on and that is by no means simple.  Almost any producer worth their salt could make a pretty convincing argument on the basis of employment, multiplier effects, sustaining UK production infrastructure etc. plus a modicum of ‘cultural relevance’ to argue their case to access the public cash. 

While these are legitimate arguments for certain kinds of public intervention, there remains a very real risk that a significant amount of public funding could end up substituting for, rather than additional to, market investment and thus not in fact delivering any of the public value it is intended to.

 There are, then, quite a few issues that PACT and others need to address and on a positive note the indications from yesterday’s event are that at least some of them will be taken forward.  In reality I suspect PACT don’t expect to get a complete transfer of equity from the public funders and the report is the first salvo in a negotiating strategy which is looking to gain at least 50% of revenues.  Unlike the effective and well-deserved reversion of TV rights from broadcasters (who unlike the UKFC or Scottish Screen etc. are end-users and get their/our public value from the licence to distribute ) to indies, the position of public film funds in the current climate makes any dimunition of their meagre resources a tough sell.

From ‘Neurbrandenburgh in flames’ to ‘Breaking the Waves’

As it’s the weekend let’s hear from our roving arts correspondent:

Descending down through a puffy white sea of cloud to reveal the sparkling waters of the Forth isn’t so far from the sublime that so entranced 19th century artists long before air travel gave us all the means to escape earthly bounds.  There’s a Caspar David Friedrich painting, ‘Neubranding in flames’ (1834), currently showing in Copenhagen’s Carlsberg Gyptotek as part of an exhibition celebrating him and his contemporary, the 19th Century Danish painter, Christian Kobe as well as earlier Danish artists Jens Juel and J.C. Dahl.  the Friedrich looked familiar and I suddenly flashed on those rather jarring inter-titles in Lars Von Trier’s ‘Breaking the waves’ (which in my view captures the presbyterian soul of Scotland better than any film save  the Bill Douglas Trilogy).   The same juxtaposition of naturalism and an almost gaudy, seemingly heavy-handed, symbolism in the over-emphatic rays of sun fanning out from behind the clouds.

Co-incidence perhaps but I suspect more of a direct influence.  But then several of Friedrich’s pictures in turn owe a significant debt to Kobe and in turn to Jens Juel.  Juel’s ‘Landscape with Aurora Borealis’ (c. 1790s) was a clear inspiration for Friedrich’s ‘Wisps of Mist’ (c. 1820) and one could conjecture also influenced ‘Neubranding in Flames’. 

In any event the circuits of influence between an 18th century Danish and a 19th century German painter and a 20th/21st century filmmaker can be traced via these extraordinary paintings.  Both Friedrich’s painting and Von Trier’s film are imbued with the possibility of  redemption even amidst great suffering or destruction. Not that makes me like the intertitles any better but I saw something I couldn’t before and that’s the point of art is it not?

Pinning down the Creative Industries in a positively uncertain way

Defining what is and isn’t part of the  ‘creative industries’ has been vexing not a few people across the world at least since the UK’s DCMS came up with its list of thirteen in 1998.  Today’s ACEI conference panel on the topic was no exception although renowned cultural economist David Throsby rightly pointed out the concept was well established by the time Ken Livingstone and the GLC set out to foster employment in the arts (search a library to see if you can find a copy of the 1985 report ‘ The State of the Art or the Art of the State‘).

The DCMS, by lumping in ‘software’ with broadcasting. film, music etc., has led a host of agencies and Government departments to count a new program to count the size of the national debt in with say, Grand Theft Auto.  Unhelpfully this means that in some reports, rises or falls in software output as a whole mask what is happening in what we might consider to be the truly creative part of the software business.  AH HA! I hear you object, what about the creativity in, well, pretty much every industry.  Well coming to the rescue Prof Trosby has a handy ‘quick test’ to help distinguish creative industries from ‘industries-that-use-creativity’.  It goes like this:

An industry is a creative industry if it involves: creativity + symbolic value + IP (intellectual property).  Many industries (e.g. software as a whole) may use two of these i.e. creativity + IP but not exhibit the third – symbolic value.  On this test Grand Theft Auto is in, SAGE Accounting is out.

Speaking of what’s ‘in’, ‘experience industries’, a term which has been around for a while, may have to give ground to the new kid on the block: ‘positive uncertainty’.  Borrowing a term from counselling (I suspect by accident) in this context it means many (though not all) of the cultural experiences we seek place a positive value on uncertainty.  Not knowing the outcome of a tense thriller (like a football match) is half the fun.  This, of course, somewhat goes against orthodox ‘rational expectation’ economic theory which assumes the more information consumers have about a prospective product/service purchase the better.  In reality of course we want both – we want to know in advance if its a good film, but we don’t want a ‘spoiler’ to undermine the discovery process if we go to see it.

Finally just when we thought it was safe to walk the streets without  ‘complex derivatives’ bringing bankers to their knees, ‘option theory’ rears its head as a way of putting a value on uncertainty.  Hey ho, I guess there are a few underemployed investment bankers who reckon they can short-sell films – oh wait a minute they already are (See April 23rd post)!

Have a good weekend.

Putting the economics back into culture

from our Copenhagen correspondent.

Ever wondered why most of the worlds UNESCO heritage sites are in Europe or why the Eiffel tower isn’t one?  These and many other aspects of what lies beneath the World Heritage Site plaque featured in the ACEI (See yesterday’s post) conference’s Keynote speech by Bruno Frey from the University of Zurich.  Does designating one place a world heritage site cause money to be diverted from arguably no less important places that havent been annointed?  Does expert opinion play too much of a role in the selection of sites when the ‘public vote’ might choose others?  In an at times controversial (to this observers ears) presentation Prof. Frey, author of ‘Happiness and Economics’ suggested the market might be a better mechanism than UNESCO to select and preserve ‘important’ sites of cultural heritage such as the Great Wall of China.  Well perhaps – but it was the threat of UNESCO delisting that helped persuae the City’s councillors to stave off the Haymarket Hotel development that many felt would have been a blot on the Edinburgh cityscape.  Difficult in that case to see how the ‘market knows best’ would have produced a better outcome.

One of Prof. Frey’s more intriguing ideas is that instead of getting their own sites listed, countries could instead buy “World Culture Certificates” which they could spend protecting sites anywhere in the world, with one attraction of spending them in low income countries being that the money would go further renovating Bhutanese monasteries than it would bits of, oh say, Bath.  Not sure this idea is going to prove as popular as Carbon Trading…

Cultural economy in Copenhagen (Part 1)

The 16th International Conference on Cultural Economics is taking place here in the fair city of Copenhagen and features a kaleidoscope of papers and presentations on everything from ‘Internet Music Piracy’ to ‘The relationship between public and private financing of culture in the EU‘.  On the way over I read ‘Bollywood in Hollywood‘ a fascinating account of how the Indian film industry has evolved in the context of the global movie market and a thought-provoking piece by a US graduate student on how US nonprofit arts institutions are facing up to the post-crash economy (engagingly titled  ‘Avoiding the Psychological Tsunami…’)

I’m particularly looking forward, if I manage to get to the session on cultural tourism in which it features, to finding out what ‘Awareness deficits among the non-users of conservation‘ might be.  Before lunch on Friday there’s an appetite-whetting presentation on ‘Democratization in the Gastronomic Market: From Michelin Stars to Michelin Bibs‘ and for afters the question ‘Are movies going to kill books? An omnivorous perspective‘.  Well as a former bookseller (seven years behind the counter) I think not – but I look forward to hearing the case for/against.

These and many more papers can be found at but be warned, some pages may be unsuitable for those with a sensitivity to statistics or formulae.  More dispatches to follow…

Irish eyes not smiling enough at the box office

Echoing our last post there’s a bit of a debate going on in the Irish film industry about whether local films are doing as well as can be expected at the box office.  Writing in the Irish Times, veteran Irish film industry commentator Ted Sheehy observes that “The criticism that many of the films aren’t good enough to perform in the marketplace is the elephant in the auditorium which many people in the trade will not address on the record.”

Adding fuel to the fire are the box office stats showing a decline in the year-on-year box office for Irish films from a shade under €2m in 2007 to around €600k in 2009.  While this might look like a major cause for concern,  actually that kind of volatility is to be expected when you are dealing with a release slate only just above double figures.   If you look at box office performance over a longer time period, the smaller the number of films released per year the greater the year-on-year volatility.  In other words you’re bound to have boom years and bust years.  Not much consolation to filmmakers, distributors and audiences but an important fact to bear in mind when trying to analyse why one year was better than another – it’s almost certainly down to the ‘stochastic’ nature of box office performance where there are so many determinants, some small, some big, on an idea’s evolution into a film and then its reception once it’s released that performance is, literally, unpredictable, except in aggregate (whcih is only helpful if you are a studio).

Of course all this doesn’t mean no-one and nothing influences the outcome – there’s good writing and bad writing, good directing and bad directing and good marketing and bad – just that none of these can reliably guarantee a particular outcome at the box office.    If you make 100 films enough of them will be good enough to get people recommending them to their friends and survive opening weekend to make a reasonable return while a pile of them won’t get distributed and will be forgotten about. Make ten and everyone expects all of them to be succesful or ‘questions will be asked’.  Well theycan ask, but they will be hard pressed to get a useful answer other than – make more films and keep trying to make them as good as possible.

Scots film output needs to reach Danish levels to achieve take-off speed

I can’t say I was very surprised to read that Danes have been flocking to the cinema to see Armadillo, Janus Metz’s documentary portrayal of Danish troops in Afghanistan.  The Danes, like the Scots, are a nation  of five million or so, and avid cinema goers like us, but the big difference is that they have a steady supply of Danish films to watch and watch them they do.  With Danish films averaging an impressive 27% audience share of the Danish box office only France has a bigger appetite (38%) for its own cinematic produce.

Of the many factors that might account for the popularity of Danish films on home turf, the buoyant state of production could be a primary cause or is it an effect – or both?  Either way from research that I will be presenting at a conference of (mainly) cultural economists in Copenhagen next week, there can be little doubt that there is a correlation between the two.  Or to be more precise we can see a close relationship between domestic production levels and audience share once a nation’s film output rises above the level Scotland (or indeed Ireland) currently sustain. 

Here in Scotland we make so few (typically five) films a year that the annual audience share for local films fluctuates wildly depending on the presence or absence of a single hit film.  In a good year it can be as much as 7% but on average its less than 1%.  Ireland, making around eighteen films a year, still only manages an average 5% market share.  It’s only when production regularly exceeds that level that a country appears to be able to sustain an audience share above 10%.  As production rises the market share follows (see graph) but does so more slowly, particularly above 25% (the UK level) and it takes considerably more films per percentage point of audience up to the ceiling of just under 40% found in France.

LINK TO GRAPH: Film output and market share

Perhaps the most significant point about this relationship, for Scotland at least, is the relatively steep start to the curve.  Quadrupling Scottish film production from its current average of five to around twenty a year could see the audience grow by a factor of fifteen or more and produce a much healthier return on total investment than we currently expect or get.  As, if not more, importantly it would greatly expand opportunities for new filmmakers to prove their talents and existing filmmakers to move onto their second or third film, a crucial point in career development both critically and commercially.

For many years filmmakers and commentators have spoken of a magic figure of around ten to twelve films a year as a kind of ‘take-off’ point for a sustainable (Scottish) film industry.  Well the evidence suggests this is not quite enough to get off the runway.  But get the speedometer up to twenty and things could be different.  Another task for the Creative Scotland ‘to do’ list and a challenge for all of us concerned with the fate of Scottish film to secure the stories, the finance and the distribution if we want to see ‘chocks away’.

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