Save a tear in Holly and Bolly Wood for the sad state of the British Film industry.

Charlie Meyrick writes (January 16, 2025):

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https://www.economicsobservatory.com/why-is-the-uk-film-and-television-sector-struggling

Why is the UK film and television sector struggling?

UK film and TV studios are producing blockbuster hits and generating billions in revenue. But changes in the sector – including the rise of streaming, falling ad revenues and episodes of industrial action – pose challenges, with the effects felt most by small independent firms and freelance workers.

A casual observer could be forgiven for thinking that the UK’s film and television sector is flourishing. Famous titles, including Star Wars, Indiana Jones and Barbie, were all shot, at least partly, here in the UK.

In 2021, the country’s film, TV and photography sector generated more than £17 billion in gross value added (GVA, a measure of the value of goods and services produced). And at the latest count, around 300,000 people worked in jobs related to video production (from actors and directors to crew and administrative staff).

Indeed, on the surface, the UK is a global superpower for both cinema and TV. It is the second largest exporter of TV programming and the fourth biggest exporter of films in the world. It is also held up as a leading producer of visual effects (VFX), with the UK VFX industry generating £1.7 billion in revenue in 2019.

But behind the scenes a crisis looms. Interconnected challenges including the longer-run impacts of ‘disruptor’ streaming platforms, industrial action and the spiralling costs of production (as well as the collapse of TV advertising revenues) have combined to create a ‘perfect storm’ for the sector. Total revenues earned by UK production companies fell by £392 million in 2023 and the amount spent on commissioning shrunk by over 10%. Exports have contracted by 1.9% in the past year alone.

As is often the case, it is individuals and organisations lower down the ladder that are bearing the brunt of the sector’s adjustment. Those hit hardest by the recent downturn are the UK’s smaller, independent production companies (the ‘indies’), as well as the legions of freelancers who make up a large share of the industry’s workforce.

Survey evidence shows that over 70% of indies risk closing down by mid-2025 ‘if there is not an improvement in market conditions’ and many freelance workers could soon leave the sector altogether. The cliff edge is dangerously close.

Without urgent support from policy-makers, this precious sector could continue to struggle. Protecting the UK’s smaller production companies and freelance workers should be priority – both to preserve the country’s status as a cultural powerhouse and to support the wider national economy.

The value of film and television

The film and TV industry has a substantial positive effect on the wider UK economy. In 2022, total spending on domestic film production was £1.97 billion. What’s more, there are currently around 16,000 companies involved in video production and approximately 86,000 people working in production-related jobs alone (Social Films, 2024).

As an example, Greta Gerwig’s Barbie, which was shot almost entirely in a studio in Hertfordshire, contributed an estimated £80 million to the UK economy and created nearly 700 jobs. Hollywood megastars like Margot Robbie and Ryan Gosling can be found plying their trade in rural England.

This impressive performance is a relatively recent phenomenon. According to a report commissioned by Ofcom (the regulator of the UK’s broadcasting, telecoms and postal industries), the country’s TV sector has seen particularly strong growth over the past decade or so, with exports growing more than seven-fold since 1998 (see Figure 1). Indeed, total revenues increased by 2.9% each year from 2011 to 2021, reaching £6.8 billion in 2021.

This recent success is partly the product of a policy reform introduced in the early 2000s. The same Ofcom report argues that the UK’s uptick in film and TV exports coincided with the introduction of the 2003 Communications Act.

This legislation made it mandatory for broadcasters like the BBC, ITV and Channel 4 to commission 25% of their programming from UK-based indie studios. This ‘triggered competition and growth’ and helped to establish the UK as a ‘major global production hub’, the report concludes.

By some measures, the sector is continuing to expand. Film studio space in the UK has doubled in the past three years, with the total area growing from 297,000 square metres in 2019 to 492,000 in 2023 (Croft, 2024). Last year, Sky opened a vast new studio space in Elstree in Hertfordshire, estimating that it will produce £3 billion worth of movie productions there over the next five years. Warner Bros is also expanding its studios in Leavesden (near Watford), pledging to create 4,000 new jobs.

Similarly, Shepperton Studios in Surrey has recently been expanded to house new titles from both Amazon and Netflix (Financial Times, 2024). The upgrade includes 17 new sound stages and over 50,000 square metres of additional production space, making it the second largest film studio in the world.

At its current rate of expansion, the UK will be second only to Hollywood in terms of total available studio space by the end of next year. For some film-makers, the Chilterns and Beverly Hills are increasingly interchangeable.

The rise of streaming

Streaming platforms like Amazon Prime, Disney+ and Netflix have changed the global film and TV industry substantially. The UK is not exempt from the effects.

To appreciate the impact of these disruptor firms (organisations that use innovative technologies and/or business models to challenge their competition), it is useful to examine the rapid change in viewer habits brought about by the arrival of subscription video on demand (SVOD) services. By reshaping the way that people consume TV shows and films, technology companies like Netflix have changed the way that programmes and movies are funded and made.

In 2014, less than 5% of the UK population had a Netflix subscription. By late 2023, the figure had risen to almost a quarter (24.7%), with UK subscriptions peaking at just over 17 million in mid-2022. Given that most households only need one account (shared by a family or group of housemates) to view video content, this equates to around three in five UK households (59%) having access to the platform.

Consumer behaviour is shifting as a response. According to U-Switch, the average UK viewer typically spends nearly a third of their waking hours looking at some form of screen – about four and half hours per day. Within this figure, most of the screen time is spent watching TV (via SVOD as well as traditional broadcast TV) or using video-sharing platforms (like YouTube or Twitch).

At the other end of the scale, Blu-Ray, DVD and VHS make up less than half a percent of daily UK screen time statistics. As physical copies of films and TV series collect dust in attics and basements up and down the country, more and more people are opting to stream their favourite shows (rather than own a physical copy).

This means that SVOD platforms have a solid UK consumer base. Between 2018 and 2023, online streaming revenues in the UK more than doubled, expanding from £1 billion to £2.5 billion (U-Switch, 2024).

With greater revenue comes greater commissioning power, allowing companies like Amazon, Disney and Netflix to consolidate their market power. Recent analysis from Pact (a lobby group supporting independent production companies) shows that the share of UK distributors selling their programmes to various SVOD platforms has broadly increased from 2022/23 to 2023/34 (see Figure 2). British-made content is being hoovered up by hungry US-based platforms.

This surge in commissioning from SVODs was triggered, in part, by the Covid-19 lockdowns. During the pandemic-induced ‘streaming wars’, platforms signed off eye-watering sums of money to develop new content. For example, Amazon spent a reported $1 billion (£785 million) on Rings of Power – the most expensive TV show ever made. Similarly, Netflix splurged $10 million (£7.9 million) on each episode of The Crown – roughly £2,200 per second of video.

Taking stock, streaming giants have pumped money into the sector and often use the UK as a production base. Films like Barbie are global cultural events, and sit alongside award-winning content including Game of Thrones, Star Wars: Andor and Ted Lasso in placing the UK on the international cinematic/TV map. So, what exactly is the problem?

What challenges does the UK industry face?

Film and TV production companies up and down the country face a multitude of economic challenges. Despite injecting large volumes of funding into the sector, streaming platforms have themselves generated a range of issues on the production side, putting smaller firms (which actually make the films and TV shows) under increasing pressure.

This has then combined with overseas industrial action, increased costs of production, lower consumer demand and the collapse of traditional TV advertising revenues, creating perilous conditions for many UK companies.

Following the post-pandemic mini-boom – where broadcasters and streamers aimed to make up for lost time and replenish their programming catalogues – the sector’s recent financial downturn has been ‘abrupt and precipitous’. High-profile indie production companies with good track records of creating high-quality content have gone under, taking the wider industry by surprise.

For example, earlier this year, Euston Films – a company with over 50 years’ experience making shows for the BBC – let all of its staff go. Similarly, Label 1, which produced the BBC Two documentary Hospital, has now closed down for good. And in February, RDF, which specialised in reality TV, having created Wife Swap and The Crystal Maze, shut up shop after 31 years in the game. Everywhere you look, British indies are closing down.

SVODs are part of the problem. Turning again to production studio space can help to clarify the problem. During the post-pandemic boom, streaming giants like Amazon and Netflix bought up long leases at UK studio spaces such as Pinewood (near Uxbridge). These block bookings ‘stoked demand for space’, raising costs and squeezing smaller film-makers (Croft, 2024).

But shortly after this spending spree, many firms, including Disney, Warner Bros and Comcast (another American media giant), began ‘slashing their content budgets’. This was partly because high levels of inflation in Europe, the UK and the United States were squeezing household budgets, with many people choosing to reduce spending on luxuries, including cancelling entertainment subscriptions – known as ‘cutting the cord’.

To get an idea of the scale of this effect, just look at Disney. In February 2023, the company announced $3 billion (£2.4 billion) worth of cuts from its content budget. This is likely to have had major knock-on effects on UK production companies looking to sell their work to Disney to distribute via their platform.

Then there is the downturn in advertising revenues. According to data from the Incorporated Society of British Advertisers (ISBA), as early as 2022, TV’s biggest ad spenders were beginning to cut costs (slashing budgets by as much as a third). Again, this contraction was passed on to indie studios, which suffered from the effects of a fall in commissions from domestic broadcasters, which themselves face tighter budgets in the face of lower ad sales.

The British Film Institute (BFI) reported earlier this year that the combined UK film and high-end TV production spend for 2023 was £4.23 billion – a 32% decrease compared with 2022. Ultimately, reduced revenues from ads means fewer films and shows.

But advertising spending is not the only financial tap that has been tightened in recent months. Private equity and institutional investors are also now less likely to back TV and film production companies. This is due to higher borrowing costs, as well as inflationary pressure on buildings/rents, energy (which video production needs lots of) and wages. Without upfront capital investment, it is very difficult to get a creative project off the ground.

Even in settings without ads, problems are brewing. The BBC, which is funded via the UK licence fee rather than commercial ads, is also struggling. Over the past few months, the corporation has cut both jobs and programmes in response to the licence fee freeze (introduced in 2023 by the Conservative government). BBC officials say that the corporation must make savings of £700 million a year from here on, following a 30% decline in its income between 2010 and 2020.

Industrial action in the United States has added further pressure on UK production companies. In May 2023, the Writers Guild of America (WGA) announced strike action against the Alliance of Motion Picture and Television Producers (AMPTP) to protest shrinking ‘residuals’ (payments made to writers when a show is re-released for streaming, DVD release or another channel), as well as the introduction of artificial intelligence (AI) into the writing process. Lasting 148 days, the strike was one of the longest in Hollywood’s history.

At the same time, the American actors' union – the Screen Actors Guild/American Federation of Television and Radio Artists’ (SAG-AFTRA) – also voted to down tools. That strike lasted from July to November 2023, running in parallel with the WGA industrial action and further squeezing production companies on both sides of the Atlantic.

The two strikes had a major impact on the global film and TV sector, costing an estimated $5 billion in lost revenue. The UK was not spared. Indeed, one firm that went into administration (Winnersh Film Studios, which helped to produce Ghostbusters: Frozen Empire) in April 2024, cited ‘cash flow problems’ caused by the strikes in the United States as the reason (Financial Times, 2024). Many smaller indies have also closed or been sold to larger firms as a direct result of pressures caused by the 2023 strikes.

Where can I find out more?

• Understanding the UK’s TV Production Sector: A report produced for Ofcom by Oliver and Ohlbaum. Published in August 2023.
• UK TV Exports Report 2023-24: A report published by Pact in November 2024.
• UK Film and TV Industry Slowdown: A Sector in Crisis: A report published by Bectu in February 2024.

HELP ON THE HORIZON

Zac Ntim writes (October 9, 2024)

https://deadline.com/2024/10/independent-film-tax-credit-uk-passed-law-2024-bfi-1236110177/

UK’s Independent Film Tax Credit Formally Passed Into Law

The UK government has formally passed the much-talked-about Independent Film Tax Credit into law and relief will be available for qualifying films starting October 30.

The credit was confirmed this morning by the UK Culture Secretary Lisa Nandy as the BFI’s London Film Festival begins its 11-day run in the capital.

Under the new credit, first-time productions with a budget of up to £15 million will be eligible for a relief of 53% on their qualifying expenditure. Films with a budget of up to £23.5 million are also eligible for the IFTC. Productions qualifying for the relief must have started principal photography on or after 1 April 2024, and only expenditure incurred on or after 1 April 2024 can be claimed. Films will also be required to pass a BFI cultural test.

The UK Tax Authority states:

Who can claim

Your company must be responsible for:

· pre-production

· principal photography

· post-production

· delivery of the completed film

Your company must also:

· be actively engaged in planning and decision-making

· directly negotiate, contract and pay for rights, goods and services

Check if your company qualifies as the production company before claiming the relief.

Cultural test

To qualify for creative industry tax reliefs, all films must be certified as British. The film must pass a cultural test or qualify through an internationally agreed co-production treaty.

The British Film Institute manages certification and qualification on behalf of the Department for Culture, Media and Sport.

The British Film Institute will issue:

· an interim certificate for uncompleted work

· a final certificate where production has finished

You can find more information about certification and applying on the British Film Institute website.

Check if the film qualifies for the tax relief

Your company can claim the relief on a film if:

· the film is certified as British by the British Film Institute

· it’s intended for theatrical release

· at least 10% of the ‘core costs’ relate to activities in the UK

· it started principle photography on or before 31 March 2025

Core costs are what’s spent on pre-production, principal photography and post-production.

You can check if the production qualifies for the relief.

What you can claim

You can claim an additional deduction to reduce your profits or to increase a loss. This will reduce the amount of any Corporation Tax you will need to pay.

The additional deduction will be the lower of either:

· 80% of total core costs

· the amount of UK core costs

If you make a loss, some or all of this loss can be surrendered for a payable tax credit at a rate of 25%.

Work out how much creative industry tax relief you can claim for your production.

When you can claim

You may make, amend or withdraw a claim for Film Tax Relief up to one year after the company’s filing date.

For accounting periods beginning on or after 1 April 2024, you may make, amend or withdraw a claim for Film Tax Relief up to 2 years after the end of the period of account the claim relates to.

HMRC may agree to accept late claims in some circumstances.

How to claim

Watch a video about how to claim creative industry tax relief.

Claim the tax relief on your Company Tax Return.

You will need to calculate the amount of:

· additional deduction due to your company

· any payable credit due

You must submit an additional information form as evidence for your claim for creative industry tax reliefs.

For each production you should provide:

· a British cultural certificate from the British Film Institute — if you send an interim certificate, you must send the final certificate after the film is complete and the certificate must be in date when you submit it

· statements of the amount of core costs, split between UK and non-UK costs

· a breakdown of costs by category

Closure of Film Tax Relief from 1 April 2027

You cannot claim Film Tax Relief for any productions that start principal photography after 31 March 2025.

The relief will close for all productions from 1 April 2027.

You may be able to claim an Audio-Visual Expenditure Credit for any productions that you cannot claim Film Tax Relief for.

CLOUDS

In a film noir example of non-joined up thinking, HMRC was at the same time pressing through its arguments at the Court of Appeal in Marlborough DP Ltd v HMRC [2025] EWCA Civ 796

https://morr-co-storage-2.ams3.digitaloceanspaces.com/app/uploads/2025/06/CA-2024-001507-JUDGEMENT.pdf

The UK tax authority seems to have got the Court to agree that extended income tax provisions can apply where a company spends its money, provided that a director of the company gets some benefit from the expenditure: at least if routed through a 3^rd party, including a bank.

The test is whether there is some “connection”, not that the expenditure is by any reason of employment.

So, suppose that a director’s daughter works as a make up assistant at a recipient of funding under the Film tax relief scheme. Then the tax relief is more than wiped out by the PAYE will imposed on the corporate funder.

The UK tax authority taking with one hand, and taking back more with the other. Film noir, or plain slapstick?