'No news is good news' might be the motto of the UK film industry this year. The UK has been condemned to live in interesting times of late, with its entire financing system ripped up and replaced over the last few years.
But since the beginning of the year, the territory has settled into a clear tax incentive system which, for all its faults, seems to be transparent and stable.
There was a brief final charge of the tax loophole brigade in March when the treasury's firmness was tested by a flurry of Gaap schemes and a hiccup over the scope of Enterprise Investment Schemes. Since then it has all been uncharacteristically quiet, but is the lower volume of dissent a sign of a market bouncing back'
There is a general acceptance that a settled tax regime is worth celebrating. The tax credit was introduced in January and can provide up to 20% of budgets providing a set of cultural tests are met. In May, the credit was further enhanced when it was announced that producers could have an equity stake in the feature films in which they invest.
'It is what it is,' says Simon Fawcett, chief executive of UK film and media financier Aramid Capital Partners. 'You can go to the bank manager with it in a way you couldn't with sale and leaseback.'
Banks like to know that what they are lending against will not disappear next time the finance minister sees a hole in the budget.
An uncertain economic climate
A stable fiscal environment may provide a credible platform for business but its stability depends on the wider economic environment.And the general feeling about the current state of the UK film finance market is affected by factors beyond the control of governments.
The exchange rate with the dollar, for example, has unquestionably made shooting in the UK a much less attractive proposition for US producers.
'The exchange rates are the smoking gun,' says Danny Rosett, COO of US financier and distributor Overture Films, which began shooting Last Chance Harvey in London on October 1 with Dustin Hoffman and Emma Thompson. 'London has always been expensive to work in regardless of the rate. But now that the dollar is weak everywhere, you're not making such cost savings by going elsewhere in Europe.'
Then there is the threat of a US industry strike which has cast a shadow over production schedules, undermining a bright return to profit during the first half for Pinewood Shepperton.
And then, of course, the UK tax incentive is just one among many in the international film industry. Several countries have announced new tax relief schemes this year, not to mention the plethora of schemes drawn up by individual US and Canadian states.
'The UK is a very expensive place to work,' says Deborah Del Prete, principal of Los Angeles-based Odd Lot Entertainment. 'The dollar is quite weak compared to the pound, therefore it is considerably less attractive to work there than Eastern Europe where labour is much less expensive. The only advantage is that the crews speak English so there is no language barrier, but it is quite a minor advantage compared to the obstacles.'
Even given those uncontrollable factors, the undoubted benefits of a clear taxation environment has yet to translate into a really clear feelgood factor.
To an extent, that is natural. The industry had been banging its head against a brick wall over taxation for a long time and while it felt great when it stopped, a clear perspective will take longer to emerge.
What is more, it is less easy to find a benchmark to measure success. That may owe much to the UK's position in the film world.
'There's a tension there,' says John Woodward, chief executive of the UK Film Council. 'There's always two layers - being the workshop of the world, speaking English and being closely aligned to the US; and also being part of Europe.'
Broadly speaking, the UK policy tries to marry those layers: attracting inward (chiefly Hollywood) investment and encouraging indigenous production. The debate on tax credits was predicated on the idea that it was possible to find a happy equilibrium between the two.
Studio money comes in funding jobs and services and allowing the building of experience. Indigenous production uses those skills and that finance to expand. But the astonishing boom in private equity being pumped into Hollywood has tipped the scales.
There is an irony here - it was the collapse of the UK sale-and-leaseback arrangements (at virtually the same time as the German media funds) that began the search for international finance that ended in the hedge-fund boom.
Now we have what Stephen Margolis, CEO of UK film financing and production company Future Films, calls an 'over-supply of liquidity'. In other words, there is more money pouring in from hedge funds than the US studios know how to use. The surplus of well-financed content from the US is squeezing the independent sector elsewhere.
That surplus helps keep the market for foreign shoots buoyant - an Oxford Economics study predicts that for the period until 2010, the UK is expected to attract $3.3bn (£1.6bn) in inward investment by 2010 - but makes funding and distribution for indies harder.
The boom may not have too much further to go. The credit squeeze that followed the sub-prime loans crash in the US is likely to affect investments. Right now, however, there is a sense that the domination of US product is growing.
Nick Burton, chief executive of UK production outfit Harbour Pictures, which has enjoyed global success with hits such as Calendar Girls and Kinky Boots, believes the cream can still rise to the top. Hollywood right now has far more money than ideas and talent, and is increasingly interested in content that will appeal to international markets.
'The studios have cottoned on to the indie market. Now there's seven or eight people you can go to,' says Burton. But he recognises that the reliance on US money is as great as ever. 'You have to look at finding some kind of American pre-sale to make it work.'
The downside is that much of that demand is met by US indies. US studios or mini-studios can afford to be picky even with middle-to-high-end films and are increasingly looking at projects that are already in relatively advanced states of readiness.
But Burton recognises that the notion of a totally independent UK film is remote. 'I don't believe that a film like [German Oscar winner] The Lives Of Others could have been made in the UK,' he says.
A harder-than-expected production climate
A great many UK producers believe the UK is going through a tough period right now.
'My feeling it that budgets are smaller and it's a bit harder than we expected this year,' says UK producer David Parfitt, who is shooting Bunch Of Amateurs in the Isle of Man.
Parfitt is co-founder of the Limelight Fund, an $80m investment fund to cashflow the new UK tax credits, which was announced with an initial slate of films in May. While the fund has the huge advantage of money in the bank, it has still not been an easy ride.
Tim Willis, director of film at producers' group Pact, recognises the concern. 'There's a real squeeze on the middle tier of independent film-making in the UK and that's a real threat.'
Television money remains a bugbear (see pages 19-22) and money from other sources often seems to promise more than is actually delivered. 'The producer equity is working as we expected, rather than as we hoped,' Willis says.
There are concerns that co-production was the missing link in the tax changes - a fact that is likely to be reflected in a drop in co-productions in the UK when the next round of figures are produced this month.
'I question whether the tax credit is enough to help independent films,' says Stephen Margolis of Future Films. 'There are no more TV channels, no more cinema building and the DVD market is dropping, but we are putting more films into a market where there is no demand. The result is a drop in prices.'
The movement of the markets backs up the theory. The reality is that film budgets are dropping. Securing pre-sales on projects is harder in a squeezed market and even US distributors want to see films at an advanced stage of development.
Some of those concerns are recognised by UK Film Council head John Woodward. He admits being 'extremely concerned' about co-productions, for example. 'At the time the tax credit was introduced, there were choices about whether to focus on inward investment, hardcore British film or co-production - and co-production was let go.'
That decision is now under review. But Woodward also believes that some of the concerns of producers are backward-looking when they should be engaging with a changed market. The hedge-fund money pouring into US production has been attracted by transparent slates where high performers can make up for losses caused by flops.
Building an indie slate
Earlier this year, Dresdner Kleinwort bank proposed the idea of a European indie slate but there is little sign of enthusiasm.
'Independents haven't been interested in cross-collateralising their films in a slate,' says Woodward. 'Maybe that's because they are independent by nature. But the success stories of today are companies like Material, DNA and Working Title who are willing to work with partners.'
The UK, with its linguistic link to Hollywood, would seem to be in a strong position to put together a viable slate but there is no structure in place. Some believe the Film Council could fulfil that role, although it is not part of its mission so far.
There are nonetheless new players in the market, which have been successfully cashflowing the tax credit or providing other forms of finance. Simon Fawcett, whose Aramid Entertainment Fund has provided credit facilities for a number of high-profile projects, says there is movement for the right projects.
'It's competitive and always has been but if you have a strong cast and a strong sales agent, you can find sales.'
Negotiating the wide range of funding available around the world may be a relatively new skill to a UK market that had enjoyed a ready flow of soft money, but it is one being quickly learned.
Ongoing demand for content
Studio money may be squeezing the market but it is worth remembering that a well-capitalised Hollywood needs content. And, of course, lower-budget product that makes use of the advantages of digital technology is managing to match budgets to demand.
What the UK still has up its sleeve is a reputation for quality, delivered in the dominant language of global film. Danny Rosett at Overture Films echoes the view of many as to the reason why the UK is chosen over other cheaper locations. 'We want to make movies in the UK because it has the best craftsmen and crews. It's the hub of filming in Europe. If we're filming somewhere else in Europe, we end up taking the British department heads with us.'
For all the financial challenges ahead, that is a strong foundation on which to build. nScreen International'
Screen's UK Film Finance Summit
UK Film Finance Summit takes place on October 18 at The Brewery in Chiswell Street, London.
The keynote speaker is the UK secretary of state for culture, media and sport, James Purnell.
Stephen Margolis, Nicolas Barton and David Parfitt all speak at the conference.
Other guest speakers include: Jane Tranter, controller of BBC Fiction; Tessa Ross, controller of film and drama, Channel 4; Duncan Reid, commercial director, Ingenious; Anthony Beaudoin, senior VP of film finance, Bank Of Ireland; Chris McGurk, CEO, Overture Films; Peter Watson, CEO, Recorded Picture Company; Cameron McCracken, MD, Pathe UK; Howard Kiedaisch, CEO, AAM; Andy Harries, MD, Left Bank Pictures; Simon Oakes, CEO, Hammer; John Graydon, Tenon Media; Chris Curling, founder, Zephyr Films; Charles Moore, partner, Wiggin; Richard Miller, Olsberg SPI.
The event is chaired by Jonathan Olsberg, of consultancy Olsberg SPI.
- For more details, visit www.screendaily.com.