A damning report by the British Film Institute (BFI) has lifted the lid on the difficulties faced by British film producers including a lack of opportunities for ‘new blood’ producers to break into the industry, issues around funding and problems caused by partnering with Hollywood studios.

While the report highlighted a number of negatives within the business, it also noted positives including the possibilities for film businesses in television, the strength of vertically integrated distribution and sales units and growing opportunities across video-on-demand.

However, the report – The Corporate Finance of SMEs in the UK Film Industry – has a controversial provenance. Compiled in 2014 by chartered accountants Northern Alliance, it was never released by the BFI, which is run by Chief Executive Amanda Nevill, and only came to light after a Freedom of Information request from film statistician Stephen Follows. One BFI exec called the suppression of the report a “triple-decker sh**show”.

One of the most damning statistics in the report is the fact that almost half of the film businesses that produced, sold or distributed top British films between 2009 and 2014 have “subsequently ceased trading or appear to be in decline”.

It stated that stand alone independent production companies typically have “weak” and “illiquid” balance sheets, often reporting losses, “though many appear to do so because the owners take out as much cash from their companies as soon as possible”.

It added that the industry is also “resistant to new blood” or “simply that there is no substitute for experience in a highly complex area such as film production” and there is a low churn rate at the top film firms.

A number of hybrid film companies, those which have moved into television and advertising, have had highest average turnover in the period. “The film and TV model still appears to be the most successful. The more stable and continuous revenue from TV commissions apparently providing an even basis for the more uncertain and irregular returns from film production,” it added.

There has been a “seismic” shift in the UK with many of the most high-profile film companies moving aggressively into television. The Football Factory and The Sweeney producer Vertigo Films has been at the cutting edge with series such as epic period romp Britannia and buddy cop action thriller Bulletproof, both produced for Sky, while the likes of Alison Owen’s Monumental Pictures recently made Hulu and ITV Encore prostitution drama Harlots and The Fyzz Facility recently set up a small screen division.

Another difficulty highlighted by the report is that, while private investment in individual film projects is quite common, there are few instances of venture capital investment in film companies and these firms are not supported by banks. “This seems to indicate that UK film businesses typically still do not have ready access to traditional sources of corporate finance other than their self-generated working capital and there remains a wide ‘equity gap’ in the UK film industry,” it noted.

One surprising statistic was that only 10% of production companies were backed by Hollywood studios, down from 22% in the earlier study. “Whilst the UK industry as a whole continues to enjoy what is arguably a very special relationship with Hollywood, no new studio-backed production businesses met the criteria for inclusion in the second review period, so whilst this part of the industry is relatively stable, it is so perhaps because it is in a period of managed decline in importance.”

It added that having the support of a Hollywood studio can be damaging. “Whilst on a personal level working for a studio might be profitable, at a corporate level, the majority of the companies that enter into long-term arrangements with MPAA companies generate significant losses”.

Baby Driver

Eric Fellner, co-chairman of NBC Universal-backed Working Title, told The Times newspaper that this was not his experience but that he did recognize the report’s description of short-term attitudes in the industry. The Baby Driver producer said that many producers lived “hand to mouth” from one project to another and failed to invest in the business.

The problems were not limited to production: the report highlighted the difficulties in the sales and distribution side of the industry. It found that there “appears to be” a minimum threshold of around £2M (US$2.7M) per year in turnover in order for sales agencies to prosper. “The business of being a truly independent sales agent remains a tough one, with previous incumbents either navigating their way towards new types of business model or persevering through being very tightly resourced, low overhead businesses focussed around very small teams of experienced sales executives,” it added.

Film firms were also accused of having an “almost systemic reliance on dilatory payment of creditors with some companies continuing to take over six months to settle debts”, built into the distribution business model. “It is the ability to collect their own debt faster than they pay others that appears to provide most of the capital for vertically integrated and independent distribution companies.”

There were some rays of light for the UK film production business, which is thought to be worth around £1.6B (US$2.1B) per year. It noted the emergence of video-on-demand, and given that the report is three years old, this sector with the growth of Netflix and Amazon and moves by Apple means that this is only likely to help further. “Access to VOD audiences now appears to be emerging as a critical success factor”.

The BFI, in a statement to Deadline, said: “In order to fulfil our role as the lead organisation, the BFI needs to commission a variety of research to inform future policy development and understand the industry. Sometimes these are specifically commissioned for publication, for example our Statistical Yearbook, at other times research is commissioned which we don’t intend to publish, but, unless there are commercial sensitivities, we are always very happy to share them as we did in this case. This piece of research, commissioned over three years ago, has been supplied to a number of researchers since that time.”