Economic review commissioned by the BFI reveals critical pressures for UK indie film

A new report, An Economic Review of UK Independent Film, has been published examining the significant and rapidly increasing challenges being faced by UK independent films.

The research and analysis detailed in the review, which has been undertaken by independent research company Alma Economics and published by the BFI, reveals  high levels of fragility for UK independent film, from the production stage through to distribution and exhibition to audiences. The review suggests that these are now so significant that the sector’s viability is inhibited to the point of market failure.

UK independent films are a powerful and vibrant contributor to our cultural lives, a place where creative risks are taken and stories are told that reflect our lives and experiences, often giving a voice to underrepresented people. Over decades, films from Kind Hearts and Coronets to Kes, Educating Rita, Burning an Illusion, If, My Beautiful Laundrette, Naked, Bullet Boy, The Full Monty, Attack the Block, This Is England and Bend it like Beckham and more recently The Favourite, Blue Story, God’s Own Country and Bait have become integral to our culture lives and the way the world sees us. Independent films are also a vital talent incubator with some of the UK’s most successful filmmakers from Mike Leigh, Ken Loach and Danny Boyle to John Akomfrah, Andrea Arnold, Clio Barnard, Gurinder Chadha, Terence Davies, Sarah Gavron, Andrew Haigh, Joanna Hogg, Paul King, Shane Meadows, Edgar Wright and Joe Wright starting or developing their careers in independent film. The independent sector also enables crews, technicians and craftspeople to develop their creative and technical skills, keeping the UK at the forefront of filmmaking globally.

The UK’s film and screen industries are vital contributors to the UK economy achieving unprecedented growth in production spend and revenue generation. In terms of size and scale, the UK production sector is unrecognisable from even five years ago, with film and high-end television production spend alone reaching record levels in 2021 at £5.64 billion, a rise of 63% (£2.19 billion) since 2017.

The review’s findings are that the speed and volume of this growth has exacerbated the strain on the independent sector which cannot compete with larger budget international productions on a variety of levels from accommodating the rising cost of production to securing cast and crew and ultimately to reaching audiences. The sustainability of the sector has been under review since the BFI Commission on UK Independent Film report in 2017/2018 which looked at how seismic changes in the wider screen landscape were creating significant challenges for independent film. Since then, those challenges have only grown more acute.

The BFI’s recently published Skills Review highlighted that crew shortages at all levels is especially threatening the UK’s independent film sector, which is struggling to compete for crew as well as putting additional pressure on already very stretched budgets. Covid protocols have reportedly added 10-20% to production budgets and for independent films with already tight and limited finances, that impact is acute to the point of being insurmountable.

At the same time that UK independent film is struggling with higher production costs and plateauing or declining budgets, it is also experiencing a decline in revenues. This has a knock-on effect by inhibiting investment in new films, largely as a result of stagnating box office and a sharp decline in global sales of packaged media (eg DVD and Blu-ray).

Inflation-adjusted revenues from digital media have increased significantly through the past decade and accelerated through the Covid-19 pandemic (over 50% of overall UK independent film revenue by 2021), however, they have not been enough to reverse the wider trend of decline. Inflation-adjusted global box office revenue has been on a gradual downward trajectory since 2010, with total box office revenue having fallen from generating nearly 60% of independent film income in 2010 to around 50% by 2018.  In some years the downward trend has been masked by a small number of very successful commercial hits (eg Belfast, The Favourite, The Best Exotic Marigold Hotel, The Imitation Game and The Inbetweeners 2), highlighting benefits for production companies in diversifying across a slate of films consisting of potential winners and losers from a commercial perspective.

Despite existing support measures for UK independent film including the significant role of the BFI, BBC Film and Film4 as key funders, the Film Tax Relief (FTR), the new UK Global Screen Fund (UKGSF), which has just entered its second year in supporting the promotion and export of UK independent film, and regional and national funds, and the Government’s Culture Recovery Fund which has ensured that independent cinemas have survived the pandemic thus far – the review has found that market challenges have put independent film activity on a downward trend, raising concern about the long-term viability as a sector.

Ben Roberts, BFI chief executive said: “As a public funder, distributor and exhibitor of UK independent film, we see the increasing pressures that 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 pinpoints measures as preliminary recommendations which can be unpacked and modelled with the industry in order to enable it prosper and continue.

“UK independent films are a vital part of our screen sector and a powerful contributor our cultural lives, giving us stories and worlds we recognise, as well as new experiences and perspectives.  They are part of the UK screen industry’s global success in developing new talent, enabling filmmakers to take creative risks and our crews and crafts people in developing their skills and innovation in their work. Put simply they are an integral part of the diverse ecosystem and the growth and success of  the UK screen sector globally.”

John McVay, chief executive of Pact said: “The BFI Economic Review findings build on those found by Pact’s The State of the UK Independent Film Sector report in 2017, that the independent film sector needs critical support to be able to continue to produce quality British content for both British and global audiences.

“The report provides clear evidence of market failure and that this has been significantly exacerbated because of the pandemic. The screen industry ecosystem relies heavily on the independent film sector to discover, nurture and sustain talent. Pact continues to proactively support the very diligent, creative and accomplished independent sector we have in the UK and is prioritising work on the case for an enhanced tax credit for independent feature films.”

Eva Yates, director of BBC Film, said: “As a leading funder of British independent film, the findings of this report are sadly no surprise to us after the increasing challenges faced by so many in our sector in recent years. But there is no doubt that the talent, craftsmanship and ideas are here in the UK and need to be protected and supported to thrive. We will continue to work hard with partners and producers across the industry on ways to enable the very best possible conditions for the creativity and sustainability of the independent film sector.”

Ollie Madden and Daniel Battsek, director and chairman of Film4, said: “The Review makes it clear that there are some fundamental threats to the health of the British independent film industry, which is itself a key driver for the screen sector as a whole, and a huge contributor to British culture and the economy. Film4 is one of the biggest backers of independent film in the UK, investing £25m every year, and together with BBC Film and the BFI, we play a crucial role in providing development and production funding to the sector, ensuring we grow and support the next generation of world class talent. However, more needs to be done. We endorse the proposals outlined in the report, and remain committed to taking all steps necessary to maintain the strength and future vitality of our globally admired film industry.”

Joy Gharoro-Akpojotor, producer (Boxing Day, Blue Story, White Colour Black) said: “Independent producers need more support to remain sustainable and competitive in order to go after IP or creative talent. Increasing the film tax relief is a great investment incentive but also allowing producers to be able to access it for the benefit of sustainability would be advantageous to the independent film sector.”

Mike Elliott, producer, EMU Films (Benediction, Small Axe, Dirty God) said: “Lack of crew, spiralling wages, location and supplier costs resulting from the streamer boom, alongside agents, financiers and governing bodies not distinguishing between independent and streaming projects, is all an issue.

“On the financing side, limited MGs and equity make it a question about whether we value culture and small businesses. If we do, increasing the tax credit to 33% for independents would achieve a third of the Finance Plan, allow for greater flexibility with partners – and see more films achieving a net profit position.

“The producer tax credit revenue stream has been subsumed as finance, so financiers need to remove the cap of 10% for Production company fees. Our European partners have a bigger allowance – it would help sustain companies, giving them working capital for development.

“If we want diversity and for the people who put films together to reflect society, then rewarding producers and enabling them to be entrepreneurial, will encourage more people from different walks of life to take on the challenge and tell stories that inspire and define us.”

Faye Ward, producer Fable Pictures (Rocks, Stan & Ollie, Wild Rose), said: “I’m not sure we’d be able to make Rocks today or many of our other films and this would be a profound loss.  Rocks showed an authentic slice of life in the UK – one that is rarely depicted on screen and was brilliantly received at home and internationally. Financing on these indie films are nearly impossible to put together, and that is even with a star.

“We need films that represent manifold aspects of the world we inhabit and particularly situations and people whose voices are least heard. Films like Rocks, Promising Young Women, Saint Maud, Boiling Point all reflect the amazing UK’s talent.

“Something has to change because it’s not just the films we lose – in the case of Rocks, the film also started and nurtured so many careers both in front and behind the camera.”

Marc Samuelson, producer/executive producer Samuelson Productions (Stormbreaker, The Disappearance of Alice Creed, Me And Orson Welles) and Pact Council/ BAFTA Film Committee, said: “The pressures on independent film production have always been there of course but for a while now we have been looking at reaching a point risk to its continuity.  With extremely high costs and really low returns on investment for independent films, for an independent producer diversifying out of film has become the only way to survive.

“Directors, writers and actors are already moving away from filmmaking and as a result we now face a huge reduction in the talent pipeline which underpins the success of the wider production sector and an inevitability in which British audiences are deprived of British films.

“Now is the time to act and a carefully targeted expansion of the UK tax credit as proposed in this report will be inexpensive and highly effective, bringing us into line with support in such countries as Italy and Australia.”

Andy Leyshon, Chief Executive, Film Distributors’ Association, said: “The BFI’s Economic Review offers a holistic vision of the independent film sector, and how important its ongoing health is to the entire film industry.

“Distribution is the often invisible glue that binds the different parts of the film ecosystem together, so the report’s focus on independent film distributors is welcomed. The FDA and its members now look forward to engaging further with the BFI on specific areas of how to best support independent film distribution.”

Phil Clapp, chief executive, UK Cinema Association said: “Recent years have shown more than ever the important role that UK independent films can play in helping to attract the widest possible audience back to the big screen.

“First and foremost that relies upon the production and distribution of a quality and diverse slate of titles, but there is undoubtedly more that cinemas could do to promote and present those titles. We look forward to working with the BFI and other partners in exploring the practical implementation of the recommendations made in the review document.”

Key challenges and recommendations

The review finds that the four key challenges facing UK independent film which need to be addressed.

• A long term trend of stagnating revenues for the independent sector with increased sales from digital media not fully replacing falling revenue from traditional sources (eg DVD).
• Significant inflation in the costs of key areas of production, including cast, crew and studio space and unable to secure skilled workforce due to skills shortages.
• Increased uncertainty as the sector emerges from the Covid pandemic including whether exhibition revenues will recover to their pre-pandemic levels plus no indication pandemic induced cost inflation will be reversed.
• The combination of these pressures are making it more challenging for investors to recoup their investments and generate a return reducing financing options for independent film.

The review recommends four interventions to be modelled and explored further as offering potential solutions to address these challenges. These prioritise support directly to producers of UK independent films and options for supporting independent films reaching audiences.

• An increase in film tax relief for all films (up to a budget cap), incentivising investment but which  could also include a budget floor, limiting the relief to films assessed as ‘independent’. A portion of the uplift could be linked to shooting location to support UK-wide screen sector development.
• An extended film tax relief to include Prints & Advertising (P&A)  for small films and/or UK independent films, making them more marketable in domestic and international markets.
• The introduction of a new zero rate of VAT on the exhibition of UK independent films, incentivising exhibitors to showcase films, thus exposing them to a wider audience and larger income streams.
• An increase in the financial contribution from large streaming services to UK independent films (including SVoD, AVoD, and potentially television broadcasters), either through a voluntary commitment or a requirement for large streaming services to make a modest contribution to a pot of funding that they can reclaim for creatively driven UK filmmaking (subject to a budget cap).

Significant cost pressures facing film production

The review finds that increases in the cost of production – including crew, cast, and studio-space – have been putting significant pressure on UK independent film production budgets. Cost inflation is reportedly driven by significant increases in internationally financed UK screen content (including film and HETV) which has accelerated demand for skilled crew and filmmaking services. Social distancing and health and safety measures required to continue film production through the pandemic have also been inflationary, with some producers reporting cost increases of as much as 10-20% from such measures. It is unclear to what extent these added costs may persist as the industry emerges from the pandemic.  At the same time budgets for independent films has been flat or slightly declining. The overall impact of this inflationary environment means production budgets are effectively reduced for UK independent films which at the same time are increasingly challenged to compete with studio-backed films for audiences, whose budgets have risen substantially through the 2010s.

Some industry stakeholders who contributed to the research reported very low incomes for independent filmmakers, with relatively low producer fees for many productions and a large number of films failing to recoup. In order to supplement their income from film, some independent filmmakers have reported moving into other areas of screen content production such as high-end television, to earn a sufficient income creating a talent drain for independent film.

Some UK independent films in recent years have been able to secure exclusive streamer buy-outs, guaranteeing a  financial return for investors in a market where returns are often speculative. However, the review highlights that these deal structures mean that all of a film’s rights are typically bought out by a SVoD platform, preventing filmmakers from benefiting directly from any upside of success with audiences (funding which could support subsequent works). In some cases, filmmakers can benefit indirectly from establishing relationships with streamers, such as through investment in subsequent productions (eg prequels and sequels), although this more common for studio-backed films.

Challenges to film financing

Financing independent films in the UK is a highly complex process, involving a large and varied range of financiers. Investors in the production of independent films in the UK can include regional and national funding (eg BFI and other regional/national agencies); publicly owned national broadcasters and their film arms (eg BBC Film and Film4); fiscal measures (including the Film Tax Relief and the new UK Global Screen Fund – co-production funding); and private investors and other collaborators. Due to the significant risks and challenges involved in the production process for UK independent film, these channels are increasingly unable to sufficiently fully finance a production (see more information in Notes).

Disruption to traditional distribution models

Release strategies have become more adaptable in recent years with distributors increasingly experimenting with sequencing, the length of windows, and pricing.

Developments in technology have resulted in persistent changes to how audiences can choose to consume screen content. Many of these trends have accelerated as audiences and the film industry have adapted to the social restrictions imposed by the Covid-19 pandemic.

Distribution of independent film in the UK is therefore occurring in an evolving marketplace which poses significant risk and challenges to distributors. These risks include the high cost of successfully distributing film content both in the UK and internationally and increasing competition for ‘screen time’ with releases from major studios and streaming platforms. However, digital marketing channels, including social media, can also make it more cost effective to market a film.

Inflation-adjusted global box office revenue has been on a gradual downward trajectory since 2010.   The review’s analysis suggests that independent film has benefited from increased revenue from digital media (including VoD and pay-TV), which estimated to have increased to over 50% of the total by 2021, partially offsetting the reduction in revenue experienced in other distribution channels (including cinema box office, DVD and free TV).

Free television

Revenue from UK free-TV licences has historically represented a small but relatively stable share of the total revenue mix for independent films. Industry insights reported in the review say that the commercial value of these licences has been in decline through the previous decade. Stakeholders have reported that the reduction in free-TV licence revenues was the result of PSBs receiving the rights later in a film’s life cycle; the addition of VoD channels to the value chain; as well as declining viewership of terrestrial television channels. PSBs have adapted to these developments by expanding catch-up programmes and on-demand services, whilst some can also generate revenue from advertising and through monetising their own streaming services (eg All 4). However, the reported decline in licence values raise some doubt over the ability of independent films to sustain levels of income from free-TV licences.

The impact of the Covid-19 pandemic

Despite support provided to producers, through the UK Government’s new UK Global Screen Fund (now in its second year and the Film & TV Production Restart Scheme (now closed), as well as the Culture Recovery Fund (also now closed) for independent exhibitors, the pandemic has had a profound impact on the value chain for UK independent film, putting pressure on revenue, costs, and returns on investment.

The importance of digital media to overall independent film revenue accelerated significantly through the pandemic. Digital media revenue is estimated to have increased to over 50% of the total by 2021, with the closure of cinemas for much of 2020 and 2021 accelerating this trend. Sales through digital channels may have benefited from increased experimentation with alternative release strategies by distributors through this period, with audiences often able to access films through PVoD closer to the release date of the film

Pre-pandemic trends show that, if historical trends continue, the independent film sector will continue to experience a slow decline in revenue in the short to medium-term. Sector revenues are projected to be over £100m lower should market revenue for independent films only revert to 75% of pre-pandemic levels.

An Economic Review of UK Independent Film and the BFI’s response to the report can be read in full here.