What’s Holding the U.K. Film Industry Back?

Britain has a long cinematic tradition, but has yet to develop a self-sustaining industry.

Pinewood Studios

From outside, the squat, square building looks like any other warehouse. Inside, an Oscar-winning actress is submerged in a 20ft-deep indoor pool. Surrounded by safety divers, Halle Berry is shooting a scene for a new film, Dark Tide, in which she must fight for her life in shark-infested waters.

This is just another day at Pinewood Studios in Buckinghamshire. A nerve centre for Britain’s film industry, the 74-year-old studios have provided the location for films including the James Bond series, Batman, and The Bourne Ultimatum.

Walking across the crowded lots, one might assume the British film industry is booming but, of the five films in production at Pinewood at the time of my visit, only one was financed and owned in Britain. The figure is representative: In 2009, four-fifths of the almost-£1bn spent on film production in the U.K. came from abroad.

That points to a wider conundrum. While the U.K. has a long cinematic tradition, world-class facilities and a glut of homegrown talent, it has yet to develop a self-sustaining domestic film industry. Instead, the sector relies on grants, lottery funding and the investment of Hollywood studios that choose to shoot in the U.K., lured by a tax break worth about £100m a year.

At the heart of this is a simple question of scale: that of the North American continent versus a small island. But there is another issue: should film, straddling the commercial and cultural worlds, be subsidized for its artistic value, or left to commercial producers?

This was one of the arguments debated last July, when the new coalition government said it would abolish the U.K. Film Council, created in 2000. The Film Council’s role—managing £73m in funding for film and cinema in 2009-10, including £34m of lottery money—has been handed to the British Film Institute, a charity. But, in the absence of any consensus on how British film can best be nurtured, the BFI will likely encounter similar problems to its predecessor. As Ed Vaizey, minister for culture, said in November: “The goal of a sustainable, independent British film industry remains as elusive as ever.”

To understand why, we have to look back a hundred years or so to California. It was here that the early US film studios took shape, created by entrepreneurs such as Adolph ZU.K.or, a Hungarian immigrant who arrived in America aged 16 with $40 in his pocket and went on to found Paramount Pictures, and Carl Laemmle, whose Independent Motion Picture Company eventually became Universal.

These moguls-in-waiting had two distinct advantages over their British counterparts. One was the swift integration of the disparate arms of the industry, led by the pioneering Zukor. Having started out as an exhibitor, running a chain of miniature cinemas known as “nickelodeons” (because they charged five cents admission), he became a distributor in 1912, showing the first feature-length film in America, Queen Elizabeth starring Sarah Bernhardt.

Zukor’s production company mapped out a vertical consolidation of the film industry that other U.S. studios would mimic. Paramount was not only a producer; it was also a distributor and an exhibitor, with a chain of cinemas under its control.

“In the 1910s and 1920s, the major American studios began to gain their power,” says Harvey G. Cohen, a cultural historian at King’s College London. “They controlled every step of the process.”

The efficiencies of vertical integration helped the studios invest in top talent, technology, and awe-inspiring sets. In 1915, Laemmle opened Universal City, a groundbreaking film studio with its own post office, blacksmith and two restaurants. “The one and only incorporated Moving Picture City on the face of the globe,” boasted the official souvenir guide.

Back in Britain, the all-in-one studio system failed to take permanent root, although there were many, transiently successful attempts. Pinewood, which today also owns studios at Shepperton and Teddington, no longer funds its own film projects. Instead it’s a world-class location for producers who have already raised the finance to make their film. It did start out emulating the Hollywood model: Charles Boot, the building tycoon who bought the land where Pinewood stands in 1934, went to California on a fact-finding mission. And his business partner, J Arthur Rank, a Yorkshire-born Methodist who founded the Rank Organization in 1937, was an integrator in true Hollywood style—producing films, distributing them and eventually buying the Odeon cinema chain.

But they hit a stumbling block: the U.K.’s limited domestic market. This remains the major differentiator for filmmakers in the U.K. and the US. In 1920, there were about 106m people in the U.S. Britain’s 1921 census recorded a population of 44m. “It takes a lot of capital to run a film industry and the US simply had a much bigger domestic audience to sell movies to,” says Cohen.

Because Hollywood studios easily made back their costs in their domestic market alone, they could also sell movies cheaply abroad. By 1927, four of every five films shown in the U.K. were American; only 4 percentwere British. The stats are better today—in 2009, 17 percentof the total U.K. box office came from British films—but U.K.-financed films are still in the minority.

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Of course, many other countries have small domestic markets. Industry veterans point to another hurdle: Britain’s shared language with America. Although this means British films are far easier to export to the U.S. than other European films, our mutual lexicon has been a poisoned chalice, says Kris Thykier, a film producer.

“If you’re a 16-year-old Londoner walking to your local Odeon, you don’t necessarily make a distinction between American or English films—you just want to see the newest, most exciting film. So British films have to compete with the most successful products in the world,” he says. “In contrast, if you are a young Belgian, yes you can see Iron Man 2 but you may choose to see something in your own language.”

Thykier, 39, co-produced 2007’s adventure romp Stardust, the Michael Caine-starring Harry Brown (2009), and last year’s hit Kick-Ass. He has since founded his own London-based production company, PeaPie Films.

“We have some of the best technical crews in the world. We are world leaders in special effects. We have an inordinate amount of directorial and on-screen talent in the U.K., partly because we have a great theatrical tradition, and we have a great literary tradition so we have smart writers,” he says. “The question in the long term is, can we create a sustainable business culture in the U.K. which allows that talent to be applied to U.K.-centric products and for the rewards to stay in the U.K.?”

Angus Finney, who lectures in film finance at London’s Cass Business School, notes that most British producers have to give away their intellectual property rights “just to make a film.” That means they rarely benefit from the profits.

“The trouble is that the industry outside Hollywood is incredibly fragmented. People exist in silos,” he says. “An independent producer puts together a package—a script, a director, cast and budget. Then they’re faced with the uphill struggle of trying to attract financiers. There’s such a narrow set of doors to knock on.”

The difficulty of raising finance means a sense of uncertainty pervades the industry, which is only eased by investment from Hollywood or other international productions. Then every few years, a U.S. writers’ strike or a less favorable exchange rate leads to a dip in production.

Carl Wilson works at the Prop Shop, one of the businesses that lease land from Pinewood Studios. “The worry about where your next job will come from is always at the back of your mind,” he says. “But I’ve always wanted to work in film. When you’re busy, there’s nothing else like it.”

The enduring hindrance is a lack of domestic investment. Films are costly, highly risky assets whose returns are unpredictable. As John McVay, head of the film producers’ organization PACT, says: “Everyone makes a movie thinking it will be a big hit, but maybe one in 10 are actually hits.” There are few willing to invest in such a precarious undertaking in the U.K.

France is often cited as an example of a successful homegrown film industry. The French long ago made peace with the idea that government would help generously, not just with funding, worth €540 million in 2009, but also via regulation. Commercial television broadcasters, for instance, must invest a certain amount of their own revenue in film production each year. Canal Plus invested €165 million in 2009 alone. Broadcasters must also help out with distribution: 40 percent of the films they show must be original French-language works. The result is that in 2009, of the €1.1 billion invested in film production in France, the majority—€892 million—was French investment.

“Companies build up film rights [to their back catalogues], the public have a relationship to French films on a continuing basis, and you see a model that recycles profits back into the system,” says Finney. “Yes, French films and quotas create a slightly false market, but it is, nevertheless, an enduring industry.”

While France believes its film industry has cultural value enough to justify permanent support, U.K. policy has been based on the hope that one day its industry could be weaned off subsidy. Looking at the small scale of the domestic market, the language issue, the lack of a cohesive studio system—is it unrealistic to expect a British film industry strong enough to support itself? Back in 2002, Sir Alan Parker, director of Midnight Express and Evita, suggested as much. “The idea of a self-sustaining, purely British film industry has been the Holy Grail for government and industry for many years. But the idea of building a stable of rights-owning film production companies is a fantasy,” he said.

If the aim was merely financial self-sufficiency, some might say the government should give up on funding film production, and instead try to boost what Britain already does quite profitably: acting as a service industry to international filmmakers, as exemplified by studios like Pinewood and the strong postproduction sector based in London’s Soho.

But Kris Thykier says government support is vital if Britain is to maintain its skills. “If we are to grow new British talent it is improbable that it will come about organically and without government help,” he says.

What form that help should take is a vexed issue. Various attempts by governments from 1927 onwards have attracted criticism, despite nurturing celebrated filmmakers. The most recent intervention, the Film Council, failed to create a “sustainable” U.K. film industry. But some believe it offered the best model for government support yet, funding a wide range of films.

Yet the agency was stuck between a rock and a hard place. If it financed innovative films that broke boundaries and interrogated harrowing subjects such as racism or gun crime, it was criticized for making films that weren’t “entertaining” enough. When it ploughed money into box-office successes such as Gosford Parkand The Girl With the Pearl Earring, it was accused of subsidizing films that should have been financed by the market.

“Cinema has a quite extraordinary cultural power,” Lord Puttnam, the award-winning producer of Chariots of Fire (1981) and The Killing Fields (1984), told an audience at Oxford University in October. “This is why the economics of the film industry, the raw numbers—important as they are—do not begin to describe the broader impact of the medium.”

That difficulty in quantifying the indirect value of cinema is partly what makes it so hard for governments to justify buttressing a homegrown film industry. The BFI will battle with the same questions that dogged the Film Council: Whether its mission is to support British film in perpetuity, or to act as a temporary stabiliser; whether to fund films that wouldn’t otherwise be made, or reward commercial success. “The heart of the issue is whether you say film is an integral part of the nation’s culture or entirely commercial,” says Thykier. “More than any other art forms film struggles with this dichotomy because it sits somewhere between commerce and art.”

This article originally appeared in Financial Times. Click here to read more coverage from the Weekend FT.