Written evidence submitted by the British Film Institute

Response to DCMS Select Committee Inquiry

Impact of Covid-19 on DCMS Sectors

Overview

The Screen sectors are a powerhouse of the Creative Industries, with film and HETV alone bringing in over £3.6bn in production spend for the UK in 2019, galvanising our position as a global production hub.  As the Arms-Length Body (ALB) for the screen sector, the BFI is well placed to give evidence on Covid-19’s immediate impact on the wider sector as it operates as a funder, distributor, venue, advocate, educator, researcher and collector and cultural programmer.

All of these functions have been affected by the pandemic and the BFI is working collaboratively with industry to co-ordinate the sector’s response to Covid-19 through the Screen Sector Taskforce, which includes Government representation. This approach is necessary as all parts of the screen value chain have felt the impact; whether a HETV series that has to halt mid production, a completed first feature due for a theatrical release which has now been digital only, a film festival which has had to cancel or a cinema which was forced to shut by the government but is still having to pay full rent with no income.

Film and HETV are huge British success stories, delivering record levels of inward investment, valuable exports and high quality diverse storytelling for audiences. Despite the recent disruption caused by streaming services, UK cinema attendance remains high across the country with 36 million tickets sold in Q1 of 2020[1]. Great gains have been made in the diversity of the stories we are seeing and who is telling and making them, as well as spreading the benefits of the production boom beyond London to the rest of the UK, for example the HETV drama Outlander shot in Scotland. We can’t let Covid-19 erode these long fought for and much needed positive steps.

There are vast challenges to be faced in terms of just surviving lockdown before even longer term issues come to the fore, but the sector is united in getting back to work and delivering the levels of growth which in Q3 of 2019 was credited for preventing the UK from falling into recession. Government support will be required if we aren’t to permanently lose the advantages we had before the pandemic hit and the big test will be how swiftly the necessary new longer measures can be introduced. Their speed and effectiveness determine whether we can remain competitive with the rest of the world (who will also be introducing their own recovery measures) and ensure that cinema going and film culture across the country does not become a thing of the past.

This BFI response will only seek to cover the immediate impact of Covid-19 on the sector and the effectiveness of the response by the Government and ALBs. In June, a longer submission focusing on potential recovery measures, long term change for the sector and lessons learnt for Government will be prepared. This will include the proactive work to be undertaken by the Screen Sector Taskforce on the long term recovery of the sector, for example securing inward investment, supporting independent film and boosting the resilience of the workforce. We are aware of the risk of a second lockdown and action must be taken to ensure that all part of the sector could survive such an eventuality.

What has been the immediate impact of Covid19 on the sector?

When assessing the immediate impact of Covid-19, it is important to note that what we are really seeing is the impact of social distancing measures and the current lockdown as prescribed by the UK government. It won’t be until these measures are relaxed that the real longer term impact of Covid-19 on the screen sector will become apparent.

There have been two fundamental changes to the sector introduced by the government from which the immediate negative impact of Covid-19 stems, the ban on mass gatherings and eventual closure of cinema and the halt in physical production for TV and film. Combined, this has severe implications for the entire screen value chain – from immediate impact on workforce and cash flow to longer term impact on film financing, the content pipeline, TV schedules and cinema occupancy levels. Each will be looked at in turn but as outcomes of the Government response to the pandemic, they are both intrinsically linked.

1)      Impact of the ban on mass gatherings and the order to close cinemas

Box office

The UK box office was one of the highest in Europe until the cinemas were eventually forced to close on 20th March (although many closed the previous weekend of their own accord) but current estimates from the BFI’s Research and Statistics Unit show that £3.5m a day in box office revenue is being lost (three times the equivalent estimate for UK theatres by the Arts Council), as well as an additional loss of £2.2m when revenue from refreshments and advertising are included. Over £232m is predicted to been lost up to the end of April.

The outlook is not set to improve even if cinemas are allowed to reopen soon, with venues modelling of this with appropriate self-distancing measures in place achieving just 25% of the sales they would previously have expected to achieve. This will be due to the likelihood of some social distancing measures still being in place meaning reduced capacity, unknown levels of anxiety amongst audiences (many of whom will fall into at risk categories) and reduced ‘tent pole’ content as many big studio pictures like Bond and Disney’s Mulan have pushed back their release date. Even in late 2021/22, new blockbuster content will still be an issue due to production delays experienced now in lockdown meaning disruption to the release calendar for the next two years.

Cinema closures

Cinemas are unable to make any income and despite some government intervention around access to finance, overheads remain high due to fixed rents and service charges that must be paid. This means that any reserves will shortly run out and cash flow is a huge issue. Added to this is the problem with getting any pay out from an insurance claim regarding Covid-19. Either Covid-19 is not listed specifically in the pandemic clause (as it is a new disease) or the policy can only be used when there is a breakout on the premises. Many cinemas are now having to resort to making individual “no win no fee” claims against insurers.

There will be a significant cost when venues are allowed to reopen, with the introduction of new health and safety measures, staff wages, and greatly reduced revenue. The impact is being felt on both smaller independent venues and international chains of multiplexes, with many screens set to go under if rent support cannot be secured. For many venues, reopening will be more expensive than remaining closed due to social distancing measures and new health and safety protocols i.e. reduced occupancy rates, upgrading to digital ticket scanners.  With 775 cinemas and 4340 screens in the UK, if even one large chain had to close the effect would be felt severely in communities across the UK, especially where a cinema drives trade to other local businesses. This scenario is likely disproportionately hit smaller towns and isolated areas, where there is not a choice of cinemas or even forms of entertainment to compare to the cultural offer in larger cities.

No theatrical releases

Many films that were due for theatrical release are being held back, premiered online, released on a day-and-date basis or being licensed directly to SVODs, such as Netflix[2], whilst cinemas are closed. However, this is breaking the usually fixed windowing in place in the sector – for many major releases, there is usually be a 17 week gap between a cinema release and home entertainment release. The cinema release window has traditionally been where studios could recoup their production costs, before earning profits from subsequent windows.

Consequently, there is international concern that releasing films early on streaming services will see short term financial gains at the expense of the sector as a whole. This has been shown in both America and the UK in the disputes between large cinema chains like Cineworld and the studio Universal, who released Trolls World Tour online and to surprising financial success[3]. The global lockdown is driving people to streaming services, with Netflix reporting a record breaking number of new subscribers across the 1st quarter 2020 in all key regions and after Disney + launched on the first day of lockdown in the UK, it is now the third largest Streaming service in the UK. The pandemic is likely to see a further shift in viewing habits which will put more pressure on windowing, and challenging traditional business models. The concern is that it could considerably harder to coax audiences back to cinemas as their expectations around content availability will have altered during lockdown as well as fears for their safety.

Market failure in distribution

With a well evidenced market failure already present in distribution, the closure of cinemas for the foreseeable future means that a significant portion of film distributors’ revenue will be lost. The disruption to the release calendar impacts the cash flow for these companies who have already incurred costs acquiring a film and planning marketing campaigns. Now any return on that investment is either delayed or greatly reduced. This is particularly challenging for independent distributors (SMEs). The Creative Europe MEDIA programme offers significant support to these independent distributors but now that the UK has confirmed it will not participate in the next programmes starting in 2021, the impact of Covid-19 will coincide with the sudden loss of this historic and necessary financial support. The government has, to date, announced no replacement funding although the BFI has developed a detailed proposal with DCMS that is awaiting a decision from Her Majesty’s Treasury.

Disruption to the vital festival circuit

The film year is marked by multiple festivals, big and small, broad and specialist, domestic and international which play both a key role in drawing attention to smaller independent films through screenings in competition. They also – for example, the Cannes International Film Festival - operate the largest markets in the world for the buying and selling of film. Due to a ban on mass gatherings and global lockdown, these festivals are unable to go ahead or are having to move to smaller digital offerings. Smaller independent films rely on these festivals to get some valuable press attention to attract audiences and secure wider distribution deals in multiple territories, for example the buzz created at Cannes for Parasite in 2019 which helped it win the Best Picture Oscar. Without the festival circuit and the associated markets, completed films will find it much harder to compete with studio releases, distributors and sales agents will suffer diminishing returns and fewer new projects will receive financing and therefore get made. This will have a negative impact on the diversity of film culture and audiences at an especially challenging time for the independent sector, and where progress was really beginning to be made in this area with successes like the Cornish set Bait and Rapman’s Blue Story.

Drop in advertising revenue

TV and film will also soon start to feel the impact of vastly reduced advertising revenue for broadcasters and cinema operators[4]. Whilst it is true that people stuck at home are watching more TV (up 28% in the first 4 weeks of lockdown), the broadcasting industry’s economics will soon be under strain as some broadcasters are already reporting that the TV ad market is set to be down in excess of 35% over April and May. Ad-supported broadcasters will experience even lower revenues than during the recession in 2008-09 as certain categories of advertiser have dropped out of the market completely eg. travel, holidays. Channel 4 has already announced that its content budget is expected to be reduced by £150m, limiting the number of new projects to get greenlit and potentially reducing the amount of investment in independent film by Film4.

Export markets

As this is a global pandemic, every country will be taking an economic hit and will be looking at different measures to support its sectors. The impact being described on our own film and TV sector will be replicated across the world to varying degrees and this means that we will face huge challenges in our key export markets. Programmes like Peaky Blinders and Midsummer Murders are broadcast around the world but with less money available for sales now, UK exports will face considerable new challenges.

2)      Halt in physical production

The first quarter of 2020 was looking like a record period for film and HETV production spend (estimated to have been approximately £1080m[5]) primarily down to inward investment growing and three huge studio franchises due to shoot (Fantastic Beasts, Jurassic Park, Mission Impossible). However, it is now confirmed that every film and HETV production in the UK and also much regular TV work has suspended production since the onset of the crisis. There is a real concern that inward investment projects could move their production abroad to other European territories if they allow productions to restart significantly in advance of the UK. This will result in a very significant loss to the UK economy and threaten our status as a global production hub. The latest BFI film and HETV production and UK film box office statistics for Q1 2020 show a worrying downturn for independent film, a 72%[6] decline on the same period in 2019, and with this part of the sector likely to feel the negative impact of Covid-19 most acutely, additional support will be essential to ensure its survival.

Workforce

The halt in production has had an immediate effect on the workforce, with the number of crew involved ranging from ten to a few hundred depending on the size of the project. Due to its project based working patterns and its highly specialised skills, the workforce of the film and TV sector is particularly vulnerable to the sudden halt in physical production. The ONS statistics for the UK Film and TV sector indicate that in 2019 a total of just over 166,000 [7]people were employed across the production, distribution, exhibition and broadcasting sectors. Using ONS estimates and results from surveys and industry sources, the BFI Research and Statistics Unit has found that over half of this workforce is comprised of freelancers (85,400), significantly more than in the UK working population as a whole. The overall freelance workforce includes PAYE freelancers (37%), sole trader/Schedule D freelancers (27%) and those who operate as one person companies (36%).

The lockdown came at a particularly difficult time for the workforce as due to the nature of the film and TV production calendar, many freelance workers will not have been employed in February 2020 (nor December and January) since this date precedes the peak season for hiring crew for start of principal photography. Of the total PAYE freelancers, c. 20,500 of whom work in the production sector alone and many of this particular group will be ineligible for Government JRS and SEISS support as they won’t have been working on the cut-off date. Recent survey data from the Film and TV Charity shows that less than 2% claim they are eligible for the Government SEISS scheme, with women under thirty making up the majority of this hard hit group.

It is understandable that both Government schemes were initially blunt instruments as they were developed at pace but the guidance means that certain groups of workers in the sector unable to work due to Covid-19 will lose out entirely:

• PAYE freelancers – people not under contract on the government scheme cut-off date. Est 20,000 people
• Newly self-employed – people who do not have tax records for 2018/19 or before
• personal service companies – people who take most of their income from dividends and not a wage. This means they are only able to access a very small proportion of their income as JRS support
• those above the SEISS profit cap – people above the £50k upper threshold are unable to access SEISS support. Such a blunt cut-off mechanism does not account for costs of business included in this £50k (e.g. childcare), nor does it allow for nuance around personal circumstance (e.g. a single parent household earning £51k as opposed to a two parent household where two people earn £49k)
• self-employed workers who have had a long period being out of work in the last year (e.g. maternity or sick leave) – this will result in  a lower average income over three years so will receive a much lower level of support due to the scheme design.

Industry has worked together to create, and financially support, resilience funds such as that operated by the Film and TV Charity as well as specific funds operated by the screen agencies, but this is not enough to cover the level of need. The Film and TV Charity fund, with Netflix, the BFI, Sky, BBC and WarnerMedia as donors, has received applications for support from more than 3,000 industry professionals for more than £5m in total exceeding the limits of the fund and highlighting the scale of the problem facing large parts of the workforce. Given how well evidenced the scale of the problem is, it is disappointing that the two key support schemes have not been amended to include these groups despite numerous representations to government on how this could be done.

Skills shortages

Despite the Government’s commitment to provide the majority of workers with income support during the lockdown, not all are eligible for this support and a BECTU survey showed that approx. 50% of workers will likely leave the industry post Covid-19. We expect that many freelance workers in particular will likely migrate to other employment or industries with PAYE employment, the ability to work from home, or key worker status, providing them with more assurance should a second wave of the pandemic occur. This risks the diversity of the workforce, whereby only those with a high level of personal resource can afford to stay in the sector. There are already significant skills gaps and shortages across film and TV, for example production accountants, and these risk the continued growth of sector. With job insecurity highlighted by recent events, these shortages will become even more pronounced and widespread and potential new entrants to the sector will be put off. There is going to be a loss of labour capacity within the industry which could impact its ability to recover post Covid-19.

Wider industry context

It is not just cast and crew who have been impacted by the halt in physical production. The post production and visual effects sub sectors rely on a steady pipeline of work, with their activity beginning only once physical production has ended. Although there is work at the moment due to this time lag, these sub sectors will be severely hit over the next few months when work dries up even if productions are at that time back up and running. Currently the furlough scheme is set to end in June, leaving those later in the pipeline exposed with a significant reduction in work but no Job Retention Scheme to rely on. The lockdown has also hit at the worst time in the UK production calendar, where it peaks to maximise shooting time in daylight hours. A significant amount of inward investment could be lost due to productions now choosing to shoot in the Southern Hemisphere.

Sales agents and distributors need a constant supply of new content, with titles picked up often 12-24 months in advance of a theatrical release. The hole created in production currently by lockdown means that there will be a lack of content for cinemas in 2021, in the same way that broadcasters are also struggling already for new shows and streaming services will be hit later this year. Broadcasters are feeling the immediate impact of Covid-19 with an absence of sport, soaps and live shows, as these are often critical revenue earning opportunities for the commercial sector. This contributes to the threat to the sector of lost production in the future as broadcaster budgets reduce as a result of the lack of revenues. There will also be specific challenges for sales agents in licensing films as our export markets, especially in Europe (worth 40%) have been decimated.

Barriers to return to work

As all film and TV projects involve considerable cast and crew working closely together and in confined areas, getting productions up and running again will involve new health and safety guidelines being implemented. Although essential, these will have a cost in terms of productivity, meaning longer and more expensive shoots as well as investment in measures such as protective equipment, catering and transport and the social distancing needed to protect cast and crew both on and off set. This will put smaller independent films in jeopardy, where financing is already precarious and talent may need to pull out due to schedule changes and border/quarantine restrictions. There is a larger worry that projects greenlit now get cancelled due to finance falling apart/cast pulling out. On the supply side, there is a risk that the industry will permanently lose production capacity because companies are unable raise the cash flow required to survive the lockdown. Insurance companies are not paying out on claims and for independent production companies which don’t have blanket coverage, by contrast with the studios and broadcasters, it may be impossible to insure future productions given the ongoing risk Covid-19 presents.

Conclusion

The closure of cinemas and festivals and the pause and postponement of productions is having a huge negative impact on all parts of the sector due to the nature of the screen ecosystem as well as to audiences. Even once lockdown ends and restrictions begin to be lifted, getting ’back to work’ will have a high cost which for many businesses is unmanageable. The damage being done to the content pipeline, the workforce and the overall film and television landscape will be felt for years to come and sub-sectors like independent film were not in good health even before the pandemic.

How effectively has the support provided by DCMS, other government departments and arms- length bodies addressed the sector’s needs?

Engagement

DCMS has provided regular engagement with both the BFI and the wider sector with policy officials and Ministers. As well as this, the department has supported the BFI as it repurposed the Brexit Screen Sector Taskforce for Covid-19, fielding senior officials to update screen representatives. The frequent ministerial meetings for the Creative Industries have been primarily used as a way of feeding back the immediate issues faced by the sector, and the BFI has responded to numerous commissions on specific areas from policy teams.

Throughout the Brexit process, recognising that many issues facing the screen sector were cross cutting, a number of joint ministerial roundtables were held and industry leads were included in departmental discussions which ranged beyond DCMS. We would encourage this approach for Covid-19. If we are to develop effective policies to support the sector post Covid – it is vital that these are developed in a co-ordinated manner across departments – in particular for cross cutting issues such as insurance, access to loan schemes, employment issues and longer term impacts of the potential loss of cinemas in highstreets is hugely important. We are submitting a huge amount of information to DCMS on these policy concerns, and we believe early cross departmental dialogue might eliminate design flaws and ensure they work for the creative sector. It is vital for our stakeholders and the screen and creative sectors that they know their concerns are being heard and understood across Whitehall.

Financial support for businesses and the workforce

We recognise and appreciate the unprecedented levels of financial support being offered by government throughout the lockdown period, to support businesses and the workforce. As the two main schemes, JRS and SEISS have been developed at pace, it is understandable that the speed of the implementation meant they were not able to be designed for all parts of the workforce.  The freelance workforce, who make up approx. 50% of the screen sector workforce, have been particularly hard hit by Covid-19, with production shutting overnight and very limited job security. Although Government sought to address freelance workers in their SEISS scheme, it is not available to all freelance workers in the sector and we estimate as many as 20,000 workers are unable to access any meaningful support other than universal credit or the small sums of emergency funding available from hardship funds such as the Film and TV Charity.

It has been challenging to give really clear guidance to those in the sector who are seeking clarity on available support schemes, as there have been a number of iterations of guidelines and one particular issue has resulted in contradictory advice. During the time it takes for these announcements to come through, as we are given no indication of the policy interventions the Treasury is working on, businesses may have had to make poor decisions which harm their longer term growth.

For businesses, there are still two outstanding issues where government support is desperately required to enable businesses to remerge from lock down, insurance and rent. Despite the help with business rates, the vast majority of cinemas (including the largest chains) are having to pay full commercial rent for sites which are closed and earning no income. This is a considerable fixed overhead which will consume any reserves and ravage cash flow, especially when cinemas will not go back to earning their average revenue for the foreseeable future, even when open. We understand that the British Retail Consortium are asking for Government to step in and establish a system of rent relief, which would help to remove this immediate pressure and prevent businesses from going under. Both venues and production companies have struggled to get insurance companies to pay out on Covid-19 claims, impacting cash flow, but insurance will be required for any ‘back to work’ activity to resume, in particular for the financing and production of independent film. With Covid-19 still a threat to business continuity once lockdown measures are eased, the question of where liability falls must be answered and the sector cannot take another financial hit.

Post lockdown

Attention is now turning to ‘back to work’ initiatives, for production and venues. This is a positive step and we pleased at the support DCMS is offering here in terms of access to expert advisors and the taskforce which has been created for ‘safer places’. However, the issues of rent and insurance must be addressed before these plans can proceed and there must be an understanding that ‘back to work’ comes with a considerable cost. Production schedules will lengthen, budgets increase and cinemas will lose capacity whilst having to upgrade systems to minimise human contact i.e. digital ticket collection & scanning. These increased costs combined with limited cash flow mean that many businesses and projects will no longer be viable. The availability of testing and PPE must also be assured before any filming can resume or cinema can reopen to the public.

ALB support – the BFI

Every function of the BFI, from the national collections to philanthropy to the BFI Southbank has been impacted by Covid-19 response through lockdown and social distancing. Our ability to respond to Covid-19 and industry and audience needs can only be as effective as government allows, with permission required for many of our initiatives whether GIA, lottery or earned income. With huge pressure on government at this time, the wait for official approval of our plans can make us appear reactive.

Around a third of our income is from the annual grant-in-aid we receive from Government, but we are also reliant on our self-earned income from ticket sales, private hire, café and restaurant venues, our online activities such as the BFI Player and BFI Shop, our BFI Membership, and other significant revenue sources such as ventures, sponsorship, philanthropy and donations. The pandemic has caused much of our revenue to cease immediately and although we are continuing as much activity as possible in a state of lockdown this is limited, each month that we are in shutdown the financial gap between our costs and the income we continue to generate is widening.

Resilience funds

Using our position as the lead body for screen, the BFI has been integral to the brokering of one of the main hardship funds, led by the Film and TV Charity, linking with large industry players like Sky and Netflix to secure a bigger fund size as possible to help those ineligible for government schemes. Having received over 3,000 applications, this shows the scale of the need and approx. 35 BFI staff are helping the Charity to assess these funding asks and get money out as soon as possible. We have also repurposed much of our own lottery funding to help independent films in development or production experiencing increased costs due to Covid-19, and set up the FAN regional resilience fund to support independent venues and festivals, whilst increasing the flexibility of BFI initiatives like the locked box system for filmmakers, to enable immediate benefit for those in need. A COVID-19 question and answer document is being constantly updated and is there to help the sector, alongside a specific email enquiry address, covid-19.queries@bfi.org.uk, where individuals can pose any concerns they have and be directed to the correct source of support or advice.

Research and advocacy

The BFI immediately reinvigorated some former Brexit structures, including the Screen Sector Taskforce, to ensure a cross sector approach to government engagement, policy development and research. Our Research and Statistics Unit has been integral to measuring the immediate impact of Covid-19 on the sector, gathering evidence on key parts of the industry and supporting the DCMS analytical team with their continuous data requests. The Unit will play a vital role in not only assessing the overall impact of the pandemic, but in tracking the path to recovery and seeing whether particular policy interventions are delivering the intended outcomes. 

The Screen Sector Taskforce, now with over 120 members, covers all parts of industry as well Government representation and key working groups have been created with specific areas of expertise – Inward Investment, Independent Film, Exhibition & distribution and Production & Broadcasting. There is also a direct link through to the work that UKIE is leading on video games. The Taskforce is aiming to develop a package of well evidenced proposals to support the sector in its Covid-19 recovery to submit to Government, backed by industry. This should ensure that crosscutting issues such as insurance, tax relief and the ‘cost of Covid-19’ are covered effectively and that health and safety guidelines for physical production and the exhibition sector can help us get back to work as soon as possible whilst minimising risk. With direct input from Government, the Taskforce is able to efficiently test ideas, avoid duplication of effort and combine resources to deliver the best outcomes for the sector and the UK economy and the public. The Taskforce is also looking proactively at longer term issues which need to be addressed once the sector is ‘back to work’, for example workforce resilience, ensuring that freelancers in particular are less vulnerable in the event of a second outbreak of Covid-19.

BFI offer

Given our limited ability to generate self-earned income right now, and with no guarantee at present of additional financial support from DCMS we have shown great flexibility across all of our functions in adapting our offer to a lockdown scenario to benefit industry and audiences.

• Venue/festivals – BFI Southbank has been forced to close but the shop is still open online and the BFI Player is now the temporary home of our cultural programme. Even with a last minute cancellation of the Flare film festival, an online offer was quickly created for ticket holders.
• Development – the team are working to secure that the funding we receive from membership and philanthropy continues throughout lockdown, ensuring members feel valued and offering special events online.
• National Collection – this unique period in our history is being captured in the National Collection through Britain on Lockdown. Free to access archive footage is being made available on BFI Player including the NHS content which is being used in the ‘These are our hands’ short film to show support.[8]
• Digital – BFI Player now forms the main offer to audiences, with Southbank seasons now launching online. Regional partner cinemas have been able to curate content on player to offer to their own audiences. Sight and Sound magazine has altered its publishing schedule with a double summer issue, all available online. Tax relief documents can now be scanned and submitted online.
• Funds – Repurposed lottery money is supporting resilience funds for the workforce, venues and festivals as well as the Production Continuation Fund for independent films.
• Education/skills – regional skills courses for young people and Network mentoring have moved online where possible. See Yourself On Screen campaign is being launched for young people to submit their own lockdown videos.

The real test of the effectiveness of government and ALB support for the sector will not come until the lockdown has ended, as the current measures are a temporary reprieve and not a long term solution. The support for businesses and workforce alongside the research and policy development being undertaken collaboratively across the sector should put us in the best position for recovery, as long as policy recommendations are implemented quickly by government.