Hollywood films buoy Brit production

U.S. accounts for 73% of prod'n expenditure

This year was supposed to be a disaster for British film production. But it hasn’t turned out that way.

Figures released last week give a mixed, but surprisingly rosy message. Inward investment — which largely means U.S. studio movies shooting in Blighty — has risen sharply. Co-production has crashed, but local indie filmmaking has held firm, with volume up but budgets down.

So what went right? The weak dollar, the clampdown on GAAP equity funds and the transition to a new system of tax credits were expected to sow uncertainty and cause a production slump.

But according to the U.K. Film Council, the first nine months of 2007 saw £682.6 million ($1.41 billion) spent on making 107 films — virtually flat compared with the same period in 2006, when £696.9 million ($1.44 billion) was spent on 120 films.

Inward investment is up 31% to $1.04 billion. Or to put it another way, Hollywood now accounts for 73% of all production expenditure in the U.K., up from 60% last year and just 43% in 2005.

Of course, not everyone would see that as progress in the right direction for the British film industry. But UKFC chief exec John Woodward says: “The indigenous production sector is always better off when the Americans are here in depth. It’s when the Americans aren’t here that the tumbleweed starts to blow through.”

A punitive exchange rate of two dollars to the pound wasn’t enough to deter the studios from bankrolling U.K.-based projects such as “The Dark Knight,” “Sweeney Todd,” “The Tale of Despereaux,” “Mamma Mia,” “The Chronicles of Narnia: Prince Caspian” and “Harry Potter and the Half-Blood Prince.”

The Hollywood strikes make the coming months hard to predict, but new arrivals may include “Angels and Demons,” “The Wolf Man,” “Mary Queen of Scots,” a Sherlock Holmes project from Warners, “Max Payne,” “Anthony Zimmer” and possibly the Ridley Scott/Russell Crowe vehicle “Nottingham.”

Blighty isn’t cheap, so there’s clearly something else going on here. The studios are always drawn by British material, talent and crews, but often toy with taking those projects elsewhere to shoot, such as Eastern Europe.

Experience has now proved that filming in Prague or Budapest might look cheaper on paper, but can turn out to be a false economy when the final bills come in. You get what you pay for, and when it comes to their biggest tentpoles, the U.S. studios don’t want to skimp on quality to save a few cents. In an uncertain world, the creature comforts and reliability of London start to look very attractive for a 14-week shoot.

And the new tax credit, worth 16% of the cost for bigger-budget movies, including the salaries of the American stars, takes the edge off those pesky exchange rates.

The flipside of the tax credit, of course, is its negative impact on co-production, down a staggering 62% to $127 million in the first three-quarters of ’07. There have been just 29 co-productions so far this year, compared with 52 in the same period of ’06.

The old system gave a tax break on the entire budget of a co-produced movie, wherever it was shot. The new tax credit applies only to expenditure on British soil, thus removing most of the financial advantages of co-producing with the U.K.

The UKFC is urgently looking for evidence whether this slump actually matters. Many old co-productions were foreign movies — French, Italian, Danish — of negligible cultural or economic value to Britain.

But UKFC is seeking hard evidence of worthy projects that have failed to get made, so that it can present a case to government for a change in the rules to allow British producers to take British casts, crews and equipment to shoot in foreign locations and still claim the tax credit.

Domestic U.K. production remains surprisingly healthy. Contrary to gloomy signals earlier in the year, the number of movies actually rose from 19 to 23, although spend is down 15% to $246 million. The UKFC argues this is because the silly money which inflated budgets under the old tax breaks have been washed out of the system, without ill effects.

Spinning every statistic as good news is part of the UKFC’s unspoken pact with government. But as one insider confides, “There are all sorts of reasons why this year could have been a disaster. So if we’ve turned out just fine, then it’s a triumph.”

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