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U.K. Entertainment Industry Weighs Consequences of Britain Breaking With EU

To stay or not to stay? That is the question.

British voters will face their first European Union referendum in more than 40 years June 23, when they decide whether to remain part of the 28-nation economic and political alliance or to unbind themselves from the union’s tangled regulations and go it alone.

While a British exit — locally termed a “Brexit” — from the EU would impact the country’s GDP, jobs, travel, currency and trade, it would also have a major effect on the U.K.’s thriving film and TV production sector, which now enjoys access to European Union subsidies and can easily employ EU workers without red tape.

Polls show that voters are divided almost equally on the issue.

The U.K. is a hot spot for production and post-production, so much so that a host of U.S. companies have recently snapped up Brit shingles, including Discovery Channel’s acquisition of All3Media. Claire Enders of Enders Analysis estimates that the amount of direct U.S. investment in British companies since 2010 sits at £10 billion to £15 billion ($14.4 billion to $21.5 billion).

But if U.K. companies lose some of the market advantages inherent in being an EU member, will overseas firms still be interested?

Enders says the economic effect of Britain exiting the EU looms large. “The U.K. is the base outside of the U.S. for the global marketing and advertising industries,” she says. “So, in the short term, if Brexit happens, there is no doubt that there would be a two-year shock to the economy that would result in a drop in GDP of 1%-3% in the first few years.” This, she says, would have a direct impact on broadcasters’ income.

“So much U.K. government policy has been focused on London and the Southeast, and it’s the European money that has rebalanced that.”
John Newbigin, Creative England

Indeed, according to the U.K. Treasury, an EU exit would leave GDP 6.2% lower after 15 years. And a non-EU Britain would lose more than $50 billion in net tax receipts if it negotiates a bilateral trade agreement with the bloc.

The aftershock of Brexit raises yet more questions in the long term. One obvious issue would be whether Britain would still have access to the EU-funded Creative Europe Media program, which has funneled some $113 million into the U.K. audiovisual industry since 2010. Notable pictures backed by the fund have included “Carol,” “Brooklyn,” “High-Rise” and the Oscar-winning documentary “Amy.”

Rebecca O’Brien of Sixteen Films, the shingle behind Ken Loach’s movies, says that none the company’s films, from 2006 Palme d’Or winner “The Wind That Shakes the Barley” to upcoming Pete Travis-directed “City of Tiny Lights,” would have been made without the support of Creative Europe Media funding.

“It’s meant we’ve been able to develop what we want to develop,” she says. “Media’s support through development to distribution has had a huge effect for our business.”

Other EU-enabled funds that benefit the Brit biz include the European Regional Development Fund, which has invested in regional agencies such as Northern Ireland Screen (which helped lure “Game of Thrones” to the area), Cosme and Framework 7.

“So much U.K. government policy has been focused on London and the Southeast, and it’s the European money that has rebalanced that,” says John Newbigin, former special advisor to the Minister for Culture and chair of Creative England. “And it’s not chicken feed,” he adds. “We’re talking millions.”

Recent British films that were aided by the EU’s Creative Europe funding include “Carol” (shown, co-star Rooney Mara and director Todd Haynes), “Shaun the Sheep,” “Brooklyn” and Oscar-winner “Amy.” Courtesy of The Weinstein Co.

Then there’s the issue of free cross-border trade. “A large proportion of our business is comprised of EU nationals, and if they can’t live and work here, there could be a mass exodus of talent,” Newbigin warns.

Producer Stephen Woolley agrees. “We are seeing more and more crews come from countries such as Italy and from Eastern Europe, and there is a need for it, because production is at such a high level.”

The Vote Leave campaign claims Blighty can gain from forging new trade deals outside the EU. But Brexit would mean the U.K. would fall back on its World Trade Organization member status for trade relations with the EU, making it subject to the same barriers in the region as the U.S.

“American producers are frustrated by things that prohibit them from coming to Europe,” Enders says. “And if Brexit happens, we will automatically [be disqualified] from free cross-border trade, and be subject to import quotas.”

In France, 60% of TV programming must be of EU origin, while Italy reserves at least 50% for EU-origin content. Leaving the union would mean that pics like “Harry Potter,” “Carol” and “Brooklyn” would no longer fall into these categories. U.K. content could find itself competing with that from the U.S. when it comes to peddling programming in Europe.

“We’d find it much harder to sell [content] in places like France, where there is a material benefit if a film qualifies as European,” says David Garrett, CEO of sales and financing outfit Mister Smith Entertainment. “British films are already finding it harder to break out into markets such as France and Italy because local production there is getting much stronger.”

Some Brexit backers have touted the idea that an exit would strengthen the U.K.’s robust tax credit, since there would no longer be the need for a cultural test or a cap tied to 80% of a film’s budget, both of which are EU requirements.

The Price of Independence
The government projects that the U.K. would see a loss in gross domestic product and taxes if it exits the EU.
-6.2% GDP after 15 years
outside the EU
-$51.8b Net tax receipts if the U.K. negotiates a bilateral trade agreement with the EU.
$113m Amount the EU’s Media program has plowed into the U.K.

“In theory that could be true,” says entertainment lawyer Libby Savill. “But in reality, if you still wanted to do business with the EU, they would probably demand there [be] some sort of level playing field.”

There is also the suggestion that a Brexit would exempt the U.K. industry from the frustrating ongoing negotiations around the European Commission’s proposals for the Digital Single Market, which would dismantle territory-by-territory licensing in Europe and push for cross-border access of content consumed over the internet.

But, as one expert points out, should DSM go through, there is a real possibility that the U.K. would still have to abide by EU laws in order to trade with the Continent, meaning an EU exit would simply see the U.K. lose its seat at the negotiating table. “Our ability to freely export and trade in Europe is essential,” says John McVay, chief exec of U.K. producers body Pact. “All over the world, global TV markets are thriving, and sales opportunities are there for the taking.”

O’Brien says she would even advocate for added collaboration on the Continent. “We are in a privileged position to be able to make films with Europe and work with the U.S. through inward investment. I don’t think we realize quite how powerful that position is.”

Perhaps it’s the dialogue that needs to change, suggests Vivendi CEO Arnaud de Puyfontaine, whose outfit operates French TV giant Canal Plus, StudioCanal and Universal Music Group.

“Enough about Brexit,” he says. “What we should be talking about is Bremain.”

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