How Brexit Will Impact the Entertainment Industry (Guest Column)

David Sapin PwC
Courtesy of PwC

Since the results of the U.K. referendum were announced, there has been an outpouring of concern about the impact of Brexit. Michael Ryan, chairman of the Independent Film and Television Alliance, described the impact on the U.K.’s entertainment industry as “devastating,” while Harvey Weinstein called the decision a “disaster.”

Nearly two weeks after the announcement, only one thing is clear: it is going to take some time to figure out how “devastating” or how much of a “disaster” Brexit is. Uncertainty is the status quo and it will continue for the next several months, or even years.

It will take some time to understand the full impact of Brexit, but there are some fairly clear signs of things to come. In order for entertainment and media companies to prepare themselves for the potential fallout, they must begin to familiarize themselves now with what may be coming, and begin to strategize about how they will operate in the post-Brexit world. There are three factors to consider:

Declining Access to Funding One of the biggest impacts may be the ability to fund the production of content in the U.K. Historically, studios looked to the U.K. for production and, in an environment where funding is tight, sought to take advantage of EU-sponsored funding programs, such as the European Regional Development Fund, State Aid rules or the EU-funded Media Programme. As part of the EU, the U.K. benefited from film subsidies under the MEDIA/Creative Europe Programme. That money, intended to encourage the spread of European film and other cultural industries, will no longer be available to studios producing content in the U.K. While the U.K. may come up with its own subsidy programs, we do not know that they will nor do we know the extent of the subsidies.

Increasingly Complex Regulatory Environment As the departure of the U.K. from the EU unfolds, the U.K. might not be able to take advantage of certain aspects of the regulatory umbrella provided for EU member states or participate in newly evolving frameworks such as the Digital Single Market. An example of this is if the U.K. is no longer a part of the EU’s Open Border policy, it will be more difficult to access the full scope of European talent and equipment than it has been in the past.

Moreover, EU member states operate under television content quotas, which promote content production in the EU. U.K. created content may now be subject to these quotas, impacting a company’s ability to distribute in the EU. Harvey Weinstein, commenting on the Brexit result, noted that the inability to treat U.K. content as European “could be very costly in the movie and TV industry in terms of content branding. European branding is very important.”

If the U.K. imposes similar rules in an effort to strengthen the U.K. identity, streaming and cable networks will need to meet content quotas within both the EU and U.K. Such regulatory changes will force companies to create more local content at a potentially higher monetary and creative cost.

Devaluation of the Pound The recent devaluation of the pound will make it cheaper to film in the U.K. and may make U.K. companies more attractive acquisition targets. Unfortunately, due to some of the factors noted above (e.g., quotas, visa restrictions), the U.K. is no longer as attractive a locale for production and other entertainment company operations. Another possible negative to a devalued pound is that it will become more expensive for U.K. distributors to buy U.S.-based content. This is not an insubstantial hit. In 2015, studios collected $1.9 billion from the U.K. box office, which is the third-largest market in the world according to the Motion Picture Association of America.

The most important thing that entertainment companies should do now is not overreact. The impacts from Brexit will be real, but it is not clear as to what they will be. Also, we do not know what actions may be implemented over the next few years in the EU or the U.K. to mitigate the impact on the industry.

In the short term, it is still important to understand your potential exposure to the Brexit fallout. How important is the U.K. and EU to your business? What types of production operations do you have in the U.K. and how will they be impacted by more onerous visa requirements or EU content quotas? Will the potential loss of EU funding mechanisms impact the cost effectiveness of production in the U.K. as opposed to another EU member state? Does a weakened pound create acquisition opportunities?

Answering these types of questions – to the extent possible – will allow companies to better manage what will surely be a chaotic and constantly evolving landscape. At this point, a “wait and see” approach is probably prudent, but a more informed “wait and see” approach is the best way forward.

David Sapin is the Risk & Regulatory leader with PwC’s Technology, Information, Communications and Entertainment (TICE) practice.