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The shocking state of corporate finance among UK film companies

11 December '17 5 Comments on The shocking state of corporate finance among UK film companies

The vast majority of film research is focused on either the sector as a whole, or studies the performance of a subset of films.  There is very little research into the companies behind the films and how the corporate side of the film business operates.

This is a rather large oversight as films and filmmakers do not operate in a vacuum – they are employed, resourced and assisted by a network of companies, without whom their films wouldn’t get funded, produced or seen.

Which is why I am pleased to be able to discuss the results of two studies that looked at the corporate finances of over 100 film businesses in the UK over a ten-year period.  They provide a vital insight into how the film sector is operating in the UK and suggest what may need to change if we want to strengthen UK film.

However, it’s hardly good news – for two reasons:

  1. It’s not pretty. The picture they paint is a bleak one, highlighting a number of areas where UK companies are performing shockingly badly.
  2. One of the reports was covered up. The BFI commissioned one of the reports but declined to release it to the public. I had to use the Freedom of Information Act to force the BFI to share the results.

First, I will discuss what the reports contain, then I’ll discuss the BFI’s unwillingness to share the results.

Two studies into the corporate finance of UK film companies

Both reports were researched and written by Northern Alliance. The first was commissioned by the UK Film Council and published in October 2009. The second was commissioned by the BFI and is dated October 2014, although it was withheld from the public until now.

Together, they look at the financial results of 108 British companies who were “selected on the basis that they made, sold or released the most successful independently produced and distributed British films“.  This means the top UK production companies, distributors and sales agents, excluding UK arms of the major studios. The reports do not publish any the names of any people or companies they looked at, although do they sometimes give a potted history of a company under a codename. Therefore, these results paint an overall picture of the corporate health of the independent British film sector, rather than focusing on particular people, companies or films.

This article is a short précis of two long and detailed reports.  I highly recommend you read the reports directly as they contain a number of fascinating insights and findings which should be required reading for all producers and senior people in UK film companies.  You can download the reports via the links below:

To give you a sense of what they found, here are fourteen results I found particularly interesting:

1. Having the “support” of a Hollywood studio can be damaging

Some production companies have long-term relationships with Hollywood studios, who support and distribute their films.  The authors found that the most successful of these types of companies produced ‘franchise’ films and these companies can do very well. However, overall the picture was far less encouraging.

They note that “whilst on a personal level working for a studio might be profitable, at a corporate level, the majority of the companies that enter into long-term arrangements with MPAA companies generate significant losses“.

Perhaps because of this, they found that this type of arrangement is in a “period of managed decline“.  In the earlier study, 22% of leading UK production companies were backed by MPAA members, but in the second study, this had fallen to just 10%.

2. It’s uncommon for new producers to break into the top levels of production

The authors note that a small number of producers have been at the top of UK film during the ten years they studied. As they put it: “whether this reflects an industry that is resistant to ‘new blood’ or simply that there is no substitute for experience in a highly complex area such as film production is beyond the scope of this study, but it appears that in terms of personnel the churn rate of producers within the upper echelons of the UK film industry is fairly low“.

Not only that but “there has been a narrowing of the number of production companies that account for the most successful independent films“.

3. UK indie film production companies often have weak balance sheets – possibly because the owners raid reserves as soon as they can

The reports found that independent standalone production companies “typically have weak, illiquid balance sheets, often reporting retained losses at their last balance sheet date, though many appear to do so because the owners take out as much cash from their companies as soon as possible“.

4. It is very tough to successfully run an independent sales agency.

The first report notes that “in terms of overall profitability, even adding back payments made to directors, UK independent agents appear to be struggling to operate successfully“.

The second report adds “the business of being a truly independent sales agent remains a tough one, with previous incumbents either navigating their way towards new types of business model or persevering through being very tightly resourced, low overhead businesses focussed around very small teams of experienced sales executives“.

5. Business sustainability is a massive problem for UK film companies

In the second report, the authors revisited the cohort of top film companies from the first study.  They found that “almost half of the businesses originally identified as producing, selling or distributing the best British films have subsequently ceased trading or appear to be in decline“.  This survival rate is on a par with brand new starts ups, but these are the top companies in the sector!

6. The film sector often pays suppliers very late, even when they don’t have to

They state that these UK film businesses had an “almost systemic reliance on dilatory payment of creditors with some companies continuing to take over six months to settle debts“.

They go so far as to suggest that it’s built into the business model of the distribution sector: “It is the ability to collect their own debt faster than they pay others that appears to provide most of the capital for vertically integrated and independent distribution companies“.

7. The authors were not impressed with the way UK companies report their financial accounts

They describe the accounting practices of UK film companies as “largely incoherent“, “often idiosyncratic“, “inconsistent” and “typically falls far short of US accounting requirements“.  They recommend a new accounting standard be established, modelled on the Financial Accounting Standards Board in the US.

8. There is poor understanding and appreciation of the value of Intellectual Property

In both reports, the authors identify a “widespread failure to appreciate and accurately value intellectual property created by the UK film industry“. Towards the end of the more recent report, it’s noted that “it is difficult… to avoid the impression that most UK film companies continue to make an almost unconscious decision not to ascribe a value to the intellectual property that is at the core of their businesses”.

9. The public sector has historically provided very poor support for film businesses

Or as the report’s authors put it “Public sector investment in film businesses, as opposed to film projects, continues to be nugatory“. They point out that the current Film Tax Relief scheme “arguably supports investment in film projects rather than the film businesses behind the films“.

10. Banks are not supporting film companies

The low incidence of bank and similar institutional lending to all types of film businesses (as opposed to film projects) noted in the previous report also seems to have continued. Taken together this seems to indicate that UK film businesses typically still do not have ready access to traditional sources of corporate finance other than their self-generated working capital and there remains a wide ‘equity gap’ in the UK film industry“.  The ‘equity gap’ describes the fact that these businesses need more funding than can be raised from business angels, but less than the amount venture capitalists want to invest (typically over £2 million).

Looking for better news

So far, all the things I’ve highlighted have been negative.  That’s not because I’ve applied spin but because that’s the overall tone of the reports.  However, here are a few interesting non-negative nuggets I think are worth mentioning:

  1. It’s hard to survive only making movies. The authors looked at different business models for production companies and concluded that the TV and film model that performs best is where the more stable and continuous revenue from TV commissions” generates “an even basis for the more uncertain and irregular returns from film production“.  They also note the success some companies have had in other sectors such as advertising and music videos.
  2. Vertical integration is hugely beneficial to production companies.  Production companies that also have a hand in distribution and sales sectors appear to be more stable and profitable than those that only stick to production. When the authors revisited their original cohort of production companies for the second report, they found that “the integrated model appears resilient in comparison with other production business models. All of the companies originally allocated to this category continued to trade, none chose to adopt different types of business model and the incidence of growth was significantly higher than amongst other categories“.  They also note that the integrated business model is “the most frequent type of company responsible for producing the most commercially successful British films“.
  3. Video on Demand is key to the success of distributors.  The authors found a strong correlation between the distributors who were successful and those who have strong inroads into the VOD sector.  As they put it: “access to VoD audiences now appears to be emerging as a critical success factor“.  This report is now three years old and access to VOD markets has grown in importance since then.
  4. Sales agents need a certain scale to succeed. The original report stated that “there appears to be a minimum threshold of around £2 million per annum in turnover in order for a sales agency to prosper, though exceptions exist“.

As I mentioned at the top, I would recommend reading the actual reports.  They represent some great research and their findings go much deeper than my summaries above.  Also, there are a number of comments, caveats and clarifications which should be considered when reading the results. Here are links to download the 2009 report and the 2014 report.

Why this matters

If you’re not directly involved with the corporate side of the film industry, you may be wondering why this matters.  True, some of the minor recommendations are just about improving the way certain backroom tasks are achieved, but the bigger picture is relevant to us all.

The British film industry has historically been quite good at the artistic side of things.  We produce brilliant filmmakers, terrific actors and often export five-star movies around the world.  Where we’re typically weakest at is turning a hit into a sustainable business.  There have been a number of times in the history of UK film where a company attained global success, only to then fail in their attempt at maintaining or extending this advantage.  A good example is what happened to Goldcrest in the 1980s. They produced Chariots of Fire (1981) and Gandhi (1982), among other movies, but only a few years later pretty much imploded and had to be bailed out.

The BFI has made efforts to help build a sustainable industry, with schemes such as their Vision Awards and the BFI Locked Box.  The latter means that if the BFI invests in a movie which then turns a profit, the BFI’s share of income is stored in a virtual ‘locked box’ which can only be accessed by the film’s producers.  They are permitted to spend this money on future development, on production of future projects, or on staff training.

Yet it’s not the BFI’s sole responsibility to solve the UK’s weaknesses in sustainable film finance.  We need more discussion of what’s happening, more training and more of a commitment from everyone to tackle this vital need.

Further Reading: If this topic interests you then I highly recommend reading “My Indecision Is Final: The Rise and Fall of Goldcrest Films” and David Puttnam’s account of 100 years of fights between the British and American film industries, “The Undeclared War”.

The story behind the most recent report’s release

BFI big logoIdeally, the article would end here.  It covers an insightful set of reports and provides invaluable reading for those working in the UK film business.  But sadly, there is another aspect to this story which I would be remiss if I didn’t briefly cover.

As far as I can tell, the UK Film Council released their report in good time.  It’s dated October 2009 and that’s when it seems to have appeared online.  The UK Film Council was shut down in 2011 and its website is no longer live.  There are patchy copies of the site on the Wayback Machine but not enough to see what the UKFC said about the report at the time.  There appears to be no coverage of the report in the press, so I am presuming they did not organise a high-profile launch.  Nonetheless, it was publicly available for everyone to read.

The follow-up report was commissioned by the BFI five years later and is dated October 2014.  For a reason which is not immediately apparent, the BFI declined to publish the results.  The BFI conduct a huge amount of research internally, as well as commissioning work from third-parties.  Much of their work is available on their site, and covers most aspects of the film industry, which makes the refusal to publish in this case somewhat odd.

The BFI are bound by the Freedom of Information Act (FOI), so I made a formal application for this report in October of this year.  Last Friday, they sent me the report, along with the following note:

Please note, this research was commissioned by the BFI but as with all research that we commission it does not necessarily represent the views of the BFI. We would also highlight that it is now 3 years since the research was undertaken and much of the industry landscape has of course now changed.

It is worrying that such an important piece of research was withheld from the public, and only released when a blogger learns of its existence and forces them to publish it.  This is not how important research should be released.

In addition, the reports cover a ten-year period in which they report little change in the key areas.  Therefore, it is rather dismissive of the BFI to imply that because this report is three years old, its contents are no longer relevant.  The industry has certainly changed in the past few years but it’s inconceivable that the industry has properly addressed all of the points raised in the report to such an extent as to make its findings redundant.

I don’t have an official reason as to why this report was withheld. I can only surmise that the BFI does not like the picture of UK film that it paints, or they are sensitive to the report’s criticisms of the UK public funding sector’s low level of support for UK businesses.

The BFI do a terrific amount of good for the UK film sector and their Research and Statistics Unit provides fantastic data about our industry.  So it’s disappointing to have to force this particular report out of them.

When researching this piece I reached out to the reports’ lead author, Mike Kelly from Northern Alliance.  He said:

It was surprising that the BFI didn’t publish the report, as the UK Film Council had published the original. I can’t recall receiving any formal explanation as to why the report wasn’t published, but in any event I think it would be more appropriate for the BFI to answer that question. Please note; the BFI did allow me to forward the report to people who I felt might benefit from reading it, which I have done from time to time since it was completed. I still think it’s relevant and it would be good to see it finally published so as many people who might still benefit from the research can do so.

For the final word on the matter I shall quote from the introduction to one of the reports:

Better information on the industry’s corporate finance could improve the level of debate and understanding amongst executives in the industry, as well as the quality of investment decisions. Such knowledge could also inform policymaking and increase the attention of corporate financiers currently discouraged by the poor quality of analysis.

These aims can only be achieved if we’re actually able to read the reports.




  1. This is pretty grim reading. Most producers live hand to mouth, with only an elite few able to command decent fees and see back-end they can reinvest in development. Essentially filmmaking has become a hobby, with only those that are independently wealthy or have other business interests (as the report mentions, TV, commercials etc.) able to indulge. The BFI Vision Awards have been a welcome step in the right direction but appear to be spread too thinly to really galvanise the businesses they are supporting. The BFI do a great job of unearthing and championing new talent but it’s their job to put a rosy face on things, so it’s not surprising they didn’t want this report surfacing, it doesn’t inspire confidence in investing.

    Part of the problem is that investing in films, particularly equity, is a mugs game. There are too many percentages being taken from revenues before coming back to the investor/producers. With cinema rentals, distribution fees, sales commissions, etc. all eating up revenues and then often gap finance or sales advance repayments in first position, it’s easy to see why equity investors don’t see film as a viable investment… and all of this before producers will see any net profit (or more likely, even their deferments these days!). It’s especially disheartening to see that even sales agents and distributors aren’t faring much better.

    It’s important for us to stop saying how great things are in the film industry (yes, inward investment is flourishing but independents are not) and look to sustainable financial models that can build businesses capable of developing and producing the talent available. Perhaps this article can ignite a discussion and new ideas can be put forward.

  2. There are reports of distribution and sales agents having there companies shut down after investigations by the insolvency service. In particular was Spice Factory (aka Stealth media group). see here,

    These companies are also mentioned on consumer watchdog sites such as Pissed Consumer. In particular Stealth Media group seem to be running cold calling scams and duping the public out of their savings with promises of high returns on their investments. It is fraud because films generally don’t make “net” profits so there never in any returns.

    It is troubling to me also that members of Stealth Media group seem to be operating abroad too and attached themselves to a film in Finland (Iron Sky) that used crowdfunding as a way to raise financing. The film had problems with distribution and went early to DVD, then subsequently ended up on Pirate Bay.

    Then the Finnish producers decided to embark on a sequel and again members from Stealth Media group came on board to seemingly ‘provide funding’ and bridge loans which encouraged the Finnish Film Foundation to put up funding along with the German Film Federation. The seemed to me to be more like a money laundering operation rather than a genuine attempt to make a sequel. Furthermore, the producers didn’t secure the copyrights due to a lack of understand of civil law copyright traditions. Thus to raise funding without securing the Chain of Title is fraud.

    So unfortunately these nefarious UK film companies are reeking havoc elsewhere too.

  3. As a producer with 20 years experience of the UK industry (across production/ sales/ legal/ finance), I can say that the institutions and accepted practises we have to deal with have really stymied progress and I assume the industry in general. To highlight a few areas:

    – the experiences we have had with the BFI and Film London can only be described as absurd, bordering on incompetence. These organisations seem to be run by an anti-entrepreneurial clique. With the amount of funds the BFI has disbursed over the years, what is there to show for it? We should have a thriving industry by now.

    – the large majority of UK sales agents can only be described as lifestyle businesses with zero ambition. But they are often needed as part of the finance ahead of production. Go to them with just a script and rather than read it they’ll say to come back when you have a director / some finance attached. Only then can they be bothered to read a script. It is little wonder they are mostly loss making. I would urge producers/ filmmakers to check out the accounts of sales agents at https://beta.companieshouse.gov.uk and before you sign up consider, if a sales agent near the top of the revenue waterfall cannot make a profit (or at least balance their costs to income), are they really the people to entrust your film to? None of them seem to be business leveraging their position to raise large scale funding from the City (that place a couple of miles or so east of Soho).

    – we purposefully made a film for a DVD premiere, so we could focus our marketing spend on the DVD release that would generate the most revenues for the investors. This all worked fine with excellent DVD sales, but despite also being sold worldwide and being shown overseas on TV, we just cannot get a UK TV premiere in our home market as there was no theatrical release. The film we made does not matter to the buyers, they are just concerned with whether or not we were in the cinema, end of. Crazy! These are the same Luddite broadcasters on borrowed time now that the market is being disrupted by the SVOD platforms.

    – when you DO get a UK TV sale, the licence fee is paltry compared to what they pay to the US Studios for comparable films, as the Studios use the availability of their tent pole titles to soak up the broadcaster funds. To get those big titles the broadcasters pay top dollar for the smaller Studio titles. Why does the BFI not stand up to these deals that are essentially anti-competitive and borderline illegal?

    1. I’m not a film producer, A N Other Producer, but what you’ve said is just fascinating. I wish there was an anonymous blog online where people could post articles, interview & opinions on the British independent film scene.

      If I wanted to set up a blog doing this, could I speak to you? What assurances would you need? (NDA, professional certification, etc)

      Everything here is tip of the iceberg, but they won’t talk about these problems on TV or through the official channels, instead its “everything is rosy, Britain is doing great in the movies, our actors, our filming studios. etc…” If the government removes all tax breaks and subsidies, then Hollywood is gone and we’re left hanging!

  4. Dear Stephen,
    Another very interesting article. Doesn’t surprise me that the report was surpressed. UKFC in their founding document, “The Bigger Picture”, had twelve objectives. The Twelfth Objective was to “have closer ties with the City”.
    They never did it, not once. They had the money and the staff but never put on a show for the good folks in the City.
    With my experience and background in the City, I know that people are interested in film and other creative projects, but there themselves don’t know where to go for advice and guidance. And, further, who can you trust?!

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