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At the start of this year, as the UK Film Council filled the air with boasts about the success of British films, there were those of us who felt that this was more than just adding insult to injury. It was as if, having assassinated our film industry, the Government and its agencies were now urinating on its corpse.

None of the movies the UK Film Council bragged about was British. Most of them were made by three foreign studios: Pathé, Warner Bros and Universal – all companies adept at exploiting British government grants and lottery money to subsidise their films. About ten years ago, I was at a party in Los Angeles, where a group of Warner executives were laughing at the British for giving them millions in free money. This money is a complete loss for the UK because, even when it buys stocks in a film, the money is swallowed up by the Hollywood Accountancy Hole.

An American business manager, who had writers, directors and actors as clients, once told me that, when he was at college, his professor set a week aside to explain Hollywood Accountancy to the class. Hollywood Accountancy does not have to obey general accountancy regulations. If you are a Hollywood studio, you can do things with your accounts that would be illegal in any other business.

The reason is historical. In 1939, Franklin D Roosevelt wanted to help Britain by declaring war on Germany, but he couldn’t get Congressional support because so many Americans were either isolationist or pro-German (Adolf Hitler was Life magazine’s ‘Man of the Year’ in 1938). Unable to persuade Congress to approve a war, Roosevelt launched a propaganda campaign to induce the people to call for one. He couldn’t get the newspapers ‘on message’ because they were controlled by his opponents, so he went cap-in-hand to Hollywood.

A deal was made. The studio moguls agreed to produce and release a specific number of anti-German movies in return for financial control exemptions. Thus was Hollywood Accountancy born – and it continues, unreformed, to the present day.

The defenders of British subsidies to foreign countries declare they create employment for British filmmakers; that, in return for subsidy, foreign companies assign productions to the UK, providing work and keeping the British production studios (Shepperton, Pinewood, etc) in business. This is an illusion.

In 1988 I worked on Batman, which was being shot at Pinewood. I asked one of the producers, John Peters, why it wasn’t being shot in the States. He said: “because it’s 30 per cent cheaper here and nobody gives you any bullshit” (for which read that unionised US workers are less obedient than their UK counterparts). So the studios have good reason to be here anyway.

The Eady Levy

Before the removal of the Eady Levy and capital allowances, Britain had a film industry. For example, between 1948 and 1972, just one British company (Hammer) made 168 films – all of them released in British cinemas and sold around the world. In one year alone – 1950 – Hammer released eight movies. In 1956 it released nine movies. Utterly inconceivable today.

The Eady Levy was put in place to protect the domestic film industry. To gain access to the UK domestic market, foreign distributors had to pay a small percentage of the income they derived from selling their films in the UK. It was a benign levy because, if their movies performed badly, they’d lose very little; if they performed well, the cost from the levy was insignificant compared to their profits.

The money collected by the government under the Levy was distributed to British studios in compensation for the revenue they lost because the domestic market had been fully opened to foreign competition. Although income from the Levy was small, in lean years it could make the difference between a British film company going bust or staying afloat. In the early 70s, under pressure from the US Government, the Eady Levy was abolished – and the funeral of the British film industry began. It makes no difference how often government ministers, film journalist and quangos such as the Film Council talk up the British film industry, in reality it doesn’t exist – and it hasn’t existed for more than 30 years.

In the past few decades the UK has had some nice Arts Ministers (Norman St John Stevas, Chris Smith and Tessa Jowell in particular), but they’ve been restricted from giving any real help to the industry by the impotence of their departments. The only route for survival is through legislation, but no Arts Minister has had enough power in Cabinet to make this happen – though some have tried.

The reason is that the Office of the Prime Minister and the Treasury are wedded to the ideology of the free market – and the problem with ideologies is that they are ‘one size fits all’. The free market, though a boon to most enterprises because it gives access to world markets and cheap labour, is bad for British films. It decapitated our industry, reducing it to nothing more than a service provider for foreign film companies. Today, the Hollywood Seven (soon to be reduced to six when MGM is bought by Sony) control a whopping 84 per cent of the UK’s domestic market. The French company Pathé controls about 12 per cent and British films have less than a four per cent share. A national industry cannot exist unless it controls at least 25 per cent of its national market.

The French protection

France, despite constant howls of protest from the US government, continues to protect its film industry. By law, foreign companies are precluded from owning a greater than 70 per cent share of the French market, so 30 per cent of the movies released in France are French.

French filmgoers complain bitterly about this because most French films are crap – they’d rather see American films. What they don’t understand is that you have to make bad movies to make good movies. Of the 100 or so French films released in France each year, about 90 are bad – which is why the French get so pissed off. But the French industry’s hit ratio of approximately 10 per cent is much better than Hollywood’s. In a normal year, America makes about 2000 movies, of which about 460 are released, with about 50 making profits (hits). America’s hit ratio is therefore about 2.5 per cent. The French government is aware that, proportionately, France’s success rate is four times higher than Hollywood. But because Hollywood make 2000 movies a year and France only 100, the playing field is not level. So legislation is used to adjust it. Without this adjustment, there’s no question that the French film industry would be destroyed – and destroyed unfairly.

The stars go out

In the 35 years before 1970, British movies created close to 100 ‘stars’. How many stars has it created since 1970? The answer is none.

But what about Anthony Hopkins, Pierce Brosnan, Bob Hoskins, Gary Oldman, Sir Ian McKellen, Hugh Grant, Kate Winslett, Dame Judy Dench, and so on and so forth? Most of these actors were showcased in British efforts, it’s true. But all of them were made into stars by Hollywood. French films, by contrast, have created upwards of 40 French stars, including Catherine Deneuve, Gerard Depardieu and Audrey Tatou.

Harry Potter and the Prisoner of Circumstance

When J K Rowling was approached to sell the rights to her Harry Potter books, she wanted them to go to a British studio. But there isn’t one. So she sold them to Warner Bros. The UK Film Council brags about the huge success of Harry Potter, but this is misleading. In truth, the success is a painful testament to the deceased state of the industry.

The Film Council should feel deeply ashamed that these movies were not financed and distributed by a British company. But as the newly appointed chairman of the Film Council, Stewart Till, is also British chairman and chief executive of UIP – the biggest distribution company in the world, jointly owned by Universal, Paramount and MGM – shame is probably not on the agenda. If the Harry Potter films had been financed and distributed by a British company, their enormous revenues could have spawned a whole new UK film environment.

It is commonly believed that the reason projects such as Harry Potter are made by Hollywood and not the UK is that they have money and we don’t. But we do have money. British banks invest billions of pounds every day in the financial markets. However, at the moment there is not a single UK company set up to give a film a general release. Film revenues come from the public paying to see films – so unless delivery to the public is guaranteed, the banks can’t invest.

Before 1972, studios such as the Rank Organisation, British Lion and EMI decided what movies to make and who should make them. They employed bankers and filmmakers to produce films and created movie stars to sell them. They released throughout the UK, then sold worldwide through international film markets. Their revenues were substantial – though not large enough to withstand competition from the much larger Hollywood industry. However, as they had support in the form of tax breaks and the Eady Levy, they survived. If protection had not been removed, these corporations would still be financing and releasing films now.

Today, there are new and improved sources of income. The economic climate is much better than it was in 1972 – the year Lord Rank and the British film industry died; world markets have greatly expanded; video and DVD have quadrupled revenues, and thousands of TV channels, hotels and airlines now buy movies. The UK has significant advantages over other non-US competitors because its films are in English. There is a superb indigenous infrastructure of modern cinemas thanks to the 90s building boom in shopping-mall multiplexes. And there is an incredible pool of talent, currently working in Hollywood enriching America, when most of them would rather be here enriching the UK. The British film industry might not exist now, but with a little government help it is a success story waiting to happen.

Film bandits

If anyone out there is still bonkers enough to think that government intervention would be bad because it would skew the free market, let’s just take a look at how ‘free’ the market currently is. The Hollywood studios are, and always have been, indefatigable in the protection of their own industry. Movies are (second only to the arms trade) a vital source of foreign currency for the US. There may be no written laws protecting US films, but there are plenty of unwritten ones.

Here’s an example. When I was living in Los Angeles, I was trying to set up a project with a star. The star’s price was $1.5 million a picture. I got to know the star’s agent quite well. About two years later I’d moved back to the UK and was helping produce a film for a European distributor. I called the agent to check on the status of the star, and the agent wanted information about the project. “Are you paying Working Title rate?” he asked. “Excuse me?”

“If you want him you gotta pay Working Title rate.”

“What’s Working Title rate?”

“For him it’s $6 million.” “Wow. So what’s his price now in the States?”

“$2 million.”

“I see. So Working Title rate is three times his US rate?”

“Correct.”

If a foreign distributor or production company wants an American star, they must pay a tariff. This tariff is the star’s price multiplied by three, known in the industry as Working Title rate because the first company to pay it was the English production company Working Title. So much for the free market.

Let’s take another example – one that involves a British company trying to distribute its own movie. In 1980, George Harrison’s Handmade Films produced Time Bandits, a marvellous fantasy written by Michael Palin, directed by Terry Gilliam, and starring a host of favourites including David Warner, John Cleese and Ralph Richardson. Handmade took a gamble with George Harrison’s money and produced the film without a distributor. When they showed it to the Americans, three studios offered to buy it, but the offers were derisory – not enough to cover production costs. Handmade was certain Time Bandits would make money, and was willing to share that money with a distributor, but the unwritten law in Hollywood is ‘take, don’t give’. If Handmade had been a US company, they would have done a lucrative distribution deal, but they were a foreign company, so – no matter how good the film – the door to the market was closed. Handmade decided to distribute Time Bandits itself. The company set up screening for the US cinema chains. The cinemas liked the film, but were nervous about showing it in case they offended their regular suppliers. So Handmade came up with a very generous offer: 70 per cent of the gross, plus a substantial multi-million dollar advertising budget.

They took it.

The movie was released and made a fortune. And how did Hollywood respond? Well, the profits from Time Bandits financed three more films – all of which Handmade tried to release in the US through cinema chains. None of their phone calls was returned.

On the other side of the free market ‘playing field’ there are no restrictions whatever on US companies entering the British market. Indeed, we welcome them with open arms – or perhaps that should be open legs.

As British as cherry pie

About a year before the Film Council started trumpeting the triumphs of British films, I had a conversation with a board member of the European Film Academy. I was curious why Cold Mountain (Disney), Buffalo Soldiers (Pathé), Love Actually (Universal), Sylvia (MGM), Shaun of the Dead (Universal), Concert For George (Pathé), Veronica Guerin (Disney) and Troy (Warner Bros) had been nominated for European Academy Awards as British Films. My friend explained that these films qualified as British because they had been produced or co-produced by British companies.

“But surely it doesn’t matter who Hollywood pays to produce its films – they’re still Hollywood films owned by Hollywood studios?”

“Well, in a sense, that’s right,” said the EFA board member. “But you have to understand that a good deal of our sponsorship comes from these companies, and they like to win awards.”

A revival of the UK industry cannot be achieved while government clings to an absolute belief in a (non-existent) free market. Besides, it’s hypocritical to protect British television and not British films. In television, legislation dictates that American product cannot take more than a 30 per cent share of terrestrial broadcasting. So British television is protected. This, incidentally, is why the only stars created in the UK in the past 25 years have been TV stars.

Britain needs its films to be distributed in its own country. It won’t have a film industry until it gets to the point of releasing at least 50 movies regularly each year. For this to happen, it doesn’t need grants or lottery funding from the Film Council, it wants bankers who understand the movie business. And it needs a measure of protection such as domestic television enjoys. The government could do this at the stroke of a pen, with or without the Film Council. All it need do is inform UK distributors that a quarter of the films they release are to be British.

Local distributors and marketing managers will welcome this. It would make them important players in the new British film industry. And, though their parent companies are bound to squawk, they will still retain 75 per cent of a rich market. In early 2005, Charles Clarke, the Education Secretary, proposed a ‘Citizenship Day’, on which ceremonies for 18 year olds would be held in order to encourage kids to “identify more closely with British Society”. I doubt teenagers will go for this. But teenagers love films. If we express our society through the magic of the movies, teenagers will have something to identify with. Britain needs its own film industry, and it needs in now. It may be more important even than money.

Dude, where's my industry?

Jonathan Gems