Pact lobbies hard to power up the U.K. animation market

Britain's independent production trade body has been an aggressive and effective lobbyist in the past couple of years - winning important legislative concessions for its members in the area of content rights. Fresh off of that success, Pact is now hoping to use its influence on the government to secure a US$92-million injection of public money to support the U.K.'s struggling animation business.
August 1, 2004

Britain’s independent production trade body has been an aggressive and effective lobbyist in the past couple of years – winning important legislative concessions for its members in the area of content rights. Fresh off of that success, Pact is now hoping to use its influence on the government to secure a US$92-million injection of public money to support the U.K.’s struggling animation business.

Pact’s call for a publicly backed animation rights fund of between US$8 million and US$10 million for each of the next eight years is a bold one. However, it has backed its cash call with a cogent argument based on a report by leading media research company Optima. In a nutshell, Optima suggests that the U.K. will cease to have any meaningful influence on the global animation business outside of preschool if the government fails to intervene.

While lack of international influence on the toon trade might not, in itself, carry much weight with government, cultural and employment arguments might. Without some kind of affirmative action, Pact says, ‘U.K. kids will be deprived of access to the high-quality and family-friendly cartoons the U.K. animation industry is famous for…There will also be negative economic consequences, leading to a decline in the U.K.’s ability to train talent, which could impact upon sectors like interactive TV, feature film and on-line/computer games.’

Optima identifies a number of reasons for the fragility of the U.K. animation sector, ranging from lower domestic license fees to strong competition from U.S. and Japanese suppliers. But the real thrust of Optima/Pact’s argument concerns the impact of subsidies and tax breaks for Canadian and French companies. Because there is nothing similar in the U.K., says Optima, domestic producers are unable to compete fairly – with the result being that local projects are usurped by overseas toons before they make it on-screen.

This claim is backed up by industry statistics from David Graham & Associates, one of the two companies that own Optima. According to DGA, total animation broadcast on U.K. public service channels has increased by 520 hours over the last 10 years. However, U.K. animation output has only grown by 98 hours, compared to a rise of 152 hours in Canadian output. In 2003, U.K. animation accounted for only 20% of network animation.

The situation is even worse in the U.K. commercial sector, where a survey of six children’s channels suggests U.K. projects account for just 14% of animated content. Currently, the U.K. produces 50 hours of new and recommissioned animation each year, compared to 270 hours in France, 120 in Spain, and 75 in Germany. The proposed fund would seek to rectify this imbalance, says Jonathan Peel, chairman of Millimages UK and the Pact Animation Policy Group: ‘Without what we’re proposing, I think the U.K. will struggle to survive as a producer of animation for the six to 10 age group. But with backing, there’s a chance to repatriate work.’

Assuming the Pact proposal secures government backing, the aim is to invest US$10.1 million a year in 10 projects. This would cover about 30% of the production budget for each show in the portfolio, with the long-term aim of recouping investment plus administration costs. This is important, says Peel, ‘because this fund should not be perceived as a handout. It is not a subsidy; it’s more like a mortgage against the future value of rights.’

Additional efforts to protect the fund from being labeled as a handout include clauses that ensure productions can prove their worth against commercial benchmarks. According to Optima, ‘to qualify, animations would need a commission from a U.K. broadcaster covering at least 12% of the budget. The producer would have to provide investment covering 15%.’

Given that this would still result in a budget shortfall of around 40% to 50%, what would change? ‘The difference is that we’d be able to go to co-production partners with a better negotiation platform,’ says animation consultant Marion Edwards, another Pact stalwart who recently opened up a production and animation consulting firm called Red & Blue Productions and is now working with Novel Entertainment as a first client. ‘At present, even if a U.K. producer develops an original idea and gets a U.K. broadcaster, the economics are such that they still end up giving up most of the work and rights to foreign partners that bring more financing to the table.’

Optima backs Edwards’ claim by saying the fund could help increase the annual output of new U.K. animation strands from 30 hours a year to about 80 hours by 2005, simply by virtue of the fact that U.K. broadcasters would rather back domestic content than international fare if they could get it at the same quality and for the same price. Of the extra 50 hours, Optima predicts 30 are likely to replace Canadian and French productions, with the remaining 20 edging out acquired U.S. and Japanese programming.

Increased volume would also mean increased returns, says Optima, with average producer margins rising from around 6% to 13%. With investors encouraged back into the sector by this improved performance, Optima reckons that ‘by year eight, the fund should be self-sustaining.’

Although a similar attempt in 2000 to kickstart the U.K. movie industry through a lottery funding system failed to deliver, Pact’s record with the current Labour government gives cause to believe that U.K. animators will get a sympathetic hearing. But even if the fund gets the go-ahead, what are the potential pitfalls?

For example, how would co-pro partners who are currently benefiting from the U.K. production market’s lack of muscle react to an empowered U.K. business seeking a greater say, more rights and ‘a minimum amount of creative input from the U.K. (focused on value-added activities)?’

On this point, there doesn’t seem to be too much to fear. Neil Court, co-founder of Canadian prodco Decode Entertainment, says: ‘As a producer, I’m delighted to see any new money coming into the system. There’s no doubt we’d all benefit from the U.K. once again being a strong co-pro partner.’

However, Court’s experience in the Canadian and French animation markets tells him that the Pact fund will need to make some tough decisions if it is to have the desired impact on the U.K. industry. ‘With funds of this kind, there’s often a tension between commercial and cultural requirements. If the ultimate purpose of the fund is cultural, you risk limiting the viability of the system.’

The first risk is that culture may be too narrowly defined. The U.K. has an unparalleled reputation for producing high-quality specials (i.e. Wind in the Willows, Wallace & Gromit) and preschool shows, but for many people under 40, Disney, Warner Bros. and Hanna-Barbera are as much a part of British life as tea and toast. How does a producer deliver cultural content for an audience that thrives on Pokémon, SpongeBob SquarePants, Totally Spies! and Powerpuff Girls?

Culture can also be used as an excuse to prevent commercially-driven companies from receiving subsidies. In this case, the Optima fund proposal says broadcaster-owned outfits like Granada/Cosgrove Hall will be excluded. Indeed, the presumption is in favor of small to mid-sized companies making shows for older kids – with ‘a general duty to encourage production across the U.K. (i.e. regionally).’

At a stroke, this could preclude the likes of HIT, Entertainment Rights (owner of Siriol), Millimages, Aardman and TV-Loonland (owner of Telemagination). While Honeycomb, Silver Fox and Collingwood O’Hare would all be in the frame to benefit, it would be tough to take on the world’s best animation houses in their strongest genre, having barred most of the U.K.’s big hitters.

Court says Pact also needs to be very clear about what it’s trying to protect and which elements of the business it’s seeking to support. ‘The U.K. is not competitively priced in terms of the actual fabrication of shows. So it would be a mistake to prop up areas of the business that are inefficient because the risk is that the long-term potential of the fund would be squandered. The emphasis has to be on areas where the U.K. excels, like writing, development, design and direction. I also think it would be an oversight if the fund focused completely on production and ignored back-end activities like financing and distribution.’

Peel, who was a key architect of Pact’s 2002 report on the U.K. animation industry, is too canny a campaigner not to recognize these points, and he agrees that ‘the administration of the fund will be extremely important.’ But even if these obstacles are overcome, there are still mighty challenges.

For a start, there’s the search for slots. Of the 10 projects that would be greenlit by the fund each year, Optima says ‘a fairly typical distribution of performance would be four fairly strong performers, four medium performers and two weak performers.’ Assuming Optima is right, how many shows will be both culturally specific enough to appeal to the U.K. audience, yet generic enough to recoup overseas – particularly given that they would be competing for limited airtime with U.S., Japanese, French and Canadian rivals?

It’s not even a given that these shows would secure berths at home. Nigel Pickard, director of programs at ITV, backed Pact’s proposal by saying, ‘Animated films created and produced by indigenous companies have an important role to play in ITV’s children’s output. An animation rights fund would help bridge the funding gap that hampers the U.K. animation industry.’

But compare that sentiment with rumors, just a week later, that ITV has scrapped plans for a new kids channel and is considering sub-licensing its kids airtime to Nickelodeon or Disney – in the same way networks like Super RTL (Germany), Kindernet (Holland) and Canal J (France) have done. While Pickard’s support for indigenous programming is unquestioned, ITV is a commercial animal seeking to lower costs and boost profits. It will always be tempted to back a show with built-in market exposure, regardless of its country of origin.

TV-Loonland COO David Ferguson says the growing trend towards networks subletting kids blocks is a worry for independent producers. But he is optimistic about Pact’s proposal – as long as it doesn’t become too prescriptive about issues such as ownership and cultural content. ‘I think Pact will over-complicate the fund if it tries to include too many conditions,’ he says. ‘The bottom line is that it should be backing productions that bring work into U.K. studios. And the exact nature of the work should be decided by the producer based on its own economic and creative judgments.’

Ferguson believes the fund could make a real difference to the U.K.’s competitiveness, but he wants the government to demonstrate a broader understanding of the issues facing producers. ‘The fund in isolation may not be the answer. The government needs to look at areas like sale & leaseback, co-production treaties and proposals on banning advertising to kids. There’s a danger that the things it takes away from the kids business in other areas will render the fund ineffective.’

The evidence from overseas does not give a clear indication as to whether subsidies can work. While Optima talks up the success of the Canadians and French in boosting production volumes, both countries have been guilty of massive over-supply fuelled by subsidies. Several Canadian animation houses have had to reduce the number of projects on their slates over the past two years, while observers of the French market argue that consolidation in production is long overdue. The growing influence of Disney, Viacom and Turner in France suggests that public money is not necessarily the answer to animators’ prayers.

While the quality of U.K. animation talent alone should be the decisive factor in giving British companies a chance to prove their potential, Peel accepts that the fund is not a panacea for the industry’s problems. However, he believes the sector is asking for minimal support in return for what could be a significant reward: ‘We all recognize the challenges ahead. But the animation talent pool in the U.K. is world-class. I firmly believe the U.K. has something to offer creatively in the six- to 10-year-old age group. If we get this fund right, there’s a potential benefit for everyone – including the audience, which will get shows with a genuine cultural resonance.’

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