When the UK voted to leave the European Union by a margin of 52% to 48% in the country’s historic 2016 referendum, no one expected the exit process would be easy or swift. But few could have anticipated how complex, complicated and divisive the entire process could be, or what impact it may have on kids producers, who are waiting to see how things shake out and what the ramifications will be for their businesses.
Nearly four years after the vote, Britain’s scheduled withdrawal from the EU was supposed to happen today, but Prime Minister Boris Johnson’s pro-Brexit plan was thwarted on Monday when the EU granted a three-month extension of Article 50 to January 31, 2020. (Article 50 of the Lisbon Treaty is the formal legal process for the UK’s divorce settlement with the EU.)
Without getting too bogged down in the details, here’s a quick recap: Johnson’s Brexit deal was agreed with in principle by the EU on October 17, but still required UK parliamentary ratification before the October 31 deadline. With the clock ticking, the PM hatched a plan to fast-track the bill, but parliament (currently a minority government) rejected it, leading Johnson to pause the deal and press for a general election instead. He was then forced to request a three-month Brexit extension, which the EU confirmed and now the UK is headed for its third general election in four years on December 12.
Depending on the outcome, four scenarios are possible—the UK could leave the EU on January 31 with Johnson’s existing EU-approved deal, but a new version would need to be introduced and passed in the new UK parliament; the UK could leave at the end of January without a withdrawal agreement if the British parliament fails to ratify Johnson’s deal and secure another delay; a second referendum could be called; or Brexit could be cancelled outright by revoking Article 50.
So, where does this leave UK animation producers who continue to prepare and cope with the uncertainty of Brexit while running their businesses?
What happens to the financial support?
The most important thing for London-based Lupus Films (We’re Going On a Bear Hunt) will be how Brexit affects the Creative Europe Media program, according to Ruth Fielding, joint managing director. Creative Media Europe provides funding, training and networking opportunities across film, television, new media and video games. (The program earmarked US$1.6 billion to support European projects from 2014 to 2020 within its Culture and Media schemes. In its first four years, US$99 million was awarded to 376 UK-based cultural and creative organizations and audiovisual companies, and the program helped distribute 190 UK films in other European countries.)
“We are a recipient of the EU media fund for slate development, and although the government says it will underwrite any monies we’re owed until December 2020 [in a no-deal Brexit scenario through HMG Guarantee], our concern is that the program always provided development and production funding for European co-productions,” Fielding says. “For us, it will be a big loss if the UK government doesn’t find a way to replace that funding with a national scheme.”
Creative Europe didn’t respond to a request for an interview, but according to Creative Europe’s Brexit update page, which provides information meant for guidance only, the next Creative Europe program will run from 2021 to 2027 and is expected to continue to let non-EU countries participate. Currently, 13 non-EU countries, including Iceland and Norway, have either full or partial participation. Whether or not the UK will be allowed to participate in the next program will be determined through future partnership negotiations.
Meanwhile, at a free “Be Ready for Brexit” event (pictured) held on October 24 by Animation UK in partnership with the Children’s Media Conference, director of the UK government’s Department for Digital, Culture, Media & Sport (DCMS) Robert Specterman-Green advised that “with the current deal, UK projects remain eligible for EU funding and bidding up until the end of 2020. After 2020 there are greater degrees of uncertainty. Government wants feedback and input from the industry on what aspects of the Creative Europe Media fund are most beneficial, to see if it can be replicated in case it has to be substituted in the future.”
He added that the British Film Institute’s US$73-million Young Audiences Content Fund—which launched in April and is part of the DCMS Contestable Fund—is not a successor to the Media fund, as it’s a separate viable entity.
For Fielding, the news is disconcerting. “We heard straight from the horse’s mouth that the government doesn’t have a plan in place to replace the EU media program,” she says. “We can’t make everything ourselves in the UK because there isn’t enough finance. And we don’t want to be completely inward looking. We want to make content for a worldwide audience.”
If the government does end up needing a replacement fund, how much it spends could become a contentious issue. According to the latest forecast from UK think tank the National Institute of Economic and Social Research, Johnson’s Brexit deal could cost the UK economy up to US$90 billion over the next decade, ultimately shrinking the economy by 4% compared to continued EU membership. The UK government, for its part, has so far failed to produce a detailed economic impact assessment of its proposals.
What’s the good news?
Fortunately for animation producers, the audiovisual sector hasn’t been as affected by Brexit uncertainty compared to the UK’s more dominant service sectors, which includes banks and restaurants, or manufacturers whose physical goods and services trade will be more vulnerable to Brexit’s customs and regulatory barriers.
In fact, revenue from the UK’s independent TV production sector grew 10% to US$3.8 billion in 2018 compared to 2017, according to PACT, the UK trade association representing indie television, film, digital, children’s and animation media companies. International commissions also shot up 20% to US$1.2 million last year due to the rise of global streaming giants like Netflix and Amazon.
“The UK is the second most important audiovisual economy in the world outside of the US,” says PACT CEO John McVay. “People want to work with us.”
US companies, in particular, are continuing to eye the UK because of the diminished value of the pound against the US dollar (1 GBP currently equals US$1.2). “If there are any positives, it’s that the weak pound is very attractive to the US market for service work and I don’t think the pound is going to get stronger anytime soon,” says Lupus’s Fielding.
Deal or no deal, another positive is that the 25% UK tax break for animation is not expected to change. “The tax credit is enshrined in UK tax legislation and this won’t be changed,” says Liz Brion, head of media tax at accounting advisory firm Grant Thornton. “Government is continuing to support the Creative Industries so I’m not aware of any proposed change to that legislation.”
UK productions will also still be classified as “European Works” as per the European Convention on Transfrontier Television (ECTT), which is not dependent on EU membership.
“European broadcasters are under an obligation to promote European Works and, in most cases, to broadcast 50% of their output as European-originated works,” says Huw Walters, director of media business affairs consultancy Industry Media. “There was some concern that UK companies could lose the benefit of that definition by pulling out of the EU but the ECTT makes it clear that even if UK prodcos are not part of the EU, the definition of European Works will continue to apply.”
Though demand is high for UK content, the UK animation sector still has a skills shortage and relies on workers from the EU. If Brexit potentially ends the free movement of people, McVay says staffing will be a major challenge moving forward. “The biggest questions will be issues around visas or permanent employment,” he says.
According to a new report by the UK Screen Alliance, more than 50% of European workers in the UK’s visual effects, animation and post-production sector have yet to apply for settled or pre-settled status. It also found in a study from last year that a third of VFX workers in film and TV are from the EU and 20% of this group consists of animation workers.
To help the situation, the UK Screen Alliance, Animation UK and a number of prodcos—especially ones working on feature films that require large numbers of animators—are encouraging individuals to apply for settled status as soon as possible to cement their right to stay in the country after January 31. If they don’t, they’ll have to apply for the UK’s proposed, and expensive, five-year skilled worker visa for EU citizens, which is expected to be introduced in January 2021. One visa could cost upwards of US$11,500, and prodcos will have to pay up for those extra costs for time spent on applications and managing visa compliance processes.
“It would be a huge administrative burden and cost to our budgets,” says Fielding, adding that recruitment will be a key element for some of the company’s new projects. “We are co-producing a feature called Kensuke’s Kingdom with Ireland and Luxembourg, which is in the final stages of financing,” she says. “If we can start production early next year, recruitment will be the big test to see whether we can actually find enough people with settled status for the amount of work that we’ve kept in the UK.”
On the flipside, Jellyfish Pictures CEO Phil Dobree says the London-based producer and service provider has been recruiting a lot of new EU talent in the last few months and Brexit hasn’t been holding up the process.
“Of nearly 100 new people joining us, a significant number are European,” Dobree says. “Maybe it’s because our projects are attracting talent and maybe it’s partly because they aren’t as worried about coming here as we thought they were. But not getting talent because of Brexit hasn’t been an issue, which has really surprised us.”
Dobree is also helping the UK Screen Alliance and other studios lobby the government for a more affordable and flexible visa regime.
As UK producers brace for Brexit however they can, they’re also boosting their contingency plans by opening additional offices in EU cities.
London-based distributor CAKE Entertainment (Mush Mush and the Mushables) was one of the first to open a studio in the Republic of Ireland when it launched Gingerbread Animation with Australia’s Studio Moshi in March 2017. MD Ed Galton says Brexit helped kickstart the company’s decision to open the new studio.
“At the time, we were going to produce Space Chickens in Space in England, but when Brexit happened we got a phone call from Disney saying they didn’t know what was going on with it and they were going to have to pull the plug on moving forward with the project,” says Galton. “So we had to pivot and got the idea to set up a studio in Ireland where there’s a seasoned production community for animation and a healthy tax break, too.” (Disney ultimately stayed with Space Chickens in Space, which now airs in UK, Australia and most European, Middle Eastern and African countries.)
According to Galton, CAKE is also looking to set up a new office in the Netherlands to handle some of its sales activity. It recently partnered with Amsterdam-based The Dreamchaser Company on a new, aged-up version of preschool series Woozle & Pip.
Back at Lupus, Fielding says she and her company’s joint MD Camilla Deaken also set up a company in Ireland the day after Brexit. “It’s dormant at the moment, but it’s there in case we need to use it,” she says. “The majority of our talent is still based in the UK, but we are obviously thinking about maximizing tax credits and co-productions in Europe so it is on our mind.”
For Colin Williams, creative director of Belfast, Northern Ireland-based Sixteen South (Pinkalicious & Peterrific), after the shock of the 2016 referendum, the UK studio looked south and started an Irish company in Dublin.
“The truth is, if and when Brexit happens, that company is our fallback,” says Williams, adding that Brexit and the current government continue to damage the rest of the EU’s perception of the UK. “It’s all very well having policy saying it will be fine and Europe will continue to buy shows made in the UK, but the reality is very different.”
One of the more recent new Dublin studios is Magic Light Pictures Ireland, where the London-based company is developing its next special. Joint MD Michael Rose says maintaining a foothold in Europe is pretty important.
“For Revolting Rhymes we set up our own studio in Berlin so we could tap the best funds from around Europe,” Rose says. “Magic Light Ireland serves a dual purpose. It allows us make our new special, but it also means we have a European entity and in the event of a hard Brexit, we are set up to do more in Ireland in the future if it seems appropriate.”
Looking ahead, Fielding, Williams, Dobree and Galton don’t know how the new election will play out, but as supporters of the People’s Vote campaign, they are hoping for a new referendum.
“I’ve always hoped that a stronger party would win another snap election and would literally put the decision back in the hands of the people,” says Williams. “We hope that everyone is asked their opinion again.”