Regeneration? Part I: The Lottery: Where Will all the Money Go?

By Steve McIntyre and Sally Hibbin

Steve McIntyre looks at the National Lottery and what it could do for exhibition and distribution. And Sally Hibbin [inset], of Parallax Pictures and producer of Ken Loach, talks about her experience of sudden money, new chances and what remains to be done.

Indulge the writer briefly in grieving the death of a number of key London cinemas over recent years from the recent, tragic closure of the Lumiere to the disappearance of the Electric, the Plaza, the Parkway, the Scala and, looking even further back, the Academy and (my own favourite) the Paris Pulman. And others. Yes, there has also been growth – the wonderfully revamped Ritzy in Brixton, the splendid Clapham Picture House and the soon-to-open East London Stratford Picture House but the overall picture is not positive. This shrinkage has been paralleled by a reduction in the numbers of specialised films (i.e. non-mainstream American) coming into distribution and the inevitable shrinkage of audiences for this work. A recent study by London Economics indicated that admissions to specialised cinemas in the UK in 1995 were only about 98% of what they were in 1992 – this over a period of substantial growth in audiences across the board.

This decline is not inevitable. One can imagine not only the possibility but also the means to establish a meaningful and strong network of independent cinemas across the UK. A network which effectively is an authentic, decentred National Film Theatre. The National Lottery offers the opportunity to transform specialised cinema exhibition in England on a scale comparable with the transformation wrought by the advent of the multiplex during the late eighties and early nineties. The possibility exists of structured investment in this sector to leave a legacy of networks of cinemas across the country simultaneously offering cultural choice and cultural value to their audiences. And a natural home British cinema.

"British cinema has for decades tried to carve out a space within an American-dominated market, and it's a harder space that we have to carve out that most European countries, because of the problem that we share a common language with America. So the space that we’re trying to carve out – that’s culturally British but with the same language – is doubly difficult. So it's about how you define the cultural difference and how you create an audience." – Sally Hibbin

Much of the funding of which over the next few years is going to be provided by the National Lottery. The Minister of State for Culture, Media and Sport, Chris Smith, in his Cannes announcement of the award of the three commercial film production franchises, committed the government to look at ways of raising the share of cinema box office enjoyed by British films from 4.2% to 20%. One of the working parties under the film committee co-chaired by Chris Smith and PolyGram's Stewart Till is looking in detail at the issue of exhibition and market shares. In part, of course, the 20% ambition is precisely aimed at creating the beginnings of a commercial market for all of the Lottery funded films as well as British films in general. It is a sad fact that less than half of the British films made in 1995 have yet to see theatrical distribution and exhibition – and the unseen half will probably remain so.

It is too early to say what sorts of mechanisms might be proposed by the sub-committee – everything from quotas for British films in multiplexes to some kind of box office levy on non-British films to subsidise print and advertising costs on British films to a straightforward grant system for distributors (from, presumably, Lottery funds) have been proposed. What is at the heart of all of these, however, is that they are largely substitutive – they attempt to move market activity away from (mainly) US films to British films

Whether such schemes are legitimate or not (and no doubt the cinema chains, the Motion Picture Association of America and other will have a view on this!) there is something deeply worrying about a cultural strategy based on what appears to be such a narrow, protective nationalism. Do not British audiences across the country have a right to see the broadest possible range of foreign language films, of non-mainstream work from across the globe (including independent American work), of short films, of artists’ film and video, and so forth? Is it not possible to image a cultural (and industrial) strategy which would simultaneously build a market for British film within a broader context of building a market for non-mainstream, non-Hollywood film? And all this without wanting to take anything away from the major chains and the multiplex market – after all, this has been one of the real success stories in British film over the past 10 years or so. At the heart of this article is the firm conviction that it is possible to take advantage of the massive opportunities offered by the National Lottery to parallel the multiplex explosion of the eighties and build a complementary network of specialised cinemas across the UK.

"Historically, we've seen periods when British films become very flavour-of-the-month, and that's been happening all my lifetime, starting with Saturday Night, Sunday Morning in the first phase, then Tom Jones and then Chariots of Fire, and leading up to The Crying Game and Four Weddings and a Funeral. The difficulty that we face is that every time we get popular, the Americans rediscover British cinema, walk in, buy everything up, put lots of money into the industry. And three years later, when it's unfashionable again, they walk out and the industry collapses in their wake." – Sally Hibbin

What exactly are we talking about here? Fundamentally, cinemas where more than 50% of the programme is made up of specialised films – foreign language, art-house, low-budget, independent film, etc. The specialised cinema sector starts from the position that cinema is fundamentally a cultural rather (or at least as well as) a commercial commodity. This implies that the programming strategies in these cinemas will carry with them fundamental cultural criteria and will manifest characteristics of diversity, depth of programming, a commitment to education, audience development and audience understanding and so on. These imperatives are not necessarily at odds with the marketplace and it is possible for many in this sector to secure reasonable financial returns. Increasingly, this specialised cinema sector is bringing imagination and marketing expertise (indeed, a much needed showmanship) to promoting sometimes quite challenging work. While the mainstream, commercial cinema business also, in its own way, fosters diversity and choice, it tends to do so within a very limited palette of possibilities (an almost complete absence of foreign language films, for instance). Marketing and promotion of titles dominate audience development rather than more general fostering of audiences for the broadest possible range of world cinema (education, venue loyalty, etc.).

"The Reviews Committee body headed by Stewart Till (has) several sub-committees looking at different aspects of the industry, whose aim is to report over the next two years to the new government on what can be done in the industry. I was marginally pissed off that the committee that I would like to have been involved in – which is about distribution – the two producers involved are Duncan Kenwood, who produced Four Weddings and a Funeral, and Andrew MacDonald, who produced Trainspotting who, between them, have absolutely no idea about the problems of distributing films that might prove more difficult at the box-office. All they have is notions and experience of success, and good for them, but they don’t have the experience of the problems of distribution." – Sally Hibbin

Another way of putting this is to recognise market failure and to argue that left to itself the commercial cinema business would not, in the main, deliver a real variety of films to the public – it would lead to a fairly uniform and limited diet of fairly mainstream, almost exclusively American programme (mostly in out- of-town cinemas). It is noteworthy that the specialised sector struggles to survive at the fringes of this commercial marketplace.

The commercial specialised marketplace is occupied by quite a small number of players (Oasis, City Screen, Robins, Metro Cinemas, Mainline, Artificial Eye and a few others) most of these have small networks of venues across England (and beyond) which are operated with broadly centralised services (financial, managerial, programming) giving significant economies of scale. As business networks, with quite low profitability and operating in a volatile marketplace, there is an imperative to expand operations and spread risk (although the absence of adequate investment and the absence of adequate return on any investment makes such expansion difficult to achieve).

The specialised cinema sector makes up about 6% of the total cinema audiences in the UK (although it is 9% of screens). In fact, this flatters the sector somewhat because of the high attendances achieved by the Central London specialised cinemas. As a recent study from London Economics pointed out, at least half of the population of England has no ready access to specialised exhibition at all.

The economics of specialised cinema exhibition are delicate – either substantial revenue grants are needed to help keep a cinema's doors open (as in the case of Regional Film Theatres) or, for a commercial operator, cinemas can only be developed in those (quite restricted) areas where there is sufficient (very) plausible audience demand to enable a venue to operate without requiring subsidies. The Lottery provides a third way – Lottery finance (effectively ‘free money’) into the capital costs of a cinema development means that box office targets to provide income (to finance debt, etc.) can be significantly reduced enabling a specialised cinema to deliver a culturally vibrant programme without requiring ongoing revenue support. In other words, many sites, hitherto very marginal financially for specialised commercial cinema operators, would immediately become commercially viable. With imagination and endeavour a developmental programme of specialised cinemas could be rolled out across the whole country!

To date, the Lottery has invested in a number of cinema developments – from both specialised commercial operators (such as Mainline and City Screen) and the traditional grant-aided sector (the so-called 'regional film theatres' such as Nottingham, Southampton and Manchester). It has also invested in a number of arts centres which also screen films. Such developments, while undoubtedly welcome, barely touch the real long term cultural developmental opportunities inherent in both the Lottery and the specialised cinema sector. A model borrowed from the Lottery support for film production – Franchising – offers one strategic way forward. It offers the possibility of planned development which will make a real difference and will leave a legacy after Lottery funding for the arts is wound up (as it will be – probably sooner than most of us imagine as well!)

"The average (prints and advertising) spend on a British film is £250,000. The smallest American movie spends about a million on prints and advertising. In other words, they have television advertising going on. So you’re playing on a very uneven playing field of how you actually compete at the box office. And one of the things that I'm hoping with the Reviews Committees that are going on at the moment is that they'll pay serious attention to distribution and exhibition. This is where the Lottery comes in. For the first time, the Government has begun to see some strategic way of us financing our own films, even when we're trendy, and keeping the profits from those films in the country. And if one could build on that and make it successful, then the industry would have a chance to capitalise on its own successes, something it's never been able to do in the past." – Sally Hibbin

Recognising that the film production industry in the UK is largely a cottage industry, Film Production Franchising was developed as a model to support the strategic development of production companies and consortia of companies, enabling them to plan long – term and grow their businesses such that they could properly operate in an international marketplace. While the National Lottery can only formally approve funding for one – off projects, for the approved Franchise holders, a significant slice of funding is earmarked over a six year period which can be drawn down in a streamlined way without going through the formal application process. In May three production franchises were awarded (Pathé Production, The Film Consortium and DNA Films); a total of £92.25m is earmarked for these consortia which together plan to make about 90 features over the six year period for which the franchises have been offered.

The fundamental paradigm for Specialised Cinema Exhibition Franchises is based upon the thinking at the heart of the production franchises – it offers an opportunity for franchisees to plan future developments on the basis of a robust expectation of National Lottery support without taking away from the Arts Council decision – making authority on individual developments.

"I suspect the public thinks that if it's got American accents and styles, it's a film. And if it's got British accents, is contemporary and doesn't have anyone you've heard of in it, then really it's television. So why bother going to see it at the cinema?" – Sally Hibbin

Let us assume, for the sake of argument, that a specialised cinema (which could be two, three, four or even five or six screens) would cost upwards of £3m – with up to 50% coming from the Lottery. If, say, five franchises were awarded each developing up to six new cinemas apiece over a five year period this would represent a maximum Lottery investment of £45m over five years and create 30 significant new cultural venues. In fact, the cultural return is likely to be even higher than this, given that financial returns on new investment will, at least in part, be channelled back to the cinema operators enabling them to invest in other developments, outside of the Lottery's direct involvement.

"I think it's terribly sad that the Guardian, for instance, now leads on the big Hollywood blockbusters and that The Times took that decision about three years ago... The space is given to Hollywood, in the same way that money in advertising is given to Hollywood, even when those films aren't as good as the British or European films that are coming out." – Sally Hibbin

In enhancing the portfolio of a range of specialised operators, franchising will underpin their overall financial security and therefore long-term growth prospects. It is central to the development of this kind of approach that robust cultural criteria are brought to bear (and properly monitored by the Lottery as condition of grant). At the heart of any franchise must be a commitment to cultural diversity, to education and outreach work but surely it must be the case that as operators bring more cinemas on stream and profitability increases, there will be finance available for this broad spread of activity

There are other models for specialised cinema development alongside the commercial specialised operators – in particular the Regional Film Theatre. But there are strong arguments that the commercial sector rather than the RFT sector (or even cinemas in art centres) provides the most effective and efficient model for strategic development. This is for two main reasons. Firstly, they operate as mini chains and so can plan company development and expansion. All Regional Film Theatres are ‘independent’ in that they only really have a concern for their own operation and the geographical catchment area they serve. Secondly, Regional Film Theatres are all structured as charities and therefore cannot raise money apart from by way of charitable donations. Commercial operators can raise commercial money (loans, equity, etc.) and therefore are better placed to secure the partnership finance required by the National Lottery.

Whether the sort of approach advocated here is adopted by the National Lottery or not, something has to be done not just to stem the tide of closures listed at the beginning of this piece but to reverse the decades old under-investment in this sector of cinema exhibition. Now in its third year, the National Lottery is increasingly financially straitened as finance is redirected to other areas like education and health. It is, however, precisely because there is less money around that the argument must be made to the Lottery that it needs to develop targeted schemes and models that facilitate long term strategic investment and development. Without this, we’ll look back in ten years time and say – “where did all of the money go?”

Steve McIntyre is the Chief Executive of the London Film and Video Development Agency

This is an edited version of a discussion paper prepared by the author. It represents his personal views and not the official position of the London Film and Video Development Agency.