In light of the significant challenges facing independent film in the UK, Alma Economics was commissioned by the British Film Institute (BFI) to conduct an economic review of the value chain for UK independent film.

Independent film is a key component of the UK’s screen sector ecosystem, underpinning the UK’s thriving large-budget film and high-end television industries by acting as a platform for creative risk-taking and innovation, whilst playing a significant role in developing emerging on- and off- the screen talent. Despite this, our research finds that UK independent film is facing important challenges, including the decline of traditional revenue sources and rapidly increasing costs (coupled with skills shortage), which together reduce the attractiveness of independent film as an investment prospect.

The figure below shows how (excluding a few exceptional years) the revenue generated by UK independent films has been on a general downward trend through the past decade. The origins of revenue have also shifted substantially, with stagnating box office revenues and a collapse in DVD/ Blu-ray sales not fully offset by increases in revenue through digital channels, such as video-on-demand.

Source: BFI production tracking database. Alma Economics analysis.

At the same time, the costs of producing and distributing an independent film have risen sharply through the past decade, driven by a production boom in the UK (coupled with a skills shortage) and Covid-19 related safety measures (which has increased production costs by as much as 10-20%). Taken together, this has put further pressure on a business model which relies on a small number of commercially successful films to cross-subsidise a large body of films which are unable to recoup costs.

In the past decade there has been significant disruption to the routes to market available for independent film, presenting both challenges and opportunities. Our research found that traditional distribution models (such as an exclusive initial theatrical release) have become increasingly flexible as distributors seek to extract maximum value from productions. This has led to distributors increasingly experimenting with the length of release windows, the sequencing of release channels, and pricing models. New release strategies have also emerged, including the sale of exclusive rights to a film to streaming platforms. Such a strategy can guarantee filmmakers a timely financial return, although restricts the upside potential should the film be a success with audiences.

We have proposed an ambitious package of measures to reverse the trends identified above, targeted at all stages of the value chain for independent film. These include:

Direct support for independent film production, including a significant increase in Film Tax Relief for lower budget films.
Additional support for sales and distribution, including a new tax relief for prints and advertising (P&A) spend on lower budget films.
Incentives for the exhibition sector to devote more screens to UK independent films, including a new zero rate of VAT for exhibition of lower budget films.
An increased contribution by streaming platforms towards lower budget films, implemented either through voluntary action by the streamers themselves or enforced by a new streamer levy on the domestic revenue base of streamers.

Read the full report here.

Read the BFI press release here.

Selected press coverage:

The Guardian, Variety, The Hollywood Reporter, Deadline Hollywood, Screen Daily

An Economic Review of UK Independent Film