CAB129-33 — Page 386

SECRET

C.P. (49) 66

15th March, 1949

Printed for the Cabinet. March 1949

Page 386

Copy No. 31

CABINET

THE FILM INDUSTRY

MEMORANDUM BY THE PRESIDENT OF THE BOARD OF TRADE

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DURING the last few weeks my colleagues will have observed the references in the Press to the difficulties of the film production industry in this country and the consequent closing down of various studios and the dismissal or threatened dismissal of a very considerable number of workers employed in them. I think it may be useful to trace briefly the history of the industry since the end of the war, and to set out the main causes that have contributed to the present recession, and the measures that have been and are being taken to put matters on a better and more stable footing.

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2. While the industry is generally prone to exaggeration and the word crisis is often used in it to denote any event that may attract the attention of the Press, it must be admitted that there exists to-day serious under-employment of the resources of film production. Its extent can be gauged by the following particulars. A year ago there were nineteen first-feature films in production and approximately 7,250 workers in employment in the studios. To-day the number of first-feature films in production is ten, and the number of workers in employment is below 6,000, and if all the notices that have been already given are allowed to take effect, this total will be reduced before long to about 4,500.

3. After the conclusion of hostilities, the re-expansion of film production to peace-time levels proceeded without interruption. By the Spring of 1947 most of the chief products for studio rehabilitation had been carried out, and the activity of the industry was such that shortage of studio space constituted the chief obstacle to increased production. It is true that costs were rising steadily, but attendances in the cinema were still maintained at war-time levels, and there was a general atmosphere of optimism not only in the industry itself, but also among those who provided it with finance.

4. It was at this point that, as one of the measures to meet the dollar crisis, an import duty was imposed on foreign films designed to absorb 75 per cent. of their earnings in the United Kingdom. The results of this action were most unfortunate for our producers. The American industry chose to regard the duty as an act of war against themselves. They ceased to import new films, and settled down to make and transfer in dollars as much as possible from the films they already had in store here. As a corollary to this policy they ceased practically all participation in United Kingdom production, and offers of screen time on the other side of the Atlantic which had recently been made to the Rank Organisation were withdrawn.

5. At the beginning of 1948, therefore, there was already a small amount of idle studio space due to the cessation of American-sponsored production. The slack thus created was not being taken up by additional British production, although it might have been thought that the cessation of American imports pro- vided an unprecedented opportunity for the British industry. On the contrary, there were distinct signs that it was becoming steadily more difficult to obtain even the finance needed to maintain the existing level. It was evident that the existing supply of Americas fibf488uld not last more than about nireagent ofc4&at

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when it had been used up a considerable number of cinemas would have to close down Pagarther, if 48 by no means certain that thePigemas able 488emain open would provide an adequate market for maintaining film production in the home studios.

6. In March 1948 through the good offices of the American Ambassador, discussions were started with the accredited representatives of the American industry and resulted in an Agreement which I signed on behalf of His Majesty's Government on 12th March. This Agreement provided for the withdrawal of the import duty and the resumption of American film imports on condition that transfers of American film revenues would be limited to 17 million dollars per annum, plus a sum in dollars equal to the amount earned by British producers from the exhibition of British films in the United States. The Agreement also dealt in some detail with the various ways in which the American revenues blocked here could be used. It was to run for two years from 14th June, 1948, with the possi- bility of renewal with or without amendment for a further period of two years ending in June 1952.

7. The Agreement was heartily disliked by the American industry, since it meant that they must forego the transfer in dollars of nearly two-thirds of their earnings from their most important foreign market at a time when their own financial position was such that they could ill spare a single dollar. The position of the Hollywood companies has steadily declined and presents to-day a much worse picture of idle studios and redundant workers than can be seen here. At first it seemed possible that they might attempt to use their blocked sterling to swamp our native production industry, but other counsels prevailed, and they have in fact adopted rather a negative attitude, though there has recently been more production activity based upon the use of blocked sterling. This general lack of concern over the disposal of their blocked funds may perhaps be attributed to pre- occupation with their major financial troubles at home, but it is remarkable that they have made no effort to increase the United States earnings of British films although this would mean the release to them of additional dollars. This must be attributed to deliberate policy. Since the Agreement started to operate, the Americans have found additional cause for complaint in the 45 per cent. quota fixed under the Films Act for British first feature films, and the position to-day is that the exhibition of British films in the United States is almost confined to a few films like "Hamlet, "Red Shoes," or Oliver Twist," which can be shown for long runs in individual theatres.

8. Thus, the Agreement, though it restored the supply of films and enabled the cinemas to keep open, brought no alleviations of the difficulties of the British producer. The absence of any real share in the United States market, the growing amount of working capital tied up in individual films as a consequence of this, the known embarrassment of the two chief producing firms and the fact that one of these had produced no less than three of the most expensive films, none of which seemed likely to earn its cost at the box office-all this was reflected in the ever- increasing reluctance of private finance to participate in the industry, and it was clear that positive steps would be needed if collapse was to be avoided.

9. I have referred to the lack of film revenues from the United States, but the Continental market is for quite different reasons equally disappointing. Our films to-day enjoy in Europe a reputation which they have never had before, but currency and other restrictions prevent us from enjoying the fruits of it. Hence the cash export value of a good film to-day is only £30,000 £40,000, the bulk of which comes from the other Commonwealth countries. The money these films are earning in France, Germany and Italy, if we could transfer it, would go far to make us independent of the American market, and I am keeping a close watch upon this whole problem, particularly in Germany, which is individually far the most important. This limitation of the returns from export has fallen with particular force on the Rank Organisation, which has been the main support of British film production, being responsible for more than half of the total annual output. It has been an essential feature of Mr. Rank's policy to secure a footing in the United States market for his major productions, which have been budgeted with this expectation in view. The failure to obtain a reasonable revenue from this source or from the main European countries has meant a steady increase in the amegft3617moneylocked up in celluloid, and this is now reached the point

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at which he is compelled to draw in his horns and to make fewer and cheaper films, using every possible device of economy in budgeting and improvement in

possiblnevitably technique. This

thevitably reflected in the closing agŵn of the less economic studios and the discharge of redundant workers. While he will no doubt continue to produce each year a substantial number of films, it does not look as if for the next year or two he will occupy the central position in the industry that he has hitherto held, and it may be that he will never attempt to regain it.

10. I come now to the positive steps that are being taken to help the industry to set its house in order and to achieve something more nearly approaching stability than it has ever enjoyed in the past. Early in 1948 I had set up a National Film Production Council composed of representatives of the film producers and the Trade Unions catering for studio employment, under my Chairmanship. My. object in setting up this body was to secure better co-operation between the two sides of the industry in bringing the level of production costs into some sort of equilibrium with prospective earnings. After a good deal of hesitation on the part of the producers, who are traditionally most unwilling to make anything in the way of production figures available to the Trade Unions, there has now been set up a Working Party on Film Production Costs of which Sir George Gater is Chairman and which will be reporting to the Council before very long. I regard the task of this Working Party as fundamental. The extravagance of the film industry is proverbial and much of the criticism is justified. Not only will the City hold completely aloof from the industry unless it can be shown to be taking radical measures to eliminate waste, but even such limited assistance as the Government is giving will be liable to criticism so long as it can be said that we are merely underwriting the continued supply of fur coats and other luxuries to the film moguls. At the same time it must be realised that a certain degree of extravagance is probably inseparable from this industry. Every film is an adven- ture and any attempt to tie down too tightly the somewhat flamboyant personalities concerned is more than likely to end in the production of bad films and the loss of what has been spent on them.

11. In September of the same year, after serious but abortive attempts to persuade the City to undertake the task of bringing about a measure of order and stability in this industry, the National Film Finance Company was set up under the Borrowing and Guarantees Act, and will be replaced by a National Film Finance Corporation with borrowing powers of £5 million under an Act which has just received Royal Assent. The interim Company has been instrumental in keeping under way a significant volume of film production which could not have been financed without it, and I have reason to think that the establishment of the Corporation, with its rather wider powers of lending, will lead to the production of a number of new films which will do something to mitigate the recent increase in unemployment. Nevertheless, it must be appreciated that a revolving fund of £5 million is not a large total in relation to the needs of this industry as a whole, and it will almost certainly be necessary to return to Parliament for an increase in the borrowing powers before we can regard the problem as solved. I ought to make it clear that the main function of this Corporation is to provide what is really the equity capital needed in film production. The preference capital, which is roughly 70-75 per cent. of the whole, is ordinarily provided by Joint Stock Banks against guarantees of distribution by reputable firms. Latterly there has been some tendency on the part of the Banks to restrict or even to discontinue their participation in this business, but I am hopeful that this attitude can be corrected and that other Banks can be persuaded to take up this business in addition to the two that have hitherto carried almost the whole burden.

12. Furthermore, in fulfilment of an undertaking given to Parliament in connection with the recent Cinematograph Films Act, the present structure of the industry and the relationship between the three sections-producers, renters and exhibitors of which it is composed, is now being studied by a Departmental Com- mittee under the Chairmanship of Lord Portal of Laverstoke. Much has been heard of the relatively small share of the box office takings that accrues to the producer compared with that taken by the exhibitor and even more by the State in the form of Entertainment Duty. This is a problem to which that Committee is giving considerable thought, and it is also considering whether the present system of releasing films for exhibition to the public is susceptible of improvement in the interestage of the producer or of the general public age 388 of 488

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Pada.3g may be asked why the protective legislation ghich the industry has enjoyed for the last twenty years in the shape of three successive Cinematograph Films Acts has not succeeded in assuring to it a sounder basis of existence. While some form of quota legislation is essential to prevent our industry from being swamped by the larger and stronger industry centred in Hollywood, it can clearly not do more than assure to British films a certain proportion of the screen time in our own country. At the same time, if they are to hold their own they must com- pete in quality with the American film based upon a home market of 17,000 cinemas and 80,000,000 weekly attendances. I had hoped that, by fixing the first year's quota under the new Act for first feature films at the high figure of 45 per cent., I should have provided all those interested in film production with an incentive to expand and improve their output to the maximum possible extent. This incen- tive has not been sufficient, in face of the adverse factors to which I have referred. to maintain the financial support required for the industry; but I am satisfied that it has removed one very serious obstacle in the path of free-lance production, namely, the uncertainty of securing a booking from one of the three major cinema groups.

14. I think it will be obvious from the foregoing that just as a number of causes have contributed to the present difficulties of the industry, so there is no one remedy that can be applied, but a cure can only be brought about by a number of measures each making its own contribution. The chief of these may be listed as follows:

(a) The problem of costs must be tackled seriously in all its aspects.

This

is fundamental to the health of the industry. It is now in hand through the Gater Working Party. (b) Everything possible must be done to increase film earnings abroad and to increase the proportion of those earnings remitted here. So far as Europe is concerned the major difficulties are those of currency transfer, and my Department is now discussing with the Treasury and the Foreign Office the steps that can be taken to increase transfers. Progress in the United States must wait upon some new settlement with the American industry, for which the time is, in my view, not yet ripe.

(c) Action, possibly legislative, may have to be taken as soon as we know the views of the Portal Committee on whether the producer is getting a fair share of the box-office takings, and if not, how his share could be increased.

(d) Proper provision must be made to ensure that finance is available on a stable basis and reasonable terms, preferably from private channels, but if necessary by continuing the existence and increasing the lending power of the Finance Corporation.

Board of Trade, Millbank, S.W.1,

15th March, 1949.