Industry Background

Film

Market/Industry Background (Global)

The value of the global filmed entertainment market declined 1.8% in 2005 to $80 billion, following four years of double digit and high single digit increases. Decreases at the box office and a sharp slowdown in home video spending caused the downturn. Key factors affecting the market in any given year are the quality of releases and their appeal to consumers which cannot be predicted. Pricewaterhouse Coopers predict a rebound in box office spending during the next five years to 2010, helped by the construction of modern theatres and more screens in Central and Eastern Europe, Asia Pacific, and Latin America and by digital cinemas in the United States, EMEA (Europe, Middle East and Africa), and Asia Pacific. The introduction of high definition DVDs will boost home video in the United States and Asia Pacific, film streaming services will generate incremental revenue in the United States and the EMEA, and online DVD rental services will augment rental spending. They expect the market to expand at a 5.3% compound annual rate, rising to $104 billion in 2010.

According to PricewaterhouseCoopers, the entertainment and media industry is now into a solid growth. Worldwide entertainment and media spending is predicted to increase from $1.3 trillion in 2005 to $1.8 trillion in 2010, driven by digital distribution channels, slowing losses to piracy, and a booming Asia Pacific market.

(Source: PricewaterhouseCoopers Global Entertainment and Media Outlook 2006-2010)

In 2006 the UK had the third-largest filmed entertainment market in the world after the USA and Japan. (Source: UK Film Council RSU 2008)

Market/Industry Background (UK)

"The UK film industry is a major contributor to the UK economy making films that UK and international audiences want to see and generating financial and cultural benefits. Thanks to our world class film facilities and phenomenal skills and talent, backed by Government and industry investment, the British film industry is strong and primed for further growth." John Woodward, Chief Executive of the UK Film Council July 2007.

The film industry is a large and profitable business in the UK, making a substantial contribution to GDP, the balance of payments, other industries such as tourism and the international promotion of the UK. Both its exports and its GDP contribution have shown substantial increases over the last decade.

Facts in focus

• In 2006, the UK film industry had a total turnover of nearly £7 billion.
• Its contribution to UK GDP was £3.2 billion, 0.26% of the total.
• The fastest growing sub-sector was film and video production, but distribution and exhibition also grew substantially.
• The UK film industry contributed £4.3 billion in UK GDP in 2006, up from £3.1 billion in 2004, a 39% increase in two years. And over £1.1 billion to the Exchequer (gross of tax relief and other fiscal support).
• The industry exported £913 million worth of services in 2006, made up of £582 million in royalties and £330 million in film production services.
• Exports in 2006 were 44% higher than in 2003.
• The UK film trade surplus in 2006 was £128 million.
• The core UK film industry is a substantial industry, directly employing 33,500 people in 2006 and supporting a total of 95,000 jobs, taking into account those working in its supply chain and its contribution to UK tourism, trade and merchandise sales.

(Source: UK Film Council RSU Statistical Yearbook 2006/07)

The film production industry has experienced significant growth in recent years driven by an increasing worldwide demand for content. Forecasts show strong growth from both cinema and home viewing of films. The demand for film consumption is relatively recession-proof as it is a low-cost product in the hands of the end-consumer.

Competition to attract film producers to shoot their film in a particular country is fierce. This competition partly focuses on the physical attributes of a country; the costs for labour and the renting of locations and sets; and the relative skills of the film production workforce. But a key element is tax competition.

The film tax relief is vital to sustaining the competitiveness of film production in the UK. The OEF Report expects the core UK Film industry to attract around 11% of global film production over the period to 2010, with spend on inward investment productions rising to about £800 million by 2010. This should underpin a continuation of the long-term trend expansion seen in the core UK film industry.

Taking into account the incentives provided by the new Film Tax Relief, estimates show that the costs of producing a film in the UK are set to fall relative to those in its competitors over the rest of the decade, so that by 2010, UK film costs are expected to be around 27% lower than those in the US and only 7% higher than those in the Czech Republic.

The UK has a heritage of making both big-budget and small scale films and benefits from having a competitive, skilled and flexible workforce with experience of working in the creative arts and in film production. The UK’s current fiscal regime provides incentives for films to be made in the UK. In addition, the UK is an attractive destination for overseas production crews and artists to live and work for the duration of film production.

The total turnover of the UK’s film sectors has shown strong growth over the period 1995 to 2006, increasing from £2 billion to nearly £7 billion. The increase has been large: 228% for film and video production, 93% for film and video distribution and 125% for film exhibition. Overall, the industry more than doubled in size in real terms over this period. (Source: OEF Report The Economic Impact of the UK Film Industry, July 07)

The Creative Industries make up 7.3% of the economy, and are growing at 5% per year (Source: DCMS(2007) Creative Industries Economic Estimates)

2007 was the fourth highest production year on record. Statistics show that UK production activity fell slightly in 2007 to £747 million, from £845 million in 2006. The continued high level of activity reflected the bedding in of the new UK film production tax incentive, particularly for inward investment and domestic British productions.

There were 28 inward investment productions in 2007, with a UK production value of £531.6 million. Some of the big-budget films contributing to this figure were Sweeney Todd, Harry Potter and the Half Blood Prince, The Dark Knight (Batman) and The Chronicles of Narnia: Prince Caspian. (all of these utilised the facilities of the studios)

There were 60 domestic features in 2007 (up from 55 in 2006) with a UK production value of £141 million. Larger-budget films contributing to this total include Hippie Hippie Shake, How to Lose Friends and Alienate People, Brideshead Revisited and The Edge of Love.

UK co-productions (other than inward) fell from 52 to 29, with their UK spend falling from £108 million to £74 million. UK co-productions in 2007 included The Duchess, The Secret of Moonacre, The Garden of Eden and 50 Dead Men Walking.
(Source: UK Film Council RSU unit 2008)

Trading overview 2007

Pinewood Shepperton’s film revenues declined during 2007 to £19.5m (2006: £22.5m) following delays to the start of production of a number of major films which had been expected to commence earlier in the year. As previously announced, due to the Writers Guild of America strike, a major contracted film production did not commence during the fourth quarter of 2007, adversely impacting ancillary revenues.

Total film production investment in the UK fell by 15% to £723m (112 films) in 2007, from £855m (135 films) in 2006. The decline was the result of the continued weakness of the US dollar against international currencies, changed taxation legislation for co-productions and the impact of the Writers Guild of America strike. Since the year end the Writers Guild of America has resolved its dispute with the major studios.

Major productions using Pinewood Shepperton’s facilities during the year included: Sweeney Todd (Warner Bros), Inkheart (New Line), Bourne Ultimatum (Universal), His Dark Materials: The Golden Compass (New Line) and Mamma Mia (Universal). The latest Bond production, Quantum of Solace (Sony) and The Wolfman (Universal) commenced production during the latter part of 2007 and continue to use our facilities during 2008.

Major productions using Pinewood Shepperton’s facilities during 2007 include: Sweeney Todd (Warner Bros), Inkheart (New Line), Bourne Ultimatum (Universal), His Dark Materials: The Golden Compass (New Line) and Mamma Mia (Universal). The latest Bond production, Quantum of Solace (Sony) and The Wolfman (Universal) commenced production during the latter part of 2007 and continue to use our facilities during 2008.

We continued to upgrade our assets including the refurbishment of C and D stages at Shepperton Studios and post-production facilities across the Group. We opened the new 007 Stage which has proven to be a popular and unique asset for the Group.

The UK’s post-production sector has been a world leader in the audiovisual industries for as long as they have existed. Whether in the creative or technical spheres, its reputation as a highly innovative, high-quality sector that the UK has every right to be proud of has never been higher. Today, close to 1,000 UK companies compete throughout the world in areas as diverse as sound design, computer-generated visual effects, music composition and recording, dubbing, graphic design and the many other creative and technical disciplines across film, commercials, television and radio.

The market for audio post production services is allied to the film production industry and increases in film production are reflected in increased use of audio post production services. Audio post production is an integral part of completing the film production process, the final sound mix taking place usually around six months after principal filming and lasting for up to six to eight weeks. Audio post production is a highly skilled industry requiring significant investment in equipment. As films make greater use of digital visual effects, the demand for audio post production also tends to increase.

Trading overview 2007

Trading conditions for audio post-production remained challenging during 2007. We are continuing with our strategy of improving the quality and breadth of our audio post-production offering.

(Source: Pinewood Shepperton Annual Reports & Accounts 2007)

Television

Market/Industry Background

The television facilities across the group are predominantly used for UK productions. The UK market for TV production facilities is directly influenced by the demand for new television content, which is increasing as the number of channels (both subscriber and free-to-air) rises.

The independent TV production sector continues to grow with total revenue in 2007/8 reported at £2.14bn, a rise of 9.4% on the previous year. The major players in the sector are All3Media, IMG, Freemantle, Hit Entertainment and Endemol, each with turnover greater than £100m. There has also been strong growth among companies with revenues if £50-£100m, of which acquisitions accounted for 45% of this growth.

Most of the growth in the sector has come from increased commissions from UK broadcasters (up by £156m), primarily BBC, ITV and multichannel. International revenues contributed £310m, mostly in primary commissions from the USA. The most successful international genres were factual (48%), factual entertainment (24%) and entertainment (18%). Multichannel revenues, including the terrestrial extensions (e.g. BBC3, More4), continue to grow, now contributing £240m.

Drama productions continued to generate the greatest proportion of industry revenues (33%), followed by entertainment, which has increased to 23% of all productions.

The BBC continues to offer the most competitive market for independent producers, followed by multichannel and Five. ITV significantly increased the entertainment programmes it commissioned from the independent sector (up by £81m since 2007) while the BBC increased its spend on drama by £55m.

Within the last few years, amidst regulatory and business changes, the number of partly-financed concepts and productions has increased by around 50%. The majority of gap finance this has created is provided by directors/owners of production companies however banks and distributors have also played a major part.
(Source: PACT Independent Production Census February 2008)

Trading overview 2007

Television revenues, which include those generated by the dedicated television studios at Pinewood and Teddington, channel hosting, television post-production, filmed television productions, commercials and pop promos, for the 12 months to 31 December 2007, were £12.1m (2006: £11.8m). Despite a challenging first six months of 2007, the Group’s television revenues exceeded forecasts in the second half of the year. A number of television production starts were delayed until early 2008.

Pinewood Shepperton continues to diversify into television by developing longer term trading arrangements with producers and broadcasters thus broadening the customer base using facilities across the Group. As a leading provider of television facilities we are well placed to develop preferred supplier status with the major independent production companies and key broadcasters.

Pinewood Shepperton continues to diversify into television by developing longer term trading arrangements with producers and broadcasters thus broadening the customer base using facilities across the Group. As a leading provider of television facilities we are well placed to develop preferred supplier status with the major independent production companies and key broadcasters.

Our volume arrangement with the BBC is progressing positively. We have also entered into a volume arrangement with Celador Productions Limited. New television clients of Pinewood Shepperton in 2007 include RDF Media Group, Shed Media Plc, Twofour Group and Olga TV.

We are pleased with progress at Teddington Studios, which contributed successfully to 2007’s revenues and in particular, with the continued progress of our channel hosting activities at this location.

Our digital television studios at Pinewood and Teddington Studios have hosted a number of returning and new productions, including the 7th series of Harry Hill (Harry Hill enjoys ITV’s highest audience ratings) Weakest Link, My Family, Take It Or Leave It, The Great Pretender, Let Me Entertain You, and Bremner Bird and Fortune amongst others. Teddington Studios strengthened its leading position in the High Definition (‘HD’) sitcom market, recording The Green Green Grass, Not Going Out and Teenage Kicks in this format.

Other television productions at Pinewood Shepperton in 2007 included The Colour of Magic, Dragons’ Den, Cranford Chronicles and the use of facilities by commercials, including Skoda (the cake), Guinness and Sky, plus pop promos/rehearsals for Kylie Minogue, The Spice Girls and Led Zeppelin.

During 2007, the Group invested further in HD television equipment in response to television production requirements. We enhanced our channel hosting facilities at Teddington Studios to accommodate Turf TV. We will continue to invest in HD equipment as required, within our normal capital expenditure.

(Source: Pinewood Shepperton Annual Reports & Accounts 2007)

Media Park

Pinewood and Shepperton Studios occupy over 200 acres of real estate west of London conveniently located for transport links with central London, motorway access and Heathrow airport.

Complementing our film and television production activities, we host a ‘media park’ of over 280 businesses across both studios occupying offices and workshops on leases ranging from six months to five years. These companies operate within and provide services to the creative industries, and by being located at Pinewood and Shepperton benefit significantly from being on hand to the studios’ production clients.
In return, the presence of these companies’ skills and resources on site, together with the pool of media production talent which has been established over several decades around Pinewood and Shepperton, explains why our studios are the first choice for major international production companies to make feature films and television programmes.

If you would like to find out more about our Media Park and how you could relocate your company to either Pinewood or Shepperton please contact James Bryant in our Property Office on 01753 656666 or email james.bryant@pinewoodgroup.com

Trading overview 2007

Media Park development

The Shepperton Studios Property Partnership established in September 2006 with Morley continues to progress well. The Partnership’s first development, the 60,000 sq ft Gainsborough Building, was completed on 16th May 2008. As part of a wider marketing campaign via our property advisors, DTZ and Strutt & Parker, we are seeking tenants to occupy the building whilst maintaining flexibility as appropriate for utilisation of its available areas for film and television production.

In December 2007 we entered into an agreement for lease with Technicolor Limited for a purpose built building of 42,000 sq ft, which has recently commenced construction, and is expected to be revenue producing by late 2009. The building, on the western boundary of Pinewood Studios, will comprise three floors with a mix of commercial and office space designed to facilitate the digital and film processing undertaken by Technicolor in the UK.

The commencement of these developments and the construction of Pinewood’s new entrance mark a significant milestone in the implementation of Pinewood Shepperton’s master planning consents, which we intend to develop primarily on a pre-let basis. The joint appointment of DTZ and Strutt & Parker has increased our marketing resource.

Media Park income

Media Park income was £5.8m for 2007 (2006: £6.3m) after accounting for our 50% interest in the Shepperton Studios Joint Venture for the full year of £0.8m (2006 from 12 September: £0.3m).

Growth in our Media Park revenues at Pinewood and Shepperton Studios is geared to rental increases, the majority of which are related to RPI, as both estates are currently at high occupancy levels. Nevertheless, significant progress has been made in extending the lease profiles of a number of tenants from short-term lease agreements to medium and long-term agreements. We will continue to implement this strategy.

During the year we renewed the lease with Avid Technology (Europe) Limited ('Avid') for a longer term on their existing 30,000 sq ft of space at Pinewood Studios. Since the year end, Avid has committed to take up a further 12,000 sq ft.

Furthermore, Panalux Limited entered into a new long-term lease for 16,500 sq ft of lighting equipment warehouse and distribution space at Pinewood Studios.

Project Pinewood

In November 2007, Pinewood Shepperton announced its intention to submit a planning application to the relevant authorities for the development of green belt land adjacent to Pinewood Studios.

The proposed development includes a 'collage' of locations, designed for the use of film and television productions including streetscapes and zones replicating locations across the UK, mainland Europe and the US. It is intended that such settings would significantly boost the efficiency and creative options available to film and television productions, enhancing the position of Pinewood Shepperton as one of the leading providers of production facilities worldwide.

As a key part of the design, Project Pinewood will be a living-working environment, with the proposed creative community being integrated with the film locations.

The Group’s consultants are making progress with the initial design phase and viability studies. We intend to submit a planning application late 2008. In keeping with its previous developments, Pinewood Shepperton will consider the most appropriate structure for the realisation of the project at the relevant time.
www.projectpinewood.com