Briefing

How to Tighten Belts

Indie film and telelvision makers are struggling with critical pressures, notably a significant cost inflation in key areas of production, including cast, crew and studio space through to fuel, flights and food. Covid-19 protocols and contingencies are still considerable, adding 10 to 20% to a budget, even before the recent surge in inflation caused by geopolitical instability.

Long-running shows with two or three-year contracts are, for the first time ever, having to write inflation protection schemes into budgets.

The BFI’s summer economic review found that the speed and volume of demand for inward production has exacerbated the strain on the UK’s indie sector. It cannot compete with larger budget international productions on a variety of levels from accommodating the rising cost of production to securing cast and crew and ultimately to reaching audiences.

Crew shortages at all levels are especially threatening to the sector. Following a decade of extremely cheap money to borrow, the pressure on producers with already very stretched budgets is now acute.

MAKERS How has recent global inflation exacerbated production costs?

“It has amplified the situation as a rise in the costs of necessities will have a detrimental effect on the budgets,” says Sandra Smith, Banijay UK’s Director of Production. “Talent and all supply chains are increasing their costs. All costs related to the cost-of-living crisis are rising and include accommodation, catering, travel, and fuel. Suppliers have increased their costs, some by 40%. In general, all direct production costs have been impacted to some extent as suppliers understandably, also need to cover their inflated costs and generate revenue to remain stable.”

MAKERS How have rising interest rates affected funding?

The three key planks of indie film finance, senior debt, gap finance and equity, are impacted in varying ways by rising interest rates, according to Variety. Equity is the least affected, as it exists as hard cash and is left on the table –meaning it’s last to recoup and then shares in net profit points with the producer and talent after the break-even point. While a premium of typically 10 to 25% may be added to the principal investment that pays out prior to any subsequent waterfall recipient, neither is typically interest bearing. Senior debt, however, is more sensitive to interest rates, given the time that lending against collateral – including tax incentives, rebates and pre-sales alongside other receivables – can take to be paid back. Gap financing remains an excessively expensive tool for borrowing against unsold territories and future revenue streams (pegging it at 15 to 20% plus and now rising), and often used as a last resort by indie producers.

MAKERS Can M&E continue to meet rising cost of talent?

“Keeping the best talent on board to maintain high production values is imperative and is the biggest challenge as it impacts the entire production process from development and pre-production to delivery,” reports Smith. “What we’re finding is that it is becoming harder to secure and retain talent and services at the rates agreed during the budgeting process. We are fortunate to have long-established relationships with talent and service providers across all sectors of production. People want to continue working with us project after project, but we have to remain competitive.”

MAKERS How can producers mitigate rising costs without damaging their business?

One approach is to identify commercial opportunities from the development stage right through to transmission and beyond. “As a Group we can work with our labels, identify synergies where possible, offer solutions to space and clever use of technology which should mitigate some additional cost and use of energy,” offers Smith. “All broadcasters are aware of the crisis. Programme budgets are negotiated and settled on a case-by-case basis.”

MAKERS Should producers double down efforts to move towards green sustainable energy solutions?

Use of virtual production stages to shoot locally is one sustainable response, although studios are not immune from rising costs. Virtual production can mean less travel costs than a conventional shoot on multiple locations, as it is more of a controlled situation in terms of daylight, weather, sets and graphic environments. More government backed incentives to film in the UK would also help with sustainability.

“We are constantly looking at ways we can collaborate with our suppliers and work with companies who have a robust sustainability plan and pledge to be effective,” says Smith. “As an industry, we can drive positive change in terms of sustainable principles throughout the production process and our supply chains together.”

INFLATION SUSTAINABILITY

INDIE PRODUCTION