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Lord Puttnam, a Member of the House; and Mr Michael Kuhn, Qwerty Films, Examined

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Lord Puttnam, a Member of the House; and Mr Michael Kuhn, Qwerty Films, Examined WEDNESDAY 3 JUNE 2009 ________________ Present Eccles of Moulton, B Fowler, L (Chairman) Gordon of Strathblane, L Hastings of Scarisbrick, L Howe of Idlicote, B King of Bridgwater, L Macdonald of Tradeston, L Manchester, Bp Maxton, L McIntosh of Hudnall, B Scott of Needham Market, B ________________ Witnesses: Lord Puttnam, a Member of the House; and Mr Michael Kuhn, Qwerty Films, examined. Q726 Chairman: Thank you very much for coming this morning both of you. One of you we know rather better than the other but there will be an equality of questions as far as this is concerned. Just to start with a bit about your biographies, Lord Puttnam, how many films did you produce in your career? Lord Puttnam: 30. Q727 Chairman: 30 films in that time? Including things like Chariots of Fire and The Killing Fields. Lord Puttnam: And some far less illustrious ones, Chairman! Q728 Chairman: I see that you are now the President of the Film Distributors’ Association. Lord Puttnam: I am. Q729 Chairman: And you wrote this extremely good book The Undeclared War, which is not about the current Cabinet (I thought I might get that in!) but it is about the film industry; is that right? Lord Puttnam: Yes. Q730 Chairman: Michael Kuhn, tell us a little about yourself. In the last few years you have produced I think about - well, you tell us how many films you have done? Mr Kuhn: I think it is eight in the last few years and before that I set up a company called PolyGram Filmed Entertainment and we made or distributed about 110 films, something like that. Q731 Chairman: We would like to come back to that because that is obviously a very important part of recent film industry history. Let me start by asking you this: in 2002 Sir Alan Parker, who was Chairman of the Film Council at the time, said: “We [in the United Kingdom] can never be the biggest film industry in the world, but we should be right up near the top of the league, not permanently hovering in the relegation zone.” Do you think that is a fair comment on the UK film industry today? Mr Kuhn: My main theme I really want to talk about today is how after all this time and effort, and despite commercial success, we still do not have a sustainable film industry and what we can do to make a sustainable film industry. That is my simple theme. Q732 Chairman: In essence, is it fair to say what the Commons Select Committee said about five years ago that the United Kingdom film industry is producer-driven and there is an enormous amount of talent and it produces some extremely good films, but when it comes to being a successful film industry it is not distribution-led and therefore is not as successful as it 2 might be? Is it that contrast between producer-driven and distribution-led which is one of the reasons for our relative lack of success? Mr Kuhn: Yes, just off the top of my head I will give you a very simple example from years and years ago. There was a little film called Waking Ned Divine which cost a small amount, a few million dollars, and I think from memory it did $70 million worldwide at the box office, and I did a calculation showing that if that had been distributed by a studio which had the distribution margin and all that on a worldwide basis it would have generated for the producers $30 million profit pre-tax. In fact, the producers I think got back less than $5 million, so even if you have a hugely successful film like that and you are just the producer, the amount you get back is not sufficient to allow you to reinvest and create a sustainable business whereas for a studio a big hit like that is, and that is really the difference. Q733 Chairman: Is that your view as well Lord Puttnam? Lord Puttnam: Yes, it would be. I can think of another film, a very nice little movie, again a small film called Hear my Song which I think, to everyone’s amazement, and possibly even the producers’, got terrific reviews and a lot of wonderful word of mouth but of course they had only made about three prints. By the time they had re-organised themselves to actually make enough prints to satisfy the demand the media wagon had moved on and by the time the film limped into more cinemas it was way too late. That for me would be a classic case of a film which actually could have made a great deal of money but the distribution mechanism was not there to exploit it. Q734 Chairman: And has the world changed because of the digital revolution? All our assumptions about distribution, are they the same assumptions as five years ago? Lord Puttnam: If you are prepared to look ahead certainly the situation that will be emerging with digital cinemas will be much more flexible, you will be able to move much more quickly 3 and you can probably adapt - and I bow to Michael’s more current knowledge - your marketing budget more rapidly and more intelligently to the marketplace. That will be one of the many advantages of a move towards digital distribution. Q735 Chairman: But it does not negate the traditional distribution system? Lord Puttnam: No, the big issue is that we have seldom had the resources in this country for a marketing executive in a studio to be able to look at a film and say, “I think this could be a huge success,” and then have the courage to put the sort of resources behind it that would drive it that success. By way of example, when I was making films in the early 1970s in the UK for EMI the rule of thumb was that they spent ten per cent of the production budget of the film on promoting the film. Irrespective of whether it was going to be successful, it was ten per cent; that was the way they did it. In 1977 when I did Midnight Express, Columbia Pictures looked at the film, which had cost $3.3 million, and they spent $6 million promoting it, and made a fortune. That sort of thinking and ambition would have been unimaginable in the British film industry at the time. Q736 Chairman: You have both got experience of this. Take us to that comparison between the UK and Hollywood. Is it totally unrealistic to think that the UK can ever be a competitor to Hollywood? Mr Kuhn: I think it depends at what level you mean. If you mean can the UK produce films that equal Hollywood box office, I think we definitely can, and I have attached on my submission examples of films that were modestly budgeted that certainly a Hollywood studio would be thrilled to have, whether it is the Full Monty at over $200 million or, going back to a film I made Four Weddings and a Funeral, which was $250 million. Those are Hollywood level films. It is unrealistic to think that we can get the capital base needed, or it is very hard to imagine how it can be done to rival the Hollywood studios to pay for the negative costs and 4 the marketing costs. For example, when I was involved with PolyGram Films, the total capital required was somewhere in excess of $600 million to have a fully integrated studio operating worldwide. It is very hard to imagine how you could raise that out of the UK today. That does not mean to say that we cannot do something to create a sustainable film business that operates on a basis whereby you access some of the margin that a studio has in return for having fully-financed films, and therefore you do not get the full benefit of worldwide distribution but you get some of it. Chairman: Let us take that forward. Lord Macdonald Q737 Lord Macdonald of Tradeston: Can we just know a little bit more about past experience before looking forward. You had over 100 films with PolyGram which is obviously a very substantial portfolio, and therefore a lot of the arithmetic of portfolio investment should have been worked out in that time. Did it actually work out as being profitable as a business model for the investors at the start? Mr Kuhn: I can answer that because when PolyGram was sold and I had the opportunity to try and sell the film operation as a separate stand-alone entity we put together a book, obviously, for potential investors showing that over the next three years with the current portfolio and the distribution system it would generate 15 per cent operating margins, which most studios would be thrilled to get today, so the answer is yes, it did. Q738 Lord Macdonald of Tradeston: Looking back again at the Philips investment in PolyGram, this was obviously a company interested in video and television production and so on, but coming from a Dutch source is rather unexpected. What can we learn from that PolyGram model and are there the equivalents, the unexpected equivalents today, perhaps, of Philips, who would be prepared to come in and take a risk in this global market? 5 Mr Kuhn: Philips were dragged kicking and screaming into the entertainment business generally because they basically inherited, originally, the family interests of the Siemens family and the Philips family, with Deutsche Gramophone and Philips classical labels.
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