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The future of UK media and entertainment after Brexit

In its report published at the end of 2017, the UK Government stated that the UK creative industries now contribute in the region of £92 billion net per year to GDP, account for 9% of all services (and 5% of all goods) exported from the UK and one in eleven jobs. The industry is also growing at double the rate of the economy. How is Brexit likely to impact the sector?

August 2018

The UK's media and entertainment industries are booming. Whether it's 'The Crown', 'Planet Earth II', Ed Sheeran's '÷' or Adele's '25', it seems that the world cannot get enough of British content. The UK's TV and film production sector has also enjoyed a renaissance over the last decade, with major films like 'Rogue One: A Star Wars Story', 'Dunkirk' and 'Fantastic Beasts and Where to Find Them' all being made here. It is a similar story for the UK's social media and publishing sectors.

There are a number of reasons for this growth. The devaluation of the pound has helped drive exports and the availability of favourable co-production financing arrangements and EU-sponsored funding, as well as generous tax reliefs, have all helped the UK become a hub for TV and film production. The UK is also home to some of the world's best creatives, producers, directors, distributors, platforms and broadcasters.

Brexit will, however, place a number of stresses on the industry. As well as the potential loss of the current favourable regulatory regime there are the wider issues of loss of access to talent and funding. Add in the possibility of a recession and the current growth in the industry could slow or even reverse. Absent a recession, growth could be maintained, notwithstanding Brexit, if there is continued access to the right talent. Some have even suggested that Brexit presents opportunities for the UK to develop a more favourable legal and regulatory regime and access non-EU markets.

In reality, the precise impact of Brexit won't be known for some time yet – and much will depend on the type of Brexit we get but there are a number of areas which will be key to maintaining growth.

Regulatory Regime

On Brexit, UK-based broadcasters and producers will lose the benefit of a number of favourable EU laws. Simply incorporating these laws into domestic UK legislation will not provide a solution since they require reciprocity from the EU, something the UK cannot control.

Perhaps the most critical of these laws is the Audio Visual Media Services Directive (Directive 2010/13/EU) and its successors (the AVMSD). This Directive allows broadcasters to operate across the EU if they satisfy the regulatory requirements, and are licensed, in the Member State in which their services originate (the so-called "Country of Origin" or "COO" principle). Many international - particularly US - broadcasters take advantage of this regime, basing their EU operations in the UK and being licensed by Ofcom. Indeed, Ofcom currently licenses more than half of the 2,200 channels broadcast EU-wide. This has been estimated as a business worth more than £5billion per year in the UK.

After Brexit, broadcasters may have to move some or all of their operations and workforce to (and become licensed in) another EU member state in order to be able to continue to take advantage of this regime. Indeed, The Guardian recently reported that Discovery intends to close its European broadcasting hub in London (although it will apparently retain over half of its employees in the UK, where it makes programmes and broadcasts to British viewers).

On top of this, Brexit also potentially means:

  • That UK programing will cease to be classified as EU programming for the purpose of the quota rules in the AVMSD, resulting in reduced demand for UK content abroad (as it will not qualify as EU content for local quota purposes).
  • The loss of the benefit of the SatCab Directive, with the effect that UK broadcasters providing cross-border satellite broadcasting services will have to clear rights in all Member States which their signals reach (subject to local law requirements) and not just the UK (as is currently the case).
  • The loss of the Regulation on the Portability of Online Content (Regulation 2017/1128), meaning that UK subscribers of online content services (such as Netflix) will no longer be able to access these services while temporarily in other EU Member States (for example, on holiday) unless their provider clears giving such access in the relevant member state(s).
  • The imposition of other barriers to trade that could affect the UK's media industry, particularly as the EU's digital single market (DSM) strategy develops.

Somewhat surprisingly given the role the media is alleged to have played in the outcome of the EU Referendum, it is only recently that these implications have been reported by the mainstream media and referenced by the government. Indeed, it wasn't until March this year – almost two years after the Referendum – that Theresa May publicly acknowledged the potential implications of Brexit for the broadcast industry. However, there is not (as yet) any concrete indication as to how these issues will be addressed. In its recent Brexit White Paper, the government simply said that, "In the course of the negotiations, we will focus on ensuring the ability to trade as freely as possible with the EU and supporting the continued growth of the UK's broadcasting sector." However, there is no precedent for a third country securing access to the single market for broadcasting and it seems unlikely that the UK would be able to do so if there is a 'hard' Brexit.

The net result is that there is likely to be some reallocation of infrastructure and personnel in the broadcasting sector to other EU Member States, alongside possible reduced demand for UK content. The extent of this migration, and any knock-on effect it has to production and post-production in the UK, remains to be seen.

Access to Talent

According to a recent government-backed report, 'Tech Nation 2018', access to and deployment of talent is one of the three top concerns for those in the creative industry. While there is some dispute about the number of EU nationals working in the industry, what is clear is that access to the right talent – even if only a small proportion of the total workforce - is critically important and can mean the difference between winning and losing a particular contract. This is particularly so in the UK VFX, post-production and animation sectors, which are labour intensive and rely heavily on EU talent. With countries like Canada already having strong VFX markets, there is clear scope for jobs and talent to migrate. But it is not just access to young specialist tech talent. More generally, any industry selling abroad – whether content, books or other - needs multilingual and multicultural employees. While Brexit might offer the opportunity to up-skill the UK workforce, that will not happen immediately and there is a fear that a skills gap will emerge, with the loss of jobs and talent.

It is no surprise then that those in the industry are already lobbying for the current UK visa regime to be amended in a way that will allow ready access to non-UK talent. A more flexible, affordable regime will be particularly important for small companies, such as independent TV production companies and video games developers, who are particularly reliant on EU talent and are unlikely to have the resources to cope with complex visa applications. Ensuring that any system is not solely based on salary requirements or skills will also be key.

A revised UK visa scheme will not, however, help with the deployment of UK staff to the EU - an equally important issue for the television, film and performance-based industries. These industries are predicated on the free-flow of employees across the EU, often at short notice and for time-limited periods. Unless the UK and EU can agree some sort of arrangement on free movement for the creative industries, which seems highly unlikely, it is difficult to see how this issue can be resolved. It could mean a reduction in the amount of content produced in the UK, and the relocation of staff to other EU countries.

Funding

In recent years, the UK has become a centre for TV and film production due, in part, to the availability of favourable co-production financing arrangements and direct EU funding. For example, according to Creative Europe Desk UK, the UK has been involved in 44% of all projects funded by Creative Europe and received 11% of the budget for the period 2014 to 2016 (its budget being €1.46 billion for 2014 to 2020). Securing this funding is often key to unlocking other forms of private or public funding.

Following Brexit, the UK will no longer be able to benefit from these funding streams. That will particularly impact small production companies and emerging UK talent. So far, the UK government has indicated that it will continue to fully fund all European Structural and Investment Funds in place before the Autumn 2016 Statement, and those after (subject to certain requirements). It has also launched a £150m creative industries fund. Whether this will be enough to plug the gap and whether other forms of state aid will be offered, remains to be seen.

Economy

If there is a recession, it is likely that we will see a slow or even downturn in the growth of the media and entertainment industries. There is a real risk of the loss of funding streams and the tax breaks (for high-end TV and films) that the UK currently offers, which would, again, particularly hit small independent film and TV projects. A recession could also affect the advertising industry and advertising-based media businesses.

While the depreciation of the pound has helped exports of UK content, it has also meant that acquiring content from abroad has been more costly, which has impacted some UK broadcasters and independent cinemas. If there is any further depreciation, this could impact the availability of overseas content in the UK, although that might bolster UK content production.

Retained EU Laws

Much has been written about how retained EU laws might develop in the UK post-Brexit. However, the lack of detailed plans has led to uncertainty, as well as confusion as to how the UK could possibly retain access to elements of the single market while diverging on key laws. There is also concern about the potential loss of the UK's ability to influence EU laws, particularly in the fields of data protection and the digital single market, post Brexit. While the UK is trying to retain some sort of influence over some of these laws, it seems unlikely that it will be successful.

In the short term, the UK will no doubt have to retain existing laws in order to continue trading with the EU. However, there may be scope in the medium to long term for the UK to diverge if and when it establishes new trading relationships with non-EU countries.

Opportunism

Brexit also opens the risk of opportunism by other countries seeking to take advantage of the uncertainty it creates. The publishing industry, for example, has highlighted the risk of UK publishers losing access to the Continental EU market for English language books to their US rivals. For decades, the UK has had exclusive access to this market, making it the largest book exporter in the world, with total sales equal to USD $6.8 billion per year. While there is no particular reason why the UK should not continue to be able to negotiate exclusive access to the EU market, those in the industry are already seeing major US publishers trying to cash in on the uncertainty.

What's the outlook?

The UK has strength and depth across the media and entertainment industries, with access to some of the best creative talent, as well as world-leading financial, legal and professional services. It seems unlikely then that any other EU centre will challenge it in the short-term. However, there is clearly scope for the loss of some elements of the industry such as cross-border broadcasting and VFX. The industry is agile though. If it is to continue to thrive, it will need to embrace the opportunities afforded by cloud computing, automation and AI. It will also need the support of the UK government to plug the funding gap and ensure continued access to talent. If there is a down-turn in the industry, the loss will not only be an economic one; the UK will also lose some of the 'soft power' – or cultural influence – it has on the world. That loss cannot be quantified but will be hard felt.

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EU and UK flags
Louise Popple


Louise considers the potential challenges and opportunities Brexit may bring to the UK's media industry.

"If there is a down-turn in the industry, the loss will not only be an economic one; the UK will also lose some of the 'soft power' – or cultural influence – it has on the world. That loss cannot be quantified but will be hard felt."