Film production studios fit for a Braveheart nation

World-class scenery shame about the studios

The World and his wife wants to watch blockbuster movies and big-budget TV series.The world and his wife wants to make them. The market is huge, the opportunity great. The spectacular Highland scenery that co-starred in films such as Braveheart has put Scotland firmly on the world map of desirable locations to make movies.

But the actual filming on location is a small fraction of what makes a movie a movie. Scotland needs world-class film production studios to match its world-class scenery. Though the question of setting up film studios of international standard and scale in Scotland has been on the public agenda since before the Second World War, almost 80 years on Scotland still has no film studios to compete with Hollywood (or even with Bollywood).

Since the days of British Lion Films, Her Majesty’s Government has recognized the importance and advantages of competing in the international market-place as a centre of film production. Many nations, recognizing that not every movie is profitable and that the expenses of establishing state-of-the-art studios are heavy, provide generous tax incentives to the industry. The United Kingdom offers tax incentives and guarantees them for ten years.

On the other hand, the Scottish Government, under its devolved powers, has – but has scarcely exercised – the power to provide tax incentives better than those already offered elsewhere in the United Kingdom. It has shown little interest in film production. While it has said that corporation tax might be cut by 3% for all companies registered and operating in Scotland, it has targeted little significant assistance to film production.

Towards a decision

In March 2014 a report jointly commissioned by Scottish Enterprise, Creative Scotland and the Scottish Government reviewed the options for a major new film production studio complex in Scotland. The report recognized that the studios needed to be close to transport links, crew and facilities companies, the unstated implication being that the Central Belt might be the likeliest location, for that is where the talent is. Up to four sound stages each of 15- 20,000 square feet would be needed, with the same area in workshop space, as well as production offices and room for expansion.

The report recognized that studios on their own might not be an attractive proposition to investors, and that the site for the studios might include hotels and shops to provide a stronger commercial proposition. The report did not further explore the option of mixed-purpose private- sector development, with the profit on houses and shops cross-subsidizing the set-up and construction costs of the film studios. The emphasis instead was very heavily in favour of near- total public-sector funding for a proposed “Foundation Studio” for Scotland.

Nevertheless, the report recommended that Scottish Enterprise should invite interested private- sector consortia to submit proposals either for new studios or for conversion of existing buildings.

The default position was that, if there were no viable private-sector bids, the public sector would fund the Foundation Studios itself, sharing some of the risk with the private sector if possible. The report laid particular stress on minimizing the delay in bringing the studios into operation, but made no recommendation in favour of any particular location or project.

Scottish Enterprise promptly invited tenders for the film studios. Yet it offered only £2 million in loans.

This very small incentive, taken with the report’s proposals for State-funded Foundation Studios and several statements made by public officials when tenders were invited, suggests that the Scottish Government and its various agencies are not really interested in attracting private- sector bids, but are keener on using taxpayers’ money to fund – and hence directly to control – all or very nearly all of the project.

Fiona Hyslop, the Culture Secretary, went out of her way to welcome the report’s recommendation of publicly-funded Foundation Studios.

David Smith, at Scottish Enterprise referred in passing to the process for inviting expressions of interest from the private sector, but seemed keener on the report’s proposal to “develop a robust business case for public-sector investment”.

Janet Archer, of Creative Scotland talked of “how we strengthen resources for film”(code for direct subsidy from taxpayers’ pockets), though she mentioned “other partners”, without going so far as to make it clear that the “other partners” might be in the private sector.

The strong emphasis in all of these comments from spokesmen for the public sector in Scotland is that the proposed film studios should be substantially, and perhaps entirely, funded by taxpayers.

Is subsidy lawful?

Subject to EU tendering rules, the Scottish Government is free to offer subsidies to set up world-class film and TV production studios. However, over and above the £2 million loan facility already put out to tender, £170,000 for Wardpark Studios in Cumbernauld, and £75,000 for Film City Glasgow, it has been reluctant to do so until recently.

Pinewood Studios expressed early interest in establishing major international film studios in Scotland, but the Welsh Development Agency handsomely trumped Scottish Enterprise’s £2 million with a cash offer of £38 million plus 180,000 square feet of redundant factory space.

A strong warning to the Scottish grant-giving bodies is to be found in the recent decision of the European Commission, upheld by the Court of Justice, to order the Spanish government to recover more than Є300 million in subsidies to publicly-funded film studios in Alicante, Spain, backed by the Regional Government of Valencia is a cautionary tale.

In February 2007, the European Commission received a State Aid complaint from Pinewood Studios, London, that the Valencia Region in Spain had unlawfully given subsidies of Є265 million to the City of Light (Ciudad de la Luz) film studios that had been operating since 2005 on the outskirts of Alicante wholly owned by the Regional Government of Valencia.

Pinewood provided links to articles published in Variety setting out the production subsidies offered for filming in Valencia and confirming that City of Light was attracting big-budget film productions. Pinewood’s complaint was that the subsidy was disproportionate; that a start-up business was being subsidized to compete with existing businesses that had to survive with little or no State aid; that Valencia’s valuation of City of Light was unrealistically high; and that additional incentives granted to City of Light were also anti-competitive.

The complaint said:

“A private investor would regard even an established and profit-making studio business as at least a medium-risk investment … based on the fact that, although a studio business is asset-backed, … its operational gearing is likely to be high, which makes profit difficult to forecast.”

Though the 2004 business plan had set 2010 as the first year of net-positive operating results, the commercial operation of Ciudad de la Luz had been loss-making throughout. By the end of 2010, losses of Є84 million had accrued, compared with the profits of Є12 million forecast in the business plan.

The Commission considered that market investors would not have been likely to invest on the same scale and terms as the Regional Government of Valencia, and doubted whether the cultural exception from state-aid constraints in Art. 107 of the Treaty was applicable, since the City of Light was a commercial operation not promoting cultural or heritage conservation.

Art. 107(1) of the Treaty of Lisbon, echoing Art. 87(1) of the Treaty of Rome says: “Any aid granted by a member state or through state resources in any form which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between member states, be incompatible with the internal market.”

The Commission concluded: “The project grants a selective economic advantage to Ciudad de la Luz. The project is publicly funded, distorts competition and has an effect on trade between member states. Therefore, the Commission regards the notified measure as constituting State aid within the meaning of Article 107(1).”

The remedy inflicted by the Commission was severe. Spain was ordered to recover immediately Є94.5 million in share capital, Є9.8 million in land; Є115 million in participating loans, Є45.8 million in convertible loan stock, and any incentives granted to film producers for agreeing to film at the City of Light, with compound interest from date of payment to date of recovery. The total repayment works out at well over Є300 million. In practice, nearly all of this vast sum will prove irrecoverable.

Suggestions have been made that Scotland would be acting illegally if it were to offer large subsidies. Ironically, questions have been raised about the lawfulness of the Welsh administration’s offer to Pinewood, which appears not to have been put out to general tender in accordance with EU competition directives. The size of the subsidy may also fall foul of the Alicante decision. Similar questions have been raised about Creative Scotland’s allocation of £75,000 to Film City Glasgow, one of the tenderers for the proposed Scottish film studios.

European competition law is entirely clear. No grants or loans may be advanced until there has been an open invitation to tender. Nor is it permissible to invite and then award a tender for a small subsidy (say, £2 million) and then lavish far larger subsequent subsidies on the favoured tenderer. It is also unlawful to subsidize any project by more than any private investor would.

There must be a level playing-field for all tenderers. All must be told what the eventual level of subsidy is expected to be. Otherwise, there is a danger that some tenderers might receive backdoor indications that the winning tenderer for the small initial sum will have earned a passport to greater subsidies later.

The front-runners

Though the Scottish Government’s £2 million was an unusually small subsidy for a substantial project of such national importance, when Scottish Enterprise acted on the consultants’ recommendations and invited tenders half a dozen consortia responded.

Most of the tenderers made it clear that in the medium to long term they would require several tens of millions in taxpayer subsidy, and some – but not all – seem to have been given indications that subsidies far larger than the initial £2 million might eventually be forthcoming.

The EU’s competitive tendering rules are breached in the letter as well as in spirit if tenderers are told the available subsidy is only £2 million and then the chosen tenderer is offered substantially more subsidy.

The correct approach – not followed by the Welsh Development Agency – is to make clear the full extent of the intended subsidy from the outset, so that all tenderers are given the same information and can put forward their plans on an equal footing.

These and other uncertainties, combined with very long delays at Scottish Enterprise in approaching tenderers to ask for due-diligence information, and then to sign it off, have deterred some of the consortia. Some may have dropped out by mid-August 2014.

Who, then, are the front-runners?

Film City Glasgow: It is suspected, but not yet known, that Film City Glasgow, which has long been heavily state-supported, was one of those still in the race by mid-August 2014.

Film City Glasgow is proposing further development across the road from the neo-Classical sandstone Govan Burgh Halls at 401 Govan Road in Nicola Sturgeon’s constituency of Glasgow Southside. In the former Town Hall, there are already several small studios and post- production facilities.

The new eight-acre site, once home to the Glasgow Garden Festival, would house two sound stages and ancillary services. A further 12 acres might be assembled from various parcels of land at Pacific Quay, much of which is now owned by Scottish Enterprise, to form a “creative village” for associated trades and technical companies on the model of Pinewood Studios.

Film City Glasgow has a letter of support for the project from Glasgow City Council. Its proposed site is already in the Creative Clyde enterprise zone, within reach of 70% of all artists, technicians and others involved in the Scottish film industry. There is a private-sector partner in the shape of a property corporation run by management from the film industry.

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The fine Belle-Epoque neo-Classical sandstone façade of Govan Town Hall, now home to Film City Glasgow

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A city-centre location has many advantages, but one disadvantage is that space for expansion is limited, and the cost of land acquisition is very high. Also, the site is a rare green space in a heavily-built city, and too small to provide the international-class studios Scotland now needs.

Tiernan Kelly, director of Film City Glasgow, says up to half the costs of his proposed project would be met by public-sector partners, i.e. Scottish Enterprise and Creative Scotland, though it is not yet definite that they are committed to the project. Though the Glasgow Film City site is small, other small studio sites have done well: for instance, the eight-acre Titanic Studios in Belfast is where Game of Thrones, one of television’s biggest productions, is filmed.

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Film City Glasgow, in the Govan Town Halls, is on the rectangular block to the left of the map. There is unused open space to the east of the Govan Road, but it is not large enough for the world-class studio complex that Scotland now needs.

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Google Earth

Wardpark Studios, Cumbernauld: Another tenderer is understood to be the Thomson Pettie

Group, an engineering firm based in Carluke, whose 130,000-sq.-ft. former electrical components factory in Cumbernauld, bought from its German owners Isola-Werke, was turned into film studio space at the instigation of Terry Thomson.

Wardpark Studios swiftly landed the contract to host Starz Entertainment’s filming of Outlander, the hit fantasy TV series set in 18th-century Scotland. The Scottish Government supported the studio with a grant of £170,000 and also gave access to all areas of Scotland’s historic monuments and houses. Terry Thomson is now bidding for the contract for the second series.

The chief advantage of the Thomson Pettie tender is that it comes on the back of proven success in landing and executing a contract for a major TV series. Its disadvantages, like those of Film City Glasgow, are that room for expansion is limited and that the studio is not a new build but a conversion of a factory originally designed for an entirely different purpose.

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Thomson Pettie’s Wardpark film studios, Cumbernauld

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Pentland Studios, Edinburgh: A third leading tenderer, according to a report in the Edinburgh Evening News in August 2014, is Pentland Studios, a private-sector consortium that submitted a planning application notice to Midlothian Council in August 2014 for conversion of a brown- field site on land currently zoned for green belt at Straiton on the A 701 Edinburgh Ring Road.

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Proposed site (yellow) of the Scottish International Film Studios Edinburgh

Pentland Studios, after spending many months studying 28 sites all over Scotland, found the Straiton site better than all others by a substantial margin, for many reasons.

The land was competitively priced both in local and in international terms at well below £100,000 an acre (for comparison, at Pacific Quay, Glasgow, land would cost £600,000 an acre, and at Burbank, California, land would cost £1.5 million an acre).

The movie and TV industries were likely to regard the sit as ideal in that it was topographically suitable for six sound-stages and ancillary buildings and had plenty of room for expansion to allow for a large back lot and a water-stage.

The site gave access to all parts of the Central Belt and of Scotland via the Edinburgh ring road. The site, though close to major roads, was relatively quiet – an increasingly important consideration as the world gets noisier.

Mains high-voltage power, water and telecommunications were close by.

Proximity to Edinburgh, the nation’s capital, had numerous advantages, including the possibility of links with educational institutions.

Above all, Midlothian Council had already proposed to rezone a strip of the Green Belt alongside the A 701 for mixed development and had indicated that, in principle, it would

welcome the inward investment that the project would generate. A new version of the local plan, recommending mixed development in a belt alongside the A 701 that includes the site, is to be published shortly.

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Site plan of the proposed Scottish International Film Studios Edinburgh

Indeed, the planners had gone further. There are indications – provisional only at this stage – that the local authority is prepared to recognize the film and TV studios as being of international importance and, therefore, as a suitable case for derogation from the current green-belt policy, particularly since that policy is now under active review.

The local authority might permit work on the studios to commence before the green-belt policy had been varied, but – even though the 21 acres of housing and 12 acres of retail space on the site are essential to fund the studios – work on the houses and shops might have to wait until the new local development plan has been approved, which might not happen until 2016.

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Scottish International Film Studios Edinburgh: site capacity study sowing the six sound-stages

Pentland Studios have taken full advantage of the Scottish Enterprise report’s suggestion that a privately-funded studio complex would be more likely if it were part of a wider redevelopment of the site. Its proposals for the Scottish International Film Studios Edinburgh included not only six sound-stages but two large back lots, a studio campus, a hotel, 20 acres of housing, a non-food shopping complex and a combined-heat-and-power station.

The development would be likely to pay for itself in 7-10 years, thanks to the housing and retail projects and the combined-heat-and-power station. The proposal, put together by experienced film-production management working with property developers, is expected to attract investment not only from within the United Kingdom but also from overseas. Though Pentland Studios have joined the tendering process for the £2 million in pump-priming funding offered by the Scottish Government via Scottish Enterprise, it is likely that they can and will proceed whether or not they are successful.

Who should win?

In many ways, the decision between the front runners reflects the choices that Scotland itself must make as it considers how it will make its living when North Sea oil is no longer available. Scotland’s share of North Sea revenues, combined with continuing and substantial subsidies from England, has allowed a far larger public sector in Scotland than would otherwise have been the case. Perhaps the most important decision Scotland now needs to take, as oil revenues continue to decline and the English subsidies may well also decline (and would cease altogether upon separation from the United Kingdom), is whether to continue down the path of very high public expenditure and annual fiscal deficits or whether to adopt a more free-market approach, or both.

If a separated Scotland wished to join the EU, it would not qualify to do so unless and until it had brought its annual public-sector deficit down to no more than 3% of GDP, compared with 8- 13% at present depending on the share of North Sea oil revenue that would accrue to St Andrew’s House as a result of the independence negotiations. In this environment, adding to public spending that is already unsustainable is a questionable policy.

Film City Glasgow would be the étatiste option, Scottish International Film Studios Edinburgh the free-market option. At present, as noted earlier, it seems that the spokesmen for the Scottish Government and its agencies would prefer to keep the new film studios in their own hands. Public ownership carries with it the enormous privilege of patronage. Also, the advantages to the Deputy First Minister of choosing to site a major development in the heart of her constituency should not be overlooked. However, the intended subsidy cost would be unlawful, running counter to the decision of the European Court of Justice in the Alicante case.

Pentland Studios, however, have put forward a proposal which – as long as Scottish Ministers do not call it in if Midlothian Council agrees it – can and probably will be built and operated without any taxpayer subsidy at all, regardless of the Scottish Government’s decision about who should get the £2 million subsidy. The fiscal advantages of this approach are undeniable: Scotland is running a very large annual deficit at present. It cannot afford to commit capital and current-account funding for new projects on this scale when private-sector funding is available.

On the assumption that the three front-runners are indeed Glasgow, Cumbernauld and Edinburgh, another option is possible: namely to run with all three.

The major film studios might be in Edinburgh, for two good reasons: the site is larger, and the public-sector cost is the smallest of the three. Besides, history has shown over and over again the unwisdom of allowing governments to attempt to pick industrial winners.

However, the Scottish public sector still has a useful role. Its contribution to the development of world-class film and TV production facilities in Scotland might reasonably take the form of modest subsidies all credible tenderers not only to continue to provide existing facilities but also to provide some additional facilities that would complement the studios to to be built in Edinburgh, which – thanks to its sheer size – would become the hub of a Scottish film production industry. One might call it Scollywood.

Market considerations

If Edinburgh proceeds according to Pentland Studios’ plan, it will be one of the ten largest studio complexes in the world. Since the earliest days of trading in the souk or the market square, enterprises in the same line of business have tended to congregate closely enough together to allow synergies between them to benefit everyone in the business. This geographical clustering is often beneficial. It has not really happen ed in Scotland’s film industry because until now there has been no single studio complex big enough to take on the world.

However, if the Edinburgh project is not actively prevented from succeeding, it will be the magnet that not only attracts major projects that cannot now be handled in Scotland but also provides additional business for other film production sites such as Film City Glasgow. In effect, Edinburgh would provide the “Foundation Studios” around which Scotland’s film industry could burgeon, and without the heavy cost in taxpayer subsidies that most (if not all) other tenderers would require.

Film production methods have changed radically, and continue to change, as digital technology becomes more sophisticated. Complex scenery – exteriors as well as interiors – can be added to green-screen shots. The result is that location filming is less necessary than it was, but digital post-production is more vital than ever. In consequence, it no longer matters from the production point of view where a movie is filmed. Thanks to technology, Scollywood will be no less viable a place to make movies than Hollywood – provided that it has at least one studio complex large enough to grow the expertise to compete with the very biggest overseas.

Poverty of ambition should not be allowed to afflict the Scottish Government and its satellite agencies as they inch – rather more slowly than is commercially appropriate – towards a decision on who will get the paltry £2 million in subsidy that is now on the table.

The fact of the Edinburgh project, devised by credible and experienced ex-Hollywood specialists in film-industry project management, should be seen by Scottish Ministers and their advisers not as a threat to their fall-back plan for a publicly-funded film production industry but as a Heaven-sent opportunity to distribute among all of the viable tenderers some of the subsidy that they seem to have earmarked for an entirely public-sector project, so that each tenderer can make its own valuable contribution to the growth, effectiveness, attractiveness and international competitiveness of Scollywood. The rest of the earmark can be applied toward the reduction of Scotland’s unsustainable fiscal deficit, or towards giving some cash back to hard- pressed taxpayers.

Scotland or UK: which is best for Scollywood?

The United Kingdom’s regime of support for the film and TV production industries is well established, well understood and quite well funded. The same cannot yet be said for the Scottish Government, which has not shown as much interest in putting the film and TV production industry on a sound footing as the United Kingdom has done.

In this as in many other fields, over-dependence on the enforced generosity of taxpayers cannot any longer be relied upon. For it is not only Scotland whose annual deficits, accumulated debts and hefty contingent liabilities are in the red zone. The United Kingdom, like the United States and many European countries, is in similar difficulties (though Scotland is uniquely heavily exposed in the financial sector and, on its own, would not be able to withstand another bank failure like that of 2008).

A change in the theological outlook of the governing class is already occurring at Westminster, where two of the three major parties have realized that public spending at present levels will lead to disaster. The national debt has been accumulating for almost a quarter of a millennium: yet it has doubled in just the past five years.

So far, there is little sign of a similar change in outlook in Scotland, whose public sector, as a percentage of GDP, is close to that of the eastern European communist countries before the Berlin Wall came down. Almost all parties in Scotland are habitually dirigiste and étatiste. No ideological point is being made here. It is a practical point. Other people’s money has run out. The Big State model of the governmental universe is no longer sustainable in practice and, if only for that reason, it is no longer credible in theory.

The Scottish film production industry will be safer and more attractive to international investors and film-makers if Scotland remains within the United Kingdom. However much Scottish ministers and officials may protest that they will guarantee substantial and continuing subsidies to film production in Scotland, they are no longer in any sound financial position to utter, still less to honour, any such guarantee.

If Scotland is to become one of the greatest film and TV production centres on Earth – and it should aim for nothing less, for that has now, at last, become a credible and achievable aim – it must remain securely within the United Kingdom. The political stability of the past 300 years has brought very great economic benefits to Scotland.

Most serious international investors, including those behind Scottish International Film Studios Edinburgh, will be reluctant to devote serious cash to establishing a film production industry of international standing in a separated, untried, indebted and fiscally bankrupt Scotland that would stand alone furth of the United Kingdom and – at least until Scotland’s massive annual fiscal deficit was brought down to the European threshold – furth of the EU as well.

The authors

Christopher Monckton of Brenchley

has a lifetime of experience in the analysis of policy, having served as leader-writer of the Yorkshire Post, editor of The Universe, managing editor of the Telegraph Sunday Magazine, adviser to Margaret Thatcher as Prime Minister, chief leader- writer of the Evening Standard, head of a leading consultancy firm, deputy leader of UKIP, leader of UKIP Scotland, head of policy for the Science and Public Policy Institute of Washington DC, and secretary of the Scottish Research Society.

William Stirling

He was a candidate in the Scottish parliamentary elections in 2007 and assisted in Murdo Fraser’s campaign to become leader of the Scottish Conservative Party in 2011. In 2013 he co- founded a humanitarian organization devoted to helping Syrian refugees through drama therapy and acting in plays; he adapted Euripides’ Greek tragedy The Trojan Women to the Syrian conflict and went on to produce it; he wrote the screenplays for the award-winning film Scooterman and for a soap series. He has also worked in gold mining in Western Australia and in Hambros Bank

The Scottish Research Society

The Scottish Research Society exists to conduct, commission, publish and disseminate authoritative research and useful knowledge on economic, scientific, literary and other matters of interest to the people of Scotland. The Society also promotes and hosts lectures and presentations on Scottish affairs from its HQ in the heart of Edinburgh. The Society is a registered “No” campaigner for the 2014 referendum on whether Scotland should separate from the United Kingdom.

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