Television Business International

Brexit: what does it mean for kids TV?

Kids-logo-460_2BrexitThe kids TV business is starting to weigh the impact of Britain’s pending European Union exit. The kids sector in the UK was already under pressure, with the amount of locally made content steadily declining, and there was immediate concern over what Brexit will mean in terms of coproduction, access to EU funding and schemes, and in terms of commissioning if there is an economic downturn.

It remains unclear how, or if, funding from EU schemes and programmes such as the Creative Europe programme will be replaced, following the news Britain had voted the leave the institution.

“There is a risk that pots of money from Europe won’t come back,” says Oli Hyatt,  head of prodco Blue Zoo and Aniamtion UK, which was at the forefront of the campaign for tax breaks for the kids industry.

“The wider uncertainty is not a good thing, and there is a lot of uncertainty on how [Brexit] will unpick over the coming years. The big US companies are here [in the UK] and producing a certain amount of programming because European content is part of their licence obligations. Will they want to do that here if it doesn’t count towards the quota?”

Greg Childs runs the Childrens Media Foundation, a not for profit group that campaigns for UK-originated kids programming.

“The truth is we do not know what will happen in terms of trading, quotas and coproduction, but there are questions about all of these, and that is a bad business position to be in,” he says. “There is nothing in Brexit that will create more British television for British kids.”

wolfblood_2The UK government has introduced tax breaks for locally-produced animation and live-action and, with these schemes in place. In live action, where UK-Europe projects such as the ZDF Enterprises and CBBC series Wolfblood (pictured) are the exception not the rule, the hope was for a new era of cooperation, although Brexit may hinder that.

“Who knows what live-action copros there might be between British and European partners, and to what extent these are now scuppered or on hold,” said CMF’s Childs.

One producer said that as far as UK’s position in the international market, the tax break had provided a boost, but Brexit means ‘taking ourselves off the map again’.

Internationally, producers say there will be an impact on coproduction. “We were all saddened by the results of the Brexit vote,” said Andrea Gorfolova, president of Canada-based Tricon Films & Television, which has a dedicated kids and family division.

“UK producers and networks are a vital part of the kids and family worldwide industry, contributing significantly in quality and financing. I think that the immediate response will not be to abandon coproduction possibilities, but I do believe, that when before, the UK was the first country to consider for coproductions, Canadian producers will seriously weigh in other options on an equal level.”

The first UK industry event after last week’s vote is next month’s Children’s Media Conference in Sheffield. The organisers have quickly refocused the opening Question Time-style session to make it Brexit-themed, and the conference will also delve into the vote’s impact on the kids business in a separate UK-Europe session (delegates can submit questions in advance here).

Each of the major kids pay TV groups – Disney, Nickelodeon, and Turner – have major London bases and coordinate a large part of their EMEA activity from these, and are also speaking at CMC.

While there could be even less funding for British kids content from within the UK if there is an economic downturn, one animation producer noted that a weak pound would make the UK more attractive as a base for service work on international projects.

Another industry veteran said the UK said the talent pool in the UK kids business will remain a valuable asset. Paul Robinson has worked for Disney, rolled out the KidsCo channel from a UK base, and is now producing, consulting and working with Germany’s Your Family Entertainment.

“The UK has a very strong track record in preschool and animation,” he says. “I see no sign of this excellence of design, storytelling and character creation going away, and broadcasters and platforms will still want UK content going forward.”

There will, however, be tax implications as Brexit negotiations play out. “The various tax treaties relating to production credits and withholding tax between EU and UK will need to be reviewed and possibly renegotiated so there may be a period of uncertainty,” Robinson says. “If you are paid net of withholding tax rather than gross that could have significant impact on funding animation projects if pre-sales are used as reassurance for investors.”

As with the wider TV industry, the immediate feeling is that the UK is entering a period of uncertainty, which could be destabilising. With animated projects taking about five years to come to fruition there is concern that timelines could be stretched further and a weak pound affect the financing. “One of the major issues will be the fluctuation of the British pound which will complicate financing structures on projects that historically take many years to produce,” said Tricon’s Gorfolova.

“The most obvious impact is that we are all going to have to spend a lot of time and money working out what the impact is in each scenario we encounter for years to come,” says production and funding expert and CEO of Eye Present Genevieve Dexter.

There will also be an impact on copros. “Our creatives will not be able to qualify for EU points making this more difficult that it already is,” says Dexter. “The UK does a lot of coproduction with Ireland and that may be where we feel the most change.

“Overall I think it will have the effect of increasing our exports and collaboration outside of Europe, and will certainly reduce the number of overseas companies looking to buy up UK companies in the media sector. Ireland will be the most direct beneficiary as the only other English-language country in the Union.”

One thing most agree on is that the UK-based kids business is battle-hardened and used to surviving challenging times.

“There is no point being scared; we’ve got through tough times and will continue to do that,” says Oli Hyatt. “We now have people from the US and rest of the world coming here to work with us, and that won’t stop.”

Genevieve Dexter, CEO Eye/Present and Serious Lunch, on Brexit’s impact on funding and financing

The most obvious impact is the period of uncertainty we are entering into, where we just don’t know what deal we are going to strike with Europe and when. It’s similar to ‘that feeling when your boyfriend dumps you but thinks he can keep living in the flat for [six] months’, as a spoof Angela Merkel Twitter account elegantly put yesterday.

One thing is certain is that distributors, producers and creatives alike are all going to have to spend a lot of time and money working out what the impact is in each scenario we encounter for years to come. The immediate beneficiaries will be the legal and accountancy services although they too will find a few sudden deaths on their M&A floor. I am sure many companies will be reversing certain decisions, considering moving their offices out of the UK and deciding to sub-contract out of the UK if only to avoid the uncertainty.

As many have said already, the loss of Creative Europe funding will be significant.  I have successfully applied for 12.5% of the budget for Messy Goes to Okido and many other productions in the past. We currently have an application underway for single project development funding for new series Flix, but presumably that will still go ahead for the meantime.

However, if like Norway, we become a European Economic Area (EEA) members then this will not affect us. Norway received Creative Europe funding to the tune of €17.2 million (US$19 million) between 2007 and 2015.

Reading through various newssheets from chartered accountants Kingston Smith there are a number of potential tax positives to Brexit. As Tim Stovold comments, the EU has always limited how generous we can be with our tax credits. Additionally, the simplification of the EIS and SEIS schemes would be a benefit too.

For producers, the currency swing for coproduction has an  immediate impact creating gaps in funding to projects that last week were fully funded. ‘Buying forward’ is going to be very difficult to judge right now and that is very much on my agenda for today. I think many will take a cooling off period to wait for the market to settle down. Eye Present luckily has only dollars coming in rather than pounds going out and so this actually gives us a lift, however much it saddens me to say so.

For distributors the dollar and euros coming in from licenses will create big forex gains, and Serious Lunch has large US contracts currently invoiced for 2016/2017. Where these fall over the company’s  year end, this creates tax implications, so it has to be played carefully in booking those values and if and/or when to convert those dollars to pound. So, again a short term gain.

When entering into coproductions our creatives will not be able to qualify for  EU points making this more difficult that it already is. In our studio we have people of every nationality and as the tax credit has created a huge surge in demand for CG artists, we have recruited from the EU a great deal. Skillset has been wonderful in helping us train up new people and their role is going to be very important if we have to stem the gap created by creatives unable to move freely, and in many cases leaving the UK.

The UK coproduces a great deal with Ireland and that may be where we feel the most change. So for our new project Flix, which is a copro with Ireland we will be studying what this means in detail, and will probably swing us in favour of Germany as the third partner country rather than France, because it is a more flexible model for a non-EU partner. The regulations of Baden Wurttemburg’s MFG fund are a lot less stringent than those of the CNC.

Overall I think it will have the affect of increasing our export/collaboration outside of Europe and will certainly reduce the number of overseas companies looking to buy up UK companies in the media sector. Ireland will be the most direct beneficiary as the only other English language country in the Union and I am sure will be expecting a big influx of people from the UK now.

Just as we were feeling the beneficial effects of the tax credit, being able to sit round the table with our European partners with long trousers on, we have just put our shorts back on. I am betting on the US and China for the growth of our companies as they will be attracted by the weak pound if it’s position levels off, and won’t be as concerned about free movement of talent as a European partner might be.

Whilst the period of uncertainty remains, we will be reaching out to our European cousins as much as possible through our Tomi Ungerer project Flix, who is the only dog in Miaow Town. Now why does that sound familiar?