This is a written version of the LeaderSpeak podcast, summarized for quick reading in a Q&A transcript format.

Interview with Neil Hatton, CEO of UK Screen Alliance

 

1. Vitrina: Could you introduce yourself and the UK Screen Alliance to our community, particularly what brought you to lead the organization?

Neil Hatton: I’ve been in film or TV for a very, very long time. My first day working in television was with the BBC, and that was in 1979. So I’ve been around a long time. But I’ve been in this job leading UK Screen Alliance for the last nine and a half years. We are the representative body for nearly 200 businesses in the UK, and those businesses will be either in visual effects, post-production, or in animation, or in related service sectors to those. Our primary purpose is to be their advocate. So my job is essentially pressing our government for changes to the business climate for the benefit of our members. And the last couple of years, we’ve had some good successes, and we are hopeful in the next few months of those successes really starting to pay off and to show increasing levels of business.

 

2. Vitrina: You have a rich career in the industry. Could you share a bit about your experience with the nonlinear editing revolution and your recent honor from King Charles?

Neil Hatton: Yeah, I mean, over the years, I mean, the start of my career was, you know, I was actually an engineer, but I soon moved into being a creative and worked my way up to being an editor. And in fact, I was one of the people who was at the forefront of the nonlinear editing revolution, being the first person to edit, use, well, use a nonlinear editor, was at the time was a Lightworks and use that to cut a long form documentary. And it was the first documentary that had been cut on a nonlinear editor in the UK. This is back in 1992, so it felt really quite pioneering at the time. Yeah, I was very honoured to receive an MBE in the New Year’s Honours list that King Charles gives out. It was a kind of almost out of body experience going to Windsor Castle to actually receive it from Prince William. So that was for my services to visual effects and animation. It was announced on New Year’s Eve.

 

3. Vitrina: The global film and television landscape has been a roller coaster since 2019, with shifts in production to Europe. How does UK Screen Alliance view these developments, especially considering the impact of COVID-19 and the recent strikes?

 

Neil Hatton: Well, it has been an absolute roller coaster since 2019. 2019 was the last sensible year, a year where we could make reasonable predictions. Since then, it’s been up and down and up and down. Obviously, very early on in 2020 when COVID hit, the visual effects industry had some momentum in the UK because obviously there was a lot of work that had already been shot that we could work on. But over the course of the early part of 2020, of course, that work started to run out as people had finished, had been, well, they weren’t allowed to shoot and therefore the raw materials weren’t coming through.

 

But the UK was very innovative in the way it coped with this, particularly, you know, the VFX industry. And this is true worldwide. It’s not just true of the UK. In the space of three to four weeks, know, in the UK, there was probably 10,000 people were converted to remote workers. There’s a big technology investment in doing that to make sure that, you know, everyone could be connected and could work with the high resolution material. So we actually recovered reasonably quickly from COVID, partly also because we got the shooting underway very quickly, because the industry came together and created various protocols which were agreed by the government and the health and safety executive that we could get back shooting very quickly. And therefore the raw material started to flow through into post-production and VFX.

 

There was a bit of a delay, but it started to come through. And of course, at that point, the industry was also at what we might call peak TV or peak streaming. This was the point where all of the streamers were competing for subscriber numbers. And as well as a kind of catch up effect of work that had been delayed due to COVID, there was also this real glut of content being produced unique content to the streamers so that they had exclusive content to attract subscribers. And so there was an enormous boost to the industry in 21, 22, but that all came to a very rapid end in 23. I think probably we’d come off the top of the peak sometime in 22, but everyone in VFX didn’t notice it because of the time lag. And eventually, whilst I don’t blame the writers and actors strike for the immense slump that we had, I think it made it all happen at once and probably deepened it slightly. But it was happening in the background without the writers and actors strike.

 

And then of course, it’s taken a very long time to get back up and running and get productions back going because the streamers have rebalanced their business models or are still in the process of rebalancing their business models. There was definitely a move for the streamers to be more profitable. Their backers were asking for that and less need for fresh eyeballs all the time. It was more about the profit, therefore less production as a result and maybe fewer projects but of better quality was the mantra. But also, of course, during the strike, the writers weren’t writing, whereas during COVID, they were writing. So the recovery was that much quicker.

 

4. Vitrina : You mentioned turning the “tap” right open for visual effects in the UK, but there’s still low pressure. What factors are influencing this pressure, and how does the UK measure itself against benchmarks like 2019?

 

Neil Hatton: Well, I think it’s the number of productions there that are available to work on. There are fewer productions being made currently by all of the major studios and all of the streaming services. We’re not having four Marvel movies a year at the moment, that kind of change. So it’s definitely less work around than there was in 2022. And I think we shouldn’t measure we shouldn’t use 2022 as a benchmark because it was exceptional. So, you know, we tend to benchmark against 2019 because we have good good figures for that. And I actually think we’re pretty close to where we were in 2020 in 2019 already with the springboard now to to go further with the increased tax credits that we’ve got in the UK.

 

5. Vitrina: Could you elaborate on how the UK’s tax credits for film and TV have evolved, particularly in addressing the “80% cap” anomaly for VFX and making the UK more competitive internationally?

 

Neil Hatton: Well, in the UK, the tax credits that we’ve had since 2008 have been very effective. And then we augmented those. That was a film tax credit. We augmented that tax credit in 2014 with the high-end television tax credits, adjusting at the right time to pick up on the growth of the streamers. And it was going extremely well for attracting inward investment filming into the UK.

 

The one thing about our tax credits are whilst you get a rebate of 25.5 % net, where it’s really attractive is because that can be applied to so much more cost centres than many other tax credits. For instance, we’re not constrained to just incentivising local labour. We’re happy to incentivise any work that’s happening in the UK. And we also apply the tax credit to above the line costs. So that’s very different to some other jurisdictions. And it also makes it very attractive because obviously the above the line costs are quite large numbers.

However, there was an anomaly in the way that tax credit was structured in that it was only applicable to 80 % of your global budget. So once you’d spent 80 % of your global budget in the UK, you capped out. And that meant that very often, portable parts of the production process, very often the visual effects would be taken to other territories in order to access the tax credits in those territories. So for instance, Montreal was incredibly attractive tax credits. And therefore, you know, we were seeing a lot of UK founded companies and UK headquartered companies, rather than investing in increasing their capacity in the UK, we’re investing in more capacity in Canada, Montreal particularly, some in Vancouver, but also increasing capacity in the Indian subcontinent as well.

 

And just to put a figure on how damaging this was for the UK’s VFX industry. It was growing, don’t get me wrong, was growing inside the UK, but not anywhere near like the kind of growth rates that we were seeing in Montreal. And over the course of three years, and we have some analysis for 2017 to 2019, there was on films that shot in the UK and claimed the tax credit for their filming in the UK, there was a billion pounds of visual effects work that was not done in the UK. So clearly there was an opportunity to capture more of that work, mostly in investment work, but some of it was runaway production as well. So we needed to change the tax credit. And so really since probably around 2019, that has been a major part of my life, has been campaigning to basically remove the 80 % cap with respect to the visual effects spend and also see if we can increase the rate to be more competitive internationally. And we actually achieved that last year. It was introduced, you’ve been able to claim it since the 1st of January this year. And it now receives a net rate of 29.25 % and it’s immune from the cap.

 

So that means if you can come to the UK, you can use our excellent studio facilities at places like Vinewood or Leavesden and spend as much as you like right the way up to the 80 % limit, but you still are able to bring your visual effects because it is immune from the cap. So whereas before you would tend to find you would have filming in the UK, VFX outside of the UK, all VFX in the UK and filming outside the UK, but rarely both. So now we’ve changed that and you can have both. And therefore we’re now starting to see a number of inquiries from producers about how they can access those tax credits and make use of the UK, has the capacity.

 

6. Vitrina: How has the domestic UK industry, including broadcasters like BBC, Channel 4, and ITV, been faring amidst the changes brought by streaming and the tax credit structure?

 

Neil Hatton: Well, I think that they’re realizing that streaming has much higher budgets than domestic TV. The BBC, over a number of years, has steadily been strangled with its budget. It’s not been keeping pace with inflation and therefore has been falling behind. And I think there is, at the moment, quite a number of difficulties in funding public service broadcast drama at the lower budget level. It would qualify for our tax credit, but we’re hearing lots of reports currently of shows which have, if you like, have had the editorial green light. They like the creative, but they’re not being green lit because they haven’t got, they’re not fully financed. And so that is an issue at the moment, certainly in scripted drama and you know there may well be some further changes to the tax credits. There are campaigns going on at the moment to look at shows that are under three million pound budget to see if there can be additional tax credit provided for those those kinds of shows.

 

It’s very much analogous to what has also happened with independent film. So whilst we were doing incredibly well on inward investment film and the very large Hollywood studios, for instance, were coming regularly to the UK to use our services, the local independent market was pretty stagnant and had been for a number of years. So to kind of solve that problem, we introduced a different tax credit. So really from since last year, for films that are budgeted at 15 million pounds and under, you can actually get on 80 % of your core production expenditure, you can get a rebate of 39.75%. So it’s a really attractive rebate. We all know it as the Independent Film Tax Credit. It’s actually not called that. It’s called the Limited Budget Enhancement to the Audiovisual Expenditure Credit, which is bit of a mouthful.  But it doesn’t only apply to independent film. So we’re actually seeing some of the large studios looking at what kind of film they could make for a budget that would fit into that tax credit and allow them to access it. So that, I think, is also an interesting point that I think we’re going to see some expansion in that lower budget level.

 

7. Vitrina: How would you map out the current volume and sources of work within the UK’s VFX industry, distinguishing between domestic and international, and the caliber of work?

 

Neil Hatton: I would say the overwhelming amount of it is inward investment and mostly from the US. That’s what the figures show. And a lot of that is very high quality work. So for instance, you’re looking at creature work, complex environments, that kind of stuff. Yes, of course, there’s a quantity of straightforward cleanup kind of work. But as you say, that’s very cost sensitive. And of course, there are parts of the world, India particularly, where the costs are much lower.  Incidentally, if you look at kind of what kind of work goes on across the world, the UK is pretty strong in all areas of visual effects, all of the disciplines of 3D, 2D, project supervision, we’re incredibly strong on that. And we are the second largest hub for previs as well. Where you see other parts of the world having more capacity, certainly India has more capacity in the preparation phases of rotoscoping and tracking, those kinds of things. But the danger here, danger there for those companies will be that those are the disciplines where AI is going to impact first. So I think, you know, certainly certain companies in India who specialized in being a kind of white label operation for outsourcing, that looks to me like a business model which they would need to pivot quite rapidly.

 

8. Vitrina: What are your members in the UK Screen Alliance most vocal about, beyond tax credits, and how are you addressing their concerns, especially regarding the workforce and technological advancements like machine learning and virtual production?

Neil Hatton: Well, obviously we need to see the work coming through, so people need to be in production. So we’re expecting that really anytime now from quarter three, quarter four and certainly into 2026. So that’s what they’re hoping for. Obviously to cope with that, you said people would have made investments. Yes, we brought on a lot of people into the business. And it was an uncomfortable phase, the size of that peak, because there wasn’t enough talent to go around at that point and people were being promoted very quickly, sometimes too quickly and beyond their capabilities. And of course, when the writer’s strike happened and everything stopped, there were a large number of layoffs. I mean, we’re probably talking about 40 % to the workforce. So it was a huge amount. But that’s not just peculiar to the UK. Just about everywhere had the same problem.

 

So at the moment, our aim will be to get back a lot of those people who’ve been quite underemployed for maybe 12, 18 months, get them back into the industry in what is a fast changing technological environment. So even though they may be relatively experienced, some of them, some of them will be extremely experienced. Things have changed, things have moved on. New things, particularly in the area of the use of machine learning. We tend to talk about machine learning rather than AI because we’ve been doing machine learning for a very long time. It’s not new, it’s not something that’s new to the visual effects. And so there are changes there and obviously new techniques using real-time engines and how that interacts with virtual production. So there are a lot of changes.

 

We’re just funding at the moment a new curriculum handbook for universities which was last updated about seven or eight years ago. And of course there, didn’t talk about remote working. He didn’t talk about real time. He certainly didn’t talk about AI and he didn’t talk about virtual production. So we’ve got to integrate all of those into this curriculum handle, which we’re gonna make as a free resource to universities so that they make making sure that they’re teaching graduates the right skills that the industry requires.

 

There’s all of those kind of aspects going on. And obviously, you know, just like many, many parts of the world, we’ve seen inflation in costs. And so particularly in energy costs, that was particularly acute in 2023. And of course, that then reduces margins. So really, what we need to see is a restoration of margins, particularly allowing us to do those more long-term strategic things such as staff development. It’s very tempting for producers to want to put every penny onto the screen in order to deliver the director’s vision within the budget. But within the line items that you see on a visual effects vendor’s invoice, there will be a contribution to staff development. And of course, that gets squeezed when budgets are tight. So we need those people at the top of the tree, those who are owning the intellectual property being created and are going to see the long-term returns for that, to also take a long-term view on staff development and make sure that there’s enough money flowing into the training of the next generation of visual effects artists so that we can continue to deliver the work that they want.

9. Vitrina: We’ve seen some significant changes, like the collapse of Technicolor. What’s the current trend regarding the launch of new facilities in the UK, consolidation within the VFX and post-production industries, and are AI companies seeking membership with UK Screen Alliance?

 

Neil Hatton: Yeah, I mean, we’ve seen, of course, another casualty of the kind of recession that we’ve seen was Jellyfish Pictures, a very good company, very different to Technicolor. I mean, Technicolor was an accident waiting to happen. It was just drowning in the debt. Whereas Jellyfish, I think we’re just unfortunate that they got caught in a downturn but when they were expanding and the work dried up. And so we’ve seen recently a relaunch of some of the people from Jellyfish have now opened a new company, not Jellyfish Pictures, but Jellyfish Effects. So that’s come back into the market.

But we’re also seeing a very interesting trend where International companies from Europe and from the USA are now looking at the UK as being their next base, where they’re going to open branches of their business. So an example of that would be Important Looking Pirates, which is a Swedish company. And they’ve now established a foothold in London. The Yard, which is a company from Paris, have also opened in London. And I’ve got a list of probably about half a dozen more companies, which I can’t tell you at the moment, but they’re looking at establishing presence in the UK. And it’s very much analogous to what was going on around about 2016, where UK companies were establishing a presence in Montreal. Because you need to be where your clients want you to be. You know, we were getting conversations such as, like your creativity, we think you’re really innovative, you’ve got the capacity, but we need the Canadian tax credit. So that means, you know, companies got to go there and open. Now we’re seeing the reverse of that. We’re seeing people saying, you know, we want to make use of the UK tax credit, so therefore, you need to open in London or somewhere in the UK.

Very recently, Halon Entertainment from America opened in Glasgow, assisted by some grants from Scottish Enterprise, some public money to open a 250 seat studio. So we’re seeing those kinds of movements. So it’s not just about inward investment of bringing work into the UK. It’s also about foreign direct investment of establishing businesses in the UK as well.

We haven’t yet seen an AI company approach us. We would be very open to them coming on board, maybe not as members, but sometimes as supporting members, sponsors or something like that. Of course, Metaphysic, I think, was brought work by part of Prime Focus. So they are related to DNEG and therefore sort of related to our membership in that way.

But yes, we’re seeing the expansion that we’re seeing at the moment is more in the kind of mid to low tier sites companies. That’s where we’re seeing more new companies being established. In post-production, we are seeing some consolidation. Post-production has been very tough in the UK, far tougher than visual effects, partly because of lack of budgets within the public service broadcasters. Not just the BBC, but ITV and Channel 4 as well. And that has affected not just scripted, but also factual television as well. And so, unfortunately, we don’t have a tax credit for factual television, so that’s not going to come to the rescue. So that situation still looks quite bleak, I have to say. Companies are surviving because they’ve slimmed down. In some cases, companies have gone into administration and then come out by getting rid of a lot of debt and therefore continue to trade. And there has been a number of consolidations with companies joining forces as a result of that.

 

10. Vitrina: What is your short-term and long-term outlook for the UK’s film, VFX, and animation industries, considering the new incentives and potential cash programs?

Neil Hatton: Yes, there is some of that and the BFI does have a number of funds to do that kind of thing. We’ve also seen a regional or a national rebate in Scotland. So Creative Scotland have introduced what they call Project Post, which is about a five to one investment in basically a cash rebate on your post-production costs in Scotland. So very interesting and that is completely separate to the national tax credit and can be stacked on top of it. So that looks very promising. It’s going to be around for a little while, not it’s has it is time limited, but there is a reasonable horizon for that.

And I think also, you know, to to look at a different kind of market, the animation companies. We now have an increased tax credit for animation, now 29.25%. And that is applicable to both TV and film animation. But animation can also make use of the independent film tax credit under 15 million. So one of the things that we are starting to see now is quite a strong pivot of animation companies away from TV animation where the budgets are very difficult to get and the commissions are very difficult to get, pivoting towards that kind of lower budget feature animation up to 15 million pounds to make sure they can use the independent film tax credit. And that’s starting to have some momentum about it. So I think we’re going to see some growth there.

Of course, we’ve got some very excellent companies in the UK, Aardman being one. So, you know, we’re always seeing good work from them. And I think they hit their, I think it’s their 50th anniversary next year. That’s a huge achievement for that company. So I think, you know, all in all, things are looking very interesting.  We’ve got a new survey coming from the British Film Institute. There will be an update to the Screen Business Report, which was last published in 2021. This will be published probably, I’m guessing we may be into early 2026 before it gets published. And that will give us some really rich data on the years up to 2023, maybe a little of 2024. So it is a bit retrospective. And it also will be looking at some of the worst years in the fact that that’s the point where the strike was happening. We’ll also chronicle that massive peak that we’ve seen. So what we really need is some more real time data on where things are going.

And I note that Joseph Bell, he’s going to be publishing his VFX Atlas very soon for 2025. We’re helping sponsor. And that will provide us with much closer to some real-time data on the growth of the industry. I mean, it’s using the headcount number of workers as a proxy for activity. But that will give us some early indications of where the companies are growing in terms of their headcount. And we’ll be able to see that kind of data within three months of it occurring. So, you know, we’ll be watching that very closely to see how that data shapes up.