MEDIA CFO — Episode 010 — Nigel Burke talks to Tobias Jaeger about becoming a leading media & entertainment accountant in the United Kingdom and international UK tax advisor
We sat down with Saffery Champness partner Nigel Burke to talk to him about how he got started as an accountant in Ireland, learned the entertainment business first as an accountant specialized in music and tours and a subsequently moved to film and television to become one of the UK’s leading tax experts for media & entertainment.
Nigel started his career in accounting nearly 30 years ago in Ireland and worked for firms like Godfrey Allan and RSM Tenon. Today he leads Saffery Champness’ financial, accounting, audit, and taxation advice for media and entertainment clients, ranging from independent production companies to major studios. Over the last three decades, Nigel has built an expertise and network that makes him one of the leading advisors on tax structured film and TV finance and tax credits in the UK, as well as all aspects of corporate finance needs of media and entertainment clients. He’s a frequent lecturer and speaker on all these subjects and continues to be a trusted partner of finance managers and CFOs on both sides of the Atlantic.
“Really our mantra, even among our staff, is 100% right, 100% of the time. Then you don’t wake up in the morning sweating about a risk you took yesterday or the day before, because it should be all taken care of. It should be absolutely fine. And that’s kind of how we’ve operated for years. If it’s risky, we tend to shy away from it. If it’s reputationally damaging, we don’t go near it. There’s lots of business out there for everyone. We just don’t need the bit that creates problems.”
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Tobias Jaeger: Nigel, welcome to the program.
Nigel Burke: Thank you, Tobias.
TJ: Such a pleasure having you. I’m really excited to speak with you, because obviously, you’ve been in the industry for a long time, and can’t wait to get your take on a couple of things and hear about the journey, so maybe that’s a good place to start. How did you get here? What was your path?
NB: Well, thank you for having me. My path to the industry was probably a little bit like most people actually. Non-customary I would say. I trained in a small accounting firm in Ireland in Kilkenny. My early training was very much dealing with farmers, carpet shows, abattoirs, corner shops, you name it.
TJ: It’s a wee bit less glamorous.
NB: Indeed, indeed. But a very good place to learn the basics and the principles of tax and accounting. I did that for a couple of years, got a little bit bored. Small town, some small mentalities. So moved to London. My first job in London actually was with a firm called Godfrey Alan, which is a media firm, and that was my first exposure to the media business, and luckily my first job was looking after the ‘Three Tenors’, so at the time it was Pavarotti, Domingo, and Carreras doing a world tour, and luckily I managed to blag my way onto helping to look after their world tour, which is an extraordinary gig. They were obviously very successful tours or very successful gigs for them. Lots of dollars involved. And they have very complicated tax arrangements to put in place. They did London, Stockholm, Japan, a number of different territories around the world, all of which had different tax consequences for the tour. We were effectively acting for the German concert promoter, a guy called Matthias Hoffmann. But it was a great leap into the media world and on an international basis for me. Having come from a small town in Ireland, I thought this was just wonderful. Following that, I did a lot of work in the music industry, and then, fortunately, was given the opportunity to move around a little bit within the same firm. I spent a number of years doing corporate finance work, which ultimately led me into film, because at the time we had a very complicated arrangement, like sale and leaseback type arrangement to help finance films, a bit like you have in Germany with the old German tax schemes. No longer there, of course. But within that, there was operations and there was schemes. It was a very corporate finance kind of structured offering. I managed to do a lot of work for some of the US studios, in terms of honing their sale and leaseback arrangements and make them some money. But I love the industry. I love film. I don’t actually watch film or TV that much, but I do love the mechanics of it. That was my early introduction to media.
TJ: It sounds like pretty much when you took over the accounting for the ‘Three Tenors’, you had to learn the business overnight and hit the ground running. How did you manage that?
NB: Indeed. I mean, you also had to have a very thick skin, because the German concert promoter didn’t suffer fools kindly, I have to say. He was quite a tough cookie. But my experience of life is most people are very helpful, and if you ask people to help, they will help, so you can learn a lot as you go along if you ask. If you don’t ask and make mistakes, people don’t like it. But you can certainly ask and learn.
TJ: That was your first job combining your expertise of tax and financial structures and entertainment. Did you find that as you were moving along, like first tours, music, film, television, that there are some correlations there, or is it very different from each other, although it’s always perceived to be the same industry, as like, “Oh, that’s entertainment?”
NB: I think there are similarities across all the sectors within media and entertainment, actually. Most of the time I think people want professional advisors that are solution-focused as opposed to process-focused. A lot of accountants particularly get labeled with, “Well they’re process guys. They do accounts, audit, and tax, and that’s a process. And as long as they do that, it’s fine.” But actually, what most people are missing out is the opportunity then… When you deal with a lot of those clients, you learn a lot from them, and to be able to pass on that information and the benefit of your experience to new clients is invaluable in my view, and that’s where I think someone like me can add value to clients as opposed to reinventing the wheel every time with each individual new client you have.
TJ: I mean obviously it’s a very creative industry, and taxation and accounting can be perceived as being somewhat dry. How did you bridge the perceptive gap of when you have a client that’s a little bit more on the creative side?
NB: I don’t think that’s changed actually, and I wouldn’t say I’m the life and soul of the party by any means. But I think particularly now, the industry’s moving forward very, very quickly, and new structures are developing and new patterns of behavior are merging. I think you need to be open to view those as positive, and try and keep on top of them as best you can. I think accountants and auditors particularly have a history of, “If we did it last year, let’s do it again this year.” We don’t have much room for that these days in the practice. I mean you have to look forward. Success can breed laziness. If you’re doing very well, you tend to take your eye off the ball a little bit. So it’s important to keep facing forward, because I don’t know where the industry will be in 10 years’ time, and I don’t know where I’ll be either to be honest, but-
TJ: Maybe in 10 months’ time at the moment.
NB: Precisely. But it’s moving at a pace and it’s important to keep on top of it if you can, and just be open to change, and embrace change. It is one of the things with the new businesses and TV particularly, where they’re forcing a change in the agenda, they’re changing the business model slightly from what was there before, none of which is detrimental I believe, but people just need to be aware that the model is changing and just keep on top of it I think.
TJ: You mentioned the new models and obviously new entrants, brand new companies like Netflix and so on.
NB: Little companies.
TJ: Startups, basically. How has that affected your work or also what you see from clients you work with? Has that changed the rules of the game, or has it just expanded the game? What’s your take on that?
“Following that, I did a lot of work in the music industry, and then, fortunately, was given the opportunity to move around a little bit within the same firm. I managed to do a lot of work for some of the US studios, in terms of honing their sale and leaseback arrangements and make them some money. But I love the industry. I love film. I don’t actually watch film or TV that much, but I do love the mechanics of it. That was my early introduction to media.”
NB: For us, and we operate in a very little microcosm of the wider industry, which is accounting, tax, and finance advice, so I think for us it’s just expanded the amount of work that’s available for us to do, and expanded the number of clients available to us. I think for the production community, it has changed the environment a little bit, particularly with these companies, Netflix included… They tend to acquire all the rights. UK producers particularly will not end up holding onto the IP in the TV projects they produce. They get a very healthy fee for doing the production work, but effectively they end up being guns for hire on those particular shows. I think the industry will evolve a little bit further, where some of the more successful TV producers particularly will try and hang on to some IP because that’s ultimately what’s sustainable. A good friend of mine a number of years ago worked for a chip company, so he went to lots of technology festivals and conventions and stuff, and I didn’t understand a word he said really. It was all very cloud and all this kind of stuff. But the one analogy he did provide was if you imagined more of like a triangle, and it has three points, and those three points are access to money, access to market and control of IP. If you’re setting up a new business, you want to have at least one of those corners. You want to operate in one of those corners. If you’re in the middle, and you’re a gun for hire, ultimately you will get beaten up on price, you’ll be substituted for someone else, so the middle is now a good place to be. I think we will find with producers, they will happily produce in the current environment for people like Netflix and Amazon and Apple. But ultimately they will realize the value of holding the IP or holding some of the IP, and they may move back to trying to hang onto a little bit of it actually. I think that will be quite an important change from where we are today.
TJ: I think that’s something that has made the UK industry always quite unique, I guess, that the rights ownership has always been super strong in this country, as opposed to neighbors in Europe or also the US, where I guess it’s kind of like half and half. But if you were a production company, and you created something, at least you always had some sort of stake in it. Just seeing that that isn’t the case anymore at all, that literally everyone’s a service producer for Netflix, that’s quite dramatic.
“Even years ago maybe a manager, a very good manager might’ve been able to do that for you or something, but now the world is so complicated and sophisticated you need teams of people really that are specialist in the media, specialist in tax and financing and touring and all that kind of stuff. So it’s really the blend of people. If you have the blend ironed out, you’ll be absolutely fine. So people that are good at what they do, operating in a team, and the team works together as a whole, that’s a good thing. And very often that’s a successful way to run a business if you have the blend right. Sometimes it takes a bit of time to get that, but that’s the holy grail, I think.”
NB: It is, but it isn’t all negative either. These are positioned as they are. Lots of these producers will be getting their name made. Not necessarily putting up their own financing, not having their own money at risk. Producing very good shows, which of course they are synonymous with. So in many respects, it isn’t bad. It’s just a shift that might happen in the future. But I think most producers in the UK would happily produce for Amazon and Netflix and, Apple because it allows them to develop their production capabilities and it allows them to keep their production crews working. It allows them to create relationships with people that they wouldn’t otherwise make as strong relationships with. I think if they do a number of those kinds of shows where they’re gun for hire, and then occasionally out of whatever money they have left, they can do one of their own shows, then that’s maybe a model for the future for them. But it’s a good time for… Everyone is very busy. There’s pretty much full employment in the UK in the creative sector. And I don’t think anyone’s complaining. Long may it last, I think.
TJ: With all these things going on, and different clients, how does an average day, if there’s a thing like that, in the life of Nigel look like?
NB: There isn’t an average day. Going back to what I said earlier, I think we’re constantly looking forward rather than looking at the present. We’ve recently just acquired a film and TV team in Ireland. We see the UK as reasonably full now in terms of production capacity. Ireland we have high hopes for. I think it’s a very similar territory, a very good incentive. If the UK is full, we see producers thinking, “Well perhaps Ireland is an option for us,” and we’d like to be able to help them make that choice. That was a pleasant distraction for the last six to nine months, making sure that deal happened. But with the addition of the Irish office, for instance, we have 60 people who work in the film and television and video game space, looking after incentives. If you come into the office and your door is not shut, you will face a constant stream of people coming in and asking you questions. It’s a half a day answering questions, and half day of doing some client work, effectively.
“We’re very fortunate in the UK to have a very good tax incentive system for production in the UK. Our own system has been working very, very well for more than 10 years now on feature films, slightly less than that on television. But the creative industries are a very important industry for the UK. Historically, the UK has punched above its weight in the creative sector, whether it’s music, film or television, and we’ve come under a lot of pressure recently and for a number of years.”
TJ: How do you personally manage… not get absorbed by, as you said, people coming into the office, beyond just shutting the door, of course. How do you go about, I guess, prioritizing or just managing the workload?
NB: Badly. I think the reality is we have an open door policy here, and that I think will remain. So if people want to ask a question, they ask a question. If I need to stay a few hours in the evening extra to do some bits that I didn’t get done, then that’s how it’ll happen actually. I prefer that than have a closed-door policy and people not be able to access the information. I mean most of the time people want to have a quick question and it’s a quick answer, and I would prefer to do that rather than have them reinvent the wheel that we already know the answer to, and waste a lot of time doing that. So I think open door for us is a good way to continue to work, and then if you have to fill in the gaps afterwards with a few hours in the evening or in the morning or whatever, that’s fine.
TJ: Which kind of brings me to a point. I know you’re working a lot with clients in the US or US clients that are doing business here. What are your observations of how different the systems are and the mindsets that people come here with from the States and vice-versa? When you go there, you notice like, “Oh, that’s interesting,” how they think about stuff differently or approach it differently?
NB: It’s a tricky question, actually. I think the mindset of both Americans or UK or European producers is getting much closer actually, and that, of course, is partly because the industry is becoming much more internationalized and shows are traveling a little bit better, particularly UK shows than historically. In the early knockings of my travels to Los Angeles particularly, I loved it. Always a very busy trip. We still do a couple of weeks at a time, meeting a lot of our clients on the west coast, and it’s a long day, and surrounded by long evenings and mornings, trying to deal with UK stuff while you’re there. But I did, and still do love the energy that Americans have. Very little is downside in America. It’s always seen as an opportunity for change. They’re very opportunistic, and they embrace the future as opposed to the past.
NB: I always come back from Los Angeles really energized, albeit absolutely cream crackered tired, but it’s always a good trip for us. Historically though, I think the way the American approached the market was always very different to the way that UK producers approached it. I would say American producers approached it on a pull basis. They would identify a market niche, so a television show that they thought would do very well, or a film they thought would be something that would do very well in the marketplace, and then they would go about sending the team to produce it to fill that gap. Historically, UK producers approached it completely the other way, which was let’s find a story that we think has to be told, produce it, and then try and find a market to sell it into, which of course had patchy success very often. I think these days people are much more aware that they are in an industry that they have to observe the market needs and the gaps in the market, and produce accordingly, and not just produce for the sake of it actually. So I think there is a shift in behavior, and that is I think the rest of the world following the US lead.
“I think we’re a very small cog in the big machine of entertainment, and it would be slightly naïve of me to think that accountants and tax advisors have any great sway in the wider industry. We perform a function. People like the way we do it. People continue to use us. But it does give us a little window into the wider industry what people are concerned about, what they’re doing. I think the industry will be fluid for a long time. It is a very international business. People will come and go. The demand for entertainment is doing nothing other than skyrocketing.”
TJ: Do you feel that on that note, producers’ ambitions have changed, going away from film to television, because that’s where the money is right now, that everyone’s in television now, and there’s no more film?
NB: Historically, television is more sustainable, particularly with… Until the advent of Netflix, et cetera, producers tended to hold onto a few of the rights, so they could maybe get a broadcaster to take domestic UK rights for them, and then we have the rest of the world themselves to sell. But feature film, in my view, is increasingly becoming event entertainment. Large budgets, top-notch talent, great stories. It’s a big, extravagant event, which is absolutely wonderful. I do remember the days of a feature film being 90 minutes long. Those days are long gone. I think feature films are becoming event entertainment. You make a date in your diary, you carve out the time, and you go to the cinema to watch a great movie. TV, on the other hand, is different. I think you consume TV in bite-size pieces, and you get… I assume TV writers have much more leeway to develop characters, to develop storylines, because it’s a longer, a longer period of time, and they have more interaction with the consumer, the audience, and they can develop things slowly, and have people buy into the characters that they’re portraying. But TV is wonderful because you can precisely consume it in bite-size pieces. If you travel by train to work, you can watch an episode, you can pick up the next episode on the way home. I think that’s why TV is wonderful at the moment, and there are some great storylines on TV, some great TV shows.
TJ: You’re based in London, and then you mentioned your trips to Los Angeles. That’s, of course, where the attention of the industry always gravitates to. How do you manage to not get absorbed by that, and stay focused on what’s happening everywhere, because obviously, you’re working with people everywhere?
NB: Yes. But again, I think we’re a very small cog in the big machine of entertainment, and it would be slightly naïve of me to think that accountants and tax advisors have any great sway in the wider industry. We perform a function. People like the way we do it. People continue to use us. But it does give us a little window into the wider industry what people are concerned about, what they’re doing. I think the industry will be fluid for a long time. It is a very international business. People will come and go. The demand for entertainment is doing nothing other than skyrocketing. The population of viewing audiences are growing throughout the world. And people will find a way to fill that need. It is a demand and supply kind of marketplace, and if there’s a demand someone will fill the need. We’re very fortunate in the UK to have a very good tax incentive system for production in the UK. Our own system has been working very, very well for more than 10 years now on feature films, slightly less than that on television. But the creative industries are a very important industry for the UK. Historically, the UK has punched above its weight in the creative sector, whether it’s music, film or television, and we’ve come under a lot of pressure recently and for a number of years. The UK doesn’t manufacture that much anymore, or if it does it’s very high tech manufacturing. It’s not a heavy industry as it used to be years ago. And our government sees that the creative sector is one area that the UK should be punching above its weight, and we can do very well internationally. Our creative incentives are working very well to promote production of films, television, video games, et cetera in the UK, and it generates a lot of GDP in the UK. £1 of incentive for film yields about £7.5 of GDP, or GVA as they call it now, gross value added. It encourages activity in the sector. You just need to look at all the territories around the world that have incentives. People want production business to come-
TJ: Almost everyone.
NB: Almost everyone, absolutely.
TJ: It always feels a bit like an arms race.
“Independent film producers have my absolute admiration because they’re always working with a patchwork quilt of a little bit of money from here, match that with something else. It’s smoke and mirrors very often, because sometimes they have to bring it all together at the same time, and convince people they have the money in the first place, and very often they don’t. They do an incredible job doing that actually, and they’re incredibly skilled to be able to do that. There isn’t an easy source of independent finance at the moment, and that is something… I suspect the market may change, but if you think about middle tier, middle budget independent films, they just… Certainly in the UK, they’re few and far between now.”
NB: It is, it is. I think the mistake lots of countries make is you need a sophisticated tax system to extract as much value as you can from having that activity take place. I’m not suggesting you should be taxing everyone right, left and center, but you need a strong payroll tax system so that you can extract taxes from the people who are employed. You need a strong VAT system that means that VAT is captured on sales of goods and services. The UK has a very sophisticated tax system, which is great for us as accountants obviously as well.
TJ: You mentioned the incentives, and I would love to talk to you about that a little more on the production side, but also, of course, one scheme that everyone that comes to the UK has always heard of, but when you talk to them you feel like very few people understand it, EIS. Changing a reputation, I guess, or a perception. For those who are listening that don’t know it, can you explain what EIS is real quick?
NB: EIS is a government tax incentive scheme, introduced by the government, called the Enterprise Investment Scheme. Originally, I think it was introduced back in 1997, ’98, that neck of the woods, designed to encourage private individuals to subscribe for shares in startup risky companies. There was a list of approved trades. Those companies could do… It was very much research and development, pharmaceuticals, computer technology stuff, just to try and encourage investors in those sectors. Otherwise it wouldn’t be attractive to people. The design of the scheme was that if you invested £100 in some new shares, that the government would give you £20 back as a tax incentive, and equally then if you made some money on those shares, achieving a capital gain, that that capital gain would be tax-free. Over the years, the scheme has changed, has become more attractive until quite recently, and the number of industries that you could apply it to was broadened to include film, television production. It isn’t a sticking plaster, though. The economics are still such that your investors can still lose money. Applied in its purest form, they can still lose their money. They will only lose a percentage of it, but they’ll still lose money. Lots of people misconceive the EIS to be free money. It isn’t. Equally, because it involves investors subscribing for shares, they completely neglect the other factors you have to take into account, which is you have other shareholders in your company, and how do you manage that? And how do you get on with those people? If I’ve learned one thing in life, and I have invested in some stupid companies as well, is invest in the people that run the companies, not the company itself, because if they’re very good people, even if the company has some troubled times, good people can turn it around. They can change things, they can adapt and they can move along. So always look at the people that you’re investing with, I suppose. And it goes for the people that want to raise EIS money as well. What are these investors like? Do they bring something more than money? If they bring experience? Could they act as business angels? Could they advise the company or open access to new markets or new distribution channels for them? On top of the money?
TJ: Bring a thick address book.
NB: Absolutely. I think people just perceive it as a free money situation, and it just isn’t. I’ve advised a lot on EIS. It has gotten more difficult recently because of a tightening of the rules. But people just don’t really want to invest in it. They always invest in the piece that gets the money, and the rest of it they think will take care of itself afterwards, and it doesn’t really. The other point I think people need to think about is the exit point. I mean the tax relief and the money arrives on the entry point, but if you want to exit those investors at some point, and the investors likewise would want an exit so they have some kind of gain if it’s possible, you need a mechanism to buy their shares back off them, or have someone else buy them. And again that’s given very little thought at the outset. People just want to get the money straight away. In the UK, it was a significant part of private investment, not just in film and television but in other businesses as well, so restaurants could access it to raise money, pharmaceuticals, all the usual industries. There was a list of non-qualifying sectors, which included lending, and that’s where the lines got slightly blurred in the film and television business, because lots of people raised EIS money on the back of presale contracts, and to an extent it was collateralized, and our tax authorities ultimately decided well that’s not really at risk, it’s not really what it was designed for, it’s not the intention. And they’ve, in recent years, outlawed collateralized EIS investments. The European Union have also, because it’s a form of state aid, they’ve also had a look at EIS and didn’t like the way it was operating in the UK, because certainly in lots of cases it was applied to single project financing. So that might’ve been developing a drug or producing a particular film. The European Union said it gives UK companies an unfair advantage against the equivalent European companies, and they wanted it restricted to companies where there was an ambition to create a long-term sustainable business. So that effectively outlawed EIS for single picture financing or single TV program financing. And now you can only use it if you invest in the main trading company, which will produce lots of films. That makes it slightly less attractive to investors because they don’t quite know what they’re investing in, and so it’s become a little bit more difficult to raise money. But it still exists. It’s still there. The other point about it is the tax relief piece I think is very attractive, but raising money in itself is complicated, and there’s lots of regulation around that in the UK, so the FCA regulate how you can raise money, and there are regulations about how you approach private individuals to invest. What a lot of people find with EIS is that that piece of the regulations is quite expensive and time-consuming, and it takes a lot of work to make sure you abide by the FCA rules, even before you get in front of the investors, so that sometimes frightens people off. And that’s why what we call aggregators have done very well, so people that raise money en masse from a wide group of investors, because they can take care of the FCA rules in one fell swoop and then just apply it on a cookie cutter basis across lots of fundraisings. But yeah, it still exists. It’s still very lucrative. But people just underestimate how time-consuming and difficult it is.
“Years ago, I looked after a lot of bands. I looked after their accounting and tax stuff. One band in particular, I won’t mention them, but I was managing their affairs a little bit on the creative side but mainly on the financial side, and they had received a very large record advance, which they were thrilled with, a publishing advance on top. They were touring the UK quite a bit, and they decided they would buy an RV, like a camper van, to go touring around the UK in. They also smoked a lot of weed, as these people do. Within a couple of days of buying the RV, they phoned me in the middle of the night and said, “Nigel, we can’t remember where we’ve parked the RV. We’ve lost it.” And it never surfaced again. The RV disappeared.”
TJ: Has it performed better or worse in other industries than film and television, or do you see the same problems everywhere. You mention like restaurants and other, like R&D tech companies.
NB: I guess the fundamentals of it are always going to be that if you need EIS tax relief to get investors to subscribe, then you’re already in a very risky category anyway. I suspect EIS investors haven’t fared any worse or any better in film than they have in any other sector actually.
TJ: Do you foresee any more changes that the system could impact film or television differently? Because obviously, one part you just mentioned is approaching private individuals for investment is always a bit dicey if you’re doing it by the book. It is quite tricky. However, I feel like especially film producers, they’re always very crafty when it comes to finding money and exploiting schemes somewhere.
NB: Absolutely. Independent film producers have my absolute admiration because they’re always working with a patchwork quilt of a little bit of money from here, match that with something else. It’s smoke and mirrors very often, because sometimes they have to bring it all together at the same time, and convince people they have the money in the first place, and very often they don’t. They do an incredible job doing that actually, and they’re incredibly skilled to be able to do that. There isn’t an easy source of independent finance at the moment, and that is something… I suspect the market may change, but if you think about middle tier, middle budget independent films, they just… Certainly in the UK, they’re few and far between now. It is partly because the financing sources are difficult. Feature film historically has proven very difficult for independent producers to make long-term money out of. The whole exhibit process and the PNA required to make a successful theatrical run means that very often, even if you do get a successful theatrical run, there’s not a lot of money left in the pot for the producer. I think feature film and a lot of independent feature film producers are looking at maybe TV films or looking at TV for that reason. The finance is slightly easier. You have a better chance of getting it aired. At least you can see the fruits of your labor at some point. But yeah, independent producers have a very difficult job. They are all things to all people in terms of getting a show put together, and I admire them greatly. But they have a very difficult job, and I wouldn’t do it for the world I have to say.
TJ: You mentioned the fundraising process and I know you were involved in fundraising for smaller and bigger transactions. Do you feel there is a fundamental difference between the size of the transaction, or is it almost always the same effort. It’s just the number’s different?
NB: I think the fundamentals, the principles stay exactly the same, always. The amount of effort people are willing to put into it, and very often the amount of cost that people are willing to incur is driven by the size. So people will tend to try and shortcut regulations and things they should be looking at just because if they’re raising a small amount of money, it becomes uneconomic, and while that’s a decision that people will make, from a professional point of view, from my side, my advice would always be don’t ignore any of the regulations. You have to abide by them because it leaves you open to a potential lawsuit from an investor if you don’t abide by the regulations and the investor knows you haven’t done so. My business is… Really our mantra, even among our staff, is 100% right, 100% of the time. Then you don’t wake up in the morning sweating about a risk you took yesterday or the day before, because it should be all taken care of. It should be absolutely fine. And that’s kind of how we’ve operated for years. If it’s risky, we tend to shy away from it. If it’s reputationally damaging, we don’t go near it. There’s lots of business out there for everyone. We just don’t need the bit that creates problems.
TJ: Exactly. Do you feel the needs of clients in the different spaces within the entertainment industry are different whether you’re in music or film or TV? Are they similar, or are their needs different?
“We have a good blend of what the inward investment people want and what the domestic producers want. Most of the time they want the same thing. When it comes to HMRC or Treasury trying to decide what is the best approach in terms of changing legislation or amending legislation to enhance the industry, we have a very strong foothold with all camps, ad they tend to run things by us in the first place. Or if we believe there’s an anomaly being created or we’re being disadvantaged because our system is not working properly, we will approach them directly and say, “Look, this is a problem for us. Other territories have a better incentive,” or it’s creating suboptimal behavior because of this situation in our legislation.”
NB: I think everyone is getting more financially sophisticated. Years ago, I looked after a lot of bands. I looked after their accounting and tax stuff. One band in particular, I won’t mention them, but I was managing their affairs a little bit on the creative side but mainly on the financial side, and they had received a very large record advance, which they were thrilled with, a publishing advance on top. They were touring the UK quite a bit, and they decided they would buy an RV, like a camper van, to go touring around the UK in. They also smoked a lot of weed, as these people do. Within a couple of days of buying the RV, they phoned me in the middle of the night and said, “Nigel, we can’t remember where we’ve parked the RV. We’ve lost it.” And it never surfaced again. The RV disappeared.
TJ: No way.
NB: They parked it somewhere and they couldn’t remember.
TJ: “You needed to write it off”.
NB: Indeed. It was a tax write-off immediately. I think people needed a lot of help, and very often you want to let the creatives be creative and not have them distracted by practicals and financials that someone else can take care of. Let them do their best at what they’re very good at. And there’s little point in trying to make a square peg fit into a round hole. So get people that are good at what they do, and have them do it, and don’t try and change people. I think over the years, producers were the same. The creative producers are very much focused on the talent, the story, maybe the quality of the production, and if they can’t do it themselves, they need to surround themselves now with financially astute people, or people who are able to run the operations. I think all the industries are changing, and everyone is much more aware of… Even if they can’t do those things themselves, they’re aware of where they can find people that can help them do it, so find accountants and lawyers that can help them with that, and business managers to help them with practicalities and stuff. I think it’s much easier for people to find people. Whether they trust them or not is a different thing, and that’s an element that creeps into all these things as well. But certainly, it’s easier for people to find people to help with managing their overall business, and not just the creative piece.
TJ: I think for creative clients, it’s always a lot more difficult to stay compliant with rules and regulations that they might not even know about but that obviously exist. What you just said, of finding people that can help them, seems to be almost the only healthy path to navigate the two extremes of artist and 100% financial person or…
NB: 100%. Even years ago maybe a manager, a very good manager might’ve been able to do that for you or something, but now the world is so complicated and sophisticated you need teams of people really that are specialist in the media, specialist in tax and financing and touring and all that kind of stuff. So it’s really the blend of people. If you have the blend ironed out, you’ll be absolutely fine. So people that are good at what they do, operating in a team, and the team works together as a whole, that’s a good thing. And very often that’s a successful way to run a business if you have the blend right. Sometimes it takes a bit of time to get that, but that’s the holy grail, I think.
TJ: If you think back of the very first job you had with the Three Tenors, how many people would you need for that today to do the exact same job that you did alone or with someone else?
NB: There was a number of us in the office looking at it. There was lots of people in terms of facilitating that tour happening. There was hundreds of people, and putting on a concert of that scale around the world in various different territories is a huge job, and it would be today as well actually. It would take a lot of people.
TJ: But would it be more complex today to do the exact same thing? Or because nowadays there’s more cooperation or streamlined regulation, would it even it out?
NB: I’d say it’s about the same actually. I can’t see what economies or efficiencies would’ve occurred in the last couple of years. I mean maybe something like that these days would probably end up having a large corporate sponsor of some sort, who would probably lend a lot of assistance to it. A Three Tenors concert brought to you by-
NB: Yeah, but I suspect it does still take a lot of manpower. There’s no substitute for manpower in those kind of situations, I think.
TJ: You mentioned the sophisticated tax system in the UK. I feel like almost every jurisdiction has become maybe not more sophisticated, but definitely more complex, so I’m always wondering about the technicalities or the mechanics of something like that going down and how that is affected by taxation, regulation of any kind really.
NB: I mean I think when you’re looking broadly across a multi-jurisdictional event like that, or even a film, you need to employ local advisors. I mean there’s no substitute for being on the ground in a territory, knowing how the legislation works, what the practicalities are. As much as you might have someone sitting over the top of that, you still entirely need to use local people. I think from our point of view, we are UK-focused. We have a very strong international aspect to our business. We understand how that works. But even in those cases, we still defer or employ or engage local tax experts as well to reconfirm what we think, because there’s always nuances that you won’t know or won’t be able to assess remotely. And if you want to be 100% right 100% of the time, then you have to take measures to ensure that’s the case, and just assuming you know something from 1000 miles away, that’s where you come unstuck I think. Even when we look at advising film productions moving from territory to territory, we will always make sure that local advice is sought as well.
TJ: You just mentioned legislation. I know that you’re also involved in helping to shape new legislation by, I guess, giving opinions. How does something like that work? Do you feel the input you and maybe other taxation colleagues give is heard or absorbed? What’s your take on that?
NB: Yeah, I think so. I think we were very fortunate to act for a lot of west coast producers, so some of the high profile producers that people want to attract to their territories. We also act for a lot of independent producers in the UK. We have a good blend of what the inward investment people want and what the domestic producers want. Most of the time they want the same thing. When it comes to HMRC or Treasury trying to decide what is the best approach in terms of changing legislation or amending legislation to enhance the industry, we have a very strong foothold with all camps, ad they tend to run things by us in the first place. Or if we believe there’s an anomaly being created or we’re being disadvantaged because our system is not working properly, we will approach them directly and say, “Look, this is a problem for us. Other territories have a better incentive,” or it’s creating suboptimal behavior because of this situation in our legislation. Can we change it? And they do entirely listen. Going back to the point I made earlier, it’s a very important sector for the UK, and it yields a lot of GDP for the UK. It’s an area where internationally we’re very strong. At the moment, and previous governments have been the same. They want to support this sector. It’s a great export for us. It puts the UK on the map for tourism. It reinforces the UK culture. So if it doesn’t work then they’re interested in trying to fix it. And of course, it is sort of counterintuitive for a lot of people that you end up dealing with the tax authority who actually physically wants to give you money, as opposed to a tax authority who wants to take your money. But they’re very, very good actually. They do want people to utilize it as best they can. Obviously not abuse it, but utilize it as best they can, because the more they utilize it, the more production happens in the UK, the more GDP rises and the more there is in it for the country as a whole. It’s kind of counterintuitive. It isn’t a protectionist kind of view that tax authorities have. It’s used as best you can. And they help where they can. So our life is made quite easy in that respect, because if we come up with a change that needs to be made, they listen.
“People very often have a mismatched expectation of what a successful film is. I’ve lost count of the number of times I’ve spoken to producers and said, “Okay, so talk me through the entirety of the exploitation process. Who’s taking what from it from the top?” As soon as someone buys a ticket in the cinema, what are you getting out of that? And very few of them know. Very few of them understand the exploitation model, so P&A, distribution costs, all that kind of stuff, sales agency fees and distributor fees, all leaking money down to what the producer gets, and they just see box office numbers of 25 million and think, “Great, 25 million coming to me.” So there’s a mismatch of expectations and understanding I think very often.”
TJ: And you mentioned earlier the factor of one to seven-point-something in terms of I guess inward production spend. Do you feel those numbers are conservative? How possible is it actually to capture what really happens?
NB: There’s quite a sophisticated economic methodology to calculating those things. Those metrics have been improved by the treasury themselves as well. It captures indirect taxes such as payroll taxes and additional spending in the economy and VAT and how that filters around. And they’ve changed the basis just in the last iteration of the economic impact report actually, because historically they had a slightly different basis, which would yield it I think at 10 to one. It included other multipliers like tourism and all these things, which they excluded this time round. But as long as it’s more than one to one, it’s a positive story. The more you spend, the more you get as an economy. That’s good. It is higher in film than it is in television, and I think that’s just because a lot of the film is high-end feature film that comes here, and of course they pay top dollar for everything, whereas TV producers tend to hammer a deal a little bit better and get some reduced rates. But they’re all positive multiples. Video games is one area that we also have an incentive in, and that seems to be an area that’s growing exponentially in the UK as well, having lost a lot of video game developers to Canada, I think. That’s good, and video games is a huge industry in its own right, and-
TJ: Do you think that’s going to be the next wave of growth?
NB: I think it certainly is yeah, a significant piece of the growth of the sector. All the industries are gelling a little bit actually. The idea that some of the visuals of video games now are extraordinary. The CGI-
TJ: Looks like a film.
NB: It looks like a film, exactly, yeah. And the storytelling is interesting. I think the advent of big computing and AI and stuff like that will allow a video game to be more interactive, more driven by your choices as opposed to a set number of avenues you can proceed on, and I think that will appeal to the audience for video games, and it will change the way stories are told. I think people bond with video game characters the same as they do with TV and film characters actually.
TJ: I forget the name of the film, but there was an example of where there was a film made based on the video game and not the other way around. I’m blanking on the name of what it was.
NB: It’ll come to me. It was a New Regency production. It’ll come to me, but yeah, I know the one you’re talking about, yes.
TJ: That was a moment when I thought, “Oh okay, this is interesting,” because it’s a first of it’s kind, but definitely not going to be the last.
NB: Indeed. Well there’s some very strong franchises in the video… Grand Theft Autos and all that kind of stuff. They’re very strong brands, and people will look to make movies and exploit those brands outside the video game world as well, entirely.
TJ: Do you think the franchises are the entertainment industry’s equivalent of an IPO? The only way you can make real significant money with one idea basically.
NB: It’s a difficult question, actually, and if I probably knew the correct answer to that, I would probably be making a lot more money in the future than I may otherwise be. But I think there’s a place for franchise movies. I think people embrace characters they understand and can relate to I suppose. Equally, I think there’s an audience out there that wants to see alternative stories told as well. It’s really up to the storytellers, the scriptwriters to create attractive propositions. But there certainly seems to be not a revolt against franchise movies, but just an appreciation that it doesn’t have to be all franchise movies, and maybe the odd story in between is quite useful as well. As I say, I think that’s where TV has a slight advantage, because they have the opportunity and the longevity to develop characters that people embrace.
TJ: Because I feel like franchises is kind of a privilege of the studios in the sense that they’re the only ones that can pull off something that big.
NB: But of course those are properties that very often have existed for a long time and weren’t always as successful as they are now. Everyone is looking for the next big franchise, whether it be TV franchises to replace Game of Thrones or something else. Studio execs and TV execs are going to be trawling all their sources to try and find a story that lends itself to being the next franchise. They’re not existing franchises already, so there’s an opportunity for people to create franchises that work, that are novel and a new approach and stuff. I don’t think it’s that detrimental. Just people need to try and fuel that demand if they can.
“But I love the mechanics of the sector, and I understand how it works and the nuances that comes with it. And that’ll be the same for everyone. I don’t know. If you’re a car salesman, then you can sell cars to a sector if you want. If you can create a product that this sector likes, then you’re in that sector. We’re an accounting firm. My little piece of it is film and television. But there’s lots of other accountants in this building that look after different sectors. The creative industries, film and television, the media as a whole, require all of those services that any other business requires. If you want, you can ply your trade in the media sector.”
TJ: I think especially independent producers, they tend to complain about studio accounting when you talk to them about studios. You work with a lot of them. Is that something you understand, when people complain about that? Is that something that is rooted in… What is it rooted in? The term still prevails that, “Oh, the studio accounting,” and nobody has ever gotten enough out of the studio, and they’re always the bad guys. It’s difficult to believe that, and they’re big corporations and…
NB: Well I don’t believe anyone deliberately goes out of their way to wrong other people, be they producers or not. I think my experience of it is that they don’t. They’re very professional backroom accounting people that do their very best with what they have. People very often have a mismatched expectation of what a successful film is. I’ve lost count of the number of times I’ve spoken to producers and said, “Okay, so talk me through the entirety of the exploitation process. Who’s taking what from it from the top?” As soon as someone buys a ticket in the cinema, what are you getting out of that? And very few of them know. Very few of them understand the exploitation model, so P&A, distribution costs, all that kind of stuff, sales agency fees and distributor fees, all leaking money down to what the producer gets, and they just see box office numbers of 25 million and think, “Great, 25 million coming to me.” So there’s a mismatch of expectations and understanding I think very often. The only time I think where there are inconsistencies is very often where the contracts that producers have with the studios are silent on something or where there’s a gray area which is open to interpretation. Sometimes of course, in those cases the studio will interpret it in their own favor, and the producer would like to interpret it-
TJ: Which is what they need to do…
NB: … in their favor. But very rarely have I seen where you look at a contract and you say, “You’ve deliberately miscounted for something.” I haven’t really seen that at all, actually.
TJ: I mean some of these organizations are almost 100 years old, and some of the systems are gradually developed over time. It’s understandable that it’s quite complex. But you mentioned box office numbers. I always thought that was a hilarious number, because of course, it’s an indicator of what’s happening, if it’s received well. But then people look at it and they’re like, “Oh, a billion at the box office.” I’m always thinking, “Yeah, so that’s at best 500 received to the distributor.” I mean half stays with the-
NB: Exhibitor. More sometimes. And VAT and all that kind of stuff comes off it. People just don’t… It amazes me that people in the industry don’t understand top to bottom how the industry works and who’s making money from it. Of course, in that exploitation cycle of films, even if it’s… We hear a lot about films that lost money. Water World, the famous big movie that lost money, lost of lots of money, but now has broken even I believe, because it needs to recover a lot of its distribution costs. I think people need just to understand, if they’re going into this industry, it needs to be, as I say, a pull mechanism, as opposed to a push mechanism. So understand the industry you’re going into, find the demand in the marketplace, understand who’s taking what, and even on an unsuccessful movie, other people are making money out of it. Sales agents, distributors, exhibitors are making money out of it. It’s just you at the bottom of the food chain are not making anything out of it. But you need to understand that before you go into it.
TJ: We’ve talked a lot about your job, your role, your journey. I’m wondering if you had a chance to meet 20-year-old Nigel now, knowing what you now know, what would be some of the things you would tell him?
NB: I’d probably tell him one thing, which is there’s going to be a financial crisis in 2008, and sell everything, I think is the only thing. I wouldn’t change a lot actually. I think you could if you chose to go back to your life and say, “Well I could have made a different decision then,” but most of the time-
TJ: You’ll find something every day.
NB: Yeah. Most of the time, though, I think your life ends up being partly your own decisions, partly opportunity, partly a little bit of luck. And if you make a different decision, then it would change the dynamic of the opportunity and the luck that would go along with that, and it wouldn’t guarantee you would end up where you thought you would end up anyway. I don’t think I would really change that much, actually, but I would short a lot of stocks in 2007, without a doubt.
TJ: That would be quite a valuable investment.
NB: Yes, it would.
TJ: And you wouldn’t even need to take a cut because it’s you.
NB: Absolutely, absolutely. It would be entirely my money. I wouldn’t be here having this interview if I had done that.
TJ: Equally, is there something you would recommend to someone that’s interested in taxation, accounting work, and has interest in the entertainment industry, that they can do now or learn or get involved with to get closer to that?
NB: Yeah, I think the entertainment industry is like any large industry. I think lots and lots of people can make a career out of working in and around the entertainment industry. Accountants, lawyers, producers, creators. All the physical production people that exist on these things. But even aside from that, marketing, HR people, insurance. These are large scale businesses that need pretty much all the kind of commercial supplies that any business needs. I think it is a sector, and my view… As I say, I don’t go to the cinema a lot. I don’t watch TV that much. But I love the mechanics of the sector, and I understand how it works and the nuances that comes with it. And that’ll be the same for everyone. I don’t know. If you’re a car salesman, then you can sell cars to a sector if you want. If you can create a product that this sector likes, then you’re in that sector. We’re an accounting firm. My little piece of it is film and television. But there’s lots of other accountants in this building that look after different sectors. The creative industries, film and television, the media as a whole, require all of those services that any other business requires. If you want, you can ply your trade in the media sector.
TJ: And of course listen to every episode of this podcast. You’ll learn a lot.
NB: Indeed. Highly recommended.
TJ: Before we wrap this up, one question I ask everyone is what do you see happening in the future? If you take out the crystal ball, what are some of the things you’re watching that have piqued your interest?
“I do remember the days of a feature film being 90 minutes long. Those days are long gone. I think feature films are becoming event entertainment. You make a date in your diary, you carve out the time, and you go to the cinema to watch a great movie. TV, on the other hand, is different. I assume TV writers have much more leeway to develop characters, to develop storylines, because it’s a longer period of time, and they have more interaction with the consumer, the audience, and they can develop things slowly, and have people buy into the characters that they’re portraying. But TV is wonderful because you can precisely consume it in bite-size pieces. If you travel by train to work, you can watch an episode, you can pick up the next episode on the way home. I think that’s why TV is wonderful at the moment, and there are some great storylines on TV, some great TV shows.”
NB: Interesting question again. We formed a little group in our office here which is the Horizon Scanning Group, which is looking at what the future might hold for our firm in the medium term, so like 10, 15 years out, and it’s the great unknown, to be frank. I mean I have no idea really what the future holds. But we do see the advent of technology changing how things are done. Artificial intelligence will probably take away a lot of the compliance functions and make them automated. I think people will still like to deal with people. Maybe in a different fashion than we currently think. Historically, certainly a lot of my clients like the face to face meetings and like phone calls as opposed to emails and stuff like that. But there’s a new generation of people, who spend, as you’ve probably seen them on the tube and the train, they’ll spend their life texting and emailing without speaking to people. So that might change how we communicate. But I think people want to communicate with people. I think our industry and most industries, AI and technology will take care of a lot of the humdrum compliance stuff, and then you’ll be left with how do you interact with the people that make decisions, and more the advisory aspects to it. That group met the UK tax authority’s equivalent group, so a horizon scanning group within the tax authorities, and they are concerned that… They believe about 20% of the workforce will be displaced by AI, and about 10% will be able to be retrained, which will leave 10 behind. Historically, we’ve had similar situations where steelworks and coal mines have been abandoned in the UK and certain elements of the workforce just couldn’t be retrained, or didn’t want to be. So it does create a bit of a social upheaval.
TJ: Only thing you can do is get a president that brings all those jobs back.
NB: Absolutely, absolutely. Trade war. But that part of the horizon scanning… I don’t know what the future holds, and I think that’s very interesting though. I think as much as you can do is remain flexible, don’t get too stuck in your ways as a business, keep an eye on the future and be able to adjust as you see fit. You won’t get it right. The Americans have a great term, which is a swing and a miss. It doesn’t matter. A baseball term, I think. But getting things wrong is not a bad a thing, because you learn a lot from it, and I think in the UK we avoid the swing and a miss because we think it’s bad to make a mistake.
TJ: I think that’s a European thing, actually. That everywhere, you don’t want to be seen as someone who took a swing and you missed.
NB: Exactly. But the Americans seem to embrace that, and that just allows them to move on, and try something else, I think.
TJ: I think an ice hockey… Or was it baseball? One player said… He was asked about the stats, and he said, “Well if I don’t swing, if I don’t shoot, I’ll miss for sure.”
NB: Indeed, indeed. Yes.
TJ: Well, thank you so much for your time and insights.
TJ: I think that’s a beautiful place to wrap it up. I know we’re going to do this again in a while, so that we can talk about the future as it has happened.
NB: We can look back. In the future, we can look back at the future as it passed, yes.
TJ: Well, thank you so much for your time.
NB: Thank you, Tobias.
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Special thanks to everyone at Saffery Champness, especially Caroline Lewis, Leanne Oscroft, Nicole Lovell, and Lloyd Gunton, for helping to make this conversation happen.
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ABOUT MEDIA CFO
Media CFO focuses on the finance, strategy, business affairs, and legal side of the global media & entertainment industry. The guests on the podcast range from veteran studio executives to new, disruptive market entrants.
MEDIA CFO takes a look under the hood of the global entertainment industry and talks to the unsung heroes: dealmakers, lawyers, entrepreneurs, financiers, service providers, bankers, investors, and agents. The podcast offers unique insights into the daily work and life of those, who run and build this industry by visiting them on location and having in-depth, in-person conversations.
ABOUT TOBIAS JAEGER
Tobias started his first own firm during his studies at Maastricht University in the Netherlands and has lived, worked, visited, and studied in over 43 countries on 4 continents. Tobias loves to connect people from around the World to make great things happen. Previously, he has done so at Business Associates Europe, SAP AG, StrategosPoker, Aramark, and entrepreneur academy. Today he is a Managing Partner of AXIOM Venture Capital, a family office focussed on the media & entertainment industry and Tobias serves as the Chief Financial Officer of London-based television and content studio Colibri Studios.
The conversation was originally recorded in London in May 2019.
© 2019, Colibri Studios of London