21 June 2023

Are film studios about to go Back to the Future? – Owen Spencer writes for EG

Commercial Real Estate Counsel and member of our Film and TV Studios group, Owen Spencer, has written for EG on how hiring production space at film studios differs from other real estate sectors.

He goes on to ask, having seen considerable upheaval to studio bookings in the last 5 years and with 44 new studios planned, if more changes are around the corner.

Quiet on set

Spencer explains that the traditional and longstanding way to hire space at a film studio is by hire agreement, “which is, at its heart, a commercial licence, usually signed on standard terms.”

Principal photography is the most expensive phase of film production – this means that space will only be booked for as long as it is needed. There is no subsequent commitment to use the site again and therefore studios are reliant on reputation to secure the next booking.

“The rate card for a sound stage will generate substantial returns for the studio, but the nature of the short-term commitments means there is an ongoing challenge of attracting and securing the next big production. So maintaining a high level of utilisation is a constant aim for studio management.”

Rise of the streamers

Spencer adds that the rise of streaming services over the last few years popularised the “master lease agreement” (MLA). Essentially a multi-year lease and thus by no means a groundbreaking real estate concept, it creates a long-term financial commitment to the studio.

These services, wanting to make their own content, need to also secure studio space. This emphasised an “undersupply of studio space in the UK [and so] the race for space was on.”

Race for space

With multiple MLAs now signed, many of the UK’s studios are now tied up in terms of upcoming lease agreements. “The sector has responded”, Spencer adds, “with there reportedly being 11.2m sq ft of space in the pipeline.”

What is yet to be seen is whether this increase in studio space will result in the fall-off in popularity of the MLA. “Could the projected increase in capacity mean that productions will go back to the future, comfortable to operate under the old studio hire agreement model?”

“However, very little of the new pipeline space has yet come online. While many of the proposed operators suggest their operations will not need MLAs to flourish, it is likely to require a certain kind of funder or investor to speculatively develop a film studio with a business model built around studio hire agreements alone. This may give hope to both operators and productions that there are one or two more big MLA deals left to do.”

This article was originally published in EG on 16 June 2023 and can be read here (behind their paywall).

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