By Bill Wilson
BBC News Online business reporter
The cost of distributing new UK films can hit production companies
Recent impressive headlines have shown the UK film industry in seemingly robust health, with production and employment numbers up and movie goers flocking to the cinema.
During 2003 the industry boasted record levels of production spending, with £1.16bn spent making 173 features in, or involving, the UK.
And the industry now employs 57,429 people - a whopping 77% increase in the past 10 years.
Meanwhile, the top ten UK films at the international box office scooped more than a billion dollars between them in 2003, despite no new James Bond or Harry Potter films being released in that year.
But insiders warn that despite the robust figures, a number of issues need to be addressed to prevent this latest renaissance going the same way as so many predecessors: with a boost quickly followed by a slump.
"Despite the continued popularity of cinema-going in the UK, and our position as one of the centres of global film production, we have to tackle the challenges," warns UK Film Council chief executive John Woodward.
Section 48 has been one of the most significant factors in regenerating the UK film industry in the past years
Steve Bowden, Ipso Facto Films
"They include improving the distribution of new UK films, increasing the involvement of broadcasters in the film industry, ensuring we continue to have a highly skilled workforce... and tackling the threat of piracy which hangs over the industry."
Another major challenge is to ensure film productions continue while the government introduces a new series of financial incentives and tax breaks.
In February, the Treasury suddenly changed the tax laws for filmmaking when it closed a "partnership" loophole.
Ministers claimed it was being exploited by film investors to maximise their eligibility for relief, by putting money into a film but pulling out before it reached cinemas.
At the same time, it was announced that Section 48 of the Finance Act - which for seven years had allowed wealthy individuals to offset their film investments against tax - is to be removed in July 2005.
Film-makers like Ipso Facto welcome government tax incentives
A new tax credit supporting new UK films with a budget of up to £15m will supplant Section 48. But it will only be payable directly to film producers, thus bypassing third party financiers.
It is hoped the new credit will continue indefinitely, and help provide some stability for the British film industry.
"Section 48 has been one of the most significant factors in regenerating the UK film industry in the past years, hence the amount of alarm in the industry at its demise," says Steve Bowden of Newcastle-based film producers Ipso Facto, which is behind the forthcoming £4.5m comedy School For Seduction.
"There is going to be a new credit to replace it, but it is not totally clear yet what it is going to be. Whatever form it takes it will have an extremely important impact on the UK industry."
Like many others, Mr Bowden is fervent in his backing both for UK talent in front of and behind the camera, and for the country's studios and facilities.
A depth of craft skills in the UK - from cameramen to lighting and sound engineers, to special effects experts - has attracted countless Hollywood directors.
But competition from abroad is growing.
Many East European countries and places such as Mexico can furnish film-makers with cheap labour, sound stages, and post-production facilities.
The government and UK Film Council are keen to keep skills at a peak, and a £50m training programme is being introduced to ensure advanced British talent continues to win work.
Another problem being addressed is that of distribution, to prevent films gathering dust because of the burden of making up prints and other associated costs.
"A lot of the films made in the UK don't end up in the cinema," says Mr Bowden.
"One of the main challenges is the cost of releasing and marketing films.
"We make films on 35mm that are projected on 35mm in cinemas, and that is more expensive than digital productions."
The UK Film Council is introducing a scheme to assist in film prints being made, and the government may introduce incentives to encourage the distribution of UK films.
The council is also tendering for a consortium to manufacture, install and maintain 250 digital screens in 150 cinemas, which will make it cheaper to show UK films across the country.
However, Tony Earnshaw, head of film programming at the National Museum of Photography, Film & Television, believes the biggest problem the industry faces is the type of films that receive funding.
For example, the universally-panned Sex Lives Of The Potato Men received £750,000 from the Film Council.
"What seems to be happening over the past few years is that funding is being given to 'peculiar' projects, films that are not necessarily very good," says Mr Earnshaw.
"Many people want to make quality British films in the UK, but many say they can't get funding. It is OK if you want to make a gangster movie or a sex comedy, but otherwise funding is hard to get.
"Is funding given on the basis that the film might make money, or whether it is any good? I am not sure if the funding pie is being cut up into the correct slices and given to the right people."