The Auditor General for Wales has today published a report into the Welsh Government’s relationship with Pinewood.
It sets out the facts associated with the Collaboration Agreement entered into by both parties in February 2014 to promote TV and film production in Wales. The report also sets out the facts leading to the termination of that agreement, together with details of the successor Management Services Agreement that commenced in November 2017.
In February 2014, the Welsh Government purchased the former Energy Centre site at Wentloog for £6.3 million which it redeveloped at a cost of £3.1 million into a new TV and film studio. It then entered into a Collaboration Agreement with Pinewood which involved:
- leasing the studio to Pinewood, which was rebranded as Pinewood Studio Wales;
- creating a £30 million Media Investment Budget to support TV and film production in Wales; and
- sponsoring Pinewood to promote both the studio (an annual cost of £525,600 over the five-year term) and the Media Investment Budget.
The Welsh Government set up a Media Investment Panel to scrutinise the investment proposals put forward by Pinewood. However, by 2016 the Panel had become dissatisfied with the fund’s performance. Our review found that £13.8 million of the £30 million Media Investment Budget has been spent so far, supporting 14 film and TV projects in Wales. To date, these projects have recouped £4.3 million of the investment made by the Welsh Government1.
The Media Investment Panel also had concerns that the investment proposals being submitted by Pinewood were of a higher risk profile than expected and that Pinewood might be conflicted in its involvement with the budget, as it also had an interest (not prohibited under the Collaboration Agreement) in providing its own services to the industry.
By January 2017, Pinewood had been acquired by new owners and had adopted a new international business model, focussing on the provision of studio facilities instead of investing directly in TV and film productions. By now the anticipated demand for the studio had not materialised, resulting in it being run at a loss to Pinewood once the initial two-year rent-free period had ended.
Pinewood executives told us that the opening of a new film and TV production studio by Bad Wolf Studios (Wales) Ltd in Trident Park, Cardiff, in May 2017 had a detrimental impact on the occupancy of Pinewood Studio Wales. Bad Wolf also received a package of funding from Welsh Government to facilitate the opening of the studios. The assertion that the opening of Bad Wolf Studios had a detrimental impact on the occupancy of Pinewood Studio Wales is contested by both Welsh Government and the owners of Bad Wolf.
In October 2017, the Cabinet Secretary for Economy and Infrastructure accepted his officials’ advice to terminate the Wentloog lease and the Collaboration Agreement and to place the Media Investment Budget on hold. Further negotiations with Pinewood resulted in a new three-year ‘management service agreement’ commencing on 1 November 2017. The estimated net cost of this to the Welsh Government is £392,000 per year plus an additional annual management fee payable to Pinewood2.
The net cost estimate of £392,000 assumes that an annual revenue forecast of £714,000 for Pinewood Studio Wales, which was included in the submission to the Cabinet Secretary is realistic, although that forecast was produced before the opening of the Bad Wolf Studios.
The Welsh Government has recognised that these financial projections don’t represent good value for money. However, they considered that the new management services agreement with Pinewood, with the potential to generate commercial revenue streams for the Welsh Government, was better than the costs that the Welsh Government would otherwise incurred by leaving the site empty while looking for a new tenant.
1 These projects are in various stages of development; some have not yet benefitted from international cinematic release or TV broadcast, and funds will continue to be recouped through auxiliary sales.
2 The Auditor General has accepted Pinewood’s contention that disclosure of the size of the annual management fee would be likely to cause substantial harm to the commercial interests of Pinewood by giving its customers, competitors and suppliers an unfair advantage in future price negotiations.