National Assembly for Wales

As chair of the creative industries sector panel advising the Welsh Government, what advice did you give on the idea of having not just one but two studios in Cardiff?

My advice, in fact, has not been to have two studios in Cardiff. My advice has been, all along, that we should try to have more studios than we need at any one point in time, because when we think about how we sell ourselves internationally, we're selling ourselves on a whole series of assets that we perceive we have. They range from—and there's a real advantage to us throughout Wales—a real proximity to London and the depth of resources they have in terms of personnel, facilities, equipment, people—and we can talk about some of the problems we have with our skills base later, if you wish—but also space available to them.

A lot of UK drama typically, and film, is shot on location by adapting buildings in the short term, or physically out on location. A lot of international drama works on fixed studios. We are in discussion now with companies that have a fixed studio as part of their requirement if they're going to be in Wales. So, the more studios we have—and I don't actually mind them being empty, and I can explain that, and why that works, to the Welsh Government, if you like—but I'd like to have that environment where, when we are talking to some of these major companies, we can show them a selection of sites where we can offer them really good quality facilities. Now we have Swansea and Dragon, we've got Pinewood, we've got Bad Wolf, but fundamentally we are still under-resourced in terms of having this space.

My company has quite a significant presence in Scotland. We're in Scotland quite a lot. We've got lots of people working there. So, we work with Creative Scotland from time to time. We are already light years ahead of Scotland, who can't even get their act together for the first studio they need. But one of the reasons we are attractive is we show that sort of flexibility. We don't want to go back to the old Welsh Development Agency days of having estates of empty buildings; that's not the point. But we can always afford to have—and we should always afford to have—that extra space available that gives us a negotiating counter with companies from overseas.

Thank you. That's a very interesting insight into the situation. Can I just go back to the relationship that was established with Pinewood as both the leaseholder of the place in Wentloog and also the adviser to the Welsh Government as to which were the films that were worth backing? Did you have any concerns about that sort of potentially conflictive relationship?

Well, clearly, we had concerns that there was a potential there for a conflict of interest. And, in practical terms, that conflict materialised at a very early stage. The very first project that Pinewood brought to the investment panel, which I don't chair, as you know, was described by the panel as 'marginal'. By that they meant that they felt that Pinewood with their first project should have brought a really quality project that would set the template almost for what we were trying to do in Wales, and the panel was minded to turn down that first project. I persuaded them successfully that they should not turn it down but that we should agree to the project on the basis that, 'Yes, this is your first project and therefore we'll be supportive, but we don't expect you to bring projects of this quality again. We are looking for projects where we have a higher percentage chance of finding success commercially in those.' And that became a theme, really, throughout that first year, which undoubtedly created difficulties, both for the panel in terms of making the judgment call, but also, I have to say, for the officials, who were finding some of their dealings with Pinewood quite difficult. The panel was—. There are some very good members on that investment panel, and some of those people were very heavily involved in working alongside the officials to try and get this relationship to really work.

So, Pinewood simply wasn't listening to the advice you were giving.

I don't think it was. Now, Pinewood is a very good and reputable company with a long tradition of being successful in a number of its sites, but I think we have to recognise that there were things happening in Pinewood at the time, both in terms of changing their business model, pressures from the stock market because of what was perceived to be their underperformance, their later takeover by a New York-based property fund, which were unhelpful. So, they were being much more cautious from their own standpoint than I think they had thought they would be when they first entered into this arrangement.

Okay. So, when the terms were renegotiated, was that something that the media investment panel—was it along the lines that the media investment panel wanted to see?

I don't think the media investment panel was involved in the renegotiation. The creative industries panel was from an early stage. The initial stages of the relationship with Pinewood throughout 2015 were causing some difficulties. The then head of the media team—the creative industries team—and I sat down late in 2015 and we concluded that there were concerns that had to be addressed, and, in January 2016, we sought legal advice from outside Welsh Government on the relationship with Pinewood and the extent to which Pinewood's actions could bring difficulties to the Welsh Government in terms of its regulatory requirements and particularly in respect of state aid. And the legal advice in January 2016 confirmed that our fears were justified, and we then began discussions with the other officials and with Ministers to decide on how that ought to be handled.

So, the revised terms that were agreed in November last year—is that on a footing that you regard as transparent and appropriate?

Bear in mind that the discussions that we were having in the early spring of 2016 were with the previous Minister, with Mrs Hart. My advice to Mrs Hart was to walk away from the relationship with Pinewood completely, but then we had a whole series of things—her decision to retire, we had purdah, we had the appointment of a new Minister. So, I think it's fair to say that we lost quite a lot of time during that period, for understandable reasons. There were a number of discussions with Pinewood, one of which I attended at their headquarters, with officials, where officials were still minded to try and find a new relationship going forward that worked for both parties. I think the officials will report that I took a fairly stern line, from my viewpoint, with the chief executive of Pinewood at that stage. My advice, and the advice of the creative industries panel, was still to walk away from the relationship with Pinewood, but I stress that these aren't always binary issues, really. We look back at Pinewood and some of the things that it has done for Welsh Government and done very well. It helped create a presence for Wales around the world that—you know, we were involved with Pinewood, we were now playing in a different league. And their marketing of us around the world has been valuable. I think some officials and the Minister later concluded that it was a better deal to keep them involved. I disagreed, but I give advice and other people decide, so that's perfectly understandable. I would have preferred to have the building back entirely under our control, because I felt that we would have been able to market that and to use it as part of our dealings with the industry on a wider basis. 

Thank you. 

Can I just ask why you think that the officials didn't listen to your advice if you're there as chair of the creative industries panel, and the media investment panel? Why do you think that they didn't heed that advice? Because I know that Suzy's got some questions later on expertise within the Welsh Government, but, surely, if they see you as one of those experts, to not take on that advice is quite critical, is it not?   

In Edwina's famous phrase to me, 'You give me advice and I decide what works for me politically', and I respect that. These are nuanced judgments; it's not very straightforward sometimes. But I just think we have in Wales now such a good reputation for hosting drama that, anything that stands in the way of that, I prefer to walk away from.  

Suzy.

Yes. Sorry, just one question before we leave the collaboration agreement altogether. You say that the creative industries panel was closely involved in the renegotiation of what the terms of that might look like. 

No, not really. Not really. Having decided that we weren't in favour of it, we weren't closely involved. We were closely informed, to be fair. 

Closely informed. With the original collaboration agreement, was your advice sought on the terms of that agreement—not the legal drafting, obviously, but what should go into it and what shouldn't go into it? 

Yes, in general terms, and we were confident that the original collaboration agreement appeared to be the right model to follow. 

And it was a model you'd seen before, with the Isle of Man—

It was a model we'd seen before, working in the Isle of Man, particularly, with Pinewood. Officials did consult with officials in the Isle of Man at the time, and it appeared to be a decent model that appeared to have been operating pretty effectively.  

At that time, yes. Okay, that's great. Thank you. Thank you, Chair. 

Mick Antoniw.

The advice about, effectively, walking away and having the asset as a Welsh asset that can be promoted and is available for use, as opposed to restricted to some extent within Pinewood—is the issue then the reputational issue with regard to Pinewood, the international identification of the name, the identification of the name with Wales? Was that the issue in terms of the balance between the efficacy of having the facility back within control, as opposed to the perception of Pinewood having come and then gone from Wales, or Pinewood's name being associated with that? Is that something—?

Well, I think you're right to raise the issue of balance. The balance, in my view, on the reputational side was, first of all, Pinewood is a great name. It is changing its business model, as I stressed, and that's an important factor, but it still is a great company in what it does. But I think, during the time that we were operating the investment fund jointly with them, there was another reputational impact as well, which was that companies were complaining to us about the terms that Pinewood were trying to impose. In fact, it was those terms that led us to take legal advice, because we felt those terms were unfair in the sense that they differentiated the returns for Pinewood and for Welsh Government, but also sought to leverage Pinewood's involvement in the fund in a way that advantaged the use of their facilities both in Wales and in London. But, again, it's not a binary issue; it's which side you come down on, and we came down on—

It's a judgmental—

—let's do something else. Yes.

Neil Hamilton.

There's an obvious economic case for Government support for film and the creative industries, but there's also a cultural case and I wondered to what extent—if you can help us on this—the Government takes cultural considerations into account when it makes decisions about what to fund.

I think it's one of the more difficult areas for the Minister and for the officials I work with and me to handle, in this sense, that, when the initiative for the creative industries was started back in 2010, it was as a result of a report by Professor Ian Hargreaves into the creative industries in Wales, and Ian's recommendation was heavily biased around trying to make economic advantage to Wales of some of these new cultural industries. We can talk about the gestation of our strategy, if you like, but the ultimate view we took was that our primary responsibility was to look for those elements inside the creative industries that provided economic benefit. And, to some extent, we've taken a fairly brutal approach on that. However, it'd be disingenuous to claim that (a) the cultural side isn't important, and it would be silly to claim that, actually, much of the funding hasn't gone in on the basis of cultural needs rather than economic needs. Very few all-Welsh-language projects that have come to the department in my time have actually been turned down. A particular claim to fame is the only one that was turned down was one from my company. But—.

Where I think we need to revisit this issue is that I'm not convinced that the entire cultural remit can be met by the economics brief, and I think there is a gap at the moment in the funding made available to Film Cymru or the arts council—I don't care which way it's routed—that ensures that we don't miss out on the opportunity to do those things that we need to do for cultural reasons, not for economic. Now, I believe that the linkage between culture and economy is actually quite a close one, and you can get advantages from Government subsidy of any culture. I don't think we've got the balance right. But, you know, what is economic and what is culture? Bear in mind that most of what's been achieved in Wales or in the UK in the creative industries is fundamentally as a result of Government interference and Government policy. Public service broadcasting is a creature of Government. The tax credit regime is a creature of Government. Government can dictate, to some extent, how much economic benefit we get from culture. Most of the independent production companies in television in Wales are the children of S4C, itself a political construct. No-one would argue that that isn't the sensible thing to do. One might ask why there are so few independent production companies that are the children of the BBC in Wales and have they left their economic mark on cultural product, but I think it needs more funding directly targeted at the cultural side of the industry; I really do. 

There has been a very substantial increase in gross value added attributable to creative industries in Wales in the last 10 years, so it's perhaps understandable that there might have been a greater economic motive behind Government support in the early days. But as the creative sector grows and becomes perhaps more self-sustaining, we should give greater emphasis to the cultural side of things. 

I think we should, but we should beware of thinking along the lines of project-based funding, which provides cultural benefit and short-term economic hit but doesn't deliver a sustainable industry where we have long-term potential for training our youngsters and employing them long term. And, if I give it some context, if you look at where the employment has been in Wales in these industries in recent years, it's been really HTV, BBC and S4C driven. HTV has gone. A huge cultural blow to Wales, in my view, the loss of HTV. Its capacity to train people, its capacity to provide for skills and cultural product was unmatched. Our relationship with the BBC is cyclical, typically based around: they make promises and after a few years they break them. S4C is under long-term threat. So, when we looked at how we sought to prepare Wales for a future where we didn't have those great strengths, we felt the need to try and create an industry where there were big blocks of employment, there were big blocks of activity that could keep that infrastructure going. It's why we looked initially at top-end drama, which is very expensive, employs a lot of people, but those were projects, and the involvement of Welsh Government in trying to get Pinewood and Bad Wolf involved was that we could see the potential of providing not just long-term employment, but also institutions around which apprenticeships and training and cultural development could actually be based. And there are other companies out there at the moment, one of whom we've had discussions with recently, that would add yet again to the viability of that infrastructure of assets and people.

The creative industries, economically, are not about a handful of talented people thinking great thoughts. They're about those ideas being translated into real economic activity with work for all sorts of people, from all sorts of backgrounds, with all sorts of skills and crafts and so on. We always talk about the scaffolders whose company was created to provide the scaffolding for drama in Wales. That's at the heart, really, of how you try and blend these cultural activities into something of economic benefit. 

Yes, you create the skills base, then you create a more attractive environment in which to attract investment projects. 

And when people talk about culture and how we get our creatives really to develop their careers and to develop their ideas and become internationalist in their approach, we should bear in mind that most of the people who created the independent television production sector in Wales were actually trained by HTV; that's where they came from. So, it is possible to have your training and your career development within these large, slightly impersonal institutions, but that gives you the experience and the background to go and do great things. At its best, that works. 

We've had evidence from others in this inquiry as to how the Welsh Government's support for the indigenous screen industry could be improved if we had co-production requirements for smaller, local producers, and also if there were inserted into contracts local employment requirements for both on-screen and behind the camera personnel. Do you think this is the way to go? 

Well, on the former, I'm not going to sit down with a major international production house and tell them they have to work with a company in Wales unless I'm absolutely convinced that company in Wales adds value, and I don't think we have enough companies where I'd feel comfortable doing that. So, I think that's hubris, frankly.

On a personnel side, funnily enough, we've never had problems with that. From the early days of Da Vinci's Demons down in Swansea, we've got very, very good officials in this department, and they sit down with these companies and they persuade them why it's a good idea to use local suppliers and local people to provide local training placements, to have people shadowing certain skills and so on, and I've never found that to be a problem. We're actually involved in discussions at the moment with a major international house—who's name you'd recognise instantly—who are looking for a base to operate from internationally. We talked to them about sites—and we're not in a good shape on sites—and we talked to them about people. And there's no point in being dishonest about these things—we said, 'Look, we've got some skill gaps and we can't always promise to fill those skill gaps for you', but their response was, 'Well, we don't mind that because wherever we go there are skill gaps. We're happy to sit down with you and develop an apprenticeship scheme, skills training, and so on and so on'. A lot of these companies are companies who are themselves refugees from Los Angeles now operating in places like Oregon and Atlanta and so on, so they've been through this before. It's not a hard sell because they can go and talk to people down in Da Vinci's Demons, they could go and talk to people in Bad Wolf, who say, 'The raw material is good, and once these guys and once these women get experience, they are providing real value for us as producers'. Quality of the people isn't an issue. It's the quality of the experience and the skills and the education they've had that's the issue. We can remedy those. 

Just to go back to what you said a moment ago on my last question, you said that the Government should consider putting more money into the cultural side of the support that it gives to creative industries. Do you think there should be a separate fund created for that discrete purpose, or is it just a case of giving more money to the Arts Council of Wales or Ffilm Cymru Wales or whatever? 

Well, I think someone has to decide who makes the cultural judgement. I'll be frank, I don't think that the officials I work with are necessarily the ones best placed to make that judgment. They're good at what they do. Deciding what is good culturally for Wales may not be their thing. I think it just requires someone to think through who are the right people to take those calls and to make that decision. We all understand the absence of cash and numbers, but bear in mind that the entire creative industries team is only about 20 people, which is a fraction of what you get in places like Scotland and in Northern Ireland particularly. When you take away the percentage of people's time that is spent just feeding the general bureaucracy of Welsh Government—which is significant—it's a very, very small number of people who are actually active.

You know, why do we concentrate, in my view, culturally, overmuch on film and television? It's because we haven't got the people and the money to do anything else. When we think about one of the more heartbreaking elements inside the creative industries in Wales that gets neglected—music—and when you think about how little we're actually able to do with the field of gaming and so on, these aren't judgments taken lightly by the people I work with. They are the natural effects of having scarce resource. And I'm not having a go at this Government or anyone; it's just a fact of life. We don't have that scope that means we can handle this other step. You can go back to the Hargreaves report, and he talks about a whole series of things we could be doing. But, after a year of looking at this stuff, we concluded we couldn't do all of that. We just couldn't spread our resources that thinly—we wouldn't get anywhere.

Okay, thanks a lot.

Just a couple of questions on finance, particularly Welsh Government finance from the media investment budget. Industry generally—the Welsh Government has moved away from the concept of grants towards loans. That doesn't seem to be the case with regard to this budget—they're still giving out grants, per se. Is that the right rationale? Is there a particular reason for that? Would loans be a better option, or would it not work? What's the explanation for that?

The explanation, I think, is that we're trying to build an industry—that fundamentally is it. In the beginning, there was Edwina, and Edwina said, 'Go build an industry'.

And on the seventh day—[Laughter.]

What we're trying to do is to, obviously, provide a competitive package against other locations. But when we're dealing with companies who we think have something additional they can provide inside Wales, particularly in terms of using local labour, providing the training we think is needed in the industry, yes, why not give them a grant to try and drag them into this new infrastructure we're trying to create.

I take a fairly utilitarian approach on this. If we're trying to build something, and we're operating in a field where, frankly, the margin of error on all our judgment is significant, we should take that—we should take that chance. Now, I do feel that the entire department suffers from a fear of getting things wrong all the time. Now, economic development is about operating at the margins of capitalism. We are there because the market isn't giving us the results we want. We are going to make mistakes. Now, you can always demand that people pass the 'duh' test—'Duh, why did you do that?' But most judgments made are in good faith, on the best information available at the time. And we should be much more forgiving, really, across the department, of how these judgments are assessed after the event. Because I think that the overbearing nature of compliance within the department, and beyond it, sometimes prevents really good officials doing things that are really worth trying.

Do you think risk aversion is an issue that still needs to be tackled?

Yes. A few years ago, we came up with the idea that—we had a digital development fund, which basically consisted of doling out brown-paper envelopes of £5,000 or £10,000 to young developers coming out of university with ideas. And we got that through eventually because I wrote a letter, at Mrs Hart's request, saying, 'Dear Minister, you are likely to lose all this money, but it's worth a try'—that's fundamentally what it said. And it's been one of the most successful things we've ever done. So, you have companies in High Street in Swansea employing a dozen people, where there was just the one individual at the outset, and so on. Some of these things you need to have the confidence to try and, if it fails, we shouldn't have the audit office, or compliance people—or, I have to say, AMs—jumping up and down and saying, 'This is a disgraceful waste of money'.

Failure isn't a failure.

Yes.

That takes off one thing. Some of the evidence that we've heard has actually suggested that, in some ways, we are too restrictive, or too demanding, in terms of the specifics of some of the funding, in terms of comparison with other contributory funders, and so on—that the terms on which funding is put in is disadvantageous, or is considered non-competitive with other funding, and so on. Is that part of the same issue? Is the balance right there?

Well, partly, but I don't think we're in such a bad shape when you look at comparable offers from other territories. I think, on balance, we're pretty good. Where we do suffer is that our own internal compliance regime is much, much more difficult to manage your way through. Decisions take a very, very long time, and that's not because it's the creative industries department; it's beyond that. Those decisions are second-guessed, in my view, to an unnecessary extent, and it's driven by a handful of policy issues that have been around for years.

I'll just give you some examples. A call-centre job at £18,000 a year is perceived to be more valuable than a job that will keep a cameraman working for maybe six or seven months year, despite the fact that, in those six or seven months, their earnings might be £40,000 or £50,000. So, the lack of understanding sometimes about how these newer industries, fundamentally based on feast and famine and also on freelance labour, are actually a part of the employment pattern going forward.

You then have issues about doing deals with companies on repayable terms, for example, where it's felt that we as Welsh Government need to take security over something. Modern industry no longer has big factories with freeholds, it no longer has plant and machinery that it owns. We are in the age of light balance sheets, so most things are leased, hired and so on. And in the case of the creative industries, quite often, the value is in intellectual property, and this was the case with Bad Wolf. But somewhere within the realms of Welsh Government, they decided that Welsh Government should take lien over the intellectual property that existed in some of these dramas, and that is an absolute nonsense because that asset couldn't actually be used and realised without that lien being released in order to allow them to do deals with producers, broadcasters and so on around the world. 

So, I think there's a lack of in-depth understanding somewhere in the system as to how new industries are configured and what that means for Government's relationship with them. I think that again is possibly beyond just the creative industries. I think it's a fundamental legacy issue, perhaps from the days of the Welsh Development Agency, and we understood the financing packages that we had in those days.

The freelance issue has obviously been a significant one that's arisen. The other one that arose, which I think is where you're beginning to come to, is the issue of the flexibility in terms of the packages and putting in and how that is balanced against risk, I suppose. Governments obviously have to account for money and so on. 

Yes, of course they do.

Do you think the suggestion that's been made that there is a need to reconsider the way the system's operating and for there to be greater flexibility is a valid one?

I think greater flexibility in terms of our thinking, but a more realistic assessment of what is risk, really, is at the heart of it. If I take the Bad Wolf example, a lien over their portfolio of ideas, we couldn't actually do anything with that. We suddenly have the film rights for a book; it's owned by Welsh Government. What on earth do we think we're going to do with it? We don't have the skills to realise that asset. The real asset is in terms of the commitments we get from the key individuals who, by their contracts, are tied in to Wales for a period of years, so that actually we can get the comfort we need by other means. I run a people-based company. It's their service contracts that give me security, it's not having a lien over their homes. Things have moved on so much. I still think that Welsh Government, at its highest levels on the officials side, hasn't grasped the need to change some of these elements.

So, is it an expertise shortage, a very specialist expertise gap or—

I don't doubt their expertise, actually, I think it just needs someone to decide that we're doing it differently. These aren't stupid people; they understand. They're applying rules that are set for them, and I would argue, too harshly.

Thank you. That's helpful.

Sorry, perhaps I don't understand that grant system enough, but I just wanted to understand: when you said 'intellectual property', is that part of the grant that they gave to Bad Wolf then, or is it to do with intellectual property as well as the asset itself or—?

I've got some questions on Creative Wales, but I've got a couple of other things to ask before that, and the first, I think, is to challenge you on your observation that AMs have been jumping up and down. They've been doing that, not because they don't think Government should be taking risks; they've been doing it because, for three years, Government hasn't been answering questions about the transparency of how they've taken those risks. And that's resulted not only in the worst Wales Audit Office report happening at all, but also this inquiry happening. So, that's what we've been—

I wasn't actually addressing my comments to these particular issues; I think more widely—

We've learnt far more in this session, from you today, than I've learnt from Government in three years, let me tell you.

We've talked a little bit about the expertise within Government. You've said that some of them are very good officials and yet some have a lack of understanding. Bearing in mind that we've got Creative Wales on the horizon now, do you think that there's enough width of capacity within Welsh Government in terms of their bits of expertise, if you like, to make Creative Wales a success? Or is Creative Wales going to work the other way around and going to be a mini creative industries sector panel? Or a maxi one, actually? I'm not sure what size it will be. Which way around is it going to work?

I think it needs considerable thought to set it up properly. Do I doubt the ability of the officials that I work with in the creative industries team to operate Creative Wales? No, I don't. 

Can you tell us what it actually is?

What—Creative Wales?

Yes.

Creative Wales is an attempt—leaving aside the fact that it's part of the Labour Party's manifesto—

Which we have to pay to get to see, incidentally. So, we didn't pay that, so I'd like you to tell us. [Laughter.]

Creative Wales is an attempt to provide a structure that has that flexibility that I've actually been referring to in some of my previous answers, in that there's no doubt that the ability of the department, as it now stands, to do the best it can for Wales in economic terms has been diminished by being a part of the wider department. 

Why do I say that? Because the needs of the wider department may well be properly served by the types of compliance now in operation. But the creative industries, and I would argue a lot of the newer industries, do actually operate very differently. And so, you need a team of people and rules of compliance and regulation that are different. Could that be delivered in-house? Yes, it could. I don't think it needs to be an external organisation, but it does need to have rules set up for it that are appropriate and work for these types of industries. If we could have that in place, then there's no question that the department—the people I work with at the moment—could operate that.

In terms of using outside expertise, my response on that one is utilitarian really. Why wouldn't we use outside expertise to work alongside them if we had it? I look at the investment panel: some of the people there have been instrumental, really, in providing some of the officials with the skills they now have, and they're a sounding board on some very, very difficult issues sometimes that arise. I think the nature of that particular panel—the investment panel—needs to change, but that's just a function of operating in a new environment. We need to have Creative Wales also, in my view, because people out there find dealing with the Welsh Government, just because it's called the Welsh Government, a slightly mindbending experience. Having a dedicated group of people in an institution that appears to be dedicated to their interests is, in marketing terms, it appears to me, just better.

Would it be looking after—we talked a little bit about it earlier—the development of smaller companies—the sort of territory that Ffilm Cymru inhabits at the moment—as well as a more ambitious scale? A sort of oversight role.

I don't see any reason why it shouldn't, if that's the political decision. The reason I say that is I think there's a big gap in what we provide at the moment, which has to be filled. I referred earlier to being honest with companies coming in that we don't have all the skills. We are a small country, we have very few talented people. That's a feature of size. So, if we've got talented people working in some of these fields, they need to be part of the structure—the strategy—going forward, in the sense that we have officials and a department dedicated to helping them develop their careers. Production companies can look after themselves, but talented individuals can't—whether they be scriptwriters, producers, directors, actors, whatever—and having someone that centrally is thinking about their interests, and looking for work placements and—. Let's assume we had a talented young cameraman; I would like to be in the position where one of the officials for the next project coming in was able to say to this LA producer, 'By the way, we'd like you to take Fred or Sally—or whoever it is—because we think they are talented people, and we see this as being a way of developing their skills base.' Maybe those are the people who, in five or 10 years' time, can actually move from making just the arthouse film or the creative project that is particularly valuable to Neath or whatever, and can move on to a wider horizon that has a greater economic impact, as well as having something that is culturally satisfying for them. So, that idea of keeping it in-house within the department is attractive, but it's not easy to do.

But it's coming mainly from an economic development perspective. I'm thinking of all these bits of evidence we've had previously, that there's space for all different types of—in this case—film within Wales, but do you think this Creative Wales will be, as I say, not particularly interested in arthouse production companies or small cinema?

It's not a question of interest; it's a question of what brief it's given.

Well, that's what I'm trying to get at. Do you know what the brief is, yet, and how the industry might have fed into Welsh Government about what they would like Creative Wales to be about? Is that clear yet?

No, I don't think it is. I don't think it is.

Oh, okay. Well, that's a fair enough answer.

I think Creative Wales was clear at the time of the manifesto, but time has moved on. I have no clear description of what it might be in six months' time.

Okay. Well, that's fine; you share our confusion.

But that doesn't worry me. It doesn't worry me, incidentally. I think it's just a question of sitting down and agreeing what it is.

Okay. Well, we're half way through an Assembly term, so it's kind of worrying me a little bit. Will you be advising the Government under its new economic plan? You know these sector panels are going, and we've got this new super-duper advisory panel that's going to be—. Are you likely to be involved?

As I understand it, the present view is that the creative industries—Creative Wales—will be kept running as an autonomous body alongside that strategy, because it's seen to be addressing a different target audience, a different market and needing different solutions. But I don't see it as being in conflict in any way at all. I mean, if you look at some of the things we're asking companies in other sectors to provide, the creative industries can provide those just as easily, particularly in the field of high-quality jobs, skills and training and all that sort of stuff. 

You weren't particularly perturbed, then, that the economic plan as it is is now focusing on four sectors—I don't think they're calling them sectors—rather than the original nine, which had the panels set up to go with them. The structural change hasn't—?

I wasn't a big fan of the sector approach, to be honest, because I couldn't see that it was adding value in all of the sectors. It was fortuitous for the creative industries in the sense that it gave us a separate identity at a time when that politically made sense for us as well as for the Minister and it allowed us to do our own thing, I would argue, relatively successfully, really, in terms of what's been achieved over the last seven or eight years. But that's for others to decide.

So, they'll still be getting your advice, just by a different route, now, I think—yes? Would that be fair?

Well, my appointment comes to an end in September anyway, so whatever happens after that is for others to determine, really.

Okay. Thank you. Can I just clarify one thing? You mentioned in evidence—I think it might've been to Mick—that it was a good idea to have lots of empty studios and you were prepared to explain why. Was it primarily on the basis that it's a showcase if you've got lots of studio space?

No, not at all.

You said that it was still good for Welsh Government.

If you go back to the early days of the WDA, really, as part of land reclamation, they were putting new industrial estates in, and one of the advantages of that was that if someone came in, you could show them a building and say, 'You can have that next week for 10 quid a week' or whatever it was. In the case of our industry, if we look at the studio-based drama side, if you haven't got the space, you can't make the offer and the cost of holding buildings empty is so modest, really. Take the Pinewood building as an example: we could dispose of that for value tomorrow, so I'm told by the property people in Welsh Government, but potentially it has greater economic value for us if we can hold on to it and have it available for projects coming in. But we always need to have that little bit more space than we have. When we sat down and planned the Bad Wolf project, we made it larger than it needed to be and it's already full. So, the hope we had that we could get other companies into Wolf Studios is diminishing. There's one particular company that I know the officials would like to offer that space to, but to be fair, it's not available—

Well, if they don't need a high ceiling, there are lots of other places they can go. Thank you for your evidence.

Sorry, can I just ask—? It's on exactly the same subject. In the Government's press response to the auditor's report, they said that 

'Pinewood were fully aware of our plans to enter into a working agreement with Bad Wolf'.

Do you know from what point they were aware of that? Because, obviously, they were involved in discussions with the Welsh Government some years before Bad Wolf appeared on the scene. You may not, but do you have an idea?

It would have been quite early on, but I couldn't give you a precise date.

That's fair enough. We'll ask the Minister. Thank you.

They'd already heard in the marketplace, anyway, you see. So, they would have known very early on. But I don't know when that was ever discussed. No, I don't.

Okay. Thank you.

Finally, Jenny.

You said earlier that you would have preferred that you didn't have two studios based in Cardiff. Presumably, the reason why Bad Wolf located in Cardiff is because the two big hitters from Bad Wolf insisted on it.

No, far from it. Interestingly enough, they were interested in going further west. 

So, what, then, was the driver—? [Interruption.]

We were looking quite seriously at whether we could locate them in Baglan, Port Talbot, and that sort of area. But it goes back to my earlier point: we didn't have buildings available. The only one we had, really, that they could move into within a relatively short space of time was the one they now occupy. We are talking, at the moment, to a company—the major company I referred to earlier—and they insist on being close to Cardiff. But that's fine; that's what they want. But Bad Wolf, and some other companies, are much more agnostic, really. I have to be honest, I think moving away from the M4 is a problem, because they perceive the link to London as being key. But they're not as worried about these things as people sometimes think. We do a lot of work with a company in Madison in Wisconsin, and to get to the UK, they have to go to Chicago airport, which is a long way. So, they think that we're quite close to Heathrow and London and all that sort of stuff. We overplay that sometimes.

Good. Thank you very much.

So, withdrawing from third-party funding was something that wasn’t just applied to Wales; it was right across the board as far as Pinewood were concerned. That left us with a decision to make. We had three options: one, to allow Pinewood to walk away and for us to manage the studios; two, to find a new tenant; or, three, to reach a new agreement with Pinewood. We believed that Pinewood—we still believe, given that it’s operating at capacity—that Pinewood has immense brand recognition globally: stronger recognition than Welsh Government does in terms of the provision of studio space. I think that anybody involved in tv and film would probably recognise Pinewood as a studio before they’d recognise a Welsh Government—

Is that why you chose them and didn’t look to other companies before you came to that decision?

Not just—. I’ll come on to the process next. So, that ruled out us managing the asset ourselves because the brand is some much stronger if it’s somebody that’s within the creative industries at the moment. There would have been huge opportunity costs involved in finding another tenant. We estimated that it could take nine months to find another tenant, and during the period that Pinewood's been operating we estimate that the benefit to the local economy in terms of production spend is between £5 million and £10 million, so a huge difference, a huge opportunity cost that would have been incurred in terms of going out to find another tenant. And so, what we reached was an agreement with Pinewood to ensure that the studio could maintain operations.

I think if you look at what's happening within Pinewood, you'll see that it's operating at capacity, and it's maintaining a global provision for marketing Wales as a centre of excellence for the creative industries. And in terms of the advice that we took in terms of going out to market, we want to the expert legal advisers, Shipleys. Of course, we also took advice from the sector panel, and I understand that the chair of the sector panel has just given evidence. And we believe that, in the circumstances, the decision that was made was the right decision, not just for the studio space, but also for the creative industries in Wales. We know that right across the UK there is huge pressure in terms of the availability of studio space, and if we'd gone out to find another tenant we could have lost, and I think what's been demonstrated by the studio operating at capacity recently is that we would have lost that work. We would have lost between £5 million and £10 million being spent on the local economy.   

We'll get more questions on that. What I'm trying to understand is that, at the beginning of the process, why did you choose Pinewood? Why did you not look to other companies? Why was it Pinewood?

We did, actually, discuss—. Sorry, I should have been clearer at the very outset. Yes, we did discuss opportunities with other companies, including Warner Bros., I believe, and a number of very high-profile studios—Elstree Studios, I think, were another. I'll let Joedi give some more detail about companies that we spoke with, but Pinewood approached us with the proposal for that particular studio space, but we did enter into discussions with other studio operators as well.  

So, they wanted that particular studio as well, then. 

If I just invite Joedi to run through the companies that we spoke with. 

Not that particular studio. Pinewood approached us specifically to enter into a collaboration agreement with them, and that studio was sought off the back of that. But we did have conversations with other studios about different sites in Wales before we were talking to Pinewood.

So, what made you come to the decision that Pinewood was the best offer, because they came to you with this plan?

Based on the advice that we got externally and based on the advice that particularly came back from Shipleys, who are experts in this field. We reached the decision, or my predecessor reached the decision, that the Pinewood option was good for Wales, and I do think, in terms of the productions that have been filmed at Pinewood, it's been demonstrated as being good for the Welsh creative industries.

Okay. Mick.

Specifically—sorry, it might be helpful—to your question 'Why Pinewood?' Because Pinewood came and applied to us. The other companies who came and expressed an interest still have an interest, but haven't come with a formal request for Government to help support them land in Wales. Pinewood came with a specific request: 'We would like to come to Wales. Will Government work with us to land our project?'

And just quickly, Ron Jones said that Pinewood chose the location as well. Is that the case as well? They wanted that building. 

Officials showed several buildings to Pinewood. They chose that building. 

Okay, thanks. Mick Antoniw. 

Ron Jones, in earlier evidence—and I understand you may have heard the evidence—said that his advice, and he's obviously very expert in his field, was to walk away from Pinewood. The Government's decision was not to do that. I was wondering if you could explain a little bit about consideration of that advice and then what the conclusions you came to were. I raised the issue, I think, with him, of reputational issues and so on. How did you come to the balance of consideration, I suppose, between those factors, and then overturning what was really quite, it seems to me, blunt advice that was given to you. 

Sure. On balance it was, and I think Ron said that. It was a decision that was taken on balance. We had advice from Shipleys. We had advice from the creative sector panel. I've already identified the opportunity costs that would have been incurred with pursuing the other options. We also would have lost a very strong brand associated with the creative industries, and in terms of reputational damage, I think that would have had a negative impact on what is a fast-growing and thriving sector in the Welsh economy. I think this is sometimes forgotten amid all of the questions about the detail of the agreements. The fact is we have more than doubled the proportion of UK gross value added that's attributed to the creative industries, and that's as a direct consequence of the actions and the strategies that have been pursued by the Welsh Government. The decisions that we've taken since 2011, which have been operated on the back of the Hargreaves report, and the strategy that was developed as a consequence of the report, have led to strong growth, enviable growth in the creative industries within Wales.

Where did the advice on the reputational damage, which seems to be the major factor, ultimately, in shifting the balance—where did that come from?

Well, in terms of reputational damage, we always recognise that when you're dealing with a global brand it's important that the relationship is such that that brand is able to promote Wales in a positive way, and that, equally, if the relationship is lost, it can be ended in such a way as to be—or rather not to incur any damage—

I understand that, but where did the advice come from on that?

In part from officials. Of course, the sector panel had a role in offering advice as well, and industry engagement as well.

I might be able to help, Minister—I visited Pinewood and met the chief executive with Ron Jones, and that was his advice. Initially, he was concerned that, I think he said earlier, the Pinewood business model wasn't being delivered according to the business plan—no business plan gets delivered on paper—and the market they operated in, and some of the assumptions they made didn't come true, so the business plan was failing. He was concerned that, actually, maybe we should move on and move away from that. On balance, we negoatiated an agreement with Pinewood that he said he thought was a very good agreement, and the evidence of that is the fact that since we've had the new collaboration agreement, the studio has been full, the income we're generating through that studio, for us as the landlord, is higher than was originally budgeted, and we're on line to achieve what we said. The economic benefits that the Minister said have also been achieved, and, back to the point that was discussed earlier, but maybe not properly landed, it is a better deal in the first year for Welsh Government to let Pinewood stay there than for Welsh Government to leave the studio empty while we seek another, alternative tenant. Going forward and beyond that, things can change, and a new tenant could bring a project. But in the first year, that short-term analysis was part of the decision-making process.

Okay. Suzy Davies.

Just listening to what you're saying there, I think it's quite surprising that Pinewood seem to have sprung into action now that they've got a better deal for themselves. This studio wasn't full during the period that they were under the original agreement, and now it is. So, my question, which I don't think I've yet had an answer to that I can accept, is: bearing in mind that Pinewood had a break clause coming up in 2020, which was actually the end date of the renegotiated agreement as well, an agreement under which, after five years, the Welsh Government had remedies against Pinewood, in the terms of recovering incentive moneys, why you didn't wait until the break clause and insist that Pinewood actually met its own contractual obligations during those first five years.

Well, in no small part because Pinewood was taken over, and they took a strategic decision to withdraw from third-party funding, which then offered up an opportunity for us to renegotiate the agreement.

Yes, but a contract is a contract. The parties didn't change. Just because the companies changed their minds about their own strategic way forward, in the renegotiation you would have expected some remedy for that pulling out of the contract by Pinewood, because it seems to be their choice, not Welsh Government's.

When Government works with sectors, or with businesses, with types of industries, we have to work in a way that relates to how those companies operate. I've known the media sector, on and off, for over 30 years, when I was chair of Screen Wales, in a previous incarnation of that body. Working in the media sector, it's the most difficult market to determine and to judge, and I don't think there'd be anyone in other markets—maybe energy—who would disagree with that statement. So, what was faced at the time—and I wasn't part of the original decision, obviously, because I wasn't in Government—was the clear decision to maintain the best of what we could get in our relationship with Pinewood. And that is what I believe we have done in Government. If we hadn't done that, then we would certainly have been guilty of not promoting Wales properly.

Would Pinewood have walked away, as opposed to you walking away?

I might be best able to answer that because, again, I was in the negotiations with the chief executive of Pinewood, which Ron Jones attended with me. The primary concern from Ron was the two risks, and he discussed both of them, I think, this morning with you. The first one was that they were bringing productions that were higher risk than was first anticipated or intended, and he was concerned that that was exposing the media investment budget to higher risk than was planned, and that was a significant concern. But more specifically he was concerned that, because Pinewood's business model was changing, and they were moving, they were not delivering the benefits for the supply chain that they had promised, and he was concerned that that might not be in the best interests of the Welsh supply chain. And both of those issues were issues that were addressed in the collaboration agreement.

Okay. So, the collaboration agreement, the original one, didn't contain any clauses saying that, 'If you fail to meet set targets, then you owe us some money'? Probably not.

Well, you need a legal opinion on that. We did take some legal opinion on that. It is not as clear as black and white. We think we may have been able to sue them for some remedies, but, equally, they were allowed to walk away from some of the remedies as part of the legal advice that we received.

It just strikes me as convenient that one of the key clauses in that collaboration agreement, which we've established, even though we haven't seen it, has come out in the auditor's report, is that there was a five-year exclusivity clause in there, which actually suited the Welsh Government to get rid of, in order to allow Wolf Studios to go ahead. Were these connected at all?

No. We've got it in writing from the then—

That they agreed it, yes.

They were in agreement with it.

But it certainly suited everybody for this renegotiation—. The timing seemed very convenient, if I can put it like that.

The original collaboration agreement—easy for me to say; I apologise—acknowledged that Badwolf intended to come to Wales, and intended to come initially to Swansea studio. That was acknowledged and accepted in the collaboration agreement. The collaboration agreement, as you rightly say, didn't allow any other new studios to come, and as part of the renegotiation, you're right, Pinewood did agree, the chief executive did agree that he was happy, because the Swansea studio didn't work for Pinewood, that they consider an alternative studio, initially in the Valleys, and then, when that didn't work, in Cardiff. So, they agreed that, notwithstanding the clause, that studio could move from Swansea to Cardiff.

As I say, I think the timings are a little convenient on that one. Can I just go back to Pinewood insisting on having the building that they did have? And I appreciate that they were offered a number. Obviously, I'm aware that, at roughly the same time that these negotiations were happening, Welsh Government was trying to buy a part of the Swansea bay estate and there was a two-year delay in leasing back to the owner of the rest of that estate, which they would argue had compromised them a little bit. But, you know, we've got Dragon Studios not that far away, which I appreciate is laid out differently from the new Pinewood studio, but the capacity is not that far different. What attempts were made to get Pinewood to buy up some of what we already had, rather than setting up a new studio?

Pinewood were shown all the facilities in Wales, including any vacant buildings in south Wales that could potentially meet their requirements, and they initially landed on Swansea. They looked at another venue in the Valleys that isn't the one at Bridgend, and eventually landed on the Cardiff one as being the only one they felt that could deliver to the standard they required for the product that they were signed up to deliver.

At some cost to Welsh Government, of course. Was there any cost analysis done of the other sites that could have been used perhaps to help Pinewood take a different—

All of the sites were cost analysed from a Welsh Government perspective, to the extent that a potential application existed, yes.

Okay, right. Thank you. I suppose these analyses are confidential, are they, or are they things we could look at at some point?

Well, some of them are. What is releasable—

We can take advice on that. I suspect most of that information is available but some of it will be confidential. So, if the landlord of the property doesn't want it released, we may not be—

Yes, and I'm happy for figures to be redacted as well—

—able to release it. But we can ask.

—it's just, with my contract hat on, I'm quite nosey to know what these contracts actually look like. 

Then, finally, one of the advantages of Wolf Studios of course is the height of the ceiling, which seems to have been used—. Actually, in evidence that we've taken, and in fact in the audit office report, that has been something that was a problem in other studios. Presumably, Pinewood, when they were looking for their new fit-out, would have known that the ceilings were a bit on the low side. We're a bit confused by this one and the importance of it.

Pinewood were well aware of the height of the ceilings—well aware. They're the experts in this field. When it comes to high-end tv drama, the height of a studio is not as important as it is when you're filming movies. Having height is far more important when you're filming movies. But, actually, it's all moving on quite quickly now, because, increasingly, high-end television drama requires studio space that has a high ceiling as well. If you only go back to the mid 1990s, when I think it was Eon or Danjaq that were looking for studio space to film GoldenEye, the Bond film, Pinewood and everywhere else was filled up so they ended up taking over a former Rolls-Royce factory with relatively low ceilings. That couldn't happen today. The market's moving on. The industry is moving on. But, for tv drama, when the studio space was identified, it was deemed to be perfectly suitable. The fact that it's still operating today at capacity, that it's full, also demonstrates that, in terms of tv—and, in addition, movies have been filmed there—that particular building is absolutely fine and it's fit for purpose. 

Okay, bearing in mind things are moving on very quickly on all fronts—we accept it's a fast-moving scenario—a 15-year lease is quite a commitment, isn't it?

But you only need to look at what's happening right across the UK at the moment with Northern Ireland, with Scotland, right across the creative industries in England. Additional studio space is being sought. There is incredible demand for studio space and this is forecast to only intensify in the years to come. The creative industries is considered one of the primary industries of the future. Therefore, increasing studio space is a priority not just for us here in Wales but also for other devolved Governments and for the UK Government as well.

Okay. Maybe I can take you back to where I started then, which is, when Pinewood was under its original agreement, it didn't seem to be filling that studio. It had two years' free rent; you'd spent a lot of money on it. Now it's full. Why the change now?

Well, it's the nature of the business. I tried to point this out earlier. And I think Ron also mentioned that this morning. We need to have capacity and different kinds of capacity in order to meet what can often be demands for space in a very short timescale.

But that was true two years ago as well. 

Yes. Well, of course; it's always true in the business. 

And the thing that did change that's material to that question is that Pinewood's business plan changed dramatically when they acquired the new investors from New York, and the role that they were playing changed dramatically, which affected their ability to deliver the original collaboration agreement. 

Yes, the MIB side of it, but I think, filling the studio, the demand was there—or was it not? 

No, they had moved away from picking films, trying to invest themselves in films. They simply act as providing a location for films that are funded elsewhere. 

That's my point. 

The business plan has changed, and they're now looking for different types of productions to facilitate as opposed to generating and creating product that they're investing in to bring—

It was the location question I was—

The other point I would want to make is that there is no comparison between the capacity of Wolf Studios and the Pinewood studio. They are—

Oh no, we've seen them both. 

—different buildings. I'm glad you've seen them both. And, clearly, the fact that both now have been in heavy use up until this last month that we have last got the confirmation and figures for has proved that we need, actually, more dedicated space for the future. 

Will you allow me one sneaky last one? 

Well, we are running out of time. 

Ah, right, sorry. It was just a question about, if Pinewood is full, pretty much, and Wolf Studios are, what about the other studios up and down the M4 corridor, which aren't full, at all?

Part of my team is Wales Screen, who is the first point of call, really, when people want to come to Wales to film, and, when we get enquiries for studio space, we promote them all equally. So, we send all the details back for all the studios. If they want to go and visit them, we take them around those studios. So, the demand for the studios is there. I know Dragon, for example, are empty at the moment, but we showed somebody around there last week, for example. So, I think we're equally promoting them all. The demand is there, but it's the nature of the business—it's just waiting for that—

Okay. It's about the promotion then.

—next person to bite, really. Yes.

Okay, that's all I wanted to check. 

And there is also interest beyond the M4 corridor as well in finding suitable studio space. There's interest in north Wales now as well in identifying suitable premises. 

Okay. Can I just clarify quickly for the Record what Mick McGuire responded, said, with regard to Pinewood and then the development with Bad Wolf? Did they waive the exclusivity clause in relation to Bad Wolf, then? Pinewood allowed for that to happen. I'm just wanting to get it clear on the Record that they were in agreement that that clause could be broken for Bad Wolf to be carried forward.

Yes, in writing and verbally. 

And where and when—[Inaudible.]

Yes, I have an exchange of correspondence with the chief executive. 

Okay.

That was in advance of the studio deal with Bad Wolf. 

Yes, that was—. We would not have entered into the agreement with Bad Wolf without that agreement. 

Well, that's—. Yes, thank you. 

Okay. I just wanted to clarify that. Okay. Vikki Howells.  

Thank you. How was the Welsh Government's collaboration with Pinewood negotiated to better serve the industry in Wales? I'm asking that question in the context of the auditor general's report that said that the associated financial projections didn't represent good value for money.  

Clearly, we would wish to be gaining rent from that studio space but, as I said earlier, given the position we were in with the company being taken over and a change in strategic direction, we were faced with those three options. And the decision that we made, I believe, represented best value for money and the best prospect for improving the creative industries base in south Wales. I think the fact that we've seen Pinewood operate at full capacity since the decision was made demonstrates it was the right decision. But, equally, in order to optimise the studio space, we would wish to also generate rental income from there, and that's something we'll be looking to do in the future.  

Okay, thank you. 

Okay. Siân Gwenllian. 

Discussions with industry were vital, but I think so too were discussions with our sector panel, comprising of experts in the field, and also external advisers. I've mentioned before Shipleys. They were able to offer advice and expertise that led us to the decision, but we also engaged with the likes of the British screen commission. Their report clearly demonstrated—the report on studio space capacity in the UK clearly demonstrated that there was a need for additional studio space in the UK, and we believe that taking advantage of that lack of available studio space made perfect sense for the creative industries in Wales. And, at the time, other UK nations were looking at expanding as well. I've already mentioned that Scotland and Northern Ireland were looking at expanding their studio space. So, again, it gave us an opportunity to ensure that we remained one step ahead of them. And, at the time, there was also an increase in enquiries to Wales screen commission for studio space from production companies. So, the demand was well demonstrated at the time. 

But no direct negotiations or discussions with the companies—production companies. 

Well, through the sector panel—

Only through the panel. That's fine. That's fine.

The intention of the studio originally was that it would be primarily for inward investment productions, but it would be available to Welsh productions, and we had enough evidence to suggest that there were enough inward investment productions that required studio space out of greater London to justify us doing that. And it also linked with the introduction of the tax credits, the high-end tax credits, so there was an influx of productions from the US as well at that point, so—. 

There was ample evidence to demonstrate that this was required and required very, very immediately. 

But no direct discussions. 

Well, the discussions that had taken place had taken place, through the Wales screen commission, with businesses that were looking at coming here if we had the available studio space. So, it made perfect sense, based on the demand, that we made the decision. 

Yes, but there weren't direct discussions with production companies. That's all I asked, and you've said that; you've answered that. Thank you. 

Can I just comment on that? Because—.

Quickly.

Sorry, I must just ask, just for clarification: is the suggestion that we should have shared details of commercially confidential discussions with Pinewood with other production companies regarding that specific project?

No. The question was: did you discuss with production companies whether there would be enough business for the new studio? 

Well, we had already gathered the evidence base, based on the enquiries—

And what you've said is that you got the evidence from other sources but not directly from production companies. That's—

Can I just—? The team are in constant—. The creative industries sector team are in constant dialogue with the Welsh indigenous production companies. So, we would have had—not direct conversations about this project, because it would have been confidential, but we would have been gathering the data at that time about what was out there and what these production companies were doing, absolutely, yes. 

It was brought to the attention of my predecessor in January of 2016, and, upon my appointment in the summer of 2016, it was brought to my attention. I asked for the issue to be examined further and for any possible or potential conflict to be resolved as soon as possible. 

And what were the results of that?

Well, that's when we were looking at the agreement that we agreed—

That's when the agreement was renegotiated. And that's why the agreement was renegotiated. 

Can I just ask—? Ron Jones, obviously, came in and said that you shouldn't carry on with the relationship with Pinewood and that you should be able to then take that in-house. Why didn't you listen to that advice, because, you know, experts are there for a reason? Why was that advice not heeded? 

I think I've already answered that question with the decision that was made on the basis of the three options. And, I think I've covered that pretty extensively now, that, on balance, the decision was taken to proceed with a new agreement that would maintain the brand of Pinewood in Wales, it would maintain the profile of the creative industries on an international stage with Pinewood promoting and marketing creative industries, and that would enable us to get productions into the studios immediately, avoiding those opportunity costs that I identified before, of between £5 million and £10 million. And, I think—

And none of that would have been possible if you hadn't carried on with Pinewood being there.

If Pinewood hadn't have been there, the other two options that I identified earlier would have been for us to manage and market the studio, which would have been incredibly difficult given capacity within Government, and we would have lost a brand. As I said earlier, I think the brand of Pinewood, in terms of the creative industries globally, is far stronger than the brand of Welsh Government. And, so, it's vitally important we maintain the value of that brand. And then, also, if we'd gone for the third option, we would have, in all likelihood, have spent between six and nine months identifying a new tenant, which would have, therefore, lost us the opportunity to attract those productions that have come to Pinewood in the intermediate time. And those productions, we estimate, as I say again, have contributed something between £5 million and £10 million to the economy of south Wales.

Okay.

Can I just ask you to go back to the conflict of interest question? You say that this came to your attention just as you started to renegotiate. Why wasn't this covered off in the original collaboration agreement, so that Pinewood wouldn't be allowed to have market advantage as a result of the collaboration agreement? They'd been running in the Isle of Man before, so presumably they'd already been doing this.

Three reasons. The business plan that Pinewood had applied to us for support for changed radically—one, because they'd made assumptions about the nature of film and tv productions that were incorrect, because the height of the ceiling did damage the sort of productions that they were doing. They were unable to bring the sort of low-risk productions that they'd promised to us and they brought us higher risk productions, which was a concern for the investment panel and the media investment panel. And thirdly and, perhaps, most importantly, Pinewood were losing money and they were looking to make money where they could, and they were, therefore, not allowing the local supply chain to service the projects that were coming to Wales in the way that was first envisaged. And it was that conflict, in particular, that officials and Ron raised with the previous Minister, and it was that conflict that officials and Ron raised with the current Cabinet Secretary. And it might be helpful if I just finish that, because I think it might answer your question. Although Ron initially said, 'I think this conflict is such that we should walk away'—that was his clear advice—at the end of the negotiating process, Ron was happy to say, 'Actually, we have got what I believe is a good, reasonable compromise agreement and one that manages the conflict.'

That wasn't my question. If I were in Pinewood in those circumstances, I'd be looking to make up money somewhere as well. I'm just wondering why it wasn't prevented in the original collaboration agreement.

Well, I think you're into fine legal law issues and arguments. I think there were remedies that we could have pursued. There's no certainty when you go to court that you will enjoy success, and there was action that they could come back and argue and defend. So, a conflict of interest was covered in the original agreement. But, could it have been covered better? I'm sure you're right—it could have been done, with the benefit of hindsight, and it is better covered in the new agreement.

All right, thank you.

A few more generalised questions. Much of the evidence we've heard and many of the questions are around an industry that is, actually, growing at quite an astonishing pace. How would you present the state of the industry as it is at the moment and reputationally in Wales and internationally?

Incredibly strong. I know that there have been negative headlines often. We've got a history in Wales of sometimes talking ourselves down—criticising ourselves a good deal and not actually recognising the success of the industry. It takes the likes of The Guardian and The Times and other publications to actually highlight just how successful the creative industries are for some of our journalists here to then retweet those positive headlines, rather than generate them themselves. The fact of the matter is that this is one of the strongest growing sectors in Wales. It's growing stronger in Wales than anywhere else in the UK, bar London, which you'd expect to see from London—heading the field—given the strength there. But in terms of job creation and in terms of contribution to the economy, the creative industries have a huge, huge success story to tell in Wales.

The challenge we've got now is in maintaining that momentum. Since 2011, we've pursued a strategy that has been successful. It came off the back of the Hargreaves report. What we recognise now is that, with the shift within the industry, we need to shift our focus, primarily onto skills and to making sure that we can serve the demand of the industry in Wales in years to come in terms of making sure that we've got people who are skilled correctly, that we've got the right supply chain in place and that we have the right networks in place as well to grow not just opportunities that come in from outside of Wales, but also to make sure that we grow indigenous production companies too. So, I think, right now, we've got an amazing story to tell. We've got a great profile globally, but there are challenges to come, which are not unique to Wales. That's why we're establishing Creative Wales—to make sure that we remain one step ahead of the competition.

Comparatively with the rest of the UK, percentage-wise, the growth has been greater in Wales, but in real terms we've grown from around £70 million to £180 million. The UK has grown, over the same period, from £4 billion to £8 billion or £9 billion. You have a budget of around £30 million for investment, yet you seem to have difficulty in spending it. I'm just wondering why that is.

In terms of the media investment budget?

Absolutely—£13 million or £14 million allocated out of £30 million. It would seem to indicate that there's something not working there and that the—

Clearly, that's been affected by the negotiations that have taken place with Pinewood, and Pinewood moving away from managing third-party funds. So, that's affected the use of the MIB. But in terms of other support that the Welsh Government is able to offer through Wales Screen, for example, and the fund that is being consolidated within the economy futures fund, I think we're utilising those resources very well indeed and often the budgets are oversubscribed.

But the MIB money that's available, of course, is available for other projects as well. It's still not clear why—. I'd have thought that there was considerable demand out there for projects. One of the things that's been suggested, of course, is that the way it operates isn't sufficiently flexible—that the terms on which it operates are sometimes counterproductive. I wonder if you could expand on that aspect.

I think, with the publication of the economic action plan, we've got an opportunity to look at the concerns that have been expressed by production companies. I think some of those concerns may be fair. What we want to do is make sure that we simplify the process for applying for financial support and that we also make the process more transparent.

And what sort of timescale do you think that will take in, because this is a fast-moving industry and it's continually changing?

So, that work is taking place right now. The economy futures fund has gone live. The media investment budget, whilst we gather a new body to be able to give us expert external advice, is paused, but we expect to be able to utilise that resource very soon, but also in a way that addresses the concerns that industry have, I believe, told committee about.

One of the parts of evidence—you partly addressed it, and it came up this morning and it's come up previously—is that, in order to stay ahead in this industry, you've got to have the capacity; you can't be something where you're not in a position to make an offer when it arises. What appears to be the case is that we are more or less at capacity in terms of studio facility. We've got spare money. What is stopping us from substantially expanding state-of-the-art, world-class additional studio facilities and be even more than one pace ahead of our competitors?

Well, we're looking at doing that with the assistance of industry. For example, we're looking at bringing Channel 4 to Cardiff to create a new HQ. There is the potential for other investments as well. I think what's important is that we develop studio space and other facilities in line with what our stakeholders and partners are doing as well. For example, I think it's really important that we don't duplicate what higher education is developing in terms of skills provision, skills training. There are some universities in Wales that are doing a great deal of work to meet the demand of the sector, but, of course, as we look forward with the economy futures fund, it gives a new prism, a new lens through which we are able to make investments. And that will mean that there'll be a sharper focus on providing skills training, there'll be a sharper focus on making sure that there is fair work within the industry and that there'll be a focus on ensuring that investments made in production companies produce long-lasting benefits for Wales.

But in terms of capacity, just in terms of the basics for studio capacity, we have a shortage. By what stage do you estimate that shortage will be overturned?

I don't necessarily think we have got a shortage, because we've got Dragon down the road, we've got Bay Studios, and they're not being fully utilised at the moment. And that was the point that Ron made—that, because they're sitting empty, it gives you something to market. So, I don't necessarily think we are full to capacity on studio space, but—

And yet we are capacity-constrained in the industry and Ron did say that. But the primary constraint on releasing the potential of the industry is on skills, and I think he talked about that and training. Specifically what we're trying to do on that is to work with UK Government on an industrial strategy to enhance and invest in the creative cluster that Wales currently has.

Can I then move in a slightly different direction on it? Of course, within the creative industries, it's a big business, it's commercial, it has all sorts of skills, it's incredibly profitable when it is successful, incredibly valuable to a new, growing Welsh economy. There's also another side to it, and that is about promoting the culture, the identity, in a way that many other countries are also doing. One of the suggestions is that there is actually not enough clarity about the availability of funding to actually fulfil that role—that that role isn't recognised as being a commercial asset in itself as well as being an important cultural asset. How is that being addressed?

I think I could probably write a thesis on emerging self-generated art and the support that currently isn't there but should be there in the future, but I'll hand over to my colleague.

I would draw the committee's attention to the Wales screen fund document, which relates to exemptions in relation to state aid, and that sets out very clearly in the definition of 'difficult audiovisual works' and in the definition of 'support for audiovisual works' under the 'cultural test', as it's called, what is required. I would say that we are in a very strong position to pursue what is set out in this memorandum, and we intend to do so.

Okay. One final point, then. In terms of the way contracts and funding are arranged with interested parties and so on, the issue of local employment, co-production et cetera—the things that will actually leave a legacy, a longer term legacy—how is that being addressed and how successful do you think Welsh Government is actually being in actually beginning to achieve that? I think it's one thing to have a big production come in and then it goes and takes everyone with it; it's a question of what is being left as a foundation for a growing industry within Wales.

Looking back at what we've done, I think we've grown the sector to a position where it's strong, but, looking forward, what we need to do is make sure that the wider benefits of the creative industries can be enjoyed by more people and that more people are able within Wales, within communities where studios are based, to take advantage of the increasing productions that are likely to be realised. In order to do that, I wouldn't say that the creative industries are distinctly different to other sectors. So, in order to do that, we need to make sure that creative industries support is aligned with the economic action plan and, in particular, the economic contract, where we will need proof that a business is supporting growth, either in its own right or through the supply chain, and that it is complying with the principles of fair work. I know that there are concerns over zero-hours contracts, the temporary nature of work, individuals who might be isolated from casting opportunities because they're too far from where the casting takes place. Well, in the future, the principles of the economic contract will apply across the economy, and, in terms of the economy futures fund, which is where the Wales Screen funding has been consolidated into—[Interruption.] The calls to action are, of course, going to be very important in terms of investment in the industries of tomorrow, investing in innovation and digitisation, so I think, actually, the challenges of the sector, criticisms of the way that the sector operates, will be addressed in Wales through the economic action plan lens through which we are going to be offering support for businesses.

Perhaps the best example of the legacy grown is that when the creative sector panel was first introduced there was a 6:1 multiplier effect in terms of the Welsh spend versus Government spend. That's increased to 11:1 currently. It's on an upward trend. It compares with 8:1, we understand from colleagues in Northern Ireland. The four productions that went through Pinewood this year had no Government support, and productions that don't need studios, like Keeping Faith and Hinterland, which are all filmed in west Wales and in mid Wales, increase the capacity, clearly. So, there are a number of ways in which there is evidence that the legacy is being built.

Okay.

Quickly, Mick, if it's—

Just one quick one. We had some evidence from the trade unions who are vital in terms of the skills and so on. What we understood is that there's actually very little engagement with the trade unions in terms of the investment panel—that they don't have a party on it. Can you give a commitment that there will be actually improved collaboration and working with those who actually are on the ground in the industry? We talked about the Musicians' Union, the Broadcasting, Entertainment, Communications and Theatre Union who are now in with Prospect, and Equity.

I think the work we're doing with our social partners in putting together the economic contract, and in terms of working on the definition of fair work, demonstrates that we're working to apply social partnership principles across economic development, and that would, of course, include creative industries.

Can I just add to that? It's particularly important in an industry that is well-known for contracts that are on/off, and therefore the fairer work for self-employed people, for independent contractors and smaller companies is a key part of the offer that we can make, and that gives a more attractive option for skilled people to go into the industry. Interestingly, what I saw in going through GloWorks, which, of course, is a fine example of what the Welsh Government has achieved in terms of developing post-production facilities and so on in the creative industries, is that many of these people are recruited directly out of places like Cardiff and Vale College because they get people through the NVQ route who are particularly interested in developing specific skills there. So, it's not just a graduate market; it's people coming in straight through that stream, and it's very encouraging, I think.

Jenny.

Well, I wanted to move on to the future—

I've still got Neil Hamilton's questions. I'm not sure whether we're going to have time. So, Neil Hamilton, and then we'll see what we've got left.

When I was questioning Ron Jones earlier on, I asked about the balance in making funding decisions between economic values and cultural values, and he said that perhaps it was time now that we gave greater emphasis to cultural values and put more money in. Is that a judgment that you would agree with? And if you did, would that best be achieved by setting up a separate fund to administer the cultural side of things, or would it be best done by Ffilm Cymru, which would be able to develop the indigenous sector through its normal process?

Ffilm Cymru is funded through the Arts Council of Wales. So, Ffilm Cymru clearly establishes the links between the artistic activity of film, the understanding of film, the development of audiences for film and so on, and that is an essential part of what we need to do because we need to develop a film industry in terms of an audience. But I don't accept that there is a distinction between the cultural and the material in these matters. We're dealing with businesses, we're dealing with industries, but we are also dealing with a framework in which Government may invest in order to ensure that cultural objectives are being reached within the media sector in a way that generates business as well as generating an improved cultural product. The product is cultural, but the way it's produced has to be commercial, whether it's through direct investment from companies or capital raised on the market, or whether it's through an element of Government support. And that's why it'll be much easier, I think, in the new context where we've brought these funds together, for future economic development and economic action, for us to be able to do that. But the decisions in the end in terms of public funding are signed off, usually jointly in this area, by the Cabinet Secretary and myself. So, there is political accountability, which is what we're doing here today.

But I suppose the tension is in productions that have a cultural value, as it were. I appreciate the point that you made that these two are closely intertwined. It might be that, very often, productions that have a cultural value may not necessarily be so commercially viable as purely economically driven productions, and so I think this is the point, perhaps, that Ron was trying to make—to put more money into that side of things.

Can I just finish off this point on the cultural test? I would recommend this paper strongly to the committee, because it sets out clearly what the cultural values are, and it includes exposure of a broad range of images of Wales, exposure of the work of creative talent, not limited to writers, directors and actors who are based in the region, who are informed by the region, and so on. There's a whole cultural agenda there that is an agenda of cultural development that is part of all the decision taking in this area. So, it's not a case of funding for culture and funding for business or cultural industries. The cultural industries are cultural industries.

Yes, I see what you mean.

Also, are we defining culture in this context as Welsh culture or culture as a whole, because I'm not entirely clear what the suggestion is? Should we have some sort of fund that is dedicated to tv and film that has cultural value? Well, actually, all television and film has cultural value; it might just be that some products have a higher cultural value.

Well, I suppose the inference is Welsh culture specifically.

Yes, that's the key question, I think. It's about Welsh culture, and, actually, if you look at what we funded, what we supported, well 20 I believe, I think it is—. Is it 20?

Under the Wales Screen fund, yes, 20.

Welsh language stuff.

And in terms of Welsh language, there's been—

Fourteen.

Millions have been—

The use of other European languages and indigenous languages are part of all this—

Do you know, a more interesting question, I think, is: how do you bridge the gap between official art, the subsidised arts, which are often associated with a high level of cultural value, and commercial arts, which can be universally culturally acceptable, often global, which are associated with a lower degree of cultural value, but which appeal, perhaps, to a more global audience? How do you bridge those two with the emergence of self-generated art by the individual, which can now become commercial, or can contribute to the subsidised and official arts? That's a real key question, I think, at the moment, and although academics have been deliberating over this for some time, I'm not sure that politicians have.

Okay. We know that you've told us that you have to leave at half past, and we've really got many more questions we haven't had a chance to ask. So, I think, unless you can stay, we'll have to talk to your officers about another session before the end of term, because we really don't want to produce a document on film without having asked some of these key questions.

I know that the Cabinet Secretary has other commitments, but I haven't, as far as I'm aware, so I'm able to stay for—

Okay.

If that's acceptable, I've got an automotive conference I need to speak at shortly.

Okay, but would it still be possible for us, potentially, to have another session if we needed to?

If you need to, please do make contact with my office, yes.

Okay. Thank you. Neil.

I'd like to go on to talk about the media investment budget, and most of the money that has been spent from that has been on the basis of non-repayable grants. At November 2017, £12 million had been dispersed and £3.7 million had been recouped. I just wondered how this can be reconciled with the general proposition that this budget is for commercial funding.

Sorry, most of it is commercial funding. I think there are two cases where funding via Wales Screen is being utilised, both because they'd had potentially wider benefits and longer term benefits. They were The Collection and Show Dogs. The Collection because it was believed that there'd be multiple series, and Show Dogs, because of the production company that could assist in bringing more work to Wales. So, every proposal is judged on its own merits, but there were two specific projects where it was deemed that support, both through MIB and through Wales Screen, would be acceptable and desirable.

In terms of the amount of money that's being recouped, I think there's a misunderstanding or perhaps a lack of understanding about how long it can take to recoup investment in tv and film, and it can take up to three years. In the past, there are many, many examples of flops at the cinema that went on to be very big successes as DVDs, now it's a huge market in terms of downloading. So, it can take three years to recoup funds. I think you mentioned the figure of £3.7 million. Well, probably since you were given that figure—     

That was six months ago. 

Yes, but it's gone up and it's now way in excess of £4 million, so it does take time. Some of the big investments that have been made in terms of the MIB have been in productions like Eternal Beauty, Night of the Trampires, Bang and Tiny Rebel, Goose Green and the recently launched Show Dogs. Was it Minotaur as well? 

Minotaur. 

Minotaur, Lionel The First, Jack Staff—all of these are yet to recoup a penny because they're yet to reach launch. So, once they have done, that figure will again increase quite substantially and close the gap, and our hope is that we will then, at least, get a return on that investment.

So, you'd expect, over a three-year period, broadly speaking, to recoup whatever investments you make.

That's right, yes, and our investment has been made on the basis of at least recouping the same amount, but with the wider benefits as well for the economy. And in many instances we've made the investments alongside premium expectation or with a profit share as well.  

And lastly, I'd like to ask about the requirements in addition to commercial return, such as local spend requirements. You require 40 per cent below the line expenditure to be in Wales. How does that compare internationally, because we're in a highly competitive international market here? Imposing too onerous conditions can obviously be an inhibition upon inward investment.

Absolutely. You've got to remain competitive, but also there has to be an expectation that if you're to benefit from Welsh investment, then there's an expectation that you should also utilise, wherever possible, whenever possible, local crews and local talent. So, we believe that our offer is very competitive. I think the outcomes of our investment have demonstrated that we're competitive, both in terms of the offer that we make and in terms of the supply chain, the cast, the crews and the practitioners to make sure that productions are a great success. In terms of comparisons with other countries, Joedi?

It's quite difficult, because the offer is very different everywhere, so it's quite difficult to have an exact comparison with anywhere else. The basis of the media investment budget was on the Isle of Man. Out of the six projects that have completed on the media investment budget, three of them have exceeded their Welsh spend figure, and three of them have fallen just short of their Welsh spend figure, and that's the nature of these projects. A lot of them often exceed, a lot of them sometimes fall slightly short, because they can't get a certain person that they need in Wales. 

Sorry, can I just interrupt, because I know the Cabinet Secretary is leaving? Having consulted with my clerking team, I would prefer if we could arrange another session. Members have difficult diaries on a Wednesday as well. So, if we could terminate with the line that we're finishing on now, and then we'll arrange something else before the end of term, if possible. 

I hope you're going to ask us about Creative Wales next time. [Laughter.] 

Yes, definitely. I'm sorry to interrupt. Well, if you want to tell us briefly about Creative Wales then we can—. 

No, I'll take your advice, Chair.  

Okay. I'm getting mixed information from my advisers. Thank you very much. 

Is that okay? 

Yes, that's fine. 

Is there a chance of a note to be sent on the 14 Welsh language productions that have been financed through the screen fund, please?

I think they are in the evidence.  

Are they? All right. I missed that. In my original papers I couldn't find anything—

I think they are in the evidence paper. I'll double-check, but if not, yes, we'll send the information, of course. 

I'm sure you're right, apologies. 

Come on, guys, react to me. 

Yes.