by Robyn Allan

You can:

a) Use your own money because, in addition to being heroic, you are independently wealthy,

b) Piece together a financing structure using government grants, tax credits, distribution advances and creative gap-financing techniques such as mortgaging your home, or

c) Shoot yourself instead of the film, because it’s easier and more likely to draw media attention.

 “How you finance a feature film in Canada depends on how much money you are trying to raise,” explains John Dippong, Director for the Feature Film Business Unit at Telefilm Canada. “Typically, Canadian budgets don’t exceed $3.5 million unless they’re co-produced or, in the case of more experienced producers, have significant pre-sales.”

So unless you’re among the handful of established Canadian producers such as Robert Lantos (Felicia’s Journey, The Sweet Hereafter, Crash) or Niv Fichman (The Red Violin, Last Night), or have the story or casting elements to generate a co-production arrangement with one of the many countries with which Canada has agreements, you’re going to have difficulty raising more than about $3 million.

A cursory look at the stats explains part of the reason why financing a Canadian film is such a difficult prospect. Only about 2% of all box office receipts flow to the 30-35 Canadian feature films produced each year. Of the $98 million spent by Canadians to watch movies in theatres in 1999, only $13.8 million went to Canadian films.

This lacklustre revenue-generating performance is in direct contrast to that experienced by comparable filmmaking countries. Domestically-produced films earned 37% of revenue in Japan, 30% in France, and 14% in each of Spain and Italy.

According to Telefilm Canada, the average Canadian film budget has declined since the late 1980s, while the average production budgets in other countries (with higher budgets to begin with) have increased significantly. The average Canadian film budget went from $2.6 million in 1989 to $2.4 million in 1996, while the average budget on a UK feature went from $9.4 million (CDN) to $11.8 million (CDN).

“The components involved in financing a Canadian feature aren’t that different from financing a TV movie or series,” says Kent Wingerak, Executive Vice President of Peace Arch Productions, a subsidiary of Vancouver-based Peach Arch Entertainment Group (AMEX: PAE, TSE: PAE.A & PAE.B). Peach Arch, perhaps best known for its television production and distribution, has recently extended its activities into the film industry and has acquired the worldwide distribution rights for the feature Now and Forever, as well as the US television rights for the feature The Impossible Elephant, both of which are produced by Saskatchewan’s Edge Entertainment.

“You start with the tax credits, which provide about 20% of the budget,” explains Wingerak. “Then you can take one of two routes: The ‘Super Canadian’ route, involving federal and provincial government equity and grant programs such as Telefilm or the Canadian Television Fund, or the pre-sale route into the domestic and international territories. The key, however, is to keep at least one major territory open so, at the end, there’s a payday for the producer. There’s a general formula, but there are so many different ways to put financing together. Of the numerous productions I’ve been involved in, no two have been financed in the same way.”

A typical $3 million project consists of the following components:

Funding Proportion Source

Up to 49% and $1.5 million Telefilm Canada

20%-25% Tax Credits

10%-35% Distribution Advances

10%-20% Shortfall

Tax credits refer to federal and provincial programs such as the Canadian Film or Video Production Tax Credits, and Film Incentive BC. Other provinces have their own tax-based initiatives.

Distribution advances refer to funding from Canadian or foreign distributors who believe they can sell the film in domestic and international markets and are willing to take the risk on the project with the producer, for a fee.

The shortfall must be found elsewhere such as at gap financiers, the BC Film Equity Fund (up to a maximum of $200,000), the Canadian Television Fund License Fee Program, pre-sales to television broadcasters, deferral of various fees in the budget, including producer fees, or an investment by the producer or arms-length party.

Although gap financing can be found at financial institutions, it requires solid estimates of foreign sales and is more expensive than other sources of funding, as a fee is charged, corresponding with perceived risk. Typically, Canadian banks do not get involved in financing a film directly, and although US banks and other financial institutions might, they often require insurance against foreign sales as security against the loan, which adds additional expense.

In contrast to Canadian films, US filmmakers spend an average of $76 million per project, with about $20 million on marketing. It is rare for a Canadian film to have more than 10% of its budget allocated to marketing. Of the 60 films partially financed by Telefilm between 1989 and 1994, two-thirds had marketing budgets of less than $150,000.

It’s a Catch 22. There’s very little money to be made on Canadian films, so it’s extremely difficult to raise money to make them properly. Without improved product, increased distribution opportunity and, therefore, box office revenues, funding levels are unlikely to increase.

A key challenge to developing a film industry in Canada, and one not shared by any other country, is our close proximity to the US. Swamped by US content, a made-in-Canada entertainment industry has been difficult to establish, let alone cultivate.

“It’s almost impossible to be an independent film company in Canada, because you can’t make a commercial product for $3 million,” explains Scott Kennedy, President & CEO of the publicly-traded Highwire Entertainment Group (formerly Cadence Entertainment and its wholly-owned subsidiary Voyageur Film Capital, VYR:CDNX). Kennedy, executive producer of Canadian features such as Kitchen Party and Tail Lights Fade, and producer of Rupert’s Land, has just completed On the Nose, starring Dan Ackroyd, Robbie Coltrane and Brenda Blethyn.

“Break-out films in England cost twice that amount,” says Kennedy. “We needed $6.5 million for On the Nose, so we had no choice but to seek a co-production partner. We found a successful partnership with Ireland.” On the Nose was filmed in Ireland; post-production was completed in Canada. A co-production agreement allows the producer to leverage government funding, tax credits and pre-sales in all countries involved, and often promises greater distribution potential.

On the Nose was financed with the participation of Telefilm, the Irish Film Board, Toronto-based CHUM Television, Vancouver’s Red Sky Entertainment (also acting as the Canadian distributor), Sky Pictures (also acting as the UK distributor), the Canadian Television Fund License Fee Program, the Harold Greenberg Fund, BC Film, plus Canadian tax credits and Irish tax incentives (Section 481).

Kennedy explains how a producer’s funding nightmare ultimately helped the calibre of the finished product. “Initially, part of the budget was to be funded through expensive gap financing. We were scheduled to go into production in early 2000 but, over Christmas, the gap funding fell through. I followed up on some London
relationships I’d made years before, and established a distribution relationship with Sky Pictures. The terms of the agreement brought about a reduction in our financing charges, allowing us an extra week of filming. On a picture like this, that can make a huge difference.”

“There are producers in Canada who have figured out that filmmaking is a business as well as an art form,” explains Mary-Pat Gleeson, Vice President of Marketing and Canadian Film Development for Red Sky. “Scott is to be commended for the creative way he put the financing for On the Nose together. The project was compatible with the intent of the co-production approach, but he worked hard to make it happen. Producers need to be creative because they deal with script development, casting—all sorts of artistic issues, but they also need the business skills. They have to find the money and make the contacts.”

Public policy support has been a critical component in generating even the limited success achieved by Canadian filmmakers. In 1967, the Canadian Film Development Corporation (now Telefilm Canada) was created as the initial effort of the federal government to promote and develop a Canadian-owned and-controlled film industry. Although advancements were made during the 1970s, the Canadian film industry was not achieving anywhere near its economic or cultural potential.

In 1986, the federal Film and Video Policy was introduced, including the Feature Film Fund administered by Telefilm. The fund’s purpose was to support investment in high-quality, culturally-significant Canadian films for theatrical release.

Recognizing the key role distribution plays, a Film Distribution Policy was introduced in 1988. It was designed to encourage better access to theatres for Canadian productions.

Film distribution is still largely controlled by subsidiaries of foreign-owned companies, with 85% of film distribution revenue flowing out of the country. Canadian distributors, the only companies demonstrating any desire to market Canadian films, are working hard to redress this imbalance. If the recent past is any indication, they should soon be increasingly able to establish their market share.

The proportion of revenue earned by Canadian distributors from Canadian films has increased from 29% of total revenue in 1986 to 49% in 1994. More significant is the financial commitment that Canadian distributors make to Canadian content. In 1995, Canadian distributors made $88 million from Canadian and foreign distribution of Canadian films, while $103 was spent on marketing and distributing these films worldwide.

“One of the greatest things about a distributor/producer relationship is the experiencing the distributor has in the marketplace,” says Dippong. “Another major benefit of having a distributor on board is that it helps with the producer’s cash flow.”

There are currently eight major Canadian film distributors, including Red Sky, Lions Gate Films, Crescent Releasing and Peach Arch Entertainment. Red Sky, for example, was created in 1997 in response to the opportunities of an emerging industry and a need for Canadian filmmakers to have a stronger voice in distribution.

Gleeson is encouraged by the fact that Canadian filmmakers seem to be beginning to understand how to put the pieces of the producer’s puzzle together. “We’re growing up and starting to realize that box office performance matters. BC Film and Telefilm are dedicated to making this industry work and are doing a good job. But we have to move away from depending on them. Becoming more creative, accessing co-production relationships…these are all ways to expand our networks, distribution opportunities and our industry.”

On October 5th, at the Vancouver International Film Festival, Heritage Minister Sheila Copps announced an additional $50 million per year in federal feature film funding. Added to existing funding, this means that filmmakers will have access to a $100 million fund targeted at all facets of the process—screenwriting, production, distribution and marketing. Funding decisions will be based largely on performance-related criteria, such as box office receipts, critical acclaim, festival awards etc. However, 20% of the fund will go to new and emerging filmmakers.

The announcement of this policy follows a three-year review of film policy by the government and industry leaders. “We are creating a new fund that will place greater emphasis on Canadian screen time and an increase in box office share,” explains Dippong. The details of the new Canadian Feature Film Fund will be released in April.

“Government recognizes that we need to work with bigger budgets,” says producer Christine Haebler, head of Vancouver’s Crescent Releasing. “It will be interesting to see how the change in policy works. The budget limits the type of story we can tell and the type of cast we can attract. But we don’t need a lot more. FourWeddings and a Funeral, The Full Monty…these were made for under $5 million (US). In relative terms, because it’s less expensive to make a picture here, we’re probably looking at $4 million (CDN).”

A veteran of independent film production (Hard Core Logo, Kitchen Party, A Girl is a Girl), Haebler suggests that if producers want to be more successful in attracting investors outside of the existing funding network, not only are they going to have to be more entrepreneurial, but they’ll have to be allowed by the funding structure, including the rules of funding agencies, to provide investors with more attractive returns and more preferential pay-out terms than they currently receive. “This is a high-risk business. If we could offer investors more, then we could attract them.”

Haebler also says we should focus more attention on script development. “A lot more is spent on development of independent films in England, Germany—even in the US, than in Canada. Here, maybe $50,000 is spent. It’s two or three times that in other countries. If you spend the money on development, then your writer is making a living and you might be able to bring the director and cast on earlier to help package the project. This could lead to greater interest from distributors and financing sources.”

British Columbia Film, though subject to budget cuts in recent years, delivers a range of services and some financing (e.g. production financing up to $200,000 for features) to assist in the development, production, marketing and distribution of BC films. Its mandate is to support talent development and the networking inherently required in an emerging industry.

“We are trying to allocate more of our resources to development and marketing than in the past,” says Rob Egan, President and CEO of BC Film. “You can’t underestimate the challenge producers have in putting a deal together. Deals are complex, and film financing is very tough. It’s high-risk. And it’s hard to get a return on investment because the lack of box office, and the lack of stars, make it hard to get pre-sales.”

“When I was at the American Film Market last year, the main concern of, and first question from, buyers was, ‘Who’s in it?’,” notes Wingerak. “With Now andForever, we have a dramatic contemporary love story starring Mia Kirshner, Adam Beach and Theresa Russell. It’s set in Saskatchewan and deals with Canadian subject matter. But because it’s a love story, it’s an internationally-driven piece. Love stories have always been, and will continue to be, popular in the domestic and foreign marketplace.”

Wingerak says that Peace Arch is hoping to leverage the worldwide market potential of Now and Forever by presenting the finished movie to purchasers. “In those instances when you know the pictures is strong and is going to appeal to a wide audience, you want to wait. Maybe take it to film festivals like Sundance, Cannes, Toronto. Once it has created a buzz…” Wingerak doesn’t finish his sentence. He doesn’t need to.

Robyn Allan is an economist and president of Vancouver’s CYF Consulting.