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VIFF Trade Forum - Canadian Film Financing


By Robert Alstead - Posted on 05 October 2005

Canadians are not happy with the state of their film industry. They look South of the border at the powerful US film industry and then they look back at their own output, and it's understandable that they feel like the anaemic waif to the big kid next door.

One of the major problems is that too few Canadian investors, whether individuals or institutions, are prepared to put their money into films made at home. Are Canadian investors too timid to strike for gold by financing movies? Or are there too few decent Canadian projects and production companies worth investing in? A bit of both would seem to be the conclusion after listening to a panel of experts discussing Canadian film financing at the Vancouver International Film Festival Trade Forum last week.

The net result, said Earl Hong of Telefilm, the Canadian government television and film funding agency, is that the amount of money spent on Canadian films has not changed in recent years while the country's film industry continues to expand. It's not that Canadians can't make films. It's just there are few films that can be called their own attracting any money.

For the record, "Canadian" usually means where personnel and expenditure is Canadian (official definition). Hong said that Canadian production companies are typically small and poorly capitalised. In dollar terms, around 90% of the industry in Canada is in servicing foreign productions rather than home-grown projects. In Vancouver, one of the main hubs of the North American industry, even less than 10% goes into local productions.

Of course, you can't judge quality by dollar amount spent and certainly Vancouver's ability to attract foreign productions helps maintain the vitality of its indie filmmaking scene. But when six people people from the finance world chew on these kind of dollars and cents statistics, showing Canadian spending is stagnating, it leads to some familiar debating points. Is Canada's funding infrastructure, the envy of filmmakers South of the border, actually such a good thing after all? Why can't the movie industry attract more private investment? Does it matter if it's not "Canadian"?

The Canadian government offers significant financial support to the indigenous industry by way of grants, recoupable funding, and tax credits. The more "Canadian" your film, the more financing you may find and the more tax you can claw back from your costs. In many instances, the film wouldn't have been made otherwise, especially those with limited commercial appeal. However, Canadian filmmakers, the argument goes, have too cosy an arrangement that undermines the spirit of entrepreneurialism that helps revitalise any industry. Filmmakers become more comfortable filing for tax credits and public funding than chasing down private equity. Producers squeak in their budgets by prising themselves into the stringent Canadian tax credit criteria.

Colleen Neustadt of New City Entertainment, moderated the panel which also comprised of Ross Mrazek, senior manager of commercial banking at one of Canada's biggest banks, CIBC; Warren Nimchuk, head of the entertainment tax division of PricewaterhouseCoopers; David Borg, executive producer at TAG Entertainment in Vancouver, specialising in private equity financing in the electronics and entertainment industries; Maria Pacella, investment manager of venture capital group GrowthWorks; and the aforementioned Earl Hong.

The panel agreed that Canadian investors are very conservative, especially compared to their US counterparts. Yet, there's money out there. Pacella said that her company has money to invest in film companies, rather than just individual projects, and would be looking to invest for eight years or more. "We look for the upside and we look for pretty lofty returns... 30% returns," she said, drawing gasps from the audience.

She said GrowthWorks had just signed a deal with a film company in the Maritimes (Eastern Canada), but she added that she still experienced a difficulty in attracting good management with sound business, rather than creative, skills.

It wasn't surprising to hear one of Canada's major banks talk about the need for safety when stepping into the movie world. Ross Mrazek said the CIBC will scrutinise the track record and credit worthiness of a production company, the commercial viablility of the project and then only take it on with no "success risk". The average amount CIBC finances a project is C$2.5million (GBP 1.19m) and it rarely exceeds C$10m (GBP4.76).

"We will get paid back," he said.

As a private equity specialist David Borg had something to say about that.

"It's all about taking risk for success," he said, appealing to the audience's entrepreneurial spirit. Borg, who raises funds in the US from his base in Vancouver, had a simple message for producers looking for more money: "Pick up the phone!... The world is your market!"

Borg, almost sounding like he strayed onto the wrong panel, added that tax incentives are totally the wrong way to sell a film to an investor. "I don't go down that path. If you're going to invest for tax purposes, don't invest, because I'm going to make money," he said.

On the other hand, the financier insisted that it's not all about the money. He suggested that for investors, equally as important as the commercial viability of a project is a producer's enthusiasm, selling the sizzle ("You're selling the dream"), the prestige of hanging out with the stars, the chance to support a potentially big hit, and also knowing that a project would be turned around quickly after it is financed. That counts for a lot. Borg emphasised how important it is, from the investor's viewpoint, that a project not take years to get made. He suggested that he would be happy pumping out a movie every three months.

Tellingly, there was little counterpoint to Borg's bullish remarks. Government funding and tax credits may have a bad side to them (including the rules and hideous paperwork), but state assistance for filmmakers is a fact of life in Canada, and without it there would be even fewer Canadian stories and possibly filmmakers out there in moviedom. The other panelists quietly indulged Borg, and then moved on.

Tax credits are not sexy. Warren Nimchuk, the dry-humoured tax specialist from PricewaterhouseCoopers, admitted that tax write-offs were low on the list of reasons why people invest in a film. But this was an audience of producers, not investors, so everyone listened patiently to his explanation of the intricacies of another hypothetical, "flow-through" tax incentive for investors in a Canadian film project.

Investors in risky industries like Canadian mining and oil and gas exploration already get money handed back to them through this tax benefit and many in the film industry feel the Canadian government should offer film investors a similar reduction in their exposure to risk.

Nimchuk told me that the incentive may never materialise unless someone in government takes it on. Ultimately, what the Canadian film industry really needs to get Canadian investors to open their wallets though is a few truly Canadian, commercial successes to break out internationally. Then instead of the prevailing spirit of pessimism about Canadian film (which really isn't justified when you think that it has produced David Cronenberg, Atom Egoyan, Denys Arcand, for example) people might start feeling good enough about home-grown talent to take a stake in it.

Commercial success doesn't come easily, as attempts by Telefilm to do just that with comedies Men With Brooms and Mambo Italiano proved. Both did well at the box office, but were panned for being formulaic deriviatives of The Full Monty and My Big Fat Greek Wedding respectively. Until Canada's domestic industry finds its feet, it needs all the breaks it can get.

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