Telefilm introduces ‘hurdle rates’

Montreal: Telefilm Canada is introducing a system of ‘hurdle rates’ for its equity investments in feature films. The rates directive is intended to close the gap between performance levels for Canadian movies at the box office and the principal Canada Feature Film Fund objective of reaching 5% national market share over the next four years.

Simply put, says Telefilm’s executive director Richard Stursberg, the federal funding agency is no longer prepared to invest $1 million or more in a film if it does not stand a reasonable chance of making more than $1 million at the domestic box office.

In fiscal 2001/02, 20 films received equity investments of $1 million or more from Telefilm.

Telefilm will look at various criteria and potential revenue streams for films, but ‘our preoccupation in making investments in Canadian film is the cultural test, which is, ‘Will it do well at the Canadian box office?” asks Stursberg. He says the directive doesn’t apply to all films financed through the main program but is meant to ‘clarify’ the equation between investment decisions, specifically in the English-language market, and box-office performance.

In an unusual, if not entirely unprecedented development sure to capture industry attention, Telefilm declined to greenlight any new movie projects in May. Of the eight feature proposals which advanced through regional comparatives, five were turned down in a newly constituted national comparative exercise, while the remaining three were denied a deal letter but offered a ‘letter of interest’ and invited to resubmit ‘hardened-up’ proposals by June 21, says Stursberg.

Calculating the objective

‘We have $40 million to invest, and so what is the average return we have to get by way of box office? It’s not more complicated than that,’ he says.

With $40 million available in 2002/03 to support English-track production, Telefilm’s new hurdle rate means each dollar invested in a major production has to generate $0.70 at the box office to reach the $28-million level, or 4% of the $700 million in national theatrical receipts in 2001. To actually reach 5% market share on a national basis, French-language films in their market would have to take in box-office receipts of $12 million, or 12% of the total theatrical receipts, approximately $100 million in 2001. Combined, the total required take for a 5% market share in 2001 would have been $40 million, and presumably higher by 2006.

‘Will it be hard reaching the $28-million level at the box office? Yes, it will be, and that it why we have to spend our money very efficiently and [ensure] that everybody understands this,’ says Stursberg.

The scale of the challenge ahead is truly formidable.

English-track films have taken in approximately 1% of the box office over the past four years, representing less than $5 million in average annual receipts. Last year, the market share was even lower.

In the case of French-track movies, they took in $9 million in 2001 for a 9% share in their market, but Telefilm’s national box-office calculus calls for a 33% increase in market share for French films (to 12% from 9%) through to 2006, while the target percentage increase in market share on the English side is 300% (to 4% from 1%).

Commercial combinations

Other countries are repatriating theatrical market share for their own films – Australia (8%), the U.K. (15% to 20% in recent years) and, mostly notably, France (40% in 2001) – a source of growing pressure on Canada’s feature film industry.

In the past five years, the top-grossing English-language film financed by Telefilm is the romance comedy Men With Brooms. It received a major marketing boost (about $1.7 million) and grossed $4.1 million. The second highest earner is The Red Violin at $3.4 million.

To achieve the national 4% share for English films, it would take seven or eight films like Men With Brooms and The Red Violin in any single year. Put another way, it would require 17 films as successful as the highly promoted eXistenZ at $1.6 million. Or, for a more likely combination, three films with receipts of $4 million each, five at $2 million and 10 over $1 million.

Telefilm says producers who can’t make the new hurdle rate will have to reconceive their projects, making them more attractive commercially or reducing the production budget and the investment demand on the agency.

Distribution plans under the new criteria will have to detail a projected buildup of theatrical receipts against a P&A spend in the key audience demographics. On more commercial projects, Telefilm will look closely at the distributor’s minimum guarantee as a percentage of the budget, ensuring the MG is ‘larger than the associated domestic television presales…with real money at risk at the front end.’

Funding resources

Telefilm has $72.9 million in available production and development funding resources in 2002/03, split two-thirds English, one-third French. There is an additional $11 million for distribution and marketing, $2.3 million for the Screenwriting Assistance Program, and $1.8 million for the Low-Budget Feature Film Assistance Program. The resource for complementary activities, festivals, awards, versioning, etc. is $6 million, for a total of $94 million, which includes a $15-million contribution from the Canadian Television Fund and the cost of CFFF program administration

-www.telefilm.gc.ca

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