Micheline Charest is chairman and ceo of Cinar Films Inc., Montreal.

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1993 will be remembered as the year the industry went public. In 1994 we will be entering a whole new era.

Our neighbors to the south are preparing to launch the omnipresent dbs satellite, and Canada is rising to the challenge by opening up the airwaves with its own new specialty tv services.

At this pivotal point, I think it is essential to examine the industry’s evolving financial maturation in order to address the issues which these changes intrinsically impose.

This unprecedented capitalization provides new financing for five industry leaders, a critical phase which will affect all of our futures. But let’s just take a minute to assess what led to the new economy.

Since its inception, our industry has been notoriously undercapitalized. It has relied on direct government funding and various tax-shelter incentives for survival. This is evolving.

Over the past five years, Cinar, Alliance, Paragon, Atlantis and Malofilm have developed corporate identities and internal financial structures. We no longer suffer from the habitual project-to-project existence. We have also reduced our reliance on government funding and have increased acceptance of our products in the global marketplace.

The key to success of our companies has been to sell our tv programs internationally. Having all realized the confines of the Canadian marketplace, this meant turning to the new and rising u.s. cable systems for broadcast partners. We all hotly pursue a sale or presale to the big three American networks. Each of our companies has also expanded the international sales divisions to tap into the increasingly important export markets in Europe and the seductive Pacific Rim territories.

And most importantly, each realizes the paramount importance of international coproductions to alleviate budgetary constraints and simultaneously meet the demands of the European tv quotas.

All these factors led to the fact that our companies were, and are, profitable and rapidly expanding, key factors in attracting aggressive institutional investors who are on the lookout for new and emerging companies and industries in which to invest.

This coupled with the fact that the stock markets were ripe for new and emerging companies led to the existing trend at exactly the same point in time when the market for initial public offerings was hot. Blue chip stocks were down and small caps were rising.

The market itself was ready specifically for entertainment investment for several additional reasons.

In the United States, entertainment stocks have detonated. By mid-October, a total of 19 Hollywood and related firms had gone public raising us$684.5 million in 1993, compared to us$550 million from six ipos in all of 1992 (Hollywood Reporter, Oct., 25, 1993). And look at the vigorously contested takeover bid of Paramount by Viacom and qvc where the bid has grown from us$80 to us$90 per share and speculation puts the final figure closer to us$95. That type of investor interest has spilled over into Canada.

Meanwhile, a lot of Canadians have invested in tax shelter productions in recent years without experiencing any of the difficulties so prevalent in the horrendous ‘tax shelter ’70s.’ That in itself lent a new credibility to the entertainment industry.

All this occurred when the stock market was experiencing all-time highs and interest rates had hit a 20-year low. Retail investors who are tired of low interest rates became much more willing to invest in these companies either directly or through mutual fund investments.

This has culminated in Cinar, Alliance and Paragon having completed successful new offerings on the Toronto Stock Exchange (Cinar is also on the Montreal Exchange), raising a combined total of roughly $55.7 million. Atlantis and Malofilm, which have both filed preliminary prospectuses, will likely raise another $40 million to $50 million collectively. That brings the public float from exactly zero to approximately $100 million in one year.

However, at this point in time, it is impossible to predict what the long-term effects of going public will be, largely due to the fact that we’re once again entering uncharted territory with many political issues still unresolved.

It is unclear how the government funding institutions are going to deal with the public company. There should be no reason to believe that public companies should be dealt with any differently and I would like to stress that success should not be penalized, but rather encouraged.

The industry is still in need of government support to maintain its growth and I hope the government institutions will recognize that the wind is blowing in the right direction. We are better equipped to look at the continuing globalization because we have the available financing to do so, but the industry is still at a critical point in its adolescence.

It may also be time to rethink and revise the old federal tax-incentive system.

Quebec has integrated the refundable tax credit, a system which successfully established a low-risk revolving credit pool. Ontario provides cash rebates of between 15% to 20% of a production budget to both producers and Ontario investors. The new federal government will undoubtedly note that these programs have had an extremely positive impact on the industry and consider adopting a similar model of refundable tax credit or cash rebates.

Meanwhile, there are other pressing political issues at hand, namely what the crtc and government institutions intend to do about the pending vertical integration of production companies applying for specialty broadcast licences.

Four of the five companies – all producers – which have gone public are among the 48 applicants to the crtc for licences. Will the crtc and government institutions modify existing legislation which prohibits producers from being broadcasters? Are we going to see a whole new set of rules?

Producers as potential broadcasters also raises the issue of foreign ownership restrictions.

To date, control or ownership of at least 51% of the voting shares had to be in Canadian hands. However, in the arena of broadcasters, companies fall under the more restrictive rules whereby no more than 20% of the company can be foreign controlled.

Atlantis dealt with the foreign ownership issue by proposing to issue subordinate voting shares. At Cinar, we have provisions in our bylaws which could restrict the ownership of the shares to Canadian investors. However, the issues of both foreign ownership and vertical integration remain unclear in the new economy.

And finally, it is unclear how the industry in general will react to the companies which have gone public.

Will it act as a polarization for other production companies to gravitate around? Will it create a superstructure? Or will it just emerge that a couple of companies are better financed and there will be the same number of players because of the government subsidies?

With so many unanswered questions and vast changes on the table, the one thing which crystallizes at the end of 1993 is that 1994 is going to be another pioneering year in the dawn of a new era.