rethinking

strategy

Montreal: Telefilm Canada is moving quickly to build revenues and secure its endangered principal production and distribution funds .

Various game plans are being explored, including the transfer to Telefilm of certain funds currently administered by other branches of government such as Canadian Heritage, the Federal Business Development Bank and Supply and Services.

However, perhaps the top priority for the federal funding agency is a better rate of return on its investment. This vital message is now being delivered to the industry.

‘I want to find ways of privileging growth,’ says executive director Francois Macerola.

One way to achieve this goal, he says, is to examine each dollar spent by Telefilm, for both fixed and operational expenses. The other is to find new funding sources.

Macerola says he is pursuing talks with provincial agencies, provincial pension fund managers and the banks on the feasibility of a production or risk-capital fund for exportable production.

The agency reports initial reaction from the investment community is positive.

Macerola says the agency has to raise its recoupment rate, ‘but it is not something we can do on our own. It will be done in consultation with the producers and distributors. Do we want an increase of 10%, 15% or 20%, I don’t know, but there is money there. It’s our role now to say to our partners, we want a little more.’

Reaction from the industry on the issue has been swift – producers say they want to talk.

Tom Berry, chairman of the Canadian Film and Television Production Association, says Telefilm can claim a substantial share of the success of the Canadian independent production industry, but producers want direct input on the recoupment question.

The producers say they want more regularly scheduled meetings with Telefilm, perhaps as often as once a month.

‘It is very much in our own interest that Telefilm succeed and do it right,’ adds Berry.

Macerola says the agency will be ‘more agile, more aggressive, more attentive’ in its cost report verifications and recoupment efforts.

20% recoupment

On average, Telefilm’s overall rate of recoupment is close to 20%.

Macerola says the rate is ‘not too badbut it has to be improved.’

‘I don’t want to destabilize the private sector. There have been a certain number of meetings with producers and distributors and the (provincial) agencies, but it goes without saying that the objective is increasing the recoupment rate.’

Macerola says the agency needs the money, not for staff or more infrastructure, but to ensure that it has ‘fresh money to inject into the system.’

He says Telefilm is pretty much ‘always last’ in the recoupment order, after costs are paid out, and after producers and distributors pay themselves.

And he says Telefilm’s finance director, Danny Chalifour, has been developing models to stimulate improved recoupment positions for all sorts of production.

New partners

Macerola says he would like to see Telefilm, the Ontario Film Development Corporation, the National Film Board, British Columbia Film, sodec, the chartered banks, pension fund managers in major cities, (in Quebec, Caisse de depot), and solidarity funds from unions like the ftq and csn, each investing $4 million or $5 million, creating a $25 million or larger production investment fund for top-quality Canadian film and tv product.

‘In a deflationary period, these (fund) managers are finding that they have to be imaginative. And this is what we are trying to be at Telefilm Canada,’ says Macerola.

Chalifour says some parties may be asking for a 20%-plus return on investment, while others are specifically interested in accessing a new growth market.

Talks on the issue are still in the early stages, but it seems likely a project-by-project approach will be adopted. Chalifour says this is the way the industry does business, including the banks, and Telefilm does not in fact have the authority, at this point, to invest in companies.

Macerola says creative solutions must be found in order to maintain ‘the critical mass of investment, if Telefilm is to remain relevant.’

He says the agency needs an annual budget in the order of $150 million, and that government should reaffirm Telefilm’s leading role.

‘But if the government really wants Telefilm to be the instrument of development for the independent (production) industrythen let’s not be shy, let’s say it, Telefilm’s mandate should be expanded.’

Macerola says Telefilm should be assigned new responsibilities, including the administration of the refundable investment tax credit program and related audiovisual programs currently managed by other government agencies or departments.

‘Without putting the infrastructure of these other organizations in jeopardy, I think the government should have the cultural courage to say that since Telefilm is the privileged tool that we’ll use to develop and foster the private sector, then we will ask them to administer on behalf of a certain number of additional programs,’ he says.

The next level

According to the cftpa’s Berry, Telefilm’s contribution has been submerged in the noisy debate on public funding for the cbc.

He says Telefilm has successfully fulfilled a unique mandate in that it is the only agency devoted to developing the private sector, a true Canadian success story now at the $1.5 billion a year level.

Says Berry: ‘Now Telefilm has to help the industry get to the next level, generating more (production) volume, less reliance on government funding, a generally stronger position in the marketplace, and an ability to lead in certain market niches.

‘There will be no free lunch,’ he says. ‘Everybody wants the same thing. They want Telefilm to do more and to recoup less, but that’s not possible. Either producers will recoup less, or both producers and Telefilm will have to sit down and find more commercial projects.’

Says Macerola: ‘Take for example an English-language television series. If we improve our recoupment position by only 2%, from last to say middle range, then there’s some new money there.

‘In theatrical distribution, we are last-last. We do recover our minimum guarantee, but as far as the real money is concerned, after expenses are paid and after the minimum guarantee is recouped, we are after everybody. Maybe we should be trying to get up that ladder a little bit.’

According to Berry, Telefilm is increasingly in tune with the realities of the commercial market, demonstrating ‘more sophistication’ on major issues like casting, or marquee value, a source of frequent antagonism in the past.

5,000 cost reports

Telefilm’s new head says the way money is spent will also be closely examined.

‘There’s money in the system,’ says Macerola pointing to 5,000 cost reports from producers and distributors received annually by Telefilm.

‘There’s money sleeping in those reports,’ he says, and they will be scrutinized in detail.

‘Just a simple difference in the interpretation of a clause in a contract can mean $100,000 more or less in recoupment,’ says Macerola, adding:

‘Some people are now saying that Telefilm will become totally commercially oriented, but I don’t think so. One has to always find the balance between commercial and cultural programs. At all cost, Telefilm must avoid simply becoming a bank.’

Telefilm is ‘a cultural organization which uses commercial methods and strategies,’ he says.

Different treatment

Macerola says both polarities will be in evidence, the commercial and the cultural, and individual producers and their projects will be treated differently.

Producers seeking public investment in a feature film with limited commercial potential may find themselves completely shut out of more commercial, higher rate of return programs. At any rate, producers knocking on Telefilm’s door this year will be asked to make some serious defining choices.

‘We won’t be asking the same guarantees of someone who is making a first feature film for $500,000 as we would from someone who is making an eighth film for $3.5 million,’ says Macerola.

This year, Telefilm has set aside $2 million for a high-return Commercial Distribution Fund modeled on the Commercial Production Fund. It’s a trial program, and may be expanded, or dropped, next year.

Better at export

The industry will have to look beyond the domestic tv market for recoupment on big-budget drama series, says Macerola.

Returns from the English tv market in Canada are limited at best, and virtually non-existent for quality series like Blanche or Scoop in the francophone Quebec market.

Macerola says Canada has the product, but the private sector has to do a better job at exporting, because that’s where the revenues are.

‘Now every single producer we meet at Telefilm Canada is preoccupied by the possibility of exporting their products, because they know the market is not just a national one, English- or French-speaking, but that the world should be part of our dreams and possibilities,’ says Macerola.

Macerola says he’s not suggesting producers be required to secure foreign presales or licences, ‘because the real key to success is to be profoundly Canadian.’

He says ‘foreign buyers won’t go for product that is a pale imitation of homegrown product,’ and ‘the way forward is to become more aware of the quality of our production’ and make it more competitive.

Canada has top-quality creative talent, and that is where the focus should be, says Macerola.

‘That is why I’m saying the government should inject more money (into the production industry), because at this important point, the future of this country depends on the development of its cultural life.’

Telefilm’s revenues, not including interim financing or loan arrangements, have increased from $17.1 million in 1990/91 to $18.9 million in ’91/92, $20 million in fiscal ’92/93, and $26.4 million in ’93/94. Revenues for ’94/95 were $30.5 million.

The ’95/96 forecast of $23 million is an ‘extremely conservative’ projection, used for parliamentary budget purposes months ago.

Chalifour says the likelihood is that ’95/96 revenues will be at last year’s $30 million level, or more.

Chalifour says a number of variables are driving revenues.

Variables

First, he says, in many cases the agency has moved ‘from the last tier to the second tier to the first tier’ in recoupment. The big 50% hike from ’92/93 to ’94/95 is largely a result of the Commercial Production Fund, which has a minimum 65% return rate, and the impact of the three-year phase-in for the Distribution Fund.

In the past, distributor envelopes were based on reported expenditures and the total number of releases. This approach raised questions about efficiency, and motivation, and led to a new policy tying the envelope to a percentage of the distribution advances returned to Telefilm. The new policy becomes fully effective in ’96/97.

Intuition says the growth in export sales is also a significant factor in revenue hikes, but Telefilm says it does not have overall foreign sales data or data on recoupment rate levels by type of program or genre.

Chalifour says data on recoupment by genre is not fully compiled, nor sufficiently reliable, and could send the wrong signal.

He says such data ignores factors such as broadcaster strategy, budget size, the amount of Telefilm investment and a producer’s track record.

Telefilm has pushed for better recoupment levels since the early 1990s after being asked to back off in the late ’80s as compensation for sharp reductions in the Capital Cost Allowance.

More recently, Telefilm has moved away from standardized deal-making, opting instead for a case-by-case approach with better recoupment potential, often showing its preference for mixed equity/secured interest-bearing loan arrangements.

Chalifour says the recoupment cycle ‘will be even longer in the future (because) products we thought were dead’ are returning on new specialty channels.

Last year, a record 39 production companies shared just over $9 million in the Revenue Sharing Program, while nine distribution companies shared almost $15.4 million from the Feature Film Distribution Fund. Two other distributors shared $578,000 from the fund’s contingency envelope.

Unofficial Telefilm revenue sources by fund for ’94/95 are: Broadcast Fund, 33.52%; Distribution Fund, 23.71%; Special Fund, 20.68%; Versioning Fund, 7.78%; Feature Film, 5.15%; and other programs, 9.16%.