Montreal: The Canadian distribution industry has won the battle against Hollywood’s major film distribution companies which had called in the Federal Court of Appeal over rights issues in the new dth market.

As Playback went to press June 26, the three-judge panel rendered a decision in favor of the Canadian Association of Film Distributors and Exporters.

‘We are ecstatic,’ says cafde president and ceo Dan Johnson.

The hearing began June 25 when the Canadian Motion Picture Distribution Association, repping the U.S. majors, asked the Federal Court of Appeal to annul two crtc licence conditions affecting the distribution of feature films sold to Canadian dth programming companies.

The first condition, a ‘revenue split,’ sets a fixed payment formula and limits rights holders, including the majors, to no more than one-third of the gross revenues of a feature delivered on dth. A similar split goes to the programmer and distributor.

The second condition obliges the majors to subdistribute to a Canadian company on ‘non-proprietary’ films, defined as films for which they do not hold world rights or have not paid at least half the cost of the film.

The decision is vital to the interests of both parties, not only because of the longer term revenues for feature films in the dth market, but because in the cmpda’s view, the crtc intends to impose the same conditions on pay-per-view features delivered on cable, on pay-tv and ultimately free tv, says Ron Atkey, a lawyer with Osler, Hoskin & Harcourt representing the cmpda.

Future market

The future market for features on dth will be considerable. Based on u.s. experience, a 100-channel ppv movie service is a competitive alternative to home-video rentals.

Johnson says the crtc decision is ‘designed to ensure the survival of the Canadian feature film industry.’

The cmpda’s basic argument stated the crtc overreached its powers by regulating contractual relationships in the film distribution industry.

The crtc conditions were opposed by cmpda member companies and others including Warner Bros., Viacom, mgm, Buena Vista (Disney) Columbia Pictures and Twentieth Century Fox, mca, Polygram and Turner (New Line).

The respondents in the case were Viewer’s Choice Canada and cafde.

An earlier appeal by the majors to the federal cabinet was dismissed.

Elizabeth McDonald, cftpa president, said the issue at stake ‘is the guarantee of a Canadian rights market.’ McDonald says 40% of revenues for Canadian features originates with pay-tv.

According to Atkey, the revenue-split condition is a response to opposition to DirecTv’s role as both programmer and distributor, ‘and although DirecTv took itself out of the game, they (the crtc) left the restriction on my people in terms of the price they can charge.’

Revenue split

But Johnson argued there is another major reason for the revenue split.

‘If the revenue splits aren’t codified then the studios have sufficient market leverage so they can squeeze both the broadcaster and the satellite carrierand the 5% (obligatory contribution to a Canadian production fund) would become nothing,’ he says.

Johnson says there is indeed a cap on the majors’ share, but the price to the consumer is not affected. ‘The split is fixed but the price can be worked out with the programmer and carrier,’ he says.

The non-proprietary rights condition was proposed to the crtc by cafde. Atkey called it ‘an enforced tollgate.’

‘It is too expensive for one (studio) to go it alone, and the majors no longer own world rights to the majority of films they distribute in Canada,’ he says.

He says Paramount paid 42% of the cost of the Oscar-winning film Braveheart. ‘So for Braveheart they will have to go to one of Dan Johnson’s clients, whether it’s Alliance or Malofilm or Norstar, and pay them a fee, whatever they can negotiate.’

cafde says the non-proprietary stipulation is essential to Canada’s distributors who use revenues from foreign films to support their infrastructure and to finance, distribute and sell Canadian feature films.

Atkey says the cmpda is neither opposed to Canadian-content quotas on tv nor ownership restrictions for broadcast or cable licencees or the regulation of violence or advertising standards in Canada. But cafde’s position, he claims, is ‘an attempt to make profit off a product it had no contribution in creating.’

Johnson says a cafde study of 173 features released by the studios in theaters in Canada in ’95 showed not more than 18 were independent. ‘These people (the cmpda) with all the information make grandiose claims,’ he says, ‘but provide no data.’

Atkey says the cmpda ‘was not a party to the crtc proceeding’ and was not notified of potential conditions on feature films sold to dth.

The cmpda made no submission at the hearing and learned of the restriction only after the crtc decision came out Dec. 20. ‘If we had known this particular condition would be submitted we would have (participated),’ says Atkey.

Word on the street is that not knowing cost the popular Millard Roth his job as cmpda head.

Telefilm Canada executive director Francois Macerola, vcc president Lisa de Wilde and Johnson were called as Federal Court witnesses by respondents vcc and cafde.

An ebullient post-trial Johnson sums up the conflict outcome: ‘the court rejected every aspect of the cmpda’s arguments, making a strong statement on the crtc’s jurisdiction.’

cafde has asked the crtc to apply the non-proprietary rights condition to new specialty channels, and to the new Alberta stations, if they are licensed.

Johnson says the association has yet to ask for the same application for ppv movies on cable and pay-tv, ‘but we will when it comes up,’ he says.

The crtc was also present at the June 25-26 hearing. cafde was represented by David Scott and George Hunter of Scott & Aylen, Toronto.