While keeping their eyes on the lucrative prize of being granted the ability to distribute Telefilm Canada-funded shows, Canadian broadcasters have been taking money-losing minority equity positions in some Canadian drama productions.

Global Television has investments in a ‘couple of shows’ on its current schedule to make up the financing ‘shortfall,’ either by taking equity or a distribution advance against specific territories, says Loren Mawhinney, vp of Canadian production.

ctv has also invested in a few tv movies and the drama series Cold Squad (Keatley MacLeod/Atlantis) and Flesh and Blood (Sarrazin/Couture).

But if history is any indication, the private networks are unlikely to see any returns on the investment in the near future.

Indeed, Telefilm’s investment portfolio for the period April ’87 to March ’95 reports an average 16% return on its equity investments in English-language Canadian drama (series and mows). That means Telefilm has made back 16 cents for every dollar it has invested.

Faced with an even tougher task of selling to the international market, Telefilm reports a dismal 6% return on its equity investments in French-language drama for the same period, recouping a measly 6 cents for every dollar invested.

Danny Chalifour, Telefilm’s director of finance and administration, agrees that the numbers are low and says the agency hopes to raise the average rate of recoupment to 25% in the near future. Chalifour also says that equity investment deals are structured differently for each production and small emerging companies are allowed to place Telefilm further down the chain of investors hoping to recoup.

‘It’s on a case-by-case basis,’ says Chalifour. ‘With most of the larger publicly traded companies, especially those that are integrated – that have both production and distribution – we have scrutinized the deals a bit more and have worked towards getting a better crack at the revenue.

‘If we’re talking about a small regional company that’s trying to get things going, we may be less demanding.’

‘It’s not like buying gold hoping that it’ll go up,’ says Mawhinney of the investments. ‘It is an assistance that broadcasters provide to producers that are having trouble closing the budget.’

Mawhinney says the prospects of a return for Global on these investments are ‘dim’ and that equity investments haven’t made real ‘business sense’ to date.

Both Global and ctv say in part, they are investing in the shows despite the unlikely returns so that the projects will have the budgets needed to deliver high-quality product that will attract Canadian viewers. A risky equity investment still makes more economic sense than simply raising a show’s licence fee with no possibility of return, say both Global and ctv.

Bill Mustos, ctv vp of dramatic programming, says a broadcaster equity investment increases a show’s quality because both the broadcaster and the producer are ‘highly motivated to see the show work on every level. That’s a healthy thing for the industry,’ he says.

But Mustos says his company has to be very selective about which projects to take equity in, and for the time being investments are confined to those projects which are the most difficult to finance.

B’casters want in on

distrib revenues

But while making little if any returns from the equity stakes, the issue on the back burner with broadcasters is the hope that Telefilm will change its current ruling which prohibits broadcasters from distributing Canadian shows to foreign markets.

‘This movement that’s beginning to happen on the equity front will hopefully begin to move on the distribution side of things,’ says Mustos.

Mawhinney agrees. ‘The business to be in really is distribution,’ she says.

Telefilm is currently mulling over the possibility of changing its rules to allow broadcasters to distribute shows the agency funds and a decision is expected to be included in next year’s Canadian Television Fund guidelines due in December.

‘The biggest problem is that we don’t want to see international rights going for a song,’ says Suzan Ayscough, Telefilm director of communications.

Ayscough says Telefilm’s biggest concern is ensuring that international distribution rights don’t become tied ‘part and parcel’ to a broadcast licence. Regulations must ensure that the rights are sold for ‘the proper amount,’ she says.

ctv has been the most adamant lobbyist for the rule change and presented a proposal at last month’s Canadian Television Policy Review Hearing whereby Telefilm would oversee a transparent bidding process for international distribution rights.

‘This would be fair and transparent and would ensure producers the best offer for their work,’ said ctv president and ceo Ivan Fecan at the hearings in Hull, Que. ‘It would also allow us to increase our investment in the programming we believe in without penalizing the producers, the program itself, or our shareholders.’

But both producers associations, the cftpa and the apftq, as well as the Canadian Association of Film Distributors and Exporters are opposed to broadcasters becoming distributors of Telefilm-funded shows.

‘The distributors are in agreement with the two producers associations,’ says cafde president Richard Paradis. ‘Broadcasters that already have sufficient means of generating revenues through their privileged licence situations should not be allowed to now become distributors and have leverage powers over the independent producers.’

Paradis says such a rule change would go against government policy initiatives of the past 15 years that he says have striven to strengthen the independent production sector.

‘Independent producers still live by the number of projects they have ongoing,’ says Paradis. ‘So for that industry to have some kind of solidity they must have, at a minimum, distribution rights to their products.’

But broadcasters argue that even if they were to increase or restructure their equity investments they still would not be privy to the up-front revenues from international distribution on indigenous shows.

‘The fees and expenses come off the top and it’s the entity itself that is reporting to you,’ says Mawhinney. ‘In other words, that’s the business to be in. If you’re a producer the money is in fees – that’s why all the big producers are also distributors.’

Counters Paradis: ‘Broadcasters are known to be extremely hungry for anything that they don’t already have their hands on. At some point the market is a market that’s regulated and it should be fair to everyone.’

Global, however, is already in on the action, so to speak, with producer/distributor Fireworks Entertainment which it purchased earlier this year. Fireworks is best known as a producer of non-funding-agency-reliant commercial shows that run on American broadcasters such as its popular Nikita.

‘If one was an investor early on with the more commercial product – in other words product that is not dependent on the funding structure in Canada – that would probably make some sense,’ says Mawhinney of the type of equity investments that would pay off for broadcasters. ‘But in those cases you’ve got foreign distributors putting up a huge portion of the budget, so they don’t need any further investment.’

ctv has often pointed to the international distribution rights acquisition of the indigenous Sarrazin/Couture production Flesh and Blood by foreign giant Pearson International as an example of the inapt regulations.

Alliance Atlantis was interested in acquiring international rights to the drama series but dropped out when the bidding from Pearson got too high. ctv argues that it should have been able to make a counterbid to Pearson’s offer.

Pearson now holds international rights to the series, which will debut in January on ctv. The network says it should have been able to at least make a bid on the show in the hopes that distribution would stay with a Canadian company.

After initial opposition to the notion of broadcasters being distributors, Mustos says that much of the industry has changed its tune and expressed support for the Telefilm rule change – particularly lesser shops without internal distribution arms.

‘As the discussions have evolved over the last three or four months, our perception is that a lot of producers – particularly the small and medium-size ones – are quite open to the idea,’ says Mustos.

‘Once we crack the nut of how do we make sure you’re protected in terms of the separation of licensing rights from distribution rights and those negotiations. . . then what you see is a real growing openness to that.’

While not directly related to the Canadian situation, broadcasters’ desire to get in on distribution revenues in an ever-fragmenting market is also being played out south of the border. Major Hollywood studio producers have reportedly been refusing to make development deals with conventional broadcaster nbc after it demanded ownership stakes and perpetual licensing rights for the programs it airs.

‘It’s the brutal reality,’ says Mustos of the Canadian drama funding situation. ‘It gets really discouraging in this country when you just don’t have the audience base to amortize your costs. With the audience fragmenting more and more every single year, it’s getting harder not easier to pay higher licence fees.’

But unlike nbc, Mustos says if ctv was granted the ability to internationally distribute shows, it would never ask for distribution rights as leverage in exchange for a licence fee.