The treaty coproduction is an efficient, complex and viable vehicle for producing quality film and tv productions with Canadian coproducers and an effective alternative to the studio system.

The 10-year increase in the use of international treaty coproductions follows the proliferation of domestic and international satellite and broadcast outlets. These increased choices fragmented audiences and reduced ad revenues, while higher global production costs forced producers to find alternative funding.

Concurrently, global fear of being overwhelmed by American programming pushed many countries to seek audiovisual treaties as a defense mechanism. Canada has become a world leader in coproductions, which allow local producers to reduce risks by pooling creative and financial resources.

According to the Canadian Film and Television Production Association, production spending in Canada grew by 12% to Cdn$4.4 billion (us$2.8 billion) in 2000. The three largest centers are Montreal (Cdn$1.4 billion [us$903 million]), Toronto (Cdn$1.4 billion [us$903 million]) and Vancouver (Cdn$1.1 billion [us$710 million]). In calendar 2000, treaty coproduction projects represented Cdn$872 million (us$563 million), with 75 tv programs and 36 features, a 45% increase over the Cdn$600 million (us$387 million) recorded in 1999. According to Telefilm Canada, France and the u.k. are Canada’s leading partners. In recent years, the number of coprods between the u.k. and Canada has increased dramatically, due mainly to the development of the sale-and-leaseback transaction in the u.k., which can be dovetailed into a treaty coproduction.

As of Jan. 1, 2001, Canada had signed 47 coproduction treaties with 55 countries. Some prominent examples of productions created under treaties include The Red Violin (Canada/Italy) and Such a Long Journey (Canada/u.k.).

Coproduction agreements are binding international legal accords between governments. An official coproduction is treated as national product in the coproducing countries and is entitled to government financial incentives and tax and labor credits. In Canada, the product of a coproduction is considered to be a ‘Canadian film or video production,’ and thus eligible for federal and provincial tax credits and funding from such support mechanisms as the Canadian Television Fund, Telefilm and the Independent Production Fund. In addition, the finished product, which qualifies as Canadian content, is also eligible for higher licence fees from Canadian and European broadcasters, for productions qualifying as national product of such European nations.

The Canadian government recently renewed the Canadian Television Fund for 2001/2002, which, with private-sector contributions, will total more than Cdn$200 million (us$129 million), with a portion earmarked for treaty coproductions. In addition, the ctf-Equity Investment Program and the Feature Film Fund, both administered by Telefilm, also contribute substantially to treaty coproductions. They can also receive federal and provincial tax credits on the Canadian portion of the labor costs spent on the production.

Relationships and coproductions

A coproduction is both a collaborative partnership and a legal relationship whose essential details – financial, creative, technical, cultural, legal and budgetary – are set out in a written agreement that also defines the coproducers’ responsibilities, requirements, obligations and participation. A producer should only consider coproduction after assessing the project’s needs and objectives and the benefits to each party.

Treaty coproductions also simplify the administrative and regulatory paperwork around moving goods, services and equipment between coproducing countries. The agreement is negotiated between private parties, and sets out such basic terms as minimum financial, creative and technical participation from each country and conditions for participation by third parties.

Legal framework

There are three essential source materials that illuminate the legal framework for structuring coproductions. They are:

* the governing treaty between the two countries (no two are exactly alike);

* Telefilm Canada Rules Regarding Co-Productions (these afford the principles governing the agreements); and

* the chain of title – with regards to the sources of the rights, namely the acquisition agreement and the coproduction agreement, which will determine the respective participation of the parties, including the granting of the rights to each – is the key document and must address each party’s basic needs and concerns.

Essential principles

Telefilm sets out four key principles in its rules governing coproductions, which must be enshrined in the agreements:

* all coproducers must make real and substantial creative, artistic and technical contributions, in proportion to their financial participation. Coproducers must comply with the minimum requirements set out in each treaty, and participants must be nationals from the coproducing countries, with certain exceptions;

* each producer must contribute towards the creative, artistic, technical and financial aspects. No producer may provide less than a specified percentage of the total budget; minimum participation varies between 15% and 30%;

* producers must negotiate equitable sharing of markets, as well as potential revenues, based on the percentage each invests; and

* copyright ownership must equal the proportion of the financial contribution made by each coproducer, subject to minimums.

In structuring a coproduction, the parties must be aware that the financial, artistic, technical and creative benefits and ownership of the coproduction must reflect overall balance equitable to all parties in order to obtain all approvals. Treaties also require that all services be provided by nationals of the coproducing countries. In general, the production must be filmed in one or all of the coproducing countries; however, approval to film in a third country is sometimes granted. It is possible to include an actor who is not a national of the coproducing countries provided it is required by the distributors as a licence condition. In addition, a coproduction agreement with a European Community member state provides further flexibility by permitting participation of nationals/actors from any e.c. member state.

Coproducers share responsibility for exploiting the completed production. Exploitation within a producer’s home country is the responsibility of that producer, and the proceeds from such exploitation generally belong to that producer. Receipts from exploitation in other countries are customarily split between coproducers in proportion to their contribution to the budget. Typically, copyright is shared in proportion to the contribution to the financing, while domestic use of the copyright is owned by the respective coproducers exclusively.

In order for an international coproduction to achieve official treaty status, it needs approval in Canada by Telefilm’s Co-production Office. The process begins when the coproducers file the agreement and supporting materials with Telefilm for an advance ruling. The foreign coproducer follows a similar procedure with the applicable domestic agency. The Canadian producer then applies to the Canadian Audio-Visual Certification Office (cavco) for a Part A Certificate, and cavco calculates the amount of labor expenditures that qualify for federal tax credits. If the production is financed and produced so that it complies with the coproduction agreement, Telefilm generally grants final approval. Any changes to a project may negate official treaty coproduction status and the eligibility for tax credits. Once final approval is obtained, it is filed with cavco and the Part B Certificate of Completion is obtained.

If Canada is not a party to a coproduction treaty with a specific country, the Canadian producer may still obtain ad hoc approval from Telefilm for official treaty status if the deal is deemed beneficial. There is no coproduction treaty between Canada and the u.s., and ad hoc approval is not granted for Canada/u.s. coproductions.

To ensure balance in the financial, creative and technical participation in coproduction agreements, Canada and its partner countries call for joint commissions to convene (usually every two to four years) to review the specific coproduction treaty and to address any problems. While complicated, coproductions present opportunities for coproducers to pool capital, share risk and benefit from the creative talents of foreign producers and performers.

Arthur Evrensel is a partner at law firm Heenan Blaikie, based in the firm’s

Vancouver office.