Having grossed more than US$44 million at the North American box office at press time, White Noise has been a massive success for Canadian prodco Brightlight Pictures out of Vancouver and U.K. coproducer Gold Circle Films. Nevertheless, Brightlight says it isn’t pursuing any new Canada/U.K. copro deals, due to last year’s changes in U.K. international copro rules.

These changes include doubling the percentage of a copro’s budget that has to be spent in the U.K. to 40% in order to qualify for public funding.

‘A 60/40 split has made it much tougher to put together Canada/U.K. coproductions,’ says Stephen Hegyes, founder and co-owner of Brightlight, and one of the executive producers of White Noise, itself a 60/40 copro. ‘In this kind of scenario, you end up overpaying for post-production in the U.K., because everything there costs three times what it costs in Toronto.’

The state of Canada/U.K. copros is sure to be a hot topic at An Insider’s Guide to Co-productions, a panel scheduled at the CFTPA’s Prime Time in Ottawa 2005 on Feb. 4. And that’s no wonder – the U.K. rule changes ‘have made it impossible to structure a deal that meets the 40% limit without actually filming in the U.K.,’ says noted producer Don Carmody, whose Canada/U.K. copro credits include Resident Evil: Apocalypse (an 80/20 copro that has made US$64 million in international box office) and Some Things That Stay.

U.K. largest partner

Carmody also coproduced Oscar winner Chicago, which shot in Toronto, and is currently in Montreal working on the murder flick Lucky Number Slevin, starring Josh Hartnett, Morgan Freeman, Ben Kingsley and Bruce Willis. He will be at Prime Time participating in a session on location shooting in Canada.

According to Telefilm Canada, total budgets for Canada/U.K. copros in production in 2003 amounted to $400 million, making the U.K. Canada’s largest partner by a great margin, followed by France. But that kind of volume is bound to plummet.

Given that London is a far more expensive shooting location than Toronto – and that shooting there cuts into Canadian labor tax credits that ‘can refund up to 50% of our labor costs,’ according to Carmody – many Canadian producers would rather not have to shoot there.

Moreover, Carmody adds, splitting location shoots between Canada and the U.K. results in ‘establishing production offices in both places, and spending lots on hotels and travel.’

So, has the Inland Revenue – the U.K.’s version of the Canada Revenue Agency – set out to terminate Canadian/U.K. copros?

No, says Joe Iacono, chartered accountant with Weisbord, Del Gaudio, Iacono, whose film accounting credits include Canada/U.K. copros Being Julia and Head in the Clouds, and who will sit on the Insider’s Guide panel.

‘The Inland Revenue and U.K. Treasury made the changes to end what they saw as abuses of the existing coproduction rules,’ Iacono explains. ‘Certain U.K. equity funds providing substantial funding to coproductions were ‘double-dipping’ – using the rules to deduct their expenses not once, but twice.’

Unfortunately, by targeting ‘unscrupulous’ U.K. equity funds, as Hegyes calls them, Inland Revenue has punished the entire international copro industry, the new rules having effectively shut down U.K. equity investors such as Grosvenor Park’s First Choice Films.

‘Because of all the changes in the U.K., investors are not putting any money into U.K. equity funds that used to help out with coproduction funding,’ Iacono explains. ‘This means it has become very difficult to fund Canadian/U.K. coproductions.’

Hegyes understands the U.K. government’s desire to get value from its copro incentives. However, the changes have ‘hurt honest producers such as ourselves who haven’t been taking advantage of the system, who have been playing by the rules,’ he says.

In response to these moves, Brightlight is rethinking its production plans. ‘We’re wondering whether to dump a project that was being considered for a Canada/U.K. coproduction that we’ve been developing for the past five years,’ Hegyes says. ‘We’ve spent almost $200,000 in writing to get it ready. I don’t think we can do it anymore.’

Companies such as Brightlight that know how to structure successful copro deals are simply going to have to look elsewhere to partner. Brightlight made Alone in the Dark – a $20-million thriller based on a videogame, set to open on Jan. 28 – with Germany’s Boll KG, and it is now looking at coproducing the US$50-million Dungeon Siege with the same partners.

Response from the local powers-that-be after the U.K. changes were announced last February was swift. Then-Telefilm Canada head Richard Stursberg sent a stern letter to British culturecrats outlining how 10 Canada/U.K. copros were jeopardized by the moves. With incoming Telefilm executive director Wayne Clarkson on hand at Prime Time to speak at the keynote luncheon, surely producers will tell him to keep the pressure up.

Problems caused by the U.K. rule changes won’t be the only subject for conversation on the Insider’s Guide panel. Expect the recent increase in provincial production tax credits to be top of mind, as panelists try to provide delegates with useful copro strategies.

Brightlight, in particular, caused quite a stir recently when it threatened to move $100 million in upcoming productions out of B.C. to Toronto, as the latter had upped its service production tax credit to 18% from 11%, while the former’s remained at 11%. (Quebec raised its credit to 20% from 11%.) B.C. finally came on par, raising its credit to 18% Jan. 20. Hegyes and Brightlight partner Shawn Williamson say they otherwise would have had no choice but to shoot outside of B.C., simply because their investors expect them to save money wherever possible.

‘It’s no different from driving down the street looking for gas, and seeing that the station on the left side of the street is selling seven cents cheaper than the one on the right,’ Hegyes says. ‘It’s not hard to make a decision where you’ll buy your gas.’

The copro panel will be moderated by former Alliance Atlantis exec Eric Birnberg of Behind the Scenes Services, and the other confirmed panelists include: Danny Chalifour, director, international operations and development, Telefilm; Jean-Pierre Gauthier, director, film and video policy programs, Department of Canadian Heritage; Arnie Gelbart, president of Montreal’s Galafilm Productions; and Daniel McMullen, senior relationship manager, media and entertainment, RBC Royal Bank.

The plight of Canadian service producers, and what they can do to remain competitive against new international rivals, including U.S. states outside of California and eastern European countries, will be addressed in an earlier Feb. 4 Prime Time session. Carmody will sit in on Out of Control: How to Develop New Strategies for Hollywood North, along with: Paul Bronfman, president and CEO of services conglomerate Comweb Group; Steve Carroll, VP legal and business affairs for the U.S.-based Alliance of Motion Picture and Television Producers; Crawford Hawkins, managing director, Directors Guild of Canada – B.C.; and Michael Prupas, president of Montreal’s Muse Entertainment. David Zitzerman, partner at law firm Goodmans LLP, will moderate.

Complete scheduling information is available on the CFTPA website.

-www.cftpa.ca

-www.brightlightpictures.com

-www.doncarmody.com