Montreal: ‘Financing productions is [currently] very difficult, and in most cases you have to have a partner who can bring some money to the table. Presales are next to impossible. So everybody is looking for what we call at the bank [Comerica Entertainment Group] ‘tax-related money,” says Laura Polley, president of Toronto-based Independent Film Financing.

According to Polley, the U.S. marketplace is essentially unpredictable. ‘In TV series, you either get a presale or you don’t. There is no sliding scale at all.’

Presales are difficult and extremely time consuming, and often deals fall through, with shortfalls remedied by deferral or loss of the producer’s fee.

Polley says there is maybe a handful of Canadian producers still doing content production for U.S. broadcasters or distributors. ‘And the key is that they have the relations with the Showtimes of the world. It’s very difficult for producers who don’t have a track record with HBO or Showtime.’ Producers like Dufferin Gate have a solid relationship with Showtime, but those productions access the Production Service Tax Credit. ‘Decode (Entertainment) is one of the companies in Canada that I find have great relationships with U.S. networks, but they mostly do animation,’ says Polley.

For coventures, properties require some international casting, a presale in Canada and in another major or mid-major territory, and a reputable (likely European) international sales agent with a likely element of gap financing.

IFF is opening a new office in Australia. ‘The purpose of having all the [Comerica] affiliates obviously is to look for finance opportunities in those countries and also to advise producers about the money that is available,’ says Polley.

‘Soft’ international financings

In a summary survey of current international financing possibilities, Polley says, ‘If it’s a feature, the Canada/U.K. coproduction is still very appealing because you are able to get the sale-and-leaseback proceeds, which are going up everyday. The competition starts [to heat up] in November because [the brokers] all want to get the last few productions so they can satisfy their investors.’

The recently announced U.K. transitional tax-relief rules for TV won’t help many productions other than MOWs because of the high $1.2-million per hour threshold.

Polley says tax-related private funds are popping up in the U.K. as a form of replacement for the lost sale-and-leaseback benefit in TV. The funds will offer up to 30% of the budget and include a mix of equity and sale-and-leaseback proceeds as a percentage. ‘Unfortunately for the fund I am talking about, the only way Canadians will qualify is if the British side is the majority coproducer.’

Access could be difficult, she says, because fund managers will want to know a great deal about the project’s commercial viability.

In Australia, there is a federal incentive offering a competitive tax credit of 12.5% on all expenditures in Australia (foreigners and locals), including above-the-line costs such as performers’ fees. Additional state rebate programs are in place and the Aussie dollar is relatively weak. Also, like competing locations everywhere, there are ‘unofficial’ benefits to be gained from aggressive promotions practices.

As such, Polley says a tie-in with an Australia/U.K. coproduction is especially attractive. ‘Australia is a spend-based credit and the U.K. has the sale and leaseback. When you combine those [public incentives] you’re looking at maybe 22%, 23% of your budget. In Canada, where we have a labor-based credit, the Canada/Australia coproduction is difficult to do because basically they are both offering the same thing.

‘Germany has all kinds of funds available; however, there’s rumor the government is going to be cracking down on these tax-related funds and the German funds could be on their way out,’ says Polley.

According to Sandy Mackay-Smith, president of Invicta Capital Canada, the track record for many German funds ‘has been dismal.’

‘Funds close up and people don’t get their money. There are also problems with the copyright because [Germans] want the copyright like Canadians want the copyright and they get into a tussle with Telefilm Canada,’ he says.

Other new location production incentives emerge almost weekly; examples include Luxembourg’s 25% rebate and a new tax-driven deal in the Republic of Ireland.

Based in Budapest and Montreal, a new service called ontheglobe.com has launched a production service operation focused exclusively on foreign companies looking to shoot Western-style film and TV projects on location in Budapest.

Expanding sponsorship model

Entertainment lawyer Arthur Evrensel, partner with Heenan Blaikie in Vancouver, says innovative U.S. producers are signing equity sponsorship deals as an alternative source of financing.

This integrated product marketing trend coincides with new initiatives by major corporations to direct communications to a specific demographic, in a way not so different from the early days of television.

Evrensel says this model goes way beyond product placement.

‘Say in a case where the producer and studio cover 80% of the budget – the economic model people are talking about in the United States – [the sponsor] would own the copyright and cover the deficit [20%], and come in as an investor and obviously license the picture, their goal being to really promote and control how their product would be perceived. So they would have something we don’t usually give up to sponsors – creative input and perhaps even control down the road.’

The issue then becomes which party will ultimately control the property: the filmmaker and producers, the distributor, or the sponsor, who puts up substantial amounts of cash and will have the authority to change the screenplay.

Evrensel says it’s not clear at the moment if the Canadian industry has ‘enough names and possible companies coming in at that level.’

Mass marketers are taking a greater role in the small but highly concentrated Quebec feature film market. Sponsors are putting up big dollars in movie projects with high-profile pitch personalities such as Veronique Cloutier and Benoit Briere.

Evrensel says in addition to the decline in international program sales, the situation has been made worse because of major bankruptcies. And the German funds have dropped off, he says.

‘Indirectly, some of the companies that are going under are a result of just a lesser number of productions and less money available.’

For many producers challenged by developments beyond their control, the short-term goal will be to ride out the bad times and hope for better days in a historically cyclical business.

‘Things will get worst before they get better and another midsize company or two will shut down or retrench. There will be a lot of cost cutting. I don’t see the horizon and things are not as good as they were last year,’ says Evrensel.

Seeking remedies

Dan Johnson, president of Toronto-based consultant Humewood Communications, says one of the solutions in a difficult financing environment is to ‘go back to where our strengths are.’

To obtain scale and more international casting, Johnson says the industry could see an increase in coproduction. ‘We’re going to have to have more marketable movies and more marketing.’

On the exhibition front, he points to underutilized resources like The Film Circuit, a Toronto International Film Festival Group initiative and parallel distribution model for limited local group engagements headed by Cam Haynes. ‘It’s a little jewel of an operation…and if the [5% box office] objective is achieved, The Film Circuit will be part of it,’ says Johnson.

Otherwise, he says, ‘the [feature] industry is in boot camp. English-track films [in particular] have to sell more tickets.’

Johnson says the Canadian production industry is populated with ‘survivors’ and is skilled at dealing with multiple stakeholder situations. He says Canada should also leverage its solid record of partnering, especially in coproduction with Europe.

On TV issues, Johnson says there’s increased competition for scarce public funding resources, both in the Equity Investment Program (Telefilm Canada) and the Licence Fee Program (Canadian Television Fund). ‘I’m predicting this will lead to new and different financing sources, like sponsorship. I also think we’ll see more presales. Ask yourself, ‘What will producers do if they don’t have Telefilm financing?’ And [we’ll see] more partnerships in general.’

On the issue of mergers and acquisitions, Johnson says, ‘Whether the market is positive or generally harder to work in, there are always opportunities.’