Sandra Richmond is a partner at the Toronto law firm of McMillan Binch and a member of the firm’s KNOWlaw group.

In spring a young producer’s fancy turns to thoughts of – international coproductions?

Well, maybe not, but the Banff Television Festival’s heady mix of producers and broadcasters from around the world, endless opportunities to mingle and a majestic setting has resulted in the beginnings of many relationships that led to international coproductions.

This year promises to be no different.

Banff has always provided a great opportunity for producers to find out what buyers are looking for and to talk to potential production partners.

The upside

Last year, Telefilm Canada certified 98 international film and television coproduction projects with combined budgets of around $668 million. It would be no surprise if many of these projects originated with conversations at past Banff festivals.

Certainly there are lots of good reasons for producers to do treaty coproductions. This structure can increase the financial, creative and technical resources for your production and decrease your risk. An international coproduction partner can help give you access to new markets and new contacts.

And certification as a treaty coproduction in Canada qualifies a project as Canadian content, even if the production might otherwise not meet the Canadian-content requirements of the CRTC or CAVCO.

Certification means the production becomes eligible for the higher ‘Cancon’ tax credits, higher licence fees from Canadian broadcasters and funding from a number of programs. In the right circumstances, you might also gain access to incentives and subsidies in the coproducing country.

The risks

But there can be drawbacks, including the increased transaction costs of trying to mesh the requirements of two or more producers and their regulatory, legal and financing structures; the time zones, physical distances and cultural differences between the parties when trying to solve problems; and the loss of at least some control over the production.

So, how can you try to improve your chances of having a good coproduction relationship?

Treaties and guidelines

It may sound obvious, but make sure you carefully read the applicable treaty and the coproducing countries’ guidelines for treaty coproductions. Make sure that you and your coproducer are aware of your own requirements – and each other’s.

Summaries and official texts of the treaties are available on the Telefilm Canada website at www.telefilm.gc.ca. The treaties do vary and each treaty has specific requirements, which can include minimum financial, artistic and technical contributions.

In Canada, Telefilm is the body responsible for certifying coproductions as eligible. Its new guidelines for official coproductions (issued in April 2001 and updated as of January 2002) are also available on its website.

The Telefilm guidelines are aimed at achieving balanced participation by each coproducing country and at ensuring that each coproducing country’s industry benefits from the coproduction.

Here are seven pointers to help keep your relationship smooth and your coproduction within the guidelines:

1. Balanced structure: Make sure your coproduction structure reflects a balance between the coproducing countries. Each coproducer’s creative contribution, expenses, potential revenue share and copyright ownership must be proportionate to its financial contribution, which in turn must meet the minimum requirements set out in the treaty.

2. Underlying property: Check the origin of the underlying property for the coproduction. It’s acceptable when it comes from one of the coproducing countries, but there are restrictions on material from third-party countries (i.e., a non-coproducer country). You can base the coproduction on a property from a third-party country only if it was not developed for an audio-visual medium.

For example, if you want to produce a series based on a feature film, the feature film must be from one of the coproducers’ countries. If the series is based on a novel, the novel can be from one of the coproducers’ countries or a third-party country.

Any material that is based on the underlying property – including the concept, treatment, bible and scripts – must be written by a writer from one of the coproducers’ countries.

3. Expenses in non-treaty countries: Minimize the expenses incurred in third-party countries and discuss them first with the coproduction authorities. Most importantly, make sure they will not endanger the minority coproducer’s required contribution.

When they are allowed, third-party expenses are applied against the coproducers’ expenses in proportion to their respective financial contributions. However, third-party expenses do not count as part of a coproducer’s financial contribution, so make sure the minority coproducer still meets the minimum financial contribution required under the treaty.

For example, if a minority coproducer is to be responsible for funding at least 20% of the budget, that’s 20% of the budget plus its share of any third-party expenses.

Telefilm’s guidelines do allow for third-party expenses in limited circumstances and, for animation productions, for subcontracted technical work worth up to 25% of the budget.

4. Performers from non-treaty countries: Performers should be from the coproducing countries (or the European Union, when applicable), but there are exceptions.

Subject to any restrictions from the coproducing country, Telefilm allows one third-party lead performer in a production and, for a three-year pilot project (beginning with the April 2001 guidelines), will allow one third-party cameo role for feature films and a specified number of third-party cameo roles and/or guest star roles for television series (depending on the number of episodes).

5. Investors from non-treaty countries: If you have an investor from a third-party country (e.g., a broadcaster or distributor), make sure you limit the investor’s share of the Canadian coproducer’s net revenue generated outside Canada to 10%.

6. Coproduction agreements: You must have a signed coproduction agreement in order to apply for certification by Telefilm as a treaty coproduction. While Telefilm will accept a short-form deal memo, it’s important for the coproducers to set out in the agreement their basic understanding on the key issues, such as:

* what each party is contributing, when and on what conditions

* what each party is responsible for doing

* what approvals and banking authority each party has

* what rights each party has (copyright, distribution territories, recoupment, revenue sharing, credits, merchandising, subsequent seasons, etc.)

* how disagreements will be resolved.

7. Financing shortfalls: Your agreement can’t always cover everything that might go wrong, but you can address some possibilities.

For example, if the parties can’t secure their financing by a specified date, they may agree to simply walk away from the project, with provisions setting out who has the rights in the property and what costs, if any, will be reimbursed.

But if, for example, you find partway through production that your coproduction partner can’t make the minimum financial contribution required under the applicable treaty, then the production may no longer qualify as a treaty coproduction. This will likely jeopardize its eligibility as a Canadian-content production.

One possibility for the Canadian producer is to see if the production will qualify as a co-venture under the CRTC rules – this may at least ‘save’ the higher licence fees by Canadian broadcasters, but the production will not be eligible for the higher Cancon tax credits and possibly not other Cancon-based funding.

The recent changes to the U.K. budget affecting sale and leaseback transactions illustrate that coproducers can’t anticipate every potential problem.

The changes mean that, effective April 17, no productions other than commercial feature films will qualify for the popular financing mechanism. Currently transitional relief is available only for those television productions certified before April 17. While there are negotiations to extend the relief to all productions for which provisional applications were made before April 17, producers with U.K. coproducers may find that their partners will need to find new sources of financing – and quickly.

Strong relationship

If you’re deciding whether to take a chance on a coproduction, perhaps the most important factor is to remember that this is no different than any other professional relationship. Treaty, guideline and contractual requirements aside, your coproducer is someone you will have to work with to make a production that you are both happy with. Banff can provide a perfect opportunity to find – and find out about – a prospective coproducer.

(This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice on any particular situation.)

-www.mcbinch.com