Article by David B. Zitzerman, Michael A. Levine, Carolyn Stamegna, Tara Parker and Jaclyn Seidman

Over the past several years, the Canadian film and television industry has grown and matured and, at present, represents a nearly $4.80 billion business annually.1 Only a few years ago, Canada's largest film and television companies were small privately held corporations which relied heavily upon government financing and subsidy programs to finance production. Since 1993 however, many of Canada's most prominent film and television companies have, through a combination of public offerings, private equity financings and consolidations, grown to become commercially successful integrated entertainment corporations often with significant broadcasting assets. Companies such as DHX Media, Entertainment One and Peace Arch are publicly traded and owned by both Canadian and non-Canadian investors. Recently, there has been a wave of industry mergers. Beginning in July 2006, CTVglobemedia purchased CHUM Ltd. for $1.4 billion. When the CRTC would not allow CTVglobemedia to retain possession of the City-TV stations it had acquired as part of the CHUM acquisition, CTV sold the City- TV stations to Rogers Communications. In January 2007, CanWest Global Communications and U.S. investment bank Goldman Sachs acquired cable network operator Alliance Atlantis Communications Inc. (distributor, specialty broadcaster and the co-producer of "CSI" franchise) for $2.3 billion. As CanWest Global was not interested in retaining either Alliance's interest in the CSI franchise, or Alliance's film distribution business, the former was purchased solely by Goldman Sachs and the latter was acquired by Goldman Sachs together with Edgestone Capital Partners, a Canadian private equity firm, in order to comply with Canadian control requirements. In January 2008, Edgestone exited its investment in Alliance Films and was replaced by a Quebec government controlled fund, Societe Generale de Financement du Quebec. Astral Communications acquired radio giant Standard Broadcasting in February 2007. Finally, in September 2007, Canwest Media rebranded its CH Network as E! Entertainment pursuant to an agreement between Canwest and E! Entertainment, a U.S. based cable service which is a subsidiary of Comcast, based in Philadelphia.

At the same time as the domestic industry has matured and consolidated, Canada has become a leading location for internationally originated productions. Over the past two decades, American studios, television networks and cable services have come to Canada in droves, attracted by the low Canadian dollar and first-class Canadian casts and crews, locations and facilities. U.S. companies with a strong presence in Canada include major U.S. studios such as Paramount, Walt Disney, Miramax, Universal, MGM and Columbia, U.S. networks such as ABC, NBC, CBS and Fox, cable services such as Showtime, TNT, The Disney Channel and HBO and film companies such as Once Upon A Time, Von Zerneck/Sertner Films and Jaffe Braunstein, among many others. European film companies such as Endemol, Working Title, Granada and Yorkshire have also found Canada to be an attractive location and have often been able to take advantage of Canada's numerous international film and television coproduction treaties to access Canadian benefits. More recently, the rise of the Canadian dollar against the U.S. greenback, as well as the introduction of numerous U.S. state film incentives has dampened somewhat location shooting in Canada.

In Ontario, the leading Canadian production centre, combined film and television production expenditures added over $1.8 billion to the provincial economy in 2006. Ontario continues to draw marquee film and television projects. Productions filmed in Ontario during 2006 include the feature films "Hairspray", starring John Travolta, Queen Latifah, and Michelle Pfeiffer, as well as popular Canadian television series such as the sixth season of "Degrassi: The Next Generation".2 In 2006-2007, foreign production contributed $1.7 billion to the provincial economy. 3

In British Columbia, the westernmost province, 230 film and television projects were produced during 2006, including prominent studio films such as "Elegy", featuring Penelope Cruz and Sir Ben Kingsley, and television programs such as "Battlestar Galactica", "The 4400", "Men in Trees" and "Smallville"4. Production expenditures in the province reached just under $1.4 billion in 2006, of which foreign location production expenditures accounted for approximately $1 billion. British Columbia leads the provinces in foreign location production. It is also the third-largest film production center in North America after New York and Los Angeles.

The Province of Quebec was the third largest center of production in Canada, with just over $1.1 billion in activity. Quebec was the location for numerous recent major foreign film productions, including "Blades of Glory", starring Will Farrell, and the epic-battle Gerard Butler film "300".5

Other provinces, while not as prominent as Ontario, British Columbia and Quebec, had total production expenditures in 2005-2006 as follows: approximately $83 million in Manitoba; approximately $19 million in New Brunswick; approximately $25 million in Newfoundland; and $1 million in Prince Edward Island. In Alberta, production activity expenditures reached $122 million in 2005-2006. During the same period, production volumes were generated in the province of Saskatchewan totalling $58 million. In Nova Scotia, the film industry continues to thrive with 2005-2006 production expenditures of $151 million.6

As the foregoing figures suggest, U.S., European and other non-Canadian producers and distributors continue to produce numerous film and television projects on location in Canada. What accounts for this continuing interest in Canadian film and television production? The following factors have all contributed to the growth of production in Canada:

Geographic Proximity

Canada's geographic proximity to the United States and shared North American values and interests have led to the establishment of close professional contacts between Canadian and American studios, independent producers, distributors and buyers. Toronto is a short flight away from New York and Vancouver is just up the coast from Los Angeles. American television (both network and non-network) is readily accessible and widely disseminated throughout Canada.

Lower Production Costs

Production costs in Canada are generally lower than in the U.S. and other countries, and therefore attract U.S. and other foreign productions (although more recently, as the Canadian dollar has risen, this cost advantage has been diminishing). In addition, generally lower guild and union minimums encourage production in Canada by non- Canadian producers.

First-Class Canadian Performers

Popular Canadian performers include Ellen Page, Jim Carrey, Keanu Reeves, Sarah Polley, Mike Myers, Tom Green, Kim Cattrall, Eric McCormack, Carrie-Anne Moss, Hayden Christenson, Neve Campbell, Brendan Fraser, Jill Hennessy, Matthew Perry, Christopher Plummer, David James Elliot, Rachel McAdams, Colm Feore, Scott Speedman, Kate Nelligan, Donald and Kiefer Sutherland, Catherine O'Hara, Eugene Levy, Rick Moranis, Dan Ackroyd, Ryan Gosling and Michael J. Fox. For Canadian productions, performers are commonly represented by the Alliance of Canadian Cinema, Television and Radio Artists ("ACTRA") or the Union of British Columbia Performers ("UBCP") guilds whose collective agreements are often more favourable to the producer than the Screen Actors Guild ("SAG"), American Federation of Television and Radio Artists ("AFTRA") and other non- Canadian collective agreements. For example, under the ACTRA agreement, a producer has the option to prepay or "buy out" actors' residuals, for a four-year period, which can be very advantageous when compared to SAG or AFTRA residual requirements.7

First Class Canadian Crews

Canada now boasts a very large number of highly trained and professional crews, technicians and production personnel. In Toronto, the Canadian Film Centre established by Norman Jewison, provides intensive training for Canadian directors, writers and producers. In addition, Canadian trade unions are often more flexible and insist upon less onerous requirements than their non-Canadian counterparts.

New and Varied Canadian Locations

With its wide-ranging topography (3,400 miles from coast to coast) and small population (approx. 33 million), Canada is ideally suited for location shooting. Urban centres such as Toronto, Vancouver and Montreal have been disguised as London, Paris, New York and Chicago. Many Canadian cities and several provinces offer free location assistance to film and television producers.

First Class Canadian Facilities

Studio facilities and post-production laboratories in Toronto, Montreal and Vancouver rival those in Hollywood. Canada's largest film and television studio, Lions Gate Studios, a $25 million facility, is located in Vancouver, as is the Bridge Studios, which has one of the largest sound effect stages in North America. Toronto Film Studios, located in downtown Toronto, is another of the country's largest studio complexes. In September of 2005 Toronto Mayor David Miller announced that the city of Toronto Economic Development Corp. (TEDCO), Toronto Film Studios and its parent company, Rose Corp., have signed a 99-year lease for a 30-acre site in the port area of Toronto to create a new $100-million, 232,500-square foot film studio, Filmport, on the Toronto waterfront. Filmport, which will become one of the world's largest custom-built sound stages, will be designed to attract large-budget Hollywood productions which require large-scale studio space. When completed it will house commercial offices, post-production facilities, union and guild offices, restaurants and shops and it is scheduled to open its sound stage facilities in early 2008.

Government Financial Support

Telefilm Canada provides financial assistance (in the form of equity investments, interest free and low interest loans, development and interim financing) to Canadian film and television productions which have significant Canadian creative, artistic and technical content and which meet certain published criteria. Telefilm assistance is distributed through a number of different funds, most notably, the Canadian Feature Film Fund which supports the development, distribution and production of Canadian film with financing "envelopes" for qualified producers and distributors. The federal government and each of the provincial governments provide generous financial support (i.e. typically in the form of refundable tax credits) to qualifying Canadian productions. In 1996, the Canadian Television Fund ("CTF") was established by the federal government. CTF is a government-cable industry partnership which combined the former Cable Production Fund, Telefilm Canada's Canadian Broadcast Program Development Fund and a financial contribution from the Department of Canadian Heritage to form an approximately $200 million per year television funding initiative. Under the CTF, broadcasters can direct funds to the types of programs they want to invest in. In 2006-2007, the CTF contributed a total of $251.8 million, which triggered over $880 million in production activity. CTF financing supported 509 productions and 2.297 hours of production in 2006-2007.8

"Canadian-Content" Productions

Canadian television broadcasters and cable services generally pay substantially higher licence fees for television programs which meet the "Canadian content" criteria established by the Canadian Radio-television and Telecommunications Commission ("CRTC"), the Canadian equivalent to the U.S. Federal Communications Commission. Such television programs are licensed at a premium because, under Canadian law, broadcasters are required to telecast certain minimum amounts of Canadian programming in order to comply with their broadcast licences. Such productions are also generally eligible for direct government funding, tax credits (as described below) and "assistance (either in the form of equity investments or license fee "top-ups") from the CTF. In June 2003, Francois Macerola (the former head of Telefilm Canada) released a report to the Department of Canadian Heritage entitled "Canadian Content in the 21st Century in Film and Television Productions: A Matter of Cultural Identity" (the "Macerola Report"), which proposes, among other things, a radical re-definition of the current "Canadian content" eligibility criteria for broadcast, tax credit and CTF purposes. The Macerola Report is intended to serve as a starting point for consultations between the federal government and stakeholders in the Canadian film industry with a view to introducing new "Canadian content" criteria to replace the existing criteria discussed in detail below.

Tax Credits

In 1995, the federal government introduced a fully refundable tax credit for eligible "Canadian content" film and video productions produced by qualified taxable Canadian corporations. The federal tax credit is equal to 25% of qualifying Canadian labour expenditures capped at 60% of production costs and therefore provides up to a maximum amount of 15% of the total production costs of an eligible production. It is administered jointly by Canada Revenue Agency (the "CRA"), and the Canadian Audio-Visual Certification Office ("CAVCO"), and available to Canadian-controlled productions which meet the detailed requirements set out in the Income Tax Act (Canada), related regulations and guidelines of CAVCO as summarized below. The federal Canadian content tax credit was modelled on the provincial Canadian content tax credit previously introduced in the province of Quebec. Since the introduction of the federal credit, additional provincial Canadian content tax credits have been introduced in the provinces of Ontario, British Columbia and other provinces (as discussed in detail below).

On October 29, 1997, the federal government introduced a refundable "production services" tax credit (the "PSTC") for non-Canadian content film and television productions which are produced in Canada. The rate of the PSTC is currently equal to 16% of qualifying Canadian labour expenditures incurred for services rendered by Canadians in Canada in respect of an "accredited production" (as described below). Therefore, for example, if Canadian labour expenditures represented approximately 50% of the total production budget, the federal production services tax credit would net applicants approximately 8% (i.e. 16% of 50%) of total production costs. As discussed below, most Canadian provinces and territories have introduced counter part tax incentives to the federal tax credits, which, in most cases, are actually even more generous than the federal incentives and which supplement the federal incentives. Many of the tax credits discussed above offer additional incentives provided specified criteria are satisfied, including, for example, increased credits for first time producers and regional productions.

Footnotes:

1 "An Economic Report on the Canadian Film and Television Production Industry: Profile 2007", a report produced by The Canadian Film and Television Production Association and l'Association des producteurs de films et de télévision du Québec, in conjunction with the Department of Canadian Heritage with production facts and figures provided by Nordicity Group Ltd.

2 "An Economic Report on the Canadian Film and Television Production Industry: Profile 2007", a report produced by The Canadian Film and Television Production Association and l'Association des producteurs de films et de télévision du Québec, in conjunction with the Department of Canadian Heritage with production facts and figures provided by Nordicity Group Ltd.

3 "An Economic Report on the Canadian Film & Television Production Industry: Profile 2007", a report produced by the Canadian Film and Television Production Association and l'Association de producteurs de Films et de télévision du Québec, in conjunction with the Department of Canadian Heritage and with production facts and figures provided by Nordicity Group.

4 Figures and statistics from www.bcfilmcommission.com.

5 Québec Film and Television Council, www.gftc.ca and "An Economic Report on the Canadian Film and Television Production Industry: Profile 2007", a report produced by The Canadian Film and Television Production Television Association and l'Association de producteurs de Films et de télévision du Québec, in conjunction with the Department of Canadian Heritage and with production facts and figures provided by Nordicity Group.

6 "An Economic Report on the Canadian Film and Television Production Industry: Profile 2007", a report produced by The Canadian Film and Television Production Association and l'Association des producteurs de films et de télévision du Québec, in conjunction with the Department of Canadian Heritage with production facts and figures provided by Nordicity Group Ltd.

7 For further information visit www.actra.com and www.sag.org.

8 Statistics available at www.canadiantelevisionfund.ca.



To read the document in its entirety please use the following link http://www.goodmans.ca/docs/Location Canada January 2008 electronic version.pdf.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.