Canadian Heritage Committee on June 3rd, 2010

[Jon Feltheimer]

Well, to start with, the chief executive officer is a guitar player. I come out of the creative end of the business. Nothing means more to me than supporting artists. I appreciate the recent law that was just passed that supports artists' rights. Again, I think I've expressed through my comments that we are not only distributors but also significant producers.

I can tell you that if you had gone to the set of Running Wilde in Vancouver recently, when we shot the pilot, you would have seen people there who actually started off as runners and grips on production. One of them now is the cinematographer of that production.

We have supported production in Quebec through our financing and distribution of numerous, numerous French films, including Elvis Gratton, Les 3 p'tits cochons, and numerous other projects.

We have developed numerous projects with Canadians. I mentioned Paul Haggis and developing a fund together with him.

There is nothing more important to me. Still to this day, I read every script that we are going to produce. I'm involved with writers and directors and producers every day in my job. There is nothing more important to me than the cultural aspect of our industry.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

At the beginning, when you answered questions from my fellow committee members, you gave me the impression that you were not selling the company because you did not think that the offer was good enough. If it became good enough, would you sell? If not now, maybe in six months or a year.

[Jon Feltheimer]

That's a fair question.

I think the fiduciary responsibility that our board has at this point is the interests of the shareholders. We are not here to debate that issue right now; we are here to talk about the specific issue of net benefit to Canada.

If there is a significantly changed offer, obviously, our board has to review it, but that's really not the point of our meeting here today.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Why are you so certain that what you have done constitutes a guarantee for the future and why are you so sure that the other company, Icahn, could not do the same thing as you?

[Jon Feltheimer]

Again, I can't guarantee what they will do. I can only point to what we have done as opposed to what we have said. Our production here is as late as tomorrow and as late as yesterday, and it's ongoing. I don't think one could point to any bit of evidence that we don't do what we say and that we haven't done everything we could to support the film industry and overall industry in Canada.

All I can really point to is what we've done, not what we've said.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

You were asked a question earlier about whether you could start a new company elsewhere in Canada if you sold this one to Icahn, and could give Canadians the benefit of your experience in the same way? Maybe there is a five-year exclusivity clause in the purchase offer.

[Jon Feltheimer]

That's a very complicated question. I can only say I enjoyed the time I spent in Vancouver and Toronto and would have no problem living in any of the great Canadian cities and no problem being in business here if invited to do so, but at this point my intention is to continue to grow Lionsgate. It's to continue to benefit Canada and any of the constituencies that we are involved with, and I have no other plans.

[Norman Bacal]

Let's not minimize what it's taken.

I've been involved in the company now for 10 years. For five years I was counsel and for the last five years I've been on the board of directors. I don't think we should be minimizing the effort and contribution that management has made to building up what is truly a Canadian success story, in part because of what they've done for Quebec.

For anyone to pretty much start from scratch and build the whole thing over again is a monumental undertaking. Where we are today and what Lionsgate has meant to Canada for the last 10 years is an enormous achievement. To be starting it all over from scratch...

Someone who has publicly said he's not quite sure about the value of film libraries is looking at a company that has one of the largest Quebec film libraries. He would probably not recognize any of the titles, but Mr. Feltheimer made reference to a number of them. They include, for example, the television series concerning the life of René Lévesque, as well as Mon oncle Antoine--which is a Quebec treasure--and numerous other titles. What happens to those in the future?

We can't predict, first of all, what he's offering. We don't know what his discussions have been with Canadian Heritage or what the future may bring for Lionsgate, but I think it would be understating the achievements of management over the last 10 years to suggest it could be easily repeated by anyone.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

We'll move on now to Mr. Bruinooge, please.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

Thank you, Mr. Chair.

I very much appreciate all of you coming today. I especially appreciate having the CEO come before us. Clearly you take this very seriously.

I am in a quandary, as every independent filmmaker is both an entrepreneur and of course an artist. I come at it from both perspectives. I don't think it's a good idea for Canadian politicians to impede the economic opportunities of investors, so I stated that at the last meeting, that we had a significant investor come to our country. I think it's a good thing to at least let them perceive there's a market here and Canada is open for business, open for investment.

At the same time, I obviously appreciate all the things Lionsgate has done over the years. How did we get here as a committee? I think we're definitely way ahead of where things should be. The cart is before the horse in this situation, and for the record, I want to say again that I think this hearing is not a good precedent for what should be negotiated at the very least behind doors and with the Government of Canada as needed. So putting that on the table, I think that's my perspective coming at this as a business person and as somebody who's also in the film industry, because I don't think it benefits our industry a lot having these types of predetermining discussions among a group of politicians who really don't have the information.

Having said that, I want to move on to some of the positions that were put forward by the Icahn Group, appreciating that you don't want them to buy the company. I know you suggest that the net benefit to Canada is really the key argument, and I think you're right. I think it's pretty clear that the Icahn Group wouldn't be able to sustain the idea that they would provide net benefit to Canada above and beyond what your board is already doing. But it seems to me, based on the testimony we heard from them, that's not their tack. They are strongly suggesting that the status of your position as a Canadian company is where they want to go with their argument.

How do you pursue that through the means you have, referring also to Mr. Blais, the ADM, whom we also had at committee? When some questions were put to him as to your company being Canadian, he was unable to provide a clear answer to that. What does your company have to do to establish that with the department, to quash that line of attack the Icahn Group is putting at you?

[Jon Feltheimer]

We have never heard otherwise. Again, we are a Canadian company. We are a Canadian taxpayer under the Income Tax Act. We are controlled by a Canadian board. No one has ever questioned that. We are referred to every day as a Canadian company. We are a Canadian company, so unless somebody has some strong argument against it, I don't think that's a discussion that we even intend to have.

[Norman Bacal]

We believe the department accepts that we are a Canadian company. Telefilm recognizes the company as being Canadian. We scratch our heads and wonder what the problem is, other than perhaps within the Icahn Group.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

So the ADM's answer that he was unable to provide an analysis as to your status...you would say he's being overly cautious?

[Jon Feltheimer]

Sounds right.

[Norman Bacal]

Sounds like it, yes.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

Okay.

I'll move on to some of the approaches that you think Lionsgate will take in the future in terms of building your Canadian business in ways that will make it even stronger. Of course, I know you have significant investments in the film industry on the west coast. Are there other regions you have or are pursuing an interest in?

[Jon Feltheimer]

You said on the west coast.

Well, we have a $400 million film and television fund with SGF. We used that fund to produce the first season of Blue Mountain State. We will hopefully use it again for the second season, but in any case we are going to produce the second season in Quebec.

We are awaiting a pickup from Epix, a pay television channel, of a miniseries we've been developing called Atlas Shrugged. That would be about a $25 million or $30 million production.

Again, we don't make and have not made separate plans to convince anybody that we will continue to produce and distribute in Canada, because I think it's a given: it's our business, it's part of our business plan, it's ongoing. But I would say something—again, I think this is very important—going back to the Maple conversation, which is that part of our growth in Canada is the support and expansion of Maple.

Having Maple become stronger, having Maple pick up many more films that are non-Lionsgate films—third-party films and English Canada rights for French language films from Quebec—is actually a tremendous benefit to filmmakers, French and English, all through Canada. The strength of Maple is a tremendous benefit to them, so selling it or consolidating it is clearly the opposite.

[Rod Bruinooge, Conservative, Winnipeg South, MB]

It sounds as though I'm out of time. I appreciate that answer. Thank you.

[The Chair, Conservative, Gary Schellenberger]

Ms. Dhalla, please, and this will be the last round.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

I want to thank all of you for taking the time to come out today. Your presentation has been really insightful, and it's great to see that you're focusing on the positive rather than the negative.

I have a couple of questions.

Number one is in regard to the presentation that was done by the Icahn Group. They outlined a significant number of concerns they had, and hence the reason for their desire to have a takeover.

I believe that whenever you go through any type of process as an organization and as a business in which you're experiencing challenges and difficulties, there's always a lesson to be learned. From everything you've heard about and seen so far as the boss, what would you think is the greatest lesson that you have learned as an organization?

[Jon Feltheimer]

Well, every time we have a movie that doesn't work, I feel that I've learned a lesson. But the lesson isn't not to do those movies.

What we have done is balance our slate; we have a portfolio approach to our business. Mr. Icahn recently talked about one of our films that was more expensive, but he didn't notice that, as we put out in our shareholder presentation, our average exposure on production risk after international sales, for our entire slate of pictures, is around $13 million. It's probably a third of that of the major studios.

I feel as though I learn something every single day in all of our businesses. But it's a little outrageous to hear that our overhead is high, when our overhead on a percentage basis is the lowest in the business.

We certainly see that in order to weather certain economic downturns we have to be smart: smart about spending, smart about overhead. As I say, any time a film or television project doesn't work, I feel that I've learned something, and I try to apply it with our entire staff and board the next time.

But I think the key thing I've learned is that we need to keep growing our business, and when you start cutting back and trying just to show financial metrics, as opposed to growing your core business—and our business is a cultural business, the film and television business, supporting great writers and great directors: I've learned that at the end of the day that leads to making money. But the most important thing is to actually be true to what your business is, and in our case, it's an artistic and cultural business.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

Could you also clarify this for the committee? Icahn came in with a pretty thick presentation, which they handed out to all of us. Within the presentation there was a component of it that outlined and stated that only 4% of Lionsgate shareholders are actually Canadian, and you are specifying today that two-thirds of your board is actually Canadian.

Is it correct that only 4% of Lionsgate shareholders are Canadian.

[Jon Feltheimer]

From day to day, I wouldn't know. It's very possible, but I really wouldn't know.

[Ruby Dhalla, Liberal, Brampton—Springdale, ON]

You haven't done an analysis, in terms of...?

[Jon Feltheimer]

The stock trades every single day around a million shares, so I wouldn't know on a day-to-day basis. That sounds as though it could be accurate.