Thank you.
I would like to thank the members of the committee for launching this review of the Canadian feature film industry. My name is Richard Rapkowski. I'm here today to represent the Canadian Association of Film Distributors and Exporters, otherwise known as CAFDE.
CAFDE is a non-profit trade organization that serves to represent the Canadian film distribution industry and its members on matters of national interest. Current membership includes D Films, Elevation Pictures, Entertainment One, Les Films Séville, IndieCan Entertainment, KinoSmith, Métropole Films, Mongrel Media, Pacific Northwest Pictures, and Search Engine Films.
Members of CAFDE are responsible for the vast majority of theatrical releases in Canada and are in fact responsible for two and half times more theatrical releases in Canada than the six major Hollywood studios combined.
In regard to the development, production, and distribution of Canadian films specifically, CAFDE members play an essential role. As distributors, we have a specialized understanding of the film market and consumer tastes, and we invest our private funds in the Canadian films that we believe have consumer appeal and commercial potential. Telefilm Canada relies on our investment decisions as a signal for which film projects merit the investment of public funds. As such, CAFDE members have a vested interest in the continued success of the Canadian film industry, and we follow all proceedings that can and will impact Canadian cinema with great interest.
We believe there are three main policy issues for the government to consider to support and strengthen the Canadian feature film industry: first, enforcement of the 1988 distribution policy; second, a reflection on such policy in light of the increased importance of ancillary windows in distribution; and third, the need for renewed broadcast support, especially from the CBC for Canadian feature films.
The first and arguably the most substantive policy issue is the critical need for the robust application of the 1988 distribution policy. As this committee knows, for much of the 20th century Canadian feature films struggled to get produced, and even when they did they faced an uphill battle in order to find a place on cinema screens. This was largely due to the unfettered domination of the major U.S. studios that paternalistically viewed Canada as an extension of the American domestic market.
However, in 1988, the Conservative government led a bold initiative to modernize the Canadian film industry by announcing a new film distribution policy. The purpose of the policy was to promote a dynamic and viable Canadian film industry by developing Canada as a separate distribution market and to support distributors who invest in and promote Canadian films in Canada.
At its root, the policy recognized the crucial role that distributors play in supporting Canadian culture and that a strong distribution sector is vital for the long-term success of the Canadian feature film industry. It reflected the market reality that Canadian distribution companies need access to foreign films to sustain businesses that can then afford to invest in Canadian films.
Flora MacDonald, the then minister of communications, introduced the film products importation bill to parliament, which would have afforded Canadian distributors fair access to film distribution rights in Canada and the necessary protections to fend off Hollywood studios that were increasingly encroaching on the Canadian film landscape and siphoning revenue from entertainment consumption out of the country. Unfortunately, however, due to the intense lobbying efforts of the Motion Picture Association of America representing the major studios, the bill never came to fruition.
Nevertheless, the spirit of the bill remains intact on a policy level. It created a distinct Canadian distribution market and required the theatrical and home video distribution of motion pictures in Canada to be carried out by Canadian owned and controlled distributors.
There are caveats to the policy. It only applies to non-proprietary product, which means those films that are not financed or owned by the company seeking to distribute in Canada, and the policy does not apply to the foreign-owned Hollywood studios, i.e., Universal, Paramount, Disney, 20th Century Fox, Sony, and Warner Bros. They were grandfathered in, allowing them to continue to distribute their films in Canada.
As Ms. MacDonald outlined at the time of tabling the initial bill, the government intention was that “foreign-owned film distributors will be able to import for distribution films in which they have a significant financial risk, and which we consider, for all intents and purposes, to be 'their' films”. The intent of the policy was not “to promote the personal well-being of Canadian film distributors...[but rather]...to enable them to earn a normal share of the Canadian film market, so as to encourage the re-channelling of funds back into the Canadian film industry”.
To accomplish that goal, the policy required that non-proprietary films be distributed in Canada by Canadian-owned and -controlled distribution companies. This policy was an unequivocal success, resulting in the strengthening of the Canadian distribution sector, which was now finally able to invest in new Canadian feature films that have the market strength to be distributed properly and sustainably. The government's achievement with the policy is evident: 2014 was one of the strongest years for critical acclaim of Canadian film in recent history. This past year at the international Cannes film festival, a record three Canadian films were in official competition. There we witnessed a standing ovation for Atom Egoyan's film The Captive, acting awards for Julianne Moore in David Cronenberg's Maps to the Stars, which went on to earn a Golden Globe nomination, and a jury prize for Xavier Dolan's film, Mommy.
Unfortunately, the hard-fought gains that Heritage Canada has made in the sector are threatened of late, with recent developments signalling a disturbing erosion of the policy and its intent, an erosion that will inevitably lead to a decline in the success that the sector and the government have worked so hard to achieve for close to three decades.
For example, Warner Bros. Entertainment Inc. released the film Transcendence in Canada in April 2014. Transcendence is not a proprietary film. Warner Bros. does not own or control world-wide rights. Rather, Warner Bros. simply acquired Canadian distribution rights on the open market as an add-on to its right to distribute the film in the United States. Warner Bros. did not produce the film, nor does it own or control any rights outside of North America.
Though Warner Bros. is a major U.S. studio and therefore arguably falls within the grandfathered exception contained in the film distribution policy, the intent of the policy was to create a distinct Canadian marketplace for this very type of independent film. When the policy was introduced in 1988, major U.S. studios did not acquire independent films for distribution in North America. The studios were solely in the business of distributing their own proprietary product on a world-wide basis, and so such exploitation would not have been contemplated as being captured by the grandfathered exception. Allowing the major studios to use their grandfathered status as a sword to distribute independent, non-proprietary films in Canada, instead of using it as a shield for proprietary content as intended, puts the entire policy at risk, and certainly the intent of the policy is not being met.
Another recent and even more disturbing example is provided by the film Story of Your Life. In this case, Paramount Pictures lumped Canadian distribution rights into its acquisition of U.S. distribution rights. Once again, Story of Your Life is not a proprietary film. In fact, a number of CAFDE members tried very hard to acquire Canadian rights to the film but were precluded when Paramount made Canadian rights a condition of its offer to distribute in the U.S.
What is particularly irksome about this example is that the film is being directed by Denis Villeneuve, one of Canada's most talented directors, whose career has been supported and nourished by Canadian distributors and Canadian funding agencies. His films Polytechnique, Incendies, and Enemy are all examples of Canadian films that have achieved both critical and commercial success in Canada and abroad. He is in many ways a byproduct of the success of the distribution policy. Although Story of Your Life is not a Canadian film, it is still a non-proprietary, independent film with a marketable Canadian director and cast, which Canadian distributors were unable to compete for, given the unfettered heft of the U.S. studios.
This has been followed by another more alarming example. Just recently, Sony Pictures has agreed to distribute a suite of films in Canada to which they do not even hold U.S. rights, in the most egregious violation of the policy to date. In that instance, all U.S. rights are owned by a company called Open Road Films, a U.S. distributor that cannot avail itself of the grandfathered exception to the policy. Rather than engage a Canadian-owned distribution company to handle the films in Canada, they licensed their slate to Sony. Once again, a number of our members sought to acquire this lucrative deal with Open Road Films.
This example demonstrates clearly the slippery slope of allowing the U.S. studios to fly in the face of the spirit and intent of the policy. The erosion of the policy's protections puts the gains that the sector and Heritage Canada have made to date in jeopardy. I can assure you that, if left unchecked, these activities will decimate the Canadian distribution sector.
Canadian distributors play a vital role in supporting Canadian culture. They help to finance Canadian feature films and implement the marketing strategies for their release to Canadian consumers. In fact, in the last decade alone, CAFDE members have invested upwards of $400 million in Canadian production. However, as I mentioned previously, the annual output of Canadian films is not in and of itself sufficient to sustain the business activities of Canadian-owned distributors. They rely on access to foreign independent films—i.e., foreign non-proprietary films—to generate sufficient returns from the marketplace across its entire portfolio of films. Canadian owned and controlled distribution companies hold a small share of the Canadian theatrical market compared to their foreign-owned Hollywood counterparts.
In order to demonstrate the dominance of the major Hollywood studios, let us consider the most recent complete data set from Rentrak Box Office Essentials, which shows a total Canadian box office revenue of approximately $970 million. Of that $748 million, or 77% of the market share, went to the six major U.S. studios. The independent studios meanwhile accounted for $223 million or 23% of the market share. Yet while enjoying the dominant share of the market, the major Hollywood studios do not invest in or distribute any Canadian films.
The film distribution policy addresses these facts and creates a profitable distribution sector, which is in a stronger position to invest in and market Canadian feature films. The government’s continued commitment to supporting the Canadian feature film industry and to upholding the film distribution policy is of paramount importance to CAFDE members who have built their businesses on the basis of this policy, as well as the indigenous feature film industry in Canada, which is of vital cultural and economic importance to Canada.
Allowing the foreign-owned studios to run roughshod over the intent of the policy will have dire consequences for the Canadian owned and controlled distribution sector and its continued ability to finance and market Canadian films. Additionally, in allowing these foreign-owned studios to intrude into the distinct Canadian film market it signals that the Government of Canada is no longer concerned about the cultural and economic considerations that engendered the policy and paves the way for the U.S. studios to bypass Canadian distributors and take an even greater share of profits from Canadian distribution out of Canada.
As I mentioned, CAFDE members’ commitment to financing and distributing Canadian content while sustaining business operations in this competitive marketplace is in large part contingent upon the government’s enforcement of the Canadian film distribution policy. Looking forward we think it will also require a willingness on the part of the government to modernize its application of the policy so that its intent is preserved in the face of a changing landscape.
Our second policy initiative focuses on this changing landscape.