Canadian Heritage Committee on April 27th, 2015

[The Chair (Mr. Gordon Brown (Leeds—Grenville, CPC)), Conservative, Gord Brown]

Good afternoon everyone. We'll call to order meeting number 42 of the Standing Committee on Canadian Heritage.

Today we are back to our study on the Canadian feature film industry. With us for the first hour today we have a total of five witnesses. They are going to have up to 24 minutes between them.

We have Vincent Guzzo, vice-president of the Association des propriétaires de cinémas du Québec. From the Movie Theatre Association of Canada, we have Raffaele Papalia, and also Nuria Bronfman, the executive director. From Cineplex Entertainment LP, we have Anne Fitzgerald, the chief legal officer and director of the Movie Theatre Association of Canada. From Landmark Cinemas of Canada, we have Neil Campbell, president and chief executive officer, and also a director at the Movie Theatre Association of Canada.

We will start with Nuria Bronfman. I'm sure you're all organized.

[Nuria Bronfman, Executive Director, Movie Theatre Association of Canada]

We are indeed.

[The Chair, Conservative, Gord Brown]

You're to go up to 24 minutes all of you together. Thank you very much.

[Nuria Bronfman]

First, thank you so much to the committee for hearing from the Movie Theatre Association of Canada or MTAC, as we are also referred to, as well as from some of our exhibitor members who are here today.

I'm Nuria Bronfman and I serve as the executive director of MTAC. As the chairperson said, we have combined our time, so will we each make a brief presentation and then we will be here for questions afterwards.

The Movie Theatre Association of Canada represents over 3,200 screens and approximately 700 sites across the country. This includes both large chains and small independent theatres. The exhibition sector of the film industry employs over 11,000 Canadians, many of whom are young people whom we train in their first professional job.

As you know, the theatrical film industry comprises three separate sectors—production, distribution, and exhibition. The producers make the movie; they can create the content. Producers then sell that content to a distributor. The distributors then negotiate with exhibitors who effectively lease the content and pay a rental fee of a negotiated percentage of box office.

With television and the multiple emerging technologies available, producers and distributors negotiate with many formats other than the theatrical exhibition for delivery of their movies to consumers. The major studios, smaller distribution companies, and other independent filmmakers produce and distribute films. We, as the exhibitors, have no control or impact on the quality of the films produced, the marketing campaigns, or the subsequent box office revenues.

If the films produced are good, we have the potential to do well. If the films are not successful and do not draw people to the box office, we still have to pay the film rental fee and cover all of our overheads, regardless of how many tickets are sold. As such, the success of our business is dependent upon driving audiences to our theatres.

I would like to inform this committee about the state of our industry since we were last in front of you in 2005. Over the last decade our sector has gone through a significant investment of close of $400 million in new technology, as all theatres have been required to convert from traditional 35 mm film to digital projection. The theatres that have not chosen to convert to digital have basically shut their doors, as most of the product available today is in the digital format and soon there will be no film at all.

Canadian theatres, we're very happy to report, are very close to 100% digital—albeit there are just a few outliers out there still—and the exhibition industry has made enormous investments in this technology. We, the exhibitors, bear the risk of this significant investment.

Competitive pressures increase daily with the hard-hitting impact of ever-expanding platforms and viewing habits of Canadians. Audiences are now accustomed to viewing content when they want on whatever device they want. There's no question about this.

For a number of reasons, attendance over the past few years in movie theatres has remained relatively flat. We are a mature industry that faces increasing costs annually, and we risk losing customers to alternative forms of in-home and out-of-home entertainment.

The movie business is unique. When an exhibition company attempts to raise ticket or concession prices, consumers are incensed. Audiences don't realize or consider that exhibitors face increased costs or increased pressures through added competition from a growing multitude of sources. They believe ticket prices should be perpetually kept at low levels.

Somehow it is acceptable for consumers to spend $150 to $400 for a ticket to a basketball or hockey game, but those same consumers are troubled by a $13 movie ticket, despite the fact that the production of a big-event movie may cost hundreds of millions of dollars, and the building and technology in which they go to watch this content costs millions of dollars to build and maintain. This attitude imposes great pressure on exhibitors to improve the services we provide without increasing costs to our guests.

As an example, in 1974 the average movie ticket cost $1.89, which, when adjusted for inflation, would be $9.08 in 2014 dollars. That same ticket costs the consumer less today. The average ticket price in North America was $8.17 in 2014. This decrease in ticket price exists regardless of the substantial increases in the costs of building and maintaining state-of-the-art theatre movie complexes.

Every day exhibitors face increased challenges and costs, increased minimum wages, increased lease costs, and increased food costs. In order for exhibitors to persuade or attract people to leave the comfort of their homes and choose our theatres as their entertainment activity of choice, we need to be constantly upgrading our facilities and reinventing ourselves to offer the new, latest, and greatest entertainment experience.

The onus remains on exhibitors to market our theatres and create interesting promotions to attract guests to our theatres. Advertising costs are not subsidized by the studios and, again, the exhibitor bears the risk and is on the hook for all costs associated with drawing the public to its own theatre.

With that introduction, I will now turn it over to my colleague, Neil Campbell.

[Neil Campbell, President and Chief Executive Officer, Director, Movie Theatre Association of Canada, Landmark Cinemas of Canada]

Good afternoon.

I'm Neil Campbell, president of Landmark Cinemas, a wholly owned Canadian company based in Calgary. We own and operate 46 theatres with 312 screens, employing approximately 1,600 Canadians throughout Western Canada, Ontario, and the Yukon Territory. Landmark is the second-largest motion picture theatre exhibition company in Canada, and the tenth largest in North America.

As Ms. Bronfman noted, our business is a mature business that is challenged to continually engage customers to choose our theatres as their form of entertainment and their preferred method for watching movies.

Competitive pressures increase daily, with the hard-hitting impact of low-cost retail price DVDs, increasing video rentals, the prevalence of home theatre systems, pay-per-view, and satellite, in addition to a prolific number of new cable channels and out-of-home entertainment options, such as sporting events, concerts, and clubs, as well as the unfortunate continuation of international film theft known as piracy.

In order to protect the theatre business, we must engage with the customer by providing content they want to see, and by protecting the theatrical run for that content such that the customers continue to choose to see movies in theatres.

Over the past few years, this protection of the theatrical window has become increasingly more important. We have learned over the past decade of platform expansion that if a film has a healthy life in our theatres, it will have a healthy life in its electronic sell-through windows and later platforms.

If the film does not find its audience in the cinema, it will be difficult for that film to go on to succeed on other platforms. Recent indications are that most of the distribution world agrees with this premise, and most of the distribution world is committed to maintaining a healthy theatrical window.

In fact, where distributors find greater theatrical success than originally anticipated, they are more than willing to push the DVD release date down. For example, the distributors of both American Sniper and Kingsman pushed out their DVD release dates when they saw the theatrical success of those titles. Similarly, in Canada the movie It Follows had a delayed DVD release date because the title did well theatrically. They opened two prints in New York and two prints in L.A. and had a box office average of 164,000 on the first weekend. They instantly took the DVD date and moved it down to a level where we would all agree to play the picture, and they re-released it.

The Movie City News publication recently cited the declining theatrical window as being “Mutual Assured Destruction, which is, indeed, MAD”. Despite this, declining home video revenues continue to be the biggest worry for distribution, largely as a result of international film theft—again, piracy. The need for distribution to support their declining DVD sales and the need for exhibition to ensure success at the theatrical box office will continue to remain as a conflict. However, both groups are working together to find solutions.

Anne.

[Anne Fitzgerald, Director, Movie Theatre Association of Canada, and Chief Legal Officer, Cineplex Entertainment LP]

Thank you, Neil.

Good afternoon. Thank you, all, for hearing from us today.

I'm Anne Fitzgerald. I am with Cineplex Entertainment. We're one of Canada's leading entertainment companies and operate one of the most modern and fully digitized movie theatre circuits in the world. A top-tier Canadian brand, Cineplex operates numerous businesses, including theatrical exhibition. We're also a joint venture partner in SCENE, Canada's largest entertainment loyalty program, with over six million Canadians as members. We communicate regularly with movie lovers, and they tell us what they want to see on the big screen.

Headquartered in Toronto, we currently operate 161 theatres with 1,651 screens from coast to coast, serving approximately 74 million people in Canada annually. Cineplex trades on the Toronto Stock Exchange and is proudly wholly Canadian owned, employing 11,000 Canadians in our theatrical exhibition business and other businesses.

To illustrate the importance of the preservation of a substantial theatrical window, many exhibitors across North America were unwilling to exhibit even major Hollywood titles when a studio announced its intent to make the title available on video on demand or DVD soon after the theatrical release.

For example, exhibitors declined to run such titles as The Cobbler with Adam Sandler, Only God Forgives with Ryan Gosling, Wild Card with Jason Statham, and The Last Five Years with Anna Kendrick, due to short VOD or DVD release windows.

The April 16, 2015, report issued by the Royal Bank of Canada confirmed the importance of preservation of this theatrical window, noting that 41% of respondents said they would be less likely to see a movie in a theatre if it was going to be available on VOD within 90 days of its theatrical release. A loss of 41% of our customer base would obviously be completely destructive to the theatrical exhibition business. Preservation of windows is the biggest issue facing exhibitors today around the world. We have made great strides with distribution since the first experiments with day-and-date releases to make sure that theatrical and VOD returns can continue to grow.

Here in Canada, Cineplex was one of the first exhibitors in the world in conjunction with distribution to experiment with the concept of the super ticket, selling a ticket to both the theatrical exhibition experience, followed by an electronic download of the same title for the customer to own at home later. The effort is to try to increase the VOD sell-through window without damaging the theatrical window.

It is our well-informed opinion that for movies made for theatrical release, a long theatrical window must be preserved. Were shorter windows to be regulated for any intended theatrical content, many exhibitors would not be willing to screen that content, as our experience shows that customers would choose not to come to our theatres. We continue to work with our partners in distribution to explore new ways to finesse the system. But it's important to note that for a healthy theatrical sector to survive, this window must be preserved.

Over the past decade we have seen the shortening of the window, and it cannot continue to erode. With reference to both the DVD release date and the electronic sell-through release date, whichever arrives in the home first, data from the National Association of Theatre Owners notes that the major studio release window average dropped from 117 days in 2012 to only 98 days in 2014. That represents a 19% decline in the theatrical window, which is simply destructive to the theatrical exhibition business.

Through examples from our colleagues in the United States and in Europe, we can see that the success of the day-and-date release into the home market of a feature film is patchy at best. Not all films are made for theatres. All our members are familiar with customers who make such statements that so and so's title must be seen on the big screen. Our customers also tell us the opposite, that they're happy to wait to see certain films in their homes on their television screens or even on their hand-held devices.

If a film belongs on the big screen, that is where it should experience its first release. And that release should be preserved for the benefit of the film's life, both in theatre and after the theatre experience. If, instead, a film belongs on the television screen or on another platform, it should not test the waters of the big screen at all and should go straight into that alternative format market without delving into theatrical exhibition.

I'll turn to Vince for a moment to continue on windows.

[Vincenzo Guzzo, Vice-president, President, Association des propriétaires de cinémas du Québec, Cinémas Guzzo]

In Thursday's Montreal Gazette, Brendan Kelly complained about giving a glowing review for a Canadian film only to find within one or two weeks that the movie, unable to attract any audience, was no longer being screened in theatres across the country. This is standard practice in arts and entertainment. Television series are all too frequently cancelled in the middle of their first season. Broadway is in no way more forgiving. Brendan Kelly is right: we need to do more to build audiences for domestic films.

The easy answer, as I suggested some time ago, is for Quebec and Canadian filmmakers to focus on making films that people want to watch. Quebec's independent cinema owners support the concept of artistic freedom, as well as the wide range of publicly funded programs that support filmmakers. The reality is that films from Starbuck to Monsieur Lazhar and Incendies have been very successful.

According to L'institut de la statistique du Québec, Quebec films rank fourth, or 4.2%, in terms of market share in Quebec behind the United States at 80%, France at 7%, and Great Britain at 6%. We need to build on this foundation in a rapidly changing environment marked by new technologies and methods of distribution. To do so, policy makers in the industry have to recognize that cinema owners have our feet on the ground and are in daily contact with moviegoers.

We are encouraging Quebec filmmakers to make films Quebeckers want to see. We are also urging our partners from government to distributors to endorse a number of simple and inexpensive initiatives that will benefit Quebec owned and operated movie theatres while strengthening the local market for Quebec and Canadian films.

Quebeckers now access films on Netflix, TV, video on demand and, of course, movie theatres. The temptation is to launch a film on all channels at the same time. In theory this should lead to a bigger audience, but the cannibalization is weakening our sector to the detriment of the industry as a whole. Coming to one of our movie theatre houses is still the key to commercial success.

The longstanding practice is that theatre operators have the exclusive rights to a film for the first 120 days after its release. This policy is at the heart of our business model. Changing it would put our fragile and volatile industry at risk, while rewarding filmmakers for making films few people want to watch. Distributors should be able to choose the option best suited for a particular film, but if they opt for a theatre release they should comply with the rules and respect their exhibitor partners.

As has been the practice for some time, producers weary about developing an audience for a film can reduce their costs by going directly to other channels of distribution. In the past the marketing strategies in Quebec have been to build a positive buzz about a film in the major urban centres in the hope of influencing Quebeckers in other regions of the province. With social media there is no time to rely on word of mouth. Now a film has to be screened in Drummondville and Sherbrooke on the same day it is being premiered in Montreal or Quebec City.

For this to work, more movie owners and distributors need funding to support their marketing and promotional efforts outside of the two major urban centres.

Let me stress that we are calling for reallocation of existing budgets, not new money. One of the reasons for the success of Les Boys is that we launched it on the same night across Quebec. Quebec independent movie theatre owners have also enhanced the movie experience by investing close to $80 million on the digitalization of almost all of their theatres.

All of these measures are important. As I said at the onset, the key is what goes on the screen. Moviegoers in every region of the province want to be entertained and to have the chance to view a wider diversity of films. Quebec's network of independent theatre owners are simply asking filmmakers to heed this request, to remember that a good film is a good film even if it's popular, and to work with us to develop the local market and make movies people want to see.

Back to Anne.

[Anne Fitzgerald]

I want to move to a slightly different subject and talk about supporting the Canadian industry.

Each of the members of the Movie Theatre Association of Canada, including Cineplex, take great pride in being tremendous supporters of the Canadian film industry. Our contributions are extensive and come in the form of financial support, screen access, marketing and promotional support, membership on various Canadian film boards, and community investment and involvement.

Every year at our annual film industry convention, ShowCanada, we give awards to the best marketing campaigns for Canadian films and the highest grossing Canadian films. This year, in an attempt to create a bridge between the production and exhibition sectors, we'll be highlighting three Canadian films in production, and we'll fly out the producers, directors, and talent to attend the convention in Quebec City.

In addition to monetary support, MTAC members support a number of film industry festivals, events, and organizations. We've provided theatre access, screen time, and marketing support to the Toronto International Film Festival, the Canadian Film Circuit, the Montreal World Film Festival, the Montreal Jewish Film Festival, the Toronto Jewish Film Festival, the Vancouver International Film Festival, and the Calgary International Film Festival, to name only a handful of the hundreds of film festivals that our members support.

Our members sit on the boards of the Toronto International Film Festival, the Canadian Film Centre, the Canadian Picture Pioneers, the Academy of Canadian Cinema and Television, Canada's Walk of Fame, the National Theatre, the National Association of Theatre Owners, the various provincial theatre exhibition associations, and many other cultural organizations.

MTAC members work continuously with Canadian film distributors to create exciting film promotions and gala premiers, and to identify other ways to showcase Canadian films on our screens wherever and whenever possible in both English Canada and Quebec. We continue to provide screen time and access to Canadian films. In many cases we make special consideration by providing screen time or extending screen time to a film simply because it is a Canadian film, not because of the potential financial success. Recent examples of this include Dr. Cabbie, The F Word, The Right Kind of Wrong, La grande séduction , Goon, and Passchendaele. The upcoming release of Hyena Road is currently receiving substantial support from MTAC members.

Where some smaller distributors have complained that they are not getting theatrical screen time for their films, our industry statistics tell a different story. As an example, in 2014 Cineplex alone ran approximately 950 titles on our screens in the year. This included only 92 first-run films from the six major Hollywood distributors, accounting for only 10% of the titles shown in our theatres. However, it will not come as a big surprise to this committee that the 10% of Hollywood titles account for a substantial percentage—almost 80%—of the annual box office revenue of each exhibitor company here today because customers simply love big Hollywood content. Obviously the remaining 20% of our box office is critical to our continued success.

Of the total 950 titles exhibited in Cineplex theatres in 2014, approximately 250 of those were distributed by two major Canadian distributors: eOne and Mongrel Media. The remaining approximately 400 titles were either alternative content or distributed by smaller, independent distributors, both Canadian and foreign. These numbers clearly show that our industry significantly supports small, independent distributors.

However, as previously noted, our collective need is to attract consumers to our theatres. The primary way to attract theatrical exhibition customers is to create great content and to market that content.

I'll turn it over to Raffaele to talk a bit about that.

[Raffaele Papalia, Chair, Ciné Entreprise, Chief Executive Officer, Movie Theatre Association of Canada]

Thank you and good afternoon, Mr. Chair.

Thank you and good afternoon.

My name is Raffaele Papalia and I'm the president of Les Cinémas Ciné Entreprise, which is based out of Terrebonne in Quebec. I also serve as a chair of MTAC.

Ciné Enterprise operates a small circuit, a lot smaller than those of my colleagues, and I have theatres in the secondary markets such as Chicoutimi, Jonquière, Three Rivers, and Granby, to name a few. Despite the differing sizes of our companies, I agree with the comments made by my colleagues here today. I want to show you that MTAC members believe in Canadian film, and the industry, and we are amongst its biggest supporters. We support the efforts of the the Government of Canada's Canadian feature film policy and echo their objectives of building audiences and improving upon the quality of Canadian films—I'll come back to improving the quality of Canadian films in a second—and of further developing the talents of creators and preserving Canadian films.

We are particularly supportive of all initiatives that result in building audiences for these films. As a group we believe we need movies with a particular audience in mind. What drives our business is the audience, so it's important to us that we improve the quality of films, build the audiences, and develop Canadian talent.

The film industry in Quebec has done an exceptional job of maximizing the impact of Canadian films in our province. Filmmakers, studios, and exhibitors have come together to create a market and distribute films targeted specifically to their audience. We are very proud of the role we played in Quebec in supporting the production, marketing, and exhibition of Quebec films across the province, and we will continue to do our part in supporting the Quebec film industry moving forward.

One thing that I would like add about the Quebec market is that as a group of all the people who have a role in the film sector, we were able to build the star system, and that system creates an event every time we open a Quebec picture. When we have an event, our audiences do come out.

[The Chair, Conservative, Gord Brown]

We're just past 25 minutes. You can elaborate on some of those points in the questions.

We're now going to go to Mr. Hillyer, for seven minutes.

[Jim Hillyer, Conservative, Lethbridge, AB]

Thank you.

Well, a lot of thoughts came to mind during your presentation. I liked your line, Mr. Guzzo, about how a good movie is good movie, even if it's popular. It sounds as if that's addressing a problem. Could you tell me a little bit about the problem that question was addressing?

[Vincenzo Guzzo]

I'll give you an example. I was at Ciné-Québec, a local movie convention for Quebec movies up in the Saint-Sauveur area, and I was sitting at a table with a director of the movie 1987, which was 2014's biggest Quebec movie. And while his trailer was showing—and all of the exhibitors were enjoying this trailer and saying to ourselves, finally, a comedy, something that the public's going to go for—he looked at his other colleagues around the table and said to them, “You know, I'm sacrificing myself this year for you guys.” And I turned around to him and said, “What are you saying?”, and he said, “Well, you know, we don't really like making these movies.” I said, “What do you mean you don't like making these movies?”, and he was very uneasy, because all of a sudden it's as if “Oh my God, I got caught saying something I shouldn't.”

They truly believe that if a picture becomes popular, if all of a sudden their movie is a commercial success, they're sellouts. And that philosophy is basically a philosophy of.... I'm going to be mean here, but it's almost like a loser philosophy, you know? As long we're all losers, we're okay, but if you succeed, shame on you for succeeding. And that's basically what seems to be developing on the creative side. It's sad to say, but the ones who don't agree with that are pretty much muzzled, and they're either not given the opportunity to show what they can deliver, or they're being told, “Be quiet, because you're making the rest of us look bad”, and that you're not a real artist if you're not looking to make a movie that's not commercial.

[Jim Hillyer, Conservative, Lethbridge, AB]

This is the heritage committee, and besides discussing government policy on heritage, I think we would like to exercise some leadership. How can we help change that culture where we can help not just moviemakers but moviegoers, the Canadian psyche, to have pride in Canadian art and to kind of celebrate success as a good thing? Is there anything we can do to help lead that philosophy change?

I don't think we can just shake our finger at a few artists and fix the problem.

[Vincenzo Guzzo]

Oh, I don't think the problem is only the artists. I've got to be honest with you; I don't want to point fingers, but when I see Telefilm Canada telling the world at large that they will now re-evaluate how they determine a success story of a movie, and that it will no longer be the holy grail of the box office number but it will be various points for this and various points for that, it reminds me of that old attitude where, when the whole class fails an exam, we just change the criteria so that everybody seems to pass. Nobody's learned anything—everybody's failed the exam—but we just make it look different. We bell-curve it all, and all of a sudden everything looks great.

I think that's the key problem, that there are people at the level of Telefilm or SODEC who've gotten used to enjoying that kind of approach. They believe in that artistic philosophy. They are the first ones who should be sitting down with the artists, one to one, and saying, “Guys, we can't continue doing it like this. There has to be a return on our investment, even if that means shrinking the loss or the spoilage.”

When a movie does become a commercial success, I think that's what we should be promoting, as well as maybe the movies that won some festivals. But all we're talking about is the movies that won the festivals. We're never talking about the movies that did the big box office numbers and got a million or two million Canadians to go to the theatres.

[Jim Hillyer, Conservative, Lethbridge, AB]

Okay.

You were talking about Telefilm changing the standard for what defines success and made a comparison with changing the bell curve in the classroom. It brings me to some of the comments about the theatre industry.

Now, I just want to make it really clear that I'm not treating you as hostile witnesses; I'm being a devil's advocate.

Some of the things I heard were that, well, this isn't good for the theatre industry; this doesn't serve the theatre industry. What do you say to those who say “so?” For people who aren't in the theatre industry, who don't have a living to make, why not just let the theatre industry die and let it go to video or whatever? Why should we focus on saving the theatre industry, and not just for the theatre industry's sake?

That's for Ms. Fitzgerald and Ms. Bronfman.

[Nuria Bronfman]

Sorry, why should we...?

[Jim Hillyer, Conservative, Lethbridge, AB]

Why should we care? Why should we, not just the theatre industry, care about the theatre industry struggle?

[Nuria Bronfman]

Well, I mean, for the answer to that, you would just have to look at the box office worldwide, which I think last year was...$40 billion?

[Neil Campbell]

It was $32 billion.

[Nuria Bronfman]

So it's not something that people want to let go. I think resoundingly you speak to the public who love going to the movies and have memories and emotions around going to the movies with their families or their kids. Definitely, from what we hear from most of our consumers, they want to see films on the big screen.

Not only that, but filmmakers are making films for the big screen. There is a very large contingent in Hollywood of filmmakers who absolutely want that window to be preserved. That's what they're making their art for, the big screen.

I would say that many Canadian filmmakers feel the same way. I don't think we're doing it for our own sake—

[Jim Hillyer, Conservative, Lethbridge, AB]

I understand.

[Nuria Bronfman]

—but I do think the general public would feel that they would like to support the industry as well.

[Anne Fitzgerald]

Not only that, but we employ a lot of people in this country. This is a very vibrant industry. From a GDP standpoint you want companies succeeding. You want retail businesses, and we are retail businesses. We really are Canadian Tire and Shoppers; we just sell movie and popcorn instead of deodorant and toothpaste.

[Nuria Bronfman]

We also train young people for their first jobs—

[Anne Fitzgerald]

Lots of them.