Canadian Film Digest (Dec 1972)

Page 4 The Canadian Film Digest. Serving the Canadian Film Industry since Advertising, and 1915. Encompassing the Canadian Moving Picture Digest, founded in 1915, and the Canadian Film Weekly, founded in 1941. The Canadian Film Digest is published monthly by Film Publications of Canada Ltd. Editorial, Production offices are located at 175 Bloor St. East, Toronto 5, Ontario. Subscriptions: $7.50 per year (including the yearbook) or 35c per individual copy. Individual copies of the yearbook are available for $5.00 per copy from the above address. Second Class Mail. Registration Number 2587. Postage paid in Oshawa. Publisher: Garth Drabinsky Editor: Stephen Chesley Advertising Sales Director: Barry Silver DOLLARS AND SENSE ANYONE FOR FEATURE FILMS? By ARTHUR CHETWYND TO ‘“GAMBOL” OR NOT TO “GAMBLE”? — THAT IS THE QUESTION A “gambol” is defined as a “‘caper”’ or ‘‘escapade’’. ‘‘Gamble’’ has such meanings as “risky undertaking”’, ‘‘playing games of chance for money’’!!! Familiar words to anyone in the business of motion picture production . . . Especially appropriate words to describe the financing, production and distribution of feature films! One who is willing to undertake risks always tries to cut the odds as much as possible. . Otherwise his escapade will end up as being less than good fun. The entertainment feature film business has a long history of being a financial “‘graveyard’’ for unsuccessful capers and more than a few serious “‘gamblers’’ over the years. The reasons are many — bad planning, bad management, and bad luck. Canadians in the private sector are now launched in anew game of chance in trying once again to develop a viable Canadian feature film industry. This time government is involved with large chunks of money (which come from the taxpayers, so we are all init, whether we like it or not!), in an effort to prime the pump. An increasing number of individuals and. groups in the private sector are either in or about to be involved in this highly speculative gambling den. The crunch is on again! “THE PAST IS PROLOGUE ..... ss Shakespeare said it, and indeed the lessons of the past are most important. Efforts to produce feature films in Canada have been going ‘on sporadically since the turn of the century. In spite of some prodigious and sincere efforts failure has been the norm. In other areas of film-making in the last 60 years, although small, Canada and Canadians have done well. Canada is highly regarded in the field of information and documentary film production. More recently, we have held our own in world competition in TV commercial production. We are also beginning to be successful in various kinds of television entertainment production ... on film and tape. : In the last ten years we have developed excellent support services with labs, craftsmen, and other talent as good as or better than any in the world. Not necessarily the glamour area of film production, but the bread-and-butfer business — the schoolroom if you like — which helps to provide the training and experience from which are developed individuals with the very special talents, energy and competence vital for success in the rarified atmosphere of feature film-making. Documentary films, TV commercials, etc., are produced under contract — the audience is known and well researched . . . and captive! The rules and the risks in feature film production are very different. Rewards are much more difficult to. come by and the mortality rate is high! DECEMBER 1972 EDITORIAL: The Canadian Film Digest #@e& Let’s Be Realistic About ‘T'ax Write-Offs The controversy over the tax laws in Canada regarding capital cost allowances in film investments is beginning to make the industry very nervous. It was reported recently that the Department of National Revenue’s policy towards tax write-offs is under review, with the result that amendments to the regulations may be in the offing. Simply stated, Clause 18 of Schedule B of the Income Tax Act stipulates that a taxpayer can write off sixty per cent of the capital costs of a film, on a reducing balance basis each year. What the investors have been doing is structuring their deals in such a way as to write off not just their actual investment but the entire capital cost of the film. For example, assume that a film cost one million dollars to produce. If an investor puts up three hundred thousand dollars by way of a limited partnership, and if the CFDC and a distributor fund the remaining monies, such sums being treated as secured loans to the _ partnership, the investors would write off sixty per cent of the entire one million dollars. Therefore if that investor is in a fifty per cent tax bracket, he will enjoy a tax reduction of three hundred thousand dollars the first year. In year two the reduction would be one hundred and twenty thousand dollars, and so on. It has been suggested that the DNR is not as concerned about this type of financial structuring as it is in the case in which the budget is not all cash. That is, the investor claims sixty per cent of the capital cost of a film with a budget of one million dollars, but due to deferrals for actors, producer, director, labs, etc., the actual cash budget is only six hundred and fifty thousand dollars. What has thus been created is a sham in order ‘ .to take advantage of the additional capital cost allowances. Now one must ask what the DNR would accomplish by the cutting off of this apparent benefit. Clearly the use of the sixty per cent write off has provided an excellent incentive for the high tax bracketed private investor to participate in film production and yet enjoy the tax advantages of doing so. This type of encouragement is vital because Canada does not have the depth of capital markets that the U.S. has, with the result that it is much more difficult to raise funds publicly or from venture capital organizations for high risk ventures. Therefore, tax incentives become a necessary supplement to balance the conservative characteristic of the Canadian investor. What will the complications be if the regulations are changed? Larry Dane, producer of the Rowdyman, maintains that it would be disastrous. Dane remarked, ‘The capital cost allowances came along and made the burden of the conservative investor in Canada easier — take that away and a lot of pictures will not be produced. The CFDC and the tax incentive caused an exodus from the U.S. of a great deal of talent, and for our expatriates it meant more work was available.” “The tax act must not be altered,’ says F.R. Crawley, president of Crawley Films, “unless the government is prepared to take some other means to encourage risk capital to match the CFDC’s thirty per cent contribution to a film. If no alternative is presented the other two-thirds wili not be forthcoming from Canadians and control of our films will appear from the south.” However, is there a viable alternative to the present tax position? ‘‘The answer is really one of how much leverage should be permitted,’’ states Michael Spencer, Executive Director of the CFDC “I believe that the CFDC should earn its money back. The investor who participates in a film for purely tax reasons only hopes that the film goes into production. There is no way to create an industry based on investors’ expectations that films will be losers, in order to take advantage of the tax law.”’ Spencer suggested that a four to one limit should be set on the amount of leverage available to the investor. Crawley feels that a three to one limit is appropriate, to the extent that the investor will break even if the film yields no return. The government has recently hinted at the institution of quota measures to guarantee Canadian feature films national distribution. But it has often been said to this that one cannot legislate a Canadian to see Canadian films. Let's be realistic! The only way in which Canada will gain prominence in its feature film industry is with a constant barrage of product which can compete with that of the other great film nations of the world. And there is no question in anyone’s mind that few films will be produced if there is no tax incentive available to the private sector. The Minister of National Revenue, together with his policy makers must be extremely careful in their approach to this subject in order to insure the continuing development of our film industry, an industry that is essential to our cultural identity. lights, however, are still up and blinking. In spite of a variety of efforts by film-makers and brave financial entrepreneurs producing a spate of Canadian-style sexploitation, science fiction and pseudo-cultural subjects, we have had no positive results yet. Most of the films have ended up as ‘‘downers”’ — and as therapy for an artist, feature film-making is a very costly form of self-indulgence. With respect, government backing with the taxpayers’ money by itself will not necessarily ensure success without effective distribution of the right kind of product to compete in the highly sophisticated international entertainment market. While on the subject of markets and business, let us not allow our cultural, artistic and national passions to cloud the difference between the words ‘‘Gross’’ and ‘‘Net”’. It is the ‘“‘Net” return to BUSINESS-LIKE ‘‘GAMBLERS” — LINE UP HERE, PLEASE. When the word “‘business’’ is applied to the film industry, one often gets dark and haughty looks from a whole group of artistic, creative and culturally minded people, inferring that the word “‘business’’ should not be considered as any part of one of the liveliest of the lively arts. This is one of the greatest weaknesses which we must overcome. Without a firm knowledge of the market, careful financing, and expertise, no individual or company can survive. Allfilm-making is a very tough way to make a living. Entertainment or feature film-making is only for those with special courage and talents, together with large amounts of money, otherwise the chance of making the grade is very slim. WHY WORRY ABOUT TOMORROW? — WE MAY NOT MAKE IT THROUGH TODAY!!!! | A happy thought, but not to be taken seriously in feature film production. The ‘tomorrows’ will be bleak indeed unless the realities of today are faced squarely. Unlike other areas of film-making, there is no captive or guaranteed audience for entertainment feature films. . . “They makes their choice and pays their money”’! We have the scenery, the varied cultures, the facilities and much of the talent needed as far as craftsmen and artists are concerned. Claude Jutra, Gilles Carle, Paul Almond, Don Shebib, Peter Carter, Bill Fruet, Eric Till and others have emerged as inventive filmmakers, On the other side, that most important partnership in successful feature filmmaking, producers and distributors — are showing interest. Brave Canadians such as Budge Crawley, Maxine Samuels, John Bassett Jr., HalGreenberg, Larry Dane, John Ross, to name a few, are getting their feet wet. We hope that their fingers are not getting too scorched in the process. Other Canadians are returning after gaining valuable experience and success in Hollywood, sharing this experience with their countrymen. Despite our current desire for Canadian identity, nothing will change the fact that entertainment feature films, similar to art, music, etc., have no exclusive nationality. The specialized talents and experitse necessary for success often take a long time to develop. The money required is always in short supply. There is also a wide difference between those who wish to display their talents on the screen and those who have real marketable talent. Just because something is Canadian is, unhappily, not good enough. Feature film-making involves astronomically high costs. Failure is an expensive and bitter lesson, particularly to those whose capital goes down the drain. ‘Risk’ money is always in short supply. Investment capital gravitates to areas of endeavour where the best chance of reward appears to be present. SUCCESS, WHERE ART THOU? In this current rush to develop a Canadian feature film industry we do have more ex perience as well as more interest. Hopefully we may be off to a better start. The caution investors which really counts. Despite cultural upsurges and the desire to develop something Canadian, as that wise old pro showman Nat Taylor has said many times, when the crunch comes and the chips are counted the only real measurement of success is not whether we won or lost . . . but how many paid to see the show. We have yet to record one real success at the international box office. This is the single most desperate need of the Canadian feature film industry if it is to attract increased investment capital. PROGRESS? There are some glimmers of hope — French Canadian Film-makers in Quebec are using their naturally artistic temperaments and passion with great energy and some success. There has been a dramatic increase in the number of French-language films. We understand some are even making money — but here goes that warning light again — for a very unique reason. At the present time French-speaking Canadian theatre-goers appear to be giving a large measure of support to native Canadian entertainment films in their own language and idiom. If Quebecers have found a way to make feature films, primarily to appeal to our good young friends from La Belle Province and make money while doing so — en francaise — c'est formidable! But — and a big BUT — we should not go overboard in assuming that this big special local situation is necessarily a happy trend-setter which will sweep across Canada. QU’EST CE QUE C’EST LA DIFFERENCE? In English Canada the situation is very different. An English-language feature film made in Canada has to compete in a sophisticated world-wide market, dominated for 50 years or more by Hollywood and England. Forgetting nationalism, we must admit that the best talents and entertainment brains in the world have been involved in these centres for years. They are not suddenly going to bow out gracefully for a Canadian feature industry! (I hear some of my critics now —,.What about Sweden? Denmark? Holland? Germany? Italy? Agreed, they do have native feature film industries of varying sizes — for the prime purpose of producing entertainment film material in their own particular language! Except for some of the great names like Bergman, Fellini, etc., it would be interesting to count-up the number of films from these countries which have made the grade with any significance in the English-language market.) There is an old saying in the pugilistic field — ‘‘A good little man never beat a good big Continued on page 5