Crisis time for Canadian film

GAYLE MACDONALD
Globe and Mail

On the brink of closing one of the biggest deals in the history of Canadian entertainment – the sale of Alliance Atlantis's Motion Picture Distribution arm, also known as MPD, to Manhattan-based investment house Goldman Sachs – many of the most powerful names in Canadian film and TV are claiming that the sale of such a heavyweight distributor to a foreign company could decimate the industry here. And they're demanding Ottawa do something about it.

Directors David Cronenberg and Atom Egoyan, actor Paul Gross, producers Robert Lantos, Denise Robert and Kevin Tierney – as well as English and French associations across the industry – are calling on Stephen Harper's government to closely monitor the transaction, in which a U.S. financial player is buying a 51-per-cent stake in MPD, Canada's most powerful distributor.

“The total inaction of the government is why the industry is alarmed,” says Cronenberg, whose films include The Fly, Crash and 2005's Oscar-nominated A History of Violence. “The Harper government doesn't seem to see it as being important – or financially of interest. Nobody in the industry trusts that they care at all. That's the problem.”

Reached in Calgary, where he's shooting a First World War film about the Battle of Passchendaele, Gross sounded equally frustrated by Ottawa turning a blind eye to the foreign takeover of a linchpin of Canadian culture. What's more, insist Gross and others, such a takeover is in fact forbidden by the federal government's 1988 foreign distribution policy, which limits foreign ownership of Canadian distributors to 30 per cent. That policy, they say, has given rise to a robust Canadian distribution sector, of which MPD is king.

“This isn't quite the same as taking over companies in the mining sector,” says Gross. “Cultural enterprises are just different. To a very great extent, all of the elements of Alliance Atlantis [sold recently for $2.3-billion to Goldman Sachs and CanWest Global Communications, pending regulatory approval] are a public trust – specifically the distribution arm, because of its massive library of Canadian programming, almost entirely financed by the Canadian people.”

The actor is referring to MPD's archive of roughly 6,000 hours of Canadian-made TV and film. Financed by taxpayers to the tune of at least $2.5-billion, that library is a coveted asset thanks to CRTC requirements that private broadcasters carry up to 60 per cent Canadian content on their networks. “Selling all that to an American company is like selling the Museum of Civilization to a U.S. firm,” says Gross. “We can't imagine doing that, so why should we imagine doing it with our cultural enterprises?”

But whatever Goldman Sachs might do with such a library, gutting the foreign distribution policy, say Gross and others, will have immense repercussions right across the industry. The policy's supporters note that, just 20 years ago, movie distributors had a market share in Canada so small that it barely existed.

Two decades later, Canadian distributors have carved out a share of the domestic box office that hovers between 25 and 30 per cent.

The reason? The policy forced foreign distributors seeking entry into Canada to team up with a Canadian player to distribute any film that they hadn't fully financed or did not own the worldwide rights to. Armed with the right to distribute everything from The English Patient to The Lord of the Rings trilogy, Canadian distributors – the financial lifeline of all homegrown production – thus acquired the leverage, and resources, to force exhibitors to play Canadian movies, too.

Prior to Ottawa's film-distribution policy, Lantos says, he and other distributors were like “homeless beggars – operators held together by Band-Aids – going to cinemas with hat in hand to convince them to play their movies. Twenty years ago, there wasn't a single Canadian player of size or substance. We were second-class citizens in our own market.”

The policy – which grandfathered existing studios such as Fox, Paramount and Disney – turned out to be enough of a disincentive that no new foreign distributors even bothered to come to Canada (with the exception of Polygram, which ended up quickly withdrawing).

“Suddenly the important, commercially profitable American films – mostly American, but from around the world – came available for Canadian distributors to buy,” explains Lantos. “It gave us the leverage in the marketplace, so Alliance Atlantis [now MPD] had the muscle, for the first time, to properly market Canadian films.”

Montreal producer Denise Robert, who is married to Quebec director Denys Arcand and has produced many of his award-winning films, says it would be tragic to lose control of our distribution companies. “Federal, provincial and private money has enabled us to build a healthy film industry that is respected and recognized worldwide,” she says. “To lose control of that – when we've invested so much for two decades – would be the epitome of irresponsible.”

To comply with the federal rules, Goldman Sachs (which did not return calls for this story) has said it will team up with a Canadian operator who would run the business. Sources say the investment house is close to lining up that partner, rumoured to be EdgeStone Partners, one of Canada's leading private equity firms, which manages more than $2.3-billion of capital.

“If a foreign firm is allowed to take over the biggest distributor in Canada, there will effectively be no more barriers to outsiders setting up branch offices here,” says Lantos, who co-founded the precursor to Alliance Communications Corp. in 1973, and sold it nine years ago to Atlantis Communications Inc. “To a very large extent, the future of the Canadian film industry hangs in the balance,” he adds. “Without a strong distribution sector, our films have no access to the market. We currently have a reasonably strong distribution sector because the policy works. Why mess with it?”

For their part, Cronenberg, Gross and others say they decided to raise the alarm because of a recent, troubling precedent – the sale of Toronto-based distributor ThinkFilm to a California investor nine months ago. Los Angeles film financier and distributor David Bergstein bought ThinkFilm last October. ThinkFilm continues to operate unfettered in Canada. Canadian Heritage Minister Bev Oda is clearly aware of the file, but her office has made no public statement, and also did not return calls for this story.

Cronenberg says he is worried that mighty MPD will fall into foreign hands because Ottawa has left the door so wide open for the American owner of ThinkFilm – a small distributor with a fraction of MPD's clout. “I'm fortunate at this point in my career that I can make movies regardless of whether there are Canadian distributors of any stripe at all,” says Cronenberg. “But for most filmmakers, producers, directors, it's essential to have Canadian-controlled distributors who don't operate with a Hollywood orientation. Without the distribution policy, none of my early films would have been made.”

As Gross points out, foreign-owned and -controlled distributors operating in Canada have never been interested in financing or distributing Canadian films. “The worry with the MPD deal – because of ThinkFilm – is that a huge, industry-altering precedent will be set. And of course, then there will be nothing to stop all those companies – New Line, Miramax, Sony Classics or Lionsgate Entertainment – who would effectively be free to set up shop in Canada.”

In fact, there are rumours that Lionsgate – which technically qualifies as a Canadian company, but whose entire management team is based in Los Angeles – is re-evaluating its relationship with Toronto-based distributor Maple Pictures (in which Lionsgate is currently a minority shareholder) with a view to perhaps starting up its own branch office in Canada.

In the meantime, it likely will take several months for Goldman Sachs to figure out how the ownership puzzle will fit together, who will manage day-to-day operations, and how many representatives it will have on the MPD board.

Victor Loewy, the mercurial former chairman of MPD, who quit last summer after a nasty dispute with his board (only to be rehired a few months later in a successful effort to keep major client New Line Cinema from pulling its business from MPD) is believed to be the front-runner for the job of chief executive at MPD.

But sources in the United States say that Goldman Sachs is not going to be remotely hands-off at MPD. In fact, say the sources, the investment bank has already handpicked a man of its own to be placed in a senior position – a film-industry veteran and former executive vice-president at Miramax, Charles Layton.

“A passive minority investor doesn't hire a guy to run the company,” says a source in Toronto's financial community with close ties to MPD. “The board does. They're buying Alliance's 51 per cent, but presumably – with assistance from shrewd lawyers – they're going to window-dress the deal to make it look like they're not in control.”

Ted East, president of the Canadian Association of Film Distributors and Exporters (CAFDE), agrees that, to date, the optics surrounding Goldman Sachs's takeover of MPD are hardly encouraging. In light of the leeway that Heritage Canada has given ThinkFilm, East's association – along with the Canadian Film and Television Production Association; the Association des producteurs de films et de télévision du Québec; and the Alliance of Canadian Cinema, Television and Radio Artists – wrote Oda in mid-May, expressing concern about the continuing operation of ThinkFilm in Canada. But although they asked for a meeting, they have so far received nothing but an official letter of acknowledgment that their note made it safely to Oda's Parliament Hill mailbox.

“The government, through its absolute silence, has sent the signal to everybody, including those who are buying the assets, that the government will not do anything,” says East. “Even in the U.S. film industry, people say Goldman Sachs has bought MPD. It's not ‘Goldman Sachs made an investment in it.' ” All of that angers filmmaker Egoyan, who says that “not upholding the policy will reduce Canadian distribution to essentially a handful of boutique companies again. We'll end up with a bunch of new American companies who do nothing but distribute and send money back home, who don't get involved with Canadian films, or do so rarely.

“The whole infrastructure will be damaged,” predicts the director of such films as The Sweet Hereafter and Exotica, both of which are part of MPD's Canadian library. “And culturally speaking, we'll become another [U.S.] state, because there is no incentive to continue to develop a domestic industry or a distinct alternative to the American system.”