BUSINESS MODELS FOR FILM PRODUCTION: ONTARIO PRODUCER CONSTRAINTS AND OPPORTUNITIES JAMES WARRACK A THESIS SUBMITTED TO THE FACULTY OF GRADUATE STUDIES IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS GRADUATE PROGAM IN INTERDISCIPLINARY STUDIES YORK UNIVERSITY, TORONTO, ONTARIO January 2012 © James Warrack, 2012 Library and Archives Bibliotheque et Canada Archives Canada Published Heritage Direction du Branch Patrimoine de I'edition 395 Wellington Street 395, rue Wellington Ottawa ON K1A0N4 Ottawa ON K1A 0N4 Canada Canada Your file Votre reference ISBN: 978-0-494-90026-0 Our file Notre reference ISBN: 978-0-494-90026-0 NOTICE: AVIS: The author has granted a non­ L'auteur a accorde une licence non exclusive exclusive license allowing Library and permettant a la Bibliotheque et Archives Archives Canada to reproduce, Canada de reproduire, publier, archiver, publish, archive, preserve, conserve, sauvegarder, conserver, transmettre au public communicate to the public by par telecommunication ou par I'lnternet, preter, telecommunication or on the Internet, distribuer et vendre des theses partout dans le loan, distrbute and sell theses monde, a des fins commerciales ou autres, sur worldwide, for commercial or non­ support microforme, papier, electronique et/ou commercial purposes, in microform, autres formats. paper, electronic and/or any other formats. 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Canada Abstract The combined disciplines of filmmaking, communication and culture, and economics provide a complex interrelationship for the investigation of the business of feature film in Ontario. The complexities of the business aspects of the Canadian film industry are analyzed and explained from its beginnings in the early 1900s to the present day marketplace. The focus of this thesis is on the business models that dominate the film industry in Ontario and resulting constraints and opportunities for producers. The thesis combines interdisciplinary perspectives in a consideration of film as an artistic collaboration, a cultural product and an economic global industry. ii Dedication This is dedicated to the memory of Professor Peter Morris, film historian, writer and educator. Peter was a great inspiration to his students, collaborators and colleagues. iii Acknowledgements This thesis combines the disciplines involved in my course of study and research. The three fields involved in my project, listed beside their respective representative from my supervisory committee, include: Film Studies, Professor John McCullough; Communication and Culture, Professor Peter Morris; and Economics, Professor Kenneth Carpenter. I have attempted to maintain a balance between the disciplines involved but have, out of necessity, devoted special attention to the film study component. Despite that, the interrelationship of the disciplines is of the utmost importance throughout the thesis. iv Table of Contents Preface 1 Introduction 3 Chapter 1 - The History of Feature Films in Ontario 13 Chapter 2 - Development and Funding 51 Chapter 3 - Legal and Business Aspects of Production 73 Chapter 4 - Global Economics, Distribution and Exhibition 94 Conclusion 119 Appendix A 127 Appendix B 129 Appendix C 131 References 132 Filmography 137 Preface In this thesis I examine the business models of film production in Canada, and more specifically Ontario, in the context of historic, economic, political and cultural events in the film and television industries. To a significant extent, the film industry in Canada developed as a branch plant to Hollywood studios and American television. This has provided Canada with a highly skilled work force of technicians and artisans, particularly in Ontario and British Columbia. These provinces host 60% or more of the service industry production used by American producers. Canadian film and television production has become a billion dollar industry creating an excess of 128,000 full-time equivalent jobs annually (CMPA 2011). The volume of production is up almost 9% over the previous year (CMPA 2011). A skilled workforce has also been the foundation for a growing indigenous Canadian independent production sector with a total volume of $2.39 billion for 2010/11 (CDMP 2011). With the complement of related creative industries in the Toronto area, several film and television production companies are having success in domestic and global markets. Following half a century of frustrating efforts to establish a feature film industry, the 1960s and 70s finally saw Canadian producers able to commit to film production on a full-time basis. In this period, producers began exploring a variety of funding sources, such as co-production between the private and public sectors. Over time the industry has evolved, driven by new technology that has resulted in new media, such as the hybrid film-television production and, more recently, the new digital media. I examine the © James Warrack, 2012 aspects of art and business that a producer must encounter in order to complete a motion picture. Questions arise regarding aspects of culture and economics that affect business models and I consider the opportunities and the constraints for independent film producers in Ontario. The tasks of the producer are chiefly financial and organizational. He or she may be an "independent" producer, developing projects and pitching their ideas and productions to investors, distributors or broadcasters for financial support. They must prepare budgets, guide the project through the script development process, obtain ongoing financial support, arrange to hire the personnel and prepare and manage the daily scheduling and shooting of the film. After a film is completed, the producer continues to manage the production, taking on financial tasks such as monitoring the recoupment of and payment to investors, overseeing the marketing, and managing ongoing business and legal issues well after production is completed (Gasher 2002, 5). Film production is both a cultural and economic phenomenon. Film is a collaborative art, but it is also a business connected to a global industry. To accommodate film's multifaceted nature, this thesis combines interdisciplinary perspectives. The film studies perspective involves the history of film production as well as an examination of the phases of production, all of which exists in the context of cultural and economic dynamics. The business studies perspective includes those aspects of law and business practice that effect filmmakers such as government policy and global economics. 2 Introduction A high level perspective of a business model articulates how a business creates, delivers and captures value. That value may be economic, cultural or some other form of value. It may be helpful to discuss a business model as the way in which an entrepreneur delivers value to customers, attracts customers to pay for that value, and how that payment can sustain profit. Vivek Wadhwa, Senior Research Associate at Harvard Law School explains that the discussion of a business model consists of the nuts and bolts of how a business generates revenue and profit. There are two distinctly different business models operating in the Canadian film production industry. One of the two business models that dominate the industry is the foreign location and service industry (CMPA 2011). This international outsourcing or "offshoring" is commonly referred to as service production or foreign location production in Canada (Davis and Kaye 2009). It is also referred to as "runaway film production", produced by transnational Hollywood conglomerates or foreign independent production companies (Miller, Govil, McMurria, Maxwell and Wang 2005, 7). While these films may be shot anywhere in the world, Canada has become a favoured location in cities such as Vancouver, Toronto and Montreal (Elmer and Gasher 2005, 5). As Scott and Pope note there are two substantive forms of the decentralization of Hollywood, the economic runaway and the creative runaway (Scott and Pope 2007, 1365) and the two forms are often simultaneously provided by an outsource location city such as Toronto. Between 1999-2004 during a very strong increase in dollars spent in film and television production (CMPA 2011), the total firms in creative industries in Toronto increased by more the 50% 3 (OECD 2009, 35). The decentralization of Hollywood reflects the high cost of labour in Hollywood. There are alternative equivalencies in terms of facilities in the outsource locations, and there are generous tax credits available (Scott and Pope 2007) adding greater incentive to decentralization. A variety of companies and individuals provide foreign location and service production