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The big picture

Incentives abound in the cross-border movie industry
|Written By Paul Brent
The big picture

The millions of ’tweens packing their local theatre to watch the second instalment of the Twilight series may not realize, or even care, that the Forks, Wash., school where Edward Cullen and Jacob Black vie for Bella Swan’s affection is actually Vancouver’s David Thompson Secondary School.

Canadian cities Toronto and Vancouver earned their “Hollywood North” moniker while the dollar was low. Now with the greenback and the loonie nearing parity, tax credits are a tool being wielded by Canadian provincial governments in hopes of holding on to their piece of the U.S. movie business. When the Hollywood dream factory decides to make part or all of a film in Canada, it receives “service” tax credits based upon what the filmmakers spend on making the movie in the country. The provinces of Quebec, Alberta, and Ontario recently announced enhanced tax credits for film producers.

Hollywood is met in Canada by an organized army of service producers who can help out as required. Big-budget American flicks produced in Canada, where the big-name stars, writers, and directors are airlifted into locations north of the border, are known as service productions in the trade. “They can do all the work and they can put [the film] on their resume, but they didn’t raise the financing, they won’t end up owning the copyright probably, they will just end up getting a fee,” says Austin Wong, head of business and legal affairs at Rhombus Media Inc.

While outsiders would think the fate of Canadian filmmakers such as Rhombus would be tied to the status of the Canadian dollar, an irresistible attraction at US $0.65 and a major barrier at its current near-parity level, the relative worth of the two dollars is not that big a deal, because companies such as Rhombus are not part of the Hollywood machine. Their independence was in fact designed by government policy intended to bolster the independence of domestic filmmakers.

For many of its films, Rhombus does co-productions with film companies in other countries or even other provinces, sharing expertise, private financing, and government monetary support — in the form of tax credits. The company had two big productions in 2008: Passchendaele, an Ontario-Alberta effort, and Blindness, a tripartite international effort with Japanese and Brazilian partners. The co-production treaties spell out a minimum amount each country has to contribute financially and creatively, says the Rhombus in-house counsel. Therefore any currency swings take place outside of North America.

Canadian companies such as Rhombus get paid to produce the films through support from Telefilm Canada and various partners, if a film does well in other markets, that is almost an unexpected financial bonus. That system also ensured the company had a solid financial year in 2008. “Last year, when it was such a terrible year for most of the world, we had one of our best years because we had two films out, Passchendaele, which became the highest-grossing Canadian film of the year, and Blindness which did reasonably internationally,” says Wong.

One country that Canada has notably excluded from such international filmmaking co-operation deals is our southern neighbour. Wong says he thinks the government’s perspective is if it allowed U.S. filmmakers access to such deals “then Americans would just incorporate Canadian companies or use Canadian shell companies to access all of our money and make fully American movies that have nothing to do with Canadian culture.”

Setting up locations and negotiating the tax credits and other incentives are only a few of the duties for in-house lawyers working in the film industry. A finished film represents the culmination of an enormously complex set of legal negotiations. Contracts govern everything from financing agreements with banks and other lenders to individual talent contracts for the actors and director. “I’m responsible for everything from beginning to end,” says Wong.

As the company’s only lawyer, Wong’s work on a project starts with the option agreement to secure the rights to a film or screenplay and hiring writers to turn that idea into a workable script.

Once the project starts moving into development he works on agreements to acquire financing prior to going into production. Then it’s time to bring together the production team and on-screen talent. “I do all the actor agreements, the director agreements, co-production agreements with our partners, all the financing agreements, the distribution agreements, the broadcast agreements, and the interim financing agreements, all the security, [and] the completion bond agreements as well,” says Wong.

Even when the movie is in the can and the wrap party has been held, the legal work doesn’t end. Deals have to be made with sales agents and the finished film has to be sold to interested countries around the world. “It’s 50
[contracts] or more” that go into a typical picture, says Wong.

The process of making movies has become more complex as studios increasingly use far-flung locations to take advantage of tax credits and other incentives, says David Friedman, executive vice president of Summit Entertainment LLC in Santa Monica Calif. The studio is famous for its Twilight series.

While there are financial incentives in much of Canada and parts of the U.S., bankrolling pictures has become increasingly difficult as the economy has worsened in the U.S., says Friedman. “If you are not one of the big studios, putting the financing together for a movie can be a real challenge, particularly in the last couple of years.”

There are a lot more moving parts to the advertising of completed films to the public. “It used to be much more simple in that you used to just take out some newspaper ads, TV ads,” Friedman says. The Internet has brought the opportunities of promotional tie-ins, cross promotions, and consumer contents.

“I have to bring in more people who have different skills,” says the Summit counsel. “The marketing function for example, from the legal side is more complicated than it used to be with things like running sweepstakes and contests,” a common promotional tool with mass-market films. “There are basically rules in all 50 states, there is some federal legislation that you have to be mindful of and I know it is the same with Canada.”

Don Carmody has 90 producer film-credits on his Internet Movie Database page. He likes Canada as a locale because of the tax credits “which are attractive,” along with the Canadian dollar differential which he notes is not as wide as he is used to, along with kinder work rules, and less unionization which helps shave production costs. Fees associated with shooting on the streets are typically far less than shooting on the streets of Los Angeles or New York.

“I have done a lot of pictures in Toronto or Montreal or Vancouver that were supposed to be somewhere else,” says Carmody, a veteran producer who has overseen the creation of “60 or 70” films from Canadian locations stretching back to before the 1982 comedy Porky’s. In fact, Porky’s, which spawned the careers of the likes of Canadian actors Art Hindle, Doug McGrath, Susan Clark, and British-Canadian Kim Cattrall, is still the highest domestic grossing movie in Canadian history and was filmed in Miami, Fla.

Carmody is perhaps best known as the co-producer of Chicago in 2002, the musical set in Chicago in the 1920s starring Richard Gere, Catherine Zeta-Jones, and Renée Zellweger that won six Oscars. Chicago was shot mostly in Toronto, a locale dictated by the film’s tight budget. 


“There were really only three places in the world that Chicago could be made because of the requirement of trained dancers and musical performers. That was London, New York, and Toronto,” Carmody says. The choice was easy: “the tax credits that were available at the time, the dollar being as low as it was,” and the far higher costs of London and New York. “It just made sense and my studio didn’t want to spend a penny more than $40 million so it was the only place we really could do it.”


Carmody has a unique perspective on the 49th parallel film divide. He spent his formative years in Canada, raised in Montreal from the age of 10 when his American father’s two-year stint working as a lawyer there lasted 27 years. The younger Carmody did briefly follow in his father’s footsteps. “When I produced my first film, and everybody got money but me and my partner, I went back to law school.”


Though never a practising lawyer, Carmody serves as his own in-house counsel and uses Heenan Blaikie LLP in Canada and another firm in the U.S. for most legal work involved with his films. His legal background “helps me with contracts,” he says. “On the legal side you are constantly the only one in a number of areas, so you need to know what you are doing.”


In the U.S., movie companies are often looking at how they can grow beyond simply making movies. A good example is Lions Gate Entertainment Corp., a company based in Santa Monica and Vancouver, producer of the Oscar-winner Crash debuted at the Toronto International Film Festival in 2004 eventually hitting the worldwide big screens in 2005, and the popular Saw film franchise. It has branched out into television production, program syndication, and specialty networks.


Wayne Levin, Los Angeles-based general counsel with Lions Gate Entertainment, spends much of his day with the company’s corporate development unit “looking at business opportunities in growth areas for the company.” 


He is generally upbeat about the prospects for entertainment companies despite the weak U.S. economy. “I don’t believe that any business is recession-proof but from the standpoint of the overall economy, this is not a bad time to be in this industry. This industry faces other challenges like integration into new media [and rising movie piracy] but from an economic standpoint . . . I think people are still going to the movies.”

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