Category: Editorial

Cup of Tea?

universe in a tea cup

Suppose the universe fit inside a tea cup.

And suppose the universe was created inside that tea cup after a teabag was placed there. Then some hot water was poured into the cup, steeping the teabag so the hot water turns to tea.  Then after a while, the teabag is removed, two lumps of sugar are added, then some fresh milk, then a spoon is placed into the cup and stirred vigorously. The spoon is removed and the universe continues to spin and spin and spin, slowly finding equilibrium over eons…

During these rotations, planets form, species evolve, humans gain consciousness and look for evidence of how we came to be. Where then, in our search of the universe, will we find evidence of the spoon that spun us? Of the cow that brought forth the milk? Of the tree from which sprang the tea leaves? Where is the evidence inside our universe of the stove that heated the water? Where can we even find the faculties to grasp that such entities, with such abilities, exist?

Or suppose our universe was inside a snow globe and was shaken into existence then placed upon the desk to unfold… where in our universe abides the proof of hands of that magnitude?

Empiricism can only exist within the bands of our local, physical experience and cannot account for what may be beyond.

self stirring mug

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Is it time for a new Film Tax Credit?

Film Crew

The Canadian Film Industry has enjoyed a long and fruitful relationship with the Government of Canada. For a relatively small annual investment; entrepreneurs, storytellers, artists, artisans and technicians have wrought world class talent across a truly wide spectrum of disciplines. They have created a massive portfolio of acclaimed stories and productions of every conceivable size and fashion. These projects have permeated our shores from coast to coast to coast, for generations.

 

Yet, despite the struggle to achieve a profitable, self-sustaining industry, filmmakers have found it evermore difficult to bring a production to market without heavy reliance on various forms of government support.

This support ranges – from resources allocated to oversight of currently installed labour tax credits (LTC) – both federal (FLTC) and provincial (PLTC) – to regional bonuses, administration costs devoted to permitting and certifications – to the tax credit payments themselves, any costs related to the running of funding and curating agencies such as Telefilm Canada and National Film Board of Canada, (and provincial counterparts) – to national and provincial public broadcasters: including their licensing fees, production costs and overhead.

It is no wonder that the total burden of the motion picture industry on the state, can be seen by some as, cumbersome.

We are living in a time of economic austerity – despite huge gains in primary sectors such as minerals and energy – governments are facing tightening budgets and hard decisions. In jurisdictions such as Saskatchewan, legislators are beginning to demonstrate their desire for new incentive models to be put in place. The stasis the film industry maintains while promoting its unchanging, pro-LTC script, leaves it flat footed when dealing with major reforms proposed between government and culture.

A new design must be implemented that satisfies the government’s financial commitments, while providing a broad-reaching industry the tools it requires to compete and succeed in a global market.

 

What is it?

Capital Investment Credits (CIC) or Registered Cultural Funds (RCF) are an investor incentive tax credit system that aims to eventually replace the current FLTC structure; by participating in a managed fund, appropriate investors are offered the opportunity to invest into an entire portfolio of industry specific projects,

This fund invests in various media projects at any level of the project’s cycle: development, production, marketing (P&A), and distribution – a strategy aimed at greatly mitigating the risk to the individual investor, who would otherwise likely (or as it seems, not likely) invest in an individual project.

 

How does it work?

Very similar to an RRSP, RESP or RSP, the Federal government provides a 12.5% refundable tax credit into a registered cultural fund by anyone (who has met investor qualifications). Registered culture funds will provide portfolios of varying risk to the investor.

To further mitigate risk, participation can be limited to a maximum contribution – both to the investor and to a single registered fund in any one project. Producers would bring their films to the fund managers. The projects chosen by the managers would fall into one of the portfolios, based on a wide range of variables and industry specific risk assessments. Risk portfolios may include media of all disciplines and be a combination of attributes such as; development, production, low budget (or independent), television, big budget (or tent pole), music, acquisitions, marketing & distribution.

Fund managers may also parcel off an envelope for Canadian producers to partner up with foreign co producers and major Hollywood studios to match participation of future franchises — to enjoy, at least in part, massive, ongoing, global revenue streams.

In 2006, the FLTC paid out $213Million for all film and television productions in Canada or roughly 10% of the registered production budgets in the entire country#. Canadians contribute over $30 billion annually to their RRSP, billions, before taking into account the billions more to RESPs and RSPs. The ability of the private market to raise $213 million for a 10% equity stake in the entire Canadian film and television production industry (given the right incentive) is, overwhelming. With ready access to capital, the industry’s expected growth can easily outperform current projections associated to FLTCs.

A qualified investor is someone who can prove that they are either: a) deemed a high-net worth individual capable of making limited, “ elevated risk” investments b) deemed an experienced investor c) have maxed out RRSP, RSP, and if applicable, RESP contributions.

 

Why do we need it?

The Canadian government’s report on the FLTC in September, 2008 revealed some interesting statistics regarding film and television financing sources, as of 2006:

 

 Total Public Sources of Financing:

Federal tax credit 10% or $213M

+ Provincial tax credit 15% or $330M

+*Public Broadcast Licencing 9% or $199M

+ Public Funding Sources 11% or $236M

=               

 State Subsidy Average Per Project 45% or $978M

**Foreign Sources 12% or $261M

*Canadian Distributor 6% or $136M

*Private Broadcaster Lic. 19% or $418M

***Other Private Sources 14% or $296M

When one is faced with the amount of private investment into film and television – through means other than those known as major production funds such asHarold Greenberg Fund, etc. – (far below 10% of total financing), it is little wonder why meaningful and constant national and international box office successes have eluded for Canada’s homegrown productions, year after year.

The current model has government investing over 3 times the resources into an industry than the private sector does. It also provides an ideal place on where to start adjusting the current FTLC strategy.

CICs are designed to, for starters, replace the Federal Tax Credit with private investment triggered by a publicly backed incentive. When $212M of private capital is raised to replace the labour tax credit, it will reduce the required investment of the federal government by 87.5%. compared to the FLTC ratio – allowing for tremendous growth in private participation at a premium value to the Canadian people.

The Government partially weighs the success of the FLTC in the following four ways:

Does the FLTC help producers:

  1. Engage in Additional Project Development Activities”?
  2. Increase its Level of Equity in Production Projects”?
  3. Hire/Retain Additional Corporate Personnel”?
  4. Build a Library of Distribution Rights for Film and Video Properties”?

 

With the obvious exception of #2, the majority of respondents scored the FLTC as mostly ineffective to the other three benchmarks. The availability of private capital through the incentive of CICs would cater to those four key gauges much more effectively, for obvious reasons -

 

  1. Private Capital at Development Stages provides value adding attachments – greatly increasing Development success rates
  2. Cash = Equity
  3. Companies that develop and own intellectual property tend to have greater long term employee rates than service production companies.
  4. Access to Capital allows for the acquisition and exploitation of existing and developing libraries.

 

One of the key purposes of any government is to get regular citizens, as well as those from abroad, to invest in their country. CICs create the incentive for a key ingredient to any successful business – private capital.

Making a movie is only part of the equation. How to get that movie in front of a global audience is a whole other side of the coin that producers are beginning to face up to. CICs provide for fund managers who wish to include marketing and distribution envelopes to their clients; the next logical step for production financing.

The period between development to distribution can represent years of investment over a few, very crucial stages. For the individual investor, an exit strategy that includes no revenues for up to and beyond 24-36 months, can further impede serious interest. The acquisition of existing properties, including libraries of produced content for resale, provide early revenue streams for funds that are bringing new properties to market.

 

Why now?

The need for content has risen exponentially, year by year. With customers consuming greater and greater hours/day of media, coupled with the abundant supply of cheap production and display technology, the price they are paying for that media is lowering – per hour watched – yet overall, consumers spend a great deal more annually on entertainment and culture.

The results reflect a simple notion – when investing in culture and entertainment, volume is the key to success. As any other business mantra will profess, diversity remains the tried and true way to establish a reliable revenue stream. Diversity cannot be achieved without volume. To the individual investor, the risk in placing a stake in any one production is inherently high. Yet potential revenues for any one film or show are nigh limitless.

RCFs aim to stretch the investors dollar; so the odds of owning part of a smash hit, have never been better. Funds could work with producers and distributors who are already eager to promote output or slate deals that involve many productions over a period of years.

A major investment by the Canadian private sector into a truly global market would also spark an investment into infrastructure such as studios, post-production and animation houses. These brick and mortar businesses employ long term, highly skilled employment in a dynamic and popular field.

 

Does it work?

Capital solely designated for quality entertainment to the masses pays dividends. It is that very fact that triggered initial government involvement into FLTCs and funding agencies, so many years ago. It is what keeps government involvement active for now and many foreseeable years in the future.

A model private structure, created through state sponsored incentives, for the investment and financing of multiple, high value intellectual properties can be best illustrated by using Ryan Kavanaugh’s, Relativity Media. A company that describes itself on its own website as;

 

[Relativity Media] is a next-generation studio engaged in multiple aspects of entertainment, including full-scale film and television production and distribution, the co-financing of major studio film slates, music publishing, sports management and digital media. Additionally, the company makes strategic partnerships with, and investments in, media and entertainment-related companies and assets.

To date, Relativity has produced, distributed, and/or structured financing for more than 200 motion pictures. Released films have accumulated more than $17 billion in worldwide box office receipts including such titles as: The Raven, Mirror Mirror, Act of Valor, Haywire, Immortals, Tower Heist, Bridesmaids, Limitless, Hop, Cowboys & Aliens, Battle: Los Angeles, Little Fockers, The Fighter, The Social Network, Salt, Despicable Me, Grown Ups, Dear John, It’s Complicated, Couples Retreat and Zombieland. Thirty-nine of the company’s films have opened to No. 1 at the box office. Relativity films have earned 60 Oscar® nominations, including nods for The Fighter, The Social Network, The Wolfman, A Serious Man, Frost/Nixon, Atonement, American Gangster and 3:10 to Yuma. Sixty-two of Relativity’s films have each generated more than $100 million in worldwide box office receipts.

RelativityREAL, Relativity’s television arm, has more than 70 projects in active production, including 17 original series that are currently airing or will air in the upcoming television season including Police Womenfor TLC Coming Home Lifetime andThe Great Food Truck Race for Food Network. Relativity also owns and operates RogueLife, Relativity’s digital content studio that is developing original content for the web and creating sustainable online platforms and communities. Relativity Music Group, a music division of Relativity, provides music supervision, music publishing catalogues and soundtrack services for films produced and/or distributed by Relativity Media and other major Hollywood studios. Relativity Sports is a fast-growing sports management company dedicated to providing high-profile athletes with a full-range of professional development services.

 

According to a feature on Kavanaugh, published in Esquire:

Kavanaugh sits behind a curved zebrawood desk and on top of an estimated $2 billion in liquid assets, much of which comes courtesy of Elliott Associates, a venerable New York — based hedge fund that has $13 billion more where that came from.Read more: http://www.esquire.com/features/best-and-brightest-2009/ryan-kavanaugh-1209#ixzz23v4vtInV

 

Government Sponsored, Relativity Media Model

 

  • With $2 billion in cash, Relativity Media has generated $17billion in worldwide box-office receipts alone.
  • Federal incentives proposed to raise $2 billion = 12.5% or $250 million
  • Proposed CIC Cost:Benefit to tax base, 1:136

 

 

Current System

  • Estimates of FLTC tax credits for 2012: ~$300 million
  • Estimated value of FLTC in relation to total production budgets in Canada = 10% or $3 billion
  • Estimated 2012 FLTC Cost:Benefit to tax base, 1:10

 

Aren’t Labour Tax Credits the Answer?

Labour tax credits have many drawbacks. First, for producers- the tax credit is expensive money, both to finance and to audit – this reduces the percentage of the budget that is placed on the screen. As it is not up front money like an equity partner, LTCs can not be used to secure attachments that may boost the value of the project, such as well known cast members or a director.

The largest single reason labour tax incentives are not the ideal federal model, is that LTCs cater predominantly to service production resulting in outsourced manufacturing jobs from larger foreign centres that do little to develop and control high-value intellectual properties in Canada. The reason for investment of billions into Hollywood movies is quite simply because revenues from the ownership of intellectual property far outweigh any conceivable LTC cost benefit analysis imaginable.

Across the globe, in industries of all types, global competition for labour based tax credits nearly always result in lower wages to trade workers and lower revenues to public coffers. Capital incentives generate local spending on a ratio and continuity that is unmatched by labour incentives.

 

What about Telefilm and the National Film Board?

To describe – the tremendous contribution, celebrated establishments such as, Telefilm Canada and theNational Film Board of Canada (NFB) have nurtured for decades – requires respective volumes that this article could not hope to cover. All the while, year after year, subscriptions to these focused resources have never been higher while their allocated budgets for both, continue to fall.

CICs would seek to lessen the pressure on the mountainous over-subscriptions to both national agencies. By enticing private investment into Canadian entertainment, Telefilm and the NFB can concentrate on filling their mandates:

As Telefilm focuses on the development of the industry. Its primary role can recenter itself on fostering talent to ready filmmakers to enter the private equity market.

NFB’s mandate for Canadian interpretations will continue to allow the organization to explore new frontiers of motion pictures without stringent profit considerations.

 

Plan of Action

  1. Draft RCF Proposal
  2. Construct RCF Information Website
  3. Gain Media Industry Support for RCF Proposal
  4. RCF Conference with Media and Potential Fund Managers
  5. Promotion Fund Raising
  6. Public Awareness
  7. Engage Communications Agency
  8. Government Negotiations
  9. RCF Inclusion in Federal Budget
  10. RCF Implementation

Implementation

The implementation of RCF’s is likely to include a trial period where producers choose between RCF or FLTC strategies. Official RCF policy would reasonably exclude ‘double-dipping’ with FLTCs. “Twinning” the credits provides continuity for production companies with ongoing projects, while structuring the release private funds into projects at a controlled, progressive rate.

 

#http://www.nordicity.com/reports/Economic_Analysis_of_CPTC_final.pdf

**Often represents Foreign Pre-sale Revenues.

* Represents Revenues to productions, often as “pre-sales” or minimum guarantees – most of which require further financing until as much as 18 months after delivery of product.

***Includes all industry based private funds such as Harold Greenberg as well as private investment or revenues.

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A New Senate for Canada?

canadian-senate1
Most can agree that Harper’s recent senate appointments border on farcical. Yet, there is a reason for a senate – to balance the government in the lower House; especially a government that nigh represents only 40% of 60% of eligible voters. Yet how is an upper house supposed to be a legitimate foil if it is nothing more than a stack of cronies favouring the governing side? And why would Canadians, instead of appointments, want an elected senate when such structures can soon mirror the perverse extortion of democracy and stalemated-ness of governmental practices we witness South of our border?

The answer, it would seem, would be in ability to disseminate of the power to appoint. The notion of an upper house is a type of check and balance; the will of the few against the will of the many over a great area of geography and demographics. In the US, each state is given 2 senators, which of course are elected with great pomp, ceremony and expense. Many Canadians are disgruntled over the expense of maintaining a roster of 104 appointed Senators for a populations of ~34 million compared to a country of 350 million with only 100 in the upper house – each one, duly elected.

Perhaps for Canada, instead of elections or to abolish it entirely, a more moderate transformation of the Senate may be in an emphasis on regional over partisan representation. Consider a Senate made up of 39 seats – 3 from each province and territory. First and most obvious, the lower number of seats would suggest a substantial reduction in taxpayer expense. Each one of the three seats will be given by appointment; the first seat to be appointed by the PM, the second seat would then appointed by the Premier of the respective province. The third would be appointed by vote of a committee of elected municipal leaders (mayors, reeves, etc.) from each individual province.

If the Senate can claim a greater representation of the will of Canadians by its basic composition, there should be no reason as to reduce a senator’s current 8 year term limit. The regional platform allows for greater debate in a broader spectrum of terms. Also, as senators are appointed from 27 different sources, the chances of partisan cronyism are lessened (though admittedly, not eliminated).

These are merely scribbles in crayon on what could be an intense constitutional debate, (if we had intense constitutional debates anymore). But perhaps we can begin the discussion, in spite of the agenda of a man who represents only 40% of 60% of us, (you know who you are)….

Just sayin’….

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Stop it, America! My sides are hurting!

Hulk-HoganWhen Shakespeare first wrote the words, “The first thing we do, let’s kill all the lawyers.” please keep in mind that the world had yet to discover the profession of ‘economist’.

What hasn’t been said? Whose view point should we cut to? Surely another expert has joined us in the studio.

On a trip to Cancun, a friend and I decided to check out a club on the strip. As the continued genius of Mexican urban planning would have it, each club was next to, or across the street from, each other. Not a bad idea, if the clubs were to incorporate the common architectural practice of including walls in their design. Climatically inclined to release themselves from this hazard and through the spirit of competition, el discotheque-owners have aimed themselves directly at one another to create what I believe the French would call “une gallerie des clubs”.

The curb to curb plethora of writhing masses, strobe lights and thick, narcotic air arrives in a symphony to all the senses, that is, all except one. Where the eye can conjure a tapestry, the ear tries to interpret and meld and orchestrate cohesively to a logical pattern to the brain. Where the clubs complemented one another in their splendid array of feathers, even so with peacocks, to hear a half dozen at full volume in close proximity does little to promote the health of the inner ear. Nigh a week has passed since that moon’come’morn and my cochleas have yet to forgive me.

Pundits, politicians, peacocks and nightclubs in Cancun have at least this in common.

Listening to the approach of what is sure to be one of the more important day in recent American history, (or not, maybe), the screeching tirades from Democrats and Republicans create for dramatic spectacle. The Crumbling Empire! Chaos in the Streets! Obama’s Armageddon! Have all contributed to the insistence that one side is absolutely right. Yet given human history, how can that be?

Where any partisan thought exists, so too goes the rule of a broken watch. Not only will it be right twice a day, the watch’s precision is inversely proportional to its accuracy. Because a politician or pundit can prove to be a legitimate advocate for one issue or another, he (or she) is often given equal footing on most subjects available for debate on the 24 hour news vacuum.

The chance that he will come to the right conclusion on all matters not pertaining to his political contributors by instead referring the matter to a mash up of elected officials with their own bills to pay, then standing behind it come hell or high water, is a greater recipe for calamity than most had dreamed of. As an observer, one can’t help but repeating the words… “They can’t be this stupid.”

But don’t let us wake you, you’ll know it when it happens.

Of course, corruption abounds where apathy abides. As millionaires and billionaires and soon-to-be trillionaires (my spell check does not yet recognize the word, trillionaires – that won’t last) carve up and snarl over the last reserves of the middle class, we turn to reality [TV]. As we are placated with images of owning a timeshare of the American Dream, we drown in our houses. As we are given the choice between the bad and the worse, the inept and the corrupt, the weak and the weaker, we are asked to pay for their decisions. As we shuffle mindlessly toward an event horizon, diligently watching our feet succeed each other, we are cozy and sleepy and happy in knowing that at least somebody has to have our best interests at heart, right?

Somebody? Anybody? No, that’s cool, I don’t mind that you smoke pot… Hookers? What, in college or something? What do you mean, how often is weekly? Okay, what about the other guy? Straight A’s, military service, nice… Wants Congress deregulate private industry further because private industry has never done anything wrong to anybody, ever. Anyone else? Really? 350 million people and that’s it?

The rest of the world can be smug as the giant stumbles. They can jeer or tremble, riot or revolt. They can hoot and holler and fire AK47s into the air. Can it be that near months after the death of Bin Laden, America’s bank account soon follows? For the greater they are, the greater they… but wait, who is that coming out of the woods? Why they’re just some teenagers up against the entire Russian army, they’ll never overcome the odds —- but they are American teenagers, they can do anything. Wolverines!

Personally, I love it when Hulk Hogan holds his hand up that one last time. On the brink of disaster, somewhere, somehow, the Hulkster – the greatest American to ever live – is able to pull it together. As great as he was at finding it in himself to rise to the occasion, one last time, he was never divided in his cause.

American’s internal struggle to realize the world keeps-on-a-changin’ is its greatest obstacle from maintaining its dominance on the world stage. Lost in utopian ideals of forefathers and the dreams of slave owners, the country of the inventor, the innovator, the revolutionary is quick to ignore that an invention is often perfected, elsewhere. As such, an attempt to infuse social responsibility to limitless wealth is seen as a ‘Red’ menace. An effort to regulate those who fleeced trillions from mom and pop, is plain un-American (a term also not recognized by spell check).

Yes – in a world where the wealthy American takes their tax breaks and spends it on German cars, French champagne, Italian Suits and Swiss Watches while building another mine in Angola, factory in China or call centre in India to deal with the influx of default notices due in Arizona – trickle-down economics (for some reason or another) just isn’t working. Yet far be it from me to say how people should live.

Americans have allowed their insulation to cut off their circulation. They refuse to find models abroad, to acknowledge how even a relatively small investment of $10 billion could create millions of jobs in the boom-to-be industry of high speed rail. To insist on archaic models that exploit fossil resources to gain further wealth in a choking planet and to do so without the shackles of pesky oversight. Even to fully comprehend how their very way of life is beginning to fall drastically behind other countries; is yet a tiny example of how Americans think they know everything, and thus, can save themselves from this disaster… thank you very much. By the way, what does this red button d— (what am I talking about… America invented “the button”!)

It is not a reaching statement to submit that this is the single most petty period in US politics. Political strategy disguised as economic assumption is hucked from either side of the [what seems like an epically wide] isle rebuffing the others’ lob to a fine polish, smooth as a river stone. Though more fairly said, at least one side seems to be wading in from the banks of the river that magically stops politicians from practising mutual respect and kills any urge to do something greater than toe party lines.

The system is stifling. The foxes not only run the hen house, but own all franchising and merchandising rights therein. There’s even a chance that that hen’s genetic property belongs to a different corporate entity, that may or may not be paying taxes in the United States of America.

For the last fifty years, the world has been catching up to the US by imitating its quest-for-profit-above-all to some degree. America has responded by joining in its imitation. As we’ve seen from similar instances such as the television industry, the result is nearly unwatchable.

It would seem that if this mammoth tremor in the foundation of an era were to do anything, it would unite the country. But arguably, the last time a wealthy set of libertarians near brought America down to this extent was right before the Civil War. Preposterous! Ridiculous! What do you mean we can’t afford Cheetos? Get me my gun!

Good luck America. I, for one, am rootin’ for you. It’s such a shame to see you consider letting go in the fickle name of Politics. To see the great hero, face down on the canvas, seemingly knocked out by his own wallet. The referee lifts his hand and it drops limply to the floor. The crowd roars for another try. The ref, in silk Armani pinstripes, raises the hero’s hand again, yet again it drops. A child cries from the audience, “What about my future Hulkster?” The ref raises his hand one more time…

What’s this?

Shaking, it defies gravity. One hand, resisting the bonds of defeat. The ref can’t believe it, he has his secretary call the club to tell the ‘boys’ that he’ll be running late. Hulk opens his eyes and gets to his knee. His hand rising higher in the spotlight, the crowd goes crazy. “U!S!A!U!S!A!” Somewhere in Kansas a couple of teenagers are losing their virginity in the back of a Cutlass. In Manhattan, someone pays $60million for Marilyn Monroe’s lip gloss. The hero rises slowly to his feet; the love from the crowd pouring over him, restoring him.

Suddenly, from out of nowhere Mitch McConnell charges into the ring and kicks Hulk Hogan squarely in the balls, convinced that it was his duty as an American to do so. The crowd is stunned, the hero sinks back to his knees, unable to breathe. McConnell grabs the mike and informs the audience that the show is over as the auditorium was only paid for until 11pm. For some reason, a riot breaks out.

The nights the lights went out in America…. Watch it only, on Pay-Per-View

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