Snapshot 2013 The Manitoba Media Production Industry Economic Impact Study Executive Summary

October 2013

Developed by:

Nordicity

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ACKNOWLEGEMENTS

Snapshot 2013 is led by On Screen Manitoba in close collaboration with its valued industry partners, and prepared by Nordicity.

On Screen Manitoba and Nordicity would like to acknowledge all of the industry members, associations, guilds, unions, agencies, funders, broadcasters and government stakeholders who supported the research process. We would also like to express our gratitude to the following supporters of the project:

Report prepared by Nordicity Group Ltd.

Peter Lyman, Senior Partner

Dustin Chodorowicz, Partner

Kristian Roberts, Senior Manager

Stephen Hignell, Senior Analyst

Nordicity is a powerful analytical engine with expertise in strategy and business, evaluation and economics, policy and regulation for the arts, cultural and creative industries. Because of Nordicity’s international presence, it has become widely recognized for its ability to translate developments and best practices between markets for the private, public and third sectors.

www.nordicity.com

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Executive Summary About Snapshot 2013

On Screen Manitoba commissioned Snapshot 2013 to profile the Manitoba media production industry, determine its economic and social impact, and identify trends and opportunities for the industry’s continued growth.

Snapshot 2013 is the third economic impact analysis undertaken by On Screen Manitoba since 2003. In consideration of the evolution of the industry and the impact of digital technology, Snapshot continues to evolve and includes expanded definitions of the media production industry where crossovers exist with cross-platform media production. For Snapshot 2013, Nordicity analyzed primary and secondary data from a variety of sources including a literature review, an online survey, a series of individual interviews, and an industry focus group.

The full report comprises seven sections, including (i) an overview of media production in Manitoba, (ii) a comparison of media production with other peer provinces, (iii) an industry profile of Manitoba, (iv) an economic impact assessment, (v) a benefit-cost analysis, (vi) a socioeconomic impact assessment, and (vii) opportunities for the industry.

In this Executive Summary, Nordicity presents three key themes that emerged from the research:

1. The importance and growth of intellectual property (IP) ownership in Manitoba;

2. The rise of a digital media cluster in Manitoba; and,

3. The significant return on investment that the media production industry provides to Manitoba.

Following a discussion of these key trends, Nordicity explores how it is likely to evolve into economic and commercial opportunities — and the barriers that may stand in the way of these opportunities being seized. Finally, the Executive Summary concludes with a table summarizing key data points from Snapshot 2013.

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Key Terms § Domestic production: Productions for which one or more Manitoba-based

production companies own the intellectual property (IP) rights;

§ Co-production: Productions where the IP rights are partly owned by a Manitoba-based production company and partly owned by a production company based outside of Manitoba;

§ Co-venture: Co-productions whereby a Canadian producer will jointly produce a work with a producer from another country outside the purview of an official co-production treaty. Whereas a treaty co-production is recognized as national content in all party countries, a co-venture is not necessarily assured such recognition, or may only obtain it for one of the partner countries;

§ Broadcaster in-house production: Productions produced by a Manitoba-based broadcaster;

§ Canadian production: A term to encompass domestic productions, co-productions, and broadcaster in-house productions;

§ Foreign location service (FLS) production: Productions where the IP rights are exclusively owned by a company based outside of Manitoba, but are filmed in Manitoba;

§ Other non-tax credit production: Productions that do not access the Manitoba Film and Video Tax Credit, either due to ineligibility or by choice;

§ Theatrical production: Feature-length drama and documentary productions;

§ Full-Time Equivalent (FTE) jobs: A standardized employment measure of jobs, based on a standard work-week (in this case, 37.5 hours per work-week);

§ Intellectual Property (IP): Creations of the mind for which exclusive legal rights are recognized, including inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.

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Intellectual Property Ownership in Manitoba

In the media production business there are several types of production (as illustrated by the “Key Terms” box above). While all types of production accrue various benefits to the industry — and thus to the province — those where the Manitoba-based production companies retain control over their intellectual property (IP) rights (i.e., domestic production and co-production) are particularly important. The retention of IP (the creations of the mind for which exclusive rights are recognised for use in commerce) in media production includes both domestic and co-productions where production companies retain a portion of the copyright and may expect to receive revenues from sales of the production, merchandizing and proprietary software over the long term. There are three principal reasons why retaining IP control is beneficial:

1. All domestic production and some co-productions originate in Manitoba, and so are important in expressing the province’s unique viewpoint;

2. This type of production enables Manitoba-based production companies to have more control over the decisions made with respect to production cost, marketing, and distribution;

3. When a Manitoba-based production company owns the IP rights to a project it can license and/or re-sell that content thereby generating additional revenue (and thus tax income for the Province).

Manitoba media production companies control more IP rights today than ever before, a trend that presents new and significant opportunities for economic sustainability and industry growth. Indeed, Manitoba’s media production industry accounted for $542.3 million of total production volume over the last five years (counting all types of production), or an average of $108.6 million per year. More than half of this production volume (56% or $303.7 million) involved projects

Number of projects by type

Domestic 64%

18%

FLS 18%

Total = 336 projects

Five-year share of total volume of production, by segment, 2008-09 to 2012-13

FLS 15%

Co-production 42% Domestic

14%

Non-tax credit

9%

Broadcaster in-house

20%

Total = $542.3 million

Co-production

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where Manitoba companies had a level of ownership of the IP. Furthermore, (as Figure 1 illustrates) co-productions formed the largest share of production in Manitoba (42%), accounting for $227.8 million of production since 2008-09. Over the same period, domestic production accounted for a further 14%, or $75.9 million of production volume.

While domestic production levels have remained relatively stable since the last edition of Snapshot, co-productions have increased remarkably, with co-production production volume growing by 31% from the production volume observed between 2003-04 and 2007-08 (from $157.5 million to $227.8 million).

Over the last five years, not only has the volume of production shifted towards projects for which Manitoba-based production companies retain the IP rights, but the same trend is also observed when looking to the number of projects produced. In fact, since 2008-09, the media production industry has produced 336 projects over the last five years, an average of 67 per year. Of those projects, 64% (or 43 per year) were domestic production and another 18% (or 12 per year) were co-productions. While the number of domestic productions has remained relatively steady in the five years following the last edition of Snapshot, the number of co-productions has doubled (from an average of 6 per year between 2003-04 and 2007-08). Accordingly, co-productions make up a larger share of Manitoba’s overall production volume, and there are more of them.

As such, media production companies operating in Manitoba are increasingly in control of their own IP rights. They are also positioned to reap the cultural and economic benefit of that ownership, and the increased business acumen that comes with multi-jurisdiction co-production deals. Accordingly, these production companies must continue to search for opportunities to sell IP rights to broadcasters and distributors across the world, as well as explore new potential partners for their next co-productions deals.

Manitoba Interactive Digital Media Tax Credit (MIDMTC) The MIDMTC is a refundable corporate income tax credit for companies that develop and produce interactive digital media projects in Manitoba.

The tax credit is equal to 40% of the remuneration paid to Manitobans on eligible projects to a maximum of $500,000 per project.

In Budget 2013, adjustments were made to the MIDMTC:

§ companies may claim up to $100,000 in eligible marketing and distribution expenses that are directly attributable to an eligible project;

§ financial support from the Canada Media Fund that is recoupable or repayable will not be treated as “government assistance”;

§ an eligible product that is developed under contract for an arm’s-length purchaser does not need to demonstrate the product will be resold or licensed by that arm’s-length purchaser; and

§ a broader interpretation of the sale requirement will provide the province with added flexibility in determining which types of commercialization projects will be eligible.

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The Rise of a Digital Media Cluster

As the global film and TV production industry evolves, it is increasingly making use of digital technologies including for post-production delivery, marketing, and product distribution — along with interactive media, visual effects services, and various types of animation. Over the last two years, Manitoba’s production industry has developed major animation and visual effects capabilities. Opus VFX, a division of Buffalo Gal Pictures has put together an experienced Manitoba team with credits ranging from large Hollywood productions (e.g., Avatar, Superman Returns, X-Men, etc.) to smaller independent productions (e.g., Storm of the Century, The Big Empty). Buffalo Gal Pictures has also established a commercial animation studio and completed its first feature animation with a second project set to begin — 45 positions were created over a six-month period.

In addition to this new animation and visual effects capacity, Manitoba is well-poised to take advantage of the digital media extensions to TV programming, as mandated by the Canada Media Fund’s (CMF) Convergent Stream. This “convergent digital media” (e.g., mobile apps, websites, etc.) is being created by several Manitoba-based firms including DACAPO Productions, Tactica Interactive, and Complex Games. In this way, the film and TV portion of the media production industry in Manitoba is directly stimulating activity in Manitoba’s digital media industry. This opportunity is further strengthened by recent changes to Manitoba’s Interactive Digital Media Tax Credit.

Be it through an expanded ability to offer visual effects and animation services or through the proven ability to create convergent content, the growth of a digital media cluster of activity in Winnipeg — with film and TV production at its centre — presents an important opportunity for Manitoba to continue the growth of its media production industry. Furthermore, media production companies in Manitoba have already started to seize this opportunity. Indeed, media production companies in Manitoba generated 13% of gross revenue in 2012 from the development and/or sale of digital media products, up from less than 1% in the last edition of Snapshot. For this trend to continue, however, Manitoba-based companies must have access to clients and partners — and must have the business wherewithal to create advantageous deals when they do so.

A Significant Return on Investment

As illustrated above, the media production industry in Manitoba increasingly owns its Intellectual Property and is helping to stimulate the emergence of a robust digital media cluster in the province. Through these activities — and others — the industry provides a significant return on investment to the province. It does so in two principal ways:

1. The industry contributes to the provincial economy; and,

2. The industry furthers several provincial policy goals.

Production Companies in Manitoba Media production companies form a critical component of the industry in Manitoba. In 2012, production companies generated an estimated $34.5 million of revenue for their companies. In the same year, these firms spent more than 58% of their expenses on labour costs, representing approximately 462 full-time equivalents (FTEs). The average salary of media production company employees in 2012 was $56,000 (per year).

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Economic Contributions

The media production industry in Manitoba had a total GDP impact of $357 million over the last five years, with an annual contribution of $71.4 million. Over the same period, the industry attracted some $291 million (or an average of $58.2 million annually) in production financing from outside of the Province. These productions resulted in an estimated 6,333 Full-Time Equivalents (FTEs) worth of employment between 2008-09 and 2012-13, with an average annual employment of 1,267 FTEs per year.1

This economic activity has resulted in an estimated $134.7 million in combined tax revenue (to federal, provincial and local governments) over the last five years, or $26.9 million in combined tax revenue per year.

As the following chart illustrates, the combination of the Manitoba Film and Video Production Tax Credit and Manitoba Film and Music Equity Program has resulted in $86.0 million in provincial outlays between 2008-09 and 2012-13, at an average of $17.2 million of provincial support per year. Over the same period, the media production industry has been responsible for $71.8 million in tax revenue for governments in Manitoba. Of that amount, $57.2 million was remitted to the Province (through a combination of direct2 and indirect taxes3), with a further $14.6 million remitted to local governments in Manitoba.

1 The economic impact, employment, and tax revenue figures presented in this section were developed by the Manitoba Bureau of Statistics. 2 Direct Taxes includes Taxes from Individuals, Taxes from Corporations, Retail Sales Tax, Gasoline Tax, Tobacco Tax, Environmental Protection Tax, Lottery Transfers and Crown Corporation Revenue. 3 Indirect Taxes includes Insurance Corporation Tax, Land Transfer Tax, Corporation Capital Tax, Motive Fuel Tax and the Health and Education Levy.

-75.0

-14.2

-11.0 17.7

2.7 28.9

8.0 14.6

-100

-80

-60

-40

-20

0

20

40

MFVPTC MFM Equity Taxes from Individuals

Taxes from Corporations

Other Direct Taxes

Indirect Taxes Local Taxes Net Spending

$M

Provincial outlays = $86.0 M Tax revenue in Manitoba = $71.8 M

Net provincial spending = $14.2 M

Provincial Outlays, Tax Revenue and Net Provincial Spending (2008-09 to 2012-13)

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In light of this activity the net provincial spending on the media production industry totalled $14.2 million, at an average of $2.8 million over the last five years. In other words, the Province recouped an average of 84% of its outlays between 2008-09 and 2012-13 (or $0.84 for every dollar) spent on Manitoba’s media production industry.

Public Policy Contributions

In addition to the economic contributions of the media production industry, several public policy aims are advanced.

For example, the industry helps to empower a wide variety of Manitoban voices. In 2012, survey results indicated that 23% of production companies were at least partly owned by Aboriginal and/or Metis persons, with another 14% of production company survey respondents identified as members of another visible minority group. The result is that Manitoba — also home to APTN, Canada’s national Aboriginal broadcaster — has strengthened its position as a national centre for Aboriginal media production and entrepreneurship.

Nearly half (48%) of production company owners in 2012 are women, making media production one of the most gender representative industries in Manitoba — and in Canada.

Manitoba is also a key centre for Francophone production in Canada outside of Quebec. Francophone producers working exclusively in French account for an estimated 3% of Manitoba production companies, but 16% of overall production. They were responsible for roughly 70.5 hours of original production between January 2011 and August 2013 alone. From 1995 to 2011, Les Productions Rivard completed 75 productions representing more than 600 hours of original programming. Rivard invested an estimated $50 million locally in job creation, artist fees, accommodation services, and other industry suppliers, thereby representing a highly productive segment of the industry.

The media production industry has significant impacts on other creative industries in Manitoba and is a major catalyst for the wider arts, music, festivals and new media endeavours. Some examples include the CBC’s Winnipeg Comedy Festival, which is broadcast

Saskatchewan Case Study The government of Saskatchewan eliminated the province’s Film Employment Tax Credit (FETC), resulting in a nearly universal retraction of the province’s media production industry, and an emigration of businesses and crew to other provinces in Canada. In 2010 before the tax credit was in question, the Saskatchewan Media Production Industry Association (SMPIA) had over 440 members, which plummeted to 68 by June 2013.

In addition, the Directors Guild of Canada permanently closed its Saskatchewan office and the IATSE local had withdrawn its Saskatchewan representative.

Over the last 14 years, on an annual basis, the Government of Saskatchewan invested $7.8 million in the FETC, which generated $44.5 million in annual economic activity, 851 jobs and $6.5 million in tax revenue obtained by government for a net annual cost of $1.3 million according to an impact assessment prepared for SaskFilm and the Saskatchewan Chamber of Commerce in 2012.

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annually and produced by Manitoba production company Frantic Films and the annual Festival du Voyageur variety show produced by Manitoba production company Les Productions Rivard. The music industry in Manitoba is a regular supplier to and collaborator with film and television businesses in Manitoba, and other arts and performance organizations in Manitoba such as the Royal Winnipeg Ballet regularly work together with media production companies. In addition, many IATSE

members and production crew regularly cross sectors by working in both screen and stage productions.

By helping to reflect the viewpoints and perspective of Aboriginal people, Metis, visible minorities, women, and Francophones outside of Quebec — all historically marginalized groups — the media production industry represents a key policy tool and a major driving force behind Manitoba’s creative industries, as well as an important economic contributor.

A Way Forward

As shown above, the media production industry in Manitoba is increasingly in control of its intellectual property rights, is at the centre of a developing digital media cluster, and provides significant economic and policy returns to the Province. The future for the media production industry, it seems, is a bright one.

Growth forecast (12-24 months)

Indeed, as the above figure shows, roughly 88% of the firms surveyed indicated that they predicted a period of growth over the next 1-2 years. This growth is likely to originate from the increased exploitation of IP rights, along with the opportunities arising from the growth of a digital media (i.e., animation, visual effects) cluster in Winnipeg. In addition, the Manitoba Film and Video Production Tax Credit (MFVPTC), Manitoba Interactive Digital Media Tax Credit (MIDMTC) and other provincial production incentives will continue to stimulate significant levels of production in the Province. For example, Manitoba Film & Music’s Production Equity Program will be increasingly

8% 4% 12% 36% 40%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

15-24% Contraction No change 0-9% Growth 10-24% Growth >25% Growth

Return on Investment The Province’s financing contribution of $86 million in the MFVPTC and MFM Equity Program attracted additional financing of $300 million. In other words, each dollar of the Province’s contribution to the financing of film and television production attracted an additional $3.48 in financing from other sources.

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important as one of the key tools used alongside the tax credits. Alongside Manitoba’s assets of creative talent, crews and locations, this equity program will help close financing for both domestic and co-productions.

However, this growth will not come without addressing some key challenges. As the following chart illustrates, there are a number of factors that may limit the potential of the media production industry in Manitoba.

Top 6 factors limiting growth (on a scale of 1-5)

Most of these issues circle around a common theme: Manitoba’s relative geographic isolation. Companies note the limited access to buyers, the lack of access to key foreign markets, and a relative shortage of capital. All of these issues limit the opportunities cited above. If a company owns its IP and wishes to generate more through co-production, but cannot locate buyers, or access markets in which those buyers are active, it cannot reap the benefit of that ownership or develop additional IP. Similarly, both domestic production and co-production (the sources of that IP) rely on the supply of appropriately skilled labour. Finally, rights exploitation is sales, marketing and relationship driven, and typically requires a different skill set than production. Accordingly, initiatives such as On Screen Manitoba’s ACCESS Project are integrally important in helping the media production industry benefit from owning more IP rights and acquiring additional IP through co-productions.

Furthermore, as the media production industry looks to expand into emerging digital media opportunities, it will confront many of the same issues. Given the global nature of digital media, Manitoban digital media companies must access customers and business partners from around the world (to offer visual effects and/or animation services) and across Canada (to partner on CMF projects). At the same time, they must build a globally competitive industry that, by accessing international markets, can attract high-quality talent to Manitoba.

Finally, by addressing the issues standing in the way of Manitoba’s media production industry seizing the opportunities posed by IP ownership and digital media, the industry will have all the greater economic and public policy impacts. If more IP is owned by Manitobans, the production companies will accrue revenues and continue to attract larger projects to the province, which will result in greater tax revenue. Meanwhile, digital media projects, whether linear or interactive, tend to be driven by labour costs, and contribute to a positive fiscal. At the same time, by controlling more of their projects, production companies (already owned by a diverse group) will increasingly be able to tell Manitoba stories to the world.

2.84

2.84

2.88

2.96

3.04

3.08

1 2 3 4 5

International competition

Access to foreign markets

Affordable capital

Management, marketing & sales expertise

Supply of skilled labour

Access to buyers

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Key Data Points

The following table presents several key data points drawn from Snapshot 2013:

Data Point Five-Year Total (2008-09 to 2012-13)

Annualized Average

Total Production Volume $542.3 million $108.6 million

Number of Projects 336 projects 67 projects

GDP Impact $357 million $71.4 million

Employment Impact 6,333 FTEs 1,267 FTEs

Investment Attracted to Manitoba $291 million $58.2 million

Combined Tax Revenue $134.7 million $26.9 million

Provincial Support Contribution $86.0 million $17.2 million

Nordicity Group Ltd. Nordicity (www.nordicity.com) is a leading international consulting firm providing private and public sector clients with solutions for Strategy and Business, Economic Analysis and Evaluation, Policy and Regulation across the arts, cultural, creative, technology, and innovation sectors.

For more information, contact info@nordicity.com

Report by Nordicity. NGL13-10-25