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December 21, 2015

Full speed ahead: 5 key trends driving the Canadian screen industry


Katie Bailey, Julianna Cummins and Jordan Pinto / Playback

From Playback magazine: From mergers and acquisitions to the rise of Canadian feature animation, a look at key trends driving the industry forward.

Canada’s broadcast industry may have been reshaped this year by the CRTC, and some provincial governments took a scalpel to local tax credit regimes, but while both garnered headlines, behind the scenes the Canadian screen industry was already undergoing a metamorphosis, buffeted by global shifts in media consumption, an increasingly international marketplace and volatile commodities markets. Here’s a look at five industry trends illuminated in 2015 that will have a ripple effect in Canada in 2016 and beyond.

Mergers and acquisitions

Arthur Evrensel, partner with business and entertainment law firm Michael, Evrensel and Pawar, is almost in awe of the volume of M&A activity in the Canadian production sector in the last two years. “It’s incredible to me,” he says. “I’ve never seen anything like it.”

Evrensel’s firm has been at the centre of the action, handling a number of the 2014/2015 deals including four for Thunderbird (Atomic Cartoons, Reunion Pictures, Great Pacific Television and Soda Pictures); NBC’s minority stake in Lark Productions; Rainmaker’s proposed acquisition of Shaftesbury and DHX’s $57 million pickup of Nerd Corps. Outside of that, you have CPP’s 17.8% stake in eOne (itself having been a major domestic M&A player since 2012); Fairfax Financial Holdings’ majority stake in Temple Street; Image Engine and Cinesite on the VFX side; SIM Group and Tattersall in the post sector and more.

He sees three main trends driving the volume of activity and the size of the investments.

Canadian companies achieving global reach, both in terms of audiences and potential customers. “When the Canada Pension Plan investment board puts that kind of money into eOne and when Fairfax puts money into Temple Street, you know something else is happening beyond ordinary investors making related media investment. They’re looking at the media space and saying ‘this is a mature industry that we can work with.’”

Relative value. A low Canadian dollar in an industry bolstered by tax credits and funding programs combined with an under-performing resource sector that is less attractive to investors (creating the opportunity for their money to move elsewhere) has created a perfect storm of relative value, he says. With operating costs low in Canada and the currency gap in Europe, the U.K. and the U.S. between 30% and 50%, Canadian-made content is an attractive proposition.

Quality of work. “The expertise here is as good as anywhere. That holds true and people forget about that sometimes.”

Evrensel’s summary is reflected in RBC Capital Markets recent overview of Entertainment One, which it ranks as an “outperform.” “In our view, eOne is a high quality company with meaningful global scale in a large and growing addressable market,” its report said. “We believe it is well positioned to deliver attractive risk-adjusted returns by leveraging a solid position in the filmed entertainment value chain, strong relationships with creative talent, world-class sales and distribution infrastructure, and financial resources (including regulatory mechanisms) to support major annual investments in content.”

RBC’s analysts were particularly impressed by eOne’s acquisition of a majority stake in the Mark Gordon Company and signalling what may be the next big trend in the Canadian independent production sector: global investment.

These newly well-capitalized companies are likely to now start looking for acquisitions of their own, a strategy Temple Street discussed with Playback (see pg. 22) and one which is reflected in Thunderbird’s 2014 acquisition of U.K. distributor Soda Pictures or 9 Story Media Group’s August acquisition of Ireland’s Brown Bag Films.

“They’re doing exactly what they should be doing,” Evrensel notes. “Going global not only with their product but asset purchases and expanding that base.”

The quest to capture the millennial audience

While having a content-hungry audience in a young demo isn’t exactly a huge problem for content creators, herding that particular group of (under 30) cats into monetizable channels is one of the biggest challenges facing the broadcast side of the industry.

This year saw two big broadcasters join Corus by making moves into the MCN space: Bell launching Much Digital Studios and CBC launching the CBC | Fullscreen Creator Network.

Now, few people or companies are getting crazy-rich off YouTube just yet (except YouTuber PewDiePie, whom Forbes recently estimated makes $4 million a year from ads on his channel). But that’s not really the point.

Once in the driver’s seat of mass media content creation, broadcasters are tacitly admitting by way of investment that they may not be the best-poised to launch the Next Big Thing for millennial and Gen Z audiences. These next-gen partnerships allow Big Media to tap into the DIY ethos driving the “TV” of tomorrow, says Max Valiquette, a strategic planner, consultant and former CMF board member.

“Everyone understands how important these two markets are, but I think increasingly people are understanding how difficult it could be to create really great content directed at this market,” he says. “It’s one thing to produce that content and say, ‘This the content we have, I think it’s relevant to you.’ It’s another entirely to be able to say, ‘Look at who we’ve partnered with, who we know is relevant to you.”

Another trend to watch is platform-specific content. With Snapchat hosting original series and mobile-centric Facebook pushing aggressively into video, broadcasters must also avoid the trap of simply repurposing content that works on linear properties or risk being left behind, says U.S.-based media consultant and pundit Shelly Palmer. The proliferation of smartphones with HD capabilities and connections to 4G networks means broadcasters have to be thinking about mobile-first content.

“You are talking about a lot of network-connected miniature consumption devices that yield emotionally satisfying consumer experiences, and people are going to want content there,” Palmer says. “Consumers are looking for something to put on these screens…if we [the industry] don’t take care of those customers, someone else will.”

Branding yourself

While humans have always struggled to process excessive amounts of information, the problem has been exacerbated by abundance of choice, said Mark Tomblin, chief strategy officer at Toronto ad agency Taxi during his presentation at this fall’s Playback Marketing Summit. And that means the more quickly you can create a mental shortcut for people, the better.

“Why brands really matter is really simple…they are a brilliant way of quickly navigating the astonishing and ever-increasing complexity of modern life. And it’s only going to get worse,” Tomblin said. “Brands are fast mental cues that allow us to choose something, feel good about it and move on.”

This rings particularly true when considering what goes through a consumer’s head while they scan a film festival lineup, VOD menu or venture outside Netflix’s algorithms. Where will it matter most in 2016? When broadcasters recast their channels as individual pick-and-pay-preneurs, fighting for Canadians’ attention in a sea of channel choices.

It was a message reinforced by Comedy Central CMO Walter Levitt at the Summit, who said the network has spent the last several years transitioning its marketing from being a TV channel into a comedy brand – the comedy brand. “Everything we do is about taking that lens and applying it,” Levitt said, adding that the network no longer refers to its “viewers” but rather its “fans.”

“Peak TV” and a fiercely competitive marketplace

Is there #TooMuchTV? FX chief John Landgraf said (repeatedly), in 2015 he thinks there is, prompting a rash of consumer articles examining the idea (“#TooMuchTV is real. Here’s how to cope,” advised the Washington Post in October) and some anxiety amongst those who ply their trade in it.

Stuart Baxter, president of eOne Television International, says he disagrees with the idea that there’s too much TV. Not only did eOne have its busiest-ever MIPCOM this year (according to a fall 2015 RBC analyst report), he thinks film is partially to blame. “I think it’s filling a void, where some of the retention of the sequential releasing in the film business has meant that film probably hasn’t evolved as quickly as consumers would want it to and TV moved into that vacuum. You see both money and talent following it.”

But while Baxter isn’t worried about consumers finding the time to cram enough TV into their schedules, he says the effect of the above-mentioned trend has put pressure on the talent side of the business. While the talent pool in TV (in front of and behind the camera) has never been greater, the competition for it is fierce, with U.S. studios and networks being the first stop for agencies. It was that trend that prompted eOne’s big Hollywood play in 2015, taking a majority stake in the Mark Gordon Company (MGC). Hailed by some analysts as a “game changer,” the investment gave the company an important position at the top of the TV food chain.

“When we looked at our drama slate, [there] were some very good Canadian dramas and international coproductions, but in Hollywood, we’d had less success getting the best talent the best shows. They tended to go to the networks first or the studios – which were a little bit more expensive to buy,” he said with a laugh. “The sole exception is Mark. And that’s what really made it. So we’re seeing a lot of better quality projects a lot earlier, which is the key to success in this industry.”

He predicts, however, a bounce-back in the light entertainment, reality and documentary genres. And with shows like Good Witch on W Net breaking ratings records – and Supergirl being one of the few breakout hits of the fall TV season – one senses the saturation of dark dramas may have the effect of turning some viewers back to an older style of feel-good light drama.

What really matters, Baxter points out, is having a “balanced portfolio,” a strategy you’ll see reflected at many of Canada’s top, most active prodcos. Expect the diversification to continue in 2016, as the recent spate of M&A and subsequent capital infusions play out across kids, factual and yes, drama.

The rise of Canadian feature animation

If you feel like you’ve been hearing more about Canadian feature animation in 2015, it’s probably because you are. Led on the West Coast by companies such as Arcana (which released full-length feature Pixies this year, with Christopher Plummer in a lead voice role); Bardel Entertainment, which was acquired this year by Europe’s biggest animation studio Rainbow, and Bron Studios, which opened a new animation studio in B.C. In Eastern Canada, Portfolio Entertainment this fall opened a new animation studio and relatively new player AMBI is currently in pre-production on two animated features: Groove Tails and Arctic Justice: Thunder Squad, both populated with big-name voice talent.

The culmination of three main factors is driving the trend, says Michael Hirsh, the former CEO of animation powerhouse Cookie Jar who now sits on the boards of DHX, TEAM and Cinecoup. First: the inevitable ripple effect of Disney’s aggressive acquisition strategy in the U.S.; second, tax credits and currency fluctuations, and third, the depth of Canadian animation talent.

“The almost monopolistic business that Disney was enjoying now has competition. So the potential for independents to be successful is definitely there now,” Hirsh tells Playback.

Equally as important is the global demand from OTT services for family-friendly animated feature content, which has created new space in the markets for indies to fill. The Netflix-driven demand for moderately budgeted animated features ($15 million to $35 million) is a major driver, agrees Barry Ward, president of Bardel Entertainment, as now distributors are more willing than before to pick up animated properties.

But Ward also sees a change in viewer behaviour, in which audiences are increasingly inclined to see movies not made by the major studios: “[Films from indie animation studios] are usually unique, they stand out a bit from the clutter. No one’s trying to compete head-to-head with the huge studio productions – it gives them a little more freedom to be unique and original.”

However, none of it would be possible without the stockpile of talent Canada has amassed, built and honed over many years of investment by schools like Sheridan and Capilano University. Although developing talent for the animation industry is a skill set of its own, beset by the challenges of constantly changing technology and often-changing artistic trends, the long-term investment is paying off, emphasizes Hirsh. “Our talent pool has matured, especially in the area of feature film,” added Ward.

This article originally appeared in Playback’s Winter 2015-2016 edition