British Columbia Film's Submission on Canada's Digital Economy Strategy

Summary

Please find attached British Columbia Film's submission in response to the Government of Canada's consultation paper on a digital economy strategy for Canada.

British Columbia Film is an independent, not–for–profit society established by the provincial government in 1987. It has the mandate to expand and diversify the film, television and digital media sector in British Columbia. Its core responsibilities are to:

• Support the development and marketing of high quality, commercially viable British Columbia film, television and digital media projects;
• Sustain and grow a competitive BC owned and controlled film and television industry;
• Enable British Columbia production companies to foster existing, and to establish new, relationships with national and international co–financing partners;
• Enhance the ability of British Columbia production companies to secure development and production financing;
• Effectively administer provincial tax credit programs to ensure that BC remains competitive as a production centre and continues to attract private sector investment; and
• Assist in the development of the creative talent necessary to sustain industry growth.

To maintain Canada's economic advantage in the digital sector, we support the development of broad federal policy that lays the foundation for a comprehensive approach to digital development. We also support sector specific strategies to take into account the opportunities presented across the digital spectrum, including the unique industrial and cultural elements of Canada's diverse digital media community.

In our response we have focused on the opportunities in film, television and interactive media and have framed our comments under three broad categories of discussion:

• Business Environment for Digital Content;
• Creative Environment for Digital Content; and
• The Role of Technology.

In each of the categories specific issues that need to be addressed have been identified and possible responses that the federal government may wish to consider are discussed.

Should you have any questions about our submission, please feel free to contact me.

Sincerely,

Richard Brownsey
President,
British Columbia Film

Submission

BACKGROUND

This paper is in response to the call for submissions made in the Consultation Paper on a "Digital Economic Strategy for Canada." B.C. companies are leaders in the creation and exploitation of digital media content and technology, and are at the forefront of maintaining Canada's digital advantage. Our sectors span the use of digital technology for the development, production, and distribution of innovative content — including innovative technology itself — that communicates essential information, enhances commercial and social opportunities, and educates, entertains and interacts with audiences and users. B.C. companies engage audiences with cutting–edge technologies in artwork, animation, visual effects, motion capture, live–action, 3D, and interactivity which form the basis of today's feature films, dramas, documentaries, animation, games, and interactive content.

To maintain Canada's economic advantage in the digital sector, we support broad federal policy initiatives across multiple sectors and sector–specific strategies to take into account the opportunities presented across the digital spectrum, including consideration of the unique industrial and cultural elements of Canada's diverse digital media community.

Many traditional content creators — particularly those who have historically marketed their projects to broadcasters and other "television–type" distributors, including specialty channels, basic and premium cable, and pay television — are working hard to maintain their historic markets while simultaneously exploring and exploiting the new digital distribution markets and new ways of engaging audiences. While consumers are migrating to new digital technologies including many digital forms of distribution such as electronic sell–through (EST), electronic rental/video on demand (VOD), and subscription video–on demand (SVOD), sustainable business models to monetize these opportunities have been slow to develop. These digital opportunities have presented content producers with another challenge — namely, the compression of the traditional "window" cycle of content exploitation for both theatrical and television products (i.e. theatrical to home video to VOD/pay television to free television) further reducing revenue streams. Without support for access to private capital, it is difficult for traditional media producers to invest in new technology and programming to maintain and increase market share in the digital era.

BC Film believes a sustainable economic model for growth and success in the digital media sector is only possible in a marketplace framework by formulating government policy initiatives that encourage private sector investment in technology and stimulate creative entrepreneurs to innovate and expand into new markets. We agree with the Heritage Minister that Canada's digital economic advantage will be founded upon creators, inventors, and entrepreneurs being provided opportunities to compete in the global marketplace by providing market–based incentives that encourage risk–taking. Key aspects of this strategy involve maintaining trust and confidence in the on–line marketplace, encouraging the adoption of digital technologies, and protecting intellectual property rights of creators and innovators — all while supporting cultural industries.

Our response to the Ministerial invitation for submissions focuses on three broad categories of discussion:

• Business Environment for Digital Content;
• Creative Environment for Digital Content; and
• The Role of Technology.

BUSINESS ENVIRONMENT FOR DIGITAL CONTENT

I. ENHANCE EFFECTIVENESS OF CONTENT MARKETPLACE

The majority of total revenues for the Canadian entertainment industry are still obtained from traditional analog content. Consequently, a significant portion of current online content is financed under traditional television, cable, and satellite programming business models. Until sustainable online business models emerge that can be applied to all forms of content, there should be reasonable opportunities for content creators to control exploitation of their products in the digital world. This will only be possible if these creative entrepreneurs have access to private capital and the ability to maintain certain digital rights to explore these new market opportunities.

The internet — and its potential for connecting digital content producers to their individual audience members on a global basis — presents an enormous business opportunity for those who can exploit these "digital rights." We submit that in order to encourage capital investment in digital content companies in a marketplace framework, the following policies should be put in place.

TERMS OF TRADE WITH BROADCASTERS

The Canada Media Fund (CMF) is currently the principal mechanism for direct investment by the Canadian government and cable/satellite stakeholders into filmed and new media content. As a condition of their licenses, cable and satellite companies have been required by Canada's communications policy–makers to pay into the CMF to support independent production. Producers have accessed these funds by obtaining "triggering" licenses from eligible Canadian broadcasters. The "terms of trade" for these triggering broadcast licenses have been monitored and regulated by government agencies to balance the relatively strong market power of the broadcasters against the relatively weak market power of the independent producers, which are, generally speaking, small and medium–sized companies that lack access to capital and comprehensive distribution channels to sell or license their products worldwide.

For example, terms of trade limit the rights granted to the broadcaster such as "English language rights in Canada" and, in the case of Canadian drama, are limited to a term of "6 years." These terms give the independent content producer an opportunity to build its corporate asset base with "residual rights" — in our example, rights to exploit its product in the French language in Canada and/or to exploit the market after the initial English language license term has expired. Residual rights are also accumulated as corporate assets in the form of unsold foreign rights or entire foreign territories — and from the exploitation of "digital rights." However, with budgets more difficult to balance than ever, foreign rights are often completely sold and any residual revenue for the content producer over the long term arises solely from the producer's share of net profits.

We believe that it is essential for the health of the independent digital content sector to have mandated terms of trade between producers and broadcasters over digital rights in the same manner as over traditional broadcast rights to ensure that producers will retain a measure of control over and have opportunities for earning revenue on the exploitation of digital rights to their projects. This will encourage the private investment in the digital media sector needed to maintain Canada's digital advantage. In a recent survey of members of the Canadian Media Production Association (formerly the Canadian Film and Television Production Association), over 50% of the respondent content producers reported that broadcasters did not pay any incremental license fee for digital rights nor any revenue share on those rights acquired¹. The study also found that producers gave up their digital rights for an average license fee of only $540 an episode — usually less than 1% of the budget of the program concerned.

Digital content producers seek fair payment for licensing digital rights in order to build businesses that will attract private investment and prosper in the digital era. We urge the institution of reforms in the terms of trade to ensure broadcasters pay a reasonable price for digital rights. Furthermore, if broadcasters do not exploit these licensed digital rights, content producers should have the opportunity to exploit such rights and experiment with their own new digital distribution strategies. The Producers Alliance for Cinema and Television ("PACT") in the UK has been successful in negotiating similar relaxed terms of trade with key broadcasters in the UK covering:

• different categories of rights that could be acquired by the broadcaster
• the duration and exclusivity of the acquired rights
• price ranges for categories of programming
• a timetable for the commissioning of programs and the conclusion of the license agreement
• a dispute resolution and review process

We would add to this list the establishment of consistent definitions of various "digital rights" across all broadcasters and platforms in an effort to standardize the descriptive language for rights exploitation.

EFFECTIVE COPYRIGHT PROTECTION

Digital technologies have created an unprecedented ability for users to copy and share information across borders and across platforms repeatedly and instantaneously at little or no cost. In order to maintain Canada's digital advantage, Canadian copyright law needs to be clarified to balance the rights of copyright owners with that of consumers.

Peer–to–peer (P2P) file sharing software and networks have many legitimate purposes, but the one which digital content producers seek to eliminate is the unauthorized use, distribution and/or copying of digital files (or sets of digital files) containing copyright protected material. A lack of copyright reform would amount to an endorsement of the free use of copyrighted material — ultimately leading to reduced corporate investment in professional production and distribution and the devastation of legitimate business opportunities in a previously thriving industry.

Canadians need only look at the cultural revolution in the music business as an example of the destruction of legitimate business models by the widespread use of infringing technologies. The same is taking place in the film and television content arena in various territories around the world with lax or unenforced copyright laws such as Spain and China. The greater the entrenchment of a flourishing "pirate sector," the less incentive there is for legitimate license and sale businesses to operate. While digital media producers understand the need for specific exceptions to strict copyright law for private study, research, and criticism, these exceptions should be strictly interpreted and limited as they are in traditional media which prevents any "publication" (i.e. making a copy available to the public) without authorization or credit. The common practice of "time shifting" and "format shifting" could be permitted provided they are not conducted with the intent to back–up a library of works. International copyright treaties must allow for enforcement and prosecution of illegal copies in member countries.

SUPPORT FOR EXPORT AND PARTNERING ACTIVITIES

The Canadian and provincial governments have always assisted content creators and distributors in exporting their products by helping make new connections during the business development, financing, and production stages. They also provide corporate assistance in establishing new export markets at trade shows, conventions, and other market–driven initiatives such as international trade missions. We believe this support needs to be continued and extended. This should include support at international industry–wide events such as the Electronics Entertainment Expo (E3), Game Developers Conference (GDC), and SIGRAPH, as well as supporting digital film and television festivals such as Banff and Cannes — and any venues where people meet, share projects and ideas, and look for international financing partners.

REVITALIZATION OF CO–PRODUCTION TREATY PROCESS

BC Film calls for the inclusion of digital content including visual effects, games, and other interactive content to be brought within the parameters of Canada's many international co–production treaties so that there can be greater creative collaboration and cost–sharing among countries with shared industrial or cultural goals. The film and television treaties have allowed many entrepreneurs from diverse creative and business backgrounds to collaborate on a project by project basis to form long–term, mutually beneficial business relationships, and we recommend an acknowledgment of and revitalization of the official international treaty process to encourage more trade and commerce in the digital sector to increase Canada's export activities. We also recommend a more simplified approach to international co–productions than appears possible under the formal treaty process which presently requires legislative action to initiate relatively minor changes, changes that are taking place rapidly in today's market.

II. CONTENT FUNDING

To maintain Canada's digital advantage, digital media producers need the continued support of existing government policy, institutions and incentives to stimulate digital production and new technology for the Canadian and global marketplace.

TAX INCENTIVES FOR DIGITAL CONTENT

Tax credit incentives have been a pillar in the development and production of original content, both in the domestic and foreign service industries throughout Canada. Many provinces, British Columbia included, have tried to keep pace with changing technology in the sector by augmenting the tax credits available to digital media in the form of introduction of the Digital Animation or Visual Effects credit ("DAVE") in 2003. British Columbia has also recently introduced an interactive digital media tax incentive of 17.5% for eligible labour. This incentive is specifically designed to encourage the development of interactive digital content that is not currently supported by existing programs.

We recommend that the federal government also modify its programs to further encourage digital animation, visual effects and the creation of interactive digital media content.

VENTURE CAPITAL

One of the principal strategies for success in the digital media sector is the need for access to venture capital for small and medium sized digital media producers. We call for the federal government to initiate new programs and extend existing financing programs (e.g. the Federal Business Development Bank) to offer incentives for investments or make capital available for sector–specific projects or companies with viable business plans. Whether these investments or loans are made directly in eligible small businesses or indirectly through venture capital corporations, the digital media producer will be able to lever these investments to build corporate assets that will make it possible to produce and deliver a number of projects annually not only to the domestic markets, but to export markets on a global scale.

SR&ED AND IRAP

The Scientific Research and Experimental Development Program and Industrial Research Assistance Program are two programs initiated by the federal government that have strongly supported research and development in the technology field. We urge the government to continue this support and renew its commitment to supporting the innovators and entrepreneurs in the digital media sphere.

TELEFILM AND THE CANADA MEDIA FUND

Telefilm Canada and the Canada Media Fund have been supporting the development, marketing, production, and distribution of Canadian media projects for decades. Their support of local producers by setting funding policies, administering funds, and sponsoring markets and festivals for Canadians to showcase their work have been invaluable in creating the cultural content and industrial base Canadian producers now enjoy. These institutions and related programs should be maintained and reinvigorated by the migration to digital platforms.

III. GENERAL CONTROL AND REGULATION

BC Film is fully supportive of "net neutrality" across the national digital infrastructure. We believe that digital content needs to move freely throughout the online environment to consumers and end–users. As such, it is our belief that Internet Service Providers and online broadcasters should not be allowed to restrict the kinds of equipment allowed or the modes of communication permitted on content, sites, and platforms. So–called "last mile" internet providers should not be permitted to block Internet applications and content (e.g., websites, services, protocols) and telecom companies should not impose tiered services models designed to control the pipeline and remove competition, create artificial scarcity, or oblige subscribers to buy their otherwise uncompetitive services.

We further recognize that funding to encourage future Canadian–owned digital content should be preserved for the creation of a Canadian cultural digital legacy, and as such, are in support of the establishing of a digital media "Content Fund" possibly supported in part through contributions from ISPs and wireless providers. This Content Fund could be administered through the CMF which presently funds both traditional content and content intended solely for the internet or wireless applications. As for the regulated broadcasters, cable providers, telephone companies, and wireless carriers, there has been continuing corporate consolidation along horizontal lines in these sectors giving these companies a unique position of strength in all developed and developing forms of ICT technology on the Canadian landscape. We believe this situation should be considered carefully from a regulatory point of view, examining in particular the possible implications for a free and competitive market, free access to information, and free consumer choice that could result from corporate consolidation.

IV. MICRO–TRANSACTIONS

Market trends continue to show unequivocal growth in the adoption and consumer acceptance of microtransaction and "offer–based" systems for payment of online content, digital services, entertainment and virtual goods. This is a hotly contested area of tremendous commercial opportunity with many successful Canadian transaction fulfillment companies currently populating the landscape — including Vancouver's own highly successful SuperRewards. BC Film recognizes the need for a unified regulatory approach to govern such systems, including a simplified national revenue/taxation reporting mechanism, clear and consistent federal laws around digital merchandise ownership, and mechanisms to protect consumers from misleading or unscrupulous "offers" in exchange for virtual currency.

CREATIVE ENVIRONMENT FOR DIGITAL CONTENT

Canada has been at the forefront of digital media arts and education with inter–disciplinary programs designed for students entering today's competitive workplace. In order for Canada to retain its digital advantage and improve its position in the marketplace, Canada's ICT and digital media sectors must continue to provide an educational and artistic environment to engage, nurture, and attract the best students — skilled architects, engineers, artists, and technicians — and provide them with needed technical skills and on–the–job training.

I. SKILLS DEVELOPMENT AND KNOWLEDGE TRANSFER SUPPORT

Frequently, on–the–job training starts prior to graduation with many students taking part in creative business projects funded by start–up tech companies building systems software designed for real world internet and game business applications. This kind of innovative approach to education combined with nascent business opportunities is typical of the flexibility and creativity needed to advance Canada's skills and job training in the digital era.

As an example of academic collaboration and interdisciplinary advanced education, a consortium consisting of the University of British Columbia, Simon Fraser University, Emily Carr School of Design, and British Columbia Institute of Technology have created the first "Masters of Digital Media" arts program in Canada by combining their resources in course design, teaching and physical resources to offer a unique program of skills training for highpaying tech jobs for entry into these specialized job markets.

The fostering of such initiatives to develop deeper and richer collaborative tools and online creative environments are another area of great opportunity. By encouraging content producers to cooperate around their projects and initiatives, government and institutions will bring a unifying element to the various clusters of production activity across the country — and perhaps around the world — strengthening the quality of output and creativity.

II. PRIVATE AND INSTITUTIONAL PARTNERSHIPS

Many other educational institutions are partnering with established companies that support digital media programs and initiatives to train the future creators, innovators, and entrepreneurs of tomorrow. Initiatives such as the Digital Development Lab combine support from BC Film, CBC, and New Media BC (now DigiBC) to provide emerging digital content producers an opportunity to advance original interactive and multi–platform concepts in an exploratory, intensive team environment. These programs build excitement, promote creative synergies, and create opportunities for the next generation of artists and entrepreneurs.

We encourage the federal government to develop similar initiatives that will support the synergies and partnerships that can be created across existing private, educational and cultural institutions within a marketplace framework.

III. TRAINING INCENTIVES

Many provinces provide wage incentives to companies employing students or recent graduates of accredited institutions while they gain valuable workplace experience. We believe these programs are essential to support growth in digital media industries over the long term. These programs provide incentives to producers and training to workers entering the workforce to build their knowledge and relationships for future full–time careers in the digital arena.

Training support is not part of the current federal regime of industry incentive programs and should be considered by the federal government as part of Canada's strategy to maintain its digital advantage.

IV. RELAXED IMMIGRATION FOR FOREIGN TALENT

An essential — but often overlooked — priority for government policy in the area of digital media is to relax immigration requirements and "fast–track" foreign digital media executives, producers, and managers who move to Canada to work on a short or long term basis. It is counterproductive to put obstacles in place when foreign companies choose to open for business in Canada. These companies often make a substantial investment in the local economy and offer good paying jobs to an eager workforce. With the experience of working for leading production companies on best–in–class technology and completing top–quality work, Canada's reputation as a hub for digital technologies and activities becomes greatly enhanced. Consequently, we feel it is essential that the process to obtain temporary worker permits and permanent immigration be streamlined so that these corporate relationships are nurtured and encouraged to build positive momentum for future investment.

V. FREQUENT SKILLS GAP/RESEARCH AND REPORTING

As the digital media sector grows and matures, it is important to analyze growth factors and institute metrics for anticipating future needs and measuring gaps in skills and technology. With frequent analysis and reporting of results, future educational or job requirements can be identified and measures taken to address shortcomings in the needed labour force.

THE ROLE OF TECHNOLOGY

I. BROADBAND CONTENT DISTRIBUTION

BC Film believes that superior content distribution technologies are a critical factor towards any successful digital media strategy. While Canada has traditionally been a pioneer in information and telecommunications technologies, it is imperative to stay ahead of the rapidly developing international technological landscape–an increasingly competitive environment in the battle to deliver rich media content to a hungry global audience.

The ubiquitous availability of open, fast, and affordable content networks — particularly those employing cloud computing technologies — is paramount to enabling content producers reliable and viable avenues to distribute and host their videos, audio files, and interactive content to the world. Open networks allow content producers greater creative freedom, an ability to explore a wider variety of online pricing and business models, greater control over their marketing message, and protection from monopolistic practices. We would like to see the continued encouragement of home–grown Canadian providers in creating leading–edge, world–class domestic open network services for content producers.

We also recognize that the greatest creative possibilities are facilitated by broad collaboration initiatives. The social web has already provided transformative services such as YouTube, Flickr, and peer–to–peer sharing — tools whose significance could be even further enhanced if the content is shared with the right person, at the right location, and the right time. New social content sharing technologies will provide the timely content in correct context — making the current content systems seem relatively immobile, expensive, restricted, and antiquated. As such, we are eager to embrace this next generation of enhanced collaborative content tools, particularly those that encourage online peer–to–peer sharing, development, and production of digital assets and content.

We believe many of these experimental and cutting edge technological initiatives can be unified through the encouragement of collaborative partnerships between private interests and academic/research institutions. This is a classic win–win situation, allowing content producers and technology companies to work hand–in–hand with students and researchers who are pioneering in these relevant fields of study, making mutual inroads towards collaborative initiatives fusing both innovative content and cutting–edge technologies.

II. WIRELESS CONTENT DISTRIBUTION

BC Film is encouraged by the possibilities emerging through rich media capable mobile wireless distribution technologies. These technologies represent one of the critical "final mile" links in the content distribution chain, bringing video, audio, and interactive content continuously and directly into the hands of users — no matter where they may be. Without a reliable and robust wireless infrastructure to support such distribution, Canada stands to lag dangerously behind the rest of the world in the fast and efficient delivery of mobile content.

We feel that one key driver for the success of mobile wireless systems is consistent and uniform standards among the carriers, encouraging a more competitive landscape that favours the end–user and makes cross–carrier content distribution more convenient and transportable. The concept of cross–platform operability should be mandated through whatever means possible to reduce barriers to content producers, simplify the end–user experience, and facilitate the portability of content. Conversely, specific 4G–enabling technologies should be standardized to a single format (such as Flash–OFDM, 802.16e mobile WiMax, or HC–SDMA) to give content producers a reliable technology standard through which they can deliver their digital media.

As 4G wireless mobile technologies gain a foothold, it would be of greatest benefit to content producers for carriers to adopt an open internet platform. In general, we believe that the delivery of rich media should be a flexible and unconstrained experience, keeping the power of choice within the hands of the end–user seeking digital content. BC Film also believes that "pervasive networks" — an emerging technological concept in which the user can be simultaneously connected to several wireless access points and seamlessly move between them — are another key aspect of mobile wireless service that requires considerable and immediate development and exploration.

CONCLUSION AND SUMMARY RECOMMENDATION

We cannot predict what the future of digital media technology holds or what investment in infrastructure or technical adaptation will prove to be successful in the marketplace. However, we do know that people have an innate desire and need to communicate with each other, interact, share experiences, understand, and be understood — and that technology is a key facilitating catalyst, allowing these interactions and transactions to take place more quickly, over greater distances, and on a greater abundance of platforms than ever before.

We believe there will continue to be a high demand for both high–quality "professionally produced" content and low–grade user–generated content — and everything in between. We believe that there will be leaders in producing the content that matters to people, whether it is a one–way narrative or an "ongoing and interactive" dialogue within a community. The success of this content will depend on its desirability, its marketing power, its use of available technology and pathways, its access to distribution channels, and ultimately, upon the habits of consumers. Whether this content and these distribution channels will find successful business models will depend on the creators, innovators, and leaders of those businesses or communities.

We believe success will be achieved by levering public policy initiatives and incentives with private sector innovation and capital to stimulate innovators and entrepreneurs to take risks and build companies based on new forms of digital content delivered across different platforms, protocols and technologies. Government policy will also encourage investment in technology infrastructure for more efficient and safe communication tools to reach global markets securely and promote competition in an environment that is fairly regulated.

We thank you for the opportunity to contribute to this important national economic strategy and look forward to a continued discussion as this initiative is developed into a comprehensive and visionary set of national policies for the digital sector.

¹ Canadian Media Production Association (CMPA) formerly CFTPA Survey "A Framework for Digital Rights," June, 2010.