Sunday, August 17, 2014

Is Canadian TV Animation Heading for a Cliff?

The TV animation business in Canada is on a roll right now.  There's a lot of work out there, as a glance at the job board at Canadian Animation Resources confirms.  While animation in Canada includes visual effects, features and videogames, TV still makes up the greatest proportion of production in terms of employment and the amount of material produced.

However, there are trends in several areas that make TV animation vulnerable.  The ground is already shifting and there are more shifts to come.

Television in Canada is regulated by the Canadian Radio and Television Commission.  This government body determines which new channels will be allowed to exist, sets quotas for Canadian content and determines how much money from cable fees will be set aside for Canadian production.

The CRTC is aware of the effect that the internet and internet TV providers such as Netflix are having on the market and have been holding hearings to determine how regulations should change.  There are several possibilities being considered.  One is unbundling. 

The CRTC has declared that certain channels such as YTV, a major Canadian animation market, are part of the basic cable package.  In other words, everyone who has cable is forced to pay money towards YTV.  Other channels featuring animation, such as Teletoon and Family Channel, are part of packages.  You cannot buy these channels on their own.  There are customers who don't care at all about animation who are contributing money towards these channels by purchasing the package they're included in.

Should the CRTC unbundle, allowing viewers to purchase only those channels they want, no one can predict how this might effect the demand for animation channels.  The number of cable channels using animation has expanded to include Nickelodeon, Teletoon Retro, Cartoon Network Canada, Disney XD, Disney Junior and Treehouse.  Can the Canadian market support all of these channels in an a la carte world?  Can studios survive if the number of Canadian buyers goes down?

There is an entire generation that has replaced TV with the internet.  The term "cord cutting" is used to describe people who give up cable TV, but there are many young adults who haven't had cable TV since leaving their parents' homes.  Walking in Toronto, I see children in strollers playing with iPads.  In a world of on-demand entertainment, does the concept of a broadcast schedule have a hope of surviving?

The shrinking audience is affecting even mainstream programming.  W5, a 60 Minutes-like news show has just cut production on the number of episodes for the coming season and laid off staff due to shrinking ad revenues. 

Many in Canada subscribe to Netflix instead of cable.  No money spent on Netflix is re-routed towards Canadian production as it is with cable bills.  This means that the Canada Media Fund, which funnels money towards various productions, has less to work with.

Finally, there is the issue of tax credits.  Ontario just had a provincial election, so the government will be stable for the next four years, but it is trying to eliminate a deficit. No poll of the general public has ever put tax credits for media production high on the list of priorities.  As a result, I would not be surprised to see the tax credits frozen at best and I anticipate some amount of claw back.  Certainly, they won't increase, which means that if another jurisdiction surpasses Ontario's tax credits, work will leave Ontario.

While content quotas, bundling and tax credits have their place, especially for new enterprises, they turn into an addiction.  Ultimately, animation has to please the public if it is to survive.  Instead, too many studios have focused on satisfying regulations that generate money rather than on creating viable entertainment.  I fear that they have built their enterprises on a foundation of sand.  I have seen contractions in the Canadian animation industry in the past and they're not pretty.  I hope that studios are preparing for changes that may destroy their current business model.

To learn more about this, read Michael Geist and listen to this Canadaland podcast.


Anonymous said...

On the flip side, there are those people who would love to watch Teletoon but don't want to buy an entire cable package just for that. I fall into that category. I love Netflix because it gives me access to lots of cartoons without buying a cable package. If Teletoon could be bought on it's own, I'd definitely be more likely to buy it.

herrbauer said...

You should have added that Quebec's newly-elected Liberal government has actually just cut tax credits for multimedia (film, animation, video games, FX) by 20%. Videogames companies - the big players here now - have publicly threatened to pull out to Ontario because of a., the higher tax credits, and b., the Ontario government giving seed money to new projects (non-existant in Quebec). Apparently, this matter will be "discussed" with the provincial govt. in the fall... Stay tuned.

Robert said...

Expansion and contraction has certainly been the norm for the last three decades. I wish we could find a way to separate the tax credit issue from the CRTC protectionism legislation. If we had a national tax credit that allowed for private investors to encourage growth as well as potential profit that would be great. Being so close to the giant market of the US, I get why we feel we need to have protection of what is Canadian on TV. Even though the fast majority of productions are not Canadian...
I agree that I think we are going to see some major shifts in the market in the next few years.

Mark Mayerson said...

Large studios with deep pockets might be able to keep shifting their facilities to locations with larger tax credits, but smaller studios are going to be out of luck.

And if the public ever figures out that their tax dollars are subsidizing profitable multinational companies, it's going to be game over for tax credits.

Rob said...

Studios just need to be able to shift with the times which is exactly what our studio is doing. Start looking towards generating content for the online broadcasters such as Netflix, Amazon etc. rather than rely on the future of television.

Kevin said...

I've been in the biz 27 years now and my observation is that things have been/are changing all the time. It's the only thing you can be sure of really. Anyway, not many Canadian productions get green lit unless multiple broadcasters have been lined up first. Perhaps the growing availability of new platforms/markets will actually BOOST production. Trying to predict with any precision how things will shake out is a mug's game.