Canadian film: Risking it all

How a small-scale Canadian production house played Hollywood on Capote and won.

At the Academy Awards on March 5, one thing is certain: Philip Seymour Hoffman will win the Oscar for best actor for his role in Capote. Vegas bookmakers have made the American actor a commanding 1:2 favourite for the statuette (for every $200 bet, you'll get $100 back). The touts are equally certain William Vince, the Canadian money guy behind Capote, will not accept the prize for best picture–Brokeback Mountain is heavily favoured at 3:5.

But Vince won't mind. Five Academy Award nominations ain't bad. The real gamble came three years ago, when Vince, the co-founder of Vancouver-based Infinity Features, agreed to finance Capote–a literary biopic tracking seven crucial years in the life of writer Truman Capote as he wrote In Cold Blood, his seminal work. Vince took a chance on the film, won big–and transformed the way Canadians work in Hollywood.

Vince has been in the film business for 18 years. Many of those were spent working with his older brother Robert, who runs Vancouver-based International Keystone Entertainment, a production and distribution company, which made a mint on family-friendly films like Air Bud–movies a million miles away from Capote.

Now, William Vince is no art-house snob. But he clearly has a gift for cost-benefit analysis. In the baldest terms, Capote is the story of an unattractive gay novelist who is writing a book about two murderers on death row. In Kansas. In winter.

In sunny California, meanwhile, moviemaking is changing. In the past year, two studios have been swallowed by competitors: Sony Pictures Entertainment bought MGM, while Paramount bought DreamWorks. They, along with other Hollywood studios, are becoming less interested in making movies than distributing them.

Movies themselves are diverging into two categories: so-called tent-pole releases like King Kong (the movies that stake out holiday release dates three years in advance) and everything else. As a result, Vince says the studios have all but abandoned “the US$25-million-and-under business. Above that budget, you need a big star and big studio. You need to start thinking of being a tent pole yourself.”

As filmmaking becomes more expensive, thanks to absurdly high star salaries and costly global marketing campaigns, the financial risks are being spread over a wider group of stakeholders. In this landscape, Vince sensed opportunity. Let the big guys take on the big stuff; smaller production houses could partner with Hollywood on lower-budget, less-formulaic films.

One of Vince's business partners is Michael Ohoven of L.A.-based Infinity Media, a company that finds the money, the talent and the distribution pipeline needed to make a film. Infinity Media was founded in 2000 by Ohoven, a German who got his start in international corporate affairs with Cologne-based RTL Television, Europe's largest private broadcaster and one of the largest buyers of Hollywood movies. There, he learned the ways and means of deal-making with the studios.

Ohoven went to L.A. to work for his dad, Mario Ohoven, who owned Cinerenta, one of several German media funds Hollywood studios rely on for financing. (Imagine many, many wealthy German investors looking for a tax break.) Infinity Media acts as a broker between the studios and such funds. But with the German government scrutinizing those funds, Ohoven decided to try packaging films through Infinity Media without relying on German investment.

Simply put: everyone wants Hollywood movies, but Hollywood doesn't want to make them. They cost too much and the overhead is a nuisance. So the trick is to give a film the imprimatur of Hollywood, while making it in the least-expensive environment with the maximum amount of what film business types like to call “soft money.” In this sense, Infinity Features is an international hybrid: a production company that is a little bit Hollywood, a little bit more European and a whole lot Canadian–particularly when it comes to “soft money.”

As the name suggests, soft money is not hard cash. But it's just as good. A film shot in Canada can receive up to 16% tax credit on all its eligible Canadian labour expenditures. (As the loonie has strengthened, governments have increased the tax credits.) That tax credit is like a promissory note: a producer can borrow against it. If that same film shoots in Manitoba, the province provides another 45% tax credit for Manitoba-based labour. Shooting beyond 35 kilometres of Winnipeg nets another 5% as a rural bonus. Rural Manitoba looks a lot like rural Kansas, especially in winter, especially to film-goers who have never been to either. Capote ended up shooting there.

Through the 1990s, Canada became a popular location to shoot Hollywood movies because it was cheaper. Every U.S. dollar goes further up North: film crews, logistics, equipment, studio space–not to mention salaries of young Canadians like William Vince, who was earning his chops in Vancouver as a service producer. (A service producer does everything except deliver the creative material.)

Canada's infrastructure and technical talent pool now rivals that of L.A. (And our peaks are just as nice–Brokeback Mountain, Capote's rival on Oscar night, was shot in Alberta.) Arguably, Canada even offers some bonuses: producers like William Vince, who know both how L.A. works, and how to make Canada's tax regime work for L.A.

“The U.S. studios need us more now than 10 years ago,” says Vince, on the phone with partner Rob Merilees. Referring to those sub-$25-million films, he adds, “They don't want to spend the time to nurture or fund a film under a certain budget level. They don't have the tolerance. Yet those movies can make money.”

Not everyone can be a film producer, especially in Canada. There are financing request forms to fill out, deadlines to hit, long spells between projects–it helps to be independently wealthy. Other than that, making movies in Canada is relatively straight-forward. Get a script; convince a Canadian distributor to release your film for one week; convince a Canadian broadcaster to televise the film. Then apply to Telefilm Canada, an arm's-length agency of the Department of Canadian Heritage, for financing. If Telefilm accepts, they give you up to half the budget. A bank lends you the other half, based on your distribution and broadcast contracts, plus your tax credits. Simple.

The problem with this method is the resulting film is rarely any good. The reason is also simple: no one is taking a risk. Too often, producers don't invest time in nurturing their scripts, let alone put up financing. The distributor gets a subsidy for distributing a Canadian film. The broadcaster has to meet Cancon quotas and Telefilm has to spend its $200-million budget on something.

In all of this, the Infinity Features partners saw another opportunity. Instead of being service producers for a fee, they could take on the risk as creative producers: create the package–the script, the director, the actors–and bring in a sizable portion of the budget by leveraging their tax credits while putting up their own coin. (Both Vince and Merilees have been steadily building up real estate assets in Vancouver; a good thing, because Telefilm wouldn't touch an entirely U.S.-developed project like Capote.) But in taking a risk, they had to take a closer look at the script, and be very budget conscious.

In 2002, Infinity Features started life co-producing Snow Walker, a survival adventure based on a Farley Mowat story. In 2003, they co-produced with L.A.-based United Artists (a division of MGM) a low-budget comedy called Saved, starring Jena Malone as a student at a Christian fundamentalist high school who finds herself pregnant. Snow Walker broke even, but Saved made an impact. The film cost US$5 million, did decent box office and went on to earn US$28 million on DVD worldwide. So far, so good.

In 2004, a Saved connection handed Vince a screenplay from two aspiring New York filmmakers. It was a biopic about Truman Capote, with Philip Seymour Hoffman in the lead. As soon as he read the script, Vince saw the movie's potential. Anyone who has seen Hoffman's range knows he would be a perfect choice to channel Capote. And not the celebrity Capote who became a caricature in later life, but Capote the writer, working at the height of his powers.

But there were also potential financing and marketing hurdles. Snow Walker was accessible family fare, Saved an edgy but broad comedy. But Capote? Never mind the narrative turnoffs–long-dead gay writer, Kansas, winter–Vince says “It was a first-time director, a first-time screenwriter. And Philip Seymour Hoffman–is he someone you put on a video box?”

Vince and Merilees flew to New York and met Bennett Miller, the director, Dan Futterman, the screenwriter, and Hoffman, to start negotiating the deal. Vince also approached United Artists, asking them to cover a portion of the production costs. UA president Danny Rosett was intrigued but didn't want the risk. However, he offered Infinity Features a US$5-million minimum guarantee for world rights to the finished film. Vince and Merilees crunched the numbers. They figured they could make the film for US$7.5 million. The tax credits would deliver $1 million, and they would raise the remaining $1.5 million through private investors and their own equity.

“I go to the bank,” says Vince, casting himself back in time to explain the terms of the deal. “I take out the loan. If I don't deliver the movie as contracted, they [UA] can say they don't want it. So I take the risk.” The upside? Vince and Infinity Features became gross players.

Hollywood's accounting is notorious. If you're a net player, you get a share of what's left after expenses, which often means you get net of nothing. If you're a gross player, you get a percentage of the money as it comes flowing from the exhibitor. In the case of Capote, Infinity Features negotiated with UA to receive 10¢ on every dollar in revenue up to $3 million.

Released by Sony (now the owner of MGM) last November, Capote had $15 million in North America (meaning $1.5 million for Infinity) by the time its five Oscar nominations were announced: best picture, best director, best actor, best supporting actress, best adapted screenplay. Thereafter, Sony increased the number of screens showing the film from 300 to 1,200. The worldwide gross is projected to be more than $30 million, maxing out Infinity's share of the gross.

The film is set to enjoy a post-Oscar bump. So will Hoffman. So will Vince–statuette or not.