Telefilm fund nears 50% rate for defaulted loans; industry calls for new model

Telefilm Canada is preparing to write-off 45 per cent – or $4.1 million – of paid out over the past two years from its $30-million multimedia fund, citing the high-risk nature of the industry for the high default rate. The figures, released last month as part of Telefilm’s 1999-2000 annual report, will give the new media industry additional ammunition in its battle to have the multimedia fund converted from a loan-based to an equity-based model. Industry leaders have long complained that government loans do little to help fledgling new media companies leverage additional capital, and have lobbied vociferously for a fundamental change in how money is doled out. Project Breakdown by Component# of ProjectsBudgets ($000s)Telefilm Contribution$000s% of BudgetsMontreal227,4282,41132.5Toronto122,15789841.6Subtotal349,5853,30934.5British Columbia183,7681,60642.6Alberta122510044.5Saskatchewan11294535.0Ontario (excl. Toronto)12346527.8Quebec (excl. Montreal)41,18942035.3New Brunswick0000.0Nova Scotia51,45728619.6Prince Edward Island0000.0Newfoundland11173025.6Subtotal317,1182,55235.9Total6516,7035,86135.1Source: Telefilm Canada, Annual Report 1999-2000The high default rate, combined with a low subscription rate to the program, will also be raised during an upcoming review of the multimedia fund, which was mandated by the Treasury Board to take place two years into the fund’s five-year mandate. According to Telefilm’s annual report, the fund has lent $8.4 in interest-free loans to dozens of multimedia projects since its creation in 1998, and $4.1 million of that amount has been classified as "impaired". Officials at the crown corporation concede the figure is "significant", but won’t say whether the amount is higher or lower than expected. Telefilm’s director of policy, planning and research, Guy DeRepentigny, will only say that money is lent with the expectation that it will all be paid back – even the 15% of funds reserved for high-risk projects. As for why new media companies are defaulting, he suggests it may be the result of under-capitalization and weak management. "At the end of the process it means that about 47 per cent of the loans could be considered impaired," he told Canadian NEW MEDIA. "Why is that such a high level? The companies are very tiny (and) most are under-capitalized. It’s hard for them to bring strong guarantees. Some of them were not experienced entrepreneurs – and I think they acknowledge that, as well. The business case is still not well-defined. And, of course, the financial tool may not be well-adapted." Industry executives maintain that the funding model is flawed. Delegates to the recent Baddeck International New Media Festival assailed Telefilm’s Atlantic director, Ralph Holt, asking when the model would be changed. As of yet, no public commitment had been made to put the multimedia fund on the same equity-based footing as film and television funding programs. Even immediately after the multimedia fund was launched in 1998, industry leaders were pointing out its potential pitfalls. In an interview with a CNM affiliate publication at the time, Sara Diamond, executive producer of television and new media for The Banff Centre for the Arts, said such loans are usually combined with loan guarantees and other forms of financing which are difficult for fledgling companies to secure. The fear, she said, was that only larger companies would be able to take the risk. "We don’t know what the market is for a lot of these products," she explained at the time. "It’s almost like we need a two or three-year exploratory process where you’ve got equity investment, or all-out grants so you can actually develop products and test the market and build the market." DeRepentigny points out that the multimedia fund is also under-subscribed, another sign that it may not be an appropriate financial tool for the new media community. The $8.4 million figure of funds lent to date is only approximately three-quarters of the $12 million the fund had at its disposal. "It’s one of the indices that makes us want to look back at the loan approach and say this may not be the right tool to work with. During the discussions we have with our partners, they tell us the problem in not Telefilm, ‘you do a pretty good job of administering the fund.’ The problem is the obvious loan approach – this is what we hear," says DeRepentigny. "It’s hard to qualify that 47 per cent. We feel that we’ve done a good job with the tool we were given. This is why we will be looking at that in the next couple of months." In total, the multimedia fund last year loaned money to 65 multimedia projects whose combined budgets amounted to nearly $17 million. With commitments of $5.9 million in this sector, Telefilm assumed 35 per cent of these budgets. Montreal and Vancouver emerged as the country’s main multimedia centres, accounting respectively for 41 per cent and 27 per cent shares of the fund’s resources. Multimedia Fund: Loans and Losses 1999-2000 ($000s)20002000 Allowance2000 Net1999 NetAmountfor LossesamountamountLoans5,747--5,7476,251Impaired Loans4,161(4,161)--1649,908(4,161)5,7476,415Less current portion2,676(1,328)1,3481,075Long-term portion7,232(2,833)4,3995,340Source: Telefilm Canada, Annual Report 1999-2000

Telefilm fund nears 50% rate for defaulted loans; industry calls for new model

Broadcast | November 1, 2000

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