Management Discussion and Analysis
The review of the Corporation’s financial position and operating results should be read in conjunction with the audited financial statements on the following pages. The results for 2018-2019 cover the period from April 1, 2018 to March 31, 2019 while the comparative numbers are for the period from April 1, 2017 to March 31, 2018.
Results of Operations
The Corporation’s revenue includes amounts from the broadcasting distribution undertakings (BDUs), the federal government through the Department of Canadian Heritage (Department), recoupment of production investments, repayments of advances, interest, and tangible benefits. Total revenue increased 2.7% in the fiscal year, from $351.8M in 2017-2018 to $361.3M in 2018-2019.
Contributions from BDUs decreased 3.3% or $6.6M in the fiscal year, from $199.6M in 2017-2018 to $193.0M in 2018-2019. Canada’s broadcasting industry is facing significant disruption from changes in consumer habits and business models. With Canadians increasingly consuming content through online and mobile platforms, as alternative to the traditional broadcasting system, contributions from BDUs to the CMF have been declining. The largest decline in BDU contributions was in 2017-2018 when contributions decreased by $16.9M in the fiscal year from $216.5M in 2016-2017.
In order to stabilize the level of funding to the Canadian creators and producers, the Government of Canada announced an additional contribution to the CMF starting in 2018-2019. This stabilization funding was based on the decline in BDU contributions between 2016-2017 and 2017-2018, or $16.9M.
The federal government funding increased by 12.6% or $17.0M in the fiscal year from $134.1M in 2017-2018 to $151.1M in 2018-2019.
Revenue from the recoupment of production investments decreased 23.6% or $1.6M in the fiscal year, from $6.9M in 2017-2018 to $5.3M in 2018-2019. Revenue from repayment of advances decreased 14.7% or $0.9M in the fiscal year, from $5.8M in 2017-2018 to $4.9M in 2018-2019.
Interest increased by 65.7% or $1.9M in the fiscal year, from $3.0M in 2017-2018 to $4.9M in 2018-2019.
CMF administers a tangible benefit program for Corus Entertainment, $0.7M was recognized as revenue in 2018-2019. An additional $1.3M in tangible benefits flowed directly to the CMF program under the revised CRTC Tangible Benefits Policy.
Total expenses increased 1.6% or $5.9M in the fiscal year, from $358.3 in 2017-2018 to $364.2M in 2018-2019. Program commitments represented 93.9% of total expenses in the fiscal year, consistent with 2017-2018. The balance of the total expenses includes industry partnerships, general and administrative, sector development, program administration, and amortization.
Under the terms of the Contribution Agreement with the Department of Canadian Heritage, CMF’s total administrative expenses (excluding industry partnerships) are capped at 6.0% of total revenue. In the fiscal year, the total administrative expenses were $17.9M or 5.0% of total revenue, consistent with 2017-2018.
Total program commitments increased 0.8% or $2.7M in the fiscal year, from $338.7M in 2017-2018 to $341.4M in 2018-2019. The CMF provides financial contributions to Canadian digital media and television producers primarily through two program streams: Convergent and Experimental. The Convergent Stream program commitments increased by $0.2M, from $297.3M in 2017-2018 to $297.5M in 2018-2019. The Experimental Stream program commitments of $42.5M were $2.0M more than in 2017-2018. The program commitments for the international incentives were $1.7M, $4.4M supported export-related programs, and prior years’ negative adjustments of about $4.7M were also reflected in the fiscal year.
Program Administration Expenses
The total program administration expenses increased $0.7M or 6.9% in the fiscal year, from $10.1M in 2017-2018 to $10.8M in 2018-2019. The CMF outsourced the program administration activities to Telefilm Canada through a services agreement, their service fee increased by $0.7M in the fiscal year from $9.8M in 2017-2018 to $10.5M in 2018-2019. Other program administration expenses were $0.3M consistent with 2017-2018.
Industry partnerships of $1.2M in 2018-2019 represented an increase of 5.1% from 2017-2018. The CMF continued to partner with television and digital media events in Canada and internationally.
General and Administrative Expenses
General and administrative expenses increased by 6.0% or $0.4M in the fiscal year, from $6.7M in 2017-2018 to $7.1M in 2018-2019. There were increases in professional and consulting services of $0.1M, overhead of $0.1M, consultation expenses of $0.1M, and Encore+ of $0.3M offset by savings of $0.1M in remuneration and $0.1M in risk management.
Expenses in this category positively impact Canada’s audiovisual production ecosystem and address identified gaps within the sector, through activities such as mentorship, training, and other professional development opportunities; export and market development, and industry promotion. Sector development expenses increased by $2.2M in the fiscal year from $0.7M in 2017-2018 to $2.9M in 2018-2019.
Cash Flow and Reserves
BDU contributions are received monthly; the CMF invoices the Department monthly in arrears based on payments to producers. Repayment of advances are received throughout the year and the majority of recoupment of production investments is received twice a year.
The CMF invests any funds not required for operations; investments are in federal treasury bills, provincial notes, GIC’s, and term deposits. The Corporation’s investments are drawn on as required to fund program contractual obligations as they come due.
The CMF maintains unrestricted and restricted reserves. The funds in the reserves are accumulated over time through the excess of revenue over expenses and are used to support future years’ programs.
At the end of the fiscal year, there was $51.5M in restricted reserves and $7.8M unrestricted. At the end of 2017-2018, there was $56.5M in restricted reserves and $5.7M unrestricted.
The restricted reserves at March 31, 2019 include amounts for the settlement of expenses in the event of dissolution of the CMF of $5.0M, $15.3M to support the 2019-2020 program budget, $2.2M to support kids digital animated series program and a $29.0M program funding contingency reserve.
The CMF estimates revenue based on contributions from the Department; Canada’s cable, satellite and IPTV distributors; and recoupment and repayment revenues from funded productions. In 2019-2020, it is assumed that there will be a decline in contributions from BDUs. The Government of Canada will fund CMF at its ongoing contribution of $134.1M, and stabilization funding of $23.4M (the difference between BDU contributions in 2016-2017 and 2018-2019).
Based on the revenue estimates, the CMF determines a program budget. The 2019-2020 CMF program budget is $352.3, $283.9M for the Convergent Stream, $48.4M for the Experimental Stream, $8.7M for aboriginal, $0.5M for accelerated partnership program, $3.0M for international incentives, $3.2M for diverse languages, and $4.6M for an export incentive.