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Filmmaker Guillermo del Toro is photographed for The Hollywood Reporter on October 3, 2013 in Toronto, Ontario.CHRISTOPHER WAHL

When Guillermo del Toro was a child in Mexico, he made a pact with the monsters that crowded into his room at night: If they let him go to the washroom, he'd be their friend for life. The deal worked. The monsters disappeared, and the now-acclaimed filmmaker has devoted his career to bringing those beasts back to life for everyone else.

"To this day, monsters are the thing I love most," del Toro says on a bright, hot morning in June. Del Toro, who lately calls Toronto home, has arrived at our meeting dressed all in black—black hoodie with blood-red lining, black T-shirt, black pants—and leaning on a black cane. He's a large man, but despite being physically hobbled, he moves quickly, throwing himself toward the sofa in a way that is somehow both brisk and lumbering. Our conversation is stolen from a packed schedule, as happens in the film business. But beyond the standard rush and hustle of the industry, something in del Toro's pale blue eyes and alert demeanour attests to the well of creative energy that allows him to maintain multiple movies or TV shows in active production, as well as dozens of projects in development. His prodigious output also extends well beyond filmed entertainment, including novels, comic books, video games, lecture series and, of course, designing monsters. "It's the part of my job I like best," he says.

It's also part of his job at which he excels, but certainly not the only part. The broad appeal of del Toro's filmmaking has elevated him into the highest echelon of box office success, along with the likes of James Cameron and Michael Bay. The total box office gross of all the movies he's directed, produced or written to date is well over $3-billion.

And here's the twist in the plot of this success story. Del Toro is a key part—a driver—of the Canadian film industry, single-handedly keeping thousands of people in work. "They shouldn't give him the keys to the city–they should give him a piece of the city," says producer J. Miles Dale.

If films like Pacific Rim are a long way from the sort of art-house flick that epitomizes most people's idea of Canadian film, the two styles have nevertheless become entwined—by design. Leaving behind the era of tax write-offs that produced little in lasting benefits, the federal government, as well as most of the provinces, has aggressively sought to entice Hollywood "tent-pole" films—so named for their ability to support the whole system and create a shelter for other less-profitable movies—through generous incentives and other measures. But while del Toro's passion for making films in Ontario signifies the success of all that effort, many other countries have caught the buzz and started offering highly competitive subsidies to Hollywood. Now Canadian film workers are looking pensively forward to the third act, and wondering whether Canada can maintain its advantage.


Hollywood's tent-pole films live and die by their success in reaching an international mass audience of adolescents and those content to regress along with them for two hours. This has put del Toro, a wunderkind who started making horror home movies as a youngster, in the sweet spot. Having scaled the ladder of cult classics, critical picks, audience favourites and franchise home runs, the relentlessly inventive filmmaker now commands the kind of budget it takes to mount an international blockbuster.

For a film industry like Canada's, toiling forever in the shadow of the behemoth to the south, the blockbuster is a beast that's easy to love. In what is now a highly globalized industry, the blockbuster occupies a huge variety of high-paying talent wherever it roams, and raises the profile of production centres like Toronto—the third-largest in North America, after L.A. and New York—as readily as it razes buildings on screen. In 2011, the film and television sector generated $9.7-billion in direct GDP in Canada; workers earned $6.4-billion in income, and produced nearly $5.5-billion in tax revenue. Del Toro's latest contribution to the genre, Pacific Rim, cost $190-million to make, most of which was spent in Toronto.

It's no surprise that these movies are so sought after. In 2012-'13, Canadian film and television production generated $2.3-billion in export value, of which three-quarters ($1.7-billion) was for Hollywood and other foreign production. Del Toro's productions alone have spent hundreds of millions in Ontario in the last three years, much of that on labour. This past year, the industry supported 127,700 direct and spinoff full-time equivalent jobs.

"Film and TV at this time are significant engines of growth for many other creative sectors," says Jonathan Olsberg of the U.K. firm Olsberg SPI, which offers advice to media organizations and companies, including the Canadian Media Production Association, the national trade association for independent producers. Olsberg points out that investment in film production has more of a multiplier effect than other cultural industries, creating work for writers, composers, musicians, programmers, advertisers and designers of every stripe.

But despite the logistical complexity of the major Hollywood productions, involving hundreds of people in many different sectors, the jobs have a tendency to float away. And as film workers in California have discovered, there's very little on the expense sheet to tie them down.

British Columbia was one of the first jurisdictions to benefit from the portability of film and television production, when producer Stephen J. Cannell (The A-Team, 21 Jump Street) moved his studio to Vancouver in the mid-'80s to take advantage of Canadian tax shelters. More American producers began to bring their productions north, and in 1996 the Canadian government introduced two federal tax credits–one to support domestic filmmakers, and the other to entice foreign producers. The new system largely resolved the inefficiencies of the previous tax-shelter system, in which often only 40 per cent of the financing actually made its way into the film. "There's a trend globally toward a more direct, transparent production-cost rebate, which Canada practically invented," says Olsberg.

The tax credits in Canada offer a rebate on a percentage of labour (some of the provincial credits also refund other qualified production costs), which the producer can access once the project is completed. Since there's no cap on the credit and it's available for all productions over $1-million shot in Canada, banks will reliably lend on it up front, which means that producers can treat it like capital. The incentives are greater for domestic productions, but ultimately the majority of production dollars that claim the credits are from abroad.

But now more than 30 other countries are vying for that big Hollywood spend. Nineteen of those started or significantly boosted their incentive programs in the last five years, five of them in 2013 alone. American states other than the traditional production hubs of California and New York have also been very active in pursuing Hollywood. Louisiana was the first state to institute a tax incentive in 2002, and by 2010 43 states were offering subsidies at an estimated collective value of $1.5-billion (U.S.). But as the effects of the 2008 recession unfolded, six states subsequently jettisoned their programs.

Some American states have offered types of incentives that Canada has eschewed, such as rebates on income paid to non-residents. The Ontario government won't reimburse a percentage of Tom Cruise's salary if he acts in a film shot in the province, for example, but Georgia will. Many of the American tax credits are also transferable, an option that has led to the creation of a thriving secondary market for tax credits, whereby any company (for instance, Macy's and Bank of America) can purchase unused credits. A film qualifies for the credit, and then the producer sells it at a discount to a taxpayer or a corporation with a liability in that particular state. We have no such cottage industry in Canada, but it can be an appealing way for producers to get their money up front, not to mention a way for brokers to skim off the top.

All that competition is putting more and more pressure on Canadian provinces to increase their incentives, creating what some have called a "race to the bottom." A few jurisdictions are starting to falter.

British Columbia was one of the first provinces to put the brakes on its subsidies. The province, which primarily serves the American television industry and has built up more than a billion dollars worth of infrastructure over the course of several decades, has refused to match increases in Ontario and Quebec in recent years, and has seen a stark drop in foreign productions—often referred to in Canada as "service productions"—as a result, leading to the loss of 3,500 direct and spinoff jobs. Production in B.C. has since returned to rates comparable to the previous high point in 2006, but many in the province complain that so long as Ontario offers a better incentive, Los Angeles companies accustomed to the ease of working in Vancouver will nonetheless head east. "Tax credits are part of the puzzle, but they're not the entire puzzle," says Richard Brownsey, CEO of Creative B.C., the recently reconceived B.C. film commission. "You've got to be able to compete on the service you provide, and our success depends on that whole package."

Anxious film and television workers in B.C. have somewhat less to worry about, however, now that Quebec has shaved 20 per cent off of its various tax credits for business this past June, which for foreign film and television producers means a drop from 25 per cent (Ontario's current rate) of all qualified expenses to 20 per cent. This is the first time in 16 years that Quebec has lagged behind Ontario in its subsidy offering to foreign productions. Charles David, an accountant with more than 30 years' experience consulting on film production and distribution in Quebec, says, "The moment we offer a program that's not as competitive as Toronto or Vancouver, it sends people away."

David points out that Quebec has some disadvantages compared to Vancouver and Toronto: fewer flights to L.A., a dearth of English-speaking extras. "We already have an industry that's more fragile," he says. "Handicapping it with a lower tax [credit]–it's a kiss of death." When we spoke just a few weeks after the announcement, David already knew of one big production that was threatening to move to Ontario as a result, and had heard from several post-production studios that indicated they'd have to learn to cut corners if they were to continue in Quebec.

If Quebec film and television workers are pessimistic about their economic outlook, it's still no match for the despair in Saskatchewan when Premier Brad Wall cancelled his province's tax credit outright in 2012. "There was no consultation or due diligence done. It was just a clean swipe with a pen," says filmmaker Holly Baird, former president of the Saskatchewan Media Production Industry Association.

The elimination of the credit—valued at 55 per cent of labour expenditures in the province—immediately levelled the local production industry. The SMPIA claimed hundreds of members before the cut but has since dwindled to a few dozen. The Canada Saskatchewan Production Studios, once the only purpose-built sound stage between Toronto and Vancouver, is now primarily occupied by the offices of Creative Saskatchewan, which administers a modest grant program for local productions.

As all three of B.C., Quebec and Saskatchewan have made abundantly clear, the provincial credits are intrinsically vulnerable to post-recession austerity measures and political jockeying. "The criticism of the credit was that it was taxpayers' money going to fund projects coming in from out of town. Taking the money and running, basically," says Baird of the sudden termination of the credit in Saskatchewan.

Ontario has offered a stable tax incentive to Hollywood, but the province's value proposition extends beyond subsidies. "We don't have the richest tax credits; we simply have competitive tax credits," explains James Weyman, manager of industry initiatives at the Ontario Media Development Corp. "Ontario's value proposition is more than the tax credit; there's lots of jurisdictions with flashy tax credits, but they don't have infrastructures in place." It's these practical offerings—which, when absent, constitute hidden costs—that have appealed to del Toro and made him want to set up shop here.

"Del Toro is Toronto's unofficial ambassador," says Weyman. "I think that endorsement is a positive factor for those who don't know Ontario's value proposition in taking us more seriously."

No doubt the new subsidies played a significant role in precipitating del Toro's first visit to Canada in 1997, just one year after the tax credits were introduced, to make Mimic, a horror movie about shape-shifting insects that take human form. Such was the appeal for a studio like Miramax to send its up-and-coming Mexican filmmaker to spend $30-million (U.S.) making a horror movie in chilly Toronto: an 11 per cent rebate on money paid to Canadian workers (since then it's been raised to 16 per cent), a dollar trading at $0.73 (U.S.), and a cheaper version of New York in which to shoot. It was del Toro's first time working for one of the big five studios and he had a miserable time of it, but fell in love with Toronto. "It's one of the best film towns in the world," he says, naming "professional and artistic efficiency and commitment" among its winning attributes.

Now that he's back in Toronto all these years later, it seems like he's here to stay. "It's an eminently livable city," he says. His family has moved up from L.A., and though his hectic schedule keeps him pinballing from sound stage to shooting location to production studio, he takes his solitary work to a little office in the Leslieville neighbourhood. He even has a version of his famous Bleak House, the private museum of curiosities and horror-osities that he uses for inspiration. "Mini-Bleak," he calls it.


Torontonians are happy to have him, but del Toro has received his best welcome at Pinewood Studios, the state-of-the-art production facility in the city's east-end factory district. Pinewood opened in 2009 for the express purpose of drawing tent-pole productions to Toronto. A sprawling facility with a dozen high-tech sound stages, it has already proven its ability to impact the local production economy. The Total Recall remake was shot at Pinewood the same year del Toro made Pacific Rim, causing a dramatic spike in the amount of foreign feature-film production money left in Ontario that year, up to $231-million from $159-million in 2010.

Pinewood claims to offer the largest purpose-built sound stage in North America. (There are converted warehouses and hangars that are larger, even elsewhere in Toronto, but they don't boast Pinewood's load-bearing or soundproofing capabilities.) It is 46,000 square feet, or one acre of land, with no pillars, and 60 feet to the ceiling. Del Toro shot some of Pacific Rim here. The same year, a giant elevator plunged through the centre of the Earth and exploded up from the floor to create the climax for the Total Recall remake. On the day I visited, a network of thick scaffolding spanned the room in various configurations, with the verticals in bright green and horizontals in a red that will be familiar to fans of classic video games—this is the world of Donkey Kong, under construction for the set of Pixels, a comedy sci-fi starring Adam Sandler. It is Sony's second production in Toronto since Total Recall.

Pinewood as a company chases tax credits internationally, and it has grown as quickly as the competition for tent-pole productions. Founded in 1936, the U.K. company added five locations in the last five years: Toronto and Berlin in 2009, and since then Malaysia, the Dominican Republic and the state of Georgia, all subsidy hot spots. "We're in the infrastructure business," says Eoin Egan, vice-president of Pinewood International. "You can't wave a wand and go, 'I want to be Hollywood.' It doesn't work like that. You need a full complement of crew, you need a good incentive, and you need infrastructure. If you're missing any part of the puzzle, you're not going to succeed."

But even with all those elements in place, no regional industry can live on tent-poles alone. Like the industry as a whole, Pinewood needs to support a range of activities in order to keep the lights on. "The nature of the business is very cyclical," says Blake Steels, president of Pinewood Toronto Studios. "The bigger the productions you're trying to attract, the bigger the peaks and valleys. The smaller productions and TV series make the curve less dangerous for us." For this reason, the studio invites independent producers to use the stages between Hollywood productions. David Cronenberg's Cosmopolis shot in Pinewood in 2011, and Atom Egoyan's The Captive shot there last year. As well as film, the studio hosts Canadian TV series like The Listener, and Space's phenomenally successful Orphan Black will move into the Pinewood complex for its next season.

Pinewood's division of customers reflects the deeper trend of mega-vs.-modest polarization that has overtaken the film industry. "There used to be a world of $40– to $60-million movies, but that pretty much doesn't exist any more," says producer Martin Katz. His latest project, Cronenberg's Maps to the Stars, had a budget of $15-million, which makes it a fair-sized independent movie (the average budget of a Canadian feature is $4-million).

"It is those $100-million-plus movies that are competing for the $1-billion world box office gross that have changed the economics of the film business," Katz explains. Avatar, released in 2009, is the usual example given for this shift in scale: It cost $250-million (U.S.) to make and grossed $2.7-billion (U.S.) at the worldwide box office. While theatre attendance has declined in North America, emerging markets in Russia and China especially now outweigh the domestic box office, and big studio productions earn the better part of their revenue abroad. This fact better explains the reductionism in Hollywood storytelling than any morose cultural narratives: Blockbusters need to appeal to wildly disparate audiences across the entire planet in order to get made at all. If big-budget movies seem to be dumbing down, it's probably not because we're in societal decline; it's just that overcoming so many cultural differences at once means shedding some of the nuances and embracing a more elemental style of storytelling.

When it comes to this aspect of internationalization, del Toro's natural advantages come to the fore, as was demonstrated by Pacific Rim's success in Asia. "It connected very strongly both in Japan and China," del Toro says. "In both countries, the contact with the audience was coming from a very primal place for me." The movie is based on tropes from the anime and manga that del Toro consumed as a kid—giant robots and monsters, here pitched in a battle for the fate of the Earth.

Del Toro doesn't worry about accusations of pandering. He quotes Picasso, who said, "'It took me four years to paint like Raphael, but a lifetime to paint like a child.' When you're a child, you don't censor yourself. You just express who you are and what you are freely. That's creatively very important," he says. In a business that relies on adolescents, it's also fiscally important, which in del Toro's case is more a product of good fortune than commercial cunning. "I'm not that great a businessman; I just stay true to what I like," he says, pointing out that Pacific Rim is one of only two movies he's done where he hasn't had to pour part of his own salary back into the movie to get it completed.

Del Toro's commitment to authenticity has also allowed him to work on both sides of the industry and do projects with all kinds of budgets (though he admits, "I've never found myself in a movie where my ambition is smaller than the budget"). While he was making Pacific Rim for $190-million (U.S.), he was also working simultaneously down the hall on Mama, a Canada-Spain co-production with a budget of $15-million (U.S.). Between the two movies, del Toro used every single stage at Toronto's Pinewood Studios, occupying the entire facility for 10 months during 2011 and 2012. Every day during production, he'd work on Mama from 7 a.m. to 9:30 a.m., then put in a full day on Pacific Rim, and return to Mama in the evening.

It paid off. Both of these movies achieved the kind of success that filmmakers in their respective budget streams only dream of. In the case of del Toro's banner year in 2013, Pacific Rim earned $411-million at the international box office, while Mama did well by indie standards at $146-million. That Mama is a Canadian movie attests to the internationalization of the industry. Written and directed by an Argentinian, executive-produced by a Mexican, it nonetheless fulfilled the relevant requirements and qualified for the domestic tax credit.

Del Toro's co-producer on Mama was J. Miles Dale, a go-to guy for big studio pictures looking to film in Canada, such as The Thing and Carrie, both shot at Pinewood. Dale helped negotiate the deal for Mama with UPI, Universal's international division. "They thought that kind of elevated genre movie with a Guillermo presence for marketing made sense at a certain price," he explains. But tapping both Spanish and Canadian incentives is what launched the movie out of the gate. "Tax credits are good, but co-productions can be better," says Dale.

Canada has co-production treaties with more than 50 countries, allowing Canadian filmmakers to secure financing from a wider pool of investors and punch above their weight on the international market. A co-production with Germany, for example, gives the Canadian filmmaker a chance to cast stars from any EU country, as well as get financing from that country and a better distribution deal. "They're what's keeping me here," says producer Don Carmody of the co-production deals. Carmody, who bills himself as "Hollywood's man in Canada," uses the treaties to make the sort of franchise films that would normally require backing from a big studio. His Resident Evil, Silent Hill and Mortal Instruments movies are all made with the domestic tax credit.

Reliance on international financing has made Canadian filmmaking harder to identify, though a name like Cronenberg or Egoyan at the top can make it easier. The former's Maps to the Stars, making its North American premiere this month at the Toronto International Film Festival, is a Canadian-German co-production. (Somewhat ironically, it's set in Hollywood.) Apart from incentives in those two countries and private financing, Katz made up a good portion of the film's budget through foreign pre-sales.

"The film is intellectual property, so what I own as the producer is a bundle of exploitation rights which I can divide up by territory," he says. "So I'm looking to raise as much money as I need to make the movie—hire the crews, rent the cameras, do the editing—and it's my job to do those things by pre-selling as few of those rights in the worldwide territories as I need to in order to get the movie made, with the unsold rights left to be exploited as profit after the movie is made."

The challenge for Canadian producers is holding on to those rights; often, they'll need to sell off most of the film's asset value in order to get the picture made. "A consistent syndrome in many territories is that independent producers feel that there's a very low probability that they'll ever see anything again, no matter how successful the film is," says Olsberg. As a result, it can be very difficult for Canadian producers to build up equity to invest in the next project and so retain some of the valuable distribution rights.

All the complicated international financing required to put an independent Canadian movie together doesn't leave much for marketing. As the old slow rollout into different markets has condensed into one blowout global opening weekend, the big studios need to spend enormous sums to market a blockbuster everywhere at once. The international marketing spend is often equal to the production budget itself; thus, a typical tent-pole film must earn twice what it cost just to break even. By contrast, in 2011 the average marketing budget for films supported by Telefilm, which administers the Canada Feature Film Fund as well as more than $360-million in other media funding, was only $610,026.

You can't pack theatres around the world on half a million dollars, so producers like Katz look to another form of promotion: film festivals. Toronto International Film Festival CEO Piers Handling has watched the evolution of Canadian film since he started programming for the festival in 1982, especially the evaporation of middle-budget filmmaking. "Film festivals have become an alternative exhibition and distribution model for much of this independent production," he says. "The rise and abundance of festivals around the world is essentially its own ecosystem." Katz is banking on a good reception for Maps to the Stars, which already won two awards at Cannes this spring. "It really has become a critically important festival for fall theatrical releases," he says.


Even though the polarization of the industry is pushing studio and independent films into separate spheres of financing and distribution, one aspect of production reaches across both sides of the rift: visual effects. Digital augmentation is now indispensable to virtually every production, even TV shows and independent films lacking in epic heroes or large-scale societal devastation. VFX production in Canada grew by 67 per cent between 2009 and 2011, and has continued to rise reliably since then.

Perhaps the most portable of all the production sectors, VFX has experienced the greatest demand, the fastest growth and the biggest upsets. Many of the most venerable American studios have gone bankrupt in the last 10 years and been purchased by international companies, largely to take advantage of tax credits or cheaper labour in their home jurisdictions. Most famously, the long-running studio Rhythm & Hues went under just weeks before receiving an Oscar for its magical work on Life of Pi.

The Canadian industry has done well by the digital dissolution south of the border. In May, Sony announced its visual-effects studio Imageworks would move headquarters to Vancouver, employing up to 700. For his part, del Toro relies on Mr. X, a world-renowned studio with roughly 180 employees spread through a series of offices on a quiet Toronto street. Mr. X, the largest VFX studio in Ontario, made the digital sequences for del Toro's Mama as well as Carmody's Resident Evil movies, along with other Toronto-made blockbusters like RoboCop. The firm also provided the visual effects for del Toro's vampire TV series The Strain, and it's currently working on his upcoming film Crimson Peak, also shot in Ontario.

Walking in to meet Mr. X president Dennis Berardi, I pass rows of mostly young men, all gazing intently at various constellations of monitors. No one is talking on the phone or milling about chatting. The lighting is warm and dim, and there's a library-quality hush.

The atmosphere of calm efficiency is no accident. "We started to hit our stride about five years ago when we pivoted the company from a generalist workflow, where everyone did a bit of everything, to a specialist work line," says Berardi. The move allowed the company to take on larger products and offer lower prices. "I needed to do that because now we're getting offshore competition from everywhere: India, China, South Korea and Eastern Europe are emerging as potential powerhouses in animation and visual effects. We needed to be more productive or we wouldn't be able to compete."

Visual effects studios often suffer from directors' confused and overblown expectations. Because the work is intensely time-consuming, vague suggestions or impulsive afterthoughts can be devastating to the budget. Beyond breaking the workflow into component processes, Berardi has built the company's reputation for reliability by declining any work that sounds unrealistic, and by joining the production as early as possible on the planning side. He's found a good partner in del Toro, who has very detailed ideas of what he wants. "He always challenges us," Berardi says enthusiastically. "Every single time, he wants to see the visual reference we are using for inspiration." Del Toro will suggest an obscure painting for the type of sky he wants, and then expect to see it the next time he goes into the office.

Strolling through the studio, Berardi and I come across a designer digitizing ghosts for Crimson Peak. On his desk sits a monstrous blood-red latex head, created by del Toro as a character prototype. The studio scanned it for the designers to use in 3-D modelling. Across the hall, another designer is using that digital model to painstakingly animate the character, right down to the curve of its eyebrow. We watch the cumulative effect of all these tiny adjustments and meticulous rendering in one of the screening rooms. In a scene from The Strain, we see a man in a black hood jerk his head toward another character. Then the scene plays again with the visual effects added in, and suddenly a large stinger bursts from his mouth and plunges into the neck of his victim. It's gruesome, and in a world glutted with vampire stories, unlike anything I've seen before.

Del Toro's uniqueness isn't fabricated; it's perfectly authentic, which is precisely what gives his movies enough heft to carry a Hollywood tent-pole film and all the independent Canadian films that rely on the kind of infrastructure those big productions generate. He's not jumping ship any time soon. "Basically, I'll bring as many movies and as many projects as I can to Toronto, because I really have a great time working here," he says.

He'll begin pre-production on a second Pacific Rim movie this fall. Del Toro will also continue his tradition of working both ends of the spectrum at once, making a tiny, black-and-white feature alongside his blockbuster. In this, the resourceful director presents an approach that accurately reflects the current logic of the industry: big and little together. So long as the province holds on to its tax credits, Ontario's production studios will continue to be populated by Hollywood mega-pictures, international co-productions and every single one of del Toro's monsters.

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