Film distribution is the marketing branch of the industry and a necessary, though often resented, link between production and exhibition. It is also the most predictably profitable of the 3 branches, at least for the large multinational conglomerates that dominate the industry internationally. Since the early 1920s, the Canadian distribution sector has been overwhelmed by these multinationals: though there are approximately 80 Canadian distribution companies, the largest 8 (all subsidiaries of Hollywood multinationals and members of the Motion Picture Export Association of America) receive about 80% of total rental revenues. Although Canada is the largest foreign market for US films, most of this revenue is exported, and this has had a profound impact not only on the viability of the Canadian distribution sector (few independent Canadian companies are profitable) but also on Canadian production. In most countries, distribution companies are prime sources for financing new production in that country. The reason for this lies in the close links established between distribution and production in the early years of the industry.

Although distribution was the last of the 3 branches of the industry to develop, it increasingly came to dominate the industry's economic structure. By the early 1920s the largest Wall Street-financed US distributors had acquired both production companies and theatre chains, thus creating vertically integrated combines that enabled 8 "major" companies to dominate first the US and then the international film industry. Although the original vertical combines of the majors were broken up after WWII under US antitrust legislation, the basic operating principle continued; most Hollywood production is controlled, and usually financed, by the majors. The exceptions, such as Alliance, Norstar, Cinepix and Astral Communications, have tended to follow vertically integrated models, often by financing television production and/or marketing their films to specialty TV channels. Their market share of revenues from theatrical releases has, however, remained minimal.

These 2 consecutive patterns (first vertical integration, then distributor-controlled production) have seriously affected the viability of the Canadian film industry since the early 1920s. At that time, Hollywood majors acquired direct or indirect control, and through tied contracts, first with Famous Players theatres and also, since the 1940s, with Odeon (now Cineplex Odeon Corp) theatres, ensured a constant flow of Hollywood films to Canadian theatres.

Independent Canadian distributors, lacking significant access to the 2 chains as well as to major Hollywood films, have traditionally emphasized the marketing of independently produced films, low-budget exploitation films and art films; they have also been the principal distributors of Canadian films. Since the late 1970s, the majors have extended activities to include independently produced films (though rarely Canadian ones) and consequently have seriously affected the economic viability of Canadian distributors and have continued to deny Canadian films more than minimal market access. As a result, few Canadian distribution companies survive more than a few years. The exceptions, such as Astral Bellevue-Pathé and Cineplex Odeon, have followed vertically integrated models, and a recent loosening of antitrust regulations in the US may lead the industry as a whole in this direction (a notion not discouraged by heavy US purchases of Cineplex Odeon shares).

In 1998, Cineplex Odeon was broken up, with the sale of its theatres to Sony and its distribution arm (renamed Odeon Films) to Alliance Communications. In the fall of 1998, a major merger brought together Alliance Communications (primarily distribution, specialty television channel ownership and some theatrical production) and Atlantis Communications (primarily television production and specialty channel ownership). The new Alliance Atlantis Communications is Canada's largest independent production company and the 12th largest in North America. Since the new company has also built or acquired some movie theatres, it is continuing the trend towards vertical integration.

In 1987, the federal government attempted to address the problems faced by Canadian distribution companies. It was proposed that the Hollywood majors be allowed to distribute in Canada any films for which they owned world rights or had participated in the production of; Canadian companies would be able to bid for distribution rights to independently produced films. The proposals encountered stiff opposition from the Motion Picture Export Association of America and generated intense lobbying in both Ottawa and Washington. When the Film Products Importation Act was tabled in June 1988, the original proposals had been considerably weakened and, during the free trade negotiations that followed, the federal government apparently agreed to abandon even those. It now appears that, under NAFTA, any similar proposal would be disallowed and the Canadian distribution sector will continue to be denied access to sufficient capital to finance new feature film production. It remains to be seen whether the new Alliance Atlantis Communications company has enough financial strength to compete directly with the Hollywood majors and generate revenues to fund a stable production system.