Canada's television industry is bracing for a week of upheaval that only a decade ago would have been unthinkable in the days when local TV was a profit generating machine.
Over the next few days, money-losing TV stations in two Canadian cities will be shut down, their signals suddenly going black in Victoria and Red Deer, Alta. At the same time, a number of others slated to close will attempt to begin the climb back to profitability, having been rescued by new owners willing to gamble that small-market TV can be profitable.
The reckoning for the broadcast industry comes after Canada's big broadcasters, CTV Inc. and CanWest Global Communications Corp., warned early this year they were preparing to shut down several struggling TV stations to slash costs. The big networks argue the economics for small-market TV no longer work in some cities because advertising and viewership have dropped significantly in the face of competition from cable and the Internet, and the revenue is no longer enough to support costs.
As many as eight stations - including five that made up CanWest's E! network and three of CTV's A channel outlets - faced closing. In the end, all but the two CanWest stations in Victoria and Red Deer have been given reprieves or found new owners.
However, the past eight months have seen a series of fire-sale deals that underscores the tenuous situation faced by small-market television.
CTV sold its Brandon, Man., station to Bluepoint Investment Corp., co-founded by Bay Street veteran Colin Berrie, for $1.
In a similar move, cable broadcaster Channel Zero Inc., owner of the specialty channel Movieola, bought CanWest's CHCH station in Hamilton and CJNT in Montreal, for a mere $12. The deal is expected to close today.
"We're prepared to suffer some early going losses," Channel Zero chief executive officer Cal Millar said of the challenge his company faces.
Though CanWest's station in Red Deer will not be saved, negotiations continued through the weekend in Victoria, where employees mounted a last-ditch effort this month to buy the station.
Richard Konwick, assignment editor at the Victoria station, CHEK, said the employees were willing to pay the $2 asking price and had secured $2.5-million in financial backing to cover operational losses. The bid was turned down Friday after CanWest said the financial cushion wasn't enough.
Though buying a TV station for a few dollars might seem like a low-risk proposition, the new owners must be able to install the necessary infrastructure, such as advertising sales departments, functions which would previously have been supplied by the parent company. They must also be able to absorb early losses; commercial revenue has cratered because advertisers were reluctant to buy time on a station slated to close.
A source at CanWest figures the CHEK employees need at least a $5-million cushion to cover their operating losses in the three months it would take for federal regulators to scrutinize the deal.
CanWest did not want to be on the hook during that time for any operating losses that would accumulate. The company is in the middle of restructuring its debt with bondholders, a process that could include filing for protection under the Companies' Creditors Arrangement Act.
"If their proposal was going to be taken seriously, they had to meet certain conditions because we were not prepared to assume the risk of maintaining those operations on their behalf from September going forward," CanWest spokesman John Douglas said of the employee offer.
However, Mr. Konwick doubts the TV station would bleed that much cash in such a short period of time. "They're worried about operating losses, but this is not the world's biggest TV station. We have a pretty good idea of what the operating losses and the costs are," he said. "I believe $2.5-million is more than adequate. I think it would last for a year at least."
The station will be off the air tomorrow if a deal can't be reached.
"If we don't get this done, I think for all intents and purposes it's over for this station," Mr. Konwick said.
At Channel Zero, the company has been racing to revamp CHCH in Hamilton under a new format, which will run mostly news throughout the day and movies during prime time. Mr. Millar said the company inherited a similar problem, with a lot of unsold advertising over the past few months, but the situation is looking better in recent weeks.
"When CanWest told everybody it was going to be closed or sold, a lot of advertisers didn't necessarily book for the first quarter, which is the strongest quarter of the broadcast year," Mr. Millar said. "However, a lot of those advertisers clearly parked the money to wait and see what would happen, and a lot of those advertisers are coming back to us now."
The new owners plan to run a marathon of Sylvester Stallone's Rocky movies during its first week, a tribute to their efforts to save the Hamilton station, which employs about 150 people. "I think we're the underdog coming out punching," Mr. Millar said.