Montreal: A major reorganization by Canada’s leading specialty and pay-tv broadcasting company has opened the way to strong financial results and a reinvestment initiative aimed at consolidating its core programming businesses. Top management at Astral Communications is projecting a tough but eventually bright future for seven new specialty channels it intends to launch on multiple distribution systems within the next 12 to 15 months.

Hurdles remain, however, and the Montreal-based company has to quickly resolve an effective boycott by the u.s. studios which are refusing to supply movies to Canadian pay-per-view services on dth.

On the distribution issue, Astral chairman Andre Bureau says the perspective for the English-track broadcast market points to a 20% or 30% rollout (of the total number of national cabled households) for digital boxes in and around the next launch period, early 1999, or shortly thereafter. ‘So we’ll have to see if we can live with this,’ he says.

If the expansion of the dth market over two to three years is added in, Bureau says, ‘Of course it will be very tight, very tough for the first few years, but gradually between year one of the launch and year five we believe that we will have enough subscribers to justify the licence.’

Astral president and ceo Ian Greenberg says Canadian dth is off to a reasonably good start, noting the Star Choice service has already signed 23,000 subscribers.

On the French side, where Astral has five of seven new applications, the distribution perspective is substantially different

Bureau says the French services can be rolled out on analog, at least according to the latest information provided to the crtc by the largest Quebec cable operators, Videotron and Cogeco.

‘On the French-language side we will see some additional capacity because cable still has capacity available and they are completing upgrades which will create enough capacity for more channels,’ he says.

crtc hearings on the new round of specialties are slated for June or September ’98, with a decision expected by the end of the year. ‘The [new] services will not be ready to go on air before September of ’98, possibly January ’99,’ says Bureau.

Negotiating with the studios

Astral expects a breakthrough on its dth movie negotiations with the u.s. studios ‘within a few months.’

The otherwise unannounced boycott is a business response by the disgruntled majors to a Federal Court of Appeal decision in late ’96 obliging foreign distributors to subdistribute nonproprietary ppv movies on ExpressVu and Star Choice, the Canadian dth programming services.

At the moment, Viewer’s Choice and the French-language service Canal Indigo are not programming new studio films on the dth platform, although both services are delivering event dth programming.

‘Now what we are trying to do is to complete the negotiations with the studios to be able to offer a full pay-per-view package on both Star Choice and ExpressVu,’ says Bureau. ‘We hope we will be able to do this in the coming months.’

While the substantive dividing issue is money, Bureau says ‘the policy issues, the regulatory issues will have to be dealt with by the commission.’

The standoff with the majors does not affect ppv movie schedules offered on cable, nor the pay-tv program schedule.

Currently, both dth programming services are offering multiplex pay movie services via TMN-The Movie Network, Moviepix and Super Ecran.

Going forward

Of the seven new specialty applications from Astral Broadcasting Group, two are in English, a much sought-after travel niche channel and a service aimed at teens.

Radiomutuel will take a minority position in the English travel service while Astral will hold a similar position in a proposed French travel service. The travel services plan to integrate traditional video programming with enhanced information/data from the World Wide Web. The proposed teen service is a three-way partnership with Cinar Films and Nelvana, two of the shareholders in all-animation channel teletoon.

French-language Reseaux Premier Choix applications cover history, drama, food, the law and family entertainment.

The history and drama applications are 50/50 partnerships with Alliance Communications, Toronto. The three others are wholly owned by rpc and include Canal 7-77, which proposes ‘entertainment for the entire family with a large touch of Disney magic.’

Astral has a 25% stake in Radiomutuel, which has three operating specialty services including Canal Vie, and shared equity interests with Toronto’s CHUM Television in MusiquePlus and MusiMax. On its own and with partners, Radiomutuel has applied for five additional specialty licences.

As part of its core consolidation activity, Astral recently announced plans to pay out some $60 million from credit lines for the outstanding minority shares in rpc. rpc reported top-line revenues in the order of $52 million this year.

On its own and with partners, Astral now owns 14 pay, specialty and ppv licences including new specialty channels teletoon and The Comedy Network. Astral’s two ppv services were also granted licences for national vod services in ’97.

The most significant and profitable readjustment for the company this fall is the new cable and dth carriage arrangement for Family Channel, which moves from a premium pay position to a new extended basic tier position. The move is projected to expand the service’s reach tenfold to about four million households.

All the ’99 launch specialty channel applications from Astral are proposing to sell commercial airtime, while French-track specialty and pay-tv operator rpc has filed an application asking the crtc to authorize the sale of commercial airtime on Canal d, a documentary and entertainment service. Astral declined to discuss the Canal d issue ‘until the document becomes public.’

vp finance Claude Gagnon says Astral is projecting ‘a minimum increase of 10%’ in ’98 earnings, in line with the increase in ’96/97.

Revenues for the year ending Aug. 31, 1997 total $296 million, down from $325 million last year, including $110.3 million from broadcasting and $185.6 million from technical and videocassette duplication services.

Pretax earnings for the broadcast group are $16 million, up from $13.3 million last year, and $12.4 million for technical services, down $2 million from ’96. Total net earnings are $10.5 million.

The 52-week range average for Astral stock on the tse is $16 to $12.85, but with the reorganization results in hand, some analysts are pointing to a $20 price range going forward.

MAI concerns

On the looming Multilateral Agreement on Investment negotiations underway in Paris, Bureau says culture is only one of the areas being covered.

‘We want to make sure that the principles that have been agreed to in nafta, alena or at the gatt level will be transposed to this mai agreement. But we don’t know,’ he says.

And while there is some reassurance a strong defensive position taken by Heritage Minister Sheila Copps represents the position held by the federal Cabinet, Bureau suggests additional assurances are needed.

‘If this is the final position of the government then it is going in the right direction,’ he says.

Astral’s agm will be held in Montreal on Dec. 11.