Earlier this month, as the crtc announced a major review of all its policies affecting Canadian television programming, the ink was drying on the $40-million acquisition deal signed a day earlier between Winnipeg-based CanWest Global Communications and Jay Firestone’s midsize Toronto production company Fireworks Entertainment.

The ramifications of a conventional broadcaster owning a separate production arm with the ability to self-deal will now be added to the myriad policy issues that the commission hopes to address at the two-week hearings in Ottawa-Hull on Sept. 23. Other issues being examined include the current regulatory framework, Cancon regulations, multi-station ownership groups, the role of the cbc, independent production, the role of pay and digital services, the impact of digital television, and much, much more.

Matthew Fraser, a professor of broadcasting policy at Ryerson Polytechnic University’s School of Radio and Television Arts, says the timing of the Fireworks/Global deal is akin to the recent rash of bank mergers that will also come under scrutiny in September with the Federal Report on Banking.

‘When there’s a big policy review coming down, establishing facts on the ground has a way of influencing the policy discussions,’ says Fraser, ‘especially when the policy makers and the regulators have a general tradition of not wanting to manage business relations.’

Firestone, who sold CanWest all of his 7,294,147 Fireworks subordinate voting shares for $3.50 per share and will defer $4,250,000 for five years and remain ceo, sees the deal as large philosophically, but not financially.

‘It’s the natural evolution of the industry,’ says Firestone, who started Fireworks three years ago in part with the purchase of Skyvision from Interbrew-owned Labatt. ‘The industry is merging, but I’m still a little guy. In the end, this works because having a company like CanWest back you makes the next few years a lot of fun.’

Leonard Asper, executive vp of CanWest Global, says the Fireworks deal was due to the right fit coming along at the right time. ‘Like any corporate transaction or development we do,’ Asper explains, ‘we keep plugging away until something that works for us happens. This is a new business for us, and we’re trying to diversify our revenue stream with the sale of content.’

With Firestone at the helm, CanWest expects Fireworks to be the vehicle through which all of its production activities are centered. ‘Expect aggressive growth at Fireworks through expansion of the production slate and through other opportunities within Canada and the u.s. to acquire other libraries,’ Asper predicts.

Citing certain production companies’ entrance into broadcasting through specialty channels, Asper says that over the last five years, CanWest decided to be in the content ownership business. ‘We’re just part of a trend,’ he comments. ‘We’re certainly not trailblazers here. From the point of view of broadcasters it’s a little bit more unique, but in the u.s. there’s plenty of precedent for this. I think every major u.s,. studio with the exception of Columbia is, some way or another, related to a broadcaster.’

With the acquisition facing no regulatory hurdles except for probable licence conditions to prevent self-dealing that may be imposed at Global’s broadcasting licence renewal (scheduled post-2000), the key questions seem to be whether or not Fireworks productions airing on Global will be eligible for Telefilm Canada funds.

Most say that CanWest’s 72% equity and 79% voting interest in Fireworks prevents those productions from accessing eip money, but that they would still have access to the lfp and the various tax credits. However, Fireworks productions that run on broadcasters other than Global appear to remain eligible as long as they meet Telefilm criteria.

‘This development should not be unsettling to most producers,’ says one well-placed source who spoke on the condition of anonymity. ‘The broadcasters’ desire to access Telefilm has been an active file for seven or eight years with everybody saying it was inevitable, but so far it hasn’t happened. The current Telefilm rules are perfectly adequate.’

Asper says next season Fireworks product will most likely not show up on the Global schedule and will probably debut the following year. But he wants to make clear to the production community that Global is not going to use Fireworks as an exclusive supplier. ‘We’re open for business,’ he says, ‘and we’re going to continue the relationships we have with our suppliers. We have many, many hours to fill.’

When asked if it makes sense economically to not use Fireworks as an exclusive supplier, Asper said, ‘If we were to buy product from Fireworks that is more expensive than product from Atlantis or Insight, or it didn’t rate as well, we have to mind both sides of the transaction. Global will be trying to get the best prices it can and so will Fireworks. If ctv is willing to pay more for a show then so be it. It’s a question of diversification.’

With Baton confirming that the spot for Fireworks’ Nikita remains firm on next year’s schedule, Asper says he still expects competing broadcasters to purchase product from Fireworks. ‘We would do the same if they were to acquire a production company that we do business with.’

Whether or not the deal will open the floodgates to a rash of acquisitions remains to be seen, but Canadian Association of Broadcasters president Michael McCabe says the crtc hearings should be used to address the ‘financing gap’ in Canadian television production. ‘We must use these hearings to address how we can best bridge the financing gap and figure out where the resources are going to come from to finance Canadian programming the viewers will want to watch,’ McCabe says.

Fraser translates the cab’s term-financing gap as the desire for broadcasters to have equity participation in programs. ‘That will be the cab’s big line in September,’ he says.

The professor also suggests that while most seem secure in validating the deal by pointing directly south to the wave of consolidation in the u.s. entertainment industry, it is important to note that in the u.s. it’s the powerful producers like Disney and Warner Bros. who are buying broadcasters.

‘In Canada, the broadcasters and cable companies have all the market power because the whole system is based on the regulated broadcast industry giving the producers less market power,’ says Fraser. ‘The phenomenon is the same, it’s vertical integration, one is upstream and one is downstream.’

And while industry consensus uniformly suggests that Firestone did well by the buyout, many are questioning what CanWest stands to gain other than the deal-making skills of the Fireworks ceo.

‘I’m not sure what it does for CanWest and I’m not sure they will find this a satisfactory relationship,’ says one source. ‘cbs and nbc have all gone into the production business in a big way but they remain minor players on their own schedules. By and large, the production engines of the u.s. networks have not been very successful.’

Asper says the $40 million CanWest paid for Fireworks in valuation terms was a very fair deal compared to other North American production companies, in terms of the multiples to earnings ratio, net earnings and operating earnings.

And with the Fireworks deal signaling another move towards industry consolidation, Fraser finds it curious that the cbc’s role in the current landscape will be examined at the September hearings. ‘The opposite trend of the industry has been imposed on the cbc,’ says Fraser. ‘The cbc was forced to divest its production operations and on the private side they’re now gobbling up companies and integrating back into production. It’s highly inconsistent to throw the cbc out of production and then allow the private networks to get into it.’

The deadline for filing written comments to the Canadian Television Policy Review is June 30. In a separate but parallel proceeding, the crtc will call for comments in early June on the criteria used in defining a Canadian program as part of the Canadian Program Certification process.