Vancouver: Sextant Entertainment Group is in receivership, Prophecy Entertainment is undergoing serious renovation and, depending on whom you talk to, Peace Arch Entertainment may have a buyer, all of which is strong indication that the depressed international film economy has arrived in Vancouver.

Shrinking Sextant was put into receivership June 20 after failing to come to an agreement with creditors through the Companies’ Creditors Arrangement Act secured June 4 and since overturned.

The Royal Bank of Canada appointed Deloitte & Touche as interim receiver and Sextant’s remaining senior executives and directors resigned effective June 18.

Troubles began for Sextant earlier in the year when it was forced to restructure by its principal investor, Tony Allard of West Vancouver-based Hearthstone Investments.

As an integrated television company, three-year-old Sextant was originally focused on production, visual effects and distribution. It was created through the acquisition of key Vancouver players including Pacific Motion Pictures, New City Productions, THA Media, Pan Pacific Productions and Reel Elements. Notable productions included Don’t Eat the Neighbours, Snow White, Treks in a Wild World, Aaagh! It’s the Mr. Hell Show!, Voyage of the Unicorn, 100 Days in the Jungle and Snow Queen.

According to Sextant, independent volume totaled $18.3 million while service volume totaled $57 million, much of it through its relationship with Hallmark Entertainment.

The receivership puts into question the fate of the partner companies like PMP along with its two approved digital television licences – Best of the Commonwealth and the Pacific Food Channel – and The Hallmark Channel (Canada) that is currently under CRTC review.

Calls to Sextant on June 27 were answered by voicemail, but www.sextantentertainment.com was live. Calls to Sextant partner and producer Tom Rowe, who is managing the Hallmark ABC special Mr. Saint Nick that wraps July 19, were not returned. Likewise, calls to Sextant president Matthew O’Connor were not returned.

Shares in the company haven’t traded on TSX Venture Exchange since June 17, when shares were valued at $0.03, a new low for the year compared to the year high of $0.60 per share.

New Prophecy regime

John Curtis, meanwhile, has returned to Prophecy as interim president and CEO after a two-year absence. He cofounded the company in 1998 with former CEO Petros Tsaparas, who resigned on May 31 when Curtis and financial partner David Mackenzie (founder of Dia Met Minerals) converted debt in the troubled company and assumed control. Under the new regime, Mackenzie is interim chairman, cofounder Evan Tylor is interim secretary and Rodney Akizuki is interim corporate manager.

Prophecy recorded a net loss of $2.3 million for the third quarter of fiscal 2002 (ended March 31) on revenues of only $455,000. The losses, mostly write-offs, says Curtis, are not recoverable or recoupable.

‘We’ve cleared up the books and are starting fresh,’ says Curtis, who has been developing Vancouver-based production company H3O Filmed Entertainment and produced straight-to-video feature Watchtower, starring Tom Berenger, in Victoria in December 2000. The company’s employment roster has been chopped from 15 people to five and the Gena Rowlands feature The Incredible Mrs. Ritchie, delayed in part by the events of Sept. 11, will not proceed with Prophecy, which let its option lapse.

‘We’re protecting our investment in the company,’ says Curtis. ‘We want to turn Prophecy around.’ Which is going to be a difficult prospect, he adds. It means that Prophecy will focus on distribution for H3O’s features (like the $4-million modern-day Jack the Ripper sequel Ripper II, in coproduction with North American Pictures in Prague, and the Denise Richards thriller Modus Operandi, scheduled for a Vancouver/Victoria shoot this fall) and the low-budget work of division Prophecy Pictures.

‘The world markets are extremely depressed,’ says Curtis. ‘There is a glut of product and costs are going up. Revenues are a third or a quarter of what they were a few years ago. There is just no money being made. Presales are next to impossible. It’s as bad as I’ve ever seen it.’

Curtis says the current harsh market will ‘weed everybody out’ and lead to consolidation. Fewer movies are being made, which should eventually shift the buyer’s market to a seller’s market, ‘which is the only reason we’ve got a shot at it,’ he explains.

‘We’re going through a rough time, but we have the new management that can capitalize on its expertise to turn the company around,’ says Curtis. ‘I look to everyone to not breathe down our backs. There is a light at the end of the tunnel, but it’s a year away. The entire [Vancouver] community has to realize it’s not the gravy train any longer.’

At press time, Prophecy last traded June 21 on the TSX at $0.07 per share, compared to a year high of $0.43 per share and a year low of $0.06 per share.

A buyer for Peace Arch?

At Peace Arch, meanwhile, company representatives dismiss as rumor ‘on-the-street’ talk of a buyer negotiating to acquire the company. Instead, the company is on record May 22 having retained a New York investment banking firm to ‘act in a financial advisory capacity’ and assist with financing, apparently specifically, in regard to a letter of intent to acquire a private U.S. library of factual and documentary television programming.

The transaction is subject to the completion by Peace Arch, which has been buying down its long-term debt in the last year, of a US$2.3 million equity financing by the end of July. A successful transaction will mean the Peace Arch management will be ‘supplemented’ and its board of directors will be ‘reconstituted in order to strengthen the company’s expertise in certain areas of television program exploitation and project finance.’

All of which suggests change in how Peace Arch will be managed and operated, but president and CEO Juliet Jones was unable to comment at press time.

However, in an earlier release, she says: ‘This acquisition [of the library] represents the first stage of our plan to grow our programming library and strengthen the company’s distribution capabilities. The purchase will complement our existing library of factual and documentary programming and will provide the critical mass necessary to optimize sales efforts and improve our control over program exploitation.’

Peace Arch chairman Cameron White adds: ‘Our industry has gone through a very difficult time during the past two years. Having weathered the storm, Peace Arch is well positioned to take advantage of the growing demand for new and compelling programming. The steps we have taken to expand our programming library and secure expansion capital should bolster our competitive advantages in the marketplace.’

Peace Arch’s Class A shares traded July 2 on the Toronto Stock Exchange at $0.60, compared to a year high of $4.80 per share and a year low of $0.55 per share. Class B shares recorded a new year low July 2 at $0.50 per share, compared to a year high of $5 per share.

Other Vancouver-based public companies are also struggling on the stock market. Animator Mainframe Entertainment hit a new year low July 2 at $0.32 per share on the TSE, compared to a year high of $1.30 per share. Lions Gate Entertainment traded at $3.04 on July 2 on the TSE, compared to a year low of $2.61 and a year high of $4.24.