In June 2000, when Tattersall Sound was acquired by Alliance Atlantis Communications and merged with Casablanca Sound and Picture, it was characterized as a good move, allowing the smaller Tattersall access to significantly greater resources to build its post-production operations.

It also gave AAC a seasoned management team to run its post facilities led by Jane Tattersall as president and CEO of the new Tattersall Casablanca.

But earlier this month, the Toronto-based post house found itself the key component in a deal as AAC sold the option to purchase its entire post operations to Hollywood-based Point.360 (formerly VDI MultiMedia).

Also included in the deal – worth a reported US$14-million should Point.360 exercise its option – were Halifax-based Salter Street Digital and Toronto animation house Calibre Digital Pictures.

Certainly Tattersall is not complaining. Her fortunes appear to be on the rise as her operation has moved from one of Canada’s largest entertainment-media companies to one of the preeminent operators of post shops in the U.S.

‘This allows us to be a bigger company with a wider stretch in terms of the range of services [and] the ability to service clients thoroughly,’ she says.

But aside from her company’s opportune arrival, Tattersall’s pinball-like ascent underlines what analysts and executives see as a significant shift in Canadian entertainment and media strategies. With the acquisition frenzy of the late 1990s and early 2000 over, the industry en masse has begun to trim wherever possible.

The latest manifestation of this came July 9 when Corus Entertainment announced that it was cutting production staff at Nelvana by 65, representing about 9% the Toronto animation company’s staff.

In November, Corus eliminated 320 positions as part of its three-point plan to reduce debt by $100 million to $150 million, improve profit margins to 30% and maximize performance in its core businesses (Nelvana, radio and TV broadcast).

‘It all goes back to the early to mid-’90s when we started to see the emergence of the strong, vertically integrated global players,’ says John Cassaday, president and CEO of Corus.

‘There was a recognition that to succeed you had to have scale and you had to at least begin to think of competing internationally if you wanted to grow.’

Thanks to a then-strong economy bolstering ad revenues and share prices, many media companies saw an opportunity to go looking for assets that would accelerate their growth plans. To do so, virtually all of them increased their debt load and employment ranks.

Since 1998, Alliance Communications merged with Atlantis Communications; Corus was spun off from Shaw Communications’ media assets and acquired Nelvana; Global Television became a national network by gaining WIC Western International Communications’ conventional TV assets; BCE acquired CTV; and Quebecor bought Groupe TVA and took over Le Groupe Videotron.

But by the fall of 2001, it became apparent that the economy had turned and the result was that both ad revenues and share prices began to fall. While none could lose sight of the need to improve both shareholder value and margins, there was still the need to manage debt accrued through the expansion of their businesses.

‘[But] if there is pressure on profitability, then there is less to service the debt and other financial commitments that they entered into,’ says Peter Layman, partner responsible for the entertainment, media and communications practice at PricewaterhouseCoopers Canada.

The result is that most Canadian entertainment and media outlets have turned their focus to areas where they stand the best chance to make money and divested themselves in those areas where the chances of doing so are less.

‘I think the management at all of them are getting more and more professional in a sense of saying, ‘We will concentrate on those areas of business that make us the most money – that make us the most profitable,” Layman says.

In the case of AAC, the company decided to focus on its core businesses of production, film distribution and broadcast late last year. To that end, it has divested itself not only of its post facilities but also cut staff by about 130, shuttered online network U8TV and made significant cuts to its production slate. Still likely to come is the winding down of interim financing partnership Sentinel Hill Alliance Atlantis Equicap.

‘We’re trying to reduce our debt, we’re trying to increase our income, we’re trying to be properly organized to deal with the future,’ says Peter Sussman, CEO, Alliance Atlantis Entertainment Group.

‘It’s a variety of things, and certainly on a mathematical basis, it’s all the tests and yardsticks that are used to assess the company: return on investment, margin percentage. It’s a long list that we, and I think every company, are trying to achieve.’

According to Adam Shine, an analyst for CIBC World Markets who follows AAC, the company’s most significant move came in October when management decided to cut its 176 hours of drama to 100 a year and reduce MOWs and miniseries from 24 hours to 10.

‘The investment in film and TV spending…was eating up a lot of company resources and preventing them from potentially realizing any free cash flow in the near to mid-term,’ he says.

‘The big challenge is to follow through on this strategy, remain focused on delivering the balance sheet and not get distracted into the pursuit of incremental productions that obviously start to add up.’

Shine is also bullish on AAC’s move to ‘exploit to the greatest advantage the evolving and growing CSI: Crime Scene Investigation franchise’ through the spin-off CSI: Miami.

At the same time, AAC has put its broadcast unit at the centre of its growth plans, having gone from four cable channels in 1998 to interests in 18 in 2002, including seven analog and seven digital.

Similarly, Corus is banking on its TV broadcast unit as the lynchpin to its growth strategy.

According to Cassaday, even the acquisition of Nelvana was part and parcel of Corus’ plan to ‘create and/or acquire equity in networks around the world.’

‘We want to build our television business as it relates to kids and/or animation on a global basis. Our strategy is not to go out and buy other production companies, but rather to use the library and production capability of Nelvana to lever ourselves to new channel opportunities around the world.’

Cassaday points to the acquisition of Locomotion this summer as a case in point. Corus not only owns 50% of the Latino animation channel but also has a guaranteed output arrangement.

In following its three-point plan, Corus has lowered its debt from about $800 million to about $650 million projected by year end and divested itself of non-core assets including ownership of Klutz Publishing, Viewers Choice, minority interest in specialty channel The Comedy Network, and its non-voting Astral shares. The company has also generated savings of about $10 million to $15 million through staff cutbacks. At the same time it consolidated ‘backroom’ operations such as finance, business affairs, corporate communications and human resources.

‘Obviously if our aspiration is to be a global player, we can’t limp out of our domestic marketplace. We’ve got to charge out of our domestic marketplace,’ Cassaday says. ‘The only way we can charge out is if we’re operating in Canada as efficiently and as effectively as is humanly possible.’

Other entertainment-focused companies have followed a similar, if less detailed, route.

Quebecor, for instance, has been cutting assets for more than a year. Among other measures, the Montreal-based company rid itself of responsibility for TVA International in the spring by handing operations over to Lions Gate Film in English Canada and Christal Films Distribution in Quebec.

More recently, CanWest Global of Winnipeg took aim at its newspaper assets acquired through its purchase of Southam Publications by selling 12 Atlantic and Saskatchewan pubs that it could not leverage through ad sales with its broadcast properties.

The only player that has avoided such measures thus far is BCE media division Bell Globemedia, but PricewaterhouseCoppers’ Layman says it may only be a matter of time.

‘In a sense you’ve got roughly a similar situation in that they need some capital. It is a question of whether they want to take more out of the businesses that they have now or consider that it’s a better alternative to divest of certain assets.’

Bell Globemedia controls a stable of what might be considered non-core properties, including post operations Dome Productions and Command Post and Transfer.

But should any of these find themselves on the block, management may take comfort from the words of Tattersall: ‘It’s very difficult to be medium-sized in the market today. You have neither the flexibility of being a small company nor do you have the weight of being a large company,’ she says. *