With Industry Minister Allan Rock officially calling for a review on foreign investment restrictions in the telecom sector late last year, the lines are being drawn for what could prove to be a long, fierce battle within Canada’s media sector.

There is a clear break within the senior ranks of the federal government with Federal Heritage Minister Sheila Copps stating that there shall be no foreign interlopers on her watch and the more welcoming Rock standing for the other side.

Unfortunately the lines dividing the two ministers bailiwicks are not so clearly defined, as so many pundits like to point out.

Keeping an eye on this at a distance are Canada’s feature film distributors, the focus of our special report (see p. 24).

Over the last five years, the sector has seen a string of consolidation, starting with Alliance Atlantis Communications acquiring Norstar and Cineplex Odeon Films libraries in 1998. More recently, Seville Pictures and Lions Gate Releasing have been picking up steam in as well.

Seville, is currently looking to acquire the assets of Film Tonic. (‘Seville Pictures prepares for new growth,’ p. 2) Lions Gate too is eyeing Film Tonic and last year signed a deal to partner operations with TVA. For its part, AAC recently announced that it would handle theatrical and video/DVD release and marketing for all Remstar Distribution

These three look like strong candidates to be the only distribs left standing in the Canadian market in the not-too-distant future. But the fact remains that consolidation is one of few options remaining for these companies as they look to grow their libraries and share of the Canadian market. That is why eliminating restrictions on foreign ownership is so intriguing. There is a logic in some circles within the distribution sector that if cable ownership is opened up it will only be a matter of time, 18 months perhaps, until the opportunity trickles down to other media sectors.

The advantages to domestic distribs, they say, is wider access to foreign distribution deals and funding, not to mention the considerable marketing savvy of any number of major international players.

There is also the prospect that a deep-pocketed U.S. film company could ride in and help ease some of the considerable debt staring several of these players in the face, a reality facing many media companies beyond the distibs.

AAC, for example is dealing with a $615-million debt load. An ownership stake from, say, Miramax or New Line, two of its well-healed distribution partners, would certainly help clear up a considerable portion of that.

But, as in the telecom and media sectors, consensus among distribs is hard to come by. AAC’s nationalistic CEO and chairman Michael MacMillan, for one, has stated that he has no interest in selling out to any U.S. media companies. CAFDE and the CMPDA also oppose relaxing foreign ownership restrictions.

But some distrib executives are quietly saying that such measures could greatly benefit the sector. That’s because, beyond AAC, the viability of the distribution sector remains up in the air. Lacking an open door policy, consolidation, they say, is the only way to go.

‘We’re all just companies trying to manage our debt. We’re all leveraged to the hilt,’ says one distribution executive. ‘Without the ability to have foreign investors to come in and help to defray some of that, further consolidation is just going to be a matter of survival.’

PETER VAMOS

Editor