The news came as a one-two punch. First, on Dec. 10, Alliance Atlantis Communications announced it was cutting its entertainment branch in half, jettisoning some 70 of the 150 people in its entertainment division, including top execs Seaton McLean and Peter Sussman, and that it was ‘reviewing’ the dollars and cents of its production efforts. Ka-pow.

A few days later came the details, that the media giant was shutting down its Oscar-winning Salter Street Films – as well as offices in Vancouver, Edmonton and London – and that, with few exceptions, it was getting out of the film and TV production game altogether. Socko.

‘From this point on we will no longer be producers of movies, miniseries, movies of the week or feature films,’ says Kym Robertson, VP of corporate and public affairs at AAC. ‘We will continue to produce existing drama series that are already contracted and we will continue to operate in kids and factual,’ but both those genres will also face cuts, she adds.

Senior exec VP and CFO Judson Martin blames the move on a ‘permanent downturn’ in domestic and international demand for drama.

The industry was not happy with its black eye and bloody nose, and AAC is drawing fire for backing out of production after years of government subsidies, and for dragging down smaller, successful companies. AAC bought Salter Street in 2001. The Western Canada offices it is closing were once those of the noted documentary house Great North Productions, which the conglom acquired in 2000, and the London offices came from the 2001 buy of Cafe Productions.

‘A Canadian company like Alliance Atlantis shouldn’t be able to buy up independent production houses, the engines of our production industry, and then pack up and abandon their commitment,’ said Pamela Brand, national exec director of the DGC, in a statement. WGC head Maureen Parker also called on Ottawa and the CRTC to step in and protect taxpayer dollars.

Some have suggested that Alliance is using the market slump as an excuse to back out of production. ‘That sounds like a very convenient explanation,’ notes Sue Murdoch, VP of development at Pebblehut Productions.

Jonathan Barker, president of Toronto’s Shaftesbury Films, says his company has done well on the world market in recent years. He does not think the current slump will last.

Both are quick to point out, however, that AAC’s absence will likely make room for small- and mid-sized companies. ‘We’ve had a hard time living in the shadow of the 800-pound gorilla,’ says Murdoch. ‘It’s been hard for a lot of other companies to break through, and that’s when the best creative work happens.’

Many are using the cuts as a rallying point for greater government funding, and for a reversal of the CRTC’s 1999 Television Policy, which stakeholders blame for the slump in domestic drama.

‘Arts and entertainment are a vital sector of our economy,’ says Peter Murdoch, co-chair of the Canadian Coalition of Audio-Visual Unions, a lobby umbrella group. ‘It is critically important that the Martin government send a clear and timely message of commitment to Canadian talent.’

ACTRA national executive director Stephen Waddell agrees, and was quick to call for more CTF cash, a regulatory review and greater corporate responsibility. ‘It’s time for action from the new government and the CRTC,’ says Waddell.

But when producers boo, bankers often cheer, and Bay Street has generally had good things to say about the cuts. CIBC World Markets feels ‘very positive,’ says analyst Bob Bek. ‘We’ve always been anti-production and Alliance Atlantis has always been weighed down by that, so we’re happy to see the cuts… In the longer term it will make for a much cleaner company,’ he says.

Bek says production, weighed down by world markets, will stay in its slump – ‘That’s why we don’t like it, we don’t see any light at the end of the tunnel’ – and that publicly traded companies should stay out. ‘It is very difficult for public companies to be in this business, and the market just does not want to deal with it anymore,’ says Bek.

AAC will continue to make its smash CSI franchise for CBS and has pledged that Salter’s This Hour Has 22 Minutes ‘will continue,’ although it would not provide details. Robertson would also not comment on the future of any other specific titles. AAC and its subsidiaries also make The Eleventh Hour, the kids show Poko and are coproducers of the cop drama Cold Squad. The company also recently coproduced the mini Hitler: The Rise of Evil with CBS.

Salter also turned out the hit series Made in Canada and coproduced Michael Moore’s Bowling for Columbine, which last year won the Oscar for best documentary.

AAC will now focus on broadcasting – it owns several digital and specialty channels, including Salter’s Independent Film Channel – and distribution, most likely of big U.S. films, for which it has output deals with Miramax, New Line Cinema, Artisan Entertainment and Focus Features. The cuts do not affect the Movie Income Distribution Fund, which the company launched last year.

AAC has had bad luck with production recently, most notably the box-office flop of its much-hyped feature Foolproof, which opened to a per-screen average of just $1,150 in October, and director Bruce McDonald’s famously mangled Picture Claire, which went straight to video. The company also produced the failed U8TV and The Associates, which died after two seasons of low ratings on CTV. Eleventh Hour has also struggled to build an audience and, along with 22 Minutes, ran into serious funding trouble during the CTF crisis. AAC fared better with its big-ticket minis Nuremberg, Life with Judy Garland: Me and My Shadows, and Hitler.

The company has been rolling back TV production for some time, and laid off some 160 people in 2002 and 2003.

AAC is also thought to be shedding its post-production houses, and recently cut staff from its Casablanca. It remains business as usual at Calibre Digital Pictures, while Salter Street Digital VP Rob Power is in talks to buy that post house from Alliance, and hopes to seal a deal in the next few months.

-www.allianceatlantis.com