With its production operations now almost completely put out to pasture, Alliance Atlantis executives addressed market analysts June 3 with a bullish eye on the company’s future prospects. This despite a $151.7-million third-quarter loss and three aborted attempts at releasing its year-end report, which had raised flags with some industry observers.

AAC reported $321 million in accounting charges resulting from the wind-down of its production operations. The write-downs produced the net loss in the media company’s third quarter, which was also the company’s final quarter as it shifted its reporting year to a Dec. 31 close from March 31. The loss was partially offset by gains from the spin-off of AAC’s movie distribution division as an income trust. AAC reported a loss of $26 million on the third quarter the previous year.

‘Alliance Atlantis today stands in a much stronger position than at any time in our history,’ AAC chairman and CEO Michael MacMillan told analysts in a conference call. ‘In addition to reducing our debt… our top priority has been to transform Alliance Atlantis into a broadcast-driven company.’

AAC currently operates 12 specialty channels, and MacMillan confirmed that AAC plans to launch a new digital channel, Fine Living, in the fall in partnership with the E.W. Scripps Company, AAC’s partner in HGTV and Food Network Canada.

AAC also released first-quarter data indicating a net loss of $2 million, compared to a $12.5-million loss over the same three-month period last year, helped largely by a 23% boost in ad revenues. First-quarter revenue was $211.6 million, compared to $225.8 million in the same period last year. Broadcasting revenue rose to $55.9 million from $43.8 million and movie distribution revenues increased to $95.4 million from $85.1 million.

Entertainment Group revenues dropped to $55.9 million from $90.9 million, due largely to scaled-back productions. The CSI TV program franchise, coproduced with CBS and Jerry Bruckheimer Films, accounted for 63% of the division’s first-quarter revenue and 82% of first-quarter gross profits.

The results were released after three separate delays due to complex accounting procedures related to cutting its production operations and the change to the company’s year end.

On the production side, AAC continues to see significant revenues from its CSI franchise, including the sale of a third series, CSI: New York, due to premier in the fall on CBS and CTV, plus arms-length involvement with various domestic productions with which it has prior commitments, including The Eleventh Hour and This Hour Has 22 Minutes.

In the 12 months ended Dec. 31, 2003, the CSI franchise represented $131.8 million of AAC’s Entertainment Group’s revenue and $45.1 million of direct profit.

‘We’re certainly seeing the reality TV boom continue and reality shows no sign of letting up. We believe that this augurs well for all of the CSI franchises as there are less and less other competitive, primetime one-hour drama series in the marketplace,’ MacMillan says.

Bob Bek, Canadian media analyst at CIBC World Markets, concurs with MacMillan’s upbeat outlook. ‘You’ve got a very clean production side now, which is what everyone really wants to see. You’ve got the specialty broadcast channels, which are outstanding assets, and the movie distribution, which is another nice public vehicle,’ Bek says.

Bek’s optimism is also based on AAC’s cash-flow projections, particularly in light of future revenues from CSI: New York and a series of bonus payments due to AAC thanks to top ratings of CSI: Crime Scene Investigation and CSI: Miami.

‘Those payments from CBS and all the bonus payments start to kick in around the second half of this year, and that’s where you’ll see a turnaround in the cash as CSI starts to help… and you’re not going to lose that money doing some other production.’

AAC reported last year that if the show managed a fourth consecutive top-30 finish this season, production costs for all subsequent seasons would be covered by CBS. AAC is also entitled to bonus payments of up to US$600,000.

As of March 31, AAC’s overall debt had been reduced to $370 million, down from $538 million a year earlier.

In the full calendar year (ending Dec. 31, 2003), revenue was $866 million, down from $877.2 million in 2002, with a net loss of $182.1 million compared to a $28.8-million loss in 2002.

-www.allianceatlantis.com