Alliance Atlantis Communications is set to take its broadcast division into the international market and could use its BBC Kids digital channel as the vehicle to get it there.

While the Toronto-based media company has long been a player in international markets through coproductions and its U.K.-based distribution business, Momentum Pictures, the broadcast unit has remained firmly entrenched on Canadian soil.

In an exclusive one-on-one interview with Playback, AAC Chair and CEO Michael MacMillan says that the broadcast unit will likely soon follow suit.

‘It is a channel branding concept that we and the BBC are hoping to expand outside of Canada. I think the BBC Kids brand, which only exists in Canada, is something that would be of interest to viewers elsewhere. So that’s one thing we’re working on.’

With interest in 18 specialty channels, AAC has transformed itself in a few short years from a producer with broadcasting assets to a broadcaster with production assets.

The plan to go international with its broadcast division – which would parallel stated plans by rival Corus Entertainment – is an indication how AAC plans to grow its business. But it also sheds a new light on how closely integrated AAC’s 11-month-old digital channels might be to accomplishing that goal.

Ever since the launch of the new digitals last September, the industry has been rife with speculation as to which channels would fail and how the launches would play into the long-term plans of Canada’s media giants.

While MacMillan says that speculating on the possible successes and failures of the diginets has been the centre of water-cooler chatter inside AAC headquarters as well, those focusing on such issues are missing the bigger picture.

‘I think the more telling topic would be what will happen to all the channels that existed prior to last September,’ he says.

MacMillan’s thinking is based on the widely held assumption that by the end of the decade, all carriers will deliver signals digitally.

Once the playing field is leveled, ‘What will distinguish a successful channel from an unsuccessful channel?’ he asks.

‘Sheer incumbency won’t cut it. You’ve got to have a great brand and good programming and marketing and be properly connected – all those things. But the fact that one happened to be in business before the digitals occurred, that by itself won’t mean success.

‘So I think that when looking at what is the survival rate or the success rate of digitals, one has to look at the whole picture. My guess is that digitals are going to be a far bigger success than most pundits had imagined. And some of that extra success will come at the expense of the existing analog channels and the existing conventional channels.’

Sitting in MacMillan’s office high atop the AAC corporate headquarters, the view stretches far along mid-town Toronto’s Bloor Street. It is an appropriate setting for a man who has made visualizing the changing media landscape a hallmark for his company’s varied successes.

Indeed, one of the defining characteristics of MacMillan’s reign as head of the Toronto-based broadcaster, producer and distributor has been his ability to anticipate the changing business climate.

Evidence of this can be found in the early 1980s, when, as head of Atlantis Communications, MacMillan lead the company from documentary production to drama just in advance of a surge in worldwide demand for drama.

As a symbolic bookend, further evidence comes by way of MacMillan anticipating the decline in worldwide demand for drama and bracing his company by expanding its broadcasting unit while simultaneously cutting expensive production.

Long the core of AAC’s business, TV drama production has dropped from 240 hours in 2000 to 176 hours in 2001 to less than 100 hours this fiscal year. Meanwhile, the company has upped its investment in children’s programming and documentary production.

Of course, it’s not all a vision thing. The street has long put pressure on the publicly traded company to cut back on cash-hungry production. Burdened with a debt of $615 million at the end of fiscal 2001, the company has needed to come up with plans to enhance shareholder value.

To that end, AAC has undergone extensive trimming of its payroll and has cut loose several non-core assets including a handful of post-production facilities and expensive Web-based network U8TV.

For its efforts, the company has seen its earnings rise 35% to $47.3 million on revenues of $959.9 million.

Still, thanks to troubling developments on the international stock markets and poor performances of international media players such as Vivendi and AOL-Time Warner, AAC has seen its stock drop about $4.50 in the last two months from a high of $21.15.

There is an irony here that, even as AAC cuts its production and looks increasingly to the broadcast side of its business, the company has found itself with its first bona fide hit on U.S. television in the form of CSI: Crime Scene Investigation. The two-year-old series boasts six Emmy nominations and a much-anticipated spin-off, CSI: Miami, set for a fall premiere.

‘We determined three years ago that we were going to ignore volume and instead look at profitability, ratings and critical response measured by reviews and awards,’ says MacMillan. ‘We’ve found that when one is very discriminating in what one is producing, surprise, surprise, the ratings go up, the profits go up and the critical reviews improve.’

In MacMillan’s view, the decline in drama demand could actually work in the industry’s favor. He believes that for too long, the business – not just in Canada but around the world – was chasing quantity rather than quality.

‘I think in a way it’s going to bring a lot more discipline to what we’re producing,’ he says.

At the same time, this reduction is creating what many creatives in the industry are calling a ‘crisis’ situation in dramatic production.

So what does the man with the long view believe needs to be done to sustain production in Canada?

First off, the crisis is not solely a Canadian phenomenon, MacMillan says. ‘It’s the very same challenge the Brits have, and the Americans have and the Germans have – they have the same issues and these identical conversations.’

But one suggestion is to look to the specialty channels.

‘One idea might be to let any Canadian specialty channel that wants to commission original drama, do so, even if it’s not in their original genre description. So if TSN wants to commission ‘The Gordie Howe Story,’ let them do it.’

Cable TV viewing in the U.S., he points out, has passed conventional viewing. It will only be a few years until the same is true in Canada, he adds.

The problem in Canada, in his view, is that under their licensing commitments, stations such as TSN or AAC’s HGTV are not allowed to commission original drama.

‘If you look at the U.S., a lot of the best, most interesting, most cutting-edge and daring TV production for the past five years, has come out of the specialty channels,’ MacMillan says, pointing to The Osbournes produced for MTV and The Sopranos produced for HBO.

This, he adds, is ‘new and challenging programming that gets headlines, that gets ratings, that attracts even more talent to the next projects. And the viewers like it.’

With its new focus, that is just the kind of programming AAC would be looking to produce.