Until not so long ago, Canadian conventional and specialty TV was where industry fortunes were won and lost.

What a difference a growing recession and credit crisis makes.

A sudden pullback in consumer spending has led to a steep dive in TV ad expenditures, the lifeblood of conventional broadcasters, and sharply lower North American DVD sales in the run-up to Christmas, a key source of profits for content producers and distributors.

And as ad revenue falls, costs keep going up, especially in acquiring U.S. primetime series for simulcast.

Ask senior executives about the business impact from the economic turmoil, and they typically reply: ‘We’re okay…for now.’

‘We’re experiencing the same downturn,’ says Kirstine Layfield, executive director of network programming at CBC Television. ‘The difference with the CBC is we were never so high and mighty to fall so far. We’ve always had to manage a tight budget.’

Media giants like Canwest Global Communications, CTVglobemedia, Rogers Media, Corus Entertainment and Quebecor Media, all leveraged risk-takers in better times, have grabbed headlines of late as they slash jobs and spending as a cushion against a deteriorating economy.

‘What’s happening from the impact of the economy is everyone is numb,’ observes Carrie Stein, CEO of London- and Los Angeles-based Alchemy Television, which recently engineered a number of coproduction deals between Canadian, American and other foreign producers.

Automakers teetering on bankruptcy have left conventional broadcasters in anxious sweats of doom. Specialty broadcasters, partially insulated from the ad revenue collapse by subscriber fees, have also felt the pain. Teletoon and YTV saw two major toy advertisers park their ad dollars in the fall, ahead of the Christmas shopping season.

And Entertainment One recently blamed a falling share price for DHX Media for the collapse of its planned merger with the kids producer. What E1 didn’t say was senior lender J.P. Morgan also saw U.S. video retail sales figures collapse in November before it vetoed the use of its $150-million credit line to complete the reverse takeover deal.

E1 isn’t alone. The credit crunch threw a wrench into plans by Cookie Jar Entertainment to pay American Greetings $195 million for its Strawberry Shortcake and Care Bears properties, and scuppered plans by Britain’s Pinewood Studios to take a stake in Filmport, the Toronto studio complex.

As one Canadian executive put it privately, entertainment companies will be lucky to renew their lines of credit in 2009 as the prospect to raise funds for M&A activity goes out the window.

The financial crunch has ensnared a host of other Canadian media players as institutional investors led by hedge funds, in a panic over uncertainty, push the sell button on their stocks to deal with mass redemptions and dwindling returns.

As Canwest found, selling by large investors and funds after analyst downgrades and its removal from the Toronto Stock Exchange’s benchmark index triggered even more selling by others until its shares tipped into penny-stock territory.

Large-cap players like Canadian cablecasters and specialty and pay-TV broadcasters like Astral and Corus with clean balance sheets and locked-in subscriber fees appear better suited to weather the current credit market storm and deal with lenders that suddenly tighten credit conditions.

By contrast, small-cap players with weaker balance sheets have seen their stock valuations, and fortunes, plunge as they find it impossible to borrow on reasonable terms for M&A activity.

Look for 2009 to be a year of capitulation as cash-poor broadcasters unable to survive the slump are sold or broken up into pieces as part of a second consolidation wave after the recent breakup of CHUM and Alliance Atlantis Communications.

The pain is also radiating elsewhere from broadcasters and bankers to producers, distributors, actors, technicians and other industry talent further down the production food chain.

You won’t hear broadcasters publicly admit that they’ve cut back on series commissioning. It sends the wrong message to producers, and the industry, says one network boss.

Barb Williams, EVP of content at Canwest Broadcasting, dismisses any notion her network has closed the door on new and returning series.

‘We are, of course, commissioning carefully and thoughtfully, as we always do, to be sure we’re putting our dollars into the best shows possible, but we are certainly living up to all of our commitments to Canadian content,’ she says.

But anecdotal evidence points to a pullback in commissioning, and cuts in licence fees for returning shows, until there’s clarity on the advertising front.

The cancellation of Insight Productions’ Canadian Idol for 2009 stands out as CTV joins the rush to hoard cash for a rainy day fund.

David Paperny, president of Vancouver-based Paperny Productions, has seen program development budgets slashed in recent weeks.

‘There’s a spending freeze by many key buyers and broadcasters, who have decided not to spend any money in development or production in the next few months. They’re trying to hoard cash. And we’ve seen broadcast executives let go, and colleagues that were set to go into production suddenly pull out at the last moment,’ he says of recent industry carnage.

That said, long-suffering and eternally optimistic Canadian producers and distributors will continue to get their shows made and sold any way they can.

Paperny says his company will spend more money attending foreign markets to secure additional presales and coproduction partners.

The good news for TV producers is U.S. networks are more willing than ever to partner with Canadians on new programming, after the successful bow for Flashpoint on CBS and The Listener set to go on NBC.

‘Now there’s no question in my mind that anything can be done with a full Canadian-based team,’ Alchemy’s Stein insists.

And Canadian specialty channels have to maintain their CRTC-mandated program expenditure requirements.

‘We’re still making lots of shows,’ Michael Goldsmith, director of original programming at Teletoon, says, as the animation channel innovates with two new live-action/animation hybrids, Cartoon Gene and Majority Rules.

‘We have 19 development properties and 20 shows on the go. The feeling at Teletoon is you really need to make a great show,’ he adds.

But once in production, Canadian films or TV shows are likely to face tighter production budgets and teams in the near term, and shorter post schedules.

Said one post executive anticipating squeezed post costs: ‘We’ll work to [producers’] budgets. There may be less time in color correction, or producers will rely on controlled studio lighting. Or they will use less-costly talent in our post facility to get the same work done.’

Cookie Jar CEO Michael Hirsh says kids and family programming remain somewhat insulated from industry gloom and doom by selling to niche channels with subscription fees.

And his sector has known cyclical shocks like prior recessions, an early 2000s animation downturn, and food-product advertisers leaving the kids programming business in recent years.

Hirsh insists Cookie Jar will hunker down and manage its business conservatively, knowing companies that survive recessions emerge as healthier players on the buying side of the business.

John Morayniss, head of E1’s TV division, also shows a producer’s typical bootstrap resolve to press on, developing and producing new series.

He adds it’s more market uncertainty than falling licence fees that’s causing E1 to be more risk-averse and conservative.

‘We’re being cautious, we’re bracing for what could be a flat market, or a negative market. You don’t know,’ he says, peering into 2009.

Other industry veterans, especially the privileged few that consistently supply Canadian broadcasters with series, echo optimism that they can prosper in a volatile market.

The thing veteran players most dread is stagnation.

But there’s a another knock-on effect of recessionary times that’s caught everyone out. A steep revenue fall has dramatically shortened the timetable for traditional media to fade to black.

As music CDs and newspapers illustrate, nothing is forever.

Even before the current market meltdown, conventional TV viewers were migrating to niche channels and online TV offerings like Joost and Hulu, and from video rentals and purchases to video-on-demand. And indie film producers were already shifting from theatrical to digital distribution deals.

But with advertisers and consumers suddenly retreating to the sidelines as the economy slumps, you now have an industry fast switching from old business models to new ones.

Any notion that the Canadian industry can continue to delay or deny the transition from analog to digital, that it has three or four years in which consumers can enjoy the best of both worlds, has gone out the window.

The paradigm has shifted. Efforts to develop multi-platform content and sales opportunities have kicked into full gear.

‘The race is on to replace that revenue stream by controlling as much of the best content we can get our hands on,’ Oasis International president Peter Emerson says of parent company E1 speeding up its transition from a legacy home entertainment business founded on physical music and video sales to becoming a multi-platform content company.

‘The speed at which the current economic environment is deteriorating forces us to make difficult decisions at this time of the year,’ Quebecor president and CEO Pierre Karl Péladeau said as he pointed to a worsening economy, rising costs and falling ad revenue to explain a cut in 600 newspaper jobs at his Sun Media division just before the holidays.

Of course, the true extent of industry carnage from the recession will only be known when there’s clarity on whether the economy turns up in 2010 after a painful spell, or whether Canada faces a long Japan-style slump.

Just don’t expect that clarity anytime soon.