24 WhenBellMedia recently acquiredAstral Mediaaspartof aC$3billiondeal, ithad to divest itself of some of its broadcast assets to satisfy the requirements of the Canadian Radio-television and Telecommunications Commission (CRTC), Canada’s regulatory body. The CRTC’s mandate is to ensure a dynamic marketplace and a healthy and competitive broadcasting system in the country. With huge deals like Bell/Astral, it must make sure that increased consolidation and scale does not upset the balance, i.e. that the combined viewing share will be within the CRTC’s acceptable threshold. Bell agreed to divest itself of radio stations as well as cable channels in order to bring this about. Channels that were put up for sale were largely genre-specific. Bell, like CTV, which it had previously acquired, and even CHUM, which CTV acquired even earlier, had never been in the children’s television business. So it seemed to make logistical and probably also financial sense to unload the previously Astral-owned Disneybranded services: Family Channel, Disney XD, and Disney Junior, English and French, as well as a half-share in Teletoon Canada, with its related licenses. And it made perfect sense for Corus Entertainment to pick up the 50 percent of Teletoon Canada it did not already own. That purchase received CRTC approval this January. Corus Entertainment has had considerable success with its niche-focused television brands. In addition to its share in the Teletoon services, its kid’s portfolio includes YTV, Treehouse, Nickelodeon Canada and ABC Spark. It also owns animation producer and distributor Nelvana, with its library of over 4,000 half-hour episodes. “We are very pleased to have completed the acquisition of Teletoon,” said Colin Bohm, vice president and head of Corus Kids. “With our prior 50 percent interest in the company, we are already very familiar with these services. They will contribute to the growth and success of our kids business, which is a strategically important segment for us.” Where did Family Channel and the other Disney-branded channels end up? Halifax-based DHX is a publicly-traded company on the Toronto Stock Exchange. It has been aggressively expanding its reach, and has increased its market presence with offices in Toronto, Los Angeles, Vancouver, Halifax and London, Paris, Barcelona, Milan and Amsterdam. It is a creator, producer and distributor of children’s entertainment content, and has been very active in targeting digital platforms such as Netflix, iTunes and Yahoo!. DHX has been in acquisition mode. In 2012 it acquiredToronto’s Cookie Jar Entertainment, and in2013 it purchasedU.K. outfit RagdollWorldwide for C$27.7 million. Ragdoll’s library of children’s properties includes the iconicTeletubbies. It is no secret that Michael Donovan, DHX’s CEO, has wanted to enter the channel business, and in November 2013, DHX announced that it had made an agreement to purchase the Bell children’s channels for approximately C$170 million. The transaction is expected to close in 2014, subject to approvals by the Competition Bureau and the CRTC. “The acquisition of these high-quality Canadian channels represents an exciting new addition to DHX, one that complements and enhances all areas of our business and positions us for our next stage of growth,” said Donovan when the acquisition was announced. Advantages he listed include a platform to create more shows to sell globally, a vehicle to increase Canadian-created animated shows for children, a distribution channel to promote its own family and kids brands and the ability to fill the increasing need for content as more and more television is watched on TVs, computers, tablets and smartphones. TheDisney-brandchannelsgeneratesubstantial revenues, which have been increasing over the past three years, and owning cable assets provides stable cash flow through subscriber fees. In particular, Family Channel, a premium commercial-free service, holds a Category A PayTV license, giving it a “must carry” designation by the CRTC, meaning cable and satellite companies are required to carry it on all their services. Having the recognizable, world-famous Disney brand is an advantage in itself. Harold Greenberg, founder of Astral, was instrumental in bringing it to Canada, but the Canadian relationship with the Disney Channels is not in perpetuity. Kevin Wright, former SVP of Programming at Astral, said thatmaintaining theDisney trust and respect was a vital part of Astral’s business. Wright, a casualty of the Bell take-over, brings his considerable experience in children’s programming to a now arms-length view of the changing landscape. From his perspective, the DHX deal is a good thing. “They are smart, strategic players who bring an entrepreneurial attitude to the business, with both a domestic and international perspective. As a new broadcaster, they should provide a fresh, authentic, independent voice, different from the older established vertically-integrated companies. And with their background, they bring to the table legitimate children’s DNA: a children’s player buying a children’s asset!” Like Corus, DHX will be a broadcaster with a related production company. In the Teletoon decision, in order to limit the potential for anti-competitive behavior, the CRTC imposed safeguards, for instance that Teletoon devote 75 percent of its expenditures for first-run original programming tonon-relatedproducers (upfrom50 percent), and that at least 75 percent of all original first-run programming exhibited be acquired from non-related producers. DHX is likely to have similar conditions of license applied. For program suppliers, such as Toronto-based 9 Story Entertainment, a large producer and distributor of family programming similar toDHX, or Ottawa-based animation specialist Amberwood Entertainment, it should be business as usual regardless of ownership. From his perspective, Sheldon Wiseman, president of Amberwood, sees the DHX deal and its potential conditions of license, like those of Teletoon, increasing the opportunities for independent producers. The above-mentioned children’s outlets are not the only ones in Canada. Others include TVOntario, with its long-standing reputation for preschool programming, and in British Columbia, BBCKids, owned by Knowledge Network. Its president, Rudy Buttignol, looks forward to a continued relationship with DHX, a company with whom he shares a mission for “good value children’s programming.” And “good value children’s programming” is what it’s all about. IB When Consolidation Is Involved, the CRTC Spares No Regulatory Hurdles April 2014 Canada’s Channels Corus Kids’ Colin Bohm DHX’s Michael Donovan
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