The July 1998 merger was a friendly reverse takeover of the larger company (Alliance) by the smaller. The strategic goals were clear; combining the strengths of two central players and collating their substantial libraries of television and film would allow the new company to compete more successfully with larger American entertainment conglomerates. The newly created Alliance Atlantis Communications (AAC) marked an important evolution toward a major studio-style operation in Canada. The new company anticipated a shift away from in-house production of television series and films toward greater concentration on distribution and deals with independent producers. The merger was the first in a wave of corporate convergence in the Canadian media, motivated by the desire to acquire more channels for guaranteed distribution of content, gain better access to advertising revenue, and create various possibilities for cross promotion. The Alliance Atlantis merger was a direct response to global trends of technological expansion in content delivery, privatization and deregulation in international television markets, and audience fragmentation.

This focus on building “market muscle” and establishing sure access to broadcast shelf space was presented by the new CEO Michael MacMillan as beneficial for Canadian television, and a reflection of the continuing need for strong Canadian content. Critics wondered if the creation of such a large, vertically integrated enterprise would work against smaller independents and raised the possibility that such mergers should be approved only with some restrictions on access to public financing.

The new company became the largest television and film producer and distributor in Canada, and one of the top 12 entertainment companies in the world, with a combined revenue of $700 million. Because the Cana- dian television market is small, more than half of this income was earned in export sales. A full 89 percent of AAC license fees come from outside Canada. Atlantis operated two cable specialty channels, the Life Network and Home and Garden Television, and distributed the U.S. Food Network in Canada. Alliance brought two more successful specialty channels, Showcase and History TV, to the marriage. In its application to the Canadian Radio-television and Telecommunications Commission (CRTC) to approve the merger and keep all four specialty channels, AAC said it would spend $8 million on new Canadian drama and documentary programs.

While AAC posted some restructuring losses in 1998, it quickly implemented a comprehensive acquisitions strategy in various areas. In March 1999 the company acquired an interest in Headline Sports (now the Score), maintaining its focus on nonfiction theme channels with tie-ins to Internet sites, radio, and magazines. In January 2000 AAC, in partnership with Montreal- based Astral Communications, launched two French- language specialty channels, Series1 and Historia.

In early 2000, AAC created a New Media Division and bought into U8TV, an Internet television station. The U8TV concept features eight young people living in a Toronto loft equipped with webcams streaming live images to the Internet 24 hours a day. Each resident also produces a short daily Internet TV segment, from which highlights are carried on Life Network’s nightly half-hour top-rated program The Lofters. Aimed at the 18-to-30 demographic, U8TV moved into its second season in 2002 by relying on multiple revenue sources including banner ads on the website, product placement and corporate sponsorship on the webcasts, and ad sales on the Life Network.

AAC consolidated its television production activities in 2000 by purchasing Canadian documentary producer Great North Communications and its 675- hour nonfiction library, responding to demand for reality TV and fact-based programming. In 2001 AAC acquired Salter Street Films, its library of 1,100 half-hours of comedy and nonfiction, plus the company’s newly granted Independent Film Channel license. Salter Street productions include This Hour Has 22 Minutes, Lexx, and The Industry/Made in Canada. Analysts accused AAC of trafficking in licences, but CRTC approved the purchase requiring that the Independent Film Channel remain in Hali- fax and that AAC spend a $1.25 million benefits package on developing the broadcast industry in Atlantic Canada.

Continuing its diversification into specialty broadcasting, AAC made 32 applications to the CRTC for digital licenses in 2000 and launched its new digital offerings in September 2001. The Discovery Health Channel and the Independent Film Channel are Category 1 digital services requiring mandatory carriage by the cable and satellite companies. Of its successful Category 2 license bids, AAC has also negotiated optional carriage agreements for BBC Canada, BBC Kids, National Geo- graphic Canada, Showcase Diva, and Showcase Action. Digital channels in which AAC has part interest include PrideVision, Scream TV, and One: the Body, Mind and Spirit Channel. In television’s currently uncertain economic environment, AAC carries a relatively large debt load, a raft of unproven “developing channels,” and the continuing pressure of low profit margins in production. The company has retreated from production of drama into lower-cost, more exportable children’s and documentary programs, while enlarging its more profitable, well-branded broadcast operations. Focusing on the U.S. market, it has had recent successes with CSI: Crime Scene Investigation, CBS’s third-rated program in the 2001 season, and with TV movies like Joan of Arc, Nuremberg, and Life with Judy Garland.

From its Los Angeles and international offices, AAC is applying its valuable Canadian experience in packaging financing deals and international distribution to changing global television markets. However, the company still dominates Canadian drama production, with annual access to over $100 million in public funds and tax credits for programs like DaVinci’s Inquest, Cold- Squad, and The Associates. Critics point out that CRTC Canadian content regulations make broadcasters a captive market for AAC’s programs, while the broadcasters themselves may not apply directly for subsidies. As a vertically integrated production company with 18 specialty channels, AAC is seen as unfairly “self-dealing” its publicly funded products to its own outlets. AAC is solid evidence that Canadian television policy has achieved the desired result of establishing a viable domestic industry. But what remains to be seen is whether the company can remain accountable to Canada’s public broadcasting objectives while becoming so heavily involved in global film and television exports.