No welcome mat for foreign equity

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TORONTO -- Foreign equity players are feasting on Canadian media assets as the federal government in Ottawa weighs possible first-time U.S. control over the domestic airwaves.

This year has seen Wall Street powerhouse Goldman Sachs & Co. partner with Canadian broadcaster CanWest Global Communications Corp. to pay $2.3 billion to acquire Alliance Atlantis Communications and its 50% stake in the lucrative "CSI" TV crime series franchise.

That follows British hedge fund Marwyn Investment Management in March buying Toronto-based home entertainment distributor Entertainment One for $168 million before delisting the company from the Toronto Stock Exchange as an income fund and refloating it on the London-based AIM market.

U.S. equity players Providence Equity Partners and Madison Dearborn Partners recently joined Canadian partners to acquire domestic phone giant BCE and its broadcast assets -- which include a minority stake in the CTV national TV network -- for $48.5 billion.

Those deals were preceded last year by a high-profile move by L.A.-based film financier and distributor David Bergstein to buy Toronto-based movie distributor ThinkFilm.

The growing list of homegrown companies picked up by foreigners comes as Ottawa continues to weigh whether to ease or scrap foreign ownership restrictions to offer domestic media companies access to additional growth capital.

Foreign investors are currently limited to a 46.7% stake in culturally sensitive Canadian media assets. But the federal government has asked a blue-ribbon panel to consider lifting foreign ownership restrictions on domestic broadcasters and to report back on its findings in early 2008.

That possible game-changing move brought immediate criticism from domestic media guilds and cultural nationalists.

"We are on the verge of losing ownership of our airwaves to foreigners as a result of Industry Canada," says Stephen Waddell, national executive director of ACTRA, which represents 21,000 domestic performers.

The push for greater foreign control of domestic media assets has come mostly from family-controlled domestic cablecasters and broadcasters.

The critics insist that allowing controlling shareholders of domestic media assets to sell out to foreign interests would undermine the federal Broadcast Act, which calls for the predominance of Canadian content on radio and TV schedules here and full access by Canadians to the broadcasting system.

In early December, the Communications, Energy and Paperworkers Union of Canada, ACTRA and the Friends of Canadian Broadcasting released the finding of a Decima poll that found 66% of Canadians "believe broadcasting and communications are too important to our national security and cultural sovereignty to allow foreign control of Canadian companies in this sector."

The poll was released to coincide with the CRTC deliberations on the Alliance Atlantis takeover deal and to spur a debate over U.S. ownership of Canadian culture as the federal government considers whether to call a national election in spring 2008.

"At a time when the country could be thrown into an election at any moment, the poll contains a strong message to politicians who may favor opening Canada's media to foreign ownership," says Peter Murdoch, vp media for the CEPU. "There is no political upside for any party to support the sell-off of our media."

But Leonard Asper, CEO and controlling shareholder of CanWest Global, in November told Canada's TV regulator that blocking the Alliance Atlantis takeover because of Goldman Sachs' participation would hamper his network's growth plans.

"Not having the Alliance Atlantis business will accelerate the ratings decline on our conventional (TV) stations," Asper argued. "I think we would have to continue to look at our cost base and it would probably accelerate any further cost cuts."

The Canadian Radio-television and Telecommunications Commission, Canada's broadcast regulator, has expressed skepticism over the Alliance Atlantis takeover as Goldman Sachs is virtually financing the takeover deal while insisting it will remain a passive investor. That deal was finally given the green light on Thursday.

Canadian law bars foreign companies from controlling domestic media assets.

The current debate over foreign-ownership rules here has implications for Los Angeles, as a host of U.S. companies have minority stakes in Canadian companies and could grow to majority control if Ottawa moves to ease or scrap foreign ownership restrictions.

Ian Morrison, a spokesman for the Friends of Canadian Broadcasting, which represents about 50,000 TV viewers, urges Ottawa to reject overtures from major Canadian cablecasters and broadcasters to allow first-time foreign control of the country's airwaves.

"Powerful lobbyists for the cable industry are at work right now, quietly trying to persuade the federal government to allow Americans to buy them out," Morrison says. "If they succeed, there's nothing to stop foreign companies from taking control of Canadian media and telecommunications, too."
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