Canadian niche channels cashing in

Stations see profit despite downturn

TORONTO -- Despite the economic slump, Canadian cable and pay TV channels continue to churn out profits and remain a bright spot in an otherwise struggling broadcast landscape.

Statistics from the Canadian Radio-television and Telecommunications Commission, Canada's TV watchdog, show that revenue for domestic niche channels in fiscal 2008 rose 7% to a record CAN$2.9 billion ($2.3 billion), and earnings hit a record $554 million, good for a 23% profit margin.

The biggest niche broadcasters remain CTVglobemedia and Canwest Global Communications, which use their cable channels as cash cows to offset dwindling ad revenue at their loss-making local free-to-air stations.

The CRTC figures for the fiscal year ended in August, before a recession-caused advertising downturn in October began to undermine industry prospects.

Desjardins Securities analyst Eric Bernofsky on Tuesday warned that two other broadcast players -- Astral Media and Corus Entertainment -- face "short-term risks" that warrant a stock downgrade even though they are well-placed to survive the recession owing to subscriber fees from cable and pay TV channels.

Bernofsky suggested Canwest Global might be forced to sell lucrative cable channels to service its debt load, and he expects Astral and Corus to be among the likely bidders.

The analyst said in an investors note that Canwest Global faces an April 7 deadline to renegotiate its growing debt load with bankers and an April 14 deadline to make a missed payment of $30.4 million to U.S. bondholders due on $761 million in senior notes.

"Until the Canwest situation is resolved, we expect a slight overhang on both (Astral and Corus) stocks due to investor concerns over what kind of premium may be paid for Canwest's (cable) TV assets, particularly at a time when advertising expenditures are under significant pressure," the analyst said.

The reporting season for Canadian broadcasters starts April 7, when Corus reports second-quarter results, followed April 8 by Astral's results.