EDMONTON – Allarco Entertainment, owners of Canadian pay-TV service Super Channel, filed for protection from its creditors under the Companies’ Creditors Arrangement Act on Tuesday, Cartt.ca has learned.
According to documents filed with the Court of Queen’s Bench of Alberta, the company has liabilities of $139 million and assets of $68 million.
In those documents – as well as a letter sent to its affected program suppliers – Allarco president and COO Malcolm Knox said the company plans to reorganize and continue broadcasting. He blamed the poor economy and a lack of BDU promotion follow-through for the young broadcaster’s current financial predicament. Super Channel is a must-carry for BDUs serving English language markets.
In its court filing, an affidavit from Knox noted that the original business plan called for the build-up of approximately 800,000 pay TV customers over Super Channel’s first “three to four years” but that so far, Super Channel has just about 220,000. The service launched in the fall of 2007.
The Knox affidavit explains the industry a little, too, noting that the structure of the pay and specialty industry is that the channels are heavily reliant on the broadcast distribution undertakings to promote their wares and that one of the largest distributors, Rogers, he alleges, isn’t doing its job.
“The CCAA Parties (which is how the document refers to Allarco) are of the view that some of the BDUs, most notably Rogers, have failed to honour their obligation to fairly promote and sell the Super Channel Programming equally with other programming,” it reads. “While the CCAA Parties have negotiated with various of the BDUs to rectify this failure, the CCAA Parties have been unable to obtain a similar arrangement with Rogers, amongst other, as a result of which the CCAA Parties have commenced action as against Rogers.”
Cartt.ca was unable to obtain a copy of that court “action” mentioned but the Knox affidavit also says Allarco has filed an undue preference complaint to the CRTC as well over Rogers’ treatment of Super Channel.
“The CCAA Parties estimate that had Rogers performed its obligations to fairly promote and sell Super Channel Programming to its customers, as other BDUs such as Bell TV have, the Business would now have a customer base of some 350,000 customers,” reads the affidavit.
In an interview with Cartt.ca late Wednesday, Rogers Cable vice-president and general manager, video products, David Purdy, said his company doesn’t treat Super Channel any differently than other pay and specialties in its channel lineup.
“We’ve actually had complaints from other broadcast ownership groups about the amount of promotional weight we have devoted to – on both our barker channel and the U.S. ad avails to promoting Super Channel,” he said.
“We’re aggressively promoting Super Channel and have been for some time.”
There are many reasons uptake has been slow, added Purdy. “I think when you look at the Rogers footprint, 44% of our customers speak a language at home other than English or French and the multicultural makeup of our footprint means that we typically don’t have the same English pay-TV penetration that you would have with a rural company like Bell.
“The second thing is that Toronto and the Greater Toronto Area has a lot of entertainment competition and options,” he added.
Purdy noted that Rogers itself had to adjust certain assumptions downwards because of the urban markets the company serves. For example, “our original business case with VOD called for us to be making $100 million in year three and we’re still not there,” he explained.
Another hindrance, Purdy noted, is the fact that Super Channel is missing the big pay TV brands. “The two key partners you would want to have in this space, HBO and Showtime, are tied up with Astral,” he said. (Astral Media is the owner of The Movie Network.)
“It’s difficult to enter the pay space without a partner like the major studios and HBO and Showtime.” Super Channel has agreements with MGM and Maple, for example, but all the other large studios are tied up with TMN and Corus Entertainment’s Movie Central out west.
And even with those advantages, it took TMN 20 years to get to its current subscriber levels sub rate, with 1.12 million as of August 31, 2008.
Super Channel’s programming suppliers are none to pleased with the latest turn of events, either.
“As you are aware, we have been struggling during these difficult economic times,” Knox wrote to suppliers in an e-mail Wednesday, which added that the filing (commonly referred to as bankruptcy protection in Canada although it is different than the American Chapter 11) is “not an indication of a wind-down, bankruptcy or receivership. It will allow us time to work toward a restructuring of the business. We intend to continue operations without interruption and our customers can continue to rely on Allarco Entertainment throughout this restructuring period,” said the letter.
However, all amounts owing by Allarco are frozen, as is usual with such filings. “You will be paid for all goods and services received on or after the date of the granting of the order. However, claims for goods and services received prior to the date of the court order will be dealt with in a plan to be developed at a later date and approved by the creditors and the court. We will be contacting creditors in the future to discuss the claims process,” reads Knox’s letter.
Super Channel won a license for a national pay TV service in 2006 and launched in the fall of 2007 after a competitive process which had been spurred on by a petition from another applicant, Spotlight Television, headed by broadcaster George Burger. Quebecor also bid for the license, too, as did Channel Zero – although the owner of Movieola and Silver Screen Classics wanted an all-Canadian pay license.
