Peace Arch Entertainment Group Inc. Business Information, Profile, and History

Company Perspectives:

Peace Arch has a proven track record of producing quality, cost-effective programming with worldwide audience appeal.

History of Peace Arch Entertainment Group Inc.

Peace Arch Entertainment Group Inc. is one of Canada's top entertainment companies, developing, financing, and distributing television programming and feature films for worldwide markets. The Vancouver, British Columbia, company also offers production services on a contract basis to Hollywood producers who in recent years have been attracted to Canada because of the exchange range and tax benefits. Because of its diverse geography, temperate climate, and West Coast proximity, Vancouver has become North America's third largest film and television production center, and Peace Arch has grown apace. Its productions have been sold to, or co-produced with, such notable companies as Disney, MGM, Showtime, Hallmark, The Family Channel, and The Learning Channel. In addition, Peace Arch subsidiary The Eyes Multimedia Productions Inc. creates training videos as well as other materials for corporate clients in a variety of formats, including CD-Rom, web-cast streaming media, and narrowcast media for internal electronic distribution. Another subsidiary, StreamScapes Media, is an Internet-based business-to-business operation that provides multimedia and video streaming services and products to industry, government, and entertainment organizations.

Early 1980s Origins

The founder of Peace Arch Entertainment Group, Timothy Gamble, grew up in the Toronto area. Although always interested in pursuing a business career and harboring a secret desire to become involved in the production of television shows and films, he listened to the advice of his mother, a teacher, and studied both Education and Economics at the University of British Columbia in Vancouver. He paid his way through college by giving tennis lessons and by the less glamorous work of "setting chokers" in the forests of the Pacific Northwest, a backbreaking task that required a massive log to be looped by a cable in order to be hauled out to a landing area. Upon graduation from college in 1980 Gamble began to work as a substitute teacher in Vancouver, but a trip to Rio de Janeiro would soon prove pivotal to his entry into the entertainment business. He visited the city because an older brother, Mark, an engineer, was working there for Westinghouse building nuclear power plants. Noting that Westinghouse was now saving money by shipping videos to demonstrate the installation of specialized parts, rather than flying in a trained engineer, Mark suggested that his younger brother consider entering the video business.

Upon returning home, Gamble checked the Vancouver phone book and found there were few video production operations to provide much competition. Never having used a video camera in his life, he turned to a friend named Reg Worthington, a musician whose day job was driving a bus, to help launch the new business. In 1981, with nothing more than an intention, possessing no equipment and no skills, they searched for their first customer. Hoping that an excursion company might be in the market for videos of their vacation destinations, they picked the name of a likely candidate out of the phone book, Silver Wings Holiday, and cold-called owner Wellington Lee to pitch him the idea. Lee was won over and asked the two young men to fly with a group to Reno, Nevada, two days later and start shooting the promotional piece. To raise $50,000 for the necessary video production equipment, Gamble had to mortgage his home, an act that would be repeated more than once in the years to come. Barely familiar with how to operate the equipment, the partners went to work as soon as the Silver Wings group touched down in Reno. Disaster struck immediately. One of the telescopic legs of the tripod was improperly secured and collapsed from the weight of the camera, which was then damaged by the fall and now inoperable. Gamble, revealing an instinct that would serve him well in the film industry, told his partner to set up the camera again and just pretend to be shooting. It was not until the next day, after finding an electronics engineer at the University of Nevada to repair the camera, that the partners actually began to videotape the excursion.

With a successful assignment completed, Gamble and Worthington were joined by a pair of cousins, Craig Sawchuk and Murray Duncan, who were also teachers. The business was named Medco Productions Inc., the result of fusing the words "marketing" and "educational" to emphasize the two major purposes of their service, to produce either promotional or training videos. After generating just $20,000 in sales the first year, Medco over the course of the next two years began to build up a base of local industry customers. But when the North American economy began to falter, resulting in escalating interest rates, corporations were forced to trim expenses, and video work was an easy budget item to cut. Several of Medco's clients canceled projects, forcing the video partners to take a hard look at the future. Rather than simply make videos for clients on a for-hire basis, they decided to become involved in projects in which the client turned into a partner and Medco would have a stake in the final product. They applied these ideas in the summer of 1983, spending around $45,000 to produce a 40-minute video and booklet about a subject they knew well. It was called Home Video: Shoot Like a Pro. Once again Gamble displayed boldness, this time cold-calling Eli Stern, president of Sony Corporation's American operation, who was won over by the young Canadian and invited him to New York for a meeting. Gamble was promptly sent to see the head of the Betamax merchandising unit in New Jersey, and while he waited six hours for his meeting managed to charm the man's secretary into helping him put together a proposal and type it into final form. As a result Medco landed a deal with Sony for 3,000 tapes, one for each of its North American dealers. The $21,000 profit on the transaction was welcomed, but it was Craig Sawchuk who provided the sweetener, convincing Sony to package their cameras with a card offering a discount on Shoot Like a Pro. The video went on to sell more than 100,000 copies.

Going Public in 1985

Medco changed its name in 1985 to Vidatron Entertainment Group and went public on the Vancouver Stock Exchange, the result of merging the business with a Seattle porcelain-enamel factory owned by a Vancouver promoter. It was an unlikely pairing that would last just two years, at which point both ventures split off and once again went private. The interlude did, however, grant Vidatron the distinction of being the first publicly traded multimedia company of its kind. In the meantime, Vidatron broadened its scope to include a wide range of products, from corporate training programs and consumer instructional videos to television documentaries and commercials. The company also delved into feature films when it acquired Northern Lights Media, which already had a project under way. The resulting movie, released in 1988, was titled The Outside Chance of Maximilian Glick, pleasant family fare that won Best Picture honors at the Toronto Film Festival and the Miami Film Festival. It received limited distribution, however, and did little to forward Vidatron's ambitions in feature films. The terms of the Northern Lights acquisition proved to have a much greater impact than the lack of success of its film, saddling the company with the debt of an original investor. It was during this period that the current chairman of the board of Peace Arch, W.D. Cameron White, became involved with the company, initially helping in 1987 to raise more capital through a secondary public offering, at a time when the Vancouver exchange was booming. The New York stock market crash in October of that year, however, soured all of the North American markets, and when Vidatron's offering was made in January 1988 a smaller crash occurred, resulting in a major disappointment. Only $500,000 was raised for the company.

Undeterred by its introduction to film making, Vidatron soon developed its own project with actor Martin Sheen, backed by the International Movie Group. The co-production, Cadence, a film set in an Army prison, was released in 1991. Reviews were mixed, the film only noteworthy because Sheen appeared on screen with sons Charlie Sheen and Ramon Estevez. Strapped for cash after Cadence, Vidatron shied away from features for the next few years. In February 1992 the company increased the number of common shares, diluting the stake of the original investors, and in the process changed its name to The Vidatron Group Inc. Money became so tight in the early 1990s that the company's landlord locked them out of their offices. Gamble then traded company stock to receive half-equity in a Yaletown building to set up a new headquarters. Unlike so many transactions of the company during this period the real estate deal panned out. Others strained the company's resources to the breaking point. In 1995 Vidatron acquired Media Services, a major Canadian distributor of educational videos, CD-ROMs, and software, but the business proved too specialized and Vidatron eventually unloaded it. The 1996 purchase of Pilot Software, an educational software distributor, met the same fate. A TV commercial subsidiary, Hot Shots, simply folded.

Vidatron also experienced its share of successes. In 1993 it released Heartsake, an informational video about recovering from a heart attack, narrated by Martin Sheen. It was backed by drugmaker Merck Frosst Inc. Vidatron developed other joint venture projects with deep-pocket sponsors, including ElectroJuice, an electrical safety video backed by utility B.C. Hydro. The acquisition of film, video, and TV programmer The Eyes Multimedia Productions also proved to be a fruitful acquisition, which resulted in the formation of the Toolshed division, successful producers of music videos.

Acquiring Sugar Entertainment in 1996

As Vidatron struggled through the mid-1990s, three of its original four partners departed. Only Gamble remained, serving as president, with Cam White now the chief executive officer of the company. Both men agreed as early as 1994 about their goal for Vidatron: to become Western Canada's answer to the fully integrated film and television companies of Eastern Canada--Alliance Communications, Atlantis Communications, and Cinar Films. It was not until two years later, however, that they identified a realistic opportunity to make that dream a reality: the acquisition of Sugar Entertainment, the production company of 25-year Hollywood veteran Larry Sugar. A lawyer by training, Sugar worked for Warner Brothers, 20th Century-Fox, and Lorimar International, among other Los Angeles operations. He formed Sugar Entertainment and produced several films before moving to Vancouver in early 1995 to film programming for Showtime. When his marriage ended he decided to stay in Canada, ultimately gaining Landed Immigrant status and becoming a domestic producer, entitled to tax and funding inducements of the federal and provincial governments. At first Gamble and White signed Sugar as a major tenant in a former restaurant supply warehouse they were interested in converting into a production studio. They then arranged for Vidatron to distribute Sugar's films, and finally asked him to become a partner. Because he was new to the area and saw the advantages of having local partners, Sugar in September 1996 sold his production company for 20 percent of Vidatron and $260,000 in cash, becoming president of Vidatron's entertainment division.

In 1997 Vidatron changed its name to Vidatron Entertainment Group, Inc. and raised $6 million in equity financing as well as arranged a $10 million revolving bank line of credit to support its rapidly expanding slate of projects, most of which were due to Sugar's industry connections. Revenues in 1997 grew fivefold over the previous year to $24 million (Canadian). Among the company's projects in the late 1990s were "First Wave," a science fiction television series and "Dead Man's Gun," a Western series. Vidatron's stock began to trade on the Toronto Stock Exchange in 1998, and a year later was listed on the American Stock Exchange. Also in 1999 Vidatron changed its name to Peace Arch Entertainment Group Inc., alluding to the Peace Arch monument that separates Washington State and British Columbia and symbolizes the good relations and cooperative spirit between the United States and Canada. Because the company was working increasingly with Hollywood as well as expanding its international activities the new name was fitting. Moreover, any lingering confusion with LeGroupe Videtron, a major Quebec cable company, was removed.

In 1999 Peace Arch posted revenues of $51.5 million, a significant improvement over the previous year's $32.5 million, and the third consecutive year of impressive growth. StreamScapes Media was launched in 1999, marking the company's entry into cyber-based products. Of more importance was Peace Arch's expanding slate of television programming. In 2000 "First Wave" entered its third season and "The Immortal" was introduced, as was sitcom "Big Sound." Also in 2000 Peace Arch joined Hallmark Entertainment and Paxson Communications to produce and distribute three new "Christy" movies, based on the exploits of a teacher new to an Appalachian community, circa 1912.

Despite these positive developments, Peace Arch developed funding problems. A lack of financing resulted in the cancellation of "Big Sound." The company also failed to meet certain performance markers in a loan agreement and was forced to fashion a forbearance agreement with its lenders. The company even retained an investment bank in May 2001 to explore its strategic alternatives, although management insisted that there were no plans to sell Peace Arch. Moreover, according to the Vancouver Sun in an October 19, 2001 article, "The relationship between Sugar and Peace Arch founder and president Tim Gamble appears to have soured. Last winter Sugar founded a new production company."

Peace Arch underwent a change in management in 2001. In the spring Juliet Jones, who had been with the company for nine years and served as chief financial officer since 1996, replace White as CEO, although he stayed on as chairman of the board. Gamble remained president but by the end of the year, in which revenues fell to $35.7 million and the company lost $9.2 million, he resigned and Jones assumed that position as well.

Principal Subsidiaries: The Eyes Multimedia Productions Inc.; StreamScapes Media.

Principal Competitors: Alliance Atlantis Communications; CanWest Global Communications.

Chronology

• Key Dates:
• 1981: Medco Productions is formed.
• 1985: Medco becomes Vidatron and goes public.
• 1987: Northern Lights Media is acquired.
• 1996: Sugar Entertainment is acquired.
• 1999: The company's name is changed to Peace Arch Entertainment Group.
• 2001: Juliet Jones is named CEO.