Sports, conventional TV tame Corus gains on Shaw deal

Corus Entertainment Inc.’s first quarterly report since it bought Shaw Media showed the acquisition drove a significant increase in overall revenues, profits and expenses, despite a fall in the division’s revenue due to a drop in its conventional TV audience and advertising. “I wouldn’t attribute the softness to anything but market conditions,” Doug Murphy, Corus’ president and chief executive officer, said on a Wednesday morning conference call with analysts. He made the comment in response to a question from National Bank Financial analyst Adam Shine, who asked about Shaw Media’s nine-per-cent decline in revenue, which he noted was “more than a doubling of what we’ve seen in the prior couple of quarters.” Murphy said that “in general, conventional audiences were down across the board.” He added audiences of specialty channels also suffered, with a “growth in sport-related audiences on specialty… hurt our specialty audience delivery,” citing the Toronto Raptors playoff run, hockey and the return of baseball. “We see it as a one-time blip,” Murphy added, though he indicated the trend might continue in the next quarter. “The Euro Cup is behind us, but we do have the Olympics coming," he said. “In prior summer Olympics, what tends to happen is that you have some advertisers who shift dollars into the sports services, the other advertisers decide to stay out of the market. So we’re being cautious in our forecasting for Q4, but we do see improvements over Q3 on the Shaw Media side and we do see continued buoyancy on the kids business.” It is the first quarter that Corus’s results include its $2.65-billion acquisition of Shaw Communications Inc.’s media divison, and the first without its share of HBO Canada and Movie Central, which were sold to BCE Inc. in November in a deal that was completed on Feb. 29. Corus acquired 19 Shaw specialty TV channels, including Food Network Canada, HGTV Canada and Slice, as well as the Global conventional television network with 12 local stations, to boost its assets to 45 specialty TV channels, 15 conventional TV channels and 39 radio stations. Corus said in its statement to shareholders that the Shaw acquisition is the reason for the “significant increase” in revenues and profits. In a research note, Canaccord Genuity Aravinda Galappatthige noted that “direct year-over-year comparison makes little sense this quarter,” given that previous results didn’t include Shaw Media but did include HBO and Movie Central assets. Revenues for the quarter stood at $360.8 million, up from $203.1 million a year earlier. The company said it saw a 24 per cent increase in merchandizing, distribution and other revenues related to the Shaw acquisition in the quarter, including video-on-demand (VOD) services and TV-Everywhere initiatives like Global Go. Television revenues were up to $321.2 million, a 97.3 per cent year-over-year increase, from $162.7 million in the same quarter last year. Television profits climbed to $127 million from $64 million from last year and radio increased slightly to $9.6 million from $9.4 million in the same quarter for 2015. Overall, radio profit grew two per cent for the quarter, as the division benefited from “strong cost-control measures” and an organizational restructuring that combined its radio and conventional TV stations post-Shaw acquisition, Murphy said. Radio revenue was down two per cent in the quarter — to $39.6 million from $40.3 million in the third quarter of 2015 — attributable to softness in the west, particularly in Edmonton and Winnipeg, with Ontario helping buoy the business, the company said. Corus’ overall profit increased 90 per cent to $130.2 million for the quarter from $68.7 million last year. Subscriber revenues were up nine per cent. Murphy also said on the call that the implementation by the CRTC of its pick-and-pay regime has had a “negligible” impact on Corus’s business. “The combination of the value that a bundle provides our subscribers, with the fact that we have some of the most coveted entertainment specialty channels, and that we have very well designed penetration-based rate cards, has positioned us to be in a good spot with the roll out of the pick-and-pay environment,” Murphy said. Revenues fell below some analysts’ expectations, including RBC Dominion Securities’ Drew McReynolds, who estimated revenues would be $373 million, and Canaccord Genuity’s Galappatthige, who had revenues at $374.2 million. In a research note prior to the release of the results, Galappatthige said synergies from the Shaw Media acquisition should start to be visible by the end of 2016, though he warned that “over the longer run, with still steep declines in the TV ad market, underlying weakness in sub revenues, and pick and pay in the horizon, we have a cautious view of the TV business.” Analyst Phillip Huang of Barclays Capital said in a note Thursday that while he is optimistic about Corus’s ability to integrate Shaw Media cost synergies and while pick-and-pay “appears manageable,” it is hard “not to note that the structural pressures impacting the business are clearly not easing,” citing Brexit as an event that will slow growth in the coming quarters. “Longer-term…we continue to believe revenue synergies from greater scale and pricing power are likely insufficient to offset the secular pressures in the industry.” — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Sports, conventional TV tame Corus gains on Shaw deal

News | July 13, 2016

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Sports, conventional TV tame Corus gains on Shaw deal

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