Corus says COVID-delayed CPE requirements will significantly increase production spending

Corus Entertainment Inc. expects to see a “pretty significant increase in programming costs” this coming quarter, which executive vice-president and CFO John Gossling said is natural given delays on Canadian and foreign production during the COVID-19 pandemic, as well as a CRTC requirement to make up any 2020 Canadian programming expenditures (CPE) shortfalls in the next several years. His comments came at a Friday morning quarterly earnings call with analysts. “The shut-down and slow restart of Canadian productions resulted in the company being unable to meet all of its Canadian programming expenditures (“CPE”) regulatory requirements in fiscal 2020 resulting in a shortfall in spending of approximately $50 million,” the company wrote in this quarter's earnings report. In August the CRTC denied an application by the Canadian Association of Broadcasters -- requesting to waive conditions of licence and regulations relating to broadcasters’ expenditures for the 2020 broadcast year -- and instead ruled that it will allow licensees of the large ownership groups in the television sector to pay any incurred CPE shortfalls as of Aug. 31, 2020, by no later than Aug. 31, 2023. Gossling said Corus is operating under the assumption that its licence -- which expires at the end of this fiscal year -- will be renewed with the same CPE requirements (set at 30 per cent) and programs of national interest expenditure requirements (set at 8.5 per cent of the previous year’s gross revenue). Gossling said the company expects to meet its CPE requirements by the Aug. 2023 deadline. “The company has ramped up its development efforts for new original programming, however there are risks that the company will continue to be challenged to meet CPE requirements, particularly if productions are shut-down again as a result of continuing pandemic conditions and impacts,” Corus wrote in its report. Corus reported $19.9 million in profit this quarter, down from the $30.3 million it reported during the same period last year, representing a 34 per cent decline. Despite the drop in profits, its revenue grew by 13 per cent since the fourth quarter of 2020. According to Gossling the government’s wage subsidy dwindled down to $1 million this quarter as opposed to almost $18 million last year, and regulatory relief was approximately $22 million compared to $35 million. The company was also able to pay off approximately $651 million in bank debt over the course of the year. Corus’ radio sector saw the highest percentage increase in revenue jumping from $19.3 million in 2020 to $25.4 million in 2021 -- a 32 per cent increase. Its television sector reported revenues at $335.8 million, a 12 per cent increase over last year. RBC Capital Markets analyst Drew McReynolds wrote in a note that the television results are “solid” for a “seasonally weaker quarter” and that radio has yet to reach its stride. “Despite the rebound , management indicated that a more robust ad recovery was still being muted by COVID-19-impacted advertising categories, including automotive (supply-chain issues) and retail, travel and hospitality,” McReynolds noted. As of Thursday, the company reached “a new milestone” with more than 675,000 paying subscribers to its StackTV and other streaming platforms. The company ended June 2021 with just more than 600,000 paying subscribers. Television subscriber fees saw a three percent increase this quarter, reaching $125.7 million. “Everything is working -- our advanced advertising leadership in targeting and automation is once again evident in our present revenue growth,” Corus president and CEO Doug Murphy, told analysts on the call. “StackTV's growth momentum and unique value proposition has resulted in a larger market than we anticipated in our original business plan. Demand for our original content … is robust as we ramp up our production investment to deliver more seasons of new and returning shows.” National Bank analyst Adam Shine and Canaccord Genuity analyst Aravinda Galappatthige called Cours an “undervalued” and “notable” COVID-19 recovery story in their respective analyst notes. Murphy added that Corus has more revenue streams to look forward to in the coming quarters. Last Tuesday, Discovery Inc. -- Corus’ joint venture channel partner for more than 20 years -- announced the launch of Discovery+ in Canada. This week Corus began “dynamically inserting” advertising during StackTV video-on-demand content viewing. “Sixty per cent of all viewing on StackTV is on-demand, and up until now, we have not been able to monetize those audiences,” Murphy said. He also claimed that Corus is the only Canadian broadcaster with AI capabilities within Amazon Inc.’s Prime video, which will allow it to offer advertisers targeted ads. -- Reporting by Jenna Cocullo at jcocull@thewirereport.ca and editing by Michael Lee-Murphy at mleemurphy@thewirereport.ca.

Corus says COVID-delayed CPE requirements will significantly increase production spending

News | October 22, 2021

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Corus says COVID-delayed CPE requirements will significantly increase production spending

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