MONTREAL – While Cogeco Inc.’s radio division is turning around, drawing larger audiences, the performance of the company’s television division, TQS, “obliges us to evaluate our forecasts for the media sector downwards for the 2006 fiscal year," Louis Audet, president and CEO of Cogeco, said today in presenting his company’s third quarter results.
Operating margins on the media side plummeted from 20.5% in the third quarter of 2004 to 14.3% in Q3 2005.
While the company’s large cable division routinely draws the most press – and the bulk of the company’s revenue, its radio division is improving after a number of stagnant quarters. "As far as radio is concerned, results should improve significantly due to the excellent audience ratings of our network stations, in progression in their markets,” added Audet. Cogeco owns the Rythme FM stations in Quebec.
However, “in television, TQS revenues are suffering from declining audience ratings, which continues to face a difficult advertising environment for conventional television. However, the additional investments in programming that are planned for the coming fiscal year should generate ratings in line with our expectations and therefore, should increase our profitability.” Cogeco owns 60% of TQS with minority shareholder Bell Globemedia.
Audet, in this morning’s conference call with financial analysts, says that TQS was caught a little flat-footed by an upsurge in popularity of Radio-Canada (French-language CBC), combined with TQS’s own drastic cost-cutting in 2004. “French CBC has become a lot more popular in its approach, which is in stark contrast than it’s prior history,” said Audet, who then added that in 2004, in a bid to improve profit margins, “had, in fact, cut things to the bone,” at TQS, which combined for this quarter’s poor results, which will extend into future quarters.
In response, the channel will be spending heavily on new programming with a made-in-Quebec version of The Bachelor this fall and Loft Story 2 in the Spring. The first Loft Story, in 2003, yielded very high ratings for the channel, which has always been second or third in the Quebec market, behind perennial ratings leader TVA.
Audet also added that the company has not yet found a new broadcasting division CEO but the search “is progressing normally,” he said. Michel Carter, who announced in March he wants to retire, is staying on until the company finds a suitable candidate, said Audet.
Overall, Cogeco Inc. revenue for the third quarter, ended May 31, rose by 3% compared to the same period last year to $173 million. Cable revenues, driven by improved high-speed Internet access penetration as well as rate hikes, went up by $7.7 million or 5.8%.
Media (radio and TV) revenue decreased by 7.7% to $33.4 million. Radio revenue increased by 25.6% and 22.8% in the third quarter and first nine months, respectively, mainly due to improved fall ratings for the Montréal RYTHME FM station, said the company. In addition, the spring results of BBM audience rating measurements, higher in the targeted groups, should lead to further growth of future radio financial results. RYTHME FM ranks No. 1 in the Montreal market. Furthermore, revenue and operating expenses for the Québec City RYTHME FM station were capitalized in fiscal 2004 but not in fiscal 2005.
Television revenue decreased by 11.7% and 5.7% in the third quarter and in the first nine months, respectively due to a decline in TQS’s audience ratings.
As for 2006, “(g)iven that advertisers are increasingly turning towards specialty channels (of which Cogeco owns none) rather than conventional television, conventional television broadcasters have increased significantly their television programming budgets,” says the Cogeco release.
“Management anticipates that television revenues will stabilize. TQS will invest more in its programming to strengthen its ‘black sheep’ image, particularly in dramatic and reality show productions, in an effort to boost its audience ratings. This additional investment will result in lower operating income before amortization, but is necessary to ensure the future profitability of TQS.”
Radio, however, will continue in the other, upward direction. “Operations should benefit from the favourable BBM ratings recorded in the spring and from the deployment of the RYTHME FM network,” says the company. “Consequently, the operating income before amortization should improve significantly. The financial results of the RYTHME FM radio stations in Sherbrooke and Trois-Rivières, which were launched at the end of the 2004 fiscal year, will no longer be capitalized as start-up activities in the 2006 fiscal year.
