TORONTO – Producing a hit TV show is a good thing. Making three of them, well, that’s a gold mine, as Alliance Atlantis has found out.
The company released its third quarter earnings report this morning with results beating most expectations. Previously announced international second window sales of CSI contributed $91.3 million to revenue and $40.3 million to direct profit during the quarter, said the company.
Consolidated EBITDA of $74.2 million increased by 112% compared to prior year’s period, including the benefit of the second window sales. Net earnings were $17.7 million, up 45% compared to Q3 2005.
The company did take a recorded goodwill impairment charge of $30 million in the quarter, related to its library and on the broadcasting side (HGTV, Showcase, History, Food Network, Discovery Health, etc), subscriber revenue growth continued, increasing 10% compared to the third quarter of 2005. However, after a decade of virtually non-stop ad growth, Alliance Atlantis’ ad sales actually dipped in the quarter.
"We are exceptionally pleased with the performance of the CSI franchise and the previously announced licensing of certain international second window rights which demonstrate the strong interest of CSI around the world," said Phyllis Yaffe, CEO, in a press release. "In our broadcasting business, we were pleased with continued strong subscriber revenue gains as well as strong audience growth. While advertising revenue was down slightly year over year, we are pacing well in the fourth quarter and in 2007 we believe advertising revenue will increase in line with the Canadian specialty television market expectations. Over the past 12 months, our advertising revenue is up 7%."
Broadcasting revenue of $66.7 million represented an increase of 4% over the prior year’s quarter. Subscriber revenue grew by 10% to $33 million in the quarter, reflecting steady
growth in paid subscribers. Advertising revenue decreased slightly to $32.1 million for the quarter compared to $33 million in the prior year due to slightly lower demand for advertising inventory, explained the company’s release.
During the third quarter, Broadcasting EBITDA of $14.3 million decreased 1% compared to the prior year’s quarter. This represented an EBITDA margin of 21% compared to a margin of 23% in the same period last year. The decrease is primarily due to higher operating expenses related to programming and marketing costs, says the press release. Also during the third quarter, the company invested $800,000 in operating costs in support of digital media initiatives. "This is an important area for growth within the company and over the next year the costs will continue as the company ramps up its various digital initiatives including exploration into the user-generated content space," said the press release.
In the Entertainment segment, CSI revenue of $140.2 million was up $89.9 million from $50.3 million in the prior year’s quarter. The increase was primarily due to significant previously announced second window license fees recognized in the current quarter offset by a stronger Canadian dollar. During the current quarter, the Company entered into several second window licensing arrangements with existing CSI broadcasters and recognized $91.3 million in revenue from these arrangements. The negative impact of foreign exchange rate changes on CSI revenue in the quarter was $12.5 million. The foreign exchange rate for the third quarter of 2006 was $1.13 compared to $1.22 in the prior year’s quarter.
The Entertainment – Other segment of the company, which primarily represents sales made
from the its historical library of program rights, recorded $9.6 million of revenue during the quarter compared to $16.6 million in the prior year’s period. The decrease is primarily due to the prior year benefiting from a large sale of one of the Company’s programs.
Motion Picture Distribution revenue of $107 million was down 8% from $116.2 million in the prior year’s period due to a more modest slate of theatrical releases. As announced, Alliance Atlantis is pursuing a sale of the division, of which it owns 51%.
During the quarter, the company’s broadcasting business acquired programming valued at $16.4 million from the motion picture distribution business, the majority of which relates to library sales.
Steady growth in subscriber revenue on the broadcasting side is expected to continue for the remainder of the year, the company added. Consistent with the traditional sales cycle, advertising revenue is expected to be stronger in the fourth quarter. Margin percentage for the full year is expected to be similar to the prior year as higher margin percentage for our digital channels is offset by incremental investment in programming and online initiatives.
The company expects advertising sales growth for the remainder of the current year and during 2007 to track in line with the Canadian specialty television market expectations. Advertising revenue growth is expected to be driven by stronger demand overall for non-sports broadcast inventory as well as strong ratings growth for the company’s channels. For the 2005-2006 broadcast year the average minute audience was up 21% for HGTV, 25% for Food, 11% for Showcase and 10% for Life Network, over the 2004-2005 broadcast year.
During the quarter, Alliance Atlantis had four digital networks ranked in the top 10 for Adult 25-54 average minute audience among the English language digital specialty networks. Showcase Action, Showcase Diva, BBC Canada, and IFC all ranked in the top 10, with Showcase Action maintaining its No. 1 ranking among digital specialty networks in the Adult 25-54 average minute audience, says the press release.
"Strong network ratings were also achieved for the Company’s analog channels during the third quarter of 2006. Three of the company’s English language established specialty networks (Showcase, HGTV, and History) ranked in the top 10 for Adult 25-54 average minute audience among all Canadian English language established specialty networks," it continues.
"Alliance Atlantis’ digital channels enjoy strong subscriber levels and currently seven of the eight digital channels have surpassed the one million subscribers mark.
