TORONTO – As widely expected, Corus Entertainment today slashed its dividend as part of a plan to reduce debt and re-invest in its core business as it struggles to compete with Facebook, Google, OTT providers, internet radio and global change in content consumption.
Corus is cutting its annual dividend by 79% to $0.24 per share for Class B shares (to take effect Sept. 1, 2018). It also announced a quarterly loss of $935.9 million tied to its devaluation of its broadcast licenses. The loss includes a $1.01-billion non-cash impairment charge related to broadcast licences and goodwill.
Television business revenue fell 5% to $403 million compared to Q3 2017, while radio revenue fell to $38.4 million, compared with $39.3 million in the same quarter last year. The market responded to the news with shares in Corus dropping by as much as 17% to $5.17 at one point by mid-afternoon.
During the company’s third quarter earnings conference call this morning, Corus Entertainment CEO Doug Murphy told investors the cut was made to “to bring down our debt, return cash flow to our shareholders and make necessary investments to improve our business.” The reduced dividend is expected to divert about $150 million annually into reducing Corus debt.
During the call, Murphy also outlined a new long-range plan which he promised will “optimize our core business” and respond to the realities of a market that is "in flux as new choices emerge and consumer behaviours change.” However, Murphy cautioned the plan will take years to fully implement and it could take up to two years before Corus realizes any new revenue growth. (Murphy outlined more of his thinking in a Cartt.ca story earlier this month.)
“At Corus we have to do three things well: maximize our audiences, monetize those audiences, and continually work to rationalize our operation model. Call these our first principles,” he said.
In unveiling his plan, Murphy highlighted that the $2.65 billion purchase of Shaw Media in 2016 has provided Corus “the horsepower needed to gain audience share necessary to compete in Canada and the scope to develop new opportunities.” He noted that free cash flow is at a record high of $333 million due largely to the purchase of Shaw Media.
He added that over the next few years, Corus will focus its efforts to “emerge with fewer, bigger channels and broader, more comprehensive content partnerships.”
Murphy acknowledged that Corus must follow viewers, however and wherever they consume content, if it is to meet its core principles. Part of that will strategy will be to expand the offerings it provides viewers to consume its content. “There are real opportunities to re-imagine our TV products beyond linear broadcasting and to maximize our audiences through premium on-demand offerings,” he explained.
He added that the strategy is already providing returns, and that its Rogers video-on-demand offering has produced growth of more than 100% in viewership in the last six months. The company is also pushing other carriers to offer the premium VOD service to their customers.
Corus is also currently working with Rogers to test its dynamic ad insertion solution to create even more new revenue streams. Murphy says he is also eager for BDUs to provide live local addressable ads in the near future. In order to maximize the potential of these new revenue streams, he says the “industry must develop ways to measure linear and non-linear viewing across all platforms.”
To combat the rise in cord cutters, Murphy said Corus plans to partner with new Virtual Multichannel Video Programming Distributors (vMVPD) when they enter the market in Canada in the next 18-24 months. vMVPDs aggregate live and on-demand linear television (YouTube Live, Sling, etc.) and charge a fee to deliver the content over the internet via internet-connected devices such as Roku and Apple TV.
Murphy says Corus will also continue working to maximize the revenues of its local TV and radio stations which he says are less “prone to disruption from Facebook and Google. “We’ve only scratched the surface of what we can do with local radio and TV,” he added.
During the Q&A portion of the conference call, Murphy referred to the recently released CRTC report Harnessing Change on the future of programming and distribution and called it an “early sign of promise.” He added, however, that change to decades-old CRTC regulations such as liberalizing the rules on how many radio stations any given company can own in a local market “can’t happen fast enough.”
Murphy also noted a trend that advertisers are beginning to return to TV from social media companies like Facebook after recent privacy issues jeopardized their “brand safety.”
Q3 Fiscal 2018 financial results:
Television
• Segment revenues decreased 5%
• Advertising revenues declined 5%
• Subscriber revenues down 1%
• Merchandising, distribution and other revenues decreased 19%
• Segment profit down 6%
• Segment profit margin of 40%
• Goodwill impairment charge of $1 billion
Radio
• Segment revenues decreased 2%
• Segment profit decreased 1%
• Segment profit margin of 30%
• Broadcast license impairment charge of $13.7 million
