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Executives

John M. Cassaday – President, Chief Executive Officer & Director

Thomas C. Peddie – Chief Financial Officer & Senior Vice President

Paul W. Robertson – President Television

Analysts

Adam Shine – National Bank Financial

Scott Cuthbertson – TD Newcrest

David McFadgen – Cormark Securities

Dvai Ghose – Genuity Capital Markets

Drew McReynolds – RBC Capital Markets

Ben Mogil – Thomas Weisel Partners

Eric Bernofsky – Desjardins Securities

Corus Entertainment, Inc. (CJR) F2Q10 Earnings Call October 22, 2009 2:00 PM ET

Operator

Welcome to the Corus Entertainment Q4 analyst call. During the presentation all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, October 22, 2009. I would like now to turn the conference over to John Cassaday, President and Chief Executive Officer.

John M. Cassaday

It’s John Cassaday, welcome to Corus Entertainment fourth quarter and yearend report and analyst call. First of all, thank you for joining us today. Before I read the standard cautionary statement, I’d like to remind everyone that there are a series of PowerPoint slides that accompany this call. The slides can be found on our website www.CorusEnt.com in the investor relations section. I will now run through the standard cautionary statement.

This discuss contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1955. Some of these statements may involve risks and uncertainties. Actual results may be materially different than those contained in such forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the company’s filings with the US Securities & Exchange Commission.

I’d like to introduce you to the Corus Entertainment team available on this call. Tom Peddie, our Senior Vice President and Chief Financial Officer and Paul Robertson, President of Corus Television will be here to help answer any of your questions. So to begin, we are very pleased with the strong results that we delivered in fiscal 2009. As Slides Three and Four show, our revenues for the full year were $788.7 million and our consolidated segment profit for the year was $251.2 million. Both our revenues and segment profit for the year were essentially flat with those of fiscal 2008. We are very proud of these results. We also delivered $93.4 million in free cash flow which bettered our estimates for the year.

Turning to Slide Five, overall television revenues for the year were up 6% and segment profit was up 5%. While overall ad revenues for the division were down 6% for the year, our women’s ad revenue finished the year incredibly strong up double digit. Overall, the revenue for our women’s portfolio were up more than 25% on the continued strength of W, Cosmopolitan Television and the successful launch of VIVA which of course targets boomer women.

Moving to our pay business, the HBO launch drove strong movie central growth and we finished the year with 953,000 subscribers resulting in a 7% growth rate versus last year. We’d like to take this opportunity to thank our cable and satellite partners for their commitment to the growth of pay TV. Our kid’s business also held its own this past year with soft advertising revenues offset by subscriber growth across all of our kid’s channels and a very strong year from a merchandising perspective led by our Bakugan brand.

Turning to our radio division, fiscal 2009 proved to be a challenging year with revenues declining 10%. We do however, have tremendous confidence that the results in fiscal 2009 are due to a cyclical decline in ad revenues. Our radio business enjoys strong ratings which it is worth noting are proving even stronger with the industry switch to PPM. The adjustments that we have made to our cost base position us to take full advantage of an anticipated economic recovery in fiscal 2010.

In summary, fiscal 2009 was a strong year for Corus. We took an innovative approach to seizing growth opportunities and to aggressively cutting costs. We thank all of our employees for their tremendous effort over the past year. As we look to 2010, we will continue to drive growth with the addition of services like Nickelodeon, W Movies and a rebranded Drive-In Classics. We also plan to continue our disciplined approach to managing our costs.

As we discussed at our annual investor day last month we did an excellent job at controlling costs in fiscal 2009 and we will maintain this focus in 2010. We would like now to provide you with some comments on our outlook for Q1 but before we do that if you turn to Slide Six we would like to take this opportunity to update you on the Part II license fee resolution.

On October 7th the Honorable James Moore, Minister of Canadian Heritage and Official Languages announced the settlement between the government of Canada and members of the broadcasting industry on Part II license fees. Corus has treated Part II fees as a disputed regulatory tax and it was excluded from segment profit. This agreement will result in Corus reversing its accruals for fiscal 2007 to 2009 which will have a positive gain to the company’s Q1 fiscal 2010 net income. It will have no effect on segment profit. The amount of this accrual is approximately $16 million.

For fiscal 2010, the newly agreed upon fee will be treated as an operating expense which will impact segment profit but will not change our fiscal 2010 segment profit guidance of between $255 million to $270 million as we announced at our investor day on September 29th. Corus is very pleased with the agreement and would like to commend the government of Canada for their leadership in resolving this dispute. We now have certainty on fees going forward and these fees are below historical levels.

Now, turning to Slide Seven, we will provide some color on our outlook for Q1. With our pay TV business, as you know, we had a very strong 2009. We expect the combination of great programming, strong marketing campaigns and continued solid growth in digital cable adoption to allow this momentum to continue. In Q1 we will and are in fact airing new seasons of Californication, Dexter and Curb Your Enthusiasm along with new series including Bored to Death and Lock & Load.

In September we began a marketing campaign around key shows that included 30 second radio spots and radio on air promotions. In October we launched a major marketing campaign around a free Movie Central On Demand preview with major BDUs that includes billboards, online, newsprint and radio campaigns. We have also embarked on a training program with our BDU call center partners to ensure that they have the information that they need to translate our exciting programming schedule in to new subscribers.

Turning to our specialty channels, we expect stable to moderate growth in Q1. Although ad revenues are running slightly behind last year’s pace, the last seven weeks of bookings have been up dramatically from year ago but visibility still remains a challenge. Just this week we met with a major ad agency who has four blue chip clients who have confirmed that they will advertise in November but they have yet to commit to their buys.

The Corus women’s networks are expected to enjoy advertising and subscriber revenue growth in Q1. W Network’s performance remains strong driven in particular by blockbuster movies and Cosmo TV and VIVA ratings are performing in line with our expectations. We also have a strong fall line up. On W Network season five of How to Look Good Naked and the new series Eat Yourself Sexy and Anna & Kristina’s Beauty Call starring W veteran experts Anna Wallner and Kristina Matisic will launch in Q1 and ratings driver W Triple Fix returns with back-to-back themed blockbuster titles including The Devil Wears Prada, Two Week’s Notice and Bridget Jones The Edge of Reason. VIVA sees the return of Rescue Mediums and the premier of the one hour drama Cold Case while Cosmo TV has series including Oh So Cosmo, Lipstick Jungle and the Rachel Zoe Project.

For Corus kid’s Q1 revenues are expected to grow as some softness in ad revenue was offset by positive subscription and merchandising revenues. On the advertising side food, toys and entertainment remain our top three categories with entertainment pacing the strongest of the three. We remain encouraged about the ad sales on our kids business due to the dramatic lift in both kid and adult audiences with the new PPM data. In the first six weeks adult viewership on our channels was up 87% and kids two to 11 viewership on Y TV and Teletoon have seen large gains as well, up a combined 47%.

At investor day we talked about our co-viewing strategy on Y TV and Q1 pacing sees our adult co-view ad sales up double digit. We are also selling against our continued rating strength and new programming including the launch of Nickelodeon’s the Penguins of Madagascar, That’s So Weird, Everybody Hates Chris and the Next Star Season 2 who’s live finale from Canada’s Wonderland on September 27th saw over one million votes cast to determine the show’s winner. Though there will be no impact in Q1, we also expect the launch of Nickelodeon in Canada on November 2nd to drive growth for Corus Kids.

Lastly, on our kid’s business Bakugan remains the number one boy’s action toy at Wal-Mart and Toys R Us in the US and at retailers in other key territories. We also have a strong promotion for the month of October with McDonalds offering a Bakugan with a Happy Meal in Canada and the US and a Latin American promotion that will follow later in the year. Finally, our radio business has a rather mixed outlook with continued stable results in Quebec, improving outlook in Ontario and Manitoba and continued poor outlook in Alberta and BC.

Overall, we expect our revenues to be in decline in Q1 off of the fairly strong comparison from year ago but at a single digit rate and not at the level of decline we experienced in Q3 and Q4. Specifically in Quebec Q1 is pacing up slightly versus last year with bookings for the last seven out of eight weeks out pacing year ago with overall bookings in that time frame up low double digits. Montreal French is up double digits in the same eight week time frame.

In Ontario Q1 is pacing down slightly from last year but five of the last eight week’s bookings have been ahead of last year and overall bookings in that eight week time frame are ahead of year ago with double digit gains quarter-to-date in key categories like retail and automotive aftermarket. PPM has had an overall positive effect for Corus Toronto and we are seeing signs of recovery that are balanced across the province. For five of the last six months our Toronto cluster has outperformed Tram and we are seeing some inventory tightening in this important, in fact critical market for Canadian radio. We’re also beginning to see some rate increases as a result of this tightening of inventory.

Our western radio markets remain the most challenged in Q1 in part due to the still strong economy in the west in Q1 of last year. Winnipeg remains strong outpacing the market in September Tram and currently pacing above year ago. Vancouver remains challenged but we have seen some very positive signs in the last four weeks with local airtime revenues up high single digit versus year ago. Edmonton and Calgary will remain a challenge for us in Q1 and likely Q2 but we believe that both clusters will begin to recover in the back half of the year.

We hope that you have found our specific comments on outlook helpful. Before we turn it over to you for questions, we have a few housekeeping items. First, you will notice that the format of our Q4 press release has changed from prior quarters. While we continue to provide the same level of financial disclosure, we did not issue a Q4 report to shareholders as we determined it was redundant to our annual report which will be issued in just a few weeks.

When you do receive your annual report you will find that we have provided enhanced segment detail for both our radio and TV divisions which we will continue to provide throughout 2010. We would also like to remind everyone that our annual general meeting of shareholders will be held in Calgary on January 13, 2010 at 4pm Eastern time, 2pm Mountain time. We’ll now take any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Adam Shine – National Bank Financial.

Adam Shine – National Bank Financial

Given the absence of the MD&A maybe I can just start with a few housekeeping items and then focus on more serious questions. In terms of that impaired investment, can I presume that that is Discovery Kids which was cancelled?

John M. Cassaday

Mostly that Adam, yes.

Adam Shine – National Bank Financial

Just in terms of the breakdown of the Part II fees TV versus radio for the Q4 and for the year, those were items that you were given out in previous quarters? Is that something maybe Tom can give out a little bit later on?

Thomas C. Peddie

I’ll dig that out for you later.

Adam Shine – National Bank Financial

Okay, let’s focus on the improving ratings both for specialty TV and for radio. A couple of articles have come out very positively signaling that the ratings really have shown significant boosts in viewership and listenership among some stations. But, interestingly enough there was a piece I guess that went out the other day where [Sonnie Boot] over at Zenith Optimedia said, “Viewing hasn’t changed just capturing viewing is what’s changed.” So could you just talk about your optimism in regards to be able to monetize these improved ratings at some point later in the fiscal year?

John M. Cassaday

A good question. We really characterize the shift in methodology as being essentially like the transition from imperial to metric, at the end of the day we are delivering an audience to people that’s now being measured differently so I suspect that market size will remain as it was in the past. The difference will be is that the allocation of dollars within the total budgets available for conventional television, specialty and radio will change based on a more accurate reflection of where the audience really lies.

So what will happen is the company’s that has improved their competitive position will benefit from the move to PPM. For example, we talked about the relative strengthen that Corus has enjoyed. Serendipitously as opposed to strategically we ended up positioned with a lot of male oriented radio stations. We have traditionally felt that our audiences were being under reported particularly as it relates to getting young 18 to 25 year old males to fill out diaries. We’re now capturing that audience and we’ve seen dramatically improved results in stations that target young males specifically The Edge in Toronto and The Fox in Vancouver. We also saw significantly improved results at AM 640 our male oriented talk radio station in Toronto.

Within the television we saw also some dramatic changes. For example, in the area of women viewing, perhaps in the old says when a women had to come in and signal her intent to purchase by pushing a button on a set-top box she might have been reluctant to do that if she was watching a hockey game with the family or watching a family viewing occasion on Y TV. Now, because of the fact that these signals are picked up by a meter which is being carried with them, those signals and those ratings are in fact being seen.

So the article you saw in the paper talked about dramatically increased audiences of adults, specifically women to Teletoon that exists to an equal decree on Y TV. So, the opportunity for us now is to convey, with compelling data, that this is not unintended or passive viewing or listening but rather real and help advertisers understand the benefit of getting that audience. I mean, the analogy that I used is that years ago people didn’t intentionally go in to Wal-Mart to buy groceries, they went in to Wal-Mart to buy other stuff and they started walking out with groceries and eventually people began to shop at Wal-Mart for groceries specifically.

I think traditionally advertisers have looked at Y TV as unintentional. I think over time with our support and education they will come to see there is a substantial audience which can be acquired affordably and in a world where more for less is kind of the mantra, Y TV will deliver a much needed advantage to advertisers going forward. So, I absolutely think we’re going to be able to translate these improved ratings. I do not think that we’re going to see markets expand as a result of the fact that we’re catching more audience. It’s all going to be about getting our fair share based on the competitiveness of our services.

Adam Shine – National Bank Financial

Maybe just one more before I queue up again later, just in regards to the radio pacings you alluded to sort of single digits rather than double digits that we’ve seen recently. Can I push you a little bit harder just in regards to are we talking mid or high single digits here?

John M. Cassaday

Mid or high single digit declines?

Adam Shine – National Bank Financial

Yes.

John M. Cassaday

Well again, I think it depends. I think we’ll be pretty darn close to even in Ontario, I think we’ll probably be a little bit ahead in Quebec and then in the west because of Alberta and BC I think we’re probably going to be looking at least high single digit declines there. So, net/net I would think it would be closer to the middle than the high end single digits or the low end single digits. I’m thinking right now probably -6 for the quarter.

Thomas C. Peddie

In answer to your question on page 10 of the press release in the supplemental financial information we provide the detail. What it is is that the regulatory fees for the quarter were $1.1 million split about $600,000 to radio and $500,000 to television and on an annual basis it was $5.2 million, $2.7 for radio and $2.5 for television. And, as John said in his opening remarks, it’s our expectation that that fee next year would probably be about two thirds of what it was this year.

Operator

Your next question comes from Scott Cuthbertson – TD Newcrest.

Scott Cuthbertson – TD Newcrest

I just kind of wondered on the radio revenue, I know you guys shifted some radio sales responsibility to CBS or were going to and I noticed that national radio sales were down 23% in the quarter so I was wondering if you could give us a little bit of color on that and help us out if there was any sort of impact as a result of shifting some responsibilities over to CBS?

John M. Cassaday

Well, what Scott’s referring to is at the yearend we shifted responsibility for national ad sales to CBS which is a subsidiary company of course. We own 50% of CBS, our partner is Rogers Media. We did this for two reasons, one we are confident that we can service our customers better by representing larger blocks of national business and secondly we have a significantly lower cost of sales as a result of this single focus of CBS in terms of servicing those national accounts.

So, what you will see over the course of the year is a shift in what we would have reported as local versus national in the past but it’s really the continued focus from an analyst point of view and modeling point of view should be on total radio sales because I think we will have – essentially we’ve scrambled the egg here at least as it relates to tracking how we’re performing nationally and how we’re performing locally. But, net/net we feel that we will be better able to serve our customers, better able to take advantage of national buys and there will be a skew to national from local which is not really market related, more related to the structure that we have put in place to sell our inventory and serve our customers.

Scott Cuthbertson – TD Newcrest

I guess there wasn’t any impact in the quarter but there will be going forward such that we’ll see a shift from national to local?

John M. Cassaday

Well, you’ll see a shift from national to local. It’s too soon at this point in time to see any impact but we would expect that minimally our cost will be down, our costs of sales will be down. We believe our effectiveness will be improved and overtime we will be improved and over time we will see positive results to having CBS represent all of our natural sales business.

Scott Cuthbertson – TD Newcrest

That’s a great segue in to my next question which is just in terms of the cost line for radio and TV, I know that it’s sort of a common topic when I talk to investors is yes these guys did a great job on cost in 2009 but how much of that was just kind of to bring 2009 home and how much of that can be replicated in 2010 or will we see some slippage? Just together with focusing on radio at the moment, what do you think you’ll be able to achieve with respect to the cost line in the radio division this year?

John M. Cassaday

Well certainly we think that the fixed cost we took out are permanent. We do have some variable cost changes that will come back in to fiscal ’11 not fiscal ’10, the unpaid days, the wage freezes, those will be reinstated but at least for fiscal ’10 those costs will stick to the ribs. You can expect to see continued positive year-over-year comparisons on our radio expenses versus fiscal ’09.

Scott Cuthbertson – TD Newcrest

I know you don’t like breaking this out but can you give us any kind of color on how big of an impact Bakugan, the whole merchandising [inaudible] part of your business was in general because it really seemed to help television in the quarter?

John M. Cassaday

Yes, I think if you look at it we’ve given some guidance as to ad revenues on the kids side and you’re aware of what happened on the subscriber side so bottom line is that the incredible success of Bakugan successfully offset the declines in advertising. What we tried to do when we restructured our kids business a year ago was create a portfolio with multiple revenue streams. We recognize that there are some demographic and societal challenges as it relates to kid advertising so we’ve really been focusing on developing the merch side of our business.

You’ve heard this over the last number of years at our investor day and we got a break through. I expect that breakthrough with Bakugan will continue in to the foreseeable future. We also announced our commitment to relaunch Babar which we’re quite excited about in terms of its potential and the relaunch of Beyblade. So again, when we talk about our kids business now we talk about three strong revenue streams: subscriber; ad revenue; and merch. Merch is going to be supported with at least three strong brands going in to next year. Ad revenue is going to be supported by a major focus on co-view supported with outstanding PPM data to back up our efforts in that efforts in that area. And, on the subscriber side we’ll have the positive impact of the launch of Nickelodeon and continued improvements in our subscriber revenues on Treehouse.

Scott Cuthbertson – TD Newcrest

Just one more for me before I get back in line and that’s just on what I call production burn which is just as you probably know the difference between amortization program rights and film investments and payments for film rights and investments in films. It was kind of double this year what it was last year, it was about $47 million this year versus $24 last year and I know there are a mixture of things in there and I know you try to run Nelvana on a cash flow neutral basis but I just wonder if you can comment on the change year-over-year and what the trend might be like for the future.

Thomas C. Peddie

Kind of look at it two ways, one is our production business and one is our television business. As you say, if you combine those two together and compare it to last year the numbers are a little closer. When you look at our difference between amort and program spend on the television side in ’06, ’07 and ’08 it was certainly narrower than in 2009. The thing you’ve got to recognize in 2009 is that we did add some extra channels. With the addition of HBO, with the addition of VIVA our program spend was a little higher. But clearly, one of the things that we’ve said is that our goal is to try and have the two match.

Scott Cuthbertson – TD Newcrest

So hopefully we can look for that lining up a little bit better next year?

Thomas C. Peddie

I’d say more so in 2011 than in 2010.

Operator

Your next question comes from David McFadgen – Cormark Securities.

David McFadgen – Cormark Securities

A couple of questions, first of all just on the kids advertising could you be a little more specific in terms of the performance in the fourth quarter of ’09 and what you think it will look like in the first quarter of 2010?

John M. Cassaday

Well certainly in the last quarter the kids ad business was not very strong. It was down double digits. Y TV is pacing quite nicely in Q1 and I expect that there will be some decline in Q1 but I guess if I could express it the way I was asked previously in terms of low, middle or high single digits, this one will be low single digit decline in Q1. So, much improved and again, the momentum of co-view hopefully as we go through the year will significantly improve that position.

David McFadgen – Cormark Securities

Just on the fourth quarter performance, would you characterize it as low double digit or high double digit? I’m just trying to get an idea on the magnitude of the change.

John M. Cassaday

Closer to 10 than to 20.

David McFadgen – Cormark Securities

Then just on Nickelodeon can you provide us any more details on that channel, when it’s going to launch? If we were to compare the revenues per subscriber on Discovery Kids would Nickelodeon be something similar to that or is it too early to say?

John M. Cassaday

It’s too early to say. We’re locking up distribution but I think the subscriber number on Nickelodeon when we’re all said and done will be substantially better than the total subscriber number on Discovery Kids.

David McFadgen – Cormark Securities

I would imagine that is due to a higher number of subscribers but I just kind of wanted to drill it down on a revenue per sub basis, can you give us any color on that?

Thomas C. Peddie

Well probably in total it’s going to be more than double what it would have been on Discovery Kids on an affiliate revenue standpoint. Then, it attracted a lot more advertising too. It’s really [inaudible] compared to the previous channel which was really kind of marginal. You’re asking also I think about the date of the launch which is November 2nd. On a per sub I don’t know how to do it.

John M. Cassaday

Revenue per sub we’ll have to get back to you on that, we’re still in the midst of negotiations on that. So, as I said it’s certainly viewed as a good proposition and I think we’ll be well rewarded on it but we don’t have a number for you on that David.

David McFadgen – Cormark Securities

Could you characterize the negotiations with [inaudible]? I would imagine they’re quite excited to have this channel given the success it has in the US?

John M. Cassaday

It’s a fabulous brand and it’s one they know will be valued by their subscribers so I think the reaction is very, very positive to the launch of Nickelodeon.

David McFadgen – Cormark Securities

Then just lastly on the radio restructuring, was that for your Quebec business or did it entail some other jurisdictions?

John M. Cassaday

It did entail some other jurisdictions but a significant portion of that was to the restructuring Quebec but also the sales restructuring that I spoke to earlier was including in that number.

David McFadgen – Cormark Securities

Do you expect any more restructuring charges for the radio business in the first quarter of 2010?

John M. Cassaday

No, we’re not anticipating anything at this point.

Operator

Your next question comes from Dvai Ghose – Genuity Capital Markets.

Dvai Ghose – Genuity Capital Markets

First question has to do with movie central, in the past you talk about one out of every two digital subscribers in western Canada, while the growth in fiscal ’09 was pretty good because of the launch of HBO Canada, etc. and the price increase seems to be quite well absorbed by the BDUs, your growth has been a lot slower than digital growth say at Shaw Communications and BDUs in general in the west so what sort of uptick are you taking now of incremental digital subscribers?

John M. Cassaday

Well, I think we’re in to what we would characterize as the second stage of the digital transition. The early adapters were probably many of them higher income strong appetite for gadgetry and the best that television had to offer. We’re now starting to see a lot of the digital subs be attracted by price promotions for digital boxes and offers that weren’t necessarily available to the earlier adopters. So, I think logically we’re getting a lower penetration rate. The opportunity going forward for us is to aggressively market to digital subs who do not carry the service and we’re working very well with our BDU partners satellite and cable to work lists and to directly contact perspective pay subscribers and specifically those who have digitals but who have not so far subscribed to Movie Central.

I think we’re going to move from a market building game to a share game and try to increase our share overtime with aggressive marketing and using a very focused program promotion. For example, later this year with the launch of Pacific, Spielberg’s new miniseries, we’ll hit that really hard. That will attract a lot of interest and attention and we suspect it will result in a spike in subscribers in mid year.

Dvai Ghose – Genuity Capital Markets

That sounds good but could you greater quantify in the past you’re getting one out of two, are you getting one out of three, one out of five, new digital subscribers that is?

Paul W. Robertson

The market may be built by 300,000 digital subs through the year and we added 60,000 or something.

Dvai Ghose – Genuity Capital Markets

300,000 digital subs were added in western Canada in the year?

Paul W. Robertson

I think that’s about right. We added about 60,000 and the market went up about 300,000. I’d just add the lag effect there that Tom was alluding to where when Shaw or any of the BDUs convert somebody in to digital these days they’re not concerned with upselling them on additional programming from the get go, they’re really concerned with just the conversion in to digital, getting them in to the door. The upsell then happens subsequently. So, I think it’s not so much how much we’re getting on day one, it’s really a whole lot more about how much you can get over time through your marketing efforts.

Dvai Ghose – Genuity Capital Markets

Second is also indirectly to do with cable, one of your thesis and I think it’s played out is that Canadian radio is different than US for a number of different reasons including the local avails on US cable. I’m wondering where we stand because I believe that for 2011 that cable in Canada was suppose to be able to advertise third party local avails, local advertising, etc. Is that still on the cards and what sort of threat do you see to the radio business at that time?

John M. Cassaday

Well, it’s under review. We have argued that we do not feel that it is in the best interest of the Canadian broadcasting system for BDUs to have access to these local avails and we will continue to make that point. We are hopeful that we will – the system that it is not required at this time.

Operator

Your next question comes from Drew McReynolds – RBC Capital Markets.

Drew McReynolds – RBC Capital Markets

Just two or three follow ups here, just first on a pervious question just on a breakdown on kind of revenue growth in television, just wondering I know you’re probably not going to specifically quantify the merchandising impact but just wondering going forward in to 2010, this traditionally has been a little bit of a lumpy business, maybe Tom can you give us some kind of guidance here on how we would model that type of lumpiness or maybe back of the envelope margin contribution on the incremental revenues?

Thomas C. Peddie

I think that what I would say is that building on John’s earlier answer is you shouldn’t try to pull it out as a separate item, it’s just too difficult to do. We’ve talked about the success of the new products that we have and that you really need to look at it as a portfolio between subscriber revenue, advertising and merchandising in the television business and that it looks like we have a hit on our hands with Bakugan and as John said it looks like it’s sustainable. I wouldn’t try to get too granular on it.

Drew McReynolds – RBC Capital Markets

Maybe just ask it a different way, I think at the investor day John you were alluding to maintaining if not increasing overall television segment margins year-over-year in 2010. Is that certainly still within reach?

John M. Cassaday

Nothing’s really changed since investor day. I think that our expectation is that we should still be able to improve margins. I mean the big unknown here is what we’re seeing as we sit here today is significantly better ad sales momentum than we saw even in September. Then the question is, is it sustainable? We’re confident based on the economic forecasts that we’ve been privy to that we are seeing a recovery in Canada and advertising will recover with it. So with that as the caveat the answer to your question is yes, we should be able to continue to hold and build our margins on television.

Thomas C. Peddie

I think the other thing that we said at investor day and it was alluded to in one of the earlier questions today is our ability to control our costs. What we’re saying is if we can keep the costs down then the conversion factor on radio is huge and the conversion factor on television is really quite high. So, if you can get that then you can improve your margins.

Paul W. Robertson

I’ll just add maybe one other comment which might be helpful. If you looked at the merchandise portfolio and looked at Bakugan in particular it’s poised for another great year so we don’t see a slip in the amount of revenue that it relates to. Plus, there’s another couple of brands that are coming on big Beyblade and Babar and they’re also substantive programs that will start to generate more revenues throughout the year. So, we have a lot in that merchandising revenue pool over ’09 but we expect to be able to pass that again in ’10.

Drew McReynolds – RBC Capital Markets

Just back to shifting some of the sales over to CBS, maybe a question for you John, in terms of increasing the effectiveness I guess my question is you kind of lose perhaps a little bit of control on that inventory arguably and I’m just wondering kind of what the offset benefit outside of cost is to that arrangement?

John M. Cassaday

Well, I think the real benefit is that they have deep relationships with these major national accounts across the country and they have access to not only our inventory but Rogers and other major players within the business so they’re in a position where they can deal in more meaningful terms and as an individual station on major programs with the likes of General Motors, McDonalds, etc. The other thing is that I think gets lost in the equation is that we are the owner of CBS so they are in fact an extension of our company.

We have an opportunity to influence the course of business there to a greater degree than if we were simply being rep’d by a third party. We’re on the board, we’re actively involved in the governance of the company, we’re actively involved in the goal setting and compensation strategies of the company, we’re actively involved in the funding that they put in to research and we still control the inventory that they have access to on our behalf and we price it in concert with them. But, we do not advocate responsibility for this business, we simply put it in the hands of the people that have the clout to be able to maximize it.

In Quebec we basically did this about two years ago when we consolidated all of our national business in to a rep shop which we call GFR which is a joint venture between Cogeco and Corus and that’s been very successful for us there. We’re very confident that yes, there’s a cost advantage but there’s also an effectiveness benefit here for us and our customers.

Drew McReynolds – RBC Capital Markets

Just the last question maybe for Paul, just back to pay television, clearly good growth I think that was pretty well communicated back in September. Maybe just comment on churn behind the numbers, has there been any kind of major change in that either due to the economy or more broadly?

Paul W. Robertson

We don’t get a lot of detail on churn from our customers to be honest. The best analysis we can make of it is if we’ve got renewing series constantly on the air and we’ve got new series that people are talking about at the water color like Nurse Jackie – but the new programs in combination with the returning series on a phase basis will prevent the churn and that’s the key. If you go through extended periods of time that you don’t have series that people are waiting for or talking about then you’re going to end up in trouble. We ended up in a flat scenario because it was post writer’s strike and we just didn’t have enough good shows being bumped in to the schedule.

Operator

Your next question comes from Ben Mogil – Thomas Weisel Partners.

Ben Mogil – Thomas Weisel Partners

Tom, are you able to quantify for us what acquisitions on the television side contributed say for the quarter and for the year?

Thomas C. Peddie

Ben, we don’t generally provide what I would describe as same store sales. But, what I can say is that the major item in television for the quarter was VIVA which was not there last year. But, the amount is not really material to the numbers but what I can say is that that acquisition is performing equal to or better than our plan.

Ben Mogil – Thomas Weisel Partners

Then Tom while I’ve got you on the phone, you talked before about sort of wanting programming investments to come sort of kind of closer to equaling each other in 2011, not looking for that in 2010. If I look back it’s really only 2008 that you’ve actually had those kind of line up, what makes you feel confident that by ’11 you’ll get there?

Thomas C. Peddie

Well, I think that long term the two lines have to cross but in our particular case we’ve continued to grow. As Paul has said on numerous occasions and as we said at investor day, we continue to invest in programming in line with our conditions of license. If we put the quality programming on the air we’re getting the ratings and then the ad dollars to drive it. But, clearly it’s something that we spend a lot of time on because it’s the biggest expenditure that we make at Corus. And, as I said, 2009 had some acquisitions with VIVA, in 2010 we’ll have SexTV and Drive-In Classics so we’ll have additional incremental program spend on that particular period. At this particular point in time we don’t have any acquisitions budgeted for 2011 so that was one of the reasons I was saying it should be more in line.

Ben Mogil – Thomas Weisel Partners

So as you look forward and I know that Gary talked a little bit at the investor day about sort some requests for rejigging for the Canadian [inaudible] obligations. As you look to 2011, is your expectation that some of the changes that you proposed will possibly be introduced?

John M. Cassaday

Well, because of the Commission’s hearing schedule over the next little while, we think that we probably won’t really have too much definitive information on our licensing until sort of January of 2011 which means it would have a modest effect for us in that year because we need to be able to plan our programming a year ahead. So, I think probably if we’re successful in changes the terms of trade if you will with the Commission, we’re probably looking at fiscal ’12 before we’re able to see it impact our P&L.

Thomas C. Peddie

I just wanted to follow up and comment to you, if you do look at our balance sheet and you look at our program investments is that the amount this year relative to last year really isn’t up by much, it’s only up by about $4 million. So, we manage the balance sheet as well as the P&L and the cash flow.

Ben Mogil – Thomas Weisel Partners

You mean on the net basis, both the programming and film investments together you’re saying?

Thomas C. Peddie

That’s correct. Right.

Ben Mogil – Thomas Weisel Partners

I think last question is probably for Paul and then I’ll let someone else get in on the queue. When you look at sort of the weakness again in food and toys, is there something larger than just some product cycle issues or some cyclicality, is there sort of a structural change in the way those sort of categories are advertising best as you can kind of ascertain given a tough economy?

Paul W. Robertson

Well we’ll take them one at a time Ben. If you look at the food industry, clearly they’ve gone through a lot of changes which people are aware of, working to retool the products to be healthy in an environment where there is a heightened degree of concern around obesity and health. So, what’s happened on the food side is that some of the brands that we use to have, have gone in to hiatus and some just kind of spend less than they use to. But, we continue to work that category and actually work the retail side of the category as well with the healthy oriented promotional overlays and campaigns.

We’ve been putting a lot of efforts in to food in the last while and we get a sense that we can bring that category back to growth but we’ve yet to kind of prove that out. I guess on the toy side we’ve got a whole lot going on. As we took the Nelvana part and put it together with television it really has created a broader vista of opportunities for us with these big toy manufacturers so whether it’s Spin Master, Mattel or Hasbro we have broad arrangements with them.

In the Spin Master case for example, they’re our partner on Bakugan so as you can imagine due to that deepening relationship it opens up new opportunities for us domestically to build out the toy business. These have sort of been the insights that we’ve been coming to over the last few months after creating a combination of the two. We’re quite bullish on the toy business, I think food still needs work. The entertainment has been the one piece of the puzzle as the third category that really has showed some nice uptick.

Operator

Your next question comes from Eric Bernofsky – Desjardins Securities.

Eric Bernofsky – Desjardins Securities

I have a couple of questions on Nickelodeon, I’m wondering if you could talk at all about the structure of the deal with Viacom for that station, is it wholly owned by Corus, is it a joint venture, what can you say about the structure of that deal?

John M. Cassaday

It’s a wholly owned company with a trademark license fee.

Eric Bernofsky – Desjardins Securities

How long is that license for?

John M. Cassaday

A long, long time, it’s an indefinite time period.

Eric Bernofsky – Desjardins Securities

Was there any upfront license fee that has been paid or will be paid this upcoming quarter upon the launch?

John M. Cassaday

It’s all perspective. They’re committed to building their brand and one of their goals is to have the Nickelodeon brand well known around the world and this is just a partnership. We’ve been a long standing partner with them, have licensed much of their output historically and as you recall a year or so ago we licensed all their digital rights so I would say this is kind of a natural evolution of a very full and good relationship between the two organizations.

Eric Bernofsky – Desjardins Securities

When you’re talking advertisers, obviously you’ve referenced the kids segment as being quite soft relative to the other segments that you’re focused on. Any discussion you’ve had with advertisers regarding the upcoming launch of Nickelodeon? Any upfront commitments at all that you can talk about?

John M. Cassaday

No, we’re just beginning to get out and make that sale but there’s interest in Nickelodeon amongst our advertisers. We’ve I think, very deafly positioned both Y TV and Nickelodeon as being complementary services so we’re counting on being able to stimulate the growth of our kid ad business with the launch of this new brand.

Eric Bernofsky – Desjardins Securities

Then just lastly, I guess last year with VIVA coming around and HBO the launch there, you had some sort of one time marketing costs or at least up front marketing costs associated with the launch of those two networks, what are you budgeting at all this coming quarter or at least this fiscal year for Nickelodeon? Is that something that we should think about in terms of having a margin impact in the near term?

John M. Cassaday

We try to manage our overall market budgets by segment. Paul, I don’t know if you can comments specifically, but we’re not looking at dramatically increasing the kid marketing budget to launch Nick.

Paul W. Robertson

That’s right. I think if you look at – and we do get the additional affiliate fees so if you took in to account our two new acquisitions which we hope will come on stream in January, which was W Movies and Drive-In Classics, their net very positive from an earnings stand point and then Nickelodeon also will be a net positive from an EBITDA standpoint. In combination all three networks will help our cause at the bottom line.

Operator

Your last question comes from Scott Cuthbertson – TD Newcrest.

Scott Cuthbertson – TD Newcrest

Tom, math suggested a clean EPS number for the quarter was $0.33, is that what you get?

Thomas C. Peddie

I was going to say that the clear number for the year was about $1.45, I think. Which, if you pull out the broadcast license and the tax rate changes – I’d say that the numbers are fairly comparable this year versus last year for the quarter.

Operator

There are no further questions on the phone lines.

John M. Cassaday

We thank you all very much for your continued interest in the company. We’ll be happy to answer any follow up questions that you have later on. We look forward to talking to you in the weeks and months to come.

Operator

Ladies and gentlemen that does conclude today’s conference call. We thank you for your participation and ask that you please disconnect your lines.

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Source: Corus Entertainment, Inc. F4Q09 (Qtr End 08/31/09) Earnings Call Transcript
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