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Executives

John Cassaday - President and Chief Executive Officer

Tom Peddie - Senior Vice President and Chief Financial Officer

Paul Robertson – President, Corus Television

Analysts

Adam Shine – National Bank Financial

Paul Steep - Scotia Capital

Scott Cuthbertson - TD Newcrest 

Drew McReynolds - RBC Capital Markets 

Bob Bek – CIBC

David McFadgen - Cormark Securities 

Corus Entertainment Inc. (CJR) F1Q10 Earnings Call January 13, 2010 9:00 AM ET

Operator

(Operator Instructions) Welcome to the Corus Entertainment Q1 2010 Analyst Conference Call. I would now like to turn the conference over to John Cassaday, President and Chief Executive Officer.

John Cassaday

Welcome to Corus Entertainments 2010 First Quarter Report and Analyst Conference Call. First of all, thank you for joining us today. Before we read the cautionary statement we’d like to remind everyone that there 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. We’ll now run through the standard cautionary statement.

This discussion 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 from 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 and Exchange Commission.

We would like you introduce to you the Corus Entertainment team available on this call this morning. Tom Peddie, Senior Vice President and Chief Financial Officer, and Paul Robertson, President of Corus Television, will join me today.

We are very pleased with our continued strong results. Turning to slide three in our PowerPoint presentation, our revenues for the quarter were $222.3 million up 3% from year ago, while our consolidated segment profit was $83.2 million up 2% from a year ago. Net income for the quarter was $73.9 million or $0.92 basic earnings per share compared to basic earnings per share of $0.51 a year ago.

Net income for this quarter included a $16.2 million reversal of an accrual part II fees and a $14.2 million pick up related to favorable income tax rate changes. Normalizing for these two items would result in adjusted EPS this quarter of $0.61 versus $0.52 year ago.

As we turn to slide four, we would like to remind everyone that we have enhanced the disclosure for both our television and radio divisions to provide more segmented data. We believe you will find this useful.

Our Television division had a strong quarter with revenues of $151.3 million up 7% versus last year and segment profit was up 4%. Overall subscriber growth was up 8% while total specialty advertising was flat. Other revenues were up sharply this quarter driven mainly from the merchandising revenue associated with our successful Bakugan brand.

Our Kids business had a very strong quarter with overall revenues up 9%. Subscriber revenues were up low single digits with growth coming from all of our kids channels. We are pleased to report that we have seen a turnaround in our advertising sales with the return to growth in the low single digits. Food, toys, and entertainment remain the largest categories and in Q1 we saw double digit growth in the entertainment category.

We saw exciting success with our co-viewing audiences this quarter. PPM data has confirmed that parent co-viewing is indeed a strong component of our audience. YTV adult ratings in fact doubled versus last year. This growth and affirmation of audience has translated into double digit adult co-viewing advertising revenue growth at YTV this quarter.

Research has shown that advertising recall rates doubled when families watch television together and this has opened the door to new category development that Corus will continue to monetize with advertisers.

In Q1, for example, we attracted new business from consumer packaged goods, health and beauty aids, and the financial services sector to YTV. We see continued potential in these categories as well as others like travel and tourism.

We also launched Nickelodeon Canada in the last month of Q1 and this brand is off to a great start. Launched in approximately 2.4 million homes, the channel quickly became the number one digital network for kids 6-11. It also benefited from a free preview in approximately 8 million homes from December 15 through January 15. We are confident that the free preview and this world class brand and its highly popular programming will drive growth in 2010.

As mentioned previously, our merchandizing business continued its positive momentum in Q1 driven mostly by the success of Bakugan. The brand benefited from a McDonald’s promotion throughout North America in October and the multi-platform release of the first Bakugan video game from Activision which went on sale on October 20, 2009, throughout North America. Through November, US sales data, the game was the number two selling Nintendo DS game in the US among current Q4 2009 releases and the fifth best selling full priced title among all games for the dual screen system in the month of November. By year end, Activision had sold over one million units through the checkout worldwide.

Now turning to our Pay and Specialty business. Overall revenues were up 6% versus year ago. Subscriber revenues were up double digit with all specialty channels and Movie Central seeing increases. Key drivers for Pay TV included strong performance from returning series Californication, Dexter, and Curb Your Enthusiasm, the impact of the wholesale fee increase for Movie Central, and the continued strong push by our distribution partners to grow their digital distribution, demonstrated by Shaw’s recent announcement that they finished fiscal 2009 with 57% of basic cable households now enjoying digital TV.

In terms of subscribing households, Movie Central’s numbers rose to 958,000 households in the quarter, a 6% increase from the same period last year. Specialty advertising revenues within the segment were down 2% versus last year with CMT experiencing particular softness. We have strengthened their primetime lineup with recent acquisitions including According to Jim, and America’s Funniest Home Videos, which we believe will help improve CMTs ratings in the future.

For our women’s portfolio, advertising revenue were flat to last year. W Network’s top five advertising categories were food, pharmaceutical, retail, entertainment, and professional services. Four of the top five categories experienced double digit growth versus last year with retail down double digit.

Moving to this slide, number five, our Radio division is beginning to trend in a more positive direction. Overall revenues were down 6% versus year ago but segment profit decreased by only 1% versus year ago. In terms of overall revenues we have seen the more positive trending versus the last two quarters with 2009 Q4 revenues having been down 12% and 2009 Q3 revenues down 15% versus prior year.

We did an exceptional job controlling costs in the quarter with a particularly strong contribution from our Quebec region for the savings from recent restructuring are beginning to be realized.

The positive revenue trend for the quarter was driven mostly by results in Ontario and Quebec. Ontario finished the quarter with revenues up 3% versus year ago and outperformed the market according to tramp data. Positive gains were seen virtually throughout the province suggesting a meaningful turnaround in consumer spending and confidence throughout Ontario. We are particularly encouraged by our Toronto cluster results which grew this quarter and which outperformed tramp 11 of the last 12 months. Key category drivers in Ontario included foreign auto, beverage, and retail.

In Quebec, overall revenues were down slightly versus last year but airtime revenue was up single digits. The Corus Quebec radio stations also outperformed tramp led by Montreal French stations whose results were double the market growth in October and November. Continued strong PPM ratings had 96.9 CKOI, 98.5 FM, Souvenirs Garantis in Quebec City and Gatineau leading our revenue growth. Key categories that saw growth included foreign auto, restaurants, home repair, and financial services.

In the West, revenues were down 16% versus year ago and while this is an improvement from the declines of the previous six months, Alberta and BC continued to be challenged by the rate compression of new entrants in the market and the fact that the West also went into the recent economic downturn later then Ontario and Quebec, which suggests to us that their recovery will also lag Ontario and Quebec. The Winnipeg cluster, however, continued to see revenue growth versus last year.

In closing, we will provide some comments on our outlook for the rest of the year, if you would turn now to slide six. We will continue to apply a strong disciplined approach in managing our expenses. Our team did an excellent job in fiscal 2009 and in Q1 of this year, in managing expenses to mitigate the impact of the current advertising environment. At the same time, we will continue to invest in our future.

In Q3 we will launch two exciting new brands, Sundance Channel and W Movies. Sundance Channel is a unique movie and lifestyle channel that will provide a diverse and engaging selection of films, documentaries and original programs that are typically not offered by other movie services in Canada and will launch with programming such as Isabella Rossellini’s critically acclaimed Green Porno and never before seen in Canada, Seasons of the renowned Sundance Series the Iconoclasts which pairs two visionaries like Desmond Tutu and Sir Richard Branson or Madeline Albright and Ashley Judd as they discuss their lives, influences and art.

W Movies is an extension of our successful W Network brand and is an exciting addition to our women’s portfolio. The channel will launch with a couples month with hit movies including Sleepless in Seattle, Shakespeare in Love and Runaway Bride. This channel will also increase our ability to utilize our programming inventory across a wider portfolio of channels. There will be a corresponding increase in expenses in Q2 and Q3 as we launch these new services. Both of these re-branded channels will benefit from broader distribution and more audience and advertiser friendly programming which will fuel future growth.

With respect to our revenue outlook for Q2, first of all, for our kids brands we expect that subscriber, advertising and merchandising revenues will all show continued growth in Q2. For our ad revenues we will build off of improved ratings for boys’ audiences at YTV and Teletoon, and improve kids 2-11 ratings at YTV.

We also expect to see continued double digit growth in adult advertising revenues on YTV from our successful co-viewing strategy. Merchandising revenues in Q2 will also post another strong quarter consistent with year ago levels driven by the Bakugan brand as Season 3 in North America and Season 2 in key international markets prepares to launch.

For our Pay and Specialty Brands, based on our current pacing, we will continue to see subscriber growth from Movie Central and all of our specialty channels. For Movie Central there is a strong slate of programming in Q2 including new series Spartacus: Blood and Sand, which has been delivered to us from Starz Entertainment in the US. Canadian original programming; Bloodletting and Miraculous Cures based on the Scotiabank Giller Award Winning book by Vincent Lamb, and the highly anticipated Steven Spielberg, Tom Hanks epic, The Pacific. As well, we will see a number of popular returning series including Season 2 of Nurse Jackie, Season 4 of Big Love, and Season 8 of Real Time with Bill Maher.

Marketing support will continue in Q2 with key campaigns including a Shaw direct retention campaign, Movie Central High Definition campaign, and specific marketing campaigns for the launch of The Pacific and the launch of Bloodletting and Miraculous Cures. Lastly, despite the Olympics, our overall specialty ad revenue is on track to deliver mid-single digit growth as is our women’s portfolio.

Finally, our radio business is pacing positive in Quebec, Ontario, and Manitoba with continued challenges in Alberta and British Columbia. Overall, we expect our Q2 revenues will be somewhat lower then year ago but the gap will be narrow versus the differential which we just showed you in Q1. In Ontario, compared to the same time last year, our Q2 pacing is ahead by low single digits. Toronto is fueling this growth with current pacing ahead mid single digits. The latest PPM data which was released just last week saw increases for all three Toronto stations which should enhance our selling efforts. We have also seen strong new business so far in Q2 which has outpaced growth at the same time last year.

In Quebec, Q2 is pacing ahead low single digits with French Montreal pacing up mid single digits. Recent PPM data strengthened already solid ratings at 96.9 CKOI, 98.5 FM and CKAC Sports. CKAC sports format gained double digits in its rating performance for its key men 25-50 core demo and we are selling aggressively on our upcoming Olympic programming which will feature a number of our top personalities broadcasting from Vancouver.

In the West, Q2 revenues in Winnipeg are pacing ahead of last year by mid single digits. Alberta will continue to lag the overall national economic recovery in Q2 with expectations of a stronger back half of the year. All clusters are aggressively targeting new business and have a strong focus on local retail business. In Vancouver, our sales management team has been stabilized and Olympic fever is building. Latest PPM data in December has been very good for CFOX and CKNW and higher PPM numbers mean higher rates which will translate into better overall revenues for the cluster over time.

We hope that you have found our comments helpful in providing an overview of our Q1 results and our expanded outlook for Q2. We’ll now take any questions that you might have.

Question-and-Answer Session

Operator

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

Adam Shine – National Bank Financial

Much appreciated in terms of the level of detail you’ve gone through, I think it’s a very solid introductory comment. In terms of the Q1 growth in TV costs I was wondering you and/or Tom could just highlight what the step up there was, is that more of a timing issue in terms of the growth in costs that we’ve seen there or can you attribute some of the delta to some one time costs related to some of the new specialty channel launches?

John Cassaday

One thing I’d say on a real positive note, overall our costs were flat including even the addition of the license fees. Where our costs were up in the quarter was essentially related to the programming costs and the amortization of the programming on the specialty area where we really stepped up the game on CMT to try to shore up our ratings there and increased our spending on our women’s brands viva Cosmo and W to ensure we remain competitive.

There was also some increase in our production and distribution expense coming out of the kids business in the studio because of the focus on getting programming out the door in Q1 for our international broadcast partners.

Adam Shine – National Bank Financial

Would any of that be related, particularly on the later front, one time, especially on the studio front? Should we expect the subsiding of some of these cost increases?

John Cassaday

I think certainly the P&D piece is probably a little bit heightened in Q1 but generally speaking we’re running that studio now like a plant, 52 weeks a year with a pretty good flow of programming out there. Certainly I think that Q1 P&D expenses would be somewhat higher then you would expect over the course of the year.

Adam Shine – National Bank Financial

One quick minor item in regards to some of your disclosures, obviously you have not gone back to restate the fiscal 2009 results, you’ve made it very clear in terms of your disclosure what the contribution is for part II fees below radio and television. You haven’t done so though for your new segments in TV and radio. Is that something that perhaps Tom can follow up with after the call or you’re simply not going to do that?

Tom Peddie

Our part II fees the reversal of the $16 million would say that that was about $5.4 million in part II fees that we were incurring on an annual basis. If you look on a go forward basis if the rate had stayed the same we would have probably had part II fees of about $5.7 to $6 million. What we’re looking at for 2010 is part II fees that will approximate $4 million.

Adam Shine – National Bank Financial

I’m aware of that, I’m just specifically focused on for example when we look at your additional segments for television in terms of kids, specialty and pay and we would look at radio in regards to West Ontario, Quebec, and other we don’t have the 2009 additional breakdown of the part II fees. I was just wondering if that’s something you can perhaps follow up with.

Tom Peddie

I guess we could. I think we have in the shareholders report what the impact was on television in total and what the impact was on radio in total but we didn’t go into the specific detail on each of the segments.

Adam Shine – National Bank Financial

Obviously apropos the news article yesterday with respect to your interest in the Atlantis assets but I think more specifically you seem to be included in the list of four entities that are short listed to maybe make an investment in Canwest. Is there anything that you can provide us in terms of color regarding that dynamic?

John Cassaday

The first point I’d make is that we don’t comment on speculation. The one thing that we did want to say on this call is that we do want to reaffirm our position which we have articulated on numerous occasions. That is that our interest in these assets is related to specific specialty assets. I’d underscore specific specialty assets.

Adam Shine – National Bank Financial

Maybe if I could elaborate a little bit further on that. Historically, I know you’ve said this with others in the course of marketing; I know you did it with me last year. You did specify your select interest. We should not extrapolate from the article yesterday that you’re looking to possibly make an investment in Canwest in the context of its overall restructuring?

John Cassaday

Yes, we’re reaffirming that nothing has changed from our previously stated position. That is that our interest is restricted to certain specific specialty assets.

Operator

Your next question comes from Paul Steep - Scotia Capital

Paul Steep - Scotia Capital

Maybe just clarify the cost then you get that out of the way. Q2, Q3 it’s been pretty clear. You guys did a great job in controlling costs and basically offsetting the incremental program spend. If I read John’s comments right it sounds like we’ll get a bit of a hit in Q2, Q3, how much of a hit is that or how much do you have to offset it or is it just a little bit of a tick down there?

John Cassaday

Are you talking specifically about the increase in program expense?

Paul Steep - Scotia Capital

Yes, the programming expenses just to try to put that to rest as to how much incremental hit there is on that side?

John Cassaday

Historically our program expense has been running ahead about 7%. We’ve been able to offset that with real good work on the overall G&A side to keep our overall expenses below our ad revenue growth. We are, to some degree, a bit of a victim of our own success in that we are being subjected to significant increases in Cancon expenses which are a result of our improved revenues over the last couple of years. That is a factor of our role in Canadian broadcasting and the quid pro quo for some of the protections we enjoy like genre exclusivity. We have obligations on Cancon which escalate in direct proportion to our ad revenue success.

As I mentioned, we’ve also invested in a couple of our brands specifically, CMT we have the launch costs associated with Nickelodeon in Q1, those will be incremental of course throughout the year because that brand didn’t exist last year. Then we stepped up our game on Movie Central over the past year. The challenge for us going forward will be to find a way to amortize the cost of that programming over a broader base. We referred to the fact that we would be able to do that in no small way with the launch of W Movies which will again help is to lay off programming costs across a broader base.

Then a key focus for us going forward is to continue to work on our cost structure to find ways of mitigating the required legislated impact of incremental Canadian content programming expenditures. We certainly recognize that we have a situation here that we have to deal with; it’s a function of our competitive aspirations in terms of foreign programming and our obligatory obligations as it relates to Canadian programming. They certainly had an impact on our leverage in Q1.

Tom Peddie

The other comment I might add is that our goal is to maintain our margins on Television. We had margins last year of 39% and when you look at first quarter margins, the margins are in the 45% range. We will continue to have quarter to quarter fluctuations in our margin in Television as we invest in the launch of new services and as we invest in programming. The way to really look at it is on an annual basis and protecting our margins.

Paul Steep - Scotia Capital

On to the Olympics, on the Radio side you’re signed up as an official there. What’s the response been and how’s the sell through gone, ex the Vancouver cluster, I believe its Quebec where you’re part of the consortium.

John Cassaday

It is only Quebec we’re the part of a consortium. Overall, we just had our Radio management committee on Monday and one of the issues that we talked about is what do we expect to see happening in February. We went back and looked at what happened in previous Olympics. The bottom line is we are not anticipating a significant impact on Radio revenues in February as a result of the Olympics.

We’re privileged to be an official part of it in our Quebec stations, particularly as it relates to the Francophone service. We’re also going to make a good effort at the Olympics to make sure that we can take our local Olympic stories back to our local radio market. From an ad revenue point of view, we see it as hard as it might be to believe, as business as usual.

We’re doing some stunt type activities in BC within the confines of what we’re allowed to do, not being an official Olympic sponsor but doing everything we can to maximize our revenue in an environment where there’s heightened excitement about the games. This should be a revenue neutral event for Radio.

Paul Steep - Scotia Capital

On Radio, the PPM, obviously still early days. What’s your view or your expected impact on some of the clusters as you get the buying community sorted out? What do you think the timeline is till we get back to steady state, is it another one to two quarters, what’s your feel on that?

John Cassaday

Obviously the ad community had the early launch in Quebec to get adjusted to it. We have spent a lot of time with experts from the US who have been working with this a year or so in advance of where we were in Quebec to help make our customers across the country aware of the transition from the diary to PPM. Effectively our message is that this is like a conversion from imperial to metric. Our business is about a $1.4 billion business in the previous diary world, it’s still a $1.4 billion business. Those dollars are simply allocated on a somewhat different basis.

Interestingly enough, if you look at the data on a granular basis, market by market, there aren’t too many changes in the ordinals amongst the top four or five stations in each market which is gratifying. It’s to some degree an endorsement of the quality of data that we were providing previously but it hasn’t created as much disruption as you might have if it threw the whole station lineup on its ear and started over. There’s been a minimal amount of disruption.

Bottom line is that we feel we’re evolving through PPM in an orderly way. Clearly right now our customers are keeping one eye on the diary and one eye on the PPM to try to smooth out the numbers and minimize the costs to their particular clients. We have been blessed with quite good results in the PPM world and we’re very optimistic about our future in terms of gaining share and selling against these improved numbers.

Of particular note to us is our significant improvement in the Toronto market which is of course the biggest radio market in the country, approximately a $250 million radio market. We’ve had nice results there. We talked to this in our opening remarks the Toronto business is coming back nicely for us. It’s encouraging on two fronts.

We need Toronto to work for us to be successful in radio but it also supports our hypothesis that what we saw happening last year in the radio business was a cyclical decline not a secular decline. People have come back to radio in a big way starting in Toronto and that gives us great confidence that we’ll begin to see that bounce back in Alberta and BC in the back half of this year.

Operator

Your next question comes from Scott Cuthbertson - TD Newcrest 

Scott Cuthbertson - TD Newcrest 

You mentioned in the MD&A you’re issuing a prospectus with a view to maybe topping the dead market. I just wanted to get some color on that and take a temperature with respect to any up tick for issuing equity.

Tom Peddie

As we said it is our intention to file a preliminary shelf prospectus. At Investor Day we articulated our strategy of redoing our capital structure. Our current lines of credit are about $800 million. Our goal is to increase our lines to about $1 billion in a combination of bank lines and debt. $1 billion would then give us the capability of continuing our tuck in acquisition strategy. At this particular point in time we have no intention of issuing equity.

Scott Cuthbertson - TD Newcrest 

What’s the business model, I know it’s fairly small, what’s the business model for the radio content syndication initiative in the US?

John Cassaday

It’s really a couple of things. First of all, it will be modest to begin but its part of our essentially strategic thrust to what we call Radio 5.0. There are people out there that believe that radio is an old technology. We believe that it is the technology that will benefit tremendously from new platforms. We moved our radio stations onto the Blackberry platform onto the iPhone platform. We want to make our content as ubiquitous as is possible.

We’re not really that concerned right now about how much revenue it generates but simply to continue to explore new digital opportunities for radio, find new revenue streams and continue to make our brands as relevant as we can. We illustrated that, I think it was in our subsequent event section, it may have been events in the quarter, I don’t recall where it was. It was illustrative only of our quest for innovation in radio and making sure that we continue to keep this medium relevant to consumers going forward.

Scott Cuthbertson - TD Newcrest 

To those US guys pay you or is it just a matter of traffic and reach?

John Cassaday

Its modest payment doesn’t change materially the P&L in any way, shape or form. We are being paid in US dollars.

Scott Cuthbertson - TD Newcrest 

Pretty impressive Pay TV subscriber growth of 6%. You did mention there are some other initiatives around new programming etc. Do you think that that’s sustainable then given the ongoing marketing efforts that you’re anticipating in the next couple quarters?

John Cassaday

Hats off to our primary distribution partner Shaw who’s made a huge effort to improve their digital base. As you know we rearticulated it in our opening comments, they’re up close to a 60% distribution base on digital amongst their basic subscribers so that’s a very, very positive. The corollary of that is that there’s still significant growth opportunity for them and us going forward.

Secondarily, we have the opportunity to convert digital users to our pay platform. We see the combination of continued aggressive deployment of digital boxes in Western Canadian homes and excellent programming coming at us particularly from HBO and Showtime being real promotable opportunities for us to continue to build our base and our share.

Scott Cuthbertson - TD Newcrest 

The CapEx is a little light in the quarter are you still on track to spend $90 million this year? Just wonder if you could give us any indication of the seasonality of that?

Tom Peddie

As you know, that number is still the number that we’re using. It could be a little higher. We’re not changing our free cash flow guidance. We anticipate moving into the new facility starting in April/May and so we’re continuing to spend against that to make sure that we’re on time and on budget. You’ll see more of the capital expenditures in the back half of the year.

Scott Cuthbertson - TD Newcrest 

Any expenses that are going to hit the P&L right around the move like moving costs or something like that?

Tom Peddie

No, I think the one item that will hit our P&L later in the fiscal year is when we redo our bank agreement; we’ll have additional charges for redoing that. Nothing significant from a move cost that will hit the P&L.

Scott Cuthbertson - TD Newcrest 

I wondered if you could give us any help with modeling Sundance and W Movies, any general expectations on revenue expenses in the early days.

Tom Peddie

What we said when we did the acquisition was that we paid $40 million for those two channels and they were generating about $4.7 million in EBIDTA so that gives you an indication. We will certainly incur launch costs on those particular channels when they are re-branded W Movies and Sundance. Certainly we’re comfortable with the run rate on those.

Paul Robertson

We want to preserve the EBITDA on the two of them as much as possible obviously in the early going. The work that we’ve done on repositioning and representing to the trade aren’t so substantial that they would reduce our margin. We’ve been successful in developing the subscriber base on both of them. W Movies should be close to three, Sundance certainly over two. We’ve already done some good work in terms of early establishment and we’re really enthusiastic about the potential.

Scott Cuthbertson - TD Newcrest 

What’s the top line on those, can you tell us? The revenue.

Paul Robertson

I don’t know the number off the top of my head; I’ll have to get back to you on that.

Operator

Your next question comes from Drew McReynolds - RBC Capital Markets 

Drew McReynolds - RBC Capital Markets 

On the Radio outlook for Q2 I did miss how the West was pacing.

John Cassaday

The West is pacing better then it did in Q1 but we expect still negative revenues in Q2 likely low double digit softness in Western Canada. Again it’s all in BC and Alberta and I’d say BC is coming back quicker then Alberta.

Drew McReynolds - RBC Capital Markets 

From a bigger picture perspective a couple of your comments last quarter were on the tone from national advertisers improving yet commitments were not necessarily forthcoming. I’m wondering if you can talk to any change in that as well as when we look into the back half of fiscal 2010 it sounds like there’s been a slight improvement in the visibility that you have looking into that period versus the previous quarter. Maybe just comment on those two items.

John Cassaday

Are you talking about radio now?

Drew McReynolds - RBC Capital Markets 

No that would have been just across the board.

John Cassaday

Certainly on Television I think we’ve seen pretty strong messaging right from the get go. To remind you that we reaffirmed in the last call that our up front market was as strong as it was the previous year and that all advertisers that had been with us were back. We’re seeing continued good momentum there and I think real good indications that the television business is in fact improving without question.

As it relates to Radio and national advertising, we started to see a real nice up tick in November. Quite frankly as we sit here today there is a lot of big national business pending coming out of the end of the year and the Christmas break. I’m not concerned about national I just don’t have a good feel for what the outlook for national advertising is as we sit here on this particular call. A week from today I might have a completely different picture but there’s a lot of pending business of major national advertising like Sleep Country, for example which is pending.

What we are trying to signal is that the light went on in November as it related to overall ad spending, it continued in December, the pacing is strong in January with the exception of Alberta and BC it appears at this point in time like the worst is behind us and we’re on our way back as it relates to an improved ad economy.

Paul Robertson

I just might ad a little more color on the TV side. As we approached those weeks before the holiday season, the last four weeks of December they’re always very big weeks for bookings. I think it’s probably the same on the Radio side. We saw a really sharp lift in pick up there and that was a huge turning point. We’re starting to see some traction in November but then some very substantial lifts in December.

The other thing of significance since the last time we chatted is that we do our annual bookings for customers that renew on a calendar basis. Significantly those commitments were done at a growth in revenue when prior to that are up fronted and stable to the previous year, wasn’t showing any growth. We felt that that was symptomatic of an improving mood among our agency and advertisers that things are looking up.

Drew McReynolds - RBC Capital Markets 

Shifting to merchandising revenues, clearly a little tricky to model on a quarterly basis. You did allude to holding your revenue momentum in Q2. Just wondering if you can talk maybe on an annual basis and not necessarily on revenues but more on profitability and how profitability of those merchandising revenues and specifically Bakugan would trend year over year.

John Cassaday

You’re right in saying those are more difficult to project then our traditional businesses, particularly the subscriber revenue on our traditional businesses. Certainly the expectation that we have on Bakugan is that the current pace will continue for a period of time. We’ve had good feedback through our partner Spinmaster about the reaction to the product line from particularly Wal-Mart and Target. They continue to be optimistic that this brand had legs and will be successful into its third year.

We’ll begin to shift that product for year three any time now so just cleaning up what I understand was a very strong Christmas period for Bakugan. All I’d say right now is that we are not expecting a drop off of Bakugan in the immediate term and we’re rather hopeful that we’re going to get some sustained growth out of that.

Having said that, we are protecting ourselves with some follow up activity. We’re re-launching BeyBlade, we’re very hopeful with our partnership with Hasbro that that brand will give us yet another shot in the arm. Then of course we’re excited about the prospect of getting Babar going. Probably won’t see any meaningful merchandising impact from the re-launch of Babar until into the next fiscal year. The 3-D TV series and renewed interest in a movie around the Babar brand all suggests that that is another mark that has good merchandising potential for us in the future.

It’s a tough one to forecast but, I guess the only advice we could give to you today is same game but better. We don’t expect to see any drop off in that at least in the foreseeable quarters.

Drew McReynolds - RBC Capital Markets 

Post the waterfront and moving into Corus Quay, can you give us a sense of what annual depreciation looks like once you start to amortize some of the capital expenditure?

Tom Peddie

I don’t have that specific number at this particular point in time. I think what I can say is that when we looked at our overall capital expenditures we said we’d spend about $140 million over a three year period which would compare to about $75 million that we would normally spend. What you’re really looking at then is the depreciation on an extra $75 million.

Operator

Your next question comes from Bob Bek – CIBC

Bob Bek – CIBC

On the Radio you’re talking about obviously seeing a nice bounce back in some markets. You mentioned rate compression continues to be an issue in the West. Can you update us on whether that continues to be just simply a function of the new entrants and whether you think a balance in demand at some point in the West will address that issue and see some recovery in the rates and whether or not you’re seeing any rate compression in other markets stemming from perhaps local competition from newspapers or other ad issues in the local markets?

John Cassaday

I would say the rate compression issue is largely restricted to Edmonton, Calgary, and to a lesser degree Vancouver. I would say that a significant percentage of that is due to the fact that there were just too darn many new licenses issued in those markets. We believe the commission aired here that they were reacting to very buoyant economy in Alberta and anticipating that advertising was completely elastic. We’ve been saying time and time again it is not. We need to stage these new entries more sensibly then we’ve been doing. It’s going to take us some time.

I don’t think it is reasonable to expect that if you see rates dropping by as much as a third that you’re going to be able to get that back immediately simply because the economy pulls back. Somebody that’s paying $80 a spot today is not going to go back to $100 tomorrow just because we declared victory on the economy. We’re concerned about that; it means that we’re going to have to work really hard on our ratings.

I’ll tell you one thing about this environment, you’d rather be in a position that we are right now with 35 plus shares of market then a fledgling new station trying to meet payroll. I think there’s going to be some fall out in Edmonton and Calgary as a result of over licensing. We will stay the course; we’ve got great brands, great relationships with our customers, great talent, and great sales forces, but no question we’ve been impacting by rate compression.

Bob Bek – CIBC

On the Television, the co-viewing strategy that you developed a couple of year’s ago, you’ve been talking about it for some time. This feels like the first time you’ve started to see some concrete support and ad support for the co-viewing strategy. Is this a bit of a turning point as far as building momentum on the efficacy of co-viewing and driving it into results instead of just a strategy?

John Cassaday

I think the issue that we had historically, we had compelling data but we didn’t have corresponding data from the mark to metered system to prove it. The reason for that is that if Mom came into the television room the family room to watch TV with her kids she wasn’t registering her vote by pushing the button and saying I’m here. Of course now with the PPM as she comes in and spends that valuable time with her family watching television that audience is recorded.

The eureka moment was when the PPM data came out and reaffirmed what we’ve been saying for the past two years. We are seeing some great, great results as a result of that. It’s going to take time to build this and to cause major packaged goods companies in particular to change long standing patterns and begin to move into this area.

We just spent some time with our Board yesterday reviewing this co-viewing strategy because it is exciting to us as you’re suggesting. We’ve had great success in bringing financial service clients to YTV which we’ve been talking about doing for five years. We’ve brought a number of new categories to the brand as a result of the arrival of this PPM data which saw our actual family viewing or adult viewing increase by double what we had before. All of a sudden now we were able to essentially hit the bulls eye in terms of our messaging to the client with the actual data that’s been revealed by PPM.

Bob Bek – CIBC

On taxes going forward beyond the Q1 effective tax, is this statutory rate a decent place to start for the back three quarters?

Tom Peddie

Yes.

Operator

Your next question comes from David McFadgen - Cormark Securities 

David McFadgen - Cormark Securities 

A couple of questions on Nickelodeon, I just want to confirm, the number of subscribers that are paying is 2.4 million correct?

John Cassaday

Correct.

David McFadgen - Cormark Securities 

The 8 million homes that it was in the preview did that include or exclude those 2.4 million?

John Cassaday

The 2.4 million is included in the 8 million.

David McFadgen - Cormark Securities 

They come off and obviously you’re hoping for a decent bump after they’ve had a chance to sample the product, correct?

John Cassaday

Yes, so now we go back and we demonstrate that there’s a limited amount of repeat programming on YTV and Nickelodeon, i.e. this is a value added brand. It’s a brand that all of our customers are well aware of and importantly we’re getting great rating results. Now Doug Murphy and Andrew Eddie who heads up our distribution side of the business and Paul need to just reinforce the value of this brand to these customers across the country and they’ve got to work it into their system.

We think there’s significant opportunity here but I think what Paul mentioned earlier is that unlike a lot of these other digital launches which start off with the minimal number of households, we hit the pavement running with 2.4 million on Nick, hit the pavement running with 3 million on W Movies, hit the pavement running with about 2.25 million households on Sundance. These all of a sudden become immediately out of the box, viable, advertiser brands and we can build on that as well.

David McFadgen - Cormark Securities 

What’s the advertiser reception been to Nickelodeon?

Paul Robertson

Extremely positive. We get instant name recognition. They’ve known for years that this brand is just a powerhouse in the US and that it hasn’t been available to their viewers. It also provides strategically some opportunities to work the programming between YTV and Nick. For example, we could really concentrate on co-view on the YTV side, so working the two brands strategically. We’re really enjoying some great customer acceptance in the early going. It’s going to work very well in our portfolio.

David McFadgen - Cormark Securities 

A question on the Radio business, you talked about in your MD&A a lower commission structure. Is that the impact from moving some of your business to be handled by CBS?

John Cassaday

That’s right. We moved about 10 million what we called low touch business out of our sales forces within our clusters and into CBS a company which we own 50% of. The commission structure at CBS reflects the fact that it’s largely transactional business. Those savings that we generate there are ongoing.

David McFadgen - Cormark Securities 

Could you contrast the performance of the Vancouver market versus the Alberta market? I’m wondering how well or how much better its doing relative to the Alberta market.

John Cassaday

Over the past six months they’ve all been equally soft in terms of their performance versus year ago. There’s really been little to differentiate Calgary, Edmonton, and Vancouver in terms of their year over year performance. What we are seeing though is better momentum in Vancouver now then we are from Calgary, Edmonton and I’d say we’re probably seeing somewhat better momentum in Edmonton then Calgary.

Clearly there is the likelihood that we will see some significant improvement in British Columbia sooner then we will in Alberta. We are expecting both of those markets to begin to recover in the back half and that is what we’re forecasting and what we’re confident will occur.

Operator

There are no further questions at this time. I will now turn the call conference back to you. Please continue with your presentation or closing remarks.

John Cassaday

As always, we thank you for your interest in our company. We would remind you today that we are hosting our annual general meeting here in Calgary, that will be at 4:00pm Eastern Time, 2:00pm Mountain Time. We invite you to visit our website for that at www.CorusEnt.com to listen in on that. Thank you again for joining us today.

Operator

That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day.

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Source: Corus Entertainment Inc. F1Q10 (Qtr End 11/30/09) Earnings Call Transcript
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