Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Douglas D. Murphy - Executive Vice President and President of Corus Television

John M. Cassaday - Chief Executive Officer, President, Director, Member of Executive Committee, Member of Audit Committee, Member of Corporate Governance Committee and Member of Human Resources Committee

Thomas C. Peddie - Chief Financial Officer and Executive Vice President

Chris Pandoff - Executive Vice President and President of Corus Radio

Analysts

Paul Steep - Scotia Capital Inc., Research Division

David McFadgen - Cormark Securities Inc., Research Division

Scott Cuthbertson - TD Securities Equity Research

Drew McReynolds - RBC Capital Markets, LLC, Research Division

Tim Casey - BMO Capital Markets Canada

Corus Entertainment (OTCPK:CJREF) Q1 2012 Earnings Call January 10, 2012 12:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Corus Entertainment's Q1 Analyst and Investor Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, January 10, 2012. I would now like to turn the conference over to Mr. John Cassaday, President and CEO of Corus Entertainment.

John M. Cassaday

Thank you, operator. Good afternoon, everyone. I'm John Cassaday, and welcome to Corus Entertainment's fiscal 2012 first quarter report and analyst call. Thank you for joining us today. Before we read the cautionary statement, we'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 at corusent.com in the Investor Relations section.

We will now run through the standard cautionary statement. This discussion contains forward-looking statements, which may involve risks and uncertainties. Additional information concerning factors that could cause actual results that materially differ from those in the forward-looking statements is contained in the company's filings with the Canadian Securities Administrators.

Now I would like to introduce you to the Corus Entertainment team. Joining me on the call today is Executive Vice President and Chief Financial Officer, Tom Peddie; Doug Murphy, Executive Vice President and President of our Television division; and Chris Pandoff, Executive Vice President and President of our Radio division.

Turning to Slide 3 of the PowerPoint presentation, we are very pleased with the results that we achieved in the first quarter of fiscal 2012. We finished the quarter with consolidated revenues of $237 million, up 7% from year ago and consolidated segment profit of $91 million, which is up 1% from last year. The prior year's numbers have been adjusted to reflect the sale of Quebec Radio, which was sold in February 2011. It's also important to note that the financial statements for Q1 2012 are prepared for the first time in accordance with International Financial Reporting Standards.

Turning to Slide 4. We were very satisfied with our Q1 results, and were particularly pleased to see renewed signs of strength in the ad economy. Revenue increases in the quarter were driven by Television, primarily from strong ad spending on our Women's portfolio, which saw double-digit growth and continued growth in our international Kids business, powered by exceptional merchandising sales.

In our Radio business, our Vancouver cluster is turning around, and Radio continues in its role as a strong cash flow generating business for Corus. In Q1, our net income from continuing operations was up 9%, and we are pleased to announce that our strong cash flow has allowed us to deliver a significant monthly dividend increase of 10% to our shareholders, bringing our annual dividend on Class B shares to $0.96 per share.

Now moving to Slide 5 and our Radio division, Radio faced some challenges in the first quarter from a fluctuating economic environment. Ad revenue and segment profit were down 5% and 11%, respectively. We saw some softness in Alberta and Ontario, resulting in an overall decline in Radio revenue for the quarter. But we also saw some positive signs with TRAM reporting that some of our key clusters, including Vancouver and London, outpaced the market. Importantly, as stated previously, we are seeing signs of recovery and growth in Vancouver and continued strength in Winnipeg. The division also demonstrated disciplined cost controls with expenses down 2% for the quarter, driven by reductions in variable costs. While economic fluctuations affected the division's first quarter results, Radio remains an important part of our portfolio. This business continues to deliver significant free cash flow for the company, which in turn, allows us to increase our dividend and invest in programming for both Radio and TV.

Television achieved very strong revenue growth in Q1, up 10%. Despite the challenging economic climate, Television saw gains in specialty advertising revenues, successfully controlled costs on our core business and benefited from a huge upsurge in Beyblade sales, but those sales came with a higher cost base. The bottom line is that we are well positioned for a turnaround in the economy.

In Q1, our specialty ad revenues were up 3%, driven by growth in the Women's vertical, while the Kids business saw some ad revenue softness in the toy and entertainment categories. The portfolio continue to benefit from the ongoing monetization of our co-view audience and our strong merchandising business.

The merchandising and distribution business in our Kids portfolio continued its upward momentum, generating exceptional revenue growth in Q1, primarily from Beyblade merchandising sales, as well as Bakugan and The Backyardigans. On the international broadcast distribution front, 3 new comedy series were sold by Nelvana Enterprises to Cartoon Network in Latin America, Mr. Young, Sidekick and Scaredy Squirrel and a deal with Disney Channel and Disney XD was secured for broadcast rights to Scaredy Squirrel in Europe and beyond.

Our Women's portfolio made strong ratings gains in Q1 led by W Network, which continued to build on its strength in movies. This fall, the service incorporated an additional movie block on Sundays, resulting in more movie offerings and a lift in audiences. Movies, coupled with the strong appeal of Canadian homegrown hits such as Love It or List It and Property Brothers, were key to the network's success in the quarter.

Our newest channel offering, the Oprah Winfrey Network, continued to build momentum this fall with the launch of 2 big promotables, the Rosie Show and Oprah's Lifeclass, which contributed to an 8% increase in the network's primetime audience compared to year ago. Continued subscriber gains at both CosmoTV and Nickelodeon contributed to overall subscriber revenue growth of 1% for the division.

On the Pay front, Movie Central launched a new season of HBO's Boardwalk Empire and 24/7 Flyers versus Rangers rode to the winter classic, and finished the quarter with 973,000 subscribers. We also renewed our exclusive long-term output agreement with NBC Universal, which encompasses linear and non-linear rights and provides Corus with access to an extensive catalog of new theatrical feature films to ensure that we provide premium and exclusive content to our subscribers.

Moving now to Slide 6 and our outlook for the next quarter, we can report that overall, the ad markets are pacing well, and we are forecasting that revenue growth will continue in Q2, led by our Television division. In Radio, we are forecasting growth in revenue in Q2, coming off the fall ratings book. Annual 52-week bookings have improved significantly and pacing in Q2 has also improved.

Alberta and Toronto are single digits ahead in Q2 pacing as of today. We are seeing improved rates and higher sellouts in the larger markets, which may be signaling some strength in overall ad spend. We are encouraged by signs that a turnaround is underway in Vancouver as the cluster continues to rebuild its core demo and benefit from a more focused programming and sales strategy. We also expect Winnipeg to benefit from the relaunch of our FM station and target demographics, strengthening the overall cluster product mix and our leadership in that market.

From a ratings perspective, according to recent PPM results, our stations ranked well overall, representing some potential revenue upside for the business, particularly in Toronto, London, Kitchener, Calgary and Vancouver.

Now turning to Slide 2 and focusing on Television, in Q2, we anticipate another strong quarter for the division with mid-single digit specialty ad revenue increases, driven by our Women's vertical, as well as continued growth in our overall Co-view business. On the Women's networks, we expect to see gains from our newer channels as well as W Network, which continues to see increased ratings as a result of a refreshed programming strategy and effectively leveraging our strength in movies. W Network kicked off Q2 with an aggressive push behind its holiday programming, which coupled with a strong lineup of new series and stunt events launching this winter, is expected to drive tune-in and revenue growth for the network.

Among the programming highlights W is launching Undercover Boss Canada, a new series that we are very excited about. New seasons of Candice Tells All and Love It or List It as well as love-struck, a heavily promoted stunt event leading up to Valentine's Day that will feature 14 days of romance-based movies, premiers and favorites. We also anticipate advertising growth from the Oprah Winfrey Network, which is a powerful complement to our Women's vertical. This brand continues to benefit from a strong distribution platform, a significant investment in original programming and of course, it's the only place to find Oprah. With Oprah's full attention on OWN in her expanded role as Chair, CEO and Chief Creative Officer, we're excited about the opportunities to grow this network.

One of the highlights of this month's programming schedule is the debut of Oprah's Next Chapter, Oprah's own highly anticipated weekly interview series that takes her out into the field with guests including George Lucas, Sean Penn and Steven Tyler. In addition, the network is launching 2 new original series brought to us from Vancouver, Million Dollar Neighborhood, a reality series about a community that comes together to raise their collective net worth by $1 million, will be supported with an extensive social media campaign, and we expect it to generate a lot of attention. Oprah Winfrey Network in the U.S. has also picked up this series, and will announce the air date at a later time.

Gastown Gamble, which follows a successful Vancouver restaurateur who takes on the challenge of resurrecting a historic and iconic building in an effort to revitalize Vancouver's lower east side neighborhood will also benefit from extensive PR campaign, which includes high-profile launch events in both Vancouver and Toronto. As well, having access to Oprah Winfrey Network's U.S. digital assets allows us to continue to leverage Oprah's loyal fan base and her active social media community to drive engagement and viewership. We are also anticipating gains on CMT with the launch of new programming in primetime. A new series, Sweet Home Alabama, a bachelor-style reality show will launch in Q2. Sweet Home Alabama is currently the #1 show on CMT in the U.S., and we anticipate it will deliver similarly strong ratings here in Canada.

Turning to the Kids portfolio. With our strong mix of assets, we are also forecasting growth. On YTV, demand for co-view audiences continues to drive sales opportunities. YTV has created a great destination for family viewing with weekend movie blocks that feature back-to-back films. In addition, YTV is programming a series of branded stunt events in February to celebrate Valentine's Day and family day that will have strong family appeal.

Nickelodeon is currently participating in a free preview campaign, which should generate positive subscriber growth for that service. Internationally, our merchandising and distribution business continues to be a substantial revenue generator for the Television division. With more than 120 million tops sold to-date, Beyblade is a certified hit. With IP partnerships continuing to be established around the world, we have a strong global merchandising and broadcasting program in place to support the brand and our sales efforts, including a Beyblade World Championship to be held here in Toronto at Corus Quay this coming March. This event has been described by a Toronto sportswriter as, "one of the top 10 GTA sporting events of 2012." We believe the fundamentals are in place to support sustained growth and to create a strong franchise with this brand, which will continue to have a positive impact on our revenue.

Our strength at creating Kids content continues to demonstrate its global strategic value, with strong and emerging brands such as Scaredy Squirrel and our coproduction with HIT Entertainment, Mike the Knight, Nelvana Enterprises continues to secure prime placement with broadcasters globally as we unlock growth potential by leveraging our content across our networks and platforms around the world. We are also very excited about the newest addition to our Television portfolio, ABC Spark, which is scheduled to launch on March 26. Building on our expertise at launching and stewarding brands into highly successful networks, we are delighted to partner with the Disney/ABC Television Group to bring ABC Family's programming to Canadian audiences. Disney/ABC Television Group has had tremendous success in the U.S., implementing a marketing and programming strategy built on an immersive multi-platform viewer experience. We will adopt a similar strategy here in Canada. The brand has been hugely successful in the United States, delivering 8 consecutive years of stellar growth and ranking among the top 5 in all key female demos.

To promote and build awareness for the launch of ABC Spark, YTV, W Network and CMT, we'll air nested blocks of the channel's exclusive programming starting next week. With access to hugely popular series such as Switched at Birth and Melissa and Joey, which have never been seen before in Canada, we have high expectations for this channel. We'll also see revenue gains from the nested blocks, which have sold well due to the success of these series south of the border. We have great confidence this service will resonate with our advertisers, distributors and audiences when it premieres in March with a 3-month free pre-preview in 9 million households. As the future home for all of ABC Family's original series and movies, we look forward to building another powerful brand in Canada.

On the Pay front, we anticipate a lift in subscribers as Movie Central benefits from a significant expansion in the amount of premium content made available to audiences on SVOD combined with the gains expected from an HD campaign that's currently in the marketplace and on the strength of our extensive lineup of programming offerings scheduled for this winter and spring. In January, subscribers can expect a new season of Spartacus and Showtime favorites, Californication and Shameless, as well as a new comedy series, House of Lies, starring Don Cheadle and Kristen Bell based on the hit tell-all book by Martin Kihn.

From HBO comes the highly anticipated new series from Michael Mann and Deadwood creator, David Milch, called Luck, starring Dustin Hoffman and Nick Nolte. Other launches include the BBC Movie Central coproduction of the Crimson Petal and the White, a dramatic adaptation of Michael Faber's international best-selling psychological thriller, which was set in 1870s in London and starring Chris Odell and Gillian Anderson. Company-wide, as nonlinear offerings become an essential and central part of our business activities, we will be leveraging our technological advantage here at Corus Quay to fully participate in the emerging on-demand market, and we'll mine these new opportunities that nonlinear content provides.

Over the next 2 quarters, we will be integrating more nonlinear activity into our traditional systems, enabling us to achieve higher levels of customer satisfaction. With our digital infrastructure in place, we are in a strong position to increase audience engagement and drive audiences to tune-in to our Television and Radio businesses through our nonlinear activities and provide -- and by providing our BDU partners with more on-demand content and new products, including apps and games.

Already, our digital infrastructure at Corus Quay has lowered the cost of new channel launches and has made us a partner of choice for broadcast origination services. As we mentioned at our Investor Day, we have launched 2 services for FDR Media and are currently in negotiations with the origination of more than 20 new signals from the Corus Quay facility. We expect to see gains from new networks, new HD signals and the deployment of new offerings as we expand our on-demand content and introduce new apps and games with ease. Technology will continue to be a key driver of our business in the next quarter and beyond.

In summary, we are well positioned for a turnaround in the economy and are encouraged by a number of positive indicators to support the ongoing growth of our business, renewed signs of a recovery in the ad market, the strength of our brands, including the international appeal of our content and merchandising opportunities and the introduction of new innovative linear and nonlinear product offerings into the marketplace. We're also very pleased that we were able to increase our dividend by 10% today and remain confident in our ability to achieve our guidance range for fiscal 2012, targeting consolidated segment profit of $300 million to $310 million and free cash flow in excess of $125 million.

We hope that you have found the comments on our outlook helpful, and now we will be pleased to take any questions that you may have. Operator, over to you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Drew McReynolds from RBC.

Drew McReynolds - RBC Capital Markets, LLC, Research Division

Just to start off here on Television and Television margins just 2 questions, I guess. First, obviously, a big quarter for merchandising and I'm just wondering if you could provide us from a high-level perspective just how the merchandising margins would be volatile from quarter-to-quarter if they are? And then the second margin question, when you look out with Television margins in 2012, you obviously have a lot of programming investment underway with OWN and ABC Spark, presumably, Movie Central and then, of course, you have a higher contribution for merchandising. So just wondering directionally where you see Television margins going this year.

John M. Cassaday

Well, I'll take the last question first, Drew and then I'll ask Doug to comment on your first question. But what we tried to signal at the Investor Day is that we see us working within a range of 35% to 40% overall for TV margins. As you rightly point out, we've made significant investment in the Oprah Winfrey Network and the programming to accompany that and of course, ABC Spark coming. And then the third major contributor to that escalation in programming costs is the investment that we are making in our premium Pay Television business. We're currently at about 25%, 26% penetration on premium pay, and we firmly believe that with our SVOD offerings, our HD offerings, the new content that we're putting in place and ultimately, the introduction of HBO Go that we can move the penetration of our Pay business up into the high 20s, hopefully hit 30%.

Douglas D. Murphy

Just building on that Drew, it's Doug here. The margin on the merchandising business obviously, and this is a quarter-to-quarter conversation, we have swings around a lot. In the case of Beyblade, we record gross revenue on the top and then have a back-end participation that we take out and that shows out -- up in other cost of goods. So there's -- I would say that you can think about the margin to be sort of in the 35% to 40%-ish range on that business. There's a seasonality element. Obviously, the vast majority of the business is done in calendar Q4. So our reporting on that business would be in our fiscal second quarter. So in terms of how you forecast that margin, you can think about applying some kind of seasonality factor to it. But I think directionally, that's what I would encourage you to think about.

Drew McReynolds - RBC Capital Markets, LLC, Research Division

Okay. That's great. And then just 2 other questions for Tom. Tom, just on the free cash flow guidance, just want to confirm that, that guidance excludes the additional $9 million that you'll receive on Quebec Radio. And then the other question is on corporate costs saw certainly a decline this quarter in the non-stock-based compensation cost. Just wondering how we should look at that in terms of a run rate for the rest of the year.

Thomas C. Peddie

Yes, Drew. It's Tom. Answering the first question, when we give our guidance of free cash flow, what we did was we gave guidance of $125 plus-million, and we will take into consideration how we -- what the timing is on our tax credits, what the timing is on things like the recovery of working capital on the Cogeco transaction, and that number will fluctuate as we work our way through the year. But when we look at our overall number of $125 million-plus, it will include what we would be getting on that particular business. I know most of The Street feels that our numbers should be higher than $125 million as of yesterday, that's why we gave the kind of the plus to it. And as you know, we gave our performance relative to our guidance. We've generally exceeded it. So we're still comfortable giving the $125 million-plus. With respect to our corporate costs, as you rightly pointed out, we're fairly low this particular quarter. It was a combination of having slightly lower costs at Corus Quay, as well as the stock-based compensation. At Investor Day, I believe that I gave guidance of $30 million for corporate costs. As I sit here today, I think that number would probably be closer to $28 million. So you could look on that basis of corporate costs in the $7 million, $7.2 million range on a quarterly basis going forward.

Operator

And our next question comes from the line of Scott Cuthbertson from TD Securities.

Scott Cuthbertson - TD Securities Equity Research

A question, I guess, probably for Doug. Just congratulations on the tremendous success of Beyblade, and my question really is what kind of legs does this thing look like it has? I mean, obviously, it sounds like you had a pretty good holiday season for that. But can you give us any help on what your expectations are with respect to the overall contribution this year and how that's going to change as the product matures?

Douglas D. Murphy

Sure, Scott. We're delighted with Beyblade's success. We have achieved this exercise differently than the first Beyblade and that we've launched, relaunched all markets simultaneously globally. So there's no staggering occurring. So we're kind of launching each new season of content and toy day and day simultaneously. We have a third season already kind of in production and effectively produced with a parallel toy line. We're actually off to Japan next week to look at its fourth season and potentially a fifth season. Our strategy working in conjunction with Hasbro is to make this an evergreen property. That's always our approach in boys' action and so to do so, we're looking at some continued innovations in toy and in storytelling. Obviously, I can't predict if a tree will grow to the sky or not but clearly, it's our intention to have a longer sustain on this than we did in the first pass and the key piece of that is new production of content and continued innovation with the toy category. And I can certainly tell you that our partners at Hasbro have a high level of interest in continuing the momentum we have with the brand.

Scott Cuthbertson - TD Securities Equity Research

Great. So it sounds like we're good for well anyway on that product. Okay, just wanted to turn to Pay TV a little bit here. I mean, you've got a few things in the hopper there. I just wonder if you can help us overall a little bit with the dynamics on the HBO Go initiative, if there's any update on the timing of that? Or any additional color on exactly how that's going to contribute to your nonlinear platform? I guess as a subscriber in an imperfect world, I would like to be able to sit down and just have access to all the rights that you've purchased over the years such as if I wanted to go back and start watching Entourage from season one, episode one right through til the end of the series, I could do that. That may be a bit ambitious but maybe you can share with us some kind of the functionality that you're going to be presenting to subscribers, which I think should really help with the penetration and retention.

Douglas D. Murphy

Okay, Scott, it's Doug here. In the Pay business, of course, we, as you know, believe that there's lots of opportunity for growth in that business. Our focus in the last 2 quarters from a marketing communications point of view has been on first and foremost, communicating the on-demand opportunities. So we had a free on-demand in the first quarter. Our second quarter campaign is all-around HD, and now we're working diligently on bringing HBO Go to the marketplace. Timing-wise, I would suggest it's probably going to be something that would be early next fiscal year, to be frank. We are -- we have the opportunity to move forward with the brand, HBO Go, and we have the content clear. We're just working with our BDUs to determine the right platform and timing for launch. But in our view, in addition to communicating the importance of on demand and HD, having the TV Everywhere functionality is critical. So it clearly is a top priority for us as we work throughout this year.

Scott Cuthbertson - TD Securities Equity Research

Okay. And just turning to Radio, Chris, any update on the timing on that Bill C-32?

Chris Pandoff

Yes, I think when we last spoke, we're looking at earlier rather than later, but it looks like not before the end of the summer this year.

Scott Cuthbertson - TD Securities Equity Research

Okay. And that still sort of 1.5 million to 1.8 million to you guys if that moves the right way?

Chris Pandoff

Correct, yes. That's Bill C-11 you're talking about, right?

Scott Cuthbertson - TD Securities Equity Research

Yes, sorry, C-11. It's been rebranded. And last one just for Tom on the tax rate, it's a little lower than I expected in the quarter. Just wondered why that was and what you're expecting for the year.

Thomas C. Peddie

Our federal tax rate is actually closer to 27% as opposed to 29%. So I think that's the rate you could probably use for the balance of the fiscal year.

Operator

And our next question comes from the line of Paul Steep from Scotia Capital.

Paul Steep - Scotia Capital Inc., Research Division

John, why don't we start with this one. You bumped the dividend today. Maybe give us context around the balance on the payout ratio, the NCIB and then maybe investment/new projects in the hopper, how the board and team is thinking about that.

John M. Cassaday

Paul, we had an extensive discussion about this last night, and we were very comfortable that we ended up like the The Three Little Bears in just the right spot on this one. Let's start with first, principles. We have stated that as an objective, we want to make available approximately 70% of free cash flow to shareholders in the form of both share buybacks and dividends. So that was the first issue that we dealt with and that is, is this consistent with our strategy? And it was. The second issue, of course, that we had to deal with is how comfortable are we with our ability to sustain our cash flow at the levels that we have laid out for you in terms of our guidance, and we continue to be confident that our objectives for this year are achievable and we will, once again, meet our guidance as we have done so historically. So again, a checkmark on that one. And the third piece of it is there any imminent M&A activity that you think might represent potentially a better use of these funds. And quite frankly, at this particular point in time, we do not see anything of such magnitude that it would get in the way of it. And then the fourth factor is if you look at it because of the very active participation in our DRIP program, you have approximately, I don't know what the number is exactly, Tom, but somewhere between 34% and 38% of all of our shareholders are participating in DRIP. So the actual amount of cash that is going to be laid out as a result of this incremental dividend today is less than $5 million. So we just felt that it was consistent with our stated philosophy of rewarding our shareholders with increased dividends, and that it was consistent with our strategy and affordable.

Paul Steep - Scotia Capital Inc., Research Division

Great. That helps. I just want to reiterate the target or make sure the target hadn't shifted, so that helps. On the Kids side of TV, you covered a lot of ground. I can't remember if you said much in terms of performance of those channels. I just wondered if you could touch on those is the only other thing I want to cover off.

John M. Cassaday

Well, there's a couple of things that we'd like to comment on here, and I think Doug will certainly give me some support on it. But first of all, as it relates to ratings, it is similar in both Canada and the United States that we are seeing some reduction in kid viewing, which we are believing is perhaps attributable to a change in the reporting methodology. So both Viacom in the United States and Corus in Canada are actively questioning the PPM data and sample and quite frankly, we're a little bit mystified as to where some of that kid audience has gone from -- gone to. On the issue of our competitiveness, which is basically our share, basically, we're on track there and where we're seeing really exceptional growth is in our Co-view area, which is the one that we're so successfully monetizing right now. I think the final comment I'd make and we did talk about this in our opening remarks, we did see some drop off in the kid portion of our advertising for this quarter, and it was largely attributable to the toy category secondarily to home entertainment, which is the DVD business, but largely attributable to the toy category. And we believe a good portion of that is directly due to the exit of Zellers from the market, and we look with great enthusiasm to the prospect of Target coming in, who's a big player in toy and not only the impact that they'll have on our number numbers, but I think the sort of cascading effect that they'll have on other retailers and our toy partners in terms of supporting their brands going forward.

Operator

And our next question comes from the line of Tim Casey from BMO Capital Markets.

Tim Casey - BMO Capital Markets Canada

Could you talk a little bit about the dynamic you're seeing in the Pay business given the loss you saw in subscribers against the backdrop where your 2 main BDU partners are probably adding something in the neighborhood of 100,000 subs in the quarter. Why are you still seeing some contraction in your Pay business?

John M. Cassaday

Well, we look at our Pay results in the quarter as essentially being stable, Tim. And as Doug spoke of earlier, we're enthusiastic about our ability to grow it. So if we ended up at this place at the end of the year, then I'd say we'd be disappointed. We are anticipating that we will be able to grow the Pay business this fiscal on the strength of the programs that we have in place, particularly the focus on our HD channels and also on the new content that is coming forward particularly from HBO, but also our other studio output deals, including Showtime.

Douglas D. Murphy

And just -- Tim, it's Doug, just building on that. We've kind of gone deep and analyzed our kind of seasonality, there's that word again, trends in Pay sub-adds over the last 4 or 5 years. And typically, our growth doesn't begin to happen till kind of Q2, Q3. So our expectation is to see some decent uptick in the future quarters, and our focus is going to be on working very hard to sustain in Q4 what gains we make in Q2 and Q3.

Tim Casey - BMO Capital Markets Canada

Okay. And just switching gears back to HBO Go, is that a product or an initiative that is essential to have BDU cooperation to launch? Or are you able to go alone? And if so, are there material cost implications with or without a BDU partnership?

John M. Cassaday

It is possible to go alone. It's always been our stated preference to do this with the full support of our BDU partners. Quite frankly, we think the key to this is authentication and to keep premium pay subscribers in the ecosystem, if you will. So it's always been our preference. We've done a fair bit of modeling on a go-on-your-own strategy, and it is possible. And I wouldn't say it's inordinately expensive, but the one thing that we do believe is that like every other technological innovation, it will be supplanted with something more. So we do take into account the fact that whatever we did do on our own would constantly need to be refreshed and there would be constant need for further innovation and start-up expense. So to put it in succinct terms, it's our hope that we are going to be able to launch this product because we see it as being perhaps the most significant thing that we can do to reduce churn and to do so levering off the platform of our partners.

Tim Casey - BMO Capital Markets Canada

And, John, how would you characterize the discussions with Shaw, Telus, Manitoba in that regard?

John M. Cassaday

Well, I would say that the conversation certainly with our major partner are we're of one mind that there is a high level of interest in figuring out how to make this available to our subscribers and...

Tim Casey - BMO Capital Markets Canada

Sorry, are you confident you can do it with them this calendar year?

John M. Cassaday

Well, as Doug said earlier, it will probably be quite frankly, early next fiscal. So whether it ends up in this calendar, I don't know, but we are at the preliminary stages. I think we're certainly at the point where we recognize it's a terrific opportunity for both the BDU and the programmer. And as I've said, it's our stated belief that the best way for Corus to do this is with the support of the BDU's platform, and now it's just a matter of making sure that we bring what we have to bear together with what they have to bear and again to underscore, we're at a preliminary stage now where we have alignment on the opportunity, and now it's about execution.

Operator

[Operator Instructions] Our next question comes from the line of Derrick -- David McFadgen from Cormark Securities.

David McFadgen - Cormark Securities Inc., Research Division

Yes, a couple of questions. First of all, just on the pacing for Radio in the second quarter. In your presentation, you say they've improved. I was wondering if you can be a little more specific. Does that mean they're still a bit negative in the second quarter? Or they've actually gone positive? Can you give us any color there?

John M. Cassaday

We're pacing flat right on the nose right now for Q2, and was -- we talk a little bit about some growth in certain specific markets, specifically Toronto. But when we look at the 37 station radio portfolio, we are right on the nose, dead even with last year, which a couple of years ago, I wouldn't have been all that thrilled with. But after minus 5 in Q1, pretty darn happy with that, and it gives us an indication that we're on the right track here and that we're starting to see some improvement in the ad economy in general and the radio market in particular.

David McFadgen - Cormark Securities Inc., Research Division

Okay. And then secondly, on ABC Spark, you indicated that you plan to launch this channel at the end of March. Have you identified what existing channel you will rebrand to ABC Spark yet?

John M. Cassaday

No, we haven't, David. Just a commitment that we will be in the marketplace with a broad base of free trial subscribers in the initial stages, but that we'll end up with a significant enough pay base going forward that we'll have a brand that is of significant interest to advertisers.

David McFadgen - Cormark Securities Inc., Research Division

Okay. And then just on the Pay TV front, do you think you may be have lost some subscribers to Netflix? And if so, how do you know? Like how do you monitor how well they're doing relative to you?

Douglas D. Murphy

David, it's Doug. As we've spoken in the past of our commitment to staying close to our consumer through in-field research, we've just concluded yet another pass at staying close to our audience behavior, and the truth of it is the vast majority of our subscribers, they'll indicated if they are Netflix subscribers or not, and the overwhelming majority of them are not. We think that speaks to an opportunity for us as we look at multi-linear TV Everywhere strategies with our BDU partners to serve up more content in new and better ways as time evolves here. So our view is that the Netflix factor continues to be an additive one. It's not cannibalizing our base business and that the notion of having dual kind of behavior in our subscriber base is fine with us.

David McFadgen - Cormark Securities Inc., Research Division

Okay. And then I was wondering if Tom could give us just an update on the CapEx this year and maybe what he thinks it might be next year. I know it's early for next year, but maybe just sort of some guidance there.

Thomas C. Peddie

Do you want me to add a comment on the year after as well? We had given the guidance at our Investor Day that we thought our CapEx number would be in the $15 million range. We have no reason to change it. We also at Investor Day talked about the fact that we thought that we'd have lower capital expenditures for the next couple of years after our significant program. So a number of $15 million to $20 million for the out years for the next few years would be appropriate.

Operator

And it appears we have no further questions at this time. Mr. Cassaday, I'll turn the call back over to you.

John M. Cassaday

Just once again, I thank everyone for their continued interest in Corus and thank you, operator, for your support on the call. Bye for now. And just a reminder, we will be hosting our Annual General Meeting today at Corus Quay at 2:00. So if any of you would like to join us, you're most welcome and for those of you who can't, it will be broadcast live via the web. Thanks and bye for now.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Corus Entertainment's CEO Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts