Astral Media F4Q07 (Qtr End 8/31/07) Earnings Call Transcript

Oct.24.07 | About: Astral Media (AAIAF)

Astral Media, Inc. (AMC.A) F4Q07 (Qtr End 8/31/07) Earnings Call October 24, 2007 2:00 PM ET

Executives

Andre Bureau - Chairman

Ian Greenberg - President and CEO

Claude Gagnon - SVP and CFO

Alian Bergeron - VP, BrandManagement and Corporate Communications

Robert Fortier - VP, Controller

John Riley - President, AstralTelevision Networks

Analysts

Carl Bayard - Genuity CapitalMarkets

Adam Shine - National BankFinancial

Jason Jacobson - GMP Securities

Joel Southerland - Merrill Lynch

Scott Cuthbertson - TD Newcrest

Andrew Mitchell - ScotiaCapital

Tim Casey - BMO Capital Markets

David McFadgen - CormarkSecurities

Drew McReynolds - RBC CapitalMarkets

Eric Mencke - UBS Securities

Bob Bek - CIBC World Markets

Ben Shapiro - Westwind Partners

Grant Robertson - Globe and Mail

Operator

[Foreign Language].

Good afternoon, ladies andgentlemen. Welcome to Astral Media's Fiscal 2007 Fourth Quarter Financial Resultsand Year-end Conference Call. At this time, all participants are in alisten-only mode. I would like to remind you that after the presentation, theanalysts will be invited to ask their questions first, followed by the membersof the media. Instructions will be provided at that time for you to queue upfor questions. I would like to remind everyone that this conference call isbeing recorded on Wednesday, October 24, 2007, at 2:00 p.m. Eastern Time.

(Operator Instructions). It isnow my pleasure to introduce Mr. Andre Bureau, Chairman of the Board of AstralMedia. Please go ahead sir.

Andre Bureau

Good afternoon, everyone.Bonjour. I am Andre Bureau, Chairman of the Board of Astral Media. I am joinedthis afternoon by Ian Greenberg, President and Chief Executive Officer; ClaudeGagnon, Senior Vice President and Chief Financial Officer; Alian Bergeron, VicePresident of Brand Management and Corporate Communications and Robert Fortier,Vice President, Controller.

On behalf of all of us, we arehere in Toronto, I would like towelcome you to this fiscal 2007 year-end conference call. I would also like tosay, that we are very pleased and proud to announce another year of strongfinancial performance for Astral Media.

[Foreign Language].

During the course of this call,Ian and Claude will give you an overview of the results, after which, we willproceed to the question-and-answer period. As usual, we will take questionsfirst from analysts, then from the media.

[Foreign Language].

Ian Greenberg

Good afternoon, everyone, andthank you for joining us. When we look back on fiscal 2007, it's possible thatwe will remember it for two major developments: the Standard Radio acquisition,which we are closing in five days from today; and the signature of the 20-yearstreet furniture agreement with the City of Toronto.Indeed, these two developments will have look-lasting impact on our company.They give us the national footprint that we sought as part of our new businessambition. They give us added exposure to the fastest growing markets in thecountry, namely southern Ontario, Albertaand British Columbia, including avery noticeable presence in Toronto.They give us better balance, not only regionally, but also amongst our threebusiness sectors. Yet, beyond these benefits coming from these two majordevelopments, I would rather look back on fiscal 2007 as closing an 11thstraight year of profitable growth, including 44 consecutive quarters. Andthat's because developments, such as the Standard Radio acquisition and the Toronto street furniture contract, are only made possibleby the strong, sustained performance of our core businesses.

Now, let me review briefly theresults. First, let me remind you that these results exclude the impact offuture income tax rate changes enacted over the last two fiscal years. Netearnings from continuing operations increased 11%, to $127.1 million, whilebasic earnings per share grew 13%, to $2.41. Our EBITDA broke the $200 millionmark for the first time in our 34 year history as a public company, reaching $207.8million, an increase of 8% over last year. I am especially pleased that all ourbusiness units performed well and contributed strong EBITDA and cash flows tothe Company.

Television posted very goodresults, thanks to both subscriber and advertising revenue growth. On thespecialty side, our networks saw their advertising revenues increase by 17%over last year. Pay-TV enjoyed another strong year, which ended with a 5%increase in subscribership over last year. The combined growth of our specialtyand pay television subscriber bases generated a revenue increase of 30.3million, or 9% for the year.

This year, again, Radio was thesolid and reliable profit generator that we have learned to count on. Our Radiostations recorded revenue growth up 3%, to $115.7 million, while EBITDAincreased by 5%, to $41.2 million. Radio's EBITDA margin increased, slightly,to 34.8%, amongst the highest in the industry. We achieved this performance,mostly, in Quebec's mature, andvery competitive, radio environment. This is proof, again, that radio is extremelyresilient, and adapts well to changes in the competitive landscape, and to theemergence of new media. 2001 commercial radio advertising spending in Canadahas grown steadily, and is expected to grow at about 5% a year until 2010.

Our Outdoor advertising divisionperformed really well this year. Revenue increased 6%, to $49.8 million, andEBITDA rose 8%, to reach $16.7 million. Outdoor finished the year on anespecially strong note, with revenue growing 21% in the fourth quarter, andEBITDA improving 14% year-over-year. This bodes really well for the future,especially with the addition of the Toronto streetfurniture contract, in fiscal 2008.

In conclusion, we have a strongpresence in the specialty and paid TV, Outdoor, radio, and online advertisingmarkets. They are among the fastest growing segments in the Canadian mediaindustry. We are delighted with our new asset mix which positions us well forfuture growth. We will create additional opportunities for growth and profit,while being innovative with technology, while remaining focused on value. Ourbalance sheet remains strong, and provides us with the financial wherewithal toact quickly, should acquisition opportunities arise. The bottom linewe lookforward to fiscal 2008 with confidence and, obviously, highly focused onexecution.

I will now ask my colleague,Claude Gagnon, to give you a brief overview of other financial information forthe quarter and the fiscal year. Claude?

Claude Gagnon

Thanks, Ian. Just a couple ofpoints. You'll notice on the balance sheet that our cash balance this year endfiscalyear '07 year endat $72 million, is about half of what it was last year. Butyou will realize, also, that in the course of the year we spent roughly $140million on, I guess what we could call, transactions that were outside thenormal course of operations. We spent about $80 million to purchase additionalholdings in TELETOON and MusiquePlus. We made a lump sum payment of roughly, $35-$36million to the City of Torontoandthat's according to the terms of the new 20 year street furniture contractandfinally, we spent $24 million to buy back shares. Now, that, albeit, is anumber that is lower than what we disbursed last year, given the fact that wehave been accumulating cash to finance the Standard Radio acquisition.

In line with what Ian said, ourbusinesses have performed strongly throughout the year, and accordingly, theygenerated a strong free cash flow. And I simply want to reiterate, also, thatthe changes in future income taxes resulted in tax recoveries in fiscal '06 and'07, but they are non cash, in the same way that, if tax rates increase, wewould have to record an income tax expense, future income tax expense, which isnon-cash. So for cash flow purposes, we ignore those items.

Now, coming next Monday, the cashon hand of $72 million, which, as we speak, is probably $10 million higher,roughly $82-$85 million, is going to be used up to finance the Standard Radioacquisition, and we will be drawing down on our on the commitment that's in place, to the tune of somewhere between $800million-$825 million, depending on how the week ends up. I want to reiterate,also, that the cash we have on hand is highly liquid. It is invested incommercial paper that is--that has--been cashed in shortly after year-end. So,in a strong position, once we draw down our debt, we'll be sitting with adebt-to-EBITDA ratio of, I figure, roughly about 2.7-2.8, and that should be knocked off about halfa turn a year over the next five years, and we should be able to pay off thedebt in roughly five years. Now, we're borrowing more than we anticipated; itmight take a little bit longer, but nothing of significance.

That's it for my comments. Andre?

Andre Bureau

Thank you, Ian. Thank you,Claude. I would now like to open up the call to questions. As I indicatedearlier, we will begin with questions from analysts followed by questions fromthe media.

Question-and-Answer Session

Operator

[Foreign Language].

Ladies and gentlemen, we will nowconduct a question-and-answer session. (Operator Instructions). I would like toremind you that the analysts will be invited to ask questions first, followedby members of the media.

Your first question comes fromCarl Bayard of Genuity Capital Markets. Please go ahead.

Carl Bayard - Genuity Capital Markets

Thank you. Good afternoon,gentlemen.

Ian Greenberg

Good afternoon.

Carl Bayard - Genuity Capital Markets

Three questions. I'll throw themat you one by one. First off, on specialty add growth, pretty significantduring the quarter, 22% on an organic basis. Just wondering if you couldcomment on the sustainability of that pace of growth.

Claude Gagnon

There's no question; it was astrong quarter. As you know, it's hard to give guidance. We don't give guidancein these areas, except that our ratings have continued to be very strong, andtypically, as we always said, revenues equals ratings equals revenue. So we expect them to be strong in the future.But frankly, there's no way that we're in a position to give out a specificpercentage increase.

Carl Bayard - Genuity Capital Markets

In terms of the competitive landscape,can you just comment…can you just comment on how that's evolved, say, over thelast, say, six or nine months.

Ian Greenberg

We only like to talk aboutourselves, frankly. You can see the numbers of the market for yourself. And thefact is, that obviously, we are the largest specialty group in Quebec,and specialty continues to increase its share of the market, basically based onthe fact that the ratings have increased. And so, it's only normal that ifspecialty is going to increase their share of the pie, in Quebec,that we will have the major portion of that increase.

Carl Bayard - Genuity Capital Markets

Okay. Moving on to pay TV. If youcould just comment on trends, post “The Sopranos”. I noticed that this was thefirst quarter in a while where you actually had a sequential decrease in subs,relative to Q3. If you could comment on how you feel about pay TV, post-Sopranoscoming off air?

Ian Greenberg

First of all, there's alwaysadjustments. There's adjustments on subscriber count, there's adjustments onrevenues. And as you probably saw, we've had two adjustments. And, infact--believe it or not--our revenues have gone up, while our subscribers havegone down. Those are adjustments that took place at year-end. The fact of lifeis, life will go on without Sopranos. There is still the exciting offering wehave, and we have faith that pay TV will be a category where we will continueto grow in the future.

Carl Bayard - Genuity Capital Markets

You've got a free preview periodcoming up, I think, just like on Movie Central.

Ian Greenberg

That's right. November, that'sright.

Carl Bayard - Genuity Capital Markets

What are your expectations regardingthat, just, I mean not quantitatively, but just what are you looking forwardto?

Claude Gagnon

We're looking forward tosustaining the growth for the coming year over last year.

Carl Bayard - Genuity Capital Markets

Okay. Last question, just onRadio, in terms of, I mean, you're aboutto pick up the asset. Are you forecasting any major change in strategy forStandard? They've been known in the industry as the low price leader. Do youexpect that to change under Astral ownership?

Ian Greenberg

Listen, it's going to becomeAstral--let me make that clear-it's going to become an Astral company, run inthe Astral way. The fact is, Standard has run an excellent operation withexcellent margins, but so have we. The major difference, I think ,in the grossmargins between Standard and Astral, is the fact that they twothings. Number one, they're not a public company. Number two, they operate inmany more major markets than we operate. We operate, basically, in two majormarkets in this country--Montrealand Quebec City, if you want tocall Quebec City a major market--whereasStandard and the other large radio operators have the advantage of operating incities like Toronto, Vancouver,Edmonton, Calgary.And so, obviously, in larger cities, the margins are better. We know that inour operations, and we see it in Standard’s.

So, I think with the combinationof having the major markets, having a national platform for the first time,having our own sales team--and this will apply both to TV and Radio--for thevery first time in our history, we will have our own sales forces controllingsales across the country. In the past, our Radio sales from Ontariowere done by an outsider; our sales for TV for all our channels in Ontario,were done by another outsider--and, for that matter, we also had Internet salesbeing done by an outsider. For the first time, all of these changes between nowand the end of this calendar year, by January 1st we will have sales forces inplace in Toronto to handle AstralRadio, Astral Television, and Astral Interactive.

So, in that sense, those are thekinds of changes that will come about, and we would hope that the Standardpercentage is achievable for us, or close to it. We don't want to, obviously,think of lowering those kind of margins. On the other hand, our main goal willbe to increase revenues.

Carl Bayard - Genuity Capital Markets

Do you forecast any majorinvestment in on-air talent?

Ian Greenberg

Frankly, at this point, I thinkthey have excellent talent, and we start off the year, or our year--our newyear, with the present talent.

Carl Bayard - Genuity Capital Markets

Terrific. Thank you.

Operator

Your next question comes fromAdam Shine of National Bank Financial. Please, go ahead.

Claude Gagnon

Good afternoon.

Adam Shine - National Bank Financial

Good afternoon. Thanks a lot. Letme start with a few questions, I guess, on Radio. Perhaps one for Claude. Werethere any one-time costs in Q4 related to Standard?

Claude Gagnon

No, none.

Adam Shine - National Bank Financial

None. Okay. No, like, compliance advice or anything like that?

Claude Gagnon

No…sorry?

Adam Shine - National Bank Financial

No advisory compliance, or sortof regulatory-related, or anything like that?

Claude Gagnon

The only cost or disbursementsthat are incurred are essentially items that are going to be capitalized, andthat are directly related to the acquisition, but nothing to do with theoperations themselves.

Adam Shine - National Bank Financial

Or preparations in advance of thetakeover. In terms of the dynamic in Quebec Radio, we've seen some softness, tosay the least. At least the trend data--and there's always a bit of adiscrepancy in terms of your ability to outperform the trend data, and sort ofdisconnect--can you talk a little bit about what you're seeing in recentmonths, let alone coming forward, in terms of bookings?

Ian Greenberg

Well…it's Ian speaking…the factis, that Radio can be volatile from quarter to quarter. As most businesses,Outdoor and Radio particularly fall into this category, more so thanTelevision. And because one quarter is slow--in July and August, as you know,it was not great months. But it seems in the first quarter of the new year,starting September, October, November, bookings seem to pick up. But there isno way to justify why; all it takes isone or two large advertisers to have a shift in strategy and take money frommarket and put it to another market. I.e., take it out of Television, take itout of Radio, take it out of Outdoor, and put it in another one of thoseplatforms. This is something you live with in advertising. Advertising isn'tstraight forward, the same, every year.

The main comfort, I guess, we alltake, is that when you look at the three platforms we have, Radio, Televisionand Outdoor, year-over-year, and that's the way we have to look at it. We cannotget caught up in month-by-month, or quarter-by-quarter unless, of course, ithappens every quarter. Then it effects the year. If the you look at thenumbers, we have had the same thing in Outdoor. We had the same questions inthe first half of this year; second half, it bounced back. Did we have newpeople? Did we do something different? Frankly, no. It's a matter of convincingadvertisers to book space on each platform. They change their strategies fromtime to time. I don't think there's anything I can add to tell you as to whybookings slowed down in July and August in Radio, and they seem to be better inthe first quarter.

Adam Shine - National Bank Financial

Okay. Fair enough. Just inregards to the ramps in the Torontocontract. I mean, obviously, it's very early days, but just a little color onhow that's going, and sort of feel how pleased you are with the progress sofar?

Ian Greenberg

I'm glad you used the word pleased.We're very pleased. We're very pleased in the transition from CBS. For those ofyou who live in Toronto, if youactually go drive or walk the streets, you will see the bus shelters in muchbetter shape. We are cleaning them up. We are, I think, getting people excited,again, in the street furniture. So far, everything is on plan vis-à-vis thetransition from CBS, vis-à-vis the sales expectations we have for the firstquarter, and we're very pleased with the contract. And it's especially pleasingwhen you think of having Radio and Outdoor, those two platforms in the City ofToronto--which are completely new platforms for us--going into fiscal '08, Ithink are very exciting, because when you have the opportunity to operate inCanada's largest city in two very high profile, low cost format platforms, likestreet furniture and Radio, I think bodes well for the future for Astral.

Adam Shine - National Bank Financial

Okay. I maybe didn't… then,turning to higher cost platform, in terms of television, obviously Q4 costswere sort of up in line with the growth in TV revenues. As we look out intofiscal '08, should we expect costs to sort of keep pace with top line growth,or can we expect a bit of a step down, in terms of inflationary pressures andprogramming?

Ian Greenberg

Well, firstly, you have toremember, particularly when it comes to pay television, most of our costs arevariable. It is very normal that it's going to keep pace with revenue growth.Frankly, if that happens, we'll be delighted.

Adam Shine - National Bank Financial

Thank you very much.

Operator

Your next question comes fromJason Jacobson of GMP Securities. Please, go ahead.

Jason Jacobson - GMP Securities

Hi. Good afternoon. Just a coupleof questions. Back to the Toronto contract, I was just wondering if you'rewilling, or able, to give any more sort of specific information down from thefive-year buckets that you've provided before--any sort of revenue guidancethat you can provide for fiscal '08 or fiscal '09? And then, secondly, I justwanted to ask about Standard. With that closing, just wondering if those Radioassets met the expectation that you had set out previously, which was $210million in revenues, and $85 million in EBITDA, or if there were anydiscrepancies to the upside or downside?

Claude Gagnon

With regards to the streetfurniture contract, Jason, we're not going to give any more breakdown than wehave, at this point. You've had access to that information; it's still on ourweb site. It's still too early in the ballgame to provide more color. Sufficeit to say that it will be accretive right off the bat. So, on an EBITDA basis,obviously, on a cash basis, we're because we've got to ramp up the plant--as we could call it--the CapExis going to be stronger in the early going. So, from a cash point of view,there will be some deficit that we'll make up over time, as we build up the topline of the street furniture plant.

With regards to Standard, wedon't have a complete set of final numbers, yet. Our feeling is that they'repretty close to what we projected a few months ago. I think we said it was $210million of revenue, and $85 million of EBITDA, on an annualized basis.Obviously, we can't expect to see that in F08, given that we'll have thebusiness for 10 months, on top of the fact that the first two months are prettykey months in the Radio business. So there are--there is--some seasonality tothe business, as you well understand. So, but going forward on an annualizedbasis, I think roughly $85 million of EBITDA is a good base to start off from.

Jason Jacobson - GMP Securities

Okay. Thank you. If I could justask one follow-up, just on the CapEx; just wondering what your budget is on acompany-wide basis for '08?

Claude Gagnon

You'll find that information inthe MDNA, by the way. I believe it's roughly $36 million, that includes about$14 million of street furniture.

Jason Jacobson - GMP Securities

Okay. Thank you very much.

Operator

Your next question comes fromJoel Sutherland of Merrill Lynch. Please, go ahead.

Joel Southerland - Merrill Lynch

Hi, thanks. I'm wondering, haveyou thought of a [D New Eye Highs On Rating System] being developed in the U.S.for Outdoor, and how that might affect your rate card?

Ian Greenberg

We're all stunned, Joe. Maybe youwant to give us more background.

Joel Southerland - Merrill Lynch

I think they're changing thesystem so that they can measure signage; each signage is assessed for physicalattributes, and the probability that it's going to be seen by tracking eyefixations.

Ian Greenberg

We had some new sophisticatedmeasuring, because up until recently, there wasn't very much. I don't know ifwe're as advanced as the States are. But, obviously, having a rating forOutdoor will be helpful. So I'm sure if it works in the States, it will followup here, and that will helpful to increase revs CPM's for Outdoor.

Joel Southerland - Merrill Lynch

Okay. And then, just withrespect, there was a comment in the MDNA on IPTV, and I was wondering twothings. The first is, how do you think the cable operators that support yourprogramming now might react to the IPTV initiatives that you undertake with Belland Telus? And then, secondly, how do you see the Astral costs and revenues,with respect to IPTV evolving as the service, is rolled out?

Ian Greenberg

Well, first of all, if you'vebeen following the papers recently, you probably would have seen anannouncement that Bell has kind ofput IPTV on ice, and that's happened in the last two weeks. So I don't thinkthere's frankly much to discuss on IPTV.

Joel Southerland - Merrill Lynch

What about Telus?

Ian Greenberg

Frankly, Telus is not a majorfactor in the television business at this point. I don't think it has aneffect.

Joel Southerland - Merrill Lynch

Okay. So then, I guess ..

Ian Greenberg

By the way, IPTV, Telus, of course, is in the west. So that has noeffect, certainly, on the things like the movie network.

Joel Southerland - Merrill Lynch

Yes, but it still far though inout east, are there not?

Ian Greenberg

Insignificant.

Joel Southerland - Merrill Lynch

Then why make the comment in theMD&A?

Ian Greenberg

Because you have to follow thingschange, Joel, day-to-day. When we made the comment, Bellwas going full steam ahead on IPTV. They just made this change in the last 10days. The MD&A was done at that point.

Joel Southerland - Merrill Lynch

Okay. So this is basically whatI'm hearing, is that IPTV, as far as you're concerned, is not really an issue?

Ian Greenberg

As of the few days ago, when Bellmade the announcement, that's right.

Joel Southerland - Merrill Lynch

Okay. All right.

Claude Gagnon

By the way, Joel, technology ornew technology, if it's a new platform, we have no objection to it. It'shappened before. So the more the merrier. It doesn't compete against us.

Joel Southerland - Merrill Lynch

No, no. I know. But presumablyyou're not, I guess, you specifically mentioned Belland Telus, and given that they're-- you've mentioned that Bell'scancelled their service and Telus is insignificant. I suppose it's moot. But,let's say, if there's another… if there's another--if someone else pops up andyou decide to pursue this, I would imagine that the distributors are not goingto bear all the cost--that you will also bear all the costs--or is that wrong tothink that…that you will

Claude Gagnon

We're not remotely close tohaving a business model like that, so it's quite hypothetical right now.

Joel Southerland - Merrill Lynch

All right, fair enough.

Operator

Your next question comes fromScott Cuthbertson of TD Newcrest. Please, go ahead.

Scott Cuthbertson - TD Newcrest

Thanks very much. Good afternoon.Just wondering if you could share your view in the outlook for the economy andthe implications for media advertising categories like automotive and retail,just kind of big picture stuff?

Ian Greenberg

You have some up, and you havesome down every year. We've had this over the past. I can go through categoryby category in each one of our divisions. The fact of life is, at the end ofthe day, where you have one that's down, you have someone else that's up. Soit's hard. I've got a list of 40categories. Our top categories in each one of our businesses: Radio, TV andOutdoor. And every year, there's some up and some down. The point is, thegeneral economy, as you know, is strong, and we look for the advertising pieoverall to grow across the country--obviously higher in some markets thanothers, but generally across the country we see, certainly for the next fiscalyear and beyond, a strong economy, in order that we can predictincreased--continual increase--in advertising.

Scott Cuthbertson - TD Newcrest

How about automotive, in general?Just kind of wondering. There's been alot of focus on the domestics and their problems, but yet, the imports havebeen sort of taking up some of the slack. How is that dynamic playing out rightnow?

Ian Greenberg

Well, let me--why don't you askyour next question. Because we've got, as I said, every category for all of ourthree businesses.

Scott Cuthbertson - TD Newcrest

Great. Okay. Well, the nextquestion is just a little bit more information on Outdoor. I just wondered,factoring in the new Torontocontract, what are your three biggest exposures in Outdoor in terms ofadvertising categories?

Andre Bureau

Just so I understand thequestion, when you say biggest exposures…

Scott Cuthbertson - TD Newcrest

Who are your major customers inOutdoor? Is it automotive? Is it retail? Is it, just in general, with yourportfolio of Outdoor assets.

Ian Greenberg

It's a good question because itwill change, Scott. Up until now, we have not dealt with retail advertisersbecause, frankly, retail advertisers couldn't afford a broad campaign onbillboards. And we're not in the business of selling one billboard at a time.Up until now, we've never had a retail sales force. With the new City contract, we've hired at least 12 retailsalespeople because bus shelters are retail, a good percentage of the revenuewill come from retail. So going forward, we'll have a combination of bothnational advertisers and retail advertisers in our Outdoor business. So that'schanged for us, and re-ramped up for by hiring a retail sales segment for thefirst time.

Scott Cuthbertson - TD Newcrest

The other question I had, maybe Andrecould help with this one,…but just reading with interest as we get closer tothe DDU hearings. I just wanted know--to hear from you guys--what you thoughtthe most important issues were for Astral? I know you can never predict how theCRTC will rule on these things, but any indication you might be able to give onhow that might sort of play out?

Andre Bureau

Our position really is, that ifthe commission wants to alleviate the burden of regulation and reduce thenumber of rules that are applicable to either the current specialty assurancesor the distributors, there are two things that remain of great importance.\--and the first one is access. We need to have some comfort in the rules of thecommission that the services that have gone through the process of beingappreciated, evaluated by the commission, and have got a license to offer theservice to the public, will be able to access the distribution systems, andthat's the first major issue there for us. We want to make sure that we comeout of this process with enough quote, unquote, guarantees that the licensedCanadian services will have access to the system.

The second one is, that we haveto put in place a mechanism in the absence of a number of existing rules, ifthis is the outcome, of the process; some mechanism to take care of thedisputes between services and the distributors. And so, we have offered thecommission a model of dispute resolution mechanism, to replace what is existingat the present time, and to make sure that, in the absence of elaborate rules,we can solve the issues that could come up.

Scott Cuthbertson - TD Newcrest

Thank you.

Ian Greenberg

Scott, if I could just get backto your question on automotive; When I look at for the year in our threeplatforms, TV, Radio and Outdoor, all three had strong double-digit increasesfrom the automotive sector.

Scott Cuthbertson - TD Newcrest

So it still seems like it's goingalong fine there?

Ian Greenberg

Yes.

Scott Cuthbertson - TD Newcrest

Great. Thank you very much.

Operator

Your next question comes fromAndrew Mitchell of Scotia Capital. Please go ahead.

Andre Bureau

Good afternoon.

Andrew Mitchell - Scotia Capital

Good afternoon. Thanks very much.Two questions left from me. First, on specialty--I apologize. I was distractedduring your answer to Carl, and wasn't clear whether you discussed how the newTV season ratings’ momentum is progressing when were you talking about ratingswith Carl; and if you didn't, could you just give me a sense? Are you seeingthe momentum at a similar kind of pace to what you were experiencing last year?

Ian Greenberg

Last year was an extraordinarilyhigh percentage, as you know. Part of that, of course, is we had MusiquePlusand MusicMax in for two months of the year that weren't there the previousyear, and you also had TELETOON, for a portion. You have to look at the, kindof, organic growth. So far, all I can tell you is, particularly in our Frenchchannels, which is the heart of our advertising platform, the ratings have been continue to be excellent, as I said lastyear, if the ratings are excellent, typically if we've got a reasonable salesforce, which we have a great sales force, it will come out in revenue. And so I frankly, as I sit here today, I'm asconfident as I was last year that we'll continue to show organically goodincreases, good increases meaning double digit, going forward.

Andrew Mitchell - Scotia Capital

Okay. Thank you for that. Andthen secondly, more of a big picture question, just on Outdoor and Radio, I wasinterested, if you're feeling encouraged by the initial reaction that you'reseeing from the national ad buyers and in two areas, your combined Outdoor andRadio strength in Toronto, obviously, and secondly your emergence as a leadingnational Radio platform. Can you just give us some color on how your ad salesforce is feeling about their discussions?

Ian Greenberg

Probably a better question to askme for the next quarter. We don't own the company as we sit here today. We'llonly own it come this Monday, we've got a lot of integration meetings. The factis, the sales force didn't report to us and will not report to us until Monday.Perhaps that, I think, would be a more appropriate question next quarter,Andrew.

Andrew Mitchell - Scotia Capital

Fair enough. Thank you.

Operator

Your next question comes from TimCasey from BMO Capital Markets. Please go ahead.

Tim Casey - BMO Capital Markets

I want to come back to TV. Canyou talk a little bit about your confidence that you can maintain your operatingmargins in television? Obviously, some of those renegotiated deals,particularly with HBO, are going to kick in this year. And Chorus has cited thatthey expect there will be pressure on their margins and they've committed tofinding cost savings in other parts of their business to maintain theirmargins. And second, Ian, I don't want you to speak for another party, but I'mjust wondering if you could give us some color, is it a reasonable expectationamong investors to expect that you will own 100% of [Series Plus] and[Historia] going forward? Do you have an active interest acquiring thosethings?

Ian Greenberg

Let me answer your last questionfirst, do we have an active interest? We always, over the years, we've saidwe've had an active interest when there's a seller available for the portionswe don't own. We did it in MusiquePlus [in May], we've done it in TELETOON andcertainly we have an interest in doing in franchise. Frankly, at this point Ithink [Camrus] has enough on their plate to do their deal first before theywant to discuss with us the possible of those interests. But are we interested?Absolutely. Now your first question, Tim, can you just repeat it?

Tim Casey - BMO Capital Markets

Television margins?

Ian Greenberg

Television margins, the streethas been predicting these margins will suffer for about two years now. We'vebeen able to hold them. It's not easy. It's our goal. But what can I tell you?We will do whatever we can to maintain the margins. It's important not to get caughtup only in margins. It's important to make sure that we have the business isgrowing, that we have the revenue line growing. And so if we have a slightlysmaller margin on a much bigger business, that's okay with me too. I don't getfocused only on one aspect. But at this point, we will do all in our power totry to maintain the margins where they presently are.

Tim Casey - BMO Capital Markets

Thank you.

Andre Bureau

Thank you.

Operator

Your next question comes fromDavid McFadgen of Cormark Securities. Please, go ahead.

David McFadgen - Cormark Securities

Yes, couple questions. First ofall, you completed the acquisition of MusiquePlus on June 30th; correct?

Ian Greenberg

That's right.

David McFadgen - Cormark Securities

So why didn't you factor that inwhen you were giving the organic growth numbers for the quarter, or did you?

Claude Gagnon

MusiquePlus, I think it was not material, David and there wereoffsetting factors, we're going, taking over 100% of MusiquePlus so we'rerestructuring, so basically it was a non-issue on the bottom line.

David McFadgen - Cormark Securities

Okay.

Claude Gagnon

So really the non-organic was100% TELETOON, the non-organic.

David McFadgen - Cormark Securities

Right. Okay. I was just wonderingif MusiquePlus was something material in there and you're telling me it isn't,right?

Claude Gagnon

Not this year, no.

David McFadgen - Cormark Securities

In terms of the Outdoor business,what is the why was it so strong in thequarter, and what's the outlook?

Ian Greenberg

I can give you the same answerwhen you asked me why it's so weak as to why it's so strong. It's a volatilebusiness. One campaign--it's a small division compared to the other one--onecampaign a customer, whether it's Cuba or whether it's insurance companies, canmake a huge difference, and from quarter to quarter, it's hard to planspecifically; they can shift. Not only can they shift year to year, they canshift from quarter to quarter. The first half of the year, if you remember, wasa little slow in Outdoor and a lot of that money came in the second half,particularly in the fourth quarter. So I wish I had had a more sophisticated,intelligent answer to give you. But when you deal with 100% advertisingbusiness with some volatility, they go up and down. Again, that's why, to me,it's important to look at the year. Rather than just quarter and thinking ifit's good, the whole year is going to be good, or if it's slow in one quarterthen the year is a disaster.

David McFadgen - Cormark Securities

Just a question for Claude,what's your total online revenue in '07?

Claude Gagnon

That's a good question. Thereis we've got several web sitesthroughout our Radio and Television businesses. We figure it's roughly $3-$3.5million.

David McFadgen - Cormark Securities

Okay. For the whole year?

Claude Gagnon

Yes.

David McFadgen - Cormark Securities

Okay. And you know, you said onthe call that you're going to start to rep your own Internet sites for sales.Are you planning on reaping outside Internet sites as well?

Claude Gagnon

Yes, in the case of Montrealwe set up a new unit within our sales group. But in Ontario,we bought the sales business from Standard. We didn't buy some of theirInternet activity--like Iceberg, as an example, but we did buy theirinfrastructure, which handles sales, not only for all the Standard web sites,but for third party web sites, and that will continue.

David McFadgen - Cormark Securities

Okay. All right. Thank you.

Operator

Your next question comes fromDrew McReynolds of RBC Capital Markets. Please go ahead.

Drew McReynolds - RBC Capital Markets

Thanks, good afternoon. Just twoquestions. First, for Claude, can you just repeat what the Toronto Outdoorcontract CapEx spending is within that $36 million?

Claude Gagnon

$14.2 million.

Drew McReynolds - RBC Capital Markets

Thank you. And, Ian, I guess aquestion for you, just on the Montreal Radio market, clearly we're seeing a fewmonths of weakness, if not over the course of the year. What's the reason for aweaker Montreal Radio market that you're seeing there? We're hearing some ofthe television broadcasters are becoming very aggressive on pricing. Justwanted to get your thoughts on that. Thank you.

Ian Greenberg

There's no question, when there'sa weakness in Radio and they bring the price spots of a TV ad to a Radio ad itdoes bring pressure. That's certainly been part of it. And then, of course,those are situations that could change from quarter to quarter. The nice thingis that we are our team in Radio in Quebecstill had a reasonable increase. [250] after the [AE] line of about 5% underthese trying circumstances. But when TV conventional TV suffers, and they have extra inventory, and theydecrease prices there to bring it down to Radio prices, it affects the market.Hopefully, that doesn't stay forever, and usually never does stay forever. Butcertainly that has, as you suggest, rightly so, brought some weakness in theRadio markets in Quebec.

Drew McReynolds - RBC Capital Markets

Okay. Thank you.

Operator

Your next question comes fromEric Mencke of UBS Securities. Please, go ahead.

Andre Bureau

Good afternoon.

Eric Mencke - UBS Securities

Good afternoon. Just one quickquestion on Outdoor. In relation to Q4, you had in the fact the Montreal-Trudeau Airport contract with acontributing factor for the strong growth. With the increase in expenses, is itfair to say that's a lower margin business than other contracts?

Claude Gagnon

It is lower margin, you're right,except that we've added a lot of structures. When I say structures, you know,signs, inside and outside the airport. And so your overall while the margin may go down on the sales,the fact is there's no incremental cost to the overheads, generally, and so itjust brings more dollars to the bottom line. At the end of the day, as I saidbefore, you can't get stuck on EBITDA margins as being the end-all. While theairport is a lower margin business, the fact that once you're there and you cankeep adding more structures and as the airport expands gives you thatopportunity, we'll take that business. And so that's been a contributing factorin the overall growth, the revenue line and the bottom line of Outdoor.

Eric Mencke - UBS Securities

Okay. Great, thanks a lot.

Andre Bureau

Thank you.

Operator

Your next question comes from BobBek of CIBC World Markets. Please go ahead.

Bob Bek - CIBC World Markets

Hi, thanks very much. I just havea couple of accounting questions left for Claude. Now that you're close to thestandard closing, any comments on corporate costs and how it might change withStandard in the mix?

Claude Gagnon

We're picking up all ofStandard's staff, so I don't see at this point that you'd see any materialimpact on the corporate cost, per se. The staff is all [reported] in the Radiosegment. At some point, maybe we'll be stretching the elastic a little bit toomuch. I think we were quite candid in saying that, obviously Standard has aninfrastructure for a privately-run corporation. They don't necessarily have theinfrastructure to be able to report under a public company scenario. So wemight have to beef up a little bit, but it's not going to be material.

Bob Bek - CIBC World Markets

And with the effective tax, I seeyou were a little bit above the statutory rate in '07. Same sort of number in'08, or should we just stick with the statutory, you think?

Claude Gagnon

We'll be a little bit higher thanstatutories, and typically, the reason is that within our numbers, you have thestock based compensation expense, which is not deductible, so that tends totweak up the implicit income tax rate. Maybe 34%, 35%, but…

Bob Bek - CIBC World Markets

Thanks very much.

Andre Bureau

Thank you.

Operator

Your next question comes from BenShapiro, Westwind Partners. Please go ahead.

Ben Shapiro - Westwind Partners

Hi, thanks. I'm calling on behalfof Ben Mogil. Just had one question. Could you talk about any impact you'reseeing in your English specialty channels as a result of the increased [ads forconventional] TV, which started in September?

Ian Greenberg

So far, frankly, we haven't seenany of that. It's hard to say what the effects will be long-term and, ofcourse, what we would expect--I hope my colleague Mr. Bureau agrees--that afterthe specialty hearings, that specialty will probably be accorded the sameluxury of increasing. Now, just because they increase, it's interesting. OnRadio, there are no limits on advertising. It's interesting to see thedifference between Canadaand United States.In United States,they went to 18 minutes, and in Canada Radio stayed at 12. And look at thegrowth of Radio in Canada,as compared to United States,and I think therein lies a big part of that. So even though you're given extraminutes, it doesn't mean you're going to use them. Sure, they can use them onsome very, very popular shows, other than that it's no impact whatsoever. So,so far, frankly, we have not seen any impact.

Ben Shapiro - Westwind Partners

Okay. Thank you.

Operator

Your next question comes from CarlBayard with Genuity Capital Markets. Please, go ahead.

Carl Bayard - Genuity Capital Markets

Yes, thanks, just a quickquestion regarding that new family channel, multiplex channel you're launchingPlayhouse Disney. What are the launch costs associated with that? Do you have afigure?

Ian Greenberg

We don't anticipate there will bematerial costs involved, Carl. The fact is, this is a multiplex channel. It'srun out of the Family Channel infrastructure. There are very few people added,and whatever costs are involved in the start-up are, frankly, immaterial. I'mglad you gave me the opportunity to talk about it. We're very excited aboutthis channel. It's the first time Disney has ever licensed their name to anon-Disney controlled company in the world. So we're proud of the relationshipwe have with Disney and we're proud they trust us with the Disney name for achannel that is 100% owned by Astral. And just to finish my commercial, itlaunches November 30th, and we expect this to be a channel that certainly we asa company will be very proud of.

Carl Bayard - Genuity Capital Markets

And given its Disney content, doyou expect like what we see a noticeable bump in programming expenses, relatedto this channel?

Ian Greenberg

Well, it's one of those variablemodels, so depends how well we do on the sales end.

Carl Bayard - Genuity Capital Markets

Okay. And just one question forClaude. I notice you did buy back a little bit of stock during the quarter.Regarding your stance, I think you guys had said you weren't expecting onbuying back any stock ahead of the Standard transaction. I'm just wondering, isthere an update there in terms of your thinking in that regard?

Claude Gagnon

There's not much of an update. Ifthere's an opportunity and we find that the price is attractive, we'll bethere. We still have the normal course issuer bid. Obviously, we toned down onour activity, because we do want to put down a good deposit on the Standard Radioacquisition. But we're still--there might still be some activity. But,obviously, to a lesser extent than prior years.

Carl Bayard - Genuity Capital Markets

But it would definitely bemisguided for someone to think that share buybacks are out of the question, andthat you guys will just be plowing cash towards debt as you've done in the past,when you've had some debt on the balance sheet?

Claude Gagnon

I didn't quite understand yourquestion there.

Carl Bayard - Genuity Capital Markets

Just like, in years past when youhad some debt on the balance sheet, most of the cash went towards reimbursingthat debt. Now, this time around, it would misguided for someone to think thatyou would not be doing any sort of share buyback until your debt would be fullypaid down.

Claude Gagnon

That's right. That's right.

Carl Bayard - Genuity Capital Markets

Good. Thank you very much.

Operator

[Foreign Language].

(Operator Instructions). Yourfirst question comes from Grant Robertson of Globe and Mail. Please go ahead.

Andre Bureau

Good afternoon.

Grant Robertson - Globe and Mail

Just a follow-up question on theCRTC hearings. You talked about the access issues, which some of thebroadcasters are raising, and a mechanism that could be put in place--disputeresolution, and that sort of thing. Is there anything else that you would liketo see the regulator give the broadcasters, or anything they can give thebroadcasters that might give you more clout with the VDUs?

Andre Bureau

Well, I think that that's aquestion of balance there. And while, on the one hand, you hear somedistributors say that you ought to get rid of all the rules that exist at thepresent time, and they want to have only one rule saying that there should be apreponderance of Canadian service, period. That's the only rule that they want tobe associated with. We believe that there is more than that; that there aremany other factors that need to be taken into consideration. And so I won't gothrough the list of things that need to be addressed. I was asked what are themajor ones; I mentioned them. But there are other aspects also to be looked at.But our position is not an extremist position. We are trying to say--all right,yes, there are some rules that could be considered obsolete. Let's try and makesure that we make it even more easy to continue growing in the system. Butthere are mechanisms that need to be put in place and, that's all, that's ourposition.

Grant Robertson - Globe and Mail

Okay. And just another questionon the pay TV growth. You've been asked before about the impact of “TheSopranos” going away. Now that there's a quarter behind you, looking at that,is that slight dip in growth from, I think, 6%-5%, is that impact, do youthink? What I mean by that is, is it essentially contained to that?

Ian Greenberg

Well, Grant, as we're talking,John Riley, the President of Astral Television Networks, walked in the room.I'm going to call on him to give you a first hand report.

John Riley

There's no evidence that anychange in our growth has been a direct result of the end of “The Sopranos”. Itwas obviously a very popular show, but it's not the one that drove subscribers.I mean, we do our best efforts always to grow the service, but, of course, thegrowth in the service is subject to all sorts of other factors, the growth ofour affiliates, generally, various campaigns that are undertaken at varioustimes. So, there's no evidence that ties any of our recent subscription levelsto the end of the Sopranos.

Grant Robertson - Globe and Mail

Okay. Thanks.

Operator

(Operator Instructions). [ForeignLanguage].

It seems that there are nofurther questions at this time. I will ask Mr. Andre Bureau to give closingremarks.

Andre Bureau

I would like to remind thoseneeding more detailed financial information that a complete audited financial,dated financial statements with the related notes and the MDNA are available onour web site at www.astralmedia.com and they will remain on the site untilOctober 2008. And if members of the media have any further questions, pleasecontact Andre Bureau at 514-862-8324 following this call. And thanks very muchfor all of you to be there.

[Foreign Language].

Operator

[Foreign Language].

Ladies and gentlemen, thisconcludes the conference call for today. Thank you for participating. Pleasedisconnect your lines.

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