Astral Media F3Q08 (Qtr End 5/31/08) Earnings Call Transcript

Jul.10.08 | About: Astral Media (AAIAF)

Astral Media, Inc. (AMC.A) F3Q08 Earnings Call July 10, 2008 10:30 AM ET

Executives

Andre Bureau - Non-independent Chairman of the Board

Ian Greenberg - President, Chief Executive Officer, Non-independent Director

Claude Gagnon - Chief Financial Officer, Senior Vice President

Jacques Parisien - Group President, Astral Media Radio and Astral Media Outdoor

Alain Bergeron - Vice President of Brand Management and Corporate Communications

Robert Fortier - Vice President, Controller

Analysts

 

Adam Shine - National Bank Financial

Carl Bayard - Genuity Capital Markets

Scott Cuthbertson - TD Newcrest

Ben Mogil - Thomas Weisel Partners

Aravinda Galapitig - Coremark Securities

Drew McReynolds - RBC Capital Markets

Eric Bernofsky - Desjardins Securities

Ross Marowits - The Canadian Press

Randal Rudniski - Credit Suisse

Grant Robertson - The Globe and Mail

 

Operator

 

Good morning, ladies and gentlemen. Welcome to Astral Media's fiscal 2008 third quarter financial results conference call. (Operator Instructions) It is now my pleasure to introduce Mr. Andre Bureau, Chairman of the Board of Astral Media. Please go ahead, sir.

Andre Bureau

Good morning, everyone. I am Andre Bureau, Chairman of the Board of Astral Media and I am joined this morning by Ian Greenberg, President and Chief Executive Officer;

Claude Gagnon, Senior Vice President and Chief Financial Officer; Alain Bergeron, Vice President of Brand Management and Corporate Communications; Robert Fortier, Vice President and Controller; and Jacques Parisien, Group President Astral Media Radio and Astral Media Outdoor. He is also joining us by telephone.

On behalf of all of us here in Montreal, I would like to welcome you to this third quarter conference call for fiscal 2008 and during the course of this call, Ian and Claude will give you an overview of the results, after which we will proceed with the question-and-answer period. As usual, we will take questions from analysts first, followed by questions from the media.

Ian Greenberg

Merci, Andre. Good morning, everyone and thank you for joining us. I am delighted to report another very solid quarter for the company, as we grew organically, as has been the case for several years now, and our acquisitions as well as our investments in the Toronto Street Furniture project are also yielding solid benefits for the company.

As you have read in the press release issued earlier this morning, revenues for the quarter increased by 38% to $233 million, EBITDA grew to $82.2 million, a 41% increase over the same quarter last year. Net earnings for the quarter rose to $43.3 million, a 21% increase over last year’s results, and basic earnings per share increased 12% over the same period last year, rising to $0.76 per share.

Now I’ll take a brief look at each of our divisions. In specialty television, the momentum we saw in the first half of the year continued as revenues for the quarter increased by 11%, fueled by a 14% rise in advertising sales. In pay television, our subscriber numbers held firm in the quarter, despite the prolonged attention that BDUs are directing towards building their digital customer bases and growing other core segments, as well as other unusual factors affecting the business, such as the writer’s guild strike.

We remain confident that the growth potential for pay TV remains strong. The continuing rollout of digital platform enhances the market for pay TV. Furthermore, our fall lineup of programming is almost certainly our strongest ever and will help attract new subscribers. It features an unprecedented nine new or returning series, including Entourage 5, Dexter 3, Californication 3, Brotherhood 3, as well as several blockbuster movies.

Now turning to radio, the assets acquired from Standard Radio recorded revenues of $56.1 million, growing slightly in excess of 2% over the same quarter last year and an EBITDA of $22.6 million for the quarter, representing an excellent EBITDA margin of 41.2%. Both revenues and EBITDA were in line with our current expectations, which are generally linked to market performance.

Astral’s legacy radio stations in Quebec and the Atlantic provinces recorded a 7% revenue decline for the quarter. This is largely explained by the challenging market in the Province of Quebec, [which contracted] by 3% in the quarter. In addition, sales of the Energy Network, mainly in the Montreal market, were weaker due to lower ratings obtained in the S4 2007 BBM survey. This is largely attributable to the departure of Les Grandes Gueules on-air personalities who animated the highest rated show in the country.

Our management has been addressing the situation. Indications are that the rest of our radio stations, both in Quebec and across the rest of the country, will be in line with their respective markets in the fourth quarter.

Finally, this was an excellent quarter for our outdoor division, which saw its revenues increase by 39%, reaching $17.5 million. This is mainly attributable to the contribution of the Toronto Street Furniture program and another strong performance in the Quebec market. The rollout of our new Street Furniture structures began as planned in Toronto this month.

In summary, we are very pleased with the results in Q3 and look forward to the quarters ahead with confidence in the strength of our national geographic footprint and in the capacity of our core businesses to continue to deliver growth.

I will now ask Claude Gagnon to give you a brief overview of other relevant financial information for the quarter. Claude.

Claude Gagnon

Thanks a lot, Ian. I just want to touch upon a couple of items. First of all, piggy-backing on Ian’s comment with regard to the Standard Radio assets that we acquired and the increase of 2% over the performance of last year, I just want to take some of the mystery out of that in certain cases. We’ve noticed that a couple of the estimates that were out there were on the high side, so I just want to make sure that the numbers are clear. Last year’s equivalent quarter, quarter three for standard, they produced revenues of around $55 million. The equivalent number in Q4 of fiscal 2007 for standard is $51 million. We’re not shy to say that. The number is pretty much public. If you go to our business acquisition report that was published last January, Standard’s number for last year overall was about $207 million.

So again, out of the $207 million in fiscal ’07, $55 million was in Q3 and $51 million was in Q4 and that’s the basis that we are starting from.

The second item is with regard to part two fees and the recent court decision regarding the part two fees. As you know and as mentioned in the MD&A, we’ve been either paying or accruing for these fees all along. The running rate for that presently is in between $1.3 million and $1.4 million per quarter, and 75% of that is attributable to our radio assets.

So if we were to benefit from a supreme court positive decision some time in the future, we don’t know when, it would today represent approximately somewhere between 1% and 1.5% improvement on our margin in the radio segment.

So that being said, I think we’ll pass it back to Andre and begin the Q&A session.

Andre Bureau

Thank you, Ian and Claude and I would like now to open up the call to questions, and as I indicated earlier, we will begin with questions from analysts, followed by questions from the media.

Question-and-Answer Session

 

Operator

(Operator Instructions) The first question comes from Adam Shine of National Bank Financial. Please proceed.

Adam Shine - National Bank Financial

Thanks a lot. Ian, maybe obviously we’re going to focus quite a bit on this call on the radio, so I’ll start there. You know, when we had the Q2 call back in early April, I think Jacques acknowledged that there was the dip in the S4 ratings, which we knew about, and then they seemed pleased with the subsequent rating book, where there was a turnaround in the overall ratings. We didn’t hear a lot of color in terms of any acute weakness forthcoming in the Q3. Did things turn particularly negative in the back half of the quarter? I’ll start there and I’ll follow-up.

Ian Greenberg

Well, there’s no question that, as you know, the market itself was weak and we had the S4 ratings. Now, the S4 ratings, it’s comprised of something more than just Les Grandes

Gueules. There was in our opinion, and frankly in the industry’s opinion, an aberration in that survey because you had CBC going to a percentage that was unheard of in the history of CBC radio. So it was a combination of being affected personally by the Les Grandes Gueules and the other private broadcasters being affected by that one survey which shows results that have never been seen before.

So those two factors together, coming together at that time was unfortunate in how it affected us. The nice thing to know is that the surveys after that, which affect the next quarter, obviously, which is why I’m able to say that in the next quarter we’ll be able to meet the market, what we expect the market to be in Quebec flat instead of the 7% decrease.

Now, Jacques is on the line. He’s not in the office but he’s on the line. Maybe Jacques wants to add a bit more color to that on radio.

Jacques Parisien

Well, all I can add to that, Ian, is that Les Grandes Gueules was the most powerful show in Canada. They have left to do their own tour and onstage show. We have replaced them with a very, very good show called Dominique and Martin, and the following ratings showed some very positive signs of recuperating what we have lost from the departure of Les Grandes Gueules. And as you know, we’ll have another rating next week released and we are very positive that we are on the right track to recoup from what Les Grandes Gueules level was in terms of performance.

One must also realize, as Ian mentioned, that S4 was an anomaly in terms of methodology of sampling and there was an over-representation in the sampling of the higher quintile of listeners. So these two factors explain the drop.

Adam Shine - National Bank Financial

Okay. Thank you. Ian, if I look back sort of beyond just obviously the Q3 results and I look to the organic trend on an EBITDA basis, I mean, negative 1% in Q2, negative 0.4% in Q1, negative 0.8% in Q4. You know, obviously we’re aware of the struggles [TQS], TDA related across the [provincial] TV landscape that certainly depressed French language radio but are there steps that you are taking that perhaps you haven’t yet disclosed to us to sort of resuscitate profitability? Are there perhaps select assets, be they in the Maritimes, in Quebec, or elsewhere in Canada where perhaps certain assets might get divested of or other restructuring efforts may occur? Can you just address that?

Ian Greenberg

Well, let me say one thing; first of all, we are coming from a base where we were the highest margin public radio broadcaster in the country. So it’s very hard when you are up at 38% and 39% when the average in the industry is in the mid-30s to talk about the fact that it’s going down. It’s still the highest -- it was the highest of a public broadcaster. And I don’t have to tell you what Corus’ margins in the Province of Quebec.

So we are addressing the issues of the revenue in Quebec. As I said before, we are pleased with the survey after S4. There’s a new survey, as you probably know, coming out next week. We are hopeful that will show positive results and we have full faith that over time in the next quarter or two, we’ll regain the position we had in the Province of Quebec from a revenue standpoint and make sure that we do not fall behind the market.

So when you are up at the kind of percentages -- I mean, last year, as an example, of 39% in Quebec. I mean, that’s an unheard of margin in any public radio broadcaster. But to be down slightly from 39 I don’t think is the worst thing in the world. It’s the revenue that frankly we address more than whether the margin is off a half a point still.

Adam Shine - National Bank Financial

No, look, I appreciate that but obviously if we juxtapose things into the TV context, I mean, you’ve historically been very successful at further growing rather significantly high margins, right?

Ian Greenberg

Well, except in radio. You know, when we started off the radio business, we were a 20% margin company and someone at the time said to me where would you like to go with this business? And I said well certainly we want to get over 30. And then we went to 35 and they said where do you want to go and I said frankly, it’s unrealistic to expect we’ll ever get past 40.

So we can keep the margin and keep increasing the revenue is the way I think we increase the profitability of our radio division.

Adam Shine - National Bank Financial

Yeah, no, I agree -- so then it’s a question of managing market expectations. If I may, just in regard to the Standard Radio detail that you provided, and perhaps Claude can help me on this, Ian, you said that Standard Radio was $56.1 million of revenue and $22.6 million of EBITDA, which is a bit higher than what I calculated because if you’ve got $86.5 million for total radio revenue and $56.1 million, then Astral Radio organic I think would be closer to 30.4, which would suggest an 11.6% decline rather than 7%, so --

Claude Gagnon

Unfortunately, there’s a very small operation called [TA TV].

(Multiple Speakers)

Adam Shine - National Bank Financial

Okay, right. Sorry.

Claude Gagnon

And that’s why you can’t balance the numbers, Adam.

Adam Shine - National Bank Financial

Okay, no, I appreciate that. I think that’s -- that’s occurred before.

Claude Gagnon

-- standard and Quebec and Maritime radio are the numbers for radio.

Adam Shine - National Bank Financial

Perfect. Yes, no, that’s my fault. I just forgot about that. Okay. Thanks a lot.

Operator

Your next question comes from Carl Bayard of Genuity Capital Markets.

Carl Bayard - Genuity Capital Markets

Good morning. Just one question for Claude; would you be able to give us the fourth quarter ’07 EBITDA figure for Standard Radio?

Claude Gagnon

I don’t have that with me. I’ll get back to you on that.

Carl Bayard - Genuity Capital Markets

Okay, and is there any chance that you guys can send us pro forma standard figures so we can -- so it can help us in our modeling?

Claude Gagnon

I’ll get back to you but quite frankly, the Standard Radio business is roughly a 40% margin business, so I think you are not going to be far off if you use 40%.

Carl Bayard - Genuity Capital Markets

Right, but it would probably aid us on a quarterly basis. Would it be possible for you guys to do that or is it just too great an endeavor?

Claude Gagnon

I think you now have that information because we’ve provided you the quarterly numbers in previous conference calls.

Carl Bayard - Genuity Capital Markets

Okay, terrific. But I mean, we’re going to keep on running into like -- because when did it close, it closed in October?

Claude Gagnon

Yes.

Carl Bayard - Genuity Capital Markets

Right, so now we don’t have Q107, right?

Claude Gagnon

Well, the Q107 was about $53 million.

Carl Bayard - Genuity Capital Markets

$53 million of revenue?

Claude Gagnon

Yes.

Carl Bayard - Genuity Capital Markets

And you’ll get back to me for EBITDA? Okay, terrific. Thanks.

Operator

Your next question comes from Scott Cuthbertson of TD Newcrest. Please proceed.

Scott Cuthbertson - TD Newcrest

 

Thanks very much. I just wondered, Claude, maybe you can help me out; just having a little bit of trouble reconciling the organic television growth number. Your overall TV revenues are up 5.4%. Your ad revenue was up 14%, including MusiquePlus, sub-revenue was up 4% not including MusiquePlus, so just roughly assuming about a 50-50 mix between sub-revenue and advertising implies that total growth would be a little bit higher than the 5.4. What am I missing there?

Claude Gagnon

Well, why are you saying that the 7 advertising revenue is 50-50?

Scott Cuthbertson - TD Newcrest

 

Well, just based on --

Claude Gagnon

If you go to the MD&A, Scott, for the quarter our sub-related revenue in television was $96.6 million and the ad revenue was $30 million, so that’s more like a 25-75 split.

Scott Cuthbertson - TD Newcrest

 

Okay. All right. I’ll take another look at that. Thanks. The other thing I wanted to ask about was just sort of a big picture question; your long-term thoughts on the pay television business. I just wondered, certainly it’s been a great business over the past few years as Canada digitized. And I just wondered, it seems to be slowing a little bit now that more than half the households have been digitized. I’m just wondering if you are seeing VOD having an impact and if you are -- what are your thoughts about your strategies for this business for the future?

Ian Greenberg

Well, I said in my opening remarks, Scott, that I certainly have faith in pay television. You know, there are different plans that come into effect that we work on all the time. Some of the ones that we have instituted, such as SVOD, if you remember a few years ago added a tremendous boost. We are working on some other new approaches of pay TV in so far as exciting the consumer. Unfortunately, there is nothing I can say today because it’s not been finalized but we have faith in the category. We are spending a lot of time and we’ll be spending the appropriate amount of marketing dollars once we finalize these plans to put pay in the forefront.

I think it’s our obligation to get the consumer excited because the BDUs have so many other things to worry about and sell that we can’t rely on them to do the marketing without us being at the forefront in the consumer’s mind.

So I think that there’s a little twist here on how we market direct to the consumer, and second of all, there are, as I said, new ideas that we have, that we’ve been working on that hopefully will come to fruition shortly in the first quarter of ’09 that I think could very well give a boost to pay TV, similar to the way SVOD did.

This is not the first time we’ve had a lull in pay TV subscriber growth. As a matter of fact, if you go back years ago, we had a decrease. There are many reasons why they happen but we have certainly not lost faith in the category and we will be doing everything to make sure it continues to be a growth part of our business and frankly I’m convinced that it will be.

Scott Cuthbertson - TD Newcrest

 

Great. And just Claude, last question, I don’t know if you can help [settle] this or not but you were active in your normal course issuer bid during the quarter but you don’t look like you are going to complete the full program this year just based on the pacings of the first nine months. Any way you can help us out with a reasonable assumption in terms of how much you may complete this year?

Claude Gagnon

Well, Scott, actually we’re -- our cap on the normal course issuer bid was lower this year and I don’t see how we are not going to complete it. We’re in a dark period right now because of the results. We’re going to be able to purchase shares starting next week and we’ll likely be active and I’m pretty sure we’re going to complete this one and we’re going to revisit the board to see to what extent we’re going to renew it, so we will complete our current cap.

Scott Cuthbertson - TD Newcrest

 

Can you just remind what the cap is please, Claude?

Claude Gagnon

This one was 2%.

Scott Cuthbertson - TD Newcrest

 

Okay, right. Okay, that’s it. Thanks very much.

Operator

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

Ben Mogil - Thomas Weisel Partners

Good morning. So in Corus’ call yesterday, they talked a little bit about the fact that they were beginning to see some weakness and some challenges in the Ontario market, particularly Toronto. I know you’ve talked obviously about the Quebec and Atlantic markets before. Can you give us a sense of what you are seeing radio look like in Ontario?

Ian Greenberg

Well actually, in Ontario -- let’s reduce it to Toronto for a second, because that’s by far the biggest market. We’re actually quite pleased with the results in the third quarter. I think our stations appeal to the right demographics -- that’s a huge female demographic, and again, we -- you have to understand with Standard, it’s basically been operating as they were in the past. We haven’t made many changes yet but on the other hand, we’ve maintained the margin.

That being said, you can be sure we’ve been spending the last six to nine months planning the future for these properties. We said when we bought Standard that while there were no synergies per se on the cost side, we felt we could do a lot more with the properties. And as you probably know, Standard is probably between number three and number six in most markets across this country.

You know our record in Quebec. We are not satisfied being number three to number six in any major market in this country, and so we’ve been working diligently over the last six months to come up with a plan. It will be instituted just as we start the fiscal year, which is September, and we think we can grow the revenues over time.

But radio, as you know, doesn’t happen the next day. You’ve got to have rating periods. We’re affected now because [inaudible] last year, and so it will take time. But we think we’ve got exciting ideas on how to motivate our people and more important, motivate consumers to listen to our stations and move them up from a number three, four position to a number one or number two because there’s a dramatic difference obviously in the revenues when you are number one or two in the marketplace as opposed to three or five.

So we’re pleased that they’ve been able to maintain the positions, maintain the margins but in so far as the strategies going forward, they take time to implement. We’ve been working on them. We’ve restructured all our sales structures across the country and we have some plans obviously for on-air and we think there’s an exciting future for the Standard stations in the Astral family.

Ben Mogil - Thomas Weisel Partners

Okay, thank you. And then sort of the last question is on the pay TV side; with Superchannel sort of, from a consumer perspective, probably below expectations in terms of not having a lot of studio content, not having a lot of original content, are you seeing some customers that potentially defect to the channel coming back? And are you seeing some of the VOD offerings, particularly on the niche side, sort of niche titles coming into your backyard in terms of programming at all? Are you getting any sense of that?

Ian Greenberg

Well, first of all, you have to understand the values of VOD, where you are going to pay anywhere from $5 to $7 for one product, whereas for pay TV, the average price in the country is probably in the $12 range, for a service that gives you 30 new movies and 100 movies in total in a month, plus all the series from HBO and all the series from Showtime. So VOD is a platform that’s there, it’s growing but it’s a completely different value proposition for the consumer.

And so far as the Superchannel, frankly the problem -- when I say the problem, the challenge is it diverts some of the attention from time to time of BDUs as they launch a new product. As you know, they don’t have much traction yet but it does divert attention, and so when I talk about factors as to why pay TV is not growing, that’s one of them.

But most of the launches I believe have been done and now we’re into an exciting season vis-à-vis programming and, of course, hopefully some, as I said, some new ideas to reinvigorate the product for the consumer.

Claude Gagnon

You mentioned do you see a lot of subscribers coming back -- there’s no real evidence on the table that we lost a ton of subscribers to Superchannel. As Ian mentioned, it’s more that yes, there’s a new entrant in the business and it’s a distraction, quite frankly. There’s a free preview period there but we didn’t lose any subscribers to our knowledge, or a whole bunch of subscribers because of the presence of Superchannel. It’s more a diversion of marketing efforts and it’s a loss of focus on the part of the distributors.

Ben Mogil - Thomas Weisel Partners

Okay, great. That sounds great. Thank you.

Operator

Your next question comes from [Aravinda Galapitig] of Coremark Securities. Please proceed.

Aravinda Galapitig - Coremark Securities

Good morning. Thanks very much. Just a couple of questions on television, especially on the subscribers revenue side for specialty TV. Could you talk a little bit about the sustainability of the subscriber revenue in that area? You posted good organic growth, obviously, in this quarter after being flat in the last quarter. Do you see yourself having the potential to sort of maintain this mid-single-digit type growth going forward as well, given that a lot of your channels already have high penetration levels?

Ian Greenberg

You are referring strictly to the specialty channels?

Aravinda Galapitig - Coremark Securities

Yes.

Ian Greenberg

When you say high growth -- first of all, we have some new channels coming on board next year, although they’ve been on board vis-à-vis available to the consumer. We haven’t had revenue in fiscal ’08 and that is Teletoon Retro and Playhouse Disney. Those channels will come onstream from a revenue recognition point of view in fiscal ’09 and I must say, we’re delighted with both those channels. One, Teletoon Retro, as you’ve probably heard on the call yesterday, we’re up to well over 5.5 million subscribers across the country and we’re very shortly going to be launching Teletoon Retro French in Quebec with Videotron. And while Playhouse Disney doesn’t have that broad distribution, it will certainly contribute both at the revenue level and at the EBITDA level in fiscal ’09.

Aravinda Galapitig - Coremark Securities

Okay, great. And another question on the expenses side; could you talk a little bit about the programming cost inflation outlook looking ahead into 2009? You obviously kept costs flat this year on an organic basis. How do you see that trending going forward?

Ian Greenberg

We don’t expect to see much change there, frankly. That’s been one of our strengths in all the years is controlling expenses. We continue to do that. It’s just part of our DNA and I see that remaining at that level going forward.

Aravinda Galapitig - Coremark Securities

Okay, and just one last question on the television side; on pay TV, could you give us a general idea of where the penetration levels stand for -- based on digital subs in your areas right now? Do you have an idea, or --

Ian Greenberg

Yeah, they are between somewhere between 35 and 40.

Aravinda Galapitig - Coremark Securities

All right, great. Thank you very much. That’s all I have.

Operator

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

Drew McReynolds - RBC Capital Markets

Good morning. Thanks very much. Just Ian, I’m just going to push you a little bit on that last question on programming. You know, just mid-single-digit increases on programming expenses offset by other cost reductions, just struggling I think to see kind of -- that seems to be a big number to offset going forward and I just want to push you a little bit harder on this one.

Ian Greenberg

Well, first of all, let’s understand something; you know that in pay TV, the programming is variable. So as subscribers go up, the same percentage will be spent on programming because I’d say anywhere from 80% to 90% of our program is variable. So where is the disconnect, Drew, that we have?

Drew McReynolds - RBC Capital Markets

So just so I’m clear, when you look into fiscal 2009, you think you can keep operating expense growth for television where?

Ian Greenberg

Well, you know, you heard me speak very bleakly about some new initiatives so it’s hard for me to say where it will be because I am not sure how these initiatives will break out. We look at different modeling as to how at the end of the day we can increase profitability and so if a new initiative calls for a different, a slightly different model but yet will increase the profitability of the company, I don’t want to get stuck with a percentage from that respect.

What I was referring to is based on business as usual, I expect it to remain where it is now.

Drew McReynolds - RBC Capital Markets

Okay, thanks. And just shifting gears here to the outdoor market in Toronto, of course hearing some weakness on the newspaper and radio side; just wondering how the outdoor market is holding up from your perspective.

Ian Greenberg

Well, the outdoor market comprises two components and one is the street furniture program and the traditional billboards, and traditional billboards were a small player in the Toronto market, in the Ontario market, for that matter, as compared to Quebec. On the other hand, what we are seeing in the street furniture for the present structures we have in place now and the ones we are actually installing as we speak in July and August, when we look at the kind of revenues, when I look at the fourth quarter and the first quarter of next year, frankly -- I don’t want to repeat words that were said yesterday but these dire predictions of the economy affecting business dramatically, we don’t see. From the point of any indications we have in frankly all three of our businesses, things look good enough for us to be confident. In the fourth quarter, when I said we’ll meet market conditions on radio, which means, as I said before, about 4% in Canada and flat in Quebec, and both in TV and in outdoor, we’re very pleased with the indications we’ve had for bookings going forward.

Drew McReynolds - RBC Capital Markets

Okay. Thanks very much, Ian.

Operator

Your next question is a follow-up question from Carl Bayard of Genuity Capital Markets.

Carl Bayard - Genuity Capital Markets

Thank you. Just to follow-up on Playhouse Disney and Teletoon Retro achieving high penetration, Cosmo is also achieving high penetration over at Corus. I was just wondering, can you comment not specifically on your channels but can you just comment on the rate versus carriage dynamic with BDUs? I mean, it looks to me like the industry is compromising subscriber revenue for ad revenue.

Ian Greenberg

Well, let me remind you on Playhouse Disney, Carl, there is no advertising.

Carl Bayard - Genuity Capital Markets

Yeah, I know. I’m just talking -- I’m not talking about your channel specifically; I’m just talking about the industry.

Ian Greenberg

Well, that’s probably correct. I mean, we were probably one of the first companies to address that issue with Teletoon Retro. We have waited to launch Teletoon Retro for three years, to find a model that would work for both us and the BDUs. And in fact in the end, we turned the model on its head and reduce the subscription fee dramatically in order to get a huge base. And the key was to get close to 5 million subscribers. Once you have 5 million subscribers, you can advertise to the masses, and so that only works if you can quickly put together deals with the BDUs in order to have over 5 million, and we’ve accomplished that in less than a year. And when we look forward to next year, it will be a contributor.

Most digital licenses, even with much higher fees, as you well know, took years to reach break-even and even today are not really contributing significantly. I think Teletoon Retro will be a star in that area as the years go -- you know, from 2009 on.

Carl Bayard - Genuity Capital Markets

So you’re not too worried about the resulting fragmentation of advertising revenue because you have more to gain versus what the others are going to lose?

Ian Greenberg

Absolutely.

Carl Bayard - Genuity Capital Markets

Okay. Thank you very much.

Operator

Your next question comes from Eric Bernofsky of Desjardins Securities.

Eric Bernofsky - Desjardins Securities

Good morning. Just jumping back to television again for a second; on the specialty advertising, can you speak broadly where you are seeing some gains in terms of demographics? Is it in the women’s category versus maybe the children’s category or the music category? What are some of the high points and some of the low points in terms of demographics in the advertising?

Ian Greenberg

Thanks for the question. The fact of life is when you look at the ratings on just about all our channels, they are nothing short of phenomenal. And you know, the old adage that the ratings equals revenues, and so on most of our channels except for children and music are the two weak areas, frankly. All the other ones have done phenomenally well and a lot of them appeal to women. There are some that appeal to men, like [inaudible]. All those other channels are doing extremely well. The weakness, as you know, we’re addressing MusiquePlus, MusiMax. We’ve announced that there’s going to be a relaunch. We’ve announced a new general manager. We changed the structure and that is something we had addressed. The music format has been challenged and we are making the appropriate changes. And children’s advertising has had a soft year in ’08, but if you look at all our other services, the ratings have been terrific and the revenues, of course, have been commensurate with that.

Eric Bernofsky - Desjardins Securities

Are you looking at opportunities to add or delete stations?

Ian Greenberg

There’s nothing for us to delete. Every single station makes money. On the specialty side, we’d love to add, as we added this past year Playhouse Disney and Teletoon Retro, and now Teletoon Retro in ’09 in French. We will always look for further opportunities to keep adding. I don’t see us selling any television channels.

Eric Bernofsky - Desjardins Securities

Thanks.

Operator

(Operator Instructions) Your next question comes from Ross Marowits of The Canadian Press. Please proceed.

Ross Marowits - The Canadian Press

You talked about coming up with a plan in September for the Standard Radio stations in Toronto. I’m wondering if you could give us an idea of what changes the consumer should expect to see.

Ian Greenberg

Unfortunately, there’s not anymore information I can give you at this time. That’s work in progress and we have to wait for certain components to come together, so unfortunately there is nothing more I can add today.

Ross Marowits - The Canadian Press

Could it involve personalities or is it more other --

Ian Greenberg

As I said, there are really absolutely no further comments I can make today.

Ross Marowits - The Canadian Press

Okay, thanks.

Operator

Your next question comes from Randal Rudniski of Credit Suisse. Please proceed.

Randal Rudniski - Credit Suisse

Good morning. I just wanted to ask another question on pay TV, and that is could you contrast or compare the performance from Super Écran versus The Movie Network? Are both businesses experiencing the same trends or are there differences between the two?

Ian Greenberg

There are slight differences. If you look at the viewership of Super Écran, it is much higher because there is much less competition obviously in the French language. And so the viewership is quite a bit higher in Super Écran.

But other than that, they are both sold around the same price and as much faith as we have in one, we have in the other.

Randal Rudniski - Credit Suisse

Is the subscriber performance, has it been similar in recent quarters at Super Écran?

Ian Greenberg

If anything, it’s maybe slightly better.

Randal Rudniski - Credit Suisse

Okay, that’s helpful. Thank you.

Operator

Your next question comes from Grant Robertson of The Globe and Mail.

Grant Robertson - The Globe and Mail

Good morning and two quick questions; on reinvigorating pay as you mentioned, I’m wondering -- HD seems to be a big catalyst for people subscribing. Can you bump up the HD on that, or are you too constrained on the BDU side?

Ian Greenberg

Well, first of all, thanks for giving me the opportunity to say we were the first in Canada to launch HD channels. We have the most HD channels of anyone in the country. That being said, we are prepared to double the offering we have on HD. You are asking me right by saying we’re constrained by the BDUs, less some capacity, legitimate capacity issues, I guess. But from our point of view, we’re willing to give double the amount of channels in HD today. It’s just a matter of our partners having the capacity to accommodate us.

Grant Robertson - The Globe and Mail

You could go from two to four in a heartbeat, if they’d let you.

Ian Greenberg

Absolutely. That way we have three. We have two, TMN and we also have MoviePix in HD, so we can go to six.

Grant Robertson - The Globe and Mail

Where is most of the push-back coming from on that?

Ian Greenberg

Well, you know, I don’t want to point out any BDU by name. The fact is, I think they all have the same issues on capacity.

Grant Robertson - The Globe and Mail

Okay. And the last question, you talked a bit about the economy and of course, we’re all seeing the big pull-back in media stocks. I’m wondering, given that you’ve been around the industry for a while, I’m wondering if you can put what you are seeing in context a bit in terms of the slide in media stocks and Astral is no exception.

Ian Greenberg

Well, you know, you are right, of course but what I’ve seen over the years is that the strong really come through the forefront in tough markets. When markets are strong and whether it’s radio or television, whether you are number one or number six, you will probably get your fair share. When the markets get a little tighter, that’s where it’s important to be in the top three because then you are more of a must-buy than just a casual buy. And so that is why we spend a lot of time on increasing our ratings and spending time and money to make sure we have, whether it’s the programs, whether it’s the personalities, to have the ratings to be in the number one to number three position. We’ve seen this happen time and time again, where in bad times the strong operators with good, attractive programming to consumers, stay in the forefront and maintain their growth, whereas the bottom half, unfortunately, fall by the wayside quite a bit.

Claude Gagnon

And the pull-back is not exclusive to media stocks. I mean, there’s been a tremendous pull-back in all of the consumer discretionary sector and the point remains that a lot of our revenue is still subscriber-based and in the volatile economic times, historically Astral has performed well because the subscriber bases are maintained and people tend to spend more time home and they’d rather watch pay TV rather than going out to the movies.

Grant Robertson - The Globe and Mail

Okay. Thank you.

Operator

It seems there are no further questions. At this time, I will ask Mr. Andre Bureau to give closing remarks.

Andre Bureau

Let’s see, I would like to remind those needing more detailed financial information that the complete unaudited interim consolidated financial statements with the related notes and the MD&A are available on our website at www.astralmedia.com. They will remain on the site until July 2009. And if members of the media have any further questions, please contact [Alain Devereux] at 514-939-5008 following this call.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.

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