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Executives

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

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

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

Chris Pandoff - Executive Vice President and President of Corus Radio

Analysts

Adam Shine - National Bank Financial, Inc., Research Division

Paul Steep - Scotiabank Global Banking and Markets, Research Division

Robert Bek - CIBC World Markets Inc., Research Division

David McFadgen - Cormark Securities Inc., Research Division

Aravinda Galappatthige - Canaccord Genuity, Research Division

Michael Elkins - TD Securities Equity Research

Haran Posner - RBC Capital Markets, LLC, Research Division

Colin Moore - Crédit Suisse AG, Research Division

Corus Entertainment (OTCPK:CJREF) Q4 2012 Earnings Call October 25, 2012 1:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Corus Entertainment's Q4 and Year-End Analyst Investor Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, October 25, 2012. I would now like to turn the conference over to President and CEO, Mr. John Cassaday. Please go ahead, sir.

John M. Cassaday

Thank you, operator. Good afternoon, everyone. I'm John Cassaday, and welcome to Corus Entertainment's Fiscal 2012 Fourth Quarter and Year-End Report and Analyst Call, and again, thank you for joining us today.

Before we read the cautionary statement, we would like to remind everyone that there are a series of PowerPoint slides that accompany this call. The slides can be found on our website, www.corusent.com in the Investor Relations section.

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 to materially differ from those in the forward-looking statements is contained in the company's filings with the Canadian Securities Administrators on SEDAR.

Now we would like to introduce you to the Corus Entertainment team joining us on the call today. First of all, Tom Peddie, Executive Vice President and Chief Financial Officer; also, Doug Murphy, Executive Vice President and President of our Television Division; and finally, Chris Pandoff, Executive Vice President and President of our Radio Division.

Turning to Slide 3 of the PowerPoint presentation. Consolidated revenues for the fourth quarter were down 2% compared to prior year, due in large part to the impact of the Olympics. Revenues for the full year were $842.3 million, up 2% from a year ago.

We are very pleased with our performance for fiscal 2012. Given the uncertain economic environment, this was one of the most challenging years in our history. We faced a downturn in key children's advertising categories. As well, on the expense side, we saw an escalation in program costs resulting from new channel launches and required spending under our conditions of license. Despite these challenges, Corus continued to grow in fiscal 2012 and made gains on virtually every front.

So what did we accomplish? We delivered revenue growth, earnings growth, net income growth and record free cash flow, up 15% for the fiscal year. We also increased our dividend by 10%, and along with share buybacks, we returned $103 million to shareholders, up 53% versus the prior year.

Turning to Slide 4. We delivered very strong segment profit growth of 8% in the fourth quarter. We did not achieve our annual segment profit guidance, but we did grow EBITDA to $290 million, up 1% from the prior year. This shortfall was due primarily to the previous discussed -- previously discussed challenges in the children's advertising market.

Turning to Slide 5 and a review of fiscal 2012 results from continuing operations. As mentioned earlier, we had record-breaking free cash flow of $155 million, which represents a 15% increase from the prior year. Our net income, attributable to shareholders for the year, was $148.7 million, up 10% compared to the prior year.

On an adjusted basis, earnings per share, which excluded the impact of a $6.8 million noncash tax expense related to an increase in the Ontario long-term tax rate, were up 8% to $1.87 per share compared to $1.73 per share in the prior year.

Once again, we did a great job in managing our costs in the quarter and over the course of the entire year, achieving excellent margins in both our Television and Radio division. Consolidated segment profit margins were up almost 300 basis points for the quarter, with margins finishing the year at 40% and 30% for Television and Radio, respectively.

We also delivered strong returns to our shareholders through a combination of share repurchases and dividend growth. We repurchased more than 1 million Class B shares and increased our monthly dividend rate by 10% during the fiscal.

In our Radio division, a softer ad market impacted total revenues and segment profit, which were down 2% and 3%, respectively, for the year. Most of the revenue decline was in the first quarter of the year, with the remainder of the year stabilizing. With our stringent focus on cost controls, Radio achieved modest segment profit growth of 1% in Q4 and an overall full year margin of 30% for the second year in a row. This, as you will recall, was an important objective of ours for quite some time.

Even though Television was operating in a challenging children's ad environment, the division increased revenues by 3% for the year. The outstanding performance of Beyblade contributed to the division's success. While segment profit was flat year-over-year, we were very pleased to see strong specialty advertising revenue and segment profit gains of 7% in the fourth quarter. The division achieved, as I mentioned before, outstanding operating margins of 40% for the year, which we really consider to be an excellent result.

Advertising growth in Q4 was fueled by our strong women's portfolio led by the W Network, which was buoyed by ratings gains as a result of its appealing slate of original program hits and back-to-back weekend movie programming blocks.

Subscriber revenue for Television was down less than 1% from prior year, primarily due to a modest decrease in Pay TV subscriptions over the prior year. We were, however, encouraged to see a lift in Pay subscriptions in the fourth quarter, the first time in 4 years that we have seen an increase from Q3 to Q4 in the Pay business.

The growth was due to a combination of factors: signs of traction from an aggressive retention and acquisition campaign; the strength of our first-run movies and premium original content; and the successful deployment of an HD on-demand offering. We would also highlight the availability of Movie Central and HBO in high definition as a new offering and a significant product improvement for our subscribers in Western Canada.

We are generating success by continuing to work with our distribution partners to deploy TV Everywhere offerings that reinforce the exceptional value proposition of Pay TV. A Movie Central app, which was recently launched as part of Shaw Go's offering, is being well received. We are currently in discussions with other distribution partners to roll out more premium content.

Enabling consumers to take advantage of new forms of nonlinear distribution to access our content remains a key strategy to drive ongoing growth for the Pay business.

To ensure that we deliver on future growth opportunities, Television continues to build on its strength as a preeminent brand steward in 3 strategic verticals: Women, Kids and Family. As part of that strategy, in the spring, we expanded our Family vertical with the successful launch of our new offering, ABC Spark.

In the summer, TELETOON also introduced another highly desirable service, The Cartoon Network, into the Canadian marketplace. On the international Kids business front, our merchandising, distribution and other businesses continued to grow, up an impressive 21% for the year, driven, of course, by the phenomenal success of Beyblade.

Fiscal 2012 has demonstrated that Television continues to benefit from its diversified portfolio of businesses. Our differentiated but complementary specialty television services, combined with our successful production, distribution and merchandising portfolio and an expanding international Kids business, have positioned us well to leverage growth opportunities, both domestically and internationally.

Finally, on the corporate development front, we continued to make opportunistic investments. Along with our partner, NBC Universal, we increased our equity stake in the international Kids broadcaster, KidsCo. We acquired the remaining 50% of the Montréal-based digital content and animation software company, Toon Boom, which this month was awarded a prime time engineering Emmy for innovative engineering developments that materially affect the television medium. And we invested in Fingerprint Digital, an emerging leader in children's mobile apps.

In summary, despite a challenging global economy, we achieved year-over-year growth, maintained disciplined cost controls to deliver strong margins and free cash flows, introduced new specialty television services which complement our portfolio and pursued new venture opportunities to further our growth objectives.

Now we would like to provide you with some comments on our outlook for Q1. Turning to Slide 6. It appears that 2013 will be another challenging year, given the current economic uncertainty. Generally, the advertising market is continuing to spend but is making shorter-term commitments. In this environment, we believe that we are positioned well to respond to the new challenges and the opportunities that lie ahead.

We will continue to maintain a disciplined approach to managing our costs. Salaries, for example, have been frozen for our senior-level employees, and all cost center budgets have been held flat to prior year. We do plan to make strategic investments in our leading brands while maintaining excellent margins to drive growth in the coming year.

For radio, our Q1 revenues are pacing ahead of last year, led by growth in the West. We are also starting to see recovery in the Ontario market and are forecasting revenue growth in the low single-digits for the Radio division in the first quarter.

Core retail businesses continue to be strong for Radio. Categories that are tracking well in Q1 and leading the spending include automotive, telecom, entertainment and professional services. We are also seeing emerging business strength from the financial services category, including insurance, wealth management and retail banking.

From a ratings perspective, many of our major markets are performing well. Toronto remains strong. In the West, Calgary has returned to a position of strength in its adult demos, and we are seeing ongoing growth in the Vancouver market.

Moving to Television, in Q1, we expect our specialty services will continue to generate growth and anticipate low single-digit advertising increases, led by our Women's portfolio. While we anticipate continued softness in Kids advertising, we expect our Co-view audience to be a good business driver.

Our Women's portfolio, with its uniquely defined channels, will see continued upside in Q1, fueled by strong demand for the women's demographic, ongoing ratings momentum on W Network and further audience gains for CosmoTV and the Oprah Winfrey Network.

W will benefit from Canadian rating performers, including Undercover Boss Canada, Property Brothers, and Love It or List It. And from new series spinoffs in Q2, Love It or List It Vancouver, co-hosted by Canada's Bachelorette, Jillian Harris, and the Property Brothers Follows Up, Buying and Selling, in addition to our popular weekend movie blocks.

We also anticipate growth from the Oprah Winfrey Network which continues to gain traction. As Oprah said recently, we have made the pivot.

More Oprah-hosted primetime programming has successfully boosted ratings with shows like Oprah's Next Chapter, which features a series of exclusive interviews with high-profile guests including Lady Gaga, Kim Kardashian, Stephen Colbert, Usher and Rihanna.

This November, for the first time in 2 years, Oprah's Favorite Things returns to television, with a 2-hour special event, in which Oprah reveals her must-haves for the holiday season. Canadian viewers get the chance to win Oprah's Favorite Things as part of a watch-and-win sweepstake campaign. With more Oprah on the network more of the time, in addition to a roster of impressive guests, this channel is generating interest, excitement and tune-in.

In our Pay business, we saw a subscriber lift in Q4, which is very encouraging as traditionally we see slippage during the summer period. This is a promising sign of the service's growth potential.

Last month, HBO programming received a total of 24 Emmy Awards, a testament to the ongoing quality and impact of HBO's original programming. This fall and winter, we expect further gains in response to the launch of an exceptional lineup of must-see, critically acclaimed, original dramatic series, including new seasons of HBO's provocative hit series, Girls, the highly-anticipated return of Game of Thrones, and season 2 of Aaron Sorkin's The Newsroom, among others.

In addition to this impressive programming lineup, a substantial acquisition and retention campaign launches this month in support of the rollout of a free preview of this service and of our distribution partner's TV Everywhere initiatives.

Across all of our networks, we will deploy more on-demand content as part of our ongoing efforts to drive revenue growth, providing customers with great content, available in multiple formats.

In the Kids and Family vertical, we will continue to build our Co-view audiences and expect ratings gains on YTV, with new episodes of the hit series, iCarly, the Canadian rating driver, Zonked, Mr. Young and Nelvana's Life with Boys, and the continued strength of our movie blocks aimed at family viewing.

In addition, YTV has announced a series of new one-to-one specials this fall and winter built on the pop cultural appeal of live performances and one-on-one interviews, featuring chart-topping musical acts like Katy Perry and British boy band phenomena, One Direction. These specials have proven to be a huge success for our channel. This month's guests include Taylor Swift, Victoria Justice and the Australian singing sensation, Cody Simpson.

ABC Spark also represents a critical part of our strategy to bolster our competitive position and accelerate growth. With access to outstanding and exclusive programming from ABC Family in the United States, the network is already delivering on ratings and advertising. We expect further growth as the service gains wider carriage and generates increased audiences in response to its winning lineup of hit series.

In fiscal 2013, one of our key strategic focuses is developing other revenue streams to drive growth. We will work with our partners to deploy new products into the marketplace that enable customers -- consumers, rather, to access our content whenever they are -- wherever they are. Globally, the value of Kids digital on-demand content is growing exponentially, and as a leading and respected content creator in the Kids space, it has become a critical support -- source of revenue growth for our business.

In Q1 and throughout the year, we will be introducing more nonlinear content into domestic and international markets. In our international merchandising, distribution and production businesses, we expect revenues to continue to contribute to our Kids vertical, as our Nelvana Enterprises team establishes new partnerships and deals around the world.

Earlier this month, at MIDCOM, an industry trade show, we announced the major content acquisition and representation deal with China's Ciwen Media Group. This deal grants Ciwen distribution rights to over 1,000 half-hours of animated and live-action Nelvana programming, as well as merchandise rights to a number of our properties, including Franklin. This is likely one of the largest kids media deals for Western properties ever concluded in China.

Nelvana continues to excel in producing high-quality content that is driving audiences both at home and abroad. We're making excellent progress in placing our new slate of shows with Nelvana's programming prominent on all 3 major kids broadcasters in the United States, as well as on leading kid broadcasters around the world.

Among our recent deals is the slate of our CG-animated breakthrough hit, Mike the Knight, to Discovery Kids Latin America, which has set to air it in Spanish and Portuguese in the coming months. On the merchandising front, a full global program for Mike the Knight from master toy partner, Fisher-Price, will be under way in the spring.

In addition, we expect Beyblade will continue to be a strong performer for us. The brand is maturing so revenues may not match the outstanding results achieved in fiscal '12, but Beyblade, which has sold a remarkable 150 million toys to date worldwide, will continue to play a key role in our merchandising business.

To support the brand, we have a number of initiatives in place, including a new Beyblade series which launched this fall and a new BeyWheels toy line debuting in time for the holiday season. In the U.S. market, Beyblade toys are included in Walmart's, Toys"R"Us' and Target's top toys for the holiday lists.

For one of our classic brands, Babar, we are launching some exciting new initiatives with upscale retailers, including a program with luxury retailer, Saks Fifth Avenue. A Babar boutique will be featured in their New York City flagship store, along with 21 other Saks locations across the country.

The value of Nelvana, its deep library of content available in multiple languages and formats, coupled with our international partnership, KidsCo, represent a significant opportunity for us to leverage our digital content and exploit these assets to expand our Kids brands globally and generate new revenue streams for the company.

In summary, we are well positioned for the year, and while there is limited visibility, we are seeing signs of a returning advertising market going into the holiday season. We expect to benefit this year from several provincial elections and the absence of the Olympics. We will continue to pursue growth opportunities by optimizing the value of our established services, and we are excited about the potential of our newest entries, ABC Spark and Cartoon Network.

Domestically, we are posed for opportunistic investments and tuck-ins. Internationally, our broadcast, merchandise and distribution business is ready to take advantage of the growing demand for media and the digital space, and we're also optimistic about those opportunities that lie ahead. We hope that you have found the comments on our outlook helpful.

Before we turn the call over to you for questions, we'd like to confirm with you that our Investor Day will take place on Thursday, November 29. We will now take any questions that you may have. And operator, I'll turn the call back over to you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Adam Shine from National Bank Financial.

Adam Shine - National Bank Financial, Inc., Research Division

Obviously, we're going to get a lot more color in terms of the outlook for '13 next month, but maybe John or Doug even, can you talk to sort of the early trend in other, in Nelvana distribution merchandising as it relates to a very, I guess, tough comp continuing into Q1 or the low Q2? I mean, should we assume, John, and maybe this might be incorrect, but a similar sort of decline in the Q1 for the other line? Maybe we can just start there.

John M. Cassaday

Well, it's very difficult to anticipate precisely where that's going to net out because of course, it's highly dependent on Beyblade. Some of you who monitor Hasbro's performance will note that they made a comment yesterday that they expect Beyblade to continue to perform well this year. In fact, they reported that they expected to return -- to perform better than expectation. But I think as we've indicated on a couple of occasions recently, we do expect there to be some falloff in that brand as it matures.

Douglas D. Murphy

I'd just add to that, that the other category has got a lot of different businesses in there. There's some asset distribution from program license sales, there's home video, there's digital, there's publishing. So just to add, where we are seeing some nice year-over-year growth is in the digital video licensing opportunities. We just got back from the MIDCOM market, as John alluded in his opening comments. And there's great opportunity for us to monetize some big new players in that space and take advantage of our library of well-known brands in multiple languages.

Adam Shine - National Bank Financial, Inc., Research Division

I'll queue up again, but maybe to one of the obvious questions on the call today is as it relates to Astral and to a theoretical degree, if and when Bell extricates itself from the current appeals process, John, are there any particular assets that obviously come to mind? And I guess just as a qualifier there, given the nature of how hard the CRTC came down on Bell and acknowledging sort of the Shaw family on a ship above Corus and Shaw, is it ultimately really just TELETOON that might be most easily slotted into your mix and maybe you'd be precluded from a family or even an Astral Pay TV acquisition or maybe you can just talk to your thoughts?

John M. Cassaday

Well, Adam, as you've suggested, Bell -- Astral is locked up with Bell until some point in January, I think around January 15. So I think as a result of that, we would really not comment on any specific areas of interest. It's their asset until such time as it's not, and I'll just leave it at that.

Operator

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

Paul Steep - Scotiabank Global Banking and Markets, Research Division

John, maybe to take the question in a different direction rather than go just to the Bell-Astral situation. With free cash flow continuing to build this year, where do you see the priorities lying as we head into 2013 for where you're going to deploy free cash? And should we think more about M&A, maybe on an international basis, outside of the core traditional businesses?

John M. Cassaday

Well, we will, as a priority, continue to focus on our dividend and share buyback, but we will also, as I said in my opening remarks, be open to opportunistic areas that can enhance our business. Clearly, we continue to talk about the outstanding international growth opportunities we have in Kids, and that's an area that we continue to focus on. We think there is significant opportunity as new forms of content emerge for kids in different formats and applications, Fingerprint is just one example of the kind of thing that we think we can do to continue to grow that business. But the primary focus will continue to be on spanning our dividend and on their share buybacks, but we feel we are in a good position financially to take advantage of other opportunities as they arise.

Paul Steep - Scotiabank Global Banking and Markets, Research Division

Great. And I guess then the second one for me, and then I'll pass the line, is just more to Doug or to you, John, on HBO Equivalent that you launched or Shaw launched. Any sort of details you can give us in terms sort of, rough customer adoption so far? And then maybe for the November 29 day, do we have any data around how much of the your information or your content has been made available nonlinear at this point domestically? I think that would be interesting.

John M. Cassaday

Certainly by the 29th, we will have more color to provide for you. But as you all know, we've been very much advocates of the TV Everywhere approach. We believe that the single biggest thing that we can do beyond continuing to provide outstanding content to our subscribers is to make that content available to them in nonlinear forms on multiple platforms. Once our subscriber has paid for that content, we always have believed that making it available to them whenever they want it, wherever they want it was key to that value proposition. So we're thrilled that we're moving out on that front. And our expectation is, that as we expand this offering with other distribution partners, we just increase the stickiness of that content. And if we can reduce our churn and continue through great programming and acquisition events such as we've been doing in the past, we're firm believers that we can continue to grow the Pay business.

Douglas D. Murphy

Okay, and I'll just build on that, Paul. Doug here. We believe that Pay is a growth business. We're delighted and pleased to see that we grew Q4 over Q3, which I would suggest to those on the line as a pivotal point in time for the Pay business. And we've been very consistent in saying that, we were lacking HD, SVOD, that's now rolled out. We know we've got great content and continue to have shows that are breaking records such as Boardwalk Empire, the new season and others. And the acquisition and the retention campaigns employed, so far this year, have been extremely successful. So when you look at sort of that triad of great content, great acquisition campaigns, HD, SVOD and TV Everywhere, now being deployed aggressively, we think there's a good story coming out of Pay in the coming quarters.

Operator

Our next question comes from the line of Bob Bek from CIBC.

Robert Bek - CIBC World Markets Inc., Research Division

I just have a follow-up on a couple of comments, questions from before. First on the merchandising side, John or Doug, can you give us a bit of an update again on where the variable versus fixed component is here? I'm just trying to gauge -- and I know the revenue side is tough to ballpark here, but can you give us a bit of a sense on the cost side just so we can sort of keep in front of this on the EBITDA flow-through. I think at one point, you talked about sort of 40% fixed. Is that correct and...

John M. Cassaday

As a rule of thumb, I think that's fair. I think we've -- I've also said in the past that every deal's like a snowflake and they're all different and it's hard to model, and I'd reiterate that metaphor. So but as a general rule of thumb, I think that's a reasonable assumption to use.

Robert Bek - CIBC World Markets Inc., Research Division

And I don't mean to press you guys too much here, but you did kind of jump around Adam's questions as whether this is up or down or like before. I mean, is there a -- granted -- given it makes such a big difference on the quarter in these last couple of quarters, is there anything more you can do to give us sort of on directional, I mean, rather than short of giving us actual guidance which I'm not asking for?

John M. Cassaday

Yes, generally speaking, our tendency and our plans is that it's going to be a little bit down. Here's one where I think we're planning for the worst and hoping for the best. And ultimately, it just depends on what the consumer take-up is of Beyblade, and as Doug said, we've got lots of other arrows in our quiver. We're out there selling our digital content. Our broadcast sales are good. Our shows are performing well. One of the things that's really helping us internationally is our ability to actually do what we said we'd do. This is a highly fragmented environment that we're in for kids producers. And the fact that Corus has the strength of its networks and the support of the Canadian subsidy system, is really comforting to partners like Mattel, Hasbro, Spin Master and broadcast partners around the world. So we're really uniquely positioned to take advantage of growth opportunities. But again, just to underscore the point, because Beyblade was such a big success, it has come to represent a significant part of it. And our expectation is, like all good things, this thing will come off the boil a little bit. But again, I just want to reinforce that we are 100% behind it with new episodes of content. Our partners Hasbro are 100% behind it. Again, they've talked in their recent calls about this quote being an evergreen property. And most recently, they talked about the fact that it was exceeding expectations. So Bob, we really don't know but we certainly would not want to give you the impression that we're projecting the same kind of trajectory we had at this time last year because we don't.

Douglas D. Murphy

I think I can build on that a little bit. What we can tell you is that vis-a-vis the average boys action hits and certainly in comparison to the first task pass some years ago, our forecast is much more bullish than it would have been otherwise. And the reason why, is because we've worked very closely with Hasbro and our Japanese partners to create product innovation. We have in market now a line called BeyWheels for example, and we built new animated episodic content in and around that line to sustain the property both at broadcast and at retail. And we continue to have a lot of encouraging and exciting conversations with Hasbro about further product innovation that we can bring to this brand in the future. So as John said, this is not going to be an up and a down kind of a thing, it's going to be a much longer sustain than we have seen in the past. But last year was a phenomenal year so we're -- obviously, we're managing how we're communicating to the street accordingly.

Robert Bek - CIBC World Markets Inc., Research Division

That's good commentary. Just a follow-up -- Actually, it's not a follow-up. It's a new question. I just saw something there about the Oprah Network hearing request. I guess the CRTC requested a hearing from the network. Is there anything to comment on that? Is there anything at all?

John M. Cassaday

They have asked us to appear. We're hoping that we can resolve this with them prior to that. But as it relates to planning, we're extremely confident that there will be no impact to our ability to deliver Oprah to its audience across the country. Thank you for the question, though, because we are really excited about the momentum that now exists on Oprah. And Doug, maybe you can just give everyone a little bit of flavor for what's going on, on that brand that we have so much hope for going forward.

Douglas D. Murphy

Thank you, John. No, OWN, in its second year, is doing phenomenally well. We are showing ratings growth, at least most recently as quarter-to-date, north of 40% in the ratings file, so we really got some traction here. And what's really encouraging, obviously, it's when Oprah's on the air, but some of the other new episodes that are without Oprah are driving audiences as well. So we always had the view that this network could be as big someday as W is today, and we think that we have momentum now to start achieving some of those results.

Operator

Our next question comes from the line of David McFadgen from Cormark Securities.

David McFadgen - Cormark Securities Inc., Research Division

Yes, a couple of questions. So first of all, just for Tom, what do you think the CapEx is going to be for 2013? I thought this year it was going to be around $15 million but it looked -- obviously, it was a bit higher than that. Can you give us an update on that?

Thomas C. Peddie

David, it's Tom. We've been pretty consistent that we think that our CapEx number will be in the $15 million range for the next couple of years. And we had some additional expenses this year in Q4 that we hadn't really counted on, but I think the run rate would be in the $15 million.

David McFadgen - Cormark Securities Inc., Research Division

Okay. So given your level of free cash flow and where the dividend sits right now, I mean, free cash flow is obviously growing a lot faster than your earnings. Would you contemplate maybe moving the dividend up to something like 50% of free cash flow?

Thomas C. Peddie

Well, we've been -- our dividend payout has been in the 50% to 60% range. And as John said, our focus is on returning value to our shareholders. And as you know, we have a normal course issuer bid in place, and so what we need to do is to strike a balance between returning value in the form of share buybacks and dividends. And dividends are very important to our shareholders. We have yield an excess of 4% so that will -- we'll assess that as we look at our other strategic alternatives.

David McFadgen - Cormark Securities Inc., Research Division

Okay. And then just lastly on OWN's, you said the ratings are up 40% recently. Can you give us an idea of what the revenue and EBITDA growth was for that network in fiscal 2012?

Douglas D. Murphy

David, it's Doug. I know you're a big fan of the network, so thanks for your viewership. We've always said that the audience leads revenues so at this point in time, we don't break out that protocol P&L per se. I think you can look in general at our comments on the Women's vertical and the growth we're expecting in the first quarter to sort of include the strong results of OWN.

John M. Cassaday

I think the other thing we can say just from a systemic point of view, if you look at what the, sort of history of this has been, we were able to acquire CLT, a service that was not delivering any value to viewers or advertisers. Essentially, ratings were hashmarks, and we took that service and added significant value and spent significant amounts of money in terms of Cancon and other to build that to the point that it was a legitimate ratings driver, and then added on top of that the Oprah content. And I think that we've been rewarded every step of the way. We had obviously great increases in revenue on VIVA over CLT, and we're also seeing the same kind of increases in Opera over VIVA, and which again just proves the point Doug made, is if you can satisfy Canadian viewers with great content, it's going to -- you're going to get rewarded with additional ad revenue.

Operator

Our next question comes from the line of Aravinda Galappatthige from Canaccord Genuity.

Aravinda Galappatthige - Canaccord Genuity, Research Division

A couple for me. First of all on Nelvana. Can you talk a little bit about the progress that you've made this year in terms of building your digital sales at Nelvana? I know that you mentioned last year that you're growing at about 50%. The number was low, I think it was about $3 million but you're having good growth. I was wondering if you can provide us an update on that, as well as the traction that you're getting, selling to the newer OTT platforms.

Douglas D. Murphy

We expect significant growth this year. I would say that growth trend should continue. It's an exciting time to have a library with the quality of the animation products that we have in the many versions of languages that we do have. We set a specific objective in going to the market a few weeks back to have a whole target list of digital OTT players. These range from the usual larger suspects like Netflix, Hulu and the others, but it also got right down into regional opportunities from telcos and cable distributors, aggregators, U.K. versions of Netflix like LoveFilm, the list goes on and on and on. And it's come back with a substantial shopping list and a follow-up list. To me, it speaks to the ongoing opportunities in this area. So I think that growth profile is probably a fair assumption to use in terms of will it happen this year. And we have also just recently reorganized here in terms of resources, to dedicate folks both domestically and internationally, to take advantage of the opportunities in this space. So we have identified it as a critical growth area for our Nelvana library and expect to deliver ongoing growth in the results in the coming quarters.

Aravinda Galappatthige - Canaccord Genuity, Research Division

And then with respect to Pay TV, I know that there's been a further speculation about HBO potentially going directly -- direct to the consumer with their HBO GO product in the U.S. I know that you have been tied up until 2018. I just wanted to clarify. I mean, is it fair to say that there's absolutely no route for them in Canada to sort of follow that path?

John M. Cassaday

Well, first of all, I'm not sure I agree with your assessment that they're looking to go direct to the consumer in the United States. I know they did that in a Scandinavian market where they didn't have a vested interest in maintaining the status quo from a distribution point of view. But every remark we've ever seen from them is that they continue to be deeply committed to maintaining the current ecosystem and supporting their distribution partners, by making their content available that people pay for available to them on multiple platforms, anywhere they want to see it. So I personally, first of all, would take exception to this change in thinking that you're talking about. I just don't think that's the case. And as it relates to Canada, certainly, we don't believe there is any thought whatsoever or any opportunity within our agreement to do that. We have a great relationship with them and continue to be great brand stewards of both the HBO brand name itself and the content that they provide us. We're very proud of the relationship, and from everything we know, they're extremely pleased with the relationship that they have with us.

Operator

Our next question comes from the line of Mike Elkins from TD Securities.

Michael Elkins - TD Securities Equity Research

So content amortization was -- it was somewhat encouraging this quarter. Can you just talk, and maybe in general terms, about the market for content in general? And then maybe more specifically, how you expect content cost to trend for Corus in 2013?

John M. Cassaday

Well, we're very, very focused on essentially controlling our content cost. When you think about content cost, of course, you've got to think about it in really 3 separate buckets. The first is our Kids content and that is, by and large, locked into long-term relationships with Cartoon Network and Nickelodeon. Cartoon Network for TELETOON and Nickelodeon for YTV and Treehouse. So those deals are quite predictable in terms of the costing, pricing, if you would, on that part of our bucket. The second piece is the women-oriented assets, and the programs that we buy there are, again, largely aftermarket products except for that which we produce domestically. But we're essentially buying strip programming and formatic programming off the U.S. and not competing with CTV and Global and City for first-run U.S. shows. So again, our costs are relatively controlled there. And then in the case of Movie Central and HBO, these are the subject of generally 3 to 5, or in the case of HBO, longer-term deals with the studios and inflation there has been manageable. We have had, as you're aware, some escalation and costs as a result of the impact of Netflix in that particular window. But we feel real good. As you point out, Mike, we were able to control our costs nicely in the fourth quarter. And we expect that you'll see similar patterns in the rest of the year. Having said that, we also know the programmings, the engine that drives ratings, and if we see a great show that has the opportunity to really bump our ratings up on a particular network, we'll look at that. But we do know that controlling this particular expense, which is one of our major expense items, second only to payroll, is a key element in our success.

Douglas D. Murphy

I might just add to that and, Mike, welcome, by the way, it's Doug here, that we also apply the same diligence to the content amortization cost on our Nelvana programming investment side of the equation. So we have continually built our margin on Nelvana film asset sales over the years by being extremely diligent in terms of managing our costs, 2 or 3 are here in Toronto, but also to the increasingly effective and widespread use of co-production treaties with various other countries and partners around the world. This is a model that has worked extremely well for Mike the Knight, for example. Originally, it was a U.K.-Canada co-pro with HIT, and that show's looking like it's going to be a long-term success for us, both on broadcast and with merchandise in Fisher-Price. So one of the mandates of the group in the last market was to go to Europe and come back with a list of preferred co-production partners in the 10 major markets we operate in, to look at finding new ways to both keep our costs down but also find new IP to exploit in this global marketplace.

Michael Elkins - TD Securities Equity Research

That's very helpful. And just one more. Similar to OWN, Nick in the States has spent a lot of money on their content for this fall. Have you seen a similar or directionally similar trend on your net content in Canada?

Douglas D. Murphy

What strategy do you refer to?

John M. Cassaday

Ratings.

Douglas D. Murphy

Yes, the trend's up. I mean, there's a lot of free press about the trend at Nick. And we are seeing and continue to believe that Nickelodeon content will return to its stellar perch it has had in the past. We worked very closely with our partners down on Broadway. They are doubling their investment in the Nickelodeon brand and content. And we are optimistic and beginning to see some signs of traction on the ratings. Certainly in YTV, we've been seeing some nice growth on our after-school business and also in early evening, principally leveraging some of the strategies we're working with on Nickelodeon.

Operator

[Operator Instructions] Our next question comes from the line of Haran Pozner from RBC Capital Markets.

Haran Posner - RBC Capital Markets, LLC, Research Division

Maybe just stepping back on Television, margin specifically, with all the moving parts on both content and merchandising. I guess a question for John or Doug. And when you look at your 40% EBITDA margin in TV in 2012, how comfortable are you that you can sustain that, I guess, next year?

John M. Cassaday

Well, again, welcome, Haran. This 40% number is one that we're really proud of. We do expect that there will be continued program inflation. We've talked about that in the answer to a previous question. It depends entirely on our ability to generate ad growth, and at this point in time, we're confident and optimistic that we can continue to grow our advertising base. But our ability to maintain that margin is 100% dependent on A, a return to some solid kid ads growth, with which we expect will happen but we're still waiting to see; and continued growth on the women's side of our business. Also I would add, this continued momentum that we saw in Q4 on the Pay business.

Douglas D. Murphy

Haran this is Doug. Just coloring a little further, I mean, one of the -- we've been pretty consistent over the years, saying that we think that margin rate in TV is in and around between 35 and 40. We've over-delivered on that range now for 3 years in a row. One of the nice things about the Television division, is it is a portfolio of businesses that we can go to different pockets to find revenues and earnings when needed. And so it's very hard for us to kind of forecast where we're going to end up. Certain businesses, for example, I was speaking earlier to the opportunities that we see in the digital video business, if we're licensing a big bucket of order content, that's going to be a 70%, 80% margin. Some licensing opportunities we have are 70%, 80% margin, and yet we have other businesses in our publishing side which is considerably lower. So it's a noisy number but generally speaking, our goal is to stay within that range described.

Haran Posner - RBC Capital Markets, LLC, Research Division

Okay, that's very helpful color. Maybe just one follow-up on OWN and specifically, the upcoming hearing. I guess what I'm curious, John is whether -- do you -- are you guys -- you're not seeing a risk that OWN loses its category A designation, or are you saying that even if it did lose it, that you're still comfortable with the carriage deals that you have?

John M. Cassaday

Saying the latter. It may not lose its category A, but we have again been on record as saying that we think that this genre exclusivity of the past is not necessary anymore. The broadcasters should have more freedom to manage their schedules and adjust their brands to meet the needs of our viewers. So bottom line is we think the Oprah Winfrey brand name is incredibly valuable to our distribution partners, incredibly important to our viewers. If anyone underestimates the impact and influence of Oprah, that would be a serious mistake. This is a powerful brand, a powerful proponent of that brand, and with Oprah herself, and whether it's category A or category B, quite frankly, we are indifferent.

Haran Posner - RBC Capital Markets, LLC, Research Division

Okay. John, and then maybe one last one for me. With respect to the local program improvement fund phaseout, for your conventional Television channels, we don't expect this to be much of an impact but wondering if you could quantify that nevertheless?

John M. Cassaday

It is an impact. We have stations in Oshawa, Peterborough and Kingston, and we have been the beneficiary of that fund. It will be winding down over the last 3 years. We have taken steps to reduce our costs in those stations to mitigate the impact of that reduction in the local programming fund. And it's unfortunate that we lost it because it was contributing substantially to our ability to deliver outstanding service to those communities. We'll continue to try to do that but we'll be adjusting our costs accordingly. And unfortunately, that did result in the layoff of some very loyal and talented people at our stations recently.

Operator

Our next question comes from the line of Colin Moore from Crédit Suisse.

Colin Moore - Crédit Suisse AG, Research Division

I thought I might just swing over to Radio for a bit and specifically, the Toronto market. I think the CRTC recently issued a license to a new station with an indie theme, perhaps going after that 18 to 34 category. I'm just wondering if you think the market's big enough. Obviously, CFNY is going after that same market but as a much stronger brand. Just curious, any thoughts there? And maybe more broadly, if you could flush out, it sounds like you've seen improvement in Ontario, just how Toronto and the trends are looking?

Chris Pandoff

Sure, it's Chris. In terms of the new license, no doubt more competition ultimately does a couple of things. It brings new money to the medium because they'll have people out selling it for smaller advertisers that would otherwise not be able to afford 102.1 the Edge. And with that if they're targeting a specific audience, they'll actually increase the tuning for 18 to 34, particularly among those people interested in emerging artists. So we think that the market at $236 million or $237 million is big enough to support that station. One thing I would add is that their signal is somewhat limited. The 3 millable [ph] contour really is bounded by Highway 401, 427 and the Parkway. In terms of Ontario, we've been on the receiving end of some really strong ratings in some of our midsized markets, sort of propping up the overall position with regard to our revenues in Ontario. Toronto's had a really good run in the ratings in the spring where we're off to a good start in the first 4 weeks of PPM this fall. And the market in September in particular was really strong for us. So the combination of the regional markets and Toronto seems to be showing signs of growth for us. Although the only thing I would say to that is, it's hard to project out just how strong it's going to be for the first quarter beyond maybe the first third of the year.

Operator

There are no further questions at this time. I will now turn the call back to Mr. Cassaday. Please go ahead.

John M. Cassaday

Thank you, operator. Thank you for your continued interest in Corus. Again, just to reinforce the positive aspects of our year, I really think it's important and notable, the return to specialty ad growth in the fourth quarter. I think there were many people wondering whether in fact, we were running out of steam on specialty advertising. I think that we proved in the fourth quarter that there's still potential there. I think our ability to maintain our margins in the environment that we were in last year is one that has to be looked at in a very positive light. And then finally, again, we know many of Corus' shareholders are with us now largely because of our dividend and our yield and their belief that we can sustain it. And I think the free cash flow growth and the level of free cash flow that we generated should provide comfort to all of our listeners on this call today in terms of our ability to continue to deliver excellent yields for those that have invested in our company. So we thank you very much for your interest and your questions today, and we look forward to seeing you all at our Investor Day in late November. Bye for now.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We'd like to thank you for your participation and ask that you please disconnect your lines. Thank you, and have a great day, everyone.

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