Corus Entertainment's (CJREF) CEO Doug Murphy on Q4 2016 Results - Earnings Call Transcript

| About: Corus Entertainment, (CJREF)
This article is now exclusive for PRO subscribers.

Corus Entertainment, Inc. B (OTCPK:CJREF) Q4 2016 Earnings Conference Call October 19, 2016 2:00 PM ET

Executives

Doug Murphy – President and Chief Executive Officer

John Gossling – Executive Vice President and Chief Financial Officer

Analysts

Adam Shine – National Bank Financial

Vince Valentini – TD Securities

Aravinda Galappatthige – Canaccord Genuity

Jeff Fan – Scotiabank

David McFadgen – Cormark Securities

Tim Casey – BMO Captial Markets

Rob Peters – Credit Suisse

Drew McReynolds – RBC Captial Markets

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Corus Entertainment’s Q4 and Year-End 2016 Analyst and Investor Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today Wednesday, October 19, 2016.

I would now like to turn the conference over to Mr. Doug Murphy, President and CEO at Corus Entertainment. Please go ahead, sir.

Doug Murphy

Thank you, operator, and welcome to everybody. Good afternoon. I’m Doug Murphy and welcome to Corus Entertainment’s fiscal 2016 fourth quarter and year-end analyst call. Joining me today is John Gossling, our Executive Vice President and Chief Financial Officer. We would like to inform everyone that there are a series of PowerPoint slides that accompany this call, which can be found on our website at corusent.com in the Investor Relations section.

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

I will start today’s call by sharing some perspective on the full year. Then we will turn over to John to take us to our financial results and priorities. Following John’s remarks, I will touch on the outlook for fiscal 2017 and then we will open up the call for your questions. In fiscal 2016, we embarked on a multi-year journey to transform Corus into an integrated media and content company advanced by three strategic priorities we first put in motion the year earlier.

These three priorities will continue to guide us through the next chapter of our evolution. As a reminder, they are: own and control more content, engage our audiences and expand into new and adjacent markets. By own and control more contents, we mean two things: one, when the content arms raised here in Canada by securing the most exclusive attractive brands and content available and owning means producing more content from Nelvana studio and broadening our slate of faster reality lifestyle shows on our women’s networks.

Engaging our audience speaks do not only growing our audience shares through compelling programming on radio and television. It also means increasingly investing and winning in the areas of ad tech. We will talk more about that shortly and expand into new and adjacent markets. Owning and controlling more contents enables us to sell our shows around the world and we continue to pursue adjacent market opportunities leveraging our scale and our reach here in Canada. Now, these three priorities are in turn supported by the following three initiatives: building scale through strong partnerships, pursuing targeted M&A opportunities and focusing on best-in-class execution.

Allow me to take a few minutes to illuminate the considerable progress we have made thus far. Now the most notable milestone of fiscal 2016 was our transformational acquisition of Shaw Media, which changed the face of media in Canada. We now not only have the scale and strength in media to lead the Canadian market, we also have a solid base of content, talent and partnerships continue to grow our international business. In support of engaging our audiences, this afternoon we announced one of the big changes to our combined portfolio.

We are excited to bring the cooking channel to Canada, launching on December 12, a 24 hour network for food people, by food people that caters to those passionate about food. It will be the perfect pairing to the food network enhancing our dominance in the food and lifestyle genres, which resonates so well with both consumers and advertisers. In partnership with Scripps Networks, this compelling flanking channel will leverage the tremendous success of the talent in the U.S. here in Canada.

The cooking channel will be launched as a rebrand of W Movies and cross promoted on food network allowing us to achieve immediate scale and distribution and audience as well as a potential to further grow revenues. As we expand into new areas, our advancements this year and our combined ad tech innovations are gaining solid traction. Our next generation advertising, NGA initiative, offer advertisers targeted audience segments aligned with specific shows to improve their ROI on airtime investments. In addition, our audience intelligence platform, AIP, now has 1.3 million names of viewers and listeners, who have opted in to hear from Corus via email and thus will directly receive ongoing information about their favorite brands and shows.

Moving to the international front and in support of our strategic priority to own and control more content, we started building our slate of women and lifestyle original content last fiscal year by introducing three unscripted reality series: Masters of Flip, Buying the View and Cheer Squad. These shows have met with tremendous international interest. Masters of Flip, for example, is now available in more than 90 territories, and Buying the View in more than 60 territories around the world.

The strong performance of these shows internationally along with Corus’ position is both a broadcaster and distributor of the formats continues to build our stature and credibility internationally in the unscripted arena. And at MIPCOM just last week, we debuted three additional new unscripted series as we continue to grow our slate of owned original content: Home to Win, Backyard Builds and $ave My Reno.

We are confident these three series will be met with the similarly strong reception internationally as the shelter category in particular travels well globally and we are able to demonstrate just how well these shows perform on our own networks here in Canada, once again the Corus advantage. In fiscal 2017, we will offer almost 200 episodes of factual reality content for sale worldwide. More than doubling the premier – excuse me folks, the episodes we launched in FY’16. Our Nelvana team, who was also at MIDCOM this past week, continues to build on our emerging slate of franchise properties. And these will be launched over the next year, including Mysticons, which is set for global debut in 2017 on Nickelodeon platforms worldwide. Hotel Transylvania, the television series which is slated to premiere on Disney channels worldwide.

A new series based on the popular heritage Zhu Zhu Pets brand, which is also licensed to Disney Channels worldwide and two additional new series announced this week. One, Esme and Roy, a new Sesame workshop original animated series that will debut on – forgive me folks, my page is up, so debut on HBO in 2017 and on Treehouse in Canada. And Bravest Warriors, a new series in development with from Adventure Time creator Pendleton Ward, who also works for Frederator, the global NCN well-known in animation.

Nelvana has lined up some fantastic new partnerships and this quarter we announced that we have further expanded our relationship with Cartoon Network. We entered into a new multi-year broadcast and merchandise deal featuring Nelvana as the exclusive merchandising agent for Cartoon Network's iconic brands in Canada including the Powerpuff Girls, Adventure Time, Steven Universe, Ben 10 and more.

Another major initiative in FY’16 in support of our priority to build scale through partnerships and control more content was the launch of our Disney suite of channels. As the brand steward in Canada, the addition of these iconic brands to our portfolio establishes with no doubt our position as the leader in kids and family entertainment. We now have seven of the top 10 kids channels in Canada and along with fair Bull renewals [ph] of certain character agreements in the quarter, the new suite of Disney brands contributed to our strong subscriber revenue growth in Q4 of 10% on a pro forma basis compared to the prior-year. But we are not standing still. As we seek to engage our audiences wherever they are, this past year we launched six additional new TVE apps, TV Everywhere, to compliment our strong television linear brands.

And then, on September 6, we announced a newly refreshed Treehouse app which is available on an unauthenticated basis offering 1,500 episodes of the favorite kids series including Babar, Dora the Explorer, the Backyardigans, Franklin And Friends and more.

Turning to radio, as we head into Q1 we are seeing our programming strategies and initiatives continue to pay off. The summer radio PPM audience ratings are showing positive gains in a number of our large radio markets, including Calgary's Country 105, which rebounded from the spring PPM and regained the number one-ranked position in the coveted adults 25 to 54 segment. In Edmonton, CISN Country 102.9 continued to gain audience, climbing two rank positions to number two in adult 25 to 54. Vancouver's CFOXX jumped to the number three-rank position, while Vancouver's Rock 101 sailed in at number five in the adult 25 to 54 segment.

Toronto's 102.1 The Edge and Q107 held their positions and maintained the number six and seven ranks respectively in the adult 25 to 54 demographic segment. We are delighted with these solid ratings gains in the radio segment heading into the fall.

On the television side we are off to an incredible start as we engage our audiences. Over the past few weeks, we launched our new fall schedule on Global, the first fall launch as the new Corus. And the smart programming investments we made this past May are paying off. This fall, Global is the most watched network in prime time for premiere week, claiming three of the top five new programs and the number one television show overall with Bull, seeing over 2.8 million viewers tuning into the premier.

Additionally, Global grew its core primetime audience in all key demos year-over-year, including 13% for adults 2+, 7% for adults 18 to 49 and 9% for adults 25 to 54. At the new Corus, we were able to leverage the scale and the breadth of our combined assets to give these shows the best possible launch resulting in the strongest premier week for Global in over a decade, a reminder of the massive audiences that still tune into television and the massive cross-promotional scale of the new Corus. On the specialty front, we continue to lead the industry with six of the top 10 specialty entertainment networks.

When it comes to women, Corus has seven of the top 10, and 13 of the top 20 specialty entertainment series for women 25 to 54 this fall. And based on premier numbers, Supergirl, which is now on Showcase, it is tracking as the overall number one series across specialty this fall for adults 25 to 54. Overall a very promising start as the new Corus as we engage our audiences.

Turning to the integration of Shaw Media, we continue progress ahead of schedule and we are on track to meet our goal of achieving CAD40 million to CAD50 million of annualized cost synergies in the first 18 to 24 months. We have delivered solid free cash flow of CAD188 million this year, keeping us on target to de-lever to 3.5 times or better by the end of FY2017 and to below three times by the end of FY2018. Since we closed the acquisition on April 1, we have designed and implemented our new organizational structure, combining the top talent of both companies. The majority of staff in Toronto has now moved out of the Shaw Media building down on Bloor Street down to Corus Quay, and the energy in this building is incredible.

We have harmonized our compensation and benefit plans, created powerful offerings as we leverage our new scope and scale in the market and we are progressing well in terms of integrating key systems and technologies. We kicked off the new fiscal year by bringing all of our employees together in Companywide Town Halls to provide them with a clear understanding of our operating plan, our strategic priorities, our supporting initiatives and what each and every Corus employee can do to successfully impact our business results. Our team has only just begun to unlock the many opportunities we have as the new Corus, given our strong and highly differentiated brands and we look forward to sharing more in the coming months.

I will now turn it over to John to take us through our results for the quarter and our fiscal 2017 financial priorities.

John Gossling

Thanks very much, Doug. Q4 is my first quarter with the company and I’ve been tremendously impressed with the leadership team in place and the progress that has been made in the past year to position Corus as a strong competitor that’s ready for the future. It’s incredible energy throughout the company, our solid plan in place and a firm commitment at all levels to furthering our key strategies.

Turning to the quarter, our consolidated revenue from $384 million up from $194 million last year and consolidated segment profit was $105 million up from $55 million last year both reflecting the inclusion of a full quarter of Shaw Media, on a pro forma basis including Shaw Media and excluding Pay TV for the fourth quarter last year, total television revenues were down a modest 2%.

On a pro forma basis again excluding Pay TV for the fourth quarter last year, legacy Corus TV saw total revenues up 3.4% with ad growth in English Canada particularly from our Corus kids networks, as well as subscriber revenue increases up 10%, driven by the longevity suite of channels. Legacy Shaw Media experienced a revenue decline of 5% for the quarter, attributable to a number of factors specific to the quarter, including year-over-year comparables that include federal election advertising, stronger summer schedule over last year and more ad support for theatrical blockbuster releases, the impact of sporting events discussed previously, and the timing of agency contract renewals. Shaw Media was able to partially offset this softness in advertising sales with subscriber revenue growth up again 10% in Q4.

Further we would also highlight that it has been many months since the launch of Pick and Pay in Canada and as Corus originally asserted, the impact on our business has thus far been negligible. Radio delivered segment profit of CAD8.5 million for the quarter, which is flat to last year despite a 5% decline in revenue which is mainly driven by softness in our western markets, and in particular the challenging economic conditions in Alberta.

And despite our ongoing ratings success, we continue to feel this persist in that market. Ontario markets, however, delivered growth in the quarter. We have repositioned our key large market radio stations to recapture audience share and received excellent programs from that front. More recently, we will quickly change how we work through an innovative new organizational structure that integrates radio and local over-the-air television stations in the markets where they already coexist. As we strive to validate our local revenue synergies, our newly combined local sales leaders have placed an intense focus on training our sales team to cross-sell radio and local TV. Given a little duplication by advertisers in these markets, it is easy to appreciate the untapped opportunity for local radio advertisers to sell on local TV and vice versa.

Moving on to our financial priorities for fiscal 2017, heading into the new fiscal year, our financial focus remains firmly fixed on three key priorities. One, ensure, identify and capture all revenue and cost synergies on the Shaw Media acquisition. We are progressing well against our stated targets as Doug mentioned. Number two, delivering solid free cash flow to enable investment to advance our strategic priorities and reduce leverage to below three times upgrade or less by the end of fiscal 2018 and three, maintain our dividend of CAD1.14 per Class B share. We are tracking solidly against each of these priorities and are confident of continued progress heading into fiscal 2017.

I will turn it back to Doug to take us through our Q1 outlook.

Doug Murphy

Thank you, John. Corus continues to operate in a challenging macroeconomic environment with limited visibility and as noted, ongoing challenging year-over-year comparables to contend with for the balance of this calendar year. Driving revenue improvements remained our top priority, and in fiscal 2017 one of our goals is to validate our revenue synergies as the new Corus. We have defined specific work streams against the following. Number one, realizing the benefits of our differentiated scale. The note that Corus over delivers women with large families – the most coveted audience segment with the largest shopping baskets in the marketplace.

Number two, renewal of carriage agreement. Corus now has most of the most-watched non-sports entertainment channels in the country. Number three, investments in Ad Tech. We discussed this a moment ago. AIP and NGA a promised land of new opportunities for the new Corus. Number four, local bundles offerings combining television and radio in those five large markets where we coexist and taking advantage of the fact that only 10% are duplicated advertisers. Number five, owning and controlling more content, leveraging the Corus advantage to produce kids animation and factual reality to drive our audiences and our domestic networks and now increasingly are sold around the world to broadcasters who value what Corus brings to the table.

We expect to see revenue improvements out of all five of these revenue initiatives. In summary, fiscal 2016 was a game changing year for Corus. We are well on our way as we transform Corus from a traditional broadcaster into a future-focused integrated media and content company. We now have the scale, the brands, the partnerships and the talent to lead our company through to its next chapter and beyond. As we head into fiscal 2017, we are well-positioned to continue to build on significant advances we made in fiscal 2016 and importantly we remain committed to returning value to our shareholders by taking a balanced approach to maintaining our dividends, paying down our debt and continuing to invest for growth with the strategic priorities being discussed today.

We hope you have found these remarks helpful and now John and I will be happy to take any questions you may have. Over to you, operator.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question is from the line of Adam Shine with National Bank Financial. Please proceed with your question.

Adam Shine

Thanks a lot. Hi, Doug and welcome aboard John. Maybe we can start…

Doug Murphy

Hi, Adam.

Adam Shine

Maybe we can start with the synergies in terms of you have indicated that you are tracking ahead of plan. Our way beyond obviously the initial CAD15 million or so post April 1 in the context of closing and are we digging a little bit on a run rate basis into the 40 to 50.

Doug Murphy

We are – our run rate basis very pleased with our progress thus far tracking towards the stated targets of 40 to 50. The 50 million of allocation as you remember Adam was basically realized on day one after we closed in the run rate basis.

John Gossling

So Adam for the quarter which I think is probably you’re getting at, if you include the impact of that $15 million for the quarter and other synergies that got us savings in Q4, that impact for the quarter is around $10 million and of course that will now grow going forward as we baked in a higher run rate. We’re about half of that run rate locked in at the end of Q4 and obviously more work to do to get us to the – into that range that Doug spoke of.

Adam Shine

Okay. So just to be clear, I apologize if I missed this argue. So $15 million day one and now we are sort of $10 million of the 40 to 50, ready run rate, correct?

Doug Murphy

Yes.

John Gossling

$15 million is a full year number.

Adam Shine

Yes.

John Gossling

And that’s what you would have seen in Q4.

Adam Shine

Okay. Perfect. That makes sense given what the TV EBITDA side was. So let me go back to Doug. Look, you didn’t give guidance for this year, but nevertheless, you did say that you thought you would track in the context of Corus on an organic basis and that’s apples to apples was Pay TV at least in the first half of the year would track to EBITDA growth in FY2016.

By my calculations it looks like you might have been obviously – negative obviously on the radio front by 2% plus. But on the TV side, I think you probably pulled it off with some modest upside in TV which net-net would have probably given you overall Corus EBITDA organic upside or at least slightly above flat. Is that a fair comment?

Doug Murphy

Modest growth; yes, that’s a fair comment. We had a number of one-time items that hit us in Q4 I mean the line of sight sort of non-recurring things like tax credit, trups and accruals, some noise that wasn’t necessarily helpful with that. But based on the actual organic business I would say you described it accurately.

Adam Shine

Okay. And maybe one last question, then I’ll queue up again. Just in the context of 600 megahertz and realizing that it's a little bit early days because this may not be a spectrum auction until sort of 2018, if not frankly 2019. But you do layout some details in the MD&A. And so how should we start thinking about this? Do we start looking at perhaps some incremental CapEx and/or OpEx spend over the next couple of years associated with some incremental transition to digital that you do disclose in the financials? And then on the flip side of it, do we do – do we look at some kind of proceeds from divestitures of that spectrum when we head into that potential reverse auction dynamic as it plays out in the U.S. right now.

Doug Murphy

So I will make a comment, maybe John may also. I think first of all I did offer Adam, it is early days to try to assess all of this. There may well be some potential proceeds but we are talking 2018. So you are on the leading edge here, but it’s tough to assess that in any meaningful manner.

John Gossling

Yes. I think even the structure of the auction Adam is a long way from being determined. But, you are right, to the extent that there was work needed to be done in our transmission network to free up that spectrum and we would have to increase the cost just like we did when we went to digital. And we would obviously be looking for Aberdeen for some kind of sharing of the proceeds from that auction, but I think that's a long way from being determined.

Adam Shine

I realize that. So just to be very clear, it's not like we should start seeing pickup in CapEx related to this as early as 2017, that was really the gist of the question.

John Gossling

I don’t know. That’s definitely not in the plan for 2017.

Adam Shine

Perfect. Okay. Thank you very much.

Doug Murphy

Thank you.

Operator

Thank you. Our next question is from the line of Vince Valentini with TD Securities. Please proceed with your question.

Vince Valentini

Yes. Thanks very much. Questions on the advertising revenue here in the fourth quarter and maybe what that portends for your first quarter. Down 9%, Doug, is that – can you break that up at all into what was maybe something to do with market share or audience ratings in any of your channels versus maybe just the temporary hit from so many sporting events going on or is it more of the third bucket of just structural industry pressures? Can you quantify how much of the 9% decline is in each of these three areas?

Doug Murphy

Let me fill your question, I am not sure I can quantify those, but I will answer it which I think may give you what you are looking for. The current pressure that we are experiencing in the legacy Shaw Media business is transitory, and it is tied specifically to calendar 2016. And it relates to a number of things, we are comping over the federal elections of last year because of global strength of West. We had a lot of advertising dollars that we had last year we don't have this year.

There is timing of certain annual corporate agency deals that play here. We expect to conclude all five of our annual corporate agency deals as of January 1, and hence the calendar year comment. We also had a very strong relevant schedule over the summer, last year and global versus what we had this year. And we also dealt with a number of sporting based events this year which do some audiences away from our services. The final piece would be that we had some category advertising shifts related to theatrical releases that were stronger last year than they were this year.

So all of those are not permanent, they are not structural, they are transitory, and we expect to lap them in the New Year calendar.

Vince Valentini

Thanks very much, Doug. So to be clear, you don't lap much of that in your fiscal first quarter. Is that fair to say?

Doug Murphy

That’s correct.

Vince Valentini

I think you specifically called out the Olympics and the euro in the MD&A, I don't think you mentioned Blue Jays. Is that a lingering issue? Obviously, the Olympics and the euro are over but the Blue Jays are still hot. Is that something that could be a headwind for your audiences in Q1 as well?

Doug Murphy

When the Jays are playing, all non-Jays broadcasters have some audience getting kind of hovered away, so we will continue to experience that to the extent which the Jays can dig their way out of the current situation they find themselves in.

Vince Valentini

And one – quick one for John.

John Gossling

Sorry, on the Jays then...

Vince Valentini

Yes.

John Gossling

It is not as big of an impact year-over-year, because we had the same effect last year.

Vince Valentini

Yes, fair point.

Doug Murphy

Can I just color in something. I think it is important that everybody understands that the agency deals are principally all on calendar year. Okay. And so as the new Corus one of the new elements we talk to everybody about is our differentiated scale, because now we have – we over deliver women and large audiences, we're not going to be able to get bought around anymore. And so that gives us the confidence to tell you that when the new calendar year 2017 arrives, you'll start to see some different revenue growth profiles.

Vince Valentini

Excellent. And sorry John, one just clarification to you, the good answer on the synergies but on the restructuring costs, we've seen most of that already incurred in Q4 or do you expect a lot more in 2017.

John Gossling

A lot more, I think there seems to be little bit confused on that in some of the earlier reports today. The number for the quarter will and for the year included some business acquisition cost of about $16 million as well as in a great new restriction, so there is more to come. As I mentioned we have locked in around half of the synergies in the run rate basis by the end of Q4 so there is more to come. And it is probably in the $12 million to $25 million range. But it still will come through fiscal 2017.

Vince Valentini

Thank you.

Doug Murphy

Thanks, Vince.

Operator

Thank you. Our next question is from the line of Aravinda Galappatthige. Please go ahead. My apologies, from Canaccord Genuity.

Aravinda Galappatthige

Thanks very much. Good afternoon. Before I start my first question I just wanted to clarify the synergies. So at this point you have locked in roughly half of the $40 million to $50 million in synergies but Q4 included $10 million on – is that on an annualized basis or just Q4.

Doug Murphy

Q4 actual.

Aravinda Galappatthige

Okay, great.

Doug Murphy

In the Q4 numbers.

Aravinda Galappatthige

Okay, thank you. And then my question was mainly on the depreciation number, we obviously saw a spike there, the prior quarter was around in that, it just under $19 million and the prior quarter is missing a month of shop. But we surprised by the increase of that depreciation amount I don’t know, 16% or 17%. I was wondering if this related to some of the brand amortization from Disney.

Doug Murphy

Disney would have been in already in what we call legacy Corus. But I think to your first point Aravinda, it is related to the purchase price accounting and how we have to amortize the various intangibles to part of that allocation. So yes, you are right. Q3 was a partial quarter in that respect. And Q4 would represent obviously a full quarter. There are some puts and takes. I think maybe the most important thing for you is that if you want to look at it going forward Q4 is a pretty good benchmark if you want to annualized that number. It will start to come off a little bit over time just because certain of the intangibles have a shorter life attached than others, but I think the annualized what you see in Q4 is not about estimate.

Aravinda Galappatthige

Okay, okay. So to be clear it was almost entirely if not mostly to do with the amortization of acquisitions not an uptick on the Disney brand amortization.

Doug Murphy

On a year-over-year basis yes, but not on a sequential basis.

Aravinda Galappatthige

Not on a sequential. Okay, got it. And then with respect to the carriage agreements, obviously you continue to see some benefits from that. Can you just give me an idea now the two companies together how the new carriage the affiliates kind of look, I mean it seems that you got a bit of an uptick in terms of the rates, but obviously there are differences as you kind of move into sort of the pick and pay model.

Doug Murphy

So I mean I am hoping that many of you are impressed with the subscriber growth in this quarter, because a year and a half ago many people were concerned that we would never see growth again in that line item. The reasoning for that is a number of things, one is management's commitment to own a control more content and grow our audiences through exclusive output agreements with great content providers such as the Disney Channel, which that launch has been meaningful.

The second reason you are seeing now is because we do have the most watched and coveted channels in Canada and as we discussed on our roadshows an earlier in the year. We have basically borrowed from the best practices of both Legacy Corus and Legacy Shaw to build a rate card strategy, which meets with the needs of distributors and our needs for growth and protection. So remember, we talked about the tiered rate card structure that in the event that we get a down stroke and subscribers we get a partially offsetting lift in a per sub rate based on certain predefined tiers. On the flipside if our channels are attractive enough that the distributors want to offer us better packaging, so as to increase the volume of subscribers, we offer our distributors a commensurate decline and per subscriber cost. We are prepared to do that because we get better reach and more advertising dollars. I think you are seeing that prove out in these numbers and they are definitely notable.

Aravinda Galappatthige

Thanks, Doug. And just a last question for me with respect to Disney sort of the revenue growth that you are seeing there. Could you give us a sense of where you are adding in that growth cycle. I mean are you getting to a point where – I mean where do you think sort of the maturity point is and are we still seeing sort of growth that’s very steep even on a sequential basis.

Doug Murphy

Aravinda, we cut multiyear deals with significant majority of our distributors and we launched the Disney suite of services and many of those had price escalations that increased in the out years, because there was an affordability issue in the launch year. So in other words, you will continue to see decent growth in the Disney subscriber revenues, because of those arrangements. Furthermore you are going to have year-over-year comparable benefits in the first quarter of fiscal 2017, because we did not have Disney Junior and Disney XD launched at that time.

Aravinda Galappatthige

Oh I see, okay, great. Thank you. Thank you, Doug. I'll leave with that.

Doug Murphy

Okay, great. Thank you very much.

Operator

Thank you. Our next question is from the line of Jeff Fan with Scotiabank. Please proceed with your question.

Jeff Fan

Thanks, good afternoon. A couple of quick housekeeping ones first. First on the pro forma advertising revenue decline it was 9% this quarter, I wonder if you can give us the – that same number for last quarter. And then the second housekeeping question is just on the 10% pro forma subscription revenue growth, if you were to remove the Disney impact what would that percentage have been.

John Gossling

So Jeff on the first one we will have to get back to you I don’t have the sequential numbers in front of me it was mentioned I know on the Q3 call, but we will have to dig that up for you what that looks like. On the revenue growth – on subscriber revenue growth it doesn’t account for most of the legacy Corus growth in subscriber revenue, the 10% we talked about. Again we can get back to you on what that blended number looks like when the pro forma and for the Shaw Media numbers because obviously the subscriber revenue at the legacy Corus was a higher proportion of the content. It is about 3% pro forma without Disney.

Jeff Fan

So you’re going to say, it was not all the growth. Yes, okay.

John Gossling

3%.

Jeff Fan

And maybe just on the revenue synergies as we look forward. It was great that Doug you identified those few areas I think it was the five areas. Can you just help us think about maybe the timing of when some of these revenue synergies should start to materialize through 2017? Are there ones that you could highlight that perhaps would show up earlier than the others maybe just prioritize that for us a little bit.

Doug Murphy

Okay we talked about the agency deals in January so that when – you that time in note. The carriage agreements they are kind of always rolling so those are not really any kind of a specific timing one way or the other. The other ones I would speak to would be owning and trolling more content, we just got back from Nefcom that’s a smaller number right at the very moment, we recognize at Corus, that we recognize revenue on content sales through delivery of episodes. So that will be the back half of the year. And now they will tie directly to its output from the studio.

The local business we’re already seeing some impressive wins on local bundling as I mentioned there is very, very duplicated accounts across TV and radio which was – is a real opportunity for us to introduce radio advertisers, there is television and vice versa. So that’s pretty much like a now thing Jeff and the next generation advertising, the work we’re doing on audience segmentation leveraging we turned that data and the benefits of our AIP program, that’s also analyzing.

So I would say its – we’re going to start to see some of those benefits in a quarter that we’re currently in and then as the team gets momentum, you remember now we really only moved all of our sales group together up on the seventh floor at the end of May, and we have been continuing to rollout new sales incentive commission planned as of three or four weeks ago. So the team is hitting their stride right now, and it’s great to have the performance of the global fall schedule as wind at our backs, that helps everybody. But I would answer your question in that way.

Jeff Fan

Okay. Thanks, Doug.

Doug Murphy

Sure.

Operator

Thank you. Our next question is from the line of David McFadgen with Cormark Securities. Please proceed with your question.

David McFadgen

Hi, couple of questions. I was surprise that the increase – the level of increase in the Shaw Media subscriber revenue 10% it’s obviously very strong, was there some particular channel launches that drove that or was that all an increase in the maturities.

John Gossling

There was a conclusion of a carriage agreement negotiation that occurred in the quarter which favorably impacted the results.

David McFadgen

Okay. It should be – I mean is that going to repeat itself going into next quarter or is that kind of…

John Gossling

These – again these carriage agreements until we harmonize some with the various distributors such as kind [indiscernible] that may take probably years to pull that one off. These carriage agreements do have inflation built in them on a year-over-year basis – on a per subscriber rate basis there is modest growth in those. And that coupled with the penetration base rate cards and volume incentives position the subscriber revenue to be a fairly stable steady grower at this juncture based on all that we’re seeing out there the de minimis effectofLet's Talk TV, a skinny basic, that would be basically be kind of the general – a general characterization of how we think about the subscriber revenue in line.

And you’ll have certain quarters where you get lumpies like this.

David McFadgen

Okay. So on a normalized rate it can something in the low single digit rate right?

John Gossling

Yes, yes, that’s little bit right David.

David McFadgen

Okay. and then so you talked about your five agency deals the process of negotiating, you talked about different revenue profile going forward now with the combined two companies, can you tell us I don’t know if you can how much those five agency deals represents the percentage of your total ad revenue.

John Gossling

I would just give a general kind of heuristic its about – its kind of two-thirds of our business, its kind of like market is kind of bought, another third sort of scattered.

David McFadgen

And these five agencies represent how much of that?

John Gossling

These five agencies represent about two-thirds of the – we commit about two-thirds of our revenue to these five buying groups, put it that way.

David McFadgen

Okay. And so as you said we should get a different revenue profile now with a combined agency and level we see that show as we see that in Q2 or more Q3?

John Gossling

It would began in calendar ‘17 so you began to see it in result in Q3 I guess.

Doug Murphy

Little bit in Q2.

John Gossling

Little bit in Q2.

David McFadgen

Okay, all right that’s great thank you.

John Gossling

Thank you.

Operator

Thank you. Our next question is from the line of Tim Casey with BMO Capital Market. Please proceed with your question.

Tim Casey

Yes. Couple from me. When we look at your fourth quarter revenue mix it's kind of 60%, 30%, 10% are quite but in terms of advertising subscriber revenues and then merge. Is that a good order of magnitude that you think you will maintain or do you think subscriber revenues will creep up in terms of relative mix?

Doug Murphy

I think – no, like your sort of the last follow-on question. I don't think it will creep to relative mix. What you will see – I think 60%, 30%, 10% is the right mix at this point in time. Our desire is to get that 10% substantially larger.

Tim Casey

Right. That’s it.

Doug Murphy

So the mix of international of domestic and one of the things we did at net content that was market as can we debuted Corus Studios which is a division of Corus International which now rolls Nelvana and the Corus Studios is our live for fast reality production stuff. So we’re actually more formally in acquisitions company to pursue our aspiration for international content growth. So in a perfect world I would like to see the 10% come up to 15% and 15 is jump to 20% overtime although that’s going to be a kind of slow build.

Tim Casey

Okay.

John Gossling

Yes. And Tim, it’s John. Don't forget that advertising is quite seasonally for Q1, Q3 pop up. Right in Q4 is that specifically low quarter.

Doug Murphy

Yes. You know what that's a good point too. Because you remember that out of 10-year you're one of our best analysts following our story here. You remember we talked in the old days about the Hard Eight and the kids business which is like the fact that we always saw that with Kid demand in sort of mid-October to mid-December. Well the good news now is with the Disney Service has been commercial saving a step given your – we also have the kids advertising business as you know the food, entertainment, toy. And the toy business the industry is – toy business based on NPV data is grew north of 7% last year. Be a theatrical family feature animation business is on fire right now.

So two to three horses that are going to drive the kids business are really coming into this marketplace a lot with some heat and we have a lot more inventory and a lot more audience given our Disney Channel launch. So on the seasonality pieces as it is and note that John is reminded me to bring forward this notion that our kids business with a nice growth in the fourth quarter will continues to see nice growth rolling into fiscal 2017.

Tim Casey

Okay and great. Other question would be with respect to pick-and-pay and your channel portfolio and your outlook for subscriber fees. Given how many channels you have in pick-and-pay. It wouldn't surprise anyone. If you consolidate some of those channels and brands down. Do you feel comfortable that you protected your subscribers revenue line with your current carriage deals if and when that does come to pass.

John Gossling

So this sort of answer as you might expect is yes. I do so kind of what we protected our subscriber revenues as we mentioned and have mentioned continually most of our deals are multi-year deals, most of our deals have inflation built into this high rates. All of our deals have tight years with penetration base protection and volume based incentives. So let’s just say that's kind of the state of the Union as it where kind of unfortunate metaphors.

That kind of the lay of the land. The other piece of the puzzle. I think is emblematic of what we get to know few hours ago is the launch of the cooking channel on the back of the W movies license and that that's important to note because if we speaks our intention to continually optimize our portfolio of linear channels. And a service such as W movies nice little channel but you can get movies all over the place right now. And we also have movie time and that was a great service to use as rebound on the cooking channel which gives us a more attractive audience environment, a strong brand with equity and exclusive content output feel, a franking channel of the Food Network. I mean it just takes some many different boxes, so over the next two to three years while we have in place these favorable carrier arrangements.

We will be looking at all of our services and ask ourselves what is the future hold. What the end state look like and the most immediate term, we are completely focused on cash flow maximization given the balance sheet. So we're not wanted to walk away from any deal. But we will continually look at optimizing the portfolio of services ad as witnessed by the Cooking Channel announcement today.

Tim Casey

Thank you.

Doug Murphy

Thank you.

Operator

Thank you. Our next question is from the line of Rob Peters with Credit Suisse. Please proceed with your question.

Rob Peters

Thank you very much taking my question. Doug just in terms of the Corus suite of channels, I was wondering it for the quarter we kind of should expect the advertising growth was in line with the organic trends you mentioned in your presentation or data shows invention channel suffer a greater impact from the election comparisons.

Doug Murphy

So, yes, of course the legacy Corus business on nice growth on both describer and advertising environment.

Rob Peters

Fantastic and maybe you know a little bit of a housekeeping question here. Just what's driving up the longer long-term liability segment on the balance sheet we see that number come up kind of sequentially each quarter and I was just wondering how we should kind of think about back on quarter when those come to you?

Doug Murphy

Sure. I mean – so obviously you got the larger debt that came about as part of the acquisitions that I think quicker. And then our program output agreement and trademark agreements both end up getting capitalized both of that’s in asset and liabilities and then to get adverse on the asset side and it’s like – it's a bit like debt capital we use, Rob. So that's why that obligation pops up. So Disney, Nick would be big parts of that increase this year.

Rob Peters

Perfect. Thank you.

Doug Murphy

And also bring the show media channel into also had a similar arrangement of moving shield of both channels have book types of…

John Gossling

82.

Doug Murphy

Right.

Rob Peters

Excellent. Thank you very much and maybe one last question and it is kind of a broader question. When you think about the rebranding of WMovies and on the migration, I think you mentioned recently you were kind of shipping shows from W to HGTV. Can you walk us for your broader thoughts on how you are making those transitions and maybe if you have had preliminary reaction from your advertising partners on the channels?

Doug Murphy

Absolutely and thanks for the question. Because I was waiting for someone to open the door. We have actually in the last few months moved around hundreds and hundreds of hours of programming between the greatest channels to further strengthen the existing services without any incremental cost to the system. Example. You know in September 1, we moved all of the property shows from W over to HGTV where you may think they would belong more logically given the brand equity of that service. Now we have seen a commensurate rise in audience delivery during weekday prime and beyond on HG. That one work. We have also used global as a strong barker for launches of new programming on our specialty services.

Example. That's over at Canada, where we debuted that on W at Tuesday at 9 o'clock and on Wednesday as we finished survivor which still delivers north of 2 million viewers we ran the same episode of bachelorette and put the episode back on W. We are doing at all of the system. For example Supergirl we aired on a showcase after promoting on global and woke up to a massive audience accordingly. So we are very smart about how to leverage the cross promotional of the new Corus to drive audiences to our specialties using global as a barker at no additional cost.

Robert Peters

Thanks very much.

Doug Murphy

Thank you.

Operator

Thank you. [Operator Instructions] Our next question is from the line of Drew McReynolds with RBC Captial Markets. Please proceed with your question.

Drew McReynolds

Thank you very much and good afternoon. Maybe just on the content side I think in the MD&A you noted a 1% pro forma decline in a business presumably that is just a timing issue if you can confirm that and Doug just in your opening remarks talked about kind of the half-hour production just broadly speaking kind of half hours are relooking for in FY’17 over FY’16 if you can give us some benchmarks there?

Doug Murphy

Both of those questions with regards to Nelvana or [indiscernible] both in Nelvana and the actual lifestyle.

Drew McReynolds

I guess ideally both within more detail the better.

Doug Murphy

Of course, Yes. Let me start with the faster reality. We had three shows in the market we launched three more shows and we have six series we are now selling it is in and around a couple of episodes double from last year. We don't want to give out license fees and stuff because you guys will always keep asking us but it's basically double from last year double again next year and double again after that because we have the ability to make shows the drive our audiences and then sell them and export them internationally which of course is what is one of the more important initiatives of ours that is obviously attractive it let me talk about Nelvana because the 1% decline you saw in the first quarter we recently put Scott Dyer who had been previously in Legacy Corus our Chief Technology Officer. Scott originated Scott originated his career at Corus at Nelvana working actually Armen on worth me.

We returned Scott to his true passion which is the studio and as president at Nelvana he runs the whole business but the Enterprises revenue side as well as the studio. And Scott came in and basically cleaned up a little bit and took care of a number of structural issues and shut down a bunch of productions and cleaned up the development slate so you did see a bit of impact in the numbers with a bit of a cleaning house in that quarter. But I am happy to report that is behind us now and we are well in production on a much expanded slate of content with the three shows I mentioned earlier plus the recent announcement of the Sesame workshop co production and so there's lots of things to be excited about for Nelvana in the coming year and beyond.

Drew McReynolds

Okay, that’s helpful. Thanks Doug. And secondly sorry John a question on the depression amortization I get the accounting for the upper deals I was just wondering and just a clarification the 34 million in the quarter is that what you are referring to as a logical kind of orderly run rate going forward . I know it will probably does around a little bit but is that what you are referring to?

Doug Murphy

Yes.

Drew McReynolds

Okay, that is fine. Just with respect to the Q1 pacing just so I am clear is it fair Doug to say that you kind of faced a tough comps and it is FY’17 progresses given all the factors that you have pointed to that the year-over-year kind of casing of add growth should certainly improve is back end of a fair characterization starting with the greatest weakness in Q1.

Doug Murphy

That’s correct.

Drew McReynolds

Okay . And Lastly, John just a couple of clarifications the tangible benefits does that fall of completely in fiscal FY’17?

Doug Murphy

No, That is the old Shaw Media obligations for the most part and that has one more year to go. So that will see that cash in FY’17 and it drops off.

Drew McReynolds

Okay

Doug Murphy

25 million in 2017.

Drew McReynolds

Okay. Perfect. Thanks. And lastly I know you are not giving any special guidance, but just the CapEx kind of expectation for FY’17?

Doug Murphy

Yes. And we had seen if you numbers floating around that were quite high. I think $30 million to $40 million obviously in the great spending we have to do as we connect people and locations, but 30 to 40 is a good number for CapEx for next year.

Drew McReynolds

Okay. Thank you.

Doug Murphy

Thank you.

Operator

There are no further questions at this time Mr. Murphy I will now turn the conference back over to you.

Doug Murphy

Thank you, operator and thank you everybody for your interest in Corus. And we look forward to speaking with you and you see in the days weeks and months ahead. Have a great day and go James.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you all for your participation and we ask that you disconnect your lines. Thank you and have a great day.

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

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

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