© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Corus Entertainment's Q1 2018 Analyst and Investors Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, January 10, 2018. I would now like to turn the conference over to Mr. Doug Murphy, President and CEO. Please go ahead, sir.
Thank you, operator. And good morning, everyone. I'm Doug Murphy, and welcome to Corus Entertainment's Fiscal 2018 First Quarter Analyst Call. Joining me on the call today is John Gossling, our Executive Vice President and Chief Financial Officer. Before we read the cautionary statement, we would like to inform everyone that there are a series of PowerPoint slides that accompany this call. These slides can be found on our website in the Investor Relations section. We'll now run through the standard cautionary statement. Slide 2. 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 are contained in the company's filings with the Canadian Securities Administrators on SEDAR. Happy new year, and thanks for joining us today. We had a mixed start to our fiscal 2018. The softer-than-expected Television advertising market conditions, offsetting solid gains in local Radio advertising and Nelvana and better than our anticipated results on subscriber revenues. As a result, our earnings were below expectations. I'll start today's call by sharing some highlights from the quarter and updating you on the progress so far this year we have made in advancing our strategic priorities. Then, I will turn it over to John to take us through our segmented first quarter results.Slide 3. Building on the strength of our performance in fiscal 2017, this fall, we increased our viewing share of the Adult 25-54 audience by 4% compared to the prior year. Global grew its Ranker positions in the top 20 programs over last year, with many of our new shows such as Will & Grace, S.W.A.T. and SEAL TEAM winning their time periods, adding to a strong performance from our returning franchises NCIS, Bull, MacGyver and the #1 reality program, Survivor. Slide 4. Our leadership position with Women and Families was also reaffirmed this fall on our specialty channels, with Corus capturing 5 of the top 5 children's channels, 5 of the top 5 channels amongst Woman 25-54 and 4 of the top 5 entertainment channels for all Adults 25-54. In fact, W Network delivered the top spot of all specialty networks for Women 25-54, including sports, the best fall it has had in over 13 years. We also had a great fall on YTV and Treehouse, successfully growing our audiences over the last year. Contributing to the resurgence of these women's and kids' services and our strong share of audience overall, was the increased programming flexibility afforded to us by the CRTC's group-based licensing decision. With our focus on scheduling more hit shows that we know will attract audiences, and the strategic deployment of our CanCon. With fewer repeats, which lessens program fatigue, we have proven that it is still possible to grow audiences even in this changing media environment. As such, our focus on our biggest specialty channels this fall was purposeful and very strategic. We invested in these services to ensure they are strongly differentiated in terms of great branding and great content and provide attractive brand-safe environments for our advertisers. Further, we leveraged our asset base to aggressively cross-promote these channels throughout the entire Corus system. Our disciplined focus on optimizing the power of our channel portfolio is an essential aspect of our strategy to ensure we rise above the clutter in this crowded content marketplace. By super-serving our passionate audiences with content and programming to drive brand loyalty within our ecosystem, we give them great reasons to keep coming back to Corus for more. Slide 5. Technology is driving more consumer choice today than ever before. It is why we made an important strategic decision to broaden our investment in the content rights spectrum. By acquiring more rights for some of our most popular programs, we are able to ensure all episodes can be accessible on-demand all season long. This provides our BDU partners enhanced value for their subscribers, by offering more flexible consumption options. The acquisition of these additional rights enabled us to introduce a new premium video-on-demand offering into the market, a new product line, if you would. We've had encouraging early success with this premium product now available to Rogers and Shaw subscribers. And we are in a process of continuing its rollout to other BDU partners. Premium VOD is available on 8 of our most popular channels, and it includes full in season stacking rights for popular shows as well as movie packages on W Network, YTV and Showcase. Most importantly, we offer increased value to our viewers, who now can watch their favorite shows and movies, both in real time or on demand.Slide 6. We also wanted to update you on our owned content initiatives. At Nelvana, our new slate of content is now being delivered resulting in a continuation of the revenue growth we saw last quarter. Our new show, Mysticons, premiered in Canada on the YTV in late August and was the #1 new animated series on the network this fall. Nick concurrently debuted the series in the U.S. and continues to roll it out internationally. As well, the new toy line launched in the U.S. last November, and we will roll out in Canada and around the world later this fiscal year. Hotel Transylvania: The Series has proven to be another winner with Disney renewing for a second season. Nelvana also continues to develop new production partnerships with strong international partners, which we look forward to announcing in the coming quarters. Last, but certainly not least, we are excited to share that we are putting the band back together, as we work in concert with Spin Master and TMS entertainment to bring back the globally-renowned and successful Bakugan to a new generation of kids around the world. It is still early days, but we look forward to updating you later in the year on this exciting opportunity. Turning to Slide 7. We are encouraged by the ongoing successes delivered by our news and Radio teams. They are unlocking The Power of Corus with further increases in duplicated accounts and the value of those accounts in Q1 in the local markets compared to last year. With our increased strength in local markets, we've been able to create new revenue opportunities, including more integrated sales products for our advertisers with local programming. We have also leveraged the powerful Global News brand and content across our AM News-Talk Radio network in 6 of the largest English radio markets in Canada, with more to come. This has contributed to continued rating strength and has helped drive growth in Radio airtime sales. Our most recent PPM ratings book in December was solid. Here are just some of the highlights for Adults 25 to 54. In Calgary, Corus continues to hold the #1 spot with Country 105, and Q 107 jumped 4 rank positions to #4. Vancouver, we maintained the #3 and #4 ranked stations, as Rock 101 and CFOX respectively. Q107 in Toronto slipped to the sixth position, while 102.1, The Edge held steady. And in Edmonton, 630 CHED, once again, made solid gains to take the #4 ranking position. We had great results in both of our largest Diary markets as well, making impressive gains in the latest ratings book. Power97 in Winnipeg is back in the top 5 ranked stations for Adults 25-54, and in Ottawa, JumpFm and Boom FM combined to claim the largest market share since Corus acquired these stations in 2014. Our own-more-content strategies apply to Radio as well, where we continue to innovate with new audio product offerings. Last spring, we launched the podcast version of The Ongoing History of New Music with Alan Cross. It is now the #1 music podcast in Canada, with over 800,000 downloads, it's a great example of innovating in a new and adjacent market and owing content. One of our biggest success stories in growing our online presence is Global News, which continues to grow by leaps and bounds. Globalnews.ca hit a major milestone, surpassing 1 billion page views in calendar 2017. It is now firmly ensconced as the #2 spot amongst all Canadian online news providers. Turning to Slide 8 and a review of our Q1 results. Free cash flow increased to $83 million from $34 million in the prior year quarter. We'll discuss the reason for the significant increase in more detail later in the remarks. Consolidated revenue for Q1 was $457 million, down from $468 million in the prior year. And segment profit was a $178 million, decreasing from $192 million in the prior year. Segment profit margin was 39% compared to 41% last year, reflecting softer-than-expected Television advertising revenues and the implementation of our postintegration television programming strategy, which John will discuss shortly. Heading into the fall season, longer-term bookings were pacing well, and we appear to be on track for modest growth in Television advertising for Q1. However, as the quarter progressed, we saw a shift toward shorter-term VIES such that visibility became increasingly limited. As we approached the end of the calendar year, it also became apparent that certain advertising commitments would not be fulfilled as forecast. These soft Television market conditions led to overall advertising revenues that were below our expectations for the quarter. We remain committed to working collaboratively with our agency partners. They recognize the significant value that Corus brings to the table, with our differentiated scale, powerful brands and innovative advertising offerings. And we, in turn, recognize the value of our agency partners offer.The advertising industry continues to reassess and recalibrate, as marketers evolve their media modeling strategies to optimize the mix of TV, Radio and digital media elements. Corus is a very active voice in these discussions. Looking forward, we have seen the impact of major tent-pole sporting events in prior years, and we are anticipating that this year will be no exception. We expect to encounter Television advertising revenue headwinds with the Winter Olympics in February and have developed programming strategies that we believe may partially offset some of the anticipated revenue softness in and around this event. Slide 9. We are confident that our focus on advertising innovation is the right direction for our company. Corus is emerging as a leader in this space worldwide. In Canada, we were the first to test and learn from a broad range of emerging new products, including Advanced Audience Segmentation, dynamic ad insertion and video-on-demand content, automation and artificial intelligence. Innovations, such as these, continue to advance our learning and build new advertising capabilities that bring significant value to our advertising partners, helping them to deliver a great return on their investment, while better positioning Corus to compete against the digital players. As we mentioned last quarter, we are doubling our investment in data analytics and advanced advertising to become a more data-driven, consumer-centric company. This is an exciting area for us, and we are firmly committed to staying on the leading edge of advertising technology innovation. We have seen positive signs that we are making inroads on the adoption of our new advertising capabilities with increases in the number of advertisers integrating audience segmentation data to amplify the targeting power of their ad campaigns. We are working closely with the BDU to implement dynamic ad insertion, DAI, and video-on-demand content. This work complements and supports our strategy to acquire full season rights for programs that we know will drive audiences. DAI technology enables us to insert ads directly into content onto do -- the set-top box. Today this technology is available at Rogers, and we are working with Shaw and others on a broader national roadmap. We already have a growing group of advertisers who are taking advantage of this technology, and it is scaling quickly. As with any new product, there is an awareness and adoption growth curve, which we expect to see, as new technology and platforms such as the X1 and the IPTV enhancements rollout into the market. The roadmap for introducing these technologies into subscribers homes is controlled by our BDU partners, but we are encouraged by their commitment to innovate, both to attract and retain subscribers as well as enable these advertising functions in their roadmaps. Another area of focus is our work to simplify and improve the process of buying media across the Corus portfolio and to allow advertisers to incorporate data more seamlessly. Programmatic or automated buying technology is already a key part of our digital business, and we are bringing that capability to television buying in the fiscal 2018. This will allow us to make better use of our inventory, improve revenue yield on every impression and create a more efficient process for Corus and our agency partners. We plan to introduce beta trials with the 5 major agencies this year. I'll now turn it over to John, who will take us through our financial results by segment.
I'm on Slide 10. Total television advertising revenues were down 2% in Q1. Our total television advertising revenue declined 4% in prior year for the reasons Doug has just mentioned. Subscriber revenues for Q1 were flat over the prior year, which was better than our expectations and this is a notable result particular, considering the ongoing introduction of new packaging choices for consumers by the BDUs, subsequent implementation of pick-and-pay. Merchandising, distribution and other revenues were up 7%, mainly attributable to increased deliveries of Nelvana shows and related merchandising revenues as we continue to benefit from the rollout of our slate of new properties. Television delivered segment profit of $169 million and segment profit margin of 41% for the quarter.As well, I noted in the Q4 call, we anticipate increased amortization of our programming rights in fiscal 2018 with implementation of our postintegration programming strategy. The amortization schedule for certain newer content is more front-end loaded and its expense fluctuates with the delivery of new shows throughout the year.In Q1, this translated to an increase of 4% in programming amortization expense, despite a reduction in program cash spend of 7%.On Slide 11, turning to Radio. Segment revenues were relatively flat in the quarter, as gains in local advertising sales were offset by some softness in national sales and digital revenues. Segment profit increased 2% in the quarter, as we continue to benefit from our improved cost structure. In fact, Radio's continued focus on cost structure improvement has led to an increase in the segment profit margins to 32%, and that's up from 31% in the prior year quarter. Slide 12. Heading into subsequent quarters, we remain firmly focused on deleveraging towards 3x net debt to segment profit. You should note though that given our Q1 results, it is unlikely we will achieve 3the x net debt to segment profit milestone by the end of fiscal 2018. However, we plan to continue to invest in advancing our strategic priorities, and our focus on improving our free cash flow over the prior year, that will continue despite Television advertising revenue headwinds. As well, we plan to maintain -- towards our dividend of $1.14 per Class B share for fiscal 2018. Turning to Slide 13. In Q1, we announced several strategic moves in the support of our key financial priorities for fiscal 2018. In October, we reached an agreement to sell Historia and Séries+ to Bell Media, pending regulatory approvals. As we mentioned on our Q4 call, this divestiture of noncore assets is part of our ongoing discipline focus to delever. In November, we took further steps to improve our financial flexibility, reaching an agreement with our bank syndicate to amend and extend our existing credit facilities.Under the agreement, maturity dates of the $2.1 billion term facility were extended to November 2021 for tranche 2 and November 2022 for tranche 1 of the facility. As well, the mandatory repayments for the term facility were fixed at 1.25% per quarter, which translates into mandatory repayments of $106 million in fiscal 2018. The maturity date for the $300 million revolving facility was also extended to November 2021.Concurrent with the agreement, Corus terminated its existing interest rate swaps and entered into a new interest rate swaps, resulting in net cash proceeds of $25 million in the quarter. This contributed to a significant increase of free cash flow in the quarter to $83 million, from $34 million in the prior year, along with improvements in working capital. We are pleased with the disciplined progress we have made on our financial priorities to date, which will enable us to continue making the right investments in support of our long-term strategic priorities. I'll now turn the call back over to Doug, for his closing comments.
Thank you, John. The financial results of this quarter are clearly disappointing. They mask all the great work we are doing at Corus to position our company for the future steady growth we expect. No doubt, it has been a challenging quarter for national television sales, but there are notable bright sports such as subscriber revenues that were better than we anticipated. Radio and our local sales teams are performing well, as are our owned content initiatives at Nelvana and Corus Studios where we are seeing growth. We're also pleased with our margins and our free cash flow, and we have our foot on the pedal to maintain momentum in data analytics and our advanced advertising initiatives. The scope and scale of our company is evident in the audience delivery in TV and Radio. We've been making good progress in delevering our balance sheet, divesting noncore assets and improving our financial flexibility. We have a determined, focused team that recognizes that we need to play the long game to win. We hope you have found these comments helpful. And now we'd be pleased to take any questions that you may have. Thank you and back to you, operator.
[Operator Instructions] Our first question comes from the line of Vince Valentini with TD Securities.
Let me start with John on the expenses, and then I'll come back to Doug on the ad revenue. With the -- just so I can understand this new program strategy and the amortization expense, so when you say front-end loaded, do you mean like the first quarter and maybe second quarter of the year see higher amortization expense and then you see relief in the back half of the year? Or are you talking about multiple years of front-end loading so the full year of '18 could see the higher -- this sort of higher trend of amortization versus cash spend?
Yes, it's more the latter spend. So the quarters -- if you want to call it volatility or a little bit of change in that trend that we saw in Q1, it really depends more on the way conventional gets delivered programs from the U.S. networks of the U.S. studios. So what we are trying to stay on this front-end loading idea is new programming of certain types, because there's different ways that different programs are delivered to us and therefore, amortized in different ways. But a bulk of our programming, particularly on specialty, has a straight-line method of amortization, but it is a bit front-end loaded, taking into account where the value of the programming is obviously on the first window.So this is something that we see. It will affect us all year long with that variability in the quarters that's going to come from conventional. But, you know overall, I think we're looking at probably low single-digit increase for the whole year. In Q1 and Q3, you are looking a little bit higher than that, and the other quarters are looking probably a little bit lower.
And then the actual invest -- cash investment in production continues to be down 7% or thereabouts every quarter, and so you actually see cash inflow from production burn every quarter, is that your expectation too?
It's a good point. So, it's just to step back. So preacquisition, the companies were spending over $600 million combined. That came down last year to just over $500 million. It could be flat to up a little bit this year, but the timing of that is difficult to predict, because things can slip from quarter-to-quarter. So you rightly called out that Q1 was a little bit low on cash and we would agree with that comment, and we managed that very carefully, obviously. So typically, the delta between amortization and cash has been pretty negligible , but it can vary from quarter-to-quarter, so we'd expect the cash to track with amort but it could potentially be a little bit lower this year.
Okay. And Doug, just on the TV, a couple of things. So do you think you gained market share in fiscal Q1 versus in just, sort of, conventional Television and specialty Television combined? Or was it just -- you did?
I know we did. I mean in the total ad market, of course, we're up against the big digital players. The duopoly of Facebook and Google, so those guys are certainly a force to contend with, which explains why we're so focused on the data analytics and Ad Tech. But within the linear conventional specialty Television pie, yes, we did gain share.
Okay. So the market's down more than 4%, do you have any thoughts on December? Can we assume December was similarly minus 4% versus what you saw in Q1? Or did you see some sort of bounce back?
December is -- I'll say that December is better than what we saw in Q1, and that's likely attributable to the calendar agency deals, there are lot of folks making -- trying to make up on some other deal commitments, and we saw some of that coming in December. About it wouldn't have been better a wholesale change from the trending, but it's an improvement from what you saw in the quarter.
And so given what you're seeing to date, I mean, despite your good ratings and the new contracts you did post the merger, you still trending negative on ad revenues. Is it realistic, I mean, that you could ever get back to positive advertising revenue growth with -- may be with the Ad Tech investment you're making? Or is this, sort of, the reality that you have to allow your cost structure and your business focus with assuming TV ad revenues are going to be declining in perpetuity?
There is a couple of things in there. Let me unpack that. I'll go back to front. We are always looking at cost structure events, so our discipline around cost and expenses are critical. Although, we will make strategic investments, and that's evident in some of our investments in nonlinear programming for the premium VOD product and our investments in both OpEx and CapEx on the Ad Tech initiative. So -- but other than that, we're looking to find those growth investments from other cost savings within the system. I do think it's realistic to get to a mass level of advertising growth. We are making some really great strides in a number of the elements we've discussed in the past. Moving our advertisers away from the traditional adult 25, CPM-driven metric to selling audience segments that are more targeted against their buyers. That creates value, and it gets off the traditional pricing models, looking at ways to optimize DAI platform, albeit now, just as Rogers, but in time, it will be an opportunity across the nation for us to find viewers with less ad loads and afford advertisers the chance to, kind of, own advertising break within a high quality piece of content. The note, I made in this call about automation, finding ways to create, what they call supply-side platform, that we can plug into the demand-side platform to the agency groups that's the very same thing that the digital players do, will afford to do more seamlessly clear inventory and manage upwards the yield on that inventory. All of these initiatives are moving to help us focus on increasing yields. So I do believe that we will have opportunities to display to all of you, growth in our TV advertising line. This quarter, for a variety of reasons -- it was a disappointment, but we remain optimistic that we are on the right track with these initiatives underway, and I can expound upon this if you'd like but I'd just leave it at that for now.
Our next question comes from the line of Aravinda Galappatthige with Canaccord Genuity.
I just wanted to go back to, I believe, John's comment about the difficulties in achieving the 3x leverage target by the end of '18. I suspect a part of that is some of the ad softness that you talked about. But with respect to -- on the cost side, the OpEx and CapEx investment, any kind of color on the materiality of that, that would have an impact on obviously, EBITDA and free cash flow?
Sure, Aravinda. We talked about programming in the last question I think. We been trying to get that message over for a couple of quarter now that we do see some low single-digit increases in our programming amort for '18. If you look at the other cost items, the G&A in particular, we are relatively flat this quarter, and I know that's a big change in the trend that we've seen postacquisition. Couple of things happening there, clearly we have lapped the full benefit of the synergies, as we regressive in timing on getting those achieved. The other things that are happening, they're relatively small, but they do impact the trend from slight decline to a slight increase. Some of the morning shows on Global that were charged into CRTC benefits, they were an obligation, coming out of the Canwest acquisition by Shaw years ago. Those have now expired, in terms of being a benefits package item, so those are now fully in the P&L. That is going to move about $6 million from the balance sheet, or what was being charged with balance sheet in the past into the P&Ls. That's affecting us in the quarter by just under $2 million. And Doug's mentioned the investments in Ad Tech that we're making, and that will also have relatively small impact, but again we're more looking at the difference side [indiscernible] and a slight increase that's impacting it. So overall, as Doug mentioned, we're very focused on expenses, and we're looking to keep that lined from growing in any way, obviously, given the advertising situation.
And just a follow up on that. With respect to CapEx, I mean, are we looking at, sort of, $25 million, $30 million this year or...
I mean, obviously we were very light, off to a slow start in Q1. We were under $2 million, but I think, given the realities of the advertising situation and our focus on free cash flow, we'll probably look to bring CapEx down a little bit from what we had last year, so somewhere around $25 million, I think, is a good target.
Okay, great. And just switching gears onto the content side, some of the production opportunities that's out there. You talked about Nelvana, I think, in the prepared remarks. Going forward, can you just touch on some of the interest you're getting from U.S. networks or content creators in terms of, sort of, expanding that production slate partnership opportunities? I know you alluded to opportunities in that area in the past. Any kind of traction on that front that would potentially help get the third line of revenue growing a little bit strongly?
Yes, thank you, happy to fill that one. On our last call, we talked about the Discovery Kids, Nelvana, the joint venture we'd created. That follows on the heels of the announcement a few quarters prior to that of our JV structure with Sesame Workshop. And then a couple of years before that, we set up our coproduction framework with Nickelodeon. So there we have 3, and I also stated on the last call that our strategy is really around building the slate at Nelvana is to look at some of the bona fide best global partners out there and put together a great team to build a winning piece of IP franchise that can be sustainable over the long haul. So as I answer your question, we have 2 shows in production that are part of the Nick framework. We have one show, Esme and Roy, which is part of the Sesame Workshop framework. We're very close in the next quarter or 2 to be announcing our first show with Discovery Kids, which is an exciting opportunity. We have another promising partnership pending, which ideally, we'll be able to give you some color on in the future. I mentioned the note about getting the band back together with our friends at Spin Master and Bakugan. So that is our preferred strategy at Nelvana is to tie up with great partners, so that we have the best opportunity to basically build franchises for the long run. It's a slow and steady, as she goes kind of a approach, but it's our view that that's the more likely winning strategy in the long haul. I'd also note that Corus Studios continues to be an exciting opportunity for us. We continue to expand our offerings in that emerging business. The factual lifestyle and in particular, the property factual lifestyle with genre, it performs extremely well on our networks in Canada, but also it excel internationally. And so we like that space. It's the same effective investment level per half hour that we experience at Nelvana, so we're comfortable with the kind of the economics of those investments. And my final comment before I go back to you for any follow-up is, keep in mind now that all of the investments are within our required CPE spending. So we are not going beyond what we have to spend. We are optimizing the spend that we need to spend given the CRTC regulatory framework or employing what we've described in the past as the Corus Advantage, wherein we're both the broadcaster, a producer and distributor of content to our maximum benefit and therein increasing economic value to our shareholders.
Just -- yes sir, go.
Can I give you just a little bit of color on that third revenue line as you describe it. So for example, we don't break this out normally, but in the quarter, Nelvana in total is up 24%. And obviously that's within that other revenue line. And our animation software business is related, but separate from Nelvana. That was also up a similar amount. So there's good progress being made there for sure, when you look at the results we saw in Q1.
Okay, great. Thanks, John. Just last question on the Ad Tech side. Just -- can you just touch on sort of the pace of the movement there? I know you've kind of sized up the opportunities on the local addressability on the DAI side and it's meaningful. But in terms of sort of the speed that you're getting traction, particularly on the ad agency side and the ability of that initiative to make an impact on the ad revenue line. Just talk maybe to the extent that you can about timing and the pace of the ramp-up there?
That's -- I wish I had a crystal ball. Of course, it'd be a lot easier for all of us. We've seen, I would say, a remarkable upward trend in the number of advertisers within the agency groups that are participating in our audience segmentation program. It's just to remind everybody on the call, those are -- that's where when we identify working with our advertiser, certain demo -- psychographic and then we use of our data sets, push it out to a third party that's privacy compliant and then are able to -- sort of overindexing of that targeted audience to whatever shows we have in our system and then we, sort of, heavy up on those shows in particular versus buying a run of schedule. That increases targeting capabilities and ROIs with our advertisers. So that's growing rapidly. We are seeing -- so that's kind of the first out of the gate, which we started 3.5 years ago and we continue to work with agency groups to deploy that.The second piece, what I would say, is dynamic ad insertion. We've had a nice uptick in that. The challenge at DAI, and to a lesser extent local addressable is really, we are kind of incumbent upon our BDU partners to deploy that functionality in their platforms. So we are very much evangelistic speaking with our big partners in terms of what we need to do there. The good news is that 2 of the big BDUs are vertically integrated companies that see the merits of affording us and their immediate businesses an equal opportunity to deploy new Ad Tech functionality, so we get lots of nods and lots of you-had-me-at-hellos in those conversations. But we just can't snap our fingers and have the complete rollout done. So that's where I think we all need to be somewhat patient, but our commitment to all of you is that we are on this and are very excited about what it holds. As we move off of the traditional CPM metrics into selling audience segments and environments in a new and different way and being able to transact and automate much like our digital players are doing today and there's a lot of interest in that automation piece as well Aravinda.
Our next question comes from the line of Drew McReynolds with RBC Capital markets.
Just a couple, one for you John to start off. You addressed CapEx and your cash investments and programming for fiscal '18? Can you just tie off the cash taxes and working capital? I think, last quarter, you alluded to working capital being down year-over-year. Just trying to firm up a free cash flow estimate here for fiscal '18.
Sure. So cash taxes look like they'll be up, now of course, depends on new income levels and where that occurs by legal entity. So -- but at this point, it looks like cash taxes will be up about $20 million year-over-year. Last year was particularly low, just given every thing was going on with integration and those costs. So that's the view right now for all of '18 on cash taxes and they tend to come more towards the end of the year Q3, Q4. And -- so your second one?
Just on working capital?
Yes. So you'll see, in the quarter, we get a little bit better than last year in terms of the amount of working capital we consumed, but it's still quite high. We'd like to have that come in flat when the year ends. So obviously, we'll get some pickup in Q2 and Q4 as we come off the bigger revenue quarters. That's going to require a lot of work on our part. But that's the target is to get it to flat, and that will be a big improvement over what we did throughout last year.
Okay. That's helpful. And just on the 3x net debt to EBITDA target, when you say you're not going to achieve it, I'm assuming -- excuse me, I'm assuming that excludes the sale of Séries+ and Historia in that statement?
Yes. So that's good for about 20 basis points of leverage reduction. So even including that, I don't think we're going to get to 3x.
Okay. Now I got you. Got you. Okay. And just a couple others here. Just in terms of the outlook for TV margins, just given Q1, last quarter just you were targeting flat year-over-year, wondering, if that's still achievable? I'm assuming it's not but just want to get your comments on that.
It all depends on the revenue, obviously. So because of the high flow-through effect that you can see, I think, even in your note, the delta between your estimates and the actuals. It's almost 1:1 in terms of the revenue mix and to what falls through the EBITDA. So I'm not trying to not answer the question, but it's very difficult to predict given the revenue environment. Obviously, we're -- as Doug mentioned, we're looking to keep cost flat to down. The picture all depends on what that top line does, but we'll certainly be targeting for margins to remain strong, but it's difficult with revenue decline.
Yes. No, understood. And then, maybe back to you Doug, just on the premium VOD that was launched in the quarter. The dynamic ad insertion, I think you alluded to that being up and running, maybe as early as Q1. Just wondering if that was the case with those new offerings and just your takeaways, I guess, from that initiative?
Thanks, Drew. Happy new year. The DAI is up and running on the Rogers platform. We've just added a lot more content on that platform to increase the number of available shows to dynamically add insert into. And that's part of the premium VOD product. What we're really trying to do here is kind of go over where the flux is going to be, with apologies to [indiscernible]. But we know that more and more consumption of content is on demand. We want to keep our subscribers, our loyal network viewers within the TV ecosystem. We know that providing larger VOD products to our BDUs creates more value for their subscribers and also sets the stage for us to rollout the DAI functionalities. Rogers is our kind of our -- kind of a trial partner.And the more we work with them, the more we learn about what we can do when we're able to get DAI function -- DAI functionality rolled out throughout the BDU platforms across the country. So all that is moving apace and the premium VOD just gives us more audiences to target. Plus I might add, plus adds a new revenue stream, and we are quite pleased, we kind of made a strategic investment to acquire more rights on these shows that we have on linear on the VOD platform for the full season and our content distribution team did a bang-up job going out there and hitting their targets on the revenues that we had put in our models as we made those investment in the first place. So that was a total check on the box.
Okay. Okay. Two other questions for me. Just first on merchandising licensing and other, and then one on the dividend. On the merchandising licensing and other, you talked about some of the details, puts and takes and some of the growth spots in there. How should we be modeling roughly the rest of the year in terms of this revenue item?
I'd say that's always the challenge line because they're so lumpy by nature. We've got -- and we've got a couple other -- so there is the owned properties, which we -- which are our own, like Hotel T and Mysticons and the like, and then there are the represented properties. We represent PJ Mask in Canada and Peppa Pig in Canada and others. I don't know, John, if you give Drew any steer on that one in terms of how to think about merchandising for the rest of the year?
Merchant is very small. In Q1, Drew, flat to a million dollars. So, as Doug mentioned, it can be a little unpredictable and pretty lumpy depending on the timing of payments and what's hitting and what's not. So it's pretty difficult to call, but it is a relatively small piece of that line.
Okay. And sorry, John, in terms of the category of merchandising licensing and other within TV, we have that kind of separated, just how should we look at that as a group?
So I'd say -- sorry, I was talking just about the merchants.
Yes.
[indiscernible] and TV for the year, I'd say it'll be up a little bit, is the current view, low.
Okay. That's helpful. Last one for me. Just on the dividend, you've consistently said you're committed to the dividend. And, I guess, Doug or John, from my perspective, as a company, you're doing all the things right in terms of what you can control. Clearly, you can't control the broader trends in terms of digital and advertising and all of that nor the timing of some of kind of new revenue growth initiatives. Is there any consideration just to give yourself a little bit more kind of financial flexibility whether it's to make those investments and/or just bring your leverage down a little more quickly so you can potentially get to some of these initiatives and bring them forward to reignite that growth story? Just wondering -- latest thoughts on that.
Well, Drew, 2 years ago, today and around today, we announced the transformational acquisition of Shaw Media and at that time, we put forward kind of 3 financial objectives. One was to take out $40 million to $50 million of cost in 18 to 24 months. We exceeded that significantly, both in terms of the quantum and the timing. We also stated that we will work very hard to delever the balance sheet to 3.5x by end of fiscal '17. We got there a quarter early last year and to 3x and the fiscal '18, as we've said in the call today, we're just thinking that's going to be tougher to get to than we had thought. But maintaining a dividend as current level of $1.14 for Class B shares has been one of our key financial objectives for 2018. And we'll remain focused on achieving that objective through the end of our fiscal year. So that's how we're looking at, and we want to very much continue to demonstrate that we're doing what we said we'd do, and that's our approach to those 3 objectives.
Okay. And just to press here a little bit on this, Doug, most of those boxes certainly will be ticked from my perspective. When you look beyond fiscal 2018, then will you just -- as a company and obviously, that's more of a board decision determined a landscape and maybe recalibrate at that point? Or at this point, is that not on the table?
I would say, Drew, that management is always in active discussions internally or strategically about where we want to go with the business in 5 years' time and that's a conversation that we're continuing to have with our board. At this juncture, we see no reason to change those objectives that we stated for this fiscal. I can't predict the future, so with this juncture, I have to say, we want to build a vital sustainable business year. We have, we believe, made a lot of the right moves in the last 2 years to position Corus for future growth, and we want to make the right investment. So I think what's evident in this quarter particular is, yes, advertising was below all of our collective expectations, which had a knock-on effect on our EBITDA performance. But that's not causing us to shy away from making the necessary investments. We've not assumed content on premium vibe or in advancing our advanced advertising and data strategy. So we are continuing to position the company for a healthy future stage, where we aspire to have more steady revenue growth.
Next question comes from the line of Jeff Fan with Scotiabank.
Just a quick clarification for Doug. When you talk about the ad revenue growth potentially being back into positive, were you taking into account the contribution of Ad Tech and dynamic ad insertion into that comment?
Yes. Jeff, it's -- they are kind of inextricably intertwined there. We can't pull them apart, because they're kind of packaged together. We are working and we're not going to break this out for you guys, but we are working to determine what is truly incremental,, and there is a -- I see a reasonable and growing number that is truly incremental. But that does include all of our various activities.
Okay. And on the dynamic ad insertion, given that it does require the BDU's efforts to help you get to those revenue opportunities, are there revenue sharing arrangements with the BDUs on DAI? Or you're able to actually get 100% of that?
This is kind of an -- sort of an emerging business model, I'd say, Jeff. And one of the things that our team does is we're really global in view to this. We were just in London. I wasn't, but the team was in London in December to -- Big Thing TV digital conference, where we were, kind of, one of the many guest speakers there. And so we are looking at what's happening in other markets worldwide at the moment. At the moment, it is not really a rev share model. But we're -- what we want to do is to build a uniform DAI functionality in Canada. We think it's a good thing for the TV advertising system, and so we are fairly open minded as to what that business model looks like and if that's necessary to afford the more rapid deployment of that capability, which certainly be open-minded but at the moment, there is no rev share, simply revenue that comes to a Corus.
Okay. And then on the ad agency deals for calendar 2018, I recall a year ago you gave us some good color on the 2017 deals. Can you just give us some color on some of those for calendar '18 and how they are shape -- how they shaped up in your negotiations?
Sure I am happy to. So I alluded to earlier in one of the calls, we did see a bit of a pickup in the last month of the year in December. So we -- that was encouraging as agency groups were trying to do what they said they would do, but I'd say, it's a collaborative relationship between Corus and broadcasters with the agency groups. We've also said no doubt, we expect a little bit of advertising headwinds in Q2, because of the Winter Olympics. And notwithstanding the geographic location in South Korea. We have concluded our agency groups deals that are calendar-based for calendar 2018 as you would imagine. Once again, in many cases, we were able to get some volume increases and some pricing increases. We've also added some new a -- every year you learn, right? And last year, it was a big learning year for us and our agency groups, both for us as to how we can make sure we optimize the commitments from the groups and also from the groups themselves as toward the value that Corus can bring to the table, both giving our audience delivery of women's large family and our leading position in advertising tech and data. So we have new tools we put in place for this year that we think will enhance compliance. We've put on the table incentives that will send quarterly behavior that we think optimizes both sides of the business, but we also have the ability to remove those incentives if we don't see compliance. So we think as each year passes, we are tightening the screws on how we're cutting these agency deals. Mindful, that we are all in this together and we need to work to optimize the ad campaigns for our clients.
And finally just on the subscription revenue line, that has been stable, and -- but, I guess, the trend going forward is that we continue to see more shrinking in terms of the cable packages and more potential virtual MVPDs coming up to Canada, notwithstanding all the existing PDUs over the top or streaming services. How are the carriage negotiations or how are the ones that you've recently dealt with, how are those going in terms of -- in light of all those trends that are happening?
I would say they're going fairly well. I mean, we again continue to work closely with the distributors, they are very important business partners of ours, to understand what their financial priorities are? And we work to communicate similarly what ours are. We are working to get more value put on our big services. We look at the services that under index versus the share of audience versus the share of revenue in the subscriber pie, if you would, and we try to move dollars onto those big services. In some cases, that means we shift dollars from our smaller services, which then might well set up the opportunity for us to prune our portfolio in time. And those conversations about trying to optimize our channel portfolio with BDUs are underway and proceeding nicely. We know we continue to work with the BDUs to try to manage their ARPUs. That's important for them. It's important for us that they are financially healthy and growing in their video part of the business, and we also look to innovate on our product offerings, hence this premium VOD rollout we have -- we're doing this year. The DVM VPDs, I think, represents an opportunity for Corus, albeit small in the context of things. But you rightly note that a number of them are exploring opportunities in Canada. I expect, we'll be having something there. Somewhere in calendar '18, we'll hear from at least couple that will probably announce entry to this marketplace, and we will, like we do with any new distributor, be happy to provide our products and services to them. And then, you know, with regards to the OTT streaming platforms. We've been pretty consistent in saying that we are so focused financially on delevering and investing in our core that we're reticent, at the moment, to invest in businesses that do not return the cash on cash in the year. We continue to take that view, but increasingly, we're also looking hard at what the merits of being -- what I would describe as a fast follower look like. The longer we wait, the cheaper these platforms get for us to deploy. There is increasingly some interesting partner opportunities presenting themselves. So, at the moment, we are not playing in a big way. We've got History Vault. We've got Global GO. We've got Treehouse app. But those are our video streaming platforms they are effectively unauthenticated. But we continue to look carefully at that opportunity with the discipline around financial returns.
Is -- just financially, is this slot subscription revenue still is the right assumption for the foreseeable future, I guess, for '18?
I think that's fair.
[Operator Instructions] Our next question comes from the line of David McFadgen with Coremark Securities.
So just a question on the TV ad markets. So given Q2 is going to have the Olympics, do you think that the TV ad revenue would be down, something like 4% as well? Or do you think it could be down more than that during the Olympics comp?
I don't -- I would like to think it's not going to be down that much. I think we are just trying to be cautious and realistic that Canadians are passionate about their winter sports. And I've been already watching on the national last night about the skateboarder -- snowboarder, I forgot his name, he was being featured. So the promotional weight of CBC is in full force. So I don't -- I mean -- down 5%, down 4% was a challenging number, David. I certainly was disappointed in that result. I think we'll do better, but we just don't want to be overly abulent in terms of what the quarter might bring in terms of growth.
Okay. And so I think, just based on your previous comments on the call , just wanted to clarify, so -- unless you get some pickup on these digital initiatives, you think TV ad revenue is probably going to be down for the foreseeable future, is that correct?
That wouldn't be -- I wouldn't be quite that negative. I think, the challenge here is that, we need to continue to put the foot down on what we're doing with advertising tech and data, and we'll probably increase our investment in that in the coming years. Because that's going to be a critical piece of getting to growth, is this selling our product in a different way, and on -- so the -- I think the return to a more reasonable, modest growth profile is really dependent upon how quickly we can deploy those functionalities, David. And I can say with unequivocal confidence that, that is the top priority for our sales team is moving quickly. So I would not say that we can expect negative TV ad growth for the future. I -- we are still gunning to get back to modest ad growth, which is why we continue to make investments both in Ad Tech and in programming, and so we can continue to take share from our linear television competitors and therein monetize those audiences.
And so on the ad deals for calendar 2018, you said some have increased volume and increased price. Last year, you know, you renegotiated with your top 5 advertisers. I think you got 4 of the 5, an increase on price, 5 an increase on volume, and the 1 wasn't compliant, because they lost some ad clients. But can you give us, sort of, a similar update? Or have you concluded all 5 or...
We've got all 5 done. I would say that we got price and volume on 4 of the 5. One of them, we went back in volume, because they lost a bunch of clients, but we got the volume back in the other, if that helps. There's still a lot of account shifting in the advertising agency groups, and so there, we're always kind of chasing that around a little bit to try to true up our commitments for the calendar years. So that's how I'd answer that question.
So 4 out of the 5, you got price and volume increase?
Yes, like I said.
Operator, are there any other questions?
No, sir. There are no further questions on the phone lines at this time, so I'll turn the call back to you.
Great. Well, thank you, everybody. I want to take this moment to thank our Corus team. I know many of are on the call, very much appreciate all the hard work we do every day. Wish you all a very happy new year. Thank you to all of the analyst community. We appreciate your support. We look forward to seeing you in 2018. Have a great day. Bye-bye.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your line.