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Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Corus Entertainment Q1 2021 Analyst and Investor Conference call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to Mr. Doug Murphy, President and CEO of Corus Entertainment. Please go ahead, sir.
Thank you, operator, Chris. Good morning, everyone, and welcome to Corus Entertainment's Fiscal 2021 First Quarter Earnings call. I'm Doug Murphy, and joining me this morning is John Gossling, Executive Vice President and Chief Financial Officer. Before I read the cautionary statement, I'd like to remind everyone that we have slides to accompany today's call. You can find them on our website at www.corusent.com under the Investor Relations section. Now let's move to the standard cautionary statement found on Slide 2. Today's 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. Good morning, everyone, and Happy New year. Before we begin discussing our Q1 results, I will take a brief moment to comment on the current operating environment. As we collectively experienced new widespread COVID lockdowns, our team at Corus has once again stepped up to serve the needs of our audiences and local communities and to help our advertising clients navigate the challenging environment. With the expanded restrictions in place and as we await the broad rollout of newly approved vaccines, our priorities are clear. Audiences continue to rely on us for the delivery of timely and relevant news, information and entertainment across a broad array of platforms. We are deeply committed to meeting these needs. On behalf of our team, we would like to take this opportunity to recognize the tireless efforts of our frontline and essential workers across the country as we endure this health crisis and look forward to brighter days ahead. I will now turn to our first quarter results and offer some perspective on the positive momentum we are seeing in fiscal 2021 on Slide 3. When we last spoke, I referenced our book of COVID, and the chapters we have been writing as we adeptly navigate the COVID-19 pandemic. We left off in chapter 4: up and to the right, describing the sequential improvement in our overall business. This chapter speaks not only to our advertising recovery but also to the outlook for our overall consolidated revenue, both as we move towards an exit from the current health situation and in the years that follow. I am pleased to share that our Q1 results demonstrated this on all fronts. Our team is making meaningful progress on the disciplined execution of our strategic plan, which is designed to get us to consolidated revenue growth year-over-year-over-year. We kicked off our new fiscal year with a stronger-than-anticipated quarter. In the first quarter, we delivered consolidated revenues of $420 million; consolidated segment profit of $179 million; free cash flow of $62 million; and improved financial flexibility with bank debt repayments of $34 million in the quarter, which reduced our leverage to 3.14x net debt to segment profit. John will take you through our detailed segment results later in this morning's call. At Corus, our intention is to emerge from the current situation stronger than when we went in. We recognize that the rollout of the COVID-19 vaccine is the next important step to protecting Canadians, and that is the only thing that will get our economy back on track. We are well positioned to meet the needs of all our partners and stakeholders as we start down this road to recovery. Let me take a moment to highlight the significant progress we have made against our strategic plan, beginning on Slide 4. Create a great place to work. We are proud of our well-established process at Corus to measure engagement every quarter. The key targeted drivers revealed from this information are invaluable for us as they clearly indicate what's most important to our people. For Q1, this focus was to ensure a clear understanding of our strategic plan company wide, and with it, a strong sense as to how each member of the Corus team impacts our business in the pursuit of growth year-over-year. I'd also like to celebrate Corus Cares, our community giving initiative that raised nearly $4 million in our first quarter, supporting 136 organizations across the country that range from our legacy commitments in Vancouver, Calgary and Edmonton to our many other local efforts assisting food banks, hospitals, women's shelters and children's programs across Canada. As we endure this health crisis, we recognize that we have an important role to play in the well-being of local communities and businesses. We are proud of our dedicated people and the efforts that are making a difference where they live. Build a content powerhouse. In content, our studio ambitions are coming to fruition, driving revenue growth in our global licensing business. We are experiencing a flywheel like effect as more and more broadcasters and distributors discover our great content and its ability to drive ratings as we can currently expand our production slate. Corus Studios continues to break new ground. Given the increased demand for content on broadcast and streaming platforms, we doubled down our efforts to secure new licensing deals, and the results have been impressive. Over the summer, we saw more than 300 hours of content sales, plus we confirmed another 250 hours this past fall, opening the doors to new business, soon-to-be-announced deals in the U.S. with linear television and wholesale distributors. Corus Studios is well positioned to continue its growth trajectory in fiscal 2021 with 19 new and returning series in the pipeline, representing more than 200 episodes. Nelvana's output will be similarly robust with 14 series slated for the year, representing almost 180 episodes. We are thrilled to premiere Nelvana's new live-action Canadian original series, The Hardy Boys, on YTV in Canada in the coming months following an extremely successful U.S. launch of the series on the premium streaming platform, Hulu, this past December. This foray into live-action is exceeding our expectations for engagement on Hulu, and we look forward to building on this great start with our new streaming partner. In the international market, Nelvana's coproduction partnership with Discovery Kids Latin America, redknot, last week announced the green light of the second season of Agent Binky: Pets of the Universe. This series, one of redknot's projects and based on a popular Kids Can Press title, was nominated for Kidscreen Awards Best New Preschool Series in 2020 and has already seen waiting success in Canada, Latin America, France and other key territories. Connect with audiences. Turning to audiences, STACKTV continues with its impressive upward trajectory as we head into the winter months. In Q1, we enhanced our efforts in subscriber acquisition in concert with the rollout of new and returning hit content across our portfolio of channels. We are very encouraged by the results to date. Our attractive winter and spring programming lineup, combined with ongoing marketing investments, positions us to maintain this trajectory up and to the right. With more than 400,000 paying subscribers now from STACKTV and Nick Plus on Amazon Prime Video Channels, Corus is certainly in the slipstream of this exciting new streaming growth opportunity. Help brands grow. The new Corus is well positioned to meet the needs of advertisers seeking targeted, customized solutions to effectively and efficiently reach their audiences across a multitude of platforms. We are seeing great momentum with increased traction and audience segment selling as several new large advertisers embrace our synch platform, and we ramp up for a full rollout later this year. Today, we are introducing 2 new performance metrics: optimized revenues, which encompasses our advanced advertising initiatives; and new platform revenues, comprised of streaming and digital initiatives. These will help you measure the progress we are making, leading the charge as we change the way we sell television. John will take you through these metrics in more detail shortly. Operate with discipline. We remain intensely focused on our priority to operate with discipline, as reflected in our strong free cash flow results. In Q1, this enabled us to pay down bank debt and further deleverage our balance sheet. Our strict focus on free cash flow and expense control will be reflected throughout fiscal 2021 and beyond. Over to Slide 5. As we discussed on our Q4 call, the timing of the premieres of our shows have been delaying throughout the fall and into the winter on Global, resulting in some unusual seasonality and a very different fall premier season this year. Many of our shows that would typically debut in late September into October experienced delays in delivery resulting from a production hiatus across North America due to the pandemic. That said, the schedule we put in place has performed well with Global delivering 8 of the top 20 shows for adults 25 to 54 this fall, including NCIS and FBI. On specialty, we delivered 13 of the top 20 entertainment shows for adults 25 to 54, including HISTORY's The Curse of Oak Island, W's Why Women Kill and Showcase's Brave New World, one of NBCUniversal's Peacock Originals. A function of this atypical experience is that we have much of our fall schedule effectively debuting in Q2 and Q3. This positions us well to deliver increased audiences with Canadians staying at home during the winter months as we introduce a much stronger programming lineup than we have had historically ever at this time. We are excited about the return of hit series Prodigal Son and 911 and the launch of the new highly anticipated series Clarice and The Equalizer on Global. We saw great results with the relaunch of Saved By The Bell, one of NBCUniversal's Peacock Originals on W Network, and witnessed the full season drop of this series on STACKTV driving subscriber growth in November. With that, I will now turn it over to John.
Great. Thanks, Doug. Good morning, everyone. I'll start on Slide 6. As Doug mentioned earlier, we delivered a solid start to the year. Corus' consolidated revenue of $420 million for the quarter was down 10% over the prior year but ahead of our expectations and with sequential improvement in the current environment as we continue our up and to the right recovery. Consolidated segment profit was strong at $175 million for the quarter, and that was down just 3% versus prior year. We delivered consolidated segment profit margins of 42% for the quarter, and that's up nicely from 39% last year. Consolidated net income attributable to shareholders for the quarter was $77 million or $0.37 per share, and that's relatively consistent with the prior year. Free cash flow of $62 million was ahead of the $53 million in the prior year quarter. The current year quarter did benefit from wage subsidy receipts of $25 million, and that was -- sorry, reduced interest payments on bank debt and lower programming and film investments, and these were partially offset by the payment of delayed fiscal 2020 corporate income tax installments, which was permitted under the federal government pandemic relief measures, and that was $17 million. Now let's turn to our TV results for the first quarter, as detailed on Slide 7. Overall, TV segment revenues were down 9% over prior year, reflecting the second consecutive quarter of sequential improvement in TV advertising revenues. This was an impressive result given that pandemic delayed delivery of new shows for Global and resulted in a later start for the fall season, as Doug mentioned. Our networks and sales teams were able to successfully balance rating supply with advertising demand to maximize the value of our inventory despite the shortfall in program deliveries in the quarter. Looking forward, we are well positioned for a strong second half of our fiscal year when we will lap the onset of pandemic and the significant impact it had on our TV advertising revenues. Subscriber revenues were flat to last year, driven by impressive STACKTV and Nick Plus subscriber growth, as Doug has mentioned, and that was offset by declines in legacy linear subscriptions and the impact of distribution renewals and channel shutdowns in the current and prior year. We are also benefiting from strong Nelvana and Corus Studios content licensing sales, with growth of 11% in our merchandising, distribution and other revenues in the quarter. TV expenses in the first quarter decreased by 15% over the prior year. Direct cost of sales was down 17%, and that reflects lower programming costs resulting from the delays in production and delivery of the fall schedule. Our G&A expenses were favorably impacted, down 14% from prior year, and that reflects aggressive management of discretionary expenses and the benefits of the work-from-home environment as well as the continuing but significantly reduced eligibility for the federal wage subsidy. Looking forward into Q2, more programming than usual is expected to premiere early in the calendar year as a result of production delivery delays. As a result, timing of program deliveries will continue to be one of the key variables impacting costs in the future quarters. As a partial offset to any increases in programming costs, we'll continue to tightly manage discretionary spending. Overall, TV segment profit increased 1% in the first quarter, and TV segment profit margins were 46% compared to 42% in the prior year period. Now on to Slide 8. So as we promised in Q4, today, we're rolling out a new set of revenue performance metrics that will clearly demonstrate the benefits of our TV revenue diversification strategy, as highlighted on that slide. The first metric is optimized revenues, expressed as a percent of total TV advertising, which details our progress on the transformation of how we sell television advertising. Included are revenues contributed from audience segment selling as well as from our synch platform, which we expect will be fully rolled out by the end of this fiscal year. Optimized revenues represented approximately 26% of total TV advertising revenue in the first quarter, and that's up from 21% in Q4 2020 and 24% in the prior year quarter. The second new metric is new platform revenues, expressed as a percentage of TV advertising and subscriber revenues, which encompasses subscriber revenue from streaming initiatives and advertising revenue from new digital platforms. These revenues are largely incremental to our legacy TV business, reflect our participation in rapidly growing OTT and digital advertising markets. New platform revenues for Q1 are approximately 7% of TV advertising and subscriber revenues, and that's in line with Q4 2020 and up from approximately 4% in the prior year quarter. The initiatives highlighted in these metrics, coupled with growing interest in our Nelvana and Corus Studio's content from international markets, underpin our plan to deliver consolidated revenue growth year-over-year. Next, let's turn to our Radio results as outlined on Slide 9. Radio segment revenues decreased $9.7 million as Radio continues to be impacted by pandemic-related restrictions on businesses in local markets. This result, however, reflects the second consecutive quarter of sequential improvement. On the ratings front, we are very excited that in the recently released December ratings book, Toronto's Q107 and Vancouver's Rock 101 were #1 in the rankings for adults aged 25 to 54 for a second consecutive quarter as the rock format continues its resurgence. Radio segment profit decreased $4.9 million in the quarter, given the challenging revenue conditions. Segment profit margin of 25% was down 30% in the prior year but significantly improved from our last 2 quarters. Now over to Slide 10. Our strong free cash flow in fiscal 2020 continued into the first quarter of 2021, giving us the confidence to resume our previous quarterly dividend declaration schedule. This morning, we issued a press release declaring our March 2021 quarterly dividend of $0.06 per share for Class B shareholders, once again, providing a highly market competitive dividend yield of approximately 5.2%. We continue to strengthen our balance sheet, building on our strong track record of debt reduction of $34 million in bank debt repayments this quarter. Net debt to segment profit has now improved to 3.14x at November 30, 2020, and that's down from 3.18x at the end of August. Our goal for fiscal 2021 is to drive our net debt to segment profit below 3.0x by the end of the year, creating additional financial flexibility to support the advancement of our strategic plan and creation of value for shareholders. With that, back to you, Doug.
Thank you, John. Over to Slide 11. As we said earlier, our goal is to come out of this pandemic experience stronger than when we went in. I am pleased that we are making such meaningful progress in advancing our strategic priorities, providing us many reasons to be optimistic about the year ahead and beyond. Our plan will return us to consolidated revenue growth year-over-year as we emerge from the COVID crisis with a focus on transforming how we sell television, putting more content in more places and growing our studio content business internationally. Our strong, sustainable free cash flow will serve to increase our equity share value as debt is repaid, while providing funding for our strategic plan and, of course, the dividend. Our highly attractive dividend yield is 5.2%, coupled with our free cash flow yield of 34% and a free cash flow payout ratio below 20% makes us a compelling option in today's market. We are pleased that the government is moving forward with amendments to the Broadcasting Act. Bill C-10 is a necessary first step towards regulatory reforms that are long overdue. Parliament must move quickly to pass the bill and then provide additional policy guidance to the CRTC. I want to thank our talented and resilient team at Corus for their tireless effort, commitment and resourcefulness. Our Q1 results demonstrate continued momentum from the last quarter and provide evidence that we are moving in the right direction, up and to the right. We are confident in the solid plan in place for 2021, anchored in a vision for the future and designed to capitalize on the shifts in this dynamic media marketplace. We will apply the same disciplined approach, as we always have, to provide value for our audiences, partners, clients, teammates and shareholders. Over to you, operator.
[Operator Instructions] Your first question comes from Adam Shine of National Bank Financial.
Maybe, Doug, can you start by just explaining what exactly we should anticipate for the TV season this year? Clearly, we are, as you said, seeing the delays in terms of episodic deliveries Q1, Q2. Does it mean that we're going to see, let's say, fewer repeats in Q3 and perhaps less overall episodic deliveries of seasons of different shows whereby the season ends as per usual around May? Or do we get some bleeding into Q4 potentially this year as a unique sort of dynamic?
Thanks, Adam. Quite frankly, I think, it's -- at this juncture, it's pretty much anybody's guess. We have -- we know what we've got in the can coming in for Q2 and the beginning half of Q3. The sports piece is the big question out there. I think the World Juniors pulled -- did a great job pulling that off. The NHL is about to fire up. We'll see where that goes. We're not certain about the Olympics in Q4, although there's still, I think, ambition to continue. On Global, we're, of course, reliant on our simulcast partners in the U.S., and that, of course, is reliant, to some degree, on which shows are still in production. Los Angeles is back in hiatus as of earlier this week with some of our partners. And then -- so how those simulcast partners choose to address any shortfall in episodic delivery with reruns, for example, is still to be determined. In the fall, we were able to be very strategic and picked up a couple of shows that were available in simulcast when we learned that some of our schedule was shifting out, and kudos to the teams for the entrepreneurial approach. And so doing it helped us to meet demand with the appropriate amount of inventory and impressions. In Q2 and Q3, as we sit right now, we're debuting a bunch of our big shows, Prodigal Son and 911, in the weeks ahead. But what happens into Q3 and Q4, it's really too early to tell. With the pandemic second wave shutdown coming and the conditions in California in particular at the moment, it's a little bit of an uncertainty.
So maybe that ties into the next question, which is, obviously, EBITDA was a big beat in the period. Some of it is clearly reflective of some of the programming timing, which, obviously, has implications also for some of the pressure you're seeing at advertising to a degree. But also, as you alluded to earlier, you're coping with some of the top line challenges with a real handle on curbing discretionary spend, at least through the first half of the year, maybe longer. Is there any way you and/or John can maybe speak to any particular issues where it does look like you're getting government regulatory relief on some fees? There are savings here. It's not as though we necessarily need to assume that costs in Q1 that naturally would have occurred, notwithstanding timing of deliveries, it sounds like there's a big lump sum to suddenly materialize in Q2, Q3, right, amidst some of the savings that are going on. Is that a fair comment?
I think, generally, that's a fair comment, Adam. But to Doug's comments, it's really hard to predict. I mean if we had been talking 2 weeks ago, I would have thought that Q2 was probably going to see some modest year-over-year increases in programming, just given the way the schedule is getting delivered. But I don't even know we can say that right now. So -- but all things -- well, it's changing by the day, obviously. But I would expect some increases in Q2 and Q3 on programming just because of the way it's flowing, but that's pretty hard to predict right now. So we're keeping track of it on a day-to-day basis, but it's hard to get nailed down schedules right now from the studios. And then on the regulatory fees, we had the Part 1 fee savings. That's relatively modest. I mean it's important, and we appreciate the support. That's only a couple of million dollars for the year. The bigger piece is the Part 2 fees. That's over $8 million a year for us. That wasn't recorded in the quarter. We're still working through -- the CRTC has attached some conditions to that, so we just want to make sure that we understand what those conditions are and that -- how we can fulfill them. So that's still a work in progress.
Maybe I'll add some more color. I think -- I don't expect, for example, the programming savings in Q1 to be all made up in the full last 3 quarters of the year. It's not as if there's a wall at the end of Q4 and all the programming money is to stay in that fiscal year. I don't think that's going to happen for a second. I do believe, though, that there's going to be an unusual and potentially beneficial schedule impact for us in Q2 and Q3. Q3 is a high-demand quarter. And so we actually will have more shows in simulcast going into that high-demand quarter than we've ever had before in the history of our company. So to the extent to which there's demand from advertisers, we're pretty confident we're going to get the impressions because folks aren't doing much, right? They're all locked in their homes. It could be a very positive reality. And I think the truth of it is, Q1 was the first hill of the fiscal year. We took that hill. We put the Corus flag on top of it and celebrated a good quarter. Q2 is the next hill. Q3 is the next hill. And that's how we're running the business right now.
Your next question comes from Drew McReynolds of RBC.
Just following up on Adam's question, just overall on TV programming costs. Maybe asked a little bit different for you, John. In terms of kind of what you see as an underlying run rate for the business, if you kind of put out of the question delays in the schedule and a new cadence, but -- maybe it's difficult to answer, but in terms of kind of the margins of TV, or said a different way, the underlying programming costs that you're incurring on the TV side, how do you see that evolving kind of post-COVID, if at all?
Yes. It's a good question, Drew. Certainly -- and look, the view has changed a lot in the last year. If I look at the renewal of our bigger output deals, and those are primarily specialty, I'd say there is some cost inflation, for sure, but with that comes additional rights, so think more digital platform rights, think potentially more back catalog that can also feed some of those platforms. So yes, I would say whatever normal is or may be going forward, we'd probably see some modest increase in programming costs. I think that's not surprising to anyone. But right now, it's just really hard to predict. And there's so much volatility in conventional right now given the pay-per-play model that we have for simulcast content that it's -- that's what's causing us to pause a little bit. And we're not trying to maybe be cagey at all, we just don't really have a firm grip on exactly how that's going to play. We know what we've committed to and we know what the cost of it is, we just don't know when it's coming.
Yes. Okay. No, that's helpful. Just switching gears a little bit. The impact of the second wave here, you'd, obviously, talked about the cadence of the fall schedule and delays and what have you. More on the advertising side versus what you experienced, I guess, back through April, May and then managing through the second wave with renewed shutdowns, like is there anything -- and presumably, Corus, not unlike other companies, are just managing this on a more efficient or effective basis, but is there anything you can flag as to what may be better or worse through the second wave in terms of the business environment that you're having to deal with?
With regards to advertising, in particular, Drew?
Yes. Exactly.
Yes. Yes, for sure, there's a -- I would say, as a general matter, companies are realizing that they need to keep their brands front and center in front of audiences. And so there's a lot of -- there's, I think, a groundswell of brand-driven advertising that is -- we've seen in the last quarter, and we continue to see coming in. So that's less about ringing the cash register, it's more about keeping brands front and center in the minds of Canadians. As far as categories, we do a very, very detailed category-by-category buildup with our revenue management modeling. And we're seeing gains. We're seeing nice gains in categories like packaged goods; financial services; video games; and not surprisingly, alcoholic beverages. We are seeing declines in entertainment, cinema, travel, health and beauty, restaurants, that's, again, not surprising kind of to anybody. And then in direct-to-consumer, it's a bit of a mixed bag. On the travel-related direct-to-consumer, Expedia, trivago, kind of -- those kind of accounts are still not back to where they were. But home furnishing, eyewear, those kind of categories are growing. So really, the path forward is, as I mentioned in my comments, is our sales team really working in concert with all our advertisers of every -- each and every size to help understand their business needs and help provide solutions. And the great news is, we still have a very attractive, highly differentiated suite of linear services with a growing digital platform to complement that in Radio and integrations with Tempo and Soda. And we continue to advance our event advertising ambitions and serve the needs of those advertisers. So that's kind of how the -- it's a customer-first sort of approach with our suite of services. And that's why we've been able to show sequential improvement in our advertising trending, along with, of course, a gradual and -- recoveries in the overall economy.
Okay. That's helpful, Doug. Last one for me then just on the TV ad tech side. Just remind me, we've obviously got a lot of BDUs here in Canada deploying X1. Shaw is there. Rogers, Québec were making kind of their push here in 2020, 2021. Just remind me kind of on the ad tech side where the status on that platform is from your perspective?
Well, it still remains a very, very significant priority in the revenue team and the tech team to continue to invest significant amounts of money year-over-year, as we have been. I think I shared a number with you all last time that since we bought Shaw Media, we've invested more than $50 million in building out our capabilities, and we'll continue to do that. As regards to the platforms on X1 and the media room, we're working with -- that's the good news. There's 2 dominant video distribution platforms in Canada. We have vertically integrated BDUs in each of the platforms that want to optimize their business. And we're working with common segments across the nation and a shared ambition to help really put Canada on the map globally as a leading advertising economy from a television perspective. So the -- that's why we decided to reveal a new vocabulary today with our kind of optimized revenue metric, which is the sum of our audience-based buying, linear optimization in synch as well as our new platforms, which is the growth we're having sort of off the traditional linear system because it's just another example of the work we're doing to diversify our revenues and find new areas of growth to get to that year-over-year-over-year consolidated growth ambition that we're confident to achieve.
Your next question comes from Vince Valentini of TD Securities.
Let me start with the -- these nice new charts you've given us on optimized revenue and new platform revenue. Just to be clear, John, is there any overlap between these 2 charts? Or are these 2 very discrete buckets?
Yes, they're discrete. Yes, they're discrete. Yes, no overlap.
Perfect. Second, let's get nitpicky first before big picture. The quarter was obviously very strong for the most part, but I'm not sure why corporate costs were up so much. Was there something in share-based comp or some other unusual timing issue?
It's mostly share-based comp, I'd say. We can -- I can pull the detail for you, but that's the biggest movement, and that's due to the share price, obviously. So the other costs beyond that were up a couple of hundred thousand dollars, and that's probably 15 different moving pieces, plus and minus. So -- but yes, share-based comp is the biggest part of it. It was up over $1 million in the quarter.
Okay. And in terms of the bigger-picture advertising, you -- thanks for the categories, Doug. I didn't hear you mention automotive or telecom, which tend to be, especially auto, pretty big segment. Any just color on those given that you've shed some light on some of the others? Is automotive recovering?
Yes. Automotive -- thank you. Our research and insights team just did a crackerJack piece of research with Canadians that individuals and households have one of the highest purchase intentions of buying a car within the next 2 years that we've seen in a decade at the moment. Part of that, I think, is the fact that their cars are all old, but also people are realizing that they may not be able to take public transit when things return to the next normal. So we're seeing actually a nice rebound in automotive advertising coming back. Certain brands are all over us right now, and other brands, we're kind of convincing that they need to be there given this compelling research. So from a household perspective, the business, I think, is recovering quite nicely. From a fleet perspective, rental car businesses and such, not so much, right? That's kind of flat lined at the moment until people get back to tourism and travel. Telecom is still a good category for us. It's down somewhat, but it's still a substantial part of our mix.
Okay. And lastly, just packing that all together, I mean, the standard question you usually get, I haven't heard asked yet, is do you have any thoughts on Q2 in terms of TV advertising revenues? And December is the biggest month of that quarter and it's already over, and we're hearing anecdotally from others that advertising trends were pretty good in December. So is there any chance you can get down to a single-digit decline in TV ad revenue in fiscal Q2?
I think what you're hearing anecdotally is our experience as well, for December anyways. Some of that, of course, is -- notwithstanding my comments about there's not a wall at the end of Q4 on programming. In some cases, if you're a CMO, there is a wall on the end of the calendar year. You either use it or lose it. So a lot of dollars came in across the whole country, I think, towards the end of the calendar year. So the -- Q2 is off to a good start. Now then, of course, we're all getting down in partial lockdowns, of course, right? So you have to temper that with what's going to happen in January and February. All that said, we're still strongly of the view that the back half of our year will be -- notwithstanding -- obviously, very significant growth because we're going to be sort of less COVID over the debut of COVID a year ago. And so the first half of the year will be sequential improvement month-to-month-to-month, and then we'll turn the switch and will be positive in the back half of the year. We're still -- that's still -- all of our revenue models indicate that that's the confident outcome.
Your next question comes from Aravinda Galappatthige of Canaccord Genuity.
I've got a couple of questions. I'll start with, I think, where Drew left off on the ad tech front with respect to the optimized revenues. Is there a -- have you started to sort of book in dynamic ad insertion on VOD yet? Or is that still a work in progress? And I guess connected to that, is -- what you haven't disclosed is sort of your digital ad revenues, including what you're accruing from Global app. Any commentary around that growth and the materiality of that component?
So the Global TV app will be -- those numbers will be rolled out in the new platforms metric that we just revealed today.
Yes. Yes, they're in there. All the digital revenue is in the new platform revenue.
Yes. So that will be. DAI on VOD is coming along. It's still sort of -- we're still sort of setting the table on that one. The team is very acutely aware of the opportunity that exists in that, given the fact that now we're offering full in-season stacks on -- of all of our big shows on the majority of our BDUs, similarly on STACKTV. And so the opportunity to monetize those impressions are not lost on anybody. There just is a bit of a technological road map that we need to kind of navigate with the various platforms to turn that on. So I would say we're currently in that business, Aravinda, but it's going to hit stride in the coming quarters, and that will also be captured in our new revenue metrics.
Okay. Great. And then on the balance sheet, I mean, it's, obviously -- your free cash flows obviously benefited from a couple of items, including the wage subsidy inflows. But your free cash continues to be strong. You're at 3.1x. I think any reasonable estimate does get you below 3x. Does that -- as you kind of cross that threshold, does that make you think a little bit differently about asset mix, about investing, about M&A? Or would you still kind of focus on continuing to kind of pull down balance sheet leverage and derisk even to 2.5x or below before you maybe reconsider the asset mix and maybe look to get more aggressive on that front?
Good question. Something we've been thinking about a lot, and always have been, for that matter. My answer would be until we have a full and clear view of the regulatory backdrop, we're going to keep paying down the bank debt. I just want to make sure that we have a line of sight to the new regulatory world order. We remain cautiously optimistic that the leveling of the playing field will benefit us in terms of reduced obligations, more flexibility, more incentives for us to do certain things that are on strategy. And this notion, which I applaud wholly, this notion of conditions of service, which effectively means there will be bespoke regulatory licensing between regulated actors, like Corus, and the commission as opposed to a one-size-fits-all conditions of license. That will help us to get more surgical in terms of any sort of portfolio strategy. But at the minute, we're still in a pandemic. We still are very focused on cash maximization, deleveraging the balance sheet. That will impact equity share value as well the return to consolidated revenue growth. So that's our real focus with the existing mix of assets at the moment.
Okay. That's helpful. And then last question for John. I think when you talked about some potential increases in programming expenses in Q2, Q3, I presume you're talking about the program amort, which goes into the P&L, the EBITDA, rather than the actual cash spend, which obviously saw a very sharp swing in Q1, I think something around $134 million to $90 million. When you add the 2 pieces, that, I suspect, will be even more volatile. Any kind of color on how that would shape, just to get a sense of how we should think about free cash flow towards the following quarters?
Sure. I mean as you know that in Q1, the kind of usual relationship of amort and cash being relatively similar kind of diverged. And as much as we had the savings on the amort line, we had bigger savings on cash. Now part of that has to do with how we closed 2020 and how caught up we were at that point on programming. I think it also has to do a little bit with what's happening with Canadian production, and that's starting to ramp back up. So yes, I mean, to give you the quick answer, yes, cash will go back to kind of normal levels and potentially ramp a bit in the back half of the year as production really starts to step up. And Q1 was a bit unusual. But given the place we're in right now with the slowdowns, It's not that surprising, I guess, but it is going to pick up, for sure.
Your next question comes from David McFadgen of Cormark.
I'll try my own question on the programming the expenditures. Is there a way to -- or do you know the quantity of programming expenditures that weren't incurred in Q1 as a result of programming delays? Like, let's say it was $5 million or $20 million or $10 million. Do you know that number? Or maybe you can't quantify it?
You dig around here. I'll -- while John sees if he can dig that out, I'll just give you a sense of the complexity that -- I appreciate where you're trying to get with this number, as are we. But various things are going to happen, right? Start dates can shift, which has happened because you couldn't finish principal photography and so you can't do final edit and cut. Also, what -- and that's happened, and that happened in Q1. What we don't know yet, quite frankly, on these big shows is did they get the full episode load produced? Did they get the '22 eps done? Or is it going to be 21? Or is it going to be 20? Or is it going be 18? Or is it going to be -- I mean, that's an uncertain reality. We don't know that level of detail. That has, as you'd imagine, David, relatively significant impact on your programming cost line. And then what we also don't know is if some -- if they can't deliver some of these shows, will they -- given our output deals, will they swap out another show, which is within their right in certain instances, or will they have us do reruns, which is a different cost then again? So those are sort of the multitude of realities that are impacting on Global. Specialty is more or less set because we get the -- as I said in the last call, the good news is all of those shows on our output deals were kind of effectively in the can and less affected by the shutdowns versus the network shows. And then the other factor that weighs on programming is the CPE, which, as we know, was also affected. We couldn't spend the money that we were going to spend. And that has come back to some degree recently, but it's likely -- I don't know what Ontario government is announcing today but something is coming out, I understand, and we might be back in hiatus again there. So that's kind of why it's hard to give you any kind of a steer, and that was my comment about taking that fill because we don't really know that. That said, John has been digging through -- you have an answer, John?
Yes.
Okay.
I mean -- so David, there's like -- as you can imagine, there's about 8 categories that feed programming. If I look at conventional in particular, and I look at the -- what we call foreign, so the U.S. stuff, that's where really where all the savings came from. Actually, on the Canadian side, we were up a little bit year-over-year. So that's probably the best handle we have on what's programming. We would usually assume that the foreign costs on Global are relatively consistent year-over-year. So -- and there's not typically the same kind of timing effect that we had this year. So I think was it going to be exactly the same as last year? We don't really -- we never really had a view of that because we weren't in that place even back in the spring, but certainly, that's where the savings came from.
Okay. And Doug, you mentioned CPE. Have you -- but can you give us an update? Has there been any relief on CPE as a result of COVID? Or you're going to have to make up these CPE expenditures that you didn't incur in fiscal 2020 into fiscal '21? Can you give us an update there?
Yes. The most substantive information on that came in the fall when the commission issued a notice saying that they understood that the obligations of CPE that were affected by the COVID would need to be addressed over a protracted period of time, which puts us into our next license period. We're still waiting to hear what that actually means. But we don't -- we're relatively confident that we'll have some flexibility to address that as part of our new license period, which will also incorporate the Bill C-10 in the modernized Broadcasting Act. So I think that's kind of part of this regulatory file that's going to be revealing itself in the quarters ahead.
Okay. And then just lastly, just on the merchandising distribution revenue, it was up 11% in the quarter. Do you think that the fiscal '21 year would result in a low double-digit growth on that revenue line? Or it'd be more high single digit?
No, I have been quoted as saying double digits for forever. We do have a couple of tough comps, I think, in Q2. We had a big onetime sales in Netflix, I think, last year, which will be, I think, a tough comp. But the slate is ramping up in both Corus Studios and in Nelvana. And we've increased our investment in development 1.5 years, 2 years ago, so we've got a big funnel of great IP. And we continue to break new ground with streamers internationally. I spoke of Hardy Boys and Hulu. And our production frameworks are growing, redknot with Discovery Kids Latin America, for example, our Nickelodeon One also has got a couple of exciting new shows we'll be announcing in the coming months. So that is clearly our goal, double-digit growth on the content side.
[Operator Instructions] The next question comes from Jeff Fan of Scotiabank.
Just going back to an earlier question, I think, about the ad spending environment. The one area that I think maybe wasn't touched on was ad pricing regarding CPM. There's a lot of things moving around, obviously, with programming. And given the low inventory and the spend, I would suspect that it held up pretty well through your quarter. I'm wondering if you have any color on that and what's kind of driving that, if that is the case. And how do you think that's going to look with low inventory kind of continuing through the second quarter so far?
So, Jeff, I just want to confirm, your question is on CPM?
Yes, it was on ad spend and then pricing.
Yes, yes. The -- I would say, pricing was solid in the first quarter because there was the return of a bunch of demand. And we did have some capacity issues. In other words, we did have some programming that shifted out of the quarter or delayed, and we had to supplement that with some sort of new acquisitions in simulcast to meet the demand. So CPMs held up nicely. And the -- I think the tale there would really be predicated upon the recovery of the health crisis, right? I mean, my expectation is, given the fact that there is a whole bunch of cash on the balance sheet of Canadian households across the country, I think it was Dave McKay from Royal Bank yesterday came out, talking about the recovery expectations that he feels are quite promising that, that will drive a lot of advertising. And our pricing power should be pretty good. So I'm feeling pretty good about CPM. Again, balancing the demand and supply, as always and will be this year more than ever, the art and the science of our business. But at the minute, they're holding up well.
Was there -- just to your earlier comments, was there -- like in companies and advertisers spending their budget for the December year, are you saying that there could be a bit of a slowdown in how spending may occur here in the early calendar year based on what you've seen so far? I'm just trying to clarify what -- it sounds like it was strong ending the calendar year. But so far, in the early calendar year, what's spending like?
There's -- I mean, in the system, there's a ton of spending. I mean I referred to the World Juniors earlier. I mean that was a fantastic broadcast result. So kudos to our friends over there on Queen Street. They shot the lights out with that one. So I think -- I mean, basically, Jan and Feb are going to be caught in the partial or complete shutdown, if that happens. At the moment, pacing looks pretty good for the quarter, relatively speaking, given that it's not a normal quarter in any given normal year. So again, as I said, it's really -- you got to take each month at a time, and the team does great work balancing demand and supply. On your CPM question, I would tell you that we are seeing increasing CPMs on our digital platforms. There still remains a lot of demand there that we're able to take advantage of with price.
Great. My next question is just on the new revenue performance metrics. And I would iterate, happy to hear -- to see some of those. I want to zero in on the new platform revenues. I'm wondering what do you think will be the biggest contributors driving that mix higher going forward.
Well, the new platforms is a combination of our OTT ambitions. So the STACK would be in there. Nick Plus is in there. Our Global TV app is in there. Our Global News OTT product, now we've got 9 different Global News OTT products available, would be in there. Those are basically all of our -- putting more content in more places, basically moving beyond the legacy channel business effectively. That's what is in that category.
Okay. And finally, just wondering if you have any comments on Discovery Plus and what they may or may not do in Canada. I mean if you can comment specifically there. Wondering if you think they'll look more like a Disney Plus where they'll go more direct? Or does it look more like a Peacock or a Disney or a Discovery Original shows might be part of future output deals. Wondering if you think -- how you think it will treat Canada.
The honest answer is we don't know at this juncture. We are obviously in ongoing discussions with our partners, and congratulations to them on their launch. They've gotten out of the gate nicely in the U.S. and the U.K., and the Canadian situation is something that we'll be focused on in this coming year. We're working with all of our key partners on understanding how best to monetize the opportunities available in the streaming business, NBC, Viacom, Discovery, all of them, Hallmark. So I think that's going to be something that'll kind of evolve in the quarters ahead. What is not lost on anybody is the unbelievable success of STACKTV. I mean it is just a locomotive. We've been purposefully focusing on how big is big over the last 12 weeks. And it keeps to -- continues to surprise us on the upside, and so that's partly why we wanted to put out these new metrics so we can help to continue to break out the success there because it is -- it certainly is unpacking a real opportunity. And it's a different product. This is the thing that, I think, is really noteworthy. It's not an SVOD binge-viewing-only product. It is a combination of a lean back, traditional, resilient television experience where you just want to channel surf and is a lean in binge-view on-demand type SVOD product with the in-season stacks. And that is a unique product in the global marketplace at the minute and certainly in Canada. And I think it's providing cord-nevers and perhaps cord-cutters with the opportunity to experience both on-demand consumption but also the traditional lean back television experience, and they are loving it. So we're just going to continue to put the pedal down on this business, and we'll keep reporting back to all of you in the quarters ahead. But it's part of our up and to the right thesis, for sure.
There are no further questions at this time. I will now return the call to Mr. Murphy for closing comments.
Thanks, Chris, and thanks, everybody, for your interest and attention today. We will look forward to speaking with, I think, all of you today at some point. And once again, just a sincere thank you to the Corus team across the country for all your hard work. And everybody, please stay safe and be well. And we look forward to speaking to you in the weeks and months ahead. Thanks very much. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.