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Good morning. My name is Matthew, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Corus Entertainment Q3 2018 Analyst and Investor Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I'll now turn the call over to Mr. Doug Murphy, President and CEO of Corus Entertainment. Please go ahead, sir.
Thank you, operator, and good morning, everyone. I'm Doug Murphy, President and Chief Executive Officer of Corus Entertainment. Thank you for joining us today on our third quarter analyst call. Joining me today on the call is John Gossling, our Executive Vice President and Chief Financial Officer.As you know, we are in the midst of writing a new chapter for Corus. Our call this morning will be longer than usual because we want to take the extra time to review why we are confident in our plan and what to expect in the years ahead. After my opening remarks, I will turn it over to John, who will review the Q3 results. I will then discuss our revised Capital Allocation Policy. And we'll conclude the call today with an overarching review of our strategy to optimize our core business. Before we read the cautionary statement, we'd like to inform everyone that there are a series of PowerPoint slides that accompany this call. You can find them on our website at www.corusent.com.Slide 2, safe harbor. 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. Slide 3. We are proud to be Canada's leading pure-play media and content company. At Corus, we have to do 3 things well: maximize our audiences, monetize those audiences and continually work to rationalize our operating model. Call those our first principles. Every decision we make must align with these principles and with our strategic priorities, which I'll review later on the call. As you are all aware, our industry is in a state of flux as new choices emerge and consumer behaviors change. As we strive to remain a leading player in the Canadian marketplace, we have developed a robust plan to evolve our business to meet the demands of our new environment. Fully implementing this plan will take time. But as you'll hear this morning, it is thoughtful, realistic and strategic. And we are fully committed to its implementation.I will speak to this plan in a few minutes. But first, I will turn the call over to John to provide an update on our quarterly results.
Thanks very much, Doug, and good morning, everyone. I'm on Slide 4. While we work to implement our long-term strategy, in the short term we do fully expect variability from quarter-to-quarter. And our Q3 results reflect this variability. Q3 consolidated revenue was down 4% to $441 million and consolidated segment profit decreased 3% to $170 million. As we highlighted last quarter, we are expecting a tough Q3 comparable on the segment profit line with various items totaling approximately $8.5 million last year that did not recur this year. These included revenues from a multiyear subscription video on-demand agreement and a retroactive adjustment on BDU carriage agreements. The impact of these items was partially offset in the current year by certain expense savings which had not recurred in the prior year. And these totaled approximately $7.4 million this year, including a decrease in stock-based compensation expense in connection with our lower stock price.We continue to deliver strong overall margins in Q3 of 39%. And that was up from 38% in the prior year. And we also delivered free cash flow of $88 million in the quarter. And that compares to $83 million last year. In fact, our free cash flow for the last 12 months was a record $333 million as we continue to benefit from our relentless focus on cash. The net loss attributable to shareholders for the quarter of $935.9 million or $4.49 per share was driven by a TV goodwill impairment and a radio broadcast license impairment, which aggregated approximately $1 billion. And that was recorded in the third quarter. The impairment charges are noncash items and adjust the accounting book values at March 31, 2018, to current market value. Excluding these impairment charges as well as excluding business acquisition, integration and restructuring costs, would result in adjusted net income attributable to shareholders in Q3 of $78.1 million or $0.37 per share. That's up from $0.35 per share in the prior year. The impairment charge in no way reflects the lack of confidence in our ability to execute on our strategic plan as we position Corus for the future.Moving to Slide 5. So looking at our TV results for the third quarter. We had an overall decrease in TV segment revenues of 5%. And that was driven by the decline in TV ad revenue. This was higher than we had anticipated. Visibility into future TV ad revenues continues to be very low with a number of variables at play here between advertising demand, audience levels and pricing models. As Doug will describe in a moment, we have several initiatives in place that are intended to contribute to stabilization of this revenue line over time. TV subscriber revenue was down 1%. And that was due to the planned shutdown of Sundance Channel at the end of Q2 as part of our overall portfolio optimization strategy and the positive impact of a retroactive adjustment on certain carriage agreements in the prior year.Merchandising, distribution and other revenues were down 19%. And that was driven by the large multiyear SVOD deal in the prior year quarter. TV segment profit was down 6%. And the segment profit margin was 40%, which was just a slight decline from 41% in the prior year. Total expenses were down 4%. And that was due primarily to a reduction in programming costs as well as lower film amortization expense at Nelvana and strong focused cost control.Slide 6. For Radio, the segment revenues of Radio decreased by 2% in the quarter. And that was driven by soft Radio advertising results in certain markets in the west, partially offset by a strong performance in Ontario. Radio segment profit declined 1%.. And segment profit margins were flat as Radio continues to benefit from strong cost management. Doug?
Turning to our Capital Allocation Policy on Slide 7. Today, we announced our revised Capital Allocation Policy, which we believe strikes the right balance between paying down debt, returning cash to shareholders and making the necessary investments to improve our business. Changes in our cost structure since the acquisition of Shaw Media have resulted in significantly improved free cash flow. After an extensive review process, we have revised our Capital Allocation Policy as follows. First off, our focus remains to delever to below 3x net debt-to-segment profit to improve our financial flexibility. Secondly, effective September 1, 2018, that's the start of our fiscal '19, we have resized our annual dividend rate to $0.24 per Class B share and $0.235 per Class A share. We've also changed the payment frequency from monthly to quarterly and discontinued the discount for shares reinvested through our dividend reinvestment plan as we switch from treasury-issued shares to a market purchase plan. We recognize that the dividend is important to our shareholders. These changes bring us more in line with our longer-term objective of maintaining a dividend yield in excess of 2.5% while being market competitive with industry peers. As always, dividends are subject in each case to approval by our Board of Directors. Finally, while our immediate focus will be on debt repayment, we will continue to make prudent investments where it supports our strategic priorities to ensure our company remains vital for the long term.Turning to Slide 8, build for the future. This leads to our plans to build for the future. Development of our long-term plan started long before this quarter, more than 3 years ago, in fact. And we have consistently discussed our strategic priorities with all of you to own and control more content, to engage our audiences and to expand into new and adjacent markets. The acquisition of Shaw Media accelerated this plan, giving us the horsepower needed to gain audience share, the scale necessary to compete in Canada and the scope to develop new opportunities. We integrated systems, reduced costs and increased operational efficiency. We are now the largest commercial broadcaster in English Canada in our key demos with a focus on kids, lifestyle and drama. We are dedicated to delivering great content for women and families, the most highly coveted audiences for our advertisers. We have strong free cash flow, healthy margins and now a new Capital Allocation Policy designed to accelerate debt repayment.But as I noted at the start of the call, our industry is in flux, and we need to adapt and respond. The truth is there is no magic bullet to address our industry changes and challenges. And the necessary shifts cannot happen overnight. That is why we have adopted a long-term plan that we believe will preserve our ability to compete. Our focus will be on deleveraging the balance sheet, optimizing our core business and diversifying our revenue base. I've already spoken about deleveraging the balance sheet, a critical step to create future financial flexibility. Let's turn to Slide 9, optimize the core. When we refer to optimizing the core, we're speaking about ongoing and extensive efforts to leverage our asset base to optimize our current and future results. There are 5 key areas that we are focused on: portfolio optimization and content partnerships; following viewers on all platforms; leveraging the power of local; owning more content; and integrating technology throughout our business. I will speak briefly now to each of these 5 areas. On to Slide 10, please. We have a leading portfolio of specialty channels, and we are investing to make our best channels bigger and stronger. Portfolio optimization is about ensuring that we have highly differentiated channel brands, each one with discrete brand positioning, bolstered with exclusive content and available to be monetized in whatever form our audiences desire. We are not there yet, but we are making progress. And building scale through partnerships has always been and will continue to be an essential part of our future and our strategy. A good example is the very unique production framework we have created with Nickelodeon and Nelvana. Over the next few years, we expect to emerge with fewer, bigger channels and broader, more comprehensive content partnerships.Slide 11, follow viewers on all platforms. Premium VOD. We are deeply committed to putting our audiences at the center of everything we do. We must follow them wherever and however they consume our content and develop business models in collaboration with our distribution partners, both traditional and emerging. We believe there is a real opportunity to reimagine our Television product beyond linear broadcast, to further maximize our audiences through premium on-demand offerings, featuring our best Television content. And it's working. From our Rogers' video on-demand experience alone, we have seen growth of over 100% in the audience viewing in the past 6 months. Providing a more broadly defined TV product that now offers all of our great shows on-demand and is competitive to other streaming platforms just makes good business sense for Corus and for our BDU partners. BDU partner road map. Our BDU partners, 2 of whom own large media companies, have announced investments in new video distribution platforms. These will roll out over the coming years with 2 primary platforms in the Canadian marketplace, X1 and MediaFirst. We are working with media and distribution players in Canada to align the industry around a shared road map. It is simply good business to equip these platforms with the technological innovations to grow new advertising solutions and revenues. The ideal road map would include dynamic ad insertion, live local addressable advertising, access to data from all our channels as part of our carriage agreements and more. As you are aware, we are trialing dynamic ad insertion, or DAI, with Rogers' existing capabilities on their current video on-demand platform. This has enabled us to test and learn as we work to develop this new revenue stream. It is critical that as more and more viewers migrate to on-demand, the industry must develop the capability to measure not only linear but nonlinear viewing across all platforms. Better measurement will mean more audiences are captured in our ratings, which we can then monetize. Video online. We are also preparing for new distributors to enter the Canadian market over the next 18 to 24 months. These new streaming aggregators, known as virtual multi-channel video programming distributors, or vMVPDs, will provide Corus a cost-effective opportunity to reach cord-nevers, cord-cutters and others who shun the traditional cable bundle. The arrival of these new market entrants represents an opportunity for additional distribution to Corus' largest channels. It is yet another example of how we expect to follow our audiences to ensure our long-term success. Slide 12, leverage the power of local. We continue to see the meaningful impact of revenue, content and cost savings achieved by bringing together Global Television and Radio in our largest local markets. Our local business is an important example of revenue diversity. Local market relationships with our customers are time-tested, relationship-based and less prone to disruption by the duopoly of Facebook and Google. We still have more opportunity to grow the number of advertisers in these markets, who fully leverage the power of local media to drive sales results through the combined benefits of TV and Radio.Slide 13, please, Own More Content and the Corus Advantage. We have been consistently leveraging and broadening our Corus Advantage to build our content business over the years. This enables us to use our required Canadian programming expenditures, or CPE, to create both a programming asset that drives audience on our networks in Canada and delivers revenue diversification through increased international content sales. This is an important by-product of the Canadian broadcasting system. And we continue to look for ways to further maximize the use of our CPE spend.Slide 14. We are achieving our Own More Content objectives through 2 distinct studio strategies. Nelvana currently has 14 series in production and a strong slate of originals for broadcast in fiscal 2019, featuring Esme & Roy, coproduced with the Sesame Workshop; Corn & Peg, coproduced with Nickelodeon; and the return of fan-favorite Max & Ruby, which is back for a seventh season. Corus Studios currently has 11 series in production and continues to broaden its global footprint with sales of original lifestyle series in more than 150 territories to date. This year, we've introduced a diverse new range of programs that is being met with significant interest in the international marketplace from automotive to fashion to home improvement, food and docuseries. Over the coming years, we intend to continue to grow the content we own to benefit both our networks in Canada and to sell around the world and as a result, diversify our revenue base.On to Slide 15, please, integrate technology throughout our business. Finally, at Corus, we are making targeted investments in data analytics and technology to transform how we run our business. Technology is helping us enhance the audience experience with new platforms, evolve the advertising business model and drive cost out of our business. Last year, for example, we were globally acknowledged with the inaugural Edward R. Murrow Award for innovation in news technology, recognizing the achievements of our Global News multimarket content initiative. We are using technology to accelerate our transformation into a consumer-centric, data-driven company by selectively testing artificial intelligence and machine learning as well as process automation to reinvent and to rationalize our operating model. We are working with companies like integrate.ai to make smarter, faster decisions on everything from marketing to programming based on real-time data.Slide 16, audience-based buying and data analytics. Perhaps most importantly, we are using data to change the way we sell television. The traditional television approach of selling the demo is quickly being replaced with audience-based buying and has improved targeting capabilities. We now can build clear profiles of viewers as discrete, defined audience segments, such as SUV-ers or fashionistas, empty-nesters, deep pockets and many, many more. By profiling audience segments and the shows they love, TV can offer more targeted campaigns to our advertisers. This is fundamental to the future of Television. And we have built a real competency in this regard, emerging as an industry leader. On to Slide 17, CYNCH, our automated buying platform. CYNCH is our new audience-based buying platform that we launched in beta, just in time for our recent Upfront. In industry vernacular, it is a supply-side platform that plugs into the demand-side platforms owned by the agencies. This will provide us, once fully operationalized, the ability to materially scale our audience-based buying and improve notably the customer experience of our agencies and advertisers when they conduct business with Corus. Today, our audience-based buying represents more than 12% of our total Television advertising revenue, which tells us we are on the right track.Slide 18, exploring opportunities on digital and social platforms. Technological innovation is also creating opportunities to engage our viewers in new and exciting ways. We are expanding our presence on digital and social platforms to further maximize and monetize our audiences. For example, social media is an exciting opportunity for Corus to drive our content and audience engagement expertise across multiple platforms. We have recently launched a new full-service social digital agency here at Corus called so.da. We will leverage our large social audiences to power existing Corus brands and to support clients with social content, production, strategies and insights. In that vein, we recently announced a partnership with Twitter that will produce short-form content series in food, entertainment and new genres. This will support the strength of our biggest, most recognizable brands and engage our high-value audiences in yet another channel. At our recent Upfront, we also announced our podcasting initiative called CURiOUS, designed to develop new content and monetize our existing content, such as the Ongoing History of New Music by Alan Cross, which is the #1 music podcast on Canada in iTunes as Canada's longest-running radio documentary discovers new platforms. These are important examples of the innovative ways in which we can support the growth of our linear brands and deploy original content across new media platforms.Slide 19. In summary, we are intensely focused on building for the future. We believe that our revised Capital Allocation Policy announced this morning strikes the right balance between paying down debt, returning cash to shareholders and making the necessary investments to improve our business. We will continue to prudently and proactively manage the operating costs of the business. And we are confident that the various initiatives we've outlined today will advance our strategic priorities to Own More Content, engage our audiences and expand into new and adjacent markets. As Canada's leading pure-play media and content company, we will continue to push boundaries and find ways to better reach and target audiences. Today, in addition to providing an overview of our Q3 results, we have taken the time to outline our long-term plan. That's because we anticipate a bumpy road over the short term as our industry evolves. We believe we have the right plan and the right team to tackle challenges and position the company for long-term success. Thank you. And I'd be pleased to take your questions now. Operator?
[Operator Instructions] Our first question comes from the line of Adam Shine with National Bank.
Before we move ahead, let's just look at the Q3. And John alluded to the ad revenue being higher than anticipated in terms of the decline. It was a quarter where you would have, I presume, benefited from some provincial election spend in Ontario. Can you speak to where there might be these pockets of weakness? Because again in one of your larger quarters, as per Q1, we do see this advertising underperformance.
Adam, thank you for the call -- question. Good to hear from you. The election business was certainly a favorable outcome in the quarter. We saw most of that directed to local, as you would imagine, as opposed to national. The decline is principally on the national television line item. And that continues to be really a share competition with the duopolies of Facebook and Google. We're also contending with sort of the realities of audience viewing levels. And that's another factor as we look to manage our capacity. So I would say that the general environment at the moment is sort of still sort of low visibility, soft demands in terms of the visibility and also kind of looking for ways to optimize our inventory. And that really underscores the importance of the audience segmentation strategy. Because moving off of the broad demo, adult 25, 54, into audience profiles and segments, enables us to manage our CPMs in a much more targeted and surgical manner in terms of price and yield and accordingly helps us to better provide targeting to our advertisers. So the key strategy here for us to address, both the share competition with the digital players and kind of recalibrate the inventory levels, is hinging and completely around the audience-based buying and our data analytics and ad tech work, which is why it's so critical to us.
And if we just focus on one thing you laid out in the MD&A pretty clearly as it relates to, I think, Bill S-228, it's not something that comes into play this fall. It's something that's maybe later dated 2 years out. But it's an issue that you've recently talked about for much of the last 5, if not, frankly 10-plus years in the context of implications for targeted food-related advertising to children. This is one of your key verticals. And I know it's -- you've been pretty clear in terms of saying it's hard to assess at this early date. But can you just speak to some of the implications there? Because obviously, there is a significant amount of revenue coming to you on the advertising front among your kids' verticals.
Happy to, Adam. First off, whatever the outcome is in terms of its impact to our company is a couple years away at any rate. So there's a lot of space between then and now. As far as the risk, we've done obviously a lot of work on this. Kids advertising segment is relatively small as compared to our overall advertising business. And we look at just specifically kid targeted or the targets that are considered in that bill. There is, I would say, some risk in that regard. But we've studied other markets around the world that have had regulated advertising to children. We've seen what they've done in terms of shifting advertising strategies to different demos and segments. And so however the government chooses to address this healthy eating advertising issue -- and clearly, we think that the legislation is ill-advised because it doesn't address the Internet advertising to children whatsoever, which I think is a huge miss in terms of public policy, but leave that for another day. We believe we have strategies to grow other audience segments in the event that we do experience any mandated declines in advertising to kids.
Our next question comes from the line of Jeff Fan with Scotiabank.
Two questions. First, I wanted to -- so just for the quarter, if you can just lay out the lower cost as a result of amortization of some of your programming. I think in your MD&A, you cited timing and delayed programming start. Just wondering if you can expand on that and the magnitude, if possible, and whether this is just a timing flowing into Q4 or if you can expand on that? The second is really a bigger-picture question on cost. You went through your slides. And there was a couple of line items mentioning cost. But wondering if you can elaborate a little bit more what the potential cost reductions could be and how that affects margins as you look forward because all the comments about the revenue picture seems to be limited visibility. So wondering how much is in your control on cost to ensure these margins and cash flow can be maintained. And then finally, just on the revenue initiatives, Doug, you talked about -- and thanks for all the color. But the big question, I think, is really all of these initiatives, are they -- when do you think they're going to be net incrementally positive to the total ad revenue line? Because obviously, the pressure that you're seeing on both ads as well as subscription, but maybe we can talk about the net incremental benefit to the overall Television revenue line. When do you think that's going to materialize?
Okay. Thanks, Jeff. Let me take questions 2 and 3 and I'll let John close with the question on programming. So question 2, what's our [ post ] to cost? So that's why we've been specific in adding the rationalize the operating model as an ongoing part of our first principles here. There is no media company in the world right now that cannot accept the fact that cost structures need to be reinvented as we go along. And so when we look at the short-term declines in national television advertising, we expect to be in a low single-digit decline mode here for the next couple of years effectively, and [ the earliest ] asset we're considering in our 5-year model. We do see it stabilizing. I'll come back to that because that's your third question. But in the interim, if you believe that's the case, then we absolutely must go and find more costs. And our costs are effectively programming -- basically, it's programming, people and it's basically the nonpeople or programming costs. And so our team is working really hard to find ways to do things differently. And that's why -- I'll just give you an example of the integrate.ai test we're doing. And a lot of companies are talking about AI. I get it. But we're actually doing real important stuff with it. And we're taking the work we can do with the algorithm to process billions of amounts of data coming to set-top boxes to try to figure out what sort of cross-promotional strategies drive the most reengagement or viewership results. So as opposed to just having human intuition decide where to put a promo spot in any one of our networks, we're using data to inform where to put those spots. And we're finding results that are significantly improved from our prior experience, small beta tests, of course. And you can never replace human intuition. But if we can improve the cross-promotional efficacy in our company, it may cause us to reconsider how much marketing expenditure is, in terms of cash paid to media, goes out the door. That's just kind of one example about cost. And the other example about cost is, I talked about process automation. We are still really working with systems that are legacy-based systems. And so our team is working with all of our vendors, traveling to various countries around the world and trying to advocate for software and process solutions that can more quickly help us to get much more efficient in terms of how we operate. And that has implications on a number of fronts. It obviously has implication for how many -- how much overhead we have to have in terms of full-time equivalents. But equally and if not more importantly, if we can move to more strategic flexible pricing using software and technology, we can again manage yields and get more returns out of our impressions. So my answer to your question after giving you a couple of examples is -- and I'm not going to give you any numbers as guidance because the industry is far too disruptive at the moment to do that. But we expect to be able to reduce our cost base every year going forward. And that's our commitment.
Jeff, just on your specific question on programming costs, you can see the detail of costs in Note 13 on Page 30 of the report to shareholders. So there's a couple things going on within those categories. If you're looking specifically at the amortization of program rights, there's -- on global, so on the conventional side, you did mention the timing comment. That's probably more about our expectation of how things may have gone versus the way they turned out for the third quarter. But you're right. There is likely to be a little bit of cost that gets pushed into Q4. Now on that, it's a fairly difficult number to call because we're at the mercy of the U.S. schedules. And frankly, those change every day. In fact, in the last week, they've changed pretty substantially in a positive way for our Q4 costs. So that's difficult to call but that is a reality of what's happened really all this year is that things have slipped from what we expected them to be. The other piece that affects that, probably more on the specialty side, is the way that our Canadian programs come to air and how that affects amortization. So that also is a bit of a timing effect there. So yes, we expect Q4 to be up a little bit from what the trend has been. But as I say, it changes almost day-to-day. And then in some of the other categories, I mean, I don't know if you were looking at the film amortization, that's really tied to deliveries in Nelvana. And Doug 's really covered off the other areas that are driving costs. So it's obviously a very large focus and something that we're managing very closely.
And let me pick up your third question on revenue incrementality. So that's -- obviously, we love to be able to measure that. It's challenging to measure because it's hard to isolate like an A/B test, if you would. But I think the growth -- the material growth that we're seeing as a percentage of our total advertising is now audience-based buying prior to the launch of CYNCH. So this is basically just selling audiences through a traditional pick up the phone and call us perspective. Now with CYNCH, what's happened -- what's able to occur is that the demand-side platforms can literally transact business with our supply-side platform, CYNCH, sort of computer-to-computer. And that is the beginning to emulate our digital competitors in terms of selling our advertising solutions. And that's at the root of what we're trying to accomplish here, is to transform how we sell Television. And the -- so I'm going to basically answer your question by saying, measuring incrementality in and of itself, is a very subjective and difficult piece of analysis. But it's very intuitive that if we're able to transact our business in the way that our digital competitors do and we can provide in that regard customer experiences to our agencies and advertisers alike that mirror that, the next step then is getting more targeted in terms of how we price those inventory and those segments and broadening those segments. So the segments we have today, primarily the one in the slide we showed you, are segments that we have built ourselves. But we are now working with advertisers who bring us their first-party data, and we can then merge that with our data, and we can get much more targeted based on the needs of the advertisers. And so over time, our expectation is that we're going to continue to grow the business that we sell on audiences segments. And that is going to be fundamental to offsetting some of the challenges we're facing on the traditional way of selling television. My last comment on this before I turn over to the next question is the -- what is really happening out there today, and we're seeing it in the U.S. and is happening in Canada, is we are beginning to see a bit of a reboot in terms of money returning gradually to television. And the 2 main factors qualitatively that are driving that are sort of the privacy issues, which is material, and brand safety. And so those 2 factors, when you -- television is tried-and-true, it's understood, it's well-measured, it is basically a platform that advertisers know and they can trust. And so that's another factor that, I think, is -- it plays into it. So when you look down the road, that's why I say in the medium term, we envision a world where we have stabilized advertising revenues. And that's a function of all that I just spoke to but also about the on-demand advertising and local addressable and some of the other areas that we're advocating with our BDUs as they expand their new video distribution platforms.
Our next question comes from the line of Aravinda Galappatthige with Canaccord Genuity.
Doug, I wanted to start with the Own More Content element of your strategy. Obviously, with the changed dividend policy, there's a lot more cash for you, more financial flexibility, particularly down the line as you delever it down 2 to 3x. I know that your preference in the past has been to the partnerships. But given sort of the opportunities that are there in the private side to kind of potentially accelerate and sort of enhance that Own More strategy, Own More Content strategy, is M&A part of the story as we -- given sort of the increased financial flexibility that you have? Or do you sort of want to stick to your current approach of sort of looking to partner with these larger players?
Thank you, Aravinda, for that question. First -- the first thing I would say is the cash savings that result from our dividend policy resizing, about $150 million a year, will go directly to paying down the bank debt in the short term. That is a critical distinction I'd like to make. The second part of my answer to your question is, I think you'll note when you see now that we have 25 series in production that we own. And that is through just organic optimizing our required Canadian programming expenditures. So we've always said that the Corus Advantage is a unique one in the sense that we can slowly build a global content business as a distinct output from our Canadian media enterprise. And so at the moment, whilst we focus on the deleveraging of our balance sheet, our Own More Content aspirations will be fulfilled in that regard. Finally, as regards M&A, our opinion at the moment is that the market is still pricey. We believe that we can build versus buy more effectively. It's been our contention, as you know, for some time now. We are excited about the partnerships we have. And those partnerships, whether that's Discovery Kids, Nickelodeon, Sumitomo and others, provide us a real way to scale quickly with well-financed, very competent global partners. So in the short term, I do not see M&A as a strategy for our content business. Clearly, down the road, when we find ourselves with financial flexibility and if values present themselves in a way that they're not evident today, we'll look at that. We look at all kinds of things all the time. But in the short term, I would not see us doing anything.
Okay. And then just going to ad tech initiatives, maybe sort of an update on sort of the recent traction that you've got. I know that particularly on the audience segmentation side, you've been sort of -- there's a meaningful component of the ad price that are now happening under that model. Maybe just an update on that and also the level of support that you're seeing from the BDUs. Obviously, you talked about Rogers. What about the other BDUs? Are you seeing them sort of come around and support you and provide the foundation for what you're hoping to do on the advanced advertising side?
Yes, thanks, Aravinda. I think I've addressed the audience-based segmentation update. So let me talk about the BDUs because that's an important piece of the story here. Canada has a very unique opportunity. It's this point in time that we have to get it right. We have 3 big media companies in Canada, 2 are owned by big distribution companies. And there's only 2 new video distribution platforms. So the economic interests are obvious. And so the opportunities that -- and Corus as an advocate, nay evangelist out there, and I've spoken to all of my peers in the various businesses, both in media and distribution in Canada, basically saying, "Let's get this right. Let's roll out these 2 platforms so that in 2 or 3 years -- " and by the way, these 2 platforms are phenomenal for the consumer, which is at the root of one of our optimize the Corus strategy, which is follow the viewers everywhere. The X1 platform, it is brilliant. The new Ignite platform is a great customer experience here in Ontario. And similarly out west with Shaw, they're doing fantastic work. And the consumers are responding. So we have the opportunity to have a much better consumer experience and a much better advertiser experience. If we can effect sort of ubiquitous dynamic ad insertion on VOD and if we can do live local addressable to the postal code and if we can agree as an industry to be more smart about how we leverage data, I think we have a real prime opportunity here to build a marketplace in Canada, which may well be very unique to Canada. So that's a piece of the overall BDU road map, which is part of our optimize the core strategy.
Our next question comes from the line of Vince Valentini with TD Securities.
I'll give Doug a chance to catch his breath. I got 2 questions for John first and then probably one for you, Doug. The subscription revenue, down 1%, John. But obviously, there were some timing issues. Are you able to back out the retroactive amounts you received last year? And the Sundance impact, like was the underlying subscription revenues still in that sort of plus 1% or 2% range?
Yes, maybe a little less, but I'd say still positive. So the BDU impact net, because there was a very small amount this year as well, was about $1 million to the credit of last year. So -- and then Sundance is probably a slightly smaller number. So yes, we're flattish on subscriber. And it's going to vary quarter-to-quarter, depending on what's going on with finalizing some agreements. We've got a few in the pipe right now that we would hope to get done in Q4. But that's not always guaranteed at this point in the quarter. So yes, I think if you think flattish is where we've been, been up a little bit in certain quarters this year. But we'd expect to be there or a little bit better for the full year.
Okay, second is the World Cup. Is this expected to be as big of a headwind as an Olympics? So it means if you were down 5% on TV ad revenue this quarter with no big sports events, is it a virtual certainty you're at least that bad in Q4, even given the World Cup draining some eyeballs?
Well, certainly we plan for -- it's something that we know from the past that has an impact. I'd say early days, we had a look at this just yesterday -- early days, not having much of an impact on viewing levels, particularly on global. Now that's maybe partly time zone. And it's early in the tournament. So for now, we're feeling relatively optimistic compared to what our planning assumptions were.
I'd also add, Vince, that we have a very strong summer lineup on global. One of the realities of the Winter Olympics was that our content partners, CBS and NBC, pushed a bunch of content into the fourth quarter, which is partly why you'll see some increase in our programming expense in that quarter. But we've got a lot of first broadcast, so a lot of our great shows in the summertime. So we're actually feeling fairly decent about our programming lineup this summer compared to last year.
Okay. So just last one from me, bigger picture. You talk about portfolio optimization. Just want to make sure I understand what you're saying there. Is that just simply stuff like paring down the Sundance Channel and focusing more of your marketing and content effort on your bigger brand channels? Or is there anything bigger here to think about in terms of potentially more asset sales?
No, it's not about divesting, Vince. It's about recognizing that, in many cases across the channel system in Canada, it's a tale of two cities. There are channels that gather huge audiences and relative to the total share of subscriber revenue are undervalued. There are channels that don't drive huge audiences and relative to the total subscriber revenue share are overvalued. And so -- and we know that our distributor partners want fewer, better channels anyways. So at the root of portfolio optimization is picking strong differentiated brands with exclusive content and a meaningful place for advertisers and viewers and basically working with the BDUs to kind of redistribute subscriber revenue, so we can add more revenue to our top services. We can provide a measured cost savings to the BDUs, so it's not detrimental to our profile on revenue. And as an industry win. And if we do that again, I'll be consistent coming back to our, put the customer at the center, the viewer at the center, if we have as an industry, we're able to have fewer, stronger, better services, then the strength of the TV ecosystem will improve. And so that's a fact, this is going to play out over the years. This is not something that you can snap your fingers, which is another theme that we wanted to hit hard today is it's going to take us a little bit of time to get there. But if you look what we've done the last number of years, Corus has been pretty adept at improving our portfolio. Witness the launch of the Disney suite of channels, which has been hugely additive, witness the launch of the Cooking Channel as a flanking service to Food Network and the rebrand of TELETOON Retro, the pruning out of Sundance. We're going to continue to look to, over time, to optimize the portfolio of specialty services in that regard.
[Operator Instructions] Our next question comes from the line of Maher Yaghi with Desjardins Capital.
This is Jerome for Maher. So as it relates to the impairment charge on TV, how is the charge segmented in terms of specialty versus conventional TV?
It's John. So the TV goodwill actually relates to the entire segment would be -- I mean, it's a slight oversimplification. But there's not any kind of allocation between individual services. So it's a view of the TV segment overall. And we saw that a little bit on the potential disposal of H&S, where there was going to be a piece of the goodwill that was going to come out. But it's not attached, if you can put it that way, to particular individual services.
Okay. So you haven't seen any more significant decline on the specific segment of your specialty TV, let's say also?
No, because it's -- in a way, it's run as one overall business, both from a revenue perspective. And sure, we can allocate revenues to individual licenses. But at the end of the day, we're selling across a portfolio, and we're also operating it. So the cost base is across the segment as well. And sure, for regulatory reporting, we can certainly make allocations. But at the end of the day, there's a large, overall factory that's happening there that's not specific to any one service.
Okay, great. And I've seen Radio was also back to negative this quarter -- slightly negative. So has anything changed on that front? And how do you see things going forward on that front?
Radio -- well, for the quarter, Radio was slightly negative. And I think we can isolate that quite honestly to the -- sadly to the fact that the [ Oilers ] didn't go very deep at Edmonton, and we have a huge passionate audience in that marketplace on Radio. But I would characterize Radio as very, very steady and much improved EBITDA margins and great cash flow generative. And that's why we made the point that when we talk about revenue diversity, local is a big part of that. It's a significant part of overall revenue pie. It behaves very differently than does national, than does content internationally. And then I think we are just scratching the surface on both our pure Radio markets and our combined Radio, Television markets on what we can do there, Maher. So I think Radio as a -- Radio and local TV as a very compelling business for us.
Yes, I think, Maher, if you're looking at it sequentially, certainly we had a very strong Q2. And what we said on the call last quarter was that both local, as Doug mentioned, which is a big proportion of it, and national had very, very strong second quarters. That isn't always the case. And certainly, strong local can sometimes offset a weaker national picture. But as it says in the MD&A, the western markets were a little softer. And Doug mentioned the Oilers. But Vancouver and Calgary were also a little bit soft this quarter.
Okay. And maybe one last for me. You've talked about revenue diversification. How exactly are you aiming to do that though? Are you looking for M&A or anything like this?
No. As I mentioned earlier, in the immediate term, our focus will be redirecting the newly liberated free cash to deleveraging the bank facility. But we will continue to grow just organically our content business as an output of our media business in Canada. So that's the Corus Advantage, Maher. We also will -- obviously, we're looking at new revenue pockets we're testing, as I mentioned in the social digital agency, so.da. We're testing in the podcasting universe with CURiOUS. So we're going to continue -- we've got a new partnership with Twitter. We're going to continue to test and learn and grow in areas and get smart about where future revenue growth could come from. But M&A does not fit into the picture at this point in time.
Our next question comes from the line of David McFadgen with Cormark Securities.
A couple of questions. So just on free cash flow. I noticed that it was up in the quarter and year-to-date. But the EBITDA is down in the quarter and year-to-date. So I would imagine that sooner or later, free cash flow is going to sort of track the EBITDA trend unless there's something else going on, John? Is there anything else going on there? Or will that eventually happen, do you think?
Well, David, it does vary from quarter-to-quarter. And I'd say just given the seasonality of the business, the working capital is probably the biggest variable between quarters. There's other things that affect it, CapEx. We used to have a bigger cash cost of CRTC benefits and restructuring costs. That's reduced a fair bit this year. So if I look at Q3, it was the biggest -- the biggest contributor was working capital and that was offset, but not completely, by more cash taxes. So yes, I mean, look, the starting point is the EBITDA picture. And we can do a fair bit to continue to squeeze as much cash out of the working capital and the other areas as we can. I guess the other thing that helps us is we've got a lower interest -- cash interest cost as we've stepped through lower leverage levels. And that helps us as well on the cash flow and should and will continue. We've got another 50 basis point step down as we get to the next run on the ladder of the leverage grid. So there's other things happening. But for sure, EBITDA is the starting point.
Okay. And then just on the technology side, I applaud your efforts on the technology side to come up with these different solutions. But I'm just wondering, will they ever be able to generate enough revenue to compensate for the revenue you're seeing on the traditional side of the business? And any thoughts on that?
Well, I mean, I think you're all wondering that. And I think that we're going to have to just continue to execute and over time demonstrate that we can that get there. But we're being very purposeful in saying that in the next year or 2, we don't expect to turn the corner that quickly based on the current trends. But we are resolute in our belief that what we are doing is -- and we are acknowledged worldwide on some of the things we're doing, David. What we're doing is essential to position the business for stabilized revenue line on national advertising. So we're just going to have to continue to keep our head down and work hard at this and invest in this because that's a critical piece of our future state. The other thing I would just also add is, let's remember that we're in a hit-driven business. And our team went to the upfronts in L.A. and they shot the lights out. We have a record amount of content on simulcast this year. Last year, I think we had 14. This year, we have 17. You can only get 18. And we have most of our hit shows are returning. So we have audiences already know our shows. They love them on global. They're coming back. We have the 2 big buzzy shows out there, FBI, which is the Dick Wolf show, and New Amsterdam, the much talked-about and heralded hospital drama. And we've picked up a whole bunch of great dramas for our specialty channels, the most notable of which is All American, which is looking like it's going to be a breakout sort of Friday Night Lights sort of a show. So we have to balance the fact that there's natural ebbs and flows and cycles in terms of the hit results on the basic television world. And then underpinning that is us fixing the plumbing on how we manage inventory, price inventory and transact with our agencies.
[Operator Instructions] Our next question comes from the line of Tim Casey with BMO.
Doug, I don't know if Gary's on the line, but can you talk a little bit about the regulatory calendar? Is there anything on the Television side that you see coming up that could provide relief or an incremental headwind to the current obligations and operating matrix in which you compete in? And specifically on the Radio side, are you as a big radio operator and some of the other big operators, is there any urgency or potential for multiple station ownership relief in the medium term?
Thanks, Tim. And it's nice to have you back on the call. We -- thank you for the question because I was hoping that someone would go there. As leaders in this industry, and I spoke earlier about that we're working with our peers out there, Corus is of the view that we have to change the way we think based on what we can control. And we have to advocate for changes in these decades-old regulations and to keep up with the times. And in that regard, we think it's essential to have the right framework to compete more effectively here in Canada. So there's a number of indicators that we think are actually quite encouraging and consistent with our sort of -- our favorable view of the future. The CRTC recently, as you're alluding to, I suspect, in your question, in its report, Harnessing Change: The Future of Programming Distribution in Canada, that we think is really, really essential. And quite simply, the Canadian content support, which has been the traditional way of doing things here in Canada, cannot rest on the backs of broadcasters and distributors alone. And we certainly agree with that. And the vision that we're beginning to see be revealed from the commission for a world beyond prescriptive licensing -- the traditional prescriptive licensing process, I think, had massive promise, especially given the fact that we're in this really disruptive, rapidly changing digital era. And we have to seek out more constructive and creative ways to ensure that Canadian broadcasters are meeting their obligations. And Corus has always been an advocate for Canadian content, both the content that we own and the content that we commission from the very talented group of producers across the country. And so in our perspective, we're beginning to see some early signs of promise there. But in Canada, and I'll get to your Radio question in a moment, regulatory and policy reform just can't happen fast enough. So we're encouraged by the CRTC's comments on the need for change. We're hopeful that the government of Canada will follow quickly. Now as regards Radio, there was a bit of a nod in that report that the MLO regs might be revisited. Again, this comes back to the question of we need more rapid decision-making, not another process. It's time to start really making some decisions here. But at the moment, there's a bit of a crack in the door. But we're going to have to see where it leads us.
Are you optimistic these changes will happen in the next 2 years?
I'm more optimistic today than I've been in a very long time because there does begin -- there appears to be a willingness to engage and listen. And I think that -- I applaud those [ actors ] in the system that are in listen mode. So let's just see how it plays out, Tim. I don't want to predict the future as far as the regulatory world goes. But I think there's reasons to be sort of optimistic in a kind of measured way.
There are no further questions at this time. Now I'd like to turn the call back over to our presenters.
Thank you, operator, and thank you for all your questions, everybody. And we hope that the information we provided you today gave you confidence, the same confidence that we have that there's a solid plan in place. It's logical, realistic and doable. I'd like to take a moment to thank each and every one of our Corus team across the country and internationally. We know it's been a challenging little while for all of us. And it's not lost on us that each and every day, our great team comes in and does great work. So I want to thank all of them. And we hope to see all of you sometime soon. We'll be available for comments and meetings whenever you'd like to reach out to John and I. We're at your service. So thank you very much, everybody, and have a great rest of your day. Bye-bye.
This concludes today's conference call. You may now disconnect.