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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 Q4 and Year-end 2018 Analyst and Investor Conference Call. [Operator Instructions] Thank you. 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, and good morning, everyone. I'm Doug Murphy. Welcome to Corus Entertainment's Fiscal 2018 Fourth Quarter and Year-end Analyst Call. Joining me today is John Gossling, Executive Vice President and Chief Financial Officer.Before I read the cautionary statement, I'd like to remind everyone that there are series of slides that accompany this morning's call. You can find them on our website at www.corusent.com under the Investor Relations section.Now the standard cautionary statement on Slide 2. This discussion contains forward-looking statements that may involve risks and uncertainties. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements are contained in the company's filings with the Canadian Securities Administrators on SEDAR.With that, I'll now turn to our results and offer some perspective on fiscal '18. Let's start with the key financial highlights on Slide 3, which John will expand upon shortly. First, Corus delivered record free cash flow of $349 million, up from $293 million in the prior year. To put this in context, our free cash flow yield is impressive at over 35% as of yesterday. Our ability to consistently deliver strong free cash flow is something we're very proud of, and a clear demonstration of the resiliency of our business and the underlying value of our company. Second, despite lower Television advertising revenues in fiscal '18, which incidentally met our expectations in Q4 of modest single-digit declines, Corus delivered effectively flat consolidated revenue and an improved consolidated segment profit margin of 35% for the year. I'll add that our ability to maintain healthy segment profit margins is a result of our continued strong operating discipline and prudent cost control. In fiscal '18, we were able to reduce overall expenses and rationalize our operating model, while investing in initiatives that will shape our future, such as advanced advertising and owning more content. More on those investments and others shortly. Finally, throughout the year, Corus continued to make steady progress on delevering as we continue working toward our stated leverage target of below 3x net debt-to-segment profit.I'll now highlight just a few of our many operational achievements for fiscal '18 in Slide 4. First, we've taken important steps to broaden our audience reach across platforms, evolving our business to follow our viewers and listeners. While many of these initiatives will take time to scale, they underpin our plans for the long-term growth of our brands and the monetization of our own original content across new and growing platforms. This past year, we obtained additional video on demand, or VOD, rights as part of our programming deals with their content partners, enabling the launch of our Premium VOD offering. As an illustrative example of the growth potential on this platform, total views on our Premium VOD services through Rogers have nearly doubled since launch, fueled by these expanded rights across 8 of our largest, biggest channel brands. In the past year, we focused on expanding ad-supported premium video onto new platforms, such as of the launch of our most widely distributed app, Global Go, available on Google Comcast -- Chrome Cast, excuse me, and Apple TV. Global News also has a powerful online presence with Globalnews.ca, which continues to see significant growth. In fiscal '18, average monthly unique visitors grew 54% and average video monthly views grew by 356% compared to the prior year, with revenue increasing by 47%. The success of Globalnews.ca is a clear demonstration that audience growth in turn results into revenue growth on many new platforms, a trend that we expect will continue in 2019.We were excited to expand into 2 new adjacent markets in Q 14, with the announcement of targeted and strategic investments in social media and podcasting. First, we launched so.da, our new social digital visual advertising agency at our June upfront. To date, we've been successful in winning new business and initial feedback from our clients is overwhelmingly positive. As we scale so.da, we expect to grow our nonlinear audiences and create new incremental revenue streams.This summer, we also launched our new podcast network, CuriousCast, which already has had more than 1 million downloads per month of its 35-plus shows and is home to Apple Canada's #1 music podcast, the Ongoing History of New Music, and the top 2 prime podcast, Nighttime.Second, as detailed on Slide 5, we continue to make strategic investments to enhance our suite of advanced advertising solutions and data analytics capabilities. We have proven, through our end market experience at Rogers, that there is significant advertiser demand for dynamic ad insertion within video on demand content, which has great potential as an emerging revenue stream as these audiences grow. As the TV industry increases its investment in on demand content and grows these audiences, it makes strategic and financial sense to ensure that new advertising capabilities are developed and deployed in tandem with the rollout of new video platforms for subscribers, such as X1 and MediaFirst. In fiscal '19, we'll continue our work to align the industry around the shared technology roadmap that will enable us to scale up and further deploy these types of advanced advertising innovations.Our success to date with audience-based buying has proven to be a clear differentiator for us in the marketplace. Another expanded beta test for CYNCH, our automated audience-based buying platform, is currently underway as we work toward a full launch next year. We anticipate that this platform will simplify and introduce a new way to buy television advertising, and in so doing, accelerate the industry shift to audience-based buying. Altogether, advertising revenues from video on demand, DAI and audience-based buying, including the contributions from the initial beta test of CYNCH, has nearly doubled in fiscal '18, with more than 200 participating advertisers and the pacing for the coming year remains very strong.As you'll see on Slide 6, over the course of fiscal '18, we continue to make investments in our Own More Content revenue diversification strategy, significantly growing our Nelvana and Corus Studios content slates. Nelvana currently has 14 series in production, or that are recently completed. A few weeks ago, Corus announced that Nelvana has greenlit 3 new preschools shows, including digital-first live action series, Ms. Persona, and 2 new animated series, P.U.R.S.T Agent Kitty (sic)[ Binky ], and The Remarkable Mr. King, based off of the popular Corus-owned Kids Can Press titles, all of which were introduced to the international market at MIPCOM this past week. In the coming year, we look forward to announcing new series that will be produced as a result of our existing coproduction partnerships with global children's content companies.Onto Slide 7. Corus Studios have expanded from home renovation in the new lifestyle genres this year, such as travel and escape, food, fashion, automotive and science, with 11 new or continuing series slated to go on the air in fiscal '19, a significant increase from the 4 series last year. In October, we announced that Corus Studios had amplified its slate of original content for international sale by bringing 3 new series to MIPCOM, including the fiery cooking competition, Fire Masters; travelogue series, Big Food Bucket List; and demolition docuseries, Salvage Kings, which is currently a working title. Throughout fiscal 2018, we have continued to broaden Corus Studios' global footprint, with our original lifestyle series now sold in more than 150 territories. The Corus Advantage remains at the center of our Own More Content strategy. As a reminder, the Corus Advantage is where we maximize our required Canadian programming spending to create owned and controlled original content, that drive audiences on our networks in Canada but also delivered revenue growth and diversification to increase global content sales in the unregulated global marketplace.Next, Slide 8. Further bolstering our revenue diversification efforts, Corus remains confident in the growth potential that exists in local communities across Canada for both Global TV and Corus Radio have a strong presence. As advertisers continue to fully leverage the power of local, we're building stronger partnerships with our local advertising clients. In fiscal 2018, total spending from accounts that are duplicated across both TV and Radio increased 22% compared to the year, up nearly $9 million.Lastly, as detailed on Slide 9, building on a powerful season of summer programming, we are thrilled about our early momentum in the fall. As is confirmed just this week, Global celebrated yet another triumphant premiere week. 11 of the top 20 series for total viewers in adults 25 to 54, Global owns more series in the top 20 than any other network. This includes a strong lineup of returning titles such as Survivor and NCIS as well as the very promising new and hit series, New Amsterdam, which has become the #1 series in all demos, and FBI, which is the most-watched new series for total viewers. Again, while some of these initiatives have just launched, they're an indication of our business model and underscore our commitment to putting Corus on a path towards revenue stability.With that, I'll now turn things over to John, who will walk us through our Q4 and year-end results for fiscal 2018.
Thanks, Doug. Good morning, everyone. I'm on Slide 10. Overall, our Q4 results were slightly better than our expectations. As Doug mentioned: Corus continues to drive value strong free cash flow, delivering $96 million of free cash flow for the quarter, and as mentioned, $349 million for the year, which is a record, and those are up from $80 million and $293 million, respectively, last year. As a reminder, contributing to fiscal 2018 free cash flow was a onetime item related to the termination of our interest rate swaps as part of the amendment and extension of our credit facilities, which resulted in net cash proceeds of approximately $25 million in the first quarter. That said, our healthy free cash flow has enabled us to make steady progress towards our leverage target of getting below 3x net debt-to-segment profit. We ended the year with net debt-to-segment profit of 3.28x, and that was down from 3.46x a year ago. Our revised Capital Allocation Policy, as announced last quarter, is expected to drive further progress in fiscal 2019 as we work diligently to reach our deleveraging goals.Corus's consolidated revenues decreased just 1% for the quarter and 2% for the year. At the same time, however, consolidated segment profit increased 6% for the quarter and was relatively flat for the full year. We delivered a strong consolidated segment profit margin of 30% for the quarter, 35% for the year, and that's up from 28% and 34%, respectively, in the prior year, which is a very clear demonstration of our unyielding commitment to remaining fiscally disciplined and managing costs carefully.The net income attributable to shareholders for the quarter was $34 million or $0.16 per share basic, and that compares to $29 million or $0.14 per share basic last year. Net loss attributable to shareholders for the full year was $785 million or a loss of $3.77 per share, which includes broadcast license and goodwill impairment charges taken in Q3 of the year. Adjusted basic earnings per share for the quarter were $0.19 per share and $1.14 per share for the year, and that compares to $0.22 per share and $1.10 per share, respectively, in the prior year comparable period. Let's turn to TV results now for the fourth quarter and the year, as detailed on the Slide 11. Overall, TV segment revenues were flat in Q4, and decreased 2% for the year. As expected, as Doug mentioned, lower TV advertising revenues from the challenging market led to a decrease of 4% for both Q4 and the full year. This was partially offset by subscriber revenue, which grew 1% in Q4 and was flat for the year as well as strong growth from merchandising, distribution and other revenues, which grew an impressive 19% in Q4 and 6% for the full year. This is a clear example of how we can benefit from our continued focus on revenue diversification and the merits of our Own More Content strategic priority. On particular note, the significant 19% increase in merchandising distribution and other revenues in Q4 was mainly the result of an increase in deliveries of new episodes at Nelvana as well as a multiyear subscription video on demand licensing deal in the quarter of over $4 million. As is the case of content sales, we expect to continue to see variability in this category from quarter-to-quarter as we do see with other large content companies around the world. Total expenses in TV increased 1% for both Q4 and the year. This was due to modest increases in the programming expenses, offset by lower film amortization expense at Nelvana and lower G&A expenses. We continue to make incremental investments in advanced advertising initiatives and incurred higher cost for Global morning shows, which were previously covered by CRTC benefits. In the fourth quarter, TV segment profit increased by 1% and declined 4% for the year. TV segment profit margins were 32% and 36%, respectively, for the quarter in the year, compared to 31% and 37%, respectively, in the prior year comparable periods.Now let's turn to Radio on Slide 12. Radio segment revenues declined 2% in Q4 and 1% for the full year, and that was driven by radio advertising challenges that are continuing to persist in certain markets in Western Canada, but we have seen some offset from strong performances in many of the Ontario markets. Radio segment profit arbor increased 2% in both the quarter and year. We delivered a Radio segment profit margin of 25% for the quarter, 27% for the year, and those are improved from 24% and 26%, respectively, in the prior year. These profit and margin improvements illustrate the solid results we've been able to achieve through our focus on cost control and through financial discipline.Before I turn things back over to Doug, let me briefly comment on our share price. We do see a clear disconnect between our operating and financial performance and our share price. This is particularly in light of our consistently strong free cash flow and our healthy profit margins Doug just mentioned. Corus experienced unprecedented levels of forced index selling following the introduction of our revised Capital Allocation Policy, but we strongly believe that we've introduced a prudent policy to underpin the long-term financial flexibility of our company. We have been successful in partially mitigating TV ad revenue softness through a number of cost revenue initiatives, thanks to our talented and resilient team.And finally, a quick reminder that Corus' dividend schedule has now been switched from monthly to quarterly. And as anticipated, today's declared quarterly dividend of $0.06 per Class B share, payable in December as detailed in our press release this morning. With that, I'll hand things back over to Doug.
Thanks, John. And before I conclude this morning's prepared remarks, I want to follow up on John's comments about our share price. I'm asked all the time, "Hey, Doug, how's business?" And my answer is always "A lot better than our share prices indicate." Hopefully, today's results will begin to address that disconnect. I'd like now to provide a few comments about the coming year, let's start on Slide 13.The transformation of Corus began almost 3 years ago when we acquired Shaw Media. That gave us the horsepower and scale needed to gain audience share, which we have done, as well as the scope to compete and win in Canada. Since then, we've continued to purposely execute against our 3 long-term strategic priorities with discipline and focus. As a reminder, these are to own and control more content to engage our audiences and to expand to new and adjacent markets. As we continue to pursue these priorities, we will remain strategically disciplined, while continuously optimizing our core business and diversifying our revenue base. I touched on these initiatives in detail last quarter. They include: portfolio optimization, following viewers on our platforms, leveraging the power of local, owning more content and integrating technology throughout our business. We will also keep our sites firmly set on where we're headed as an industry in Canada and as we adapt and evolve, fully implementing our plan will take time. However, we're driving Corus along a road to long-term stability.Slide 14. While John rightly touched upon our financial discipline, we're not solely cutting costs to manage our short-term profitability. We're also investing in our long-term future. These measured and strategic investments include Own More Content while we're investing in Nelvana and Corus growing slates -- Corus Studios' growing slates of premium content. Further, we are selectively investing in other growth areas for our business, like so.da and CuriousCast, and we're investing in Toon Boom, our award-winning Montréal-based animation software company, which has promising international growth opportunities. Lastly, as I've outlined this morning, we're continuing to invest in advanced advertising solutions and data analytics. As we make these investments, Corus aspires to move seamlessly across platforms to accelerate the monetization of our audiences. Think of this as an extension of the Corus Advantage, leveraging our great brands, content and talent onto the platforms where more and more audiences are consuming and engaging with great content. And to that end, we've also been monitoring closely the growth trajectory of the virtual multichannel video programming distributors, or vMVPDs, in the U.S. We believe it's only a matter of time before these services start to enter the Canadian market, and we see this as a potential source of new subscriber revenue, an excellent opportunity to reach audiences that prefer to stream their video content, these are the cord-cutters, cord-savers cord-nevers, not to mention additional advertising digital inventory.Before we open up the call for your questions, let me conclude by saying this. It's been a challenging media marketplace. We have demonstrated that we can deliver. We're executing strategies throughout our business that will ultimately mitigate our recent TV advertising challenges, and we are making investments in content and other growth areas that will diversify our revenues. As for the first quarter, there are early signs of improvement. We still expect variability from quarter-to-quarter. But that said, in Q1, the market conditions appear to be firming. While we can't see around the corner, we are noting improved demand in yield so far in the first quarter. It's early days, but we're cautiously optimistic. In short, our plan is working. We are consistently delivering strong free cash flow and enviable margins. We're continuously rationalizing our operating model as we make steady progress towards our leverage target, putting us on the road to achieving further financial flexibility. Our talented team is working hard to optimize our asset base, while we make strategic investments in our future to build long-term resilience and stability.With that, John and I would be happy to take any questions you may have. Back to you, operator.
[Operator Instructions] Our first question comes from Adam Shine of National Bank Financial.
Doug, just building on the last few statements. I mean, one thing you didn't talk too much about, heading into '19 on the Nelvana side, Thomas the Tank Engine merchandising opportunity you picked up heading into the new year. And then also, we know that Bakugan gets the relaunch, probably has some implications for you post the first half of F'19. Can you speak to each of those opportunities? I don't know what numbers you can put around them but obviously, you do have some context in regards to the first iteration of Bakugan, whether or not the product repeats itself? And then maybe just one for John quickly, corporate costs came in at around $6.5 million for the year F'18, obviously a lot of stock-based comp reversal there. I'm not going to hold anyone to any guidance on this call, but certainly, with respect to corporate costs, should we be thinking about a number around $17.5 million for F'19? Maybe any commentary, give or take, on that would be appreciated.
So let me just knock off those questions. First of all, the Nelvana Enterprises team in Canada is building, deliberately, a merchandise agency business, and you note rightly, the big get we've got with Thomas the Tank Engine. This is strategic in the sense that it fits right to our priority of expanding to new and adjacent markets. We've got a really crackerjack licensing team here in Canada and while we await the launch of our owned brands, at Nelvana, we're building a reasonably decent business and I can't give you sizing, but it's not insignificant, managing other people's brands as agents here in Canada. So that gives us a lot of scale at retail, as you might imagine. It helps our brands, it helps our partners' brands, and of course, when you're the largest kids' broadcaster in the country, you have a significant opportunity to place product at retail. So that's that business, and kudos to the team for really embracing those opportunities. We've got a number of really exciting agency partnerships that we've announced, and there's more to come. As for Bakugan, we're really thrilled to get the band back together with their friends at Spin Master. I have no doubt it's going to be another smashing success, but we don't anticipate any meaningful economics in fiscal '19. And that's primarily at fiscal '20. So when you're thinking about your models, I'd certainly consider opining that for 2021, but I don't -- I wouldn't encourage anything in this fiscal.
And Adam, on corporate costs, yes, as you've noted, and I'm sure everyone has, they really jumped around this year with the stock-based compensation line. If you look back to fiscal '17, we were running about $26 million in total, including stock-based comp. That number of course is dependent on what the stock price does and we've seen what happens as it moves quickly. So I would say very hard to predict, given we don't know where the stock's going to be but somewhere in the $15 million to $20 million range is probably a good starting point, and then we'll go from there depending on what kind of variability we see on the stock-based comp line.
Okay. And maybe just one follow-up for you, John. Obviously, you've highlighted the strength of free cash flow. You talked about the onetime item related to the interest rate swap, perhaps what other onetime item relates to the lowering of the CRTC benefit payments? But one thing does also stand out is the improvement on the working capital front, much lower usage this year versus last year. Can you speak to perhaps any other further improvements to go? Is this something where maybe in F'19 or arguably F'20, we get to more flattish working capital consideration? Or is that pushing things?
No, I think it's fair. I think we'd like to actually see working capital turn positive. And some of that -- or a big piece of that variability is in the collection side of things. We've made some improvements this year, we'd like to see more improvements there. And part of it is just managing the flow between the programming dollars that are going out, and all those are on a separate line, but -- and the accounts payable. So we can manage those. We do have some pretty aggressive targets to improve working capital and to turn that green this year, and as well, at the same time, we think that towards the end, we will probably see a bit more programming money flow out as we start to ramp our Canadian slate for future years, and some of that's Nelvana, and some of that's just the other specialty and global product that we're going to need to have. So there's going to be a lot of moving pieces. But we'll try to manage them as tightly as we can. They largely offset, and that's the way that we try to land it. But any one piece can move around a little bit. So those are big parts of the equation, for sure. But of course, the starting point's going to be the EBITDA.
Your next question comes from Aravinda Galappatthige of Canaccord Genuity.
So I'll start with the question for you, Doug. On the ad tech front, and when you think about all the initiatives you're working on, and then hoping to initiate in the future, maybe it's worthwhile to sort of touch on some milestones that you hope to shape by the end of next year. I mean, I know that on the measurement side, obviously, I imagine that's ramping up and that should help. But what else do you want to sort of see achieved or what sort of hurdles do you want to see crossed as you -- as we think about 12 months from now? And I'm specifically thinking about dynamic ad insertion. I mean, right now it's predominantly, I think, exclusively with Rogers. Do you see that sort of expanded by the end of the year?
Aravinda, so let me just maybe hit a couple of things on this one. First of all, the premium VOD opportunity, I think, is still emerging. We've got a couple other big distributors that we intend to place our product on. As we trial the VOD DAI with Rogers, we're in discussions with all the other BDUs, both on existing platforms, but principally on the new platforms that I referenced in my comments, to ensure that the BDU roadmap optimizes for advertising technology. And fortunately, because our other peers in this big media world of Canada, relatively speaking, are Bell Media and Rogers, there's a lot of economic self-interest in us working in concert to ensure that we have a finely tuned model as these video platforms rollout. So when I think about it, and this is not going to happen overnight, but I think it's pretty easy to get your head around the notion that we're going to put more audiences on demand, we're going to put better viewer experience with new, more slick platforms that will both sustain existing subscribers, maybe even add some, but at least stabilize, worst case, these new platforms will then be equipped with the ability to do dynamic ad insertion, which is critical. Then -- and it will measure all that. So we'll get an audience true up with those audiences that are currently and will be consuming on-demand, and this is the note that TV basically needs to think of our product as both linear and on-demand. We're not going to abdicate the on-demand binge-viewing space to the unregulated interlopers. This is our opportunity to put our great content on those on-demand platforms. Then, the other end of that, so there's your audience piece, right? Then you've got your advertiser piece, and that really speaks to the transformation that is happening in the world but also here in Canada, to moving away from the old way of selling TV, which is the demo, adult 25-54, into selling audience segments. And we're working to create a unified approach to segmentation in Canada with our industry peers, such that the agency groups and clients can buy the same definition of a segment from all 3 of us -- or 4 of us, as it stands, as others players in the market beyond the big 3. But we think it's absolutely critical that we land on a standardized audience segment strategy, and that's a piece that we're working on in addition to the BDU roadmap element. Lastly, the note then talks to how do transact these audience segments, and this is where CYNCH comes in. And we're pioneering this platform. There's a lot of interest in Canada in the platform. And so when you can then simply, as an agency, open your app and buy your impressions, the same way you do with Facebook and Google, you can imagine how that starts to position television in a very good stead with the agency groups and clients. So -- and there's more, I could go on, but we only have an hour here, but the point, I think, really is it's pretty easy, in my view at least, to see your way through to a point in time where the television advertising universe is optimized and much more appealing to advertisers. And then we'll be able to drop ads in DAI or linear using those segments and the video platforms and the CYNCH automated technology.
Doug, just a quick follow-up there and a second question, and I'll leave it there. So in terms of the follow-up, when you think about those efforts, I mean, anything you'd need from sort of the regulator that would sort of ease that path for you? And secondly, as maybe John can jump in on this, with respect to subscriber revenues, I mean, you've done well to hold the line there. As you look at some of these BDU agreements that are being renewed, can you just talk to the prospects of the pricing growth that you can derive there to help maintain the sub-revenues as we look through to the end of fiscal '19?
So the regulatory file is obviously a very, very important one this year for us. I guess, a couple comments. I mean, there is, of course, the review of the Broadcast Act, which is kind of underway, and we're making our submission end of November, as will others. The Finance Minister will be revealing this new competitiveness platform shortly. I'm hoping for the sake of the budget that we consider taxing Netflix and others, because certainly, we could use the revenue as a nation, and that would help level the playing field here with media companies. As for specifically, the CRTC, again, I would just echo my regard for the Harnessing Change report, which I think hits head on some of the main issues that need to be considered as part of this Telecom act, the Broadcast Act, Copyright Act Review, mainly that all participants in the communication services sector should contribute to the Canadian programming obligations. And in that regard, we are avid supporters of producers, both independent producers and our own production company. I'm proud that we the work that we all do in Canada and that we export around the world, but there needs to be a lot less regulations and a lot more flexibility. We need to make content that works on our networks and that we can sell around the world. The Netflix and Amazon and Apple aren't being told to direct a certain amount of their spending to drama, or a certain amount of their spending to documentary. And so if we're really going to have a vital content storytelling sector and a cultural art sector in Canada, we need to let the storytelling really go where the demand is. And so I think, there's an ongoing discussion we'll be having with all the various stakeholders, both at the CRTC and Heritage, and we're looking forward to passionately participating in the coming review process.
And Aravinda, on your subscriber question revenue, as you rightly noted, the flat outcome for the year, I think, is quite impressive. Renewals are on a fairly constant cycle, and we've just been through one very large distributor with, I think, a good outcome on both sides there, and then we have 2 very large ones coming up as we get into fiscal 2019. So I mean, I guess, there's a couple things. We've talked about portfolio optimization, we've talked about the bigger and better services and looking to, in some ways, rebalance rates there. I guess, the other thing that sort of underpins it is, it's kind of a more for more strategy. So Doug talked about the premium VOD and those are some of the things that are driving the discussions as well. As you know, there's a much better product on offer here that can drive much better engagement with the ultimate viewers that helps in that conversation. So I think we're feeling that the outcome's been good, but negotiations are also very challenging and we certainly take note of what's happening to the video subscribers in the country, and how we can help to make the product even that much better. So more to come on that. I think it's going to be a busy year on that front.
If I could just maybe add to that, Aravinda. We have to remember that 3/4 of Canadians still have their preferred way of consuming premium content in television subscription. So when we think about that significant population, what we try to do as a program supplier is to both optimize our traditional product line but also innovate with new products, like the premium VOD and others that are kind of in the development labs over here at the moment. For the 25% that are consuming content outside of the cable subscription, that's where I think we've got some emerging opportunities with the vMVPDs. And so we can see our way again to an aggregate having a very stable subscriber revenue line just because we're going to reassort our product offering to the traditional BDUs and we're going to be participating, when the time comes, with the new interest in the marketplace. And by the way, the new platforms I referred to earlier are agnostic as to who is providing the video, it will just provide a great experience to the viewers and that's the whole industry needs to do. So that would be just a general overarching comment I'd make on the subscriber marketplace.
Your next question comes from Vince Valentini of TD Securities.
Let me start, Doug, with thanks for all the commentary on ad tech initiatives and the good ratings performance you're having in the fall. But I want to make sure we're all on the same page. Down 3% to 4% on TV ad revenues is kind of where you've been the last few quarters, I don't think you're saying anything here or saying there's a near-term recovery from that, and some of these ad tech initiatives will take a little while, so is the first and second quarter, kind of in that same down 3% to 4% range reasonable?
What I would say to that is the ad tech is going to take some time. I mean, it's moving along -- we're going as fast as we can on that one but it's going to be still consistent evolution, but it's in motion. As a general matter, what we're thinking of, until we get fully scaled on that, that we think we're going to be in the low negative single digits. I would though note that we're seeing a bit of a change in market conditions just in the first quarter. And so I'm not going to -- as I said, I can't look around the corner, but I think there's going to be a little firming in demand, and I know there's going to be some firming in demand and also, coincidentally, we're getting some yield pickups. Because the reality of the factor is, there is a -- still a lot of demand for television. So the money is coming in, the pacing is way up from prior year, but the inventory's down because there's some audience level declines over time. And so we think we are seeing buys coming in earlier because, what is also true is there is a lot of concern now at both digital -- both environment and privacy. So those factors -- audience levels down, giving us more opportunity to place the campaigns earlier, environmental, privacy concerns are helping us feel a little bit more optimistic in Q1. And in Q2, it's hard to say. The only thing we know definitively is there's no Olympics this year, which is good for Canada if you're a broadcaster, not if you're a viewer. But I wouldn't -- I'd be hesitant to really -- to give you much more of an outlook than just that.
And Vince, I think the reason we've used the word cautiously is we haven't forgotten what happened in Q1 last year. And at any point, mid-quarter pacing is interesting, but as Doug just alluded to, pacing doesn't necessarily follow the same path that it historically has. So I think back to a year ago, at this point in that quarter, pacing looked great and then it really slowed down, and we had that surprise in January when we reported Q1. So that's why we're always a bit cautious because we don't have a great predictive ability anymore on how it's going to pace. So to the extent that pacing looks great now, it isn't necessarily going to continue on same track. But as Doug said, we're feeling a lot better.
That's very prudent, John. I assume when you go to the bank to repay debt, they won't accept pacings as remunerations.
Yes. Cash on the barrelhead, that's all they take.
Can I ask one other one? In terms of asset sales, is there anything at the margin that you could do there? Like, especially the back channels that you weren't allowed to sell at the Bell? Is there potential for another buyer there, or any other small non-core assets that you could perhaps help to accelerate your debt reduction?
I would just say, at this point in time, our sort of theme for our fiscal '19 operating plan is optimize the core. So that means we're taking all the cash flow coming from all the assets and using it to deleverage the balance sheet. If we get an inbound, we'll always have a conversation. But there's not -- we're not actively pursuing anything at this point in time.
Your next question comes from Maher Yaghi of Desjardins.
So I just wanted to -- I know debt reduction is your #1 priority, and I think the market likes to hear that. But -- however, as you mentioned, you are producing quite a bit of free cash flow. And from the comments you're mentioning today, you still believe that, that's going to be the case in 2019. Have you thought about deploying some of the capital in other uses that could be quite accretive to shareholders in terms of buying back your stock or buying a portion of what Shaw holds in your stock?
Maher, the quick answer is no. Our focus is on the best thing for the future, stabilizing the revenue, paying down the bank debt and getting to a point of financial flexibility where we can make some more meaningful steps to get even greater growth. So at this point in time, we're stacking the right balance of offense and defense. The offense has principally targeted selective strategic investments throughout the company in areas of growth or ad tech or content, as we've discussed in the call. But share buybacks are not on the list of options.
I guess, the one thing, Maher, we always say there is we have turned off the treasury DRIP on our dividend, so that, in effect, we're not at least diluting anymore. It's not a buy back, obviously, but we're actually holding the share base stable at this point.
That's right. And just on the revenue line, we had a nice surprise there. I wanted to ask you, in terms of some of the more volatile portion of that merchandising licensing, how do we look at those improvements in the quarter? How sustainable they are maybe in the first quarter or second quarter?
It's the question we always get, and frankly, it's one that we're challenged with internally a little bit as well, just given it's hard to predict delivery sometimes. And you saw the benefit of it, as you mentioned, in Q4. Now if I look back to '18, Q2 and Q4 were quite strong on that line. And probably going forward, it's not going to be quite as volatile quarter-to-quarter. I think we expect it to grow a little bit more consistently through '19, but Q1 will be on a lower basis, because we did have that big SVOD sale in Q4. So the growth in the Nelvana slate certainly helps, and to the extent that those deliveries come at a good pace in '19, then we would expect to see a little bit more stability in that line. It shouldn't jump around as much as it has this year.
But I would also add that this merchandise agency business that Nelvana Enterprises is conducting will show up in that line as well. And that's more of a stable -- because these are partners, like Cartoon Network with Peppa Pig or PJ Masks with E One. These are real existing businesses that we are helping to move product at retail so that generates an agency fee on those wholesale revenues that go into the retail marketplace. So we do have more of a steady -- so you should think about the merchandising business in 2 pieces: One is a more stable and growing albeit relatively small agency business, and then sort of a more volatile owned content merchandise licensing business.
Your next question comes from Jeff Fan of Scotiabank.
Doug and John, I just wanted to follow-up on the ad tech outlook for the next couple of years. Obviously, audience measurement is really the key, I think, foundation before you can implement some of the initiatives. So on the audience measurement front, what do you think the industry can truly measure linear and nonlinear across the entire country? Not just some of the initiatives in Ontario, Québec, but for the entire country? And then do you think that's important to have the entire country for the advertisers to -- before they start to deploy money into and start allocating some budget towards these initiatives? And then finally, ad revenue was down 3% to 4%, as noted earlier. With these ad techs, do we get to flat or do you think the overall revenue pie for television can actually grow?
So measurement is critically important for industry. Numeris is doing, as you know -- because I saw you hanging around at the Future TV Conference recently, Jeff. As you know, Numeris is in their first test of their total video audience measurement test. We'll get some early returns this spring, but there's going to be another series of iterations on that. I don't think we're going to have anything significant until probably towards the end of our fiscal and through this summer. So I think it will probably be relatively be impactful in the first quarter of next year. In the new -- the coming fall premiere season. We'll probably see some interesting measurement realities, which is going to be, I think, a positive impact. But that doesn't preclude the interest of advertisers on ad tech. I mean, this part of the whole puzzle I tried to paint earlier here is that the opportunity to participate in DAI, for example, is relatively attractive and appealing because the ad load is less, so ad tech is like that, it's less cluttered. Secondly, the viewer engagement is higher because once you select a VOD content to view, you made the decision to watch it, so you're sticky. You watch the whole thing, you can't fast-forward through it. So it's a relatively easy conversation to have for those advertisers that are currently doing dynamic advertisers, nonVOD, they love it. It's very effective for them and they just want more. So that's why we're working so diligently with the other BDUs to turn on their capabilities and put the industry to be there. You had another question which I'm blanking on. What was that piece?
Just in terms of the total TV ad pie, whether these -- all these initiatives are taking back to positive or flat? How do you see that?
So our tone -- and John referenced in our January call last year in Q1, our tone has become a lot more measured since then. So I'm generally a very optimistic fellow. I can see our way to stabilize revenue in a handful of years once we get these various pieces put in place: measurement, new platforms, alignment on ad technology, alignment on BDU roadmap. I think television is still a critically important part of the media mix for advertisers. I think the content in TV is still extremely attractive to consumers. And I think that with this business, there's investments being made in the industry around the world that I think show promise in terms of stabilizing the revenue picture. So I would not advocate going beyond stabilization yet just because I want to stay within my measured box. But certainly, our inclination over here, as we look into the future, given what we know, is that there's a more positive outlook, I think, than many believe given the malaise over the media sector in general these days.
And can you just remind me on the dynamic ad insertion, which BDUs you're working with today? And what's the outlook for having others onboard?
Currently, it's really solely Rogers. But we are in many levels of discussions with everybody else because it's obvious that television need to be thought of, as I said in my call, as both linear and on-demand, and that's just sort of intuitive, right? So my expectation is that we'll soon have ubiquity around the approach across the country, but we're not there yet.
Your next question comes from Drew McReynolds of RBC.
A couple of follow-ups on my end. First, with respect to the carriage deals, maybe a question for you, John. Obviously, the first round, through under the new framework, you were successfully able to get penetration-based rate cards. Is that something that will be standard this time around as well?
It should be. That's the plan. Although we're open to other models as well in terms of, maybe it's not just a per sub, per network type of model. So I think there's lots of things on the table. I mean, that, I think, has worked well, but there could be other ways of approaching it as well.
I think there's more opportunity now given some of these recent changes to work with our distribution partners to basically strengthen and broaden distribution for the bigger channels. I'd address where we have situations where those bigger services are potentially undervalued given their share of audience and share of revenue within the total industry. And similarly, I appreciate the fact that there are smaller services that may be overvalued. And so as a general thematic note, more flexibility provided by regulatory bodies is the way we have to go. And so I think that's the general comment. But at the moment, the rate cards are still part of the mix, but again, at the end of day, it's all about having the best content and the best brands and the best audiences and that will help us position our company.
Okay. Got you, Doug. On the -- I guess, for you, John. There is a retroactive payment, I think, in the quarter, didn't seem to be overly big, but can you kind of flag what it was?
Yes, Andrew. There was. It was small. You're right. It was sort of in the million dollars range. And we had a small one last year as well, so the year-over-year impact...
Hello? Hello?
[Technical Difficulty]
Anybody still on the call?
Yes, everybody's still on the call.
Ladies and gentlemen, the speakers have resumed.
Now back to our regular programming. Sorry, we somehow just lost the signal there. So Drew, I think you're in the middle of a follow-up?
Yes, I'm not sure where we dropped, Drew, you were asking subscriber revenue in Q4 and the benefit of the renewal?
That's right. Can you hear me?
Yes, we can hear you.
We heard you. I'm not sure where you stopped hearing me. It was relatively small, you're right, it was around $1 million in the quarter. And we did have small one in the year ago, Q4. So think of subscriber as flat to slightly positive, if you normalize for those pieces.
But I think generally speaking, every time we kind of conclude a larger carriage of inventory, there's usually some kind of a true up.
Typically, yes.
It shows up.
Yes. Because we -- even if we had a contract, we'll continue to record at the old deal until we can get things finalized. So yes, they're typically some kind of retro piece.
Okay, okay. Also, just another follow-up on the merchandising and distribution piece. Fully understand that the lumpiness in the moving parts underneath. I think last quarter and the last couple of quarters, Doug, you've alluded to more modest kind of growth year-over-year and then, boom, we get the 20%. Just -- I'm not asking for specific quarterly guidance, because I get the business changes. Just wondering, overall, is this whole piece picking up a little better than you would've expected over the last couple of quarters? Or is this just purely timing versus kind of your previous quarterly comments?
So Drew, I think I can give you a little more dimension on that. There was a Netflix SVOD sale in Q4, which shows up in the P&D number, which would skew that growth upwards. I think John mentioned that, around $4 million. As regards to the growth in the Atlanta slate, that is ramping -- as I said, is ramping significantly year-over-year. There's a lag, right? So the team is in MIPCOM, as we speak, pitching our shows, and we know we've got some renewals on Hotel T, which is great, our Nickelodeon framework is now in full motion. We're -- as you know, we're working with Sesame Workshop and Esme & Roy, that show looks very promising and off to a great debut both in the Canada and the U.S. and the same goes for our Discovery Kids partnership in Nelvana. So there's a hold bunch of slate being built right now. And it will start to show up. But we can't record revenue until we're able to deliver episodes. And typically, you don't deliver episodes until you've got the first cycle made, right, of 13 or 20 or 26, depending upon what the nature of the programming is. So we're kind of building a pretty good base of content, but it's going to -- it will start to get rolling, I think, probably more towards the last half of this year and into the following year when you'll start to see some more material growth.
Yes. I mean, early, early view, Drew, on it is that the shape of that line looks a lot more steady in the coming year. Obviously, we're going to have a tough comp in Q4 next year, as we'll attest, because that's a multiyear deal, it's not just a 1-year deal. But it is hard to predict, but certainly all the planning we've done so far is that it's going to be a little bit more stable.
The comment I'd also make, just getting up now to the consolidated revenue pieces, just so -- I think everybody's clear, but the whole strategy here is there's 3 distinct pieces of revenue. You've got domestic where you've got advertising and subscriber, and we're working to optimize that business. We talked at length about that. And then there's the global content business. And so to the extent to which you believe that we can get to stable advertising or stable subscriber revenue profiles, which we do over the next year or 2, the content business will provide the growth that will get the consolidated revenue to modest growth. And so that's kind of like the -- as we kind of continue to work these assets and optimize the core business, that's where we aspire to go, and I think you're going to see continued growth in the content segment because that's strategic, as we continue to work on the media part of the business.
That's helpful, John. One last one for me, sorry. And I may have missed it on some of the commentary. When you look at audience ratings, and Jeff alluded to this before, and you're adding up linear, you're adding up video-on-demand, other places where your content's available, whether it's online or apps, those audience ratings in acknowledging the quality of program does evolve over time. But from your perspective, if you were to put it all together, are you holding your own relative to other SVOD programming out there? In other words, we know the pie is expanding, we know people are consuming content, we know a lot of it's not getting measured. Just wondering, what your best guess, apples-to-apples, on the properties that you have, kind of what your overall audience consumption looks like?
That's a great question. So I'll give you a couple thoughts on that. First off, relative to what is measured, I know that's not the entirety of your question, but just for -- as a starter, relative to what is measured by Numeris, we're definitely holding our own and we're gaining share, and Global's got 11 shows in the top 20. Our specialty rankers are strong in the fall. So competitively, within the broadcast industry in Canada, we're super happy with kind of where we are. When you step back and you look at overall viewing levels, because you'll know that last year, this time was a bit of a wake up for the industry. We're actually quite pleased with the stability of audiences writ large at the moment. And so we're seeing basically a pretty stable audience viewer, this is total industry now in television, and that's a promising development. Early days, measurements can change, panels can change in Numeris, but I think that's true. When you then expand the aperture even more and look at your viewership on YouTube or on Netflix or on Amazon, et cetera, because they don't have the report their ratings or their viewers, which is really difficult to ascertain just what -- how much content is being consumed. We do think that, over time, ideally, the measurement system will begin to capture all this, and that's partly what the Numeris piece is doing. So I think we got a year until we get the first beat on what we see in terms of other viewing behavior in a measured manner. But at this point in time, it's super hard to speculate.
[Operator Instructions] Your next question comes from David McFadgen of Cormark Securities.
Hi, David. Operator, I think David's gone.
One moment please. Mr. McFadgen, your line is open.
Okay. Can you guys hear me now?
Yes.
So just on the merchandising side, it's a tough business to predict on a quarterly basis. But what's the outlook for fiscal 2019? Do you think you could get double-digit revenue growth on that business?
In merchandise?
Yes. Well, merchandising distribution and other, just that whole, I think, revenue line.
The whole line. I would say I would rather be more convertible sort of high single digit than going all the way to double digit, just to kind of couch that little bit.
To my earlier point, Dave, the big sale we had in Q4, you'd have to pull that out because that's not going to recur in '19. So on that base, on an adjusted base, Doug's comment is applying to that. But there's no line of sight right now to a big SVOD sale in '19 because of the term of the ones we just did.
Okay. So just to clarify, if we took the fiscal 2018 revenue from that line, took out that $4 million SVOD sale in Q4 '18, and then apply a single-digit growth rate to that for fiscal 2019, it's probably kind of where it's going to come out, more or less?
Yes, that's pretty reasonable.
Yes, that's good.
That makes sense? Okay. And then just on the cost, you talked about how the corporate cost line would probably be $15 million to $20 million in fiscal 2019. So if you look at your cost structure outside of corporate, do you have an idea how much that could go down? Would it be flat or could you get it down a couple of points year-over-year even with, say, higher amortization cost in there?
What I'll say is this. You've heard me before, I say that -- when we first put the companies together as a pure play media and content company, we did the 2 things well, right? Maximize audiences, monetize audiences. So the first principles. We've kind of added a third first principle, if you would, and that's rationalize the operating model. So we have -- every team in the company has got a rationalization strategy on what they're doing. We're looking to -- whether that's with systems or technology or process automation or AI or machine learning, we've got a lot of work that's underway today to position ourselves for further reductions in cost and improvement in efficiencies. That said, those activities in this fiscal need a little bit of an investment as well. And so that balances off as we go through this fiscal year. My expectation is you'll see the rewards of these investments beginning in F'20 and we've talked about our aspirations to achieve step function improvements in cost structure each and every year, and so I think we'll start seeing some of that pay off in fiscal '20.
Okay. So would a reasonable outlook then be sort of a flat cost structure outside of corporate expense in 2019 versus 2018? Or it could actually up a little bit due to the investments?
No, no, no. We're -- costs are not going up. I mean, programming swings around, as you know, but the rest of the system, especially the system, we're focused on reductions.
There are no further questions at this time. I will now return the call to Mr. Doug Murphy.
Great. Thank you, operator, and thank you, everybody, for your questions. We're really happy with the quarter, and we're really, really happy with the contributions of our Corus teammates around the country and as well -- as a matter, that we have internationally now. So I just want to say thank you to the team and we look forward to speaking to our investors and analysts in the coming days and weeks, and have a great weekend. Bye-bye.
This concludes today's conference call. You may now disconnect.