BUSINESS

Corus says its still tough to predict major advertisers in tough economy

10/23/2014 08:54 EDT | Updated 12/23/2014 05:59 EST
TORONTO - Advertisers are showing a new level of caution before spending millions of dollars on TV commercials and that's putting pressure on Corus Entertainment, the company's chief executive said Thursday in lowering guidance for the next financial year.

A "rather new phenomena" has developed in recent months as more big companies hesitate to spend money, said CEO John Cassaday.

"Today, given the uncertain economic environment we're in, everybody is trying to maximize their flexibility — they're booking later and later," Cassaday said in an interview, after the company reported fourth-quarter financial results.

"In an environment where (advertiser) demand is a little bit softer, people will take their chances on not being able to get what they want."

The shift in how advertisers buy space is putting a crimp in the outlook for Corus, which operates a variety of specialty channels like W Network, ABC Spark and Teletoon, as well as a slate of radio stations.

Cassaday said the weaker ad spending is concentrated particularly in products that are typically marketed to women.

And he doesn't see advertisers going back to their old ways any time soon as less traditional ad platforms, like online video, gain more prominence.

"The only time it (advertising) will start to turn around is when demand increases," he said.

"People will find they can't get into 'Property Brothers' or 'Love It or List It' because they waited too late, and those spots are already taken."

Selling to advertisers is one of the many challenges Corus faces in an evolving media industry where changes are especially prominent in the television market.

Weakness from advertisers was a key factor in Corus' decision to lower guidance for the 2015 financial year from a previous estimate as results for fiscal 2014 fell below internal expectations.

The new 2015 segment profit guidance range has been lowered by $40 million, to between $300 million and $320 million.

"The lower end of the range contemplates continued softness in the economy and its impact on discretionary advertising expenditures and minimal growth in subscriber, merchandising and distribution," Cassaday told analysts on a conference call.

For the fourth quarter, Corus (TSX:CJR.B) said profits nearly doubled to $23.7 million as it faced improved results from the TV division, but a decline in radio.

Earnings were equal to 28 cents per share, compared with$11.9 million, or 14 cents per share a year earlier.

Adjusted profit was $26.8 million or 31 cents per share, unchanged from a year earlier.

Total revenue grew to $201.6 million from $181.9 million a year earlier, helped by the results of newly acquired television channels and radio stations.

Corus (TSX:CJR.B) was given regulatory approval late last year to acquire the remaining 50 per cent interest in Teletoon that it did not already own, as well as the acquisition of channels Historia and Series+. In January, Corus was given approval to acquire Ottawa-based radio stations CKQB-FM and CJOT-FM.

A report from RBC Capital Markets said the fourth-quarter results were well below its forecast, mainly because of soft TV advertising. RBC had estimated $171 million of revenue from the television segment, but that came in $11 million lower at $160 million.

Corus also faces the changing habits of viewers, as more people turn on streaming video services like Netflix, instead of through its pay TV services HBO Canada, The Movie Network and Movie Central.

In the summer, Corus launched a retention offer to keep movie channel subscribers on board after their introductory discount ended, even though they're considered to be mainly low-margin customers.

The company now plans to forgo quarterly reports of its subscriber numbers, which Cassaday argues are "of no value to anyone" because they fluctuate depending on when hit TV shows begin airing on channels like HBO, or the company kicks in especially attractive promotional discounts.

"We were doing nothing but confusing people as to what the outlook for the business was," he said.

Corus has faced scrutiny from some analysts who are concerned that Corus could be negatively impacted by U.S. media company Time Warner's decision to offer HBO Go in the United States through an over-the-top model that goes around cable providers.

Some analysts suggest that HBO, which licenses its brand name and TV series to Corus in Canada, could eventually deliver content directly to Canada through its own streaming service sometime in the future.

Cassaday has downplayed the possibility of HBO going solo in Canada once its exclusive licensing agreements with the company, and Bell Media, expire in 2018.

"Look, none of us really know how this is going to unfold," he said after the over-the-top model was announced last week.

"We're your partner in Canada," he said, recalling a conversation with HBO officials. "We want to be in a position to take advantage of any and all opportunities that arise."

Cassaday said if the model proves to be a viable business opportunity, "we are confident that we will be able to capitalize on it in Canada, as they have in the United States."

Shares of Corus dropped nearly five per cent, or $1.13, to $23.27 Thursday on the Toronto Stock Exchange.