Apr 5, 2018
Executives
Doug Murphy - President and CEO John Gossling - EVP and CFO
Analysts
Jeff Fan - Scotiabank Aravinda Galappatthige - Canaccord Genuity Adam Shine - National Bank Financial Bentley Cross - TD Securities David McFadgen - Coremark Drew McReynolds - RBC
Operator
Good morning. My name is Matthew and I will by your conference operator today.
At this time, I would like to welcome everyone to the Corus Entertainment's Second Quarter 2018 Analyst and Investor Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions].
As a reminder, this call is being recorded. I will now turn the call over to Mr.
Doug Murphy, President and CEO of Corus Entertainment. Please go ahead, sir.
Doug Murphy
Thank you, Matthew. And good morning, everyone.
I'm Doug Murphy, and welcome to Corus Entertainment's fiscal 2018 second quarter analyst call. Joining me on the call today is John Gossling, our Executive Vice President and Chief Financial Officer.
Before we read the cautionary statement, we would like to inform everyone that there are a series of PowerPoint slides that accompany this call. You will find them on our website.
Slide number 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. Slide number 3.
I'll start today's call by sharing some highlights from the quarter and will then provide an update on progress we have made in advancing our strategic priorities. In short, we are making steady progress on our financial and strategic objectives.
We are taking steps to mitigate on going softness in television advertising revenues. We remain committed to diversifying our revenue base and we continue to transform our operating model and our cost structure.
Slide 4. Our second quarter results were in line with our expectations.
Consolidated revenue was relatively flat at $369 million with radio, content and TV subscriber revenue gains offsetting an expected decline in television advertising revenue. Our consolidated segment profit increased 10% to $113 million up from $103 million in the prior year's quarter.
This improvement reflects the benefits of our new and linear cost structure as well as prudent management of our program and expenses. A reduction in share-based compensation expense due to the share price decline post our Q1 earnings release also contributed to these results.
The segment profit gain resulted in a modest improvement in consolidated segment profit margin which came in at 31% for the quarter. Consolidated free cash flow for the year increased to $155 million, up from $130 million last year as we maintained a disciplined focus on maximizing the cash generated by the business.
On slide 5, our ability to generate solid free cash flow was the foundation for the three financial objectives we set out to achieve when we acquire Shaw Media two years ago, namely to achieve cost savings of $40 million to $50 million over a 24 months period. As you know we overachieved on this goal and we continue to transform our operating model to further improve our cost structure.
To maintain our annual dividend of $1.14 for Class B shares through the end of fiscal 2018, we intend to achieve this objective. We understand there is market interest in our dividend beyond fiscal 2018.
We are carefully considering our go-forward capital allocation strategy and will address the details of our post-fiscal 2018 dividend when we report our Q3 results in June. And to deliver our balance sheet, from 4.2 times net debt to segment profit to 3.5 times by the end of fiscal 2017, which we achieve one quarter ahead of schedule and to 3 times by the end of fiscal 2018.
As we noted last quarter, with soft television advertising revenues it is unlikely will get to 3 times this year, but we are very, very focused on this important goal. As we enter our third year as a new Corus, we recognized that our television and radio businesses operated in a mature and evolving market which brings challenges.
Nonetheless, we believe there are still significant opportunities to be realized through smart investments and content and technology. As Canada's leading pure-play media and content company, we are focused on two overarching priorities.
One, to maximize the profitability of our media businesses here in Canada, while we, two, build our international content business overtime to diversify our revenue base. With regard to our media business, television advertising revenue remains soft impacting our company's overall revenues and visibility of the future revenue from this revenue source is still limited.
As anticipated, this quarter our television advertising revenue was lower than the prior year partly due to the impact of the Winter Olympics so the decline this quarter was an improvement relative to our first quarter results. Turning to slide 6.
To maximize the profitability of our television segment, while offering innovative solutions to our distribution and advertising partners, we are focused on three key priorities in our TV segment. One, grow our high-value audiences, in today's very competitive environment, we remain a top destination for viewers with strong valuable brands and compelling content.
Our recognizable and highly differentiated channel brands cater to women, kids and families, which provides great value to our viewers, advertisers and distributors. Viewing habits are changing, but linear television viewing still delivers vastly more time spent per week than any other platform.
Two, expand our reach to meet the growing appetite for on-demand content. We are following our viewers and we're satisfying our viewers' new consumption habits, many of whom want to binge view our content.
Our new premium video-on-demand product began rollout last quarter and has been met with significant consumer and distributor interest. Likewise, advertisers have realized the unique value of dynamic ad insertion in the on-demand environment.
This is an exciting opportunity within the broadcasting distribution ecosystem and we are working closely with our BDE partners to further development this new revenue stream. Three, invest in technology to expand data-driven advanced advertising solutions.
Corus is accelerating our transformation into the consumer-centric, data-driven company. Our technology and data solutions are changing the way, we sell audiences.
In fact, over 10% of television advertising revenue now comes from targeted audience-based buying, rather than simple demo buying and this number continues to steadily increase. Our technology roadmap will soon enable us to offer advertisers, our customer experience similar to what our digital competitors can provide.
So, within a trust and a safe environment with a proven ability to build brands over the long-term. Our automated buying platform begins beta testing with select agency partners next month with the full rollout plans later in the year.
This platform provides an easy to use interface for advertisers comparable to what they used to buy digital ads and offers an opportunity for even more buyers to use audience-based buying. Also make this simpler for advertisers to bring their own custom and third-party data into their Corus advertising buy creating even more effective targeted advertising solutions.
We believe, there is incredible value for advertisers with this advanced new product for the television industry in Canada. This is not an overnight solution but is an important part of longer term objective to maximize the profitability of our domestic media business.
On to slide 7. Another way, we are working to improve our profitability is to build revenue diversity beyond national television advertiser.
Our local radio and TV businesses are performing well. As John will comment in more detail Corus is realizing with revenue synergies from bringing together global television and our large market radio stations across Canada, as well as the performance of our smaller market radio stations.
Two years ago, we outlined that the combination of these assets will provide a real opportunity to strength in our presence in local markets and increase our overall ratings, which we’ve done and have effectively monetized. We’ve also realized significant cost efficiencies through this period.
And moving forward, we’ll maintain our focus on finding additional efficiencies as we define our processes, deploy new digital technologies and further leverage synergies between global television and our radio network. On to slide 8.
We continue to make good progress and building the scale of international content business through partnerships and an expanding slide or original shows. Nelvana announced yet another significant partnership with the global leader and kids.
In February, we announced Nelvana is working with Sumitomo Corporation to develop and co-produce original anime properties for the international market. This new venture adds to a roster of co-production partnerships that now includes Discovery Kids, Sesame Workshop and Nickelodeon, all of which will help us create more content, more quickly for open the door to broader international distribution and merchandise opportunities.
As we mentioned last quarter, Nelvana along with partners Spin Master and TMS Entertainment plans to re-launch the globally-renowned and successful Bakugan franchise to a new generation of kids. This is yet another example of the leading partnerships that we collaborate with every day to build our international business.
On to side 9. Corus Studios global which continue to expand each year with its slate of original content.
Our premium library of lifestyle content continues to resonate with the broadening range international buyers as multiple seasons of hit series including Masters of Flip and Home to Win along with Backyard Builds and Save my Rental satisfy increased demand in international market and create value for Corus. As these properties broaden their reach into new territories worldwide, we continue to expand our library and develop new series under the Corus Studios banner.
For example, we have recent greenlit 5-year original series for sale at mid-TV this month and for of course broadcast on the networks here in Canada including new Corus Studios fashion competition series STITCHED, which is currently in production slated to premiere in fall in 2018. Also, for sales at MIP, our three new original docu-series Big Rig Warriors, Rust Valley Restorers and World Without, as well as a previously announced new original lifestyle reality show Island of Bryan.
It is important to note that while we are confident in the long-term revenue potential of our owned content business, it will fluctuate from quarter-to-quarter and can be significantly impacted by the timing of content deliveries, merchandising cycles and multi-year distribution agreements. I’ll now turn it over to John, who’ll take us through our financial results by segment.
John Gossling
Thanks very much Doug and good morning everyone. Total television segment revenues were relatively flat compared to last year.
As Doug mentioned earlier, subscriber and merchandizing distribution and other revenue gains were offset by the 3% decrease in TV advertising revenue this quarter as compared to the prior year. While Doug has just outlined the activities, we are advancing to help improve advertising revenue performance in television, this is an area where we continue to have limited visibility into future revenues.
Consistent with our expectations, television advertising revenue increased 1% compared to the same quarter last year. Merchandizing distribution and other revenue from the television segment increased 28% or $4 million compared to the same quarter in the prior year.
This is mainly reflective of higher distribution and merchandizing revenues from our new slate of content Nelvana as well as increased revenues at Kid's Camp press our publishing business. Turning to program expense, we noted that the second quarter did benefit from some program that we shifted into the future quarters by our US content partners to the Olympics and then this has yielded savings in the second quarter it will negatively impact the third quarter with additional costs.
To that end, we will continue to diligently manage our programming cost while ensuring they execute on a programming strategy. Television segment ended the quarter with a 2% increase in segment profit and a segment profit margin of 31% which is an increase from 30% last year.
Looking forward into the third quarter, we anticipate a tough comparable with various items that result in approximately $8.5 million of segment profit in the prior year quarter which will not recur this year and that includes revenue from a multi-year video on demand agreement and a retroactive adjustment on the BDU partners edge agreement that was renewed in the prior year. Turning to the radio segment, as Doug has already outlined, we’re pleased to deliver revenue growth this quarter, an important milestone which we’ve been working diligently towards.
Overall revenues were up 3% in the quarter with gains in both local and national advertising and segment profit increased 9% mainly reflecting increased operating leverage and diligent cost control. That’s helped improve our segment profit margin rate at 21% and that compares to 20% last year.
We saw both local and national revenue growth this quarter driven by number of factors, one retail conditions are improving in the west with the exception of Calgary and Ontario remains very strong. Two, we have witnessed some growth in key categories such as restaurants and professional services, and three, we’ve benefitted from new pricing and inventory management strategies on the local side as well as effective management of our national corporate radio deals to encourage compliance.
Before I turn things back over to Dough, let me reaffirm that we remain fully focused on delivering towards three times net debt to segment profit. Our net debt to segment profit ratio now stands at 3.4 times, that’s supported by improved segment profit in the quarter and continued schedule debt repayment.
We remain very focused on delivering strong free cash flow as evidenced by the year-to-date increase we’ve seen so far and just like to point out that if you look at the trailing 12 months basis, our free cash flow is now $328 million. I’ll now turn it back to Doug.
Doug Murphy
Thank you, John, I’m on slide 12. Before we take your questions, let me close by saying this.
We recognize that the environment is changing and we need to change with it. We began this two years ago and as we enter our third year, we remain focused on the following: Mitigating the softness in national television advertising, buy one, maximizing audiences to smart investments and programming and two, bringing innovative data driven advertising solutions to the marketplace.
Continuing to diversify our revenue base. Within Canada, through local TV and radio advertising growth and internationally by leveraging the Corus advantage to fund our own more content strategies and by increasing our presence across non-linear platforms was in Canada and internationally and remaining relentlessly focused on cost efficiencies while we continue to transform and improve our operating model and cost structure throughout the entire company.
And though we are pleased with results of our second quarter, we recognize that in our rapidly changing industry, there will be variability from quarter-to-quarter. Across these quarters though, we remain focused on our long-term goal of optimizing the core business and positioning the organization and the company for success within a changing media landscape.
To it, we’re laser focused on the tasks ahead driving cost efficiencies and deleveraging the balance sheet to get increased financial flexibility as we progress our plan. Moving forward, we’re confident we have the right team, the right strategy and the drive and commitment to reach our goal of more consistently delivering on our revenues objectives overtime.
Thank you very much and we’d be pleased to take your questions.
Operator
[Operator Instructions]. Our first question comes from the line of Jeff Fan with Scotiabank.
Your line is open.
Jeff Fan
Thanks, and good morning. A couple of clarification questions for John and then a bigger picture question perhaps for Doug.
First on just the year-over-year tougher comparison that you mentioned John for next quarter, you mentioned 8.5 million in operating profit in television. Does that include the timing of the amortization shift from Q2 to Q3?
And can you just help us roughly quantify what that amortization timing impact on the costs was?
John Gossling
Sure. So, Jeff, that’s all about what was in last year in Q3.
So that’s not referring to what’s coming in Q3 this year that 8.5 million. And just for a little bit more detail on that, that 8.5 million breaks down about 5.5 million of that’s revenue and 3 million was costs.
So that’s what you are going to see both top-line and then in total at the segment profit line. In terms of what’s moved, and this is to do with Global and program amortization from Q2 to Q3.
So, as I said, with the Olympics there were fewer shows delivered to us than we would have seen in the prior year. It’s hard to estimate exactly what that is because you don’t know what you didn’t get or what you could have got necessarily.
But it’s single-digit and it’s a relatively small number and I guess I would it’s less than what the revenue impact of the Olympics was. So, to that extent, I think I am really just trying to point out that Q3 is going to be a little bit higher on programming and Q2 got a little bit of a benefit.
Jeff Fan
Okay. And then on the G&A line within TV, it looks like a big swing this quarter from an increase last quarter.
I am just wondering what are some of the contributors to this. Was there any slowdown in the investment on the events ad tech or was it staff reduction?
What drove that G&A number?
John Gossling
I am just looking at the overall detail. Obviously, the programming is a big part that’s not in the G&A line.
There was still slowdown on ad tech investment or for that matter we had the impact in Q1 of the Global morning shows moving out of the benefits line into OpEx. So, I don’t think there’s any one item in particular.
I think it’s just a continued focus and really pushing hard on all the OpEx categories.
Jeff Fan
Okay. And the question for Doug is really like it’s wrapped into your capital allocation comment looking at F ‘19 and the dividend.
Do you think that -- given the amount of dividend that you are paying out, does it -- is it a limiting factor in terms of what you would like to invest into the business in various initiatives in order to drive longer term growth for the company? It’s kind of a bigger quick picture question but just wondering how you think about that.
Doug Murphy
Well, and hello, Jeff. As we access our capital allocation strategy, we are really balancing three very important priorities: The dividend because we understand that our investor base is a yield investor base.
Our bank de-levering, which we are really, really focused on. We’re continually focused on that since we bought Shaw Media.
And organic investments to accelerate the pace of our revenue diversification. We take our financial commitments seriously and we understand that all of you are very encouraging of a rapid de-leveraging profile and we completely agree.
That said, we set the objective of a dividend $1.14 a couple of years ago and we tend to achieve that. So, we are taking a very disciplined process, here we understand what’s the right mix between bank repayment, dividend and organic investment.
It’s very important as you could imagine strategic decision. We will reveal that so we’ll remove any kind of uncertainty when we release our Q3 results end of June.
Operator
Our next question comes from the line of Aravinda Galappatthige with Canaccord Genuity. Your line is open.
Aravinda Galappatthige
Good morning. Thanks for taking my questions.
Doug I will just start with the ad trends that you see early in Q3. You sighted [ph] a bit cautious in your prepared comments.
Are we sort of tracking down in Q3 or is it sort of not clear at this stage what the trajectory is?
Doug Murphy
Aravinda, I think the message -- there’s a couple of messages. Number one is visibility remains limited and we’ve seen a number of quarters now where it's not the way it used to be a couple of years ago, so we have limited visibility.
We’re also offsetting that by really focusing on thinking about our audiences differently and redefining how to best feature audiences and equally importantly how to monetize our audiences and the audience base buying strategies are an essential piece of that removing off buying a big bulky demo. And we're talking about specific psychographic and demographic trades like Auto Intenders, Foodies, Empty Nesters, [indiscernible] Levers et cetera.
That is really resonating with our advertisers and we're seeing steady growth in those investments and advertising campaigns. So, while it's hard to see with any confidence what the visibility is, what is very evident to us is that we're on the right path.
Aravinda Galappatthige
Okay. Thanks for that.
And then with respect to just a most specific question on sort of the on-demand side. Could you give us just a rough sense of like what proportion of the ratings today are coming from VOD or generally like non-linear at this stage?
And obviously, proportionate to that what proportion of advertising is coming from VOD?
Doug Murphy
The vast majority of ratings and ad dollars are from linear television. And so, I would say that it's an emerging opportunity on demand on two fronts.
One is the measurement of on-demand, there is a lot of good work happening in the industry with Numeris [ph] to explore a total video audience measurement campaign which would pick up all video consumed across all platforms that’s moving into a test later this spring that's a first step down to journey that needs to happen to have much more of an all-encompassing measurement, discipline and metric. So that's going count number one.
Count number two is as we continue to provide content to our viewers, I mean there is a whole notion of why should the larger television industry abdicate the on-demand behaviors just an opportunity for us and everybody in the industry. So, we continue to provide some outstanding premium VOD packages to our BDUs.
The update continues to be encouraging and in parallel, we're working with the BDUs on their platform roadmap to ensure that we're building the dynamic add and search and functionality as those audiences grow, we want to be able to optimize the economics. What I can say is that we've seen a rapid growth of those premium VOD packages that we've sold to the BDUs that have the vision to do this, we've seen rapid growth in the consumption of content and we're seeing binging for example on our HDTV package.
We're seeing binge viewing of Property Brothers, which is not surprising, as I see at my house all the time. But it's nice to see it showing up on the set-top-box data.
So, this also feels like we're in the right spot. But to circle back to your original question is relatively small compared to the existing base.
Aravinda Galappatthige
Okay thanks. And again, perhaps lastly on the content side.
There are obviously some interesting and exciting partnerships that you have in the U.S. And you have some sort of new shows that are hitting that merge stage as we kind of go into fiscal '19.
I know that it's obviously volatile on a quarterly basis, but is there a prospect of when you kind a look at the sum of everything you've talked about and bring them back [indiscernible] and I think some of the other brands that you're being nurturing sort of getting to that [indiscernible] should we expect a material upswing in fiscal '19 as we kind of look beyond here?
Doug Murphy
I would say steady growth will remain the right kind of descriptor. And then maybe just unpack just a little bit.
We've been very deliberate in striking these partnership deals. We are very confident, is the right way to go.
It's a risk of mitigating strategy and as the option value optimizing strategy, because we're bringing to bear good partners with strong global footprints access to intellectual property and a genuine financial commitment to win. And I think that the caliber of those four partners now is obviously unequivocal.
So, we're focused on doing that. Within our content business, there is a number of other highlights I just like to note here.
We've got, we have great performance from our animation software company Toon Boom, which is the global leader in 2D animation software which continues to grow and has a real bright spot for us. Our Kid's Cam Press business continues to have some very, very strong performance.
And then we have, as I reflected in my comments, our Corus Studio. So, there is a real team of content players bringing the performance of that other revenue sector to bear here.
And as far as F ‘19 is concerned, I would just draw straight lines with to the trend as opposed to any kind of hockey stick, I guess probably would be my quick answer.
Aravinda Galappatthige
Actually, if I may squeeze one quick one on the cost base. You did a good job obviously in Q2 and have been in the past.
Given the uncertainty on the revenue side, is that extra layer that you can look at, if you have to look at, to sort of maintain a bit and profitability at an if sort of ad trends kind of worsen. I mean there is obviously a lot of smaller channels out there, that you could look to rationalize.
Just any color on that either Doug or John? Thanks.
Doug Murphy
Absolutely. Costs are always on the table.
And if anything, I think, you’d all agree that management has demonstrated a strong ability to continually take costs out of the business and our focus is continually to find ways to operate more efficiently. If there is one thing that’s true, the business is rapidly changing and we have to look at activities and resources that we commit to in our business and say are we getting the return if not, we’re going to stop doing them.
Further, we have to re-divert those resources into the revenue diversification strategies that we’ve discussed or deleveraging. So, I would say that we have a continual outlook on operational savings given the uncertainty under revenue and television advertising.
Operator
Our next question comes from the line of Adam Shine with National Bank Financial. Your line is open.
Adam Shine
John, maybe you can just further elaborate on the Nelvana context. Because, I saw part of the boost last year at Nelvana results were driven by the timing of some TV deliveries.
Is that a lesser factor going into the Q3?
Doug Murphy
Sorry, I’m not totally clear on your question. Are you talking about Q3 last year?
Adam Shine
Yes, yes. In terms of the incremental boost last year.
Doug Murphy
Well that would be within that revenue number that I quoted, the 5.5 million last year of the 8.5. So, there is a little bit there.
Nelvana is still relatively small, but it definitely does have variability.
Adam Shine
Okay. And then maybe just going back to some of the cost control efforts.
Notwithstanding G&A going down and that certainly elaborate on the ongoing restructuring efforts [indiscernible] with you guys. Corporate cost moved up, I know there is a bit of a timing factor there.
But is that just something you might want to elaborate on. Again, maybe just a timing factor?
Or is there any consideration there of some creep up?
John Gossling
Yes. You’re talking outside of the stock-based comp obviously.
I think it’s relatively small, I’m not sure, there is -- yes, it’s timing, there is nothing that’s really calling out specifically there.
Adam Shine
And then lastly and as much as we saw the launch of, I guess Global GO and we continue to anticipate perhaps that CBS All Access eventually comes into Canada, I think it was telegraphed as a first half event. I know you guys have, I think talked in the prior call and in the past that, you guys doing that a non-event.
Are there any other sort of evolving changes in the marketplace positive or negative that we haven’t yet necessarily addressed? I mean the secular challenges are there.
You guys are pursuing some other revenue initiatives. Are there any potential for divestitures, I mean it was alluded to earlier that, but maybe there are opportunities on the channel front, but does Nelvana ever come into play as a divestiture candidate?
Or not really on the table now?
Doug Murphy
I would say no to Nelvana as a divestiture candidate, it’s a, going content is a pivotal part of our two-pronged strategy [indiscernible] in Canada and grow content internationally diversify revenue. We move very quickly to sell H&S.
That is pending. But we’re confident that that will be approved and that will be obviously a major factor in an accelerated profile as we deleverage the balance sheet.
Your comment on CBS All Access and all the streaming platforms, yes, we continue to feel. And we’re, CBS is a great partner of ours, but we’re not entirely trust [ph] about that impact of that on our audiences.
I think the one thing I would note is that, there is a number of interesting conversations afoot in Canada with the MVPDs, the players in the U.S. YouTube channels, Amazon streaming platforms, Sling.
I think in the coming 24 months we’ll begin to see the arrival of these players in Canada which presents a small opportunity for us that will be the only kind of new thing in the marketplace I’d answer your initial question with.
Operator
And our next question comes from the line of Bentley Cross with TD Securities. Your line is open.
Bentley Cross
First of all, I wanted to ask I mean you’ve been very clear that the ability and the ad market remains limited but maybe you can just look backwards for a second. Is it possible to kind of give us a number ex-Olympics?
Is this what you thought ad revenue was in the quarter?
Doug Murphy
I’ll give you an answer. We grew TV ad revenue in December and January and then we gave it back in February.
Bentley Cross
Okay, great. And then separately on the merch side, obviously its lump from quarter-to-quarter on the revenue side but also can be lumpy on the margin side.
Was there any different margin profile in the quarter or was that kind of at corporate level?
John Gossling
No, you are right Bentley that the revenue can be quite lumpy, I think we don’t want to overstate that though, I mean the merch revenue for the quarter is still kind of in the very low single digit million. So, but you’re right, the margin is very good on that particular line but there is nothing particularly unusual about the margin there for this quarter.
Doug Murphy
I guess I will make a comment on, this is Doug, the merch business is kind of bifurcated because we’ve got our own brands which as the licensing business is a high margin business in of itself but we also are acting as an agent in Canada that the enterprises team is building a new business and we’re currently working as an agent for our friends E-1 with their hit property Pepper Pig and their soon to be new hit it PJ Masks, furthermore we also are an agent for Cartoon Networks. So, we’re leveraging the scale of our company in Canada, our ability to schedule strategically with content and our relationships at retail to kind of both set the table for our brands but also work with partner brands and we’re seeing some nice growth in that business of a small base as John knows.
Bentley Cross
Okay, great. And then one last one from me, I mean to see radio revs up for the first time since I think 2013 was certainly took us by surprise, is there anything out of the ordinary or you just guys gain share or what really drove that in the quarter?
Doug Murphy
Well it gives me a chance to shadow to the radio and local global TV teams because they’re doing a fantastic job. It is the scale benefits at local, and it's really showing up, its showing up on our global news AMs radio network sharing content, sharing talent.
It’s showing up on our leveraging, the disciplines we have with our multi-market content kind of approach with our news business where we kind of scale across multiple markets our news products, we are now scaling across multiple markets our music strategies which leads to both solid rating gains and cost efficiencies. And then finally in those large markets where we are collocated with global television and Corus Radio, the sales teams are just having a great time selling television and radio together and we continue to grow at a double-digit rate again off a small base but its meaningful.
Those advertisers are now experimenting with television and it always used to be in radio and vice versa. So, it’s a wonderful confluence of events that is leading to the growth at local and we’re pretty confident that that’s a good business for us and that’s why I wanted to call it out on my remarks as part of our team here about achieving revenue diversity.
Operator
[Operator Instructions]. Our next question comes from the line of David McFadgen with Coremark.
Your line is open.
David McFadgen
Hi guys, so a couple of questions. So, you say you’re going to address the dividends for fiscal 2019 when you report Q3.
I think the stock is down a fair bit maybe just [to see people [ wondering if there is going to be a dividend. Can you comment at all about that, whether you think that there was to be some sort of dividend going forward, fiscal 2019 just give people some sort of assurance on that?
Doug Murphy
I could assure you there will be some sort of dividend going forward in 2019.
David McFadgen
Okay, great. So just on the radio business, do you think that we’re now at a point where there could kind of be a new trend going forward where we might see radio posting better results or this is just kind of you just have a good quarter and just the visibility is just too low to say right now?
Doug Murphy
So okay, there’s two ways, I’m going to answer that question with two beats. The first one, I really want to make sure we all understand is our business is relatively variable.
So, we are going to have good quarters, we are going to have bad quarters. And I think we have to be taking the long ball theme here.
So that’s just a note that we made, John mentioned in his remarks, I mentioned in my remarks it was purposeful. As regards the radio division, I am thrilled.
I have been -- I’ve had the pleasure of working with radio since 2010 and my first number of years has been quite the challenge. And the nice thing about radio is it remains a high time spent reality with consumption.
Radio has got a powerful local talent connection, both to the listeners but also to the advertisers. There is an art for programming and I do believe we got some fantastic programmers in our company that we now have centralized a strategy, so we are not running programming strategies on a market-to-market basis.
We have a view from the bridge which is showing up and once again underscores the news product we have which is derivative from our great Global News team, and the news gathering it is really shoring up our Global News radio stations. So, I am cautiously optimistic that yes in fact there has been turn put in the radio segment.
But also, I would equally balance out with a fact that these quarters will be variable.
John Gossling
And David think if you look at what happened in Q2, I would just add to Doug’s point, for radio to get to the level it got to in Q2, it needs national and local revenue to be performing. And what we’ve seen in the last several quarters, really last couple of years is one has actually been performing well but the other one's been down a little bit.
And this was a quarter where both were kind of firing on all cylinders. So, and as Doug said that can change from quarter-to-quarter, so local has been doing quite well the last several quarters, national has been a bit more challenged.
But that can easily change in the next quarters. So that’s why we hedge a little bit because it’s hard to see how those two pieces are going to move.
I mean radio is 70% local business so that’s the biggest driver obviously, but national still has a big impact.
Doug Murphy
And if I could just also cover in, radio just spins cash, I mean it’s a great business. It’s a really, really good operating leverage business.
And so, any kind of revenue growth we get has got a lot of torque and we like the cash flow profile.
David McFadgen
Okay. And then if I can just ask a question on the merchandising side.
So, the revenue and growth was strong in Q2. It’s up 17% for the first six months.
Do you think that or can you give us an idea of the merchandising revenue trends for the full year, do you think it will be up double-digit? I am just wondering if in the latter half of the year, we are going to see merchandising be flat to down, just given you had a very strong first half?
Doug Murphy
Well -- and just to be clear David, that line isn't just merchandising, merchandising is a very, very small part of that. I think the back half is going to be lower than what it's been in the front half.
I think that is relatively clear and that gets driven a lot of Nelvana’s delivery schedule and a few of the other pieces that make it up. So yes, I think good first half, won’t be as strong in the second half.
David McFadgen
So, when you say lower you mean lower in terms of year-over-year growth or lower in terms of just absolute dollars?
Doug Murphy
Well, I’m sort of focusing on what the full year is looking like and it will still be up overall but just not to the extent that it has been. And as I mentioned that SVOD sale in Q3 last year will have a big impact in Q3, right because that’s typically where that revenue tracks.
David McFadgen
Okay. And then just following up on a previous question just on the TV advertising.
It wasn’t clear to me, if you excel ex-out the Olympics, was revenue down or was it flat?
Doug Murphy
It’s hard to -- it’s really hard to isolate, I will stand by my earlier comment, we had several months of growth leading to Olympics and then the ice has all shift, Canadian’s love Winter Olympics. So -- and this is the volatility and the visibility issues that we've spoken to on the call.
John Gossling
So, you can take from that, that if we were down 3 for the quarter February was down significantly. As Doug said, David, it's really hard to know to count what you didn't get.
So
Operator
Our next question comes from the line of Drew McReynolds with RBC. Your line is open.
Drew McReynolds
Thanks very much. Good morning.
Pre-follow ups from my perspective, first for you Doug, a big picture one on your programming buying strategy TV buying strategy. Just wondering as you kind of go forward in the next few years, there isn't a lot of visibility in TV advertising as we all know.
In the past you've done longer term output deals with obviously the key premium players in the U.S. Just wondering with the absence of the visibility in the top-line, how that programming purchasing strategy or negotiation kind of changes over let's say the next 2 to 3 years if it does at all?
Doug Murphy
I would say that our output deals, we've done I think a very smart series of deals over the years to secure content trademark digital output from the best brands in the U.S. on an exclusive nature for multi-year terms.
We love those deals. I'm not going to speak too much about them because it is competitively sensitive.
What I would say is, the areas in the portfolio I think that we're looking at are not those big services, because we think those will got a long way to go across multiple platforms. You've got deep and long partnerships with those U.S.
content providers. I think, what I would do is invert your question and say in the next few years what happens to channels that have no content supply, no distinguishing brand, limited carriage and I think that's where we're really focusing on optimizing our portfolio.
We're going to hunt with the big dogs and we're going to increasingly look to focus to growth. And I think that's really key piece of the next chapter of our channel portfolio strategy.
Drew McReynolds
Okay. That's helpful, Doug.
Just on a separate note, on the regulatory side, when you look forward, clearly anybody on the legacy side of the business disappointed by a playing field that's not level clearly with a lot of the over the top folks that increasingly come here to Canada. What is the next regulatory developmental review process by which you can again try and kind of state your case for releveling of the plain field?
Doug Murphy
Well there is a full of docket right now which I'm quite thankful for honestly. Listen, we believe that there are real opportunities that deregulate our industry to allow for greater competition and increased opportunities for Canadian media and Canadian producers to thrive.
There has been a push for example by a number of folks to regulate online platforms. Frankly speaking, we need less regulation not more.
Although I do believe that having a level of playing field as far as taxes is a sensible approach. We're though, in general support of an easy and regulatory burden on broadcasters and on BDUs.
We're very supportive of [indiscernible] requirements because it's part of our longer-term view to grow our content business and we support both producing our own content but also the CMPA and independent producers in Canada were supportive of more financial support for local news. We've all -- I don't have to tell anybody on the phone about the fake news issues that all the data problems.
I mean local news is the lifeblood of the local community. We believe in the importance of being a broadcaster in that regard.
We support regulatory changes to increased scale in Canada. We support regulatory changes to allow increased foreign investment in Canada.
We're supportive of the CBC's own recommendations. And so, we've been advocating with a louder voice and we'll continue to do so.
Drew McReynolds
Okay. And final question maybe for you John.
Just with respect to the consolidated CapEx and what for the company on a kind of capital intensity perspective? Corus clearly running quite low a big EBITDA to free cash flow conversion rate which is obviously nice within the context of all your objectives for conversion rate which is obviously nice within the context of all your objectives.
Just wondering over the medium term, let’s say 2 to 4 years. Are there any chunky CapEx projects that would bump up your capital intensity, where relative to where it is today?
John Gossling
It’s a good question. We have been running quite well in that sort of $20 million to $25 million range is probably where we’ll end up for fiscal 2018.
In terms of anything on the horizon, there is the normal replacement cycle as technologies change and we can become more efficient through doing those types of investments. I guess, the big question and there’s lots of news flow on this not related to Corus necessarily, but the 600-megahertz spectrum auction will require us to relocate some of our frequencies to make room for that spectrum.
Now it’s not completely clear how or if that will be compensated at all through the process to the auction. So, there’s still efforts on that front.
Our total costs on that which will probably happen over 2 to 3 fiscal year is likely in the $20 million range. So that’s manageable, I would say within our existing CapEx.
We don’t look to see a big spike in CapEx from that. I think we can deal with it as it comes.
Operator
That’s all for questions. I’ll turn the call back over to you.
Doug Murphy
Great. Thank you, Matthew and thank you everyone.
We appreciate your time and support this morning and we look forward to speaking you in the future. All the best now.
Operator
This concludes today’s conference call. You may now disconnect.