Jun 27, 2017
Executives
Doug Murphy - President and CEO John Gossling - EVP and CFO
Analysts
Vince Valentini - TD Securities Aravinda Galappatthige - Canaccord Genuity Jeff Fan - Scotiabank Adam Shine - National Bank Financial David McFadgen - Cormark Securities
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Corus Entertainment's Q3 2017 Analyst and Investor Call.
During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.
[Operator Instructions]. As a reminder, this conference is being recorded Tuesday, June 27, 2017.
I would now like to turn the conference over to Doug Murphy, President and CEO. Please go ahead.
Doug Murphy
Thank you, Chris. Good morning, everyone.
I’m Doug Murphy, and welcome to Corus Entertainment’s fiscal 2017 third 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. The slides can be found on our Web site in the Investor Relations section.
We will now run through the standard cautionary statement. 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 is contained in the company’s filings with the Canadian Security Administrators on SEDAR. Turning to Slide 3 of the presentation and a discussion of our results.
As anticipated, we had a solid start to the second half of our fiscal year with continued progress against both our strategic and financial goals. Consolidated revenues for the quarter were $462 million, up 28% from $361 million in the prior year.
As a reminder, we closed our acquisition of Shaw Media on April 1st last year and as such the prior year quarter reflects only two months of Shaw Media results. On a pro forma basis, including Shaw Media for the full three months, we delivered total revenue growth of 3% compared to the prior year.
Contributing to the consolidated revenue growth was; one, a strong performance from our content business which contributed double-digit gains in merchandizing, distribution and other revenues in the quarter. Growth was mainly attributable to a ramp up of deliveries from our exciting new slate of Nelvana properties.
Two, a 4% increase in subscriber revenues on a pro forma basis as we continue to benefit from the positive impact of our suite of Disney Channel’s annual wholesale fee increases in certain BDU agreements as well as the successful conclusion of a few tariff agreements in the quarter. Three, total advertising revenues which met our expectations of flat for the quarter on a pro forma basis continuing the sequential improvement throughout the year.
Consolidated segment profit for the quarter was $171 million, an increase of 35% from $130 million last year. On a pro forma basis, including Shaw Media for the full three months in the prior year quarter, segment profit increased an impressive 14% reflecting the revenue growth in the quarter combined with the ongoing realization of cost synergies and strong expense controls.
We continue to benefit from our improved operating leverage delivering significant margin expansion with the consolidated segment profit margin of 38% in the quarter compared to 34% in the prior year on a pro forma basis. We have now lapped one full year as a combined organization and our Q3 results are right on target with where we expect to be.
In addition, we are pleased to announce that we have achieved a key financial milestone earlier than anticipated reducing our leverage to 3.5 times net debt to segment profit this quarter. With that, I’ll now turn the call over to John who will provide further detail on our results by segment.
John Gossling
Thanks very much, Doug. I’m on Slide 4, on a pro forma basis, including three months of Shaw Media in the prior year, segment revenues for television were up 3% in the quarter compared to last year.
TV advertising revenue trends improved as expected to benefit from the impact of our strong program schedule as well as positive contributions from our calendar year agency contracts. On a pro forma basis, as Doug mentioned, total subscriber revenues increased 4% in the quarter.
The year-over-year increase reflects the impact of wholesale fee increases and the continued positive contribution from our suite of Disney Channels. Q3 also benefited from the timing of certain deal renewals.
In Q4, coming up, we anticipate a tough comparable due to the timing of renewals in the prior year but we expect to deliver both single-digit growth for the full year of fiscal 2017. On a pro forma basis; merchandizing, distribution and other revenues increased 44% in the third quarter reflecting a positive contribution for the Nelvana content business as our exciting slate of content ramps up with increased deliveries to our broadcast partners.
On a pro forma basis, segment profit for television increased 13% in the quarter due to revenue increases as well as the continued benefit of cost synergies and prudent management of our overall costs. Segment profit margins for TV were 41% in Q3 versus 37% in the prior year on a pro forma basis reflecting our improved operating leverage.
Moving on to the radio segment, total revenue decreased 1% for the quarter compared to the prior year with flat advertising revenue driven by strong national sales but offset by continued softness in certain local markets, particularly in Western Canada. The Ontario markets remained stable in the quarter and we are encouraged to see improved performance in Vancouver and Edmonton, however, soft economic conditions persist in Alberta and in particular Calgary is being impacted.
In Winnipeg, December’s programming changes have resulted in notable improvements in the spring’s rating diary but this is yet to translate into revenue growth for Winnipeg. Our most recent TPM ratings book reflects relatively stable performance across Toronto, Vancouver and Alberta.
Radio segment profit increased by an impressive 20% in Q3 while segment profit margin for the division grew to nearly 30%, which compares to 24% in the prior year reflecting the continued realization of cost synergies driven by the innovative organizational structure we implemented last year and our ongoing commitment to cost controls. On Slide 5, we’re making solid progress on our financial priorities for fiscal 2017 which just as a reminder are; one, ensuring we identify and capture all revenue and cost synergies delivering $40 million to $50 million in cost savings in the first 18 to 24 months after the close of the Shaw Media acquisition.
Our success to date is reflected in strong segment profit gains and margin expansion reported this quarter. Two, delivering solid free cash flow to reduce net leverage to below 3.5 times by the end of fiscal 2017 and below 3 times by the end of fiscal 2018 while simultaneously advancing our strategic priorities.
As I’ve mentioned earlier, we are pleased to have hit our 3.5 times net debt to segment profit goal earlier than expected and our free cash flow is on track with expectations supporting our third goal which is to maintain our dividend at $1.14 per Class B share. We remain committed to progressing against each of these priorities as we move into the final quarter of fiscal 2017.
I’ll now turn the call back to Doug.
Doug Murphy
Thanks, John. Turning to Slide 6 everybody, as highlighted we are seeing solid improvements across many parts of our business giving us good momentum heading into fiscal '18.
We shared with you last quarter that Global has its best fall in over a decade and I’m pleased to share that it’s also had the best spring in a decade as well. Building on this momentum, we held our annual upfront two weeks to go where we unveiled our new fall schedule to clients and the feedback on our schedule has been overwhelmingly positive.
We went to LA this past May looking for shows with big stars, big brands and balance with the schedule with established content popular formats that would hit the ground running. And we came back with exactly what we needed to further strengthen our schedule and build on Global’s momentum this fall.
In total, we will have 16 hours of simulcast, one more than last season and we’ll be adding six new dramas and four new comedies which deliver on our strategy, including Will & Grace, S.W.A.T., Law & Order True Crime; The Menendez Murders, SEAL Team, and The Brave. We also bought on Slide 7 the Canadian broadcast rights to the complete Star Wars movie package making us the exclusive home to the most powerful film franchise ever.
And speaking of rights, this year we purchased more rights across more platforms than ever before as we continue to move to an on-demand and multiplatform world. All of this was done within the scope of our budget and we once again managed to return with some cash in our pockets.
On Slide 8. This spring, our specialty television rankings continued to be strong.
Excluding sports, we delivered four of the top five channels amongst adults 25-54; five of the top five channels amongst women 25-54; five of the top five channels amongst kids 2-11. We have a strong new slate of programming coming to our specialty channels this fall as well as popular returning programming, all carefully curated into a unique brand environment which will ensure that we will continue to build on this success.
Moving to Slide 9. We continued to make significant progress in building and selling our slate of owned content both through Nelvana and Corus Studios.
Our lifestyle content through Corus Studios continues to be very well received internationally and we have been quite successful in selling this content to major broadcasters worldwide including the Discovery Channel International, AE Television International, 9 [ph] and Foxtel Networks in Australia, HGTV and FYI in the U.S. just to name a few.
We are on track to double our content slate this fiscal year and are pleased to report that our international presence continues to grow. Masters of Flip is now available in 147 territories; Buying the View in 65 territories and Home to Win in 44 territories with more to be announced shortly.
And Nelvana is right on track as we start to ramp up deliveries of new franchise properties such as Hotel Transylvania premiering this summer in fact last Sunday on Disney in the U.S. and Mysticons set to premier on Nick in the U.S.
later this year. We are feeling optimistic as we move into the launch phase with our robust network of global distribution and merchandizing partners bringing these engaging characters and storylines from our studio to audiences around the world.
On to Slide 10. We have been working hard to create a powerful new course.
I would just like to take a moment to highlight a few recent examples of how Corus is not only being recognized at home but around the world for our high quality content and innovative business practices, a testament to our talented team. Last week, for example, Global News was awarded inaugural Edward R.
Murrow award for Excellence in Innovation in the large market television category for our multimarket content or MMC initiative. This coveted award announced by the U.S.-based radio television digital news association in April recognizes media outlets who innovative to enhance the quality of journalism around the world.
Global News’ MMC initiative enables the news team to achieve backend production synergies for various news segments facilitating a greater focus on providing distinct local news cast to our local markets across Canada. This followed five additional Edward R.
Murrow awards for Global News, including the best Web site in the large market television category for Globalnews.ca, a big shout out to the Global News team. But there’s more.
On the publishing side of our business in April, we were excited and thrilled to learn that Kids Can Press has been awarded the prestigious Bologna prize for the best Children’s Publisher of the Year in North America with the recent launch of our new imprint KCP Loft, a young adult book line developed in support of our strategy of expanding into new and adjacent markets we continue to see great things ahead for the small but important piece of our content portfolio. Well done Kids Can Press.
Slide 11. In the short term, rate of visibility for our outlook remains low with continued softness in our Western markets.
We had a good summer ratings book and will continue to work hard to offset challenges in some of these local markets. On the television side, while summer is typically a lower demand period, we have a strong schedule heading into the upcoming broadcast year and our focused on getting off to a great start in fiscal 2018.
Nelvana is expected to continue to make positive contributions in Q4 with a continued delivery of new episodes from this great lineup of franchised properties. At this point in the year of fiscal '17, it’s hard not to reflect on the incredible progress we have made.
We are very proud of our accomplishments to date and more determined than ever to delight our audiences with the best brands and content supported by strong partnerships and a deep commitment to innovation. With a powerful sight of programming secured and strong ratings momentum, we are now fully focused on our planned cycle for fiscal 2018.
We believe that our strategic priorities continue to provide the solid foundation we need to move us in the right direction over the longer term. As always, I’d like to thank our dedicated team across the country who continues to work hard to move the business forward while completing the final phases of our integration work.
With that, we’ll take any questions you may have. Thank you, operator, and back to you.
Operator
Thank you. [Operator Instructions].
Our first question comes from the line of Vince Valentini with TD Securities. Please go ahead.
Vince Valentini
Thanks very much. First congratulations on getting back to positive revenue growth, guys.
A couple of questions on that; one on the subscription side, one on advertising for TV. So maybe, John, the 4% subscription revenue growth you mentioned had some timing benefits on renewals and that comp would be tougher in Q4.
Can you refresh us on how those deals work? Don’t you renegotiate like for a period of three year, five years and it’s just a steady stream of wholesale fees you receive or is there some sort of upfront payments that are one-time in nature whenever you do a renewal?
John Gossling
Yes, thanks, Vince. It’s not so much there’s upfront payments but what happens is you get a bit of a catch up as these renewals happen if the deal has gone out of contract for a period of time and it’s just carrying on at the old rates, then it can be a retro component when we sign for the extension.
So it’s simply a case of there’s some of that money to the tune of a couple million dollars in Q3. And we had the same thing in Q4 last year; a little bit more but some similar amounts.
So that’s what I was referring to as we get a little bit of a boost this quarter, we had a little bit of a boost in Q4 last year. So the comp in Q4 is going to be difficult.
But for the full year we’re still expecting to be in that kind of 2% range in total.
Vince Valentini
Okay, good. That makes sense.
So just on a go-forward basis then, is it fair to say these renewals are building in rate escalation that is consistent with your low single digit growth outlook for that space?
John Gossling
Yes, we’re still feeling pretty confident.
Vince Valentini
Okay. And on the advertising side, so clearly a sequential improvement but still struggling to get on the positive side of the ledger.
Can you talk a little bit about what you’re seeing maybe since the upfront or given these new ad buying commitments for the full year? Are you starting to get some bookings and some visibility into the fall or are some of these ad buyers saying, we didn’t spend our full commitment in the spring but we’re going to spend more in the fall when your programming lineup looks strong, or how much visibility do you have and how much color do you have in terms of TV ad revenue growth turning positive in the next couple of quarters?
Doug Murphy
I’ll take that one, Vince. It’s Doug.
First off, thanks for the congrats. Management has been pretty declarative over the last number of quarters that we continue to see sequential improvement in revenue and we’ve drawn a pretty straight line four quarters in a row now and I think just like this signal that we remain of the view that that improvement will continue.
And that this quarter past I think in all candor we suffered from five Canadian teams going deep in the Playoffs which kind of took some lion share away, so kudos to our friends up on Border Street [ph] in that regard. But we still feel optimistic about the coming quarters.
As the upfront is concerned, it was a fantastic event. The team once again has done a superlative job demonstrating that we are a pure play media content company and we really understand how to leverage our schedule.
And the work we did both to maintain some schedule continuity with returning big shows and then where we had holes in our schedule being super clever about what simulcast to pick up which we increased our total amount of simulcast hours bodes extremely well from an inventory delivery and ratings perspective in the coming year. And then I would just give you some commentary on and it’s really, really early but we have seen some growth on the pacing for the upfront buys.
I would tell you those are low single digits but they’re compared to same time this time last year, the momentum seems to be as we would expect it to be favorable.
Vince Valentini
Okay, thanks. I’ll pass the line.
Doug Murphy
Thank you.
Operator
Our next question comes from the line of Aravinda Galappatthige with Canaccord Genuity. Please go ahead.
Aravinda Galappatthige
Good morning. Thanks for taking my questions and congrats again for the quarter as well.
Doug, I was wondering a little bit more big picture with some of the trends in advertising in TV that you’ve been seeing sort of beyond sort of what you’ve been discussing about the fifth ad agency, et cetera. Attitudinally, is there sort of a bit of revision that you’re seeing with the advertisers and the agencies towards TV?
I know that maybe a year ago, year and a half ago, there was obviously a big shift towards digital and the U.S. we saw that side can change a bit in your conversations, maybe even after the upfront.
So I was wondering if there’s anything that you’re sensing that’s worth discussing as you think more longer term about the outlook for TV advertising in Canada?
Doug Murphy
Sure, happy to comment on that. There’s a lot to that.
Obviously, I would just give you a couple kind of headlines. I think the first thing is that every CMO out there now is reflecting upon what the right mix of media elements are for their campaigns.
And there’s a wholesale acknowledgement in the business that you need to be at all places in the funnel. So the top of the funnel, the wide end of the funnel was brand awareness; the middle of the funnel was information; the bottom of the funnel was conversion.
Digital is extremely effective at the bottom of the funnel. Wide reaching frequency media such as television, radio, print to a lesser extent, are very effective at the top end of the funnel.
And in the middle, TV is going down the funnel and digital is going up and we’re kind of meeting in the middle. And the truth of it is, is that CMOs and agencies now are kind of recalibrating their ad buys to recognize that you cannot walk away from the whole funnel.
You got to be everywhere. So that bodes well for television and as I say, wide reaching frequency media which is my new name for what people call traditional or old media, because there’s nothing like television and radio for wide reaching frequency.
It’s the best ROI, it’s the best for brands and there’s not one CMO or agency either that will tell you otherwise. So that’s kind of one comment about the marketing mix.
The second element I would just share is a view is not a view. In other words, a view on television is a 30-second spot and it is a quality piece of content which is effective for the viewer.
A view as measured on digital is 3, 4, 5, 6 second, maybe longer if you’re lucky but is not nearly as effective at demonstrating product attributes and features and benefits as is on television. That’s also something that the industry is waking up to and I think that bodes well.
Third piece I would offer is safe and trusted. Clearly, there is a lot of concern now that there is not a safe place for brands when they advertise on digital.
Clearly that is bad if you’re a marketer, if you inadvertently have your product up against a bad piece of content that is clearly not going to be a good thing for your property. So we are seeing some folks saying, I just don’t trust some of the digital platforms but I trust television and radio.
So all of those things are out there. I think they’re all meaningful for us.
It’s still a dogfight to be honest, but I think it sets us up well from an industry perspective to pursue share improvements. And clearly when we have the momentum we’ve got on our networks; that also was helpful.
Aravinda Galappatthige
Thanks, Doug. That’s great color.
And just on the subscriber side of things, a similar sort of a question that give us a sense of the conversations you’re having with BDUs? I think people talk about things like power ratios and things like that.
I know it’s quoted a lot in the U.S. as well.
Given sort of the consolidated strength that you have now in the women’s category and the kids and even the adults category in general, what are sort of the main objectives you’re looking to hit as you kind of revisit these affiliate agreements with the BDUs?
Doug Murphy
There’s a number of ones in there. First off, we continue have a focus on our big channels, our 10 channels that are massive and growing and we are investing in to further the growth.
There are distinct environments for advertisers clearly positioned. We made HGTV stronger this year by moving our property shows off W onto HG and we invested in making W stronger as well, because there’s now a destination for scripted drama for women.
That’s just one example. I can cite 10 more.
And so as we go back to the BDUs, we’re looking to make our big channels bigger and there’s pretty much unanimous consent that that’s a good idea because that’s where all the audiences are. So that’s just some commentary there.
You referenced sports. There’s always a conversation about power ratios not just on subscriber revenue but also on advertiser revenue and the industry bodes on this distribution side and the agency advertising side is always shared on sports.
We think that’s an enormous opportunity for Corus in the years ahead to demonstrate that our services are of great value to distributors and warranting modest revenue increases on rates. But equally so that there is better advertising efficiencies to dedicate your dollars – your ad campaign dollars to Corus Networks that deliver women and family as opposed to what is an over shared sports in a series of channels.
So that’s my second note. And the third one I would just add is I think one of the most exciting opportunities for the industry and we’ve talked about this – I talked about this at the upfront is to affect the wider use of dynamic ad insertion on VOD with the distributors.
More and more content is consumed on-demand, on VOD. We have made investments in securing the NCs [ph] and stacking rights to all of our best shows on Global and on specialty.
There is money there and we are working with our distributors and our agencies to help set up the opportunity to invest in commercials during on-demand viewing. So that would be a third note that we’re having in discussions with our BDUs.
Aravinda Galappatthige
Okay, thanks, Doug. And just a quick question for John.
Two items have been a bit difficult to forecast certainly on a quarterly basis, maybe even on an annual basis. Can you just touch on the minority interest component and the working capital?
It seem to kind of move around quite a bit in Q3 and non-controlling interest have kind of jumped a bit and working capital uses a little higher than perhaps we would have expected both on a year-to-date and I think a Q3 basis.
John Gossling
Sure. Those are difficult for us to forecast as well that will be fair to say.
The answer in both cases is probably mostly driven by seasonality. The minority interest calculation obviously follows the income of the individual partner channels.
So Q3 being a strong quarter, it would make sense to be slightly higher. But I think it’s relatively stable for the full year.
If you look at working capital, yes, I mean it’s been a challenge for us. We’re working hard to improve our working capital position.
I think we mentioned last call as well that we’ll do better. We’ve seen good progress in Q3 on the collections side but we need to bring our DSOs down and our older accounts down.
So there’s a lot of focus on that right now. We did have a fair bit of integration activity earlier in the year that caused a bit of a delay there but now we’re getting back on track.
So it’s both cases very valid points and they do move around a little bit quarter-to-quarter. But I think if it follows the seasonality trend, that’s probably the best way to look at it.
Aravinda Galappatthige
Okay. And just a quick follow up there, John.
The cooking channel transaction sort of have a big impact on the minority interest there or was that quite nominal?
John Gossling
No, it’s fairly nominal. You’ll see in the cash flow there’s a cash inflow item from the sale of the minority portion but it doesn’t have a big impact on the minority interest.
Aravinda Galappatthige
Okay, great. Thank you very much.
Operator
Our next question comes from the line of Jeff Fan with Scotiabank. Please go ahead.
Jeff Fan
Hi. Good morning.
And congrats on the revenue growth. I think one of the things that we’re trying to figure out is you’re certainly getting some looks – what looks like some revenue synergies but the overall market is still pretty challenging on the advertising side.
So there’s some puts and takes. I wondering if you can just help us on a net basis as you look forward, the positive impact from some of the agency deals that you’ve seen now versus what’s going on in the market, is it going to continue to drive what you think would be positive TV ad revenue growth?
I know that’s kind of a tougher question but I think that’s really what the market is struggling with given the valuation on your stock.
Doug Murphy
It’s Doug, Jeff. Let me just say this.
Every quarter that passes, we’re getting smarter about how to deploy the significant assets that we have as a new course and we’re continuing to work hand-in-hand with the agencies to deliver results for each of us as business partners. This is a very competitive world I mentioned on an earlier answer to Aravinda about the dogfight between digital and wide reaching frequency media.
I think we have a shared opportunity there to kind of correct some of the imbalances and get more of a balanced funnel investment so that would be a positive. I also think that really for us the way we look at it is it’s a share gain within the traditional wide reaching frequency media players were looking to out compete and win share.
And then that comes from ratings growth. So it’s hard to predict the future.
As I said earlier, I think we’ve been pretty consistent in our declarations of what we believe to be doable and we’ve been doing it and we like to think that that will continue in the year and quarters ahead. But you are right to say that the overall economy is a little soft.
That translates right down to the advertising economy saving a better part from the distinctions between traditional reaching frequency and digital. So as I said earlier, it’s a battle but I think we’re as well positioned as we ever have been given our improved cost structure, better margins, strong schedule and the momentum we have going into the next fiscal.
Jeff Fan
That maybe just a good segue into fiscal '18. I know you’re going through your planning period but at a very high level I think you’re going into your third year with Shaw Media.
What changes from the focus that was in place for '17 versus '18? How should investors sort of think about where your heads are at in terms of what we should narrow our focus into?
Doug Murphy
Yes, I would say, Jeff, that our strategic priorities as originally unveiled three years ago remain those; owner control, more content, engage our audiences and grow in new and adjacent markets. And we’re continually focused on getting those cost synergies out, delevering the balance sheet and funding the dividend, so that that all stays in place.
The owner control, more content; what’s beautiful about that is it’s sort of the Corus advantage version 2.0. We direct our Canadian spending both to great shows from independent producers but also to shows that we develop ourselves that both then help us to drive our ratings and give us an economic interest in international sales which is very much a part of our strategy at no additional cost to the P&L.
Now we have more than twice as much revenues we had three years ago to deploy that strategy. So that will just continue to tick along.
We’ll continue to look at organic growth on the own, more content side. If anything I think one of the focal points in the coming year will be to continue our leadership position in what we have described as Adtech.
We talk about the merits of the new Corus. We’re a pure play media and content company.
We only have to do two things well; grow audiences and monetize audiences. Clearly, we’ve got it.
We’re on a bit of roll on the growth side but we have to look at better ways to monetize. That was part of the note I had earlier on dynamic ad insertion.
There’s incremental money out there and also I think that we’ve learned so much from our audience segment work and our sort of linear optimization work that that’s going to be a focus of investment for us in the coming year to further understand how we can better segment target audiences on our assets.
Jeff Fan
And just one final thing on the cash flow for '18, is there any update on the DRIP on the Shaw Communications dividend?
John Gossling
Not at this point. They’re able to come out of it at early September or so.
That really hasn’t changed. I guess the other DRIP update though, Jeff, is when we look at the non-Shaw shares, we’re still sitting north of 30% participation in the DRIP.
So that obviously from a cash flow perspective it helps.
Jeff Fan
Okay. Thank you.
Doug Murphy
Thank you.
Operator
Our next question comes from the line of Adam Shine from National Bank Financial. Please go ahead.
Adam Shine
Thanks a lot. Good morning.
Sorry, I’m a little shortness of breath. The trends first thing I --
Doug Murphy
Revenue growth does that to a guy, doesn’t it, Adam?
Adam Shine
Indeed it does. I guess I’ll have to say congratulations on that.
So we head into a seasonally light period next for the Q4, then we get into the seasonally important start to the fiscal '18. Can you give us just a little more clarity as to maybe we said already a bunch of things earlier in the call, but more specifically do we look for some degree of advertising momentum, some modest growth in Q4 or still really a lack of visibility thereof with maybe a bit more clarity going into Q1?
Doug Murphy
I’d offer that there’s still limited visibility on the outlook into Q1 right now. It’s still early days.
So we’re cautiously optimistic but I’d be reluctant to be more specific than that.
Adam Shine
Okay, so still cautious on advertising. That’s fair enough.
And then in terms of what John was saying earlier regarding subscriber revenues, we take a bit of a dip down because of tough comp into Q4 but then should we be thinking about that sort of low digital single digit context, maybe more of a 2%-ish sort of dynamic for the fiscal '18?
Doug Murphy
Yes, I think that’s fair. Remember that we’ve talked in the past about our rate cards and there’s penetration, protection the way down as volume has sent us in the way up.
So as we were to optimize our portfolio, we’ll be working to get broader distribution on our bigger best services and that may come at some subscriber rate change as we get wider distribution. But we’ll take that because we have a stronger service overall.
That would be balanced by in some channels that get cord, shaved or dropped down into a different tier, they’ll get increases in subscriber rates which should be not a make whole but will help to offset some of that. So, we all put it together coupled with the fact that we have modest inflation on all of our services.
In our carriage agreements, we see low single digit growth.
Adam Shine
Okay. And then just turning to Nelvana, how do we figure out what goes on for the next couple of quarters given obviously we’re seeing some of the timing related to deliveries from the first half into the back half, are we looking at a 40% plus MD&O sort of number related to Nelvana?
Doug Murphy
I’d say that this year is the real ramp up which we’ve talked about in the last quarter which is getting Nelvana to the level where we want it to be given we had sort of a turnaround year last year. You won’t see the same leg up again next year but you’ll see growth continuing in that regard.
But we’ve learned over the years to not be overly specific on the Nelvana business because it is volatile and hard to forecast. Clearly, we’re looking for some success with the placement of Hotel T on Disney and a renewal there for a series pickup and similarly with Mysticons on Nick.
Those will be two great tells that the team is working hard now on. And then in addition of course both those properties have merchandize which will be hitting shelf in the coming year.
So we’re on deck here with these two properties and obviously optimistic that we’ll deliver the ratings results to get a second season pickup and coincidental with that will be some revenue growth. Beyond that, I’d be reluctant to give you much more color.
Adam Shine
No, I understand. And let me be more precise then with my question now that I can breathe again.
The Q4, we should still see some better than normal growth reflective of the incremental deliveries? And then as it relates to maybe F '18 across the year, I would just ask perhaps at the very least that you’re assuming that there’s going to be some degree of growth in Nelvana in 2018?
That’s really what I’m driving at.
Doug Murphy
Yes, some degree of growth in 2018. Q4, more growth in Nelvana but it won’t be quite as – it won’t be such a home run because we had some merchandizing minimum guarantees that hit in Q3 and there are payments against future royalty streams and we had some deliveries of episodes.
But we’ll be growing in the low double digits in Q4 in Nelvana.
John Gossling
Adam, that line is hard to predict because it includes things like SVOD sales. There was a little bit of that in Q3.
It includes the Kids Can Press business that Doug mentioned and that did really well in Q3. So all those things contributed.
And it’s a relatively small base, so the percentages are a little bit volatile. But it is a catch all in a sense.
Adam Shine
I appreciate that, John. And while I’ve got you and I’m happy to take this offline but when I see in the MD&A the references to the Shaw Media numbers from a year ago, I’m a little confused because I see a revenue number that seems to be sort of a full three-month number, then I see an EBITDA number that to me looks more like a two months sort of number rather than a three months number that I would have been assuming.
And so it’s neither here nor there but maybe it speaks to some of the pro forma growth numbers that are being given. Can you talk to that or I’m happy to follow up?
John Gossling
No, we can walk you through – not trick but the thing that was unique in Q3 last year was just like when we sold our PayTV business, we had to stop amortizing the programming. Shaw did that for the one-month period of Q3 if they owned Shaw Media.
So that was about a $15 million impact. So if you took the Shaw reported numbers, our pro forma would be Corus plus Shaw less that $15 million of amortization because of Corus going forward that will continue.
So that might be the difference. But we can take it offline if there’s other differences.
Adam Shine
Okay. I appreciate that color.
Thanks.
Doug Murphy
Thanks, Adam.
Operator
[Operator Instructions]. Our next question comes from the line of David McFadgen with Cormark Securities.
Please go ahead.
David McFadgen
Hi, guys. So just a couple of questions.
I’ll just start with the TV revenue. I know you addressed Adam’s question about Q1 but I don’t think you addressed it about Q4.
I know in the MD&A you talked about you expect a sequential improvement in TV advertising revenues. So given it was flat in Q3, do you think it could be up a little bit in Q4?
John Gossling
David, we’ve certainly given all the commentary on TV ad revenue. We’re certainly focused in pushing hard for improvements.
Q4, as Doug mentioned, is a soft quarter just overall so it’s a little bit hard to predict just given the levels of audience. But we’re certainly very focused on driving that sequentially.
Doug Murphy
And we’re just three and a half weeks into the quarter, so it’s so far so good but there still is two-thirds of the quarter to play out.
David McFadgen
Okay. Can you give us an update on the run rate synergies you’re at right now?
Doug Murphy
Sure. Not a lot of change from what we said last quarter.
We’re still working on the finishing touches on systems integration which will be really the last piece of it. So that continues to progress and you can see we’re spending some money in the quarter.
But I wouldn’t say that that level of synergies that we’ve got banked at this point is significantly higher than the 45 million we said last quarter.
David McFadgen
Okay. And then just lastly on the Star Wars rights, they’re just broadcast only, right?
Doug Murphy
They’re broadcast only with the TV Everywhere related rights and on-demand rights commends early. So they’re not unauthenticated if that’s what you’re trying to get at.
David McFadgen
Okay. That’s great.
Thanks.
Doug Murphy
Okay. Thank you.
Operator
Mr. Murphy, there are no further questions at this time.
I’ll turn the call back to you.
Doug Murphy
Thank you, Chris. Thank you everybody for your interest in our company and we look forward to speaking to you in the fall.
Have a great day. Thank you.
Bye-bye.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.