Jun 26, 2019
Operator
Good morning. My name is Jack, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Corus Entertainment Q3 2019 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]. 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.
Doug Murphy
Thank you, Jack, and good morning everyone. And welcome to Corus Entertainment's fiscal 2019 third quarter earnings call.
I’m Doug Murphy. And 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 a 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, let's move to the standard cautionary statement found on Slide 2. Today's 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. I’ll now turn to our third quarter results on Slide 3.
I'm pleased to share that for a third consecutive quarter, we've achieved strong results. We delivered $458 million of consolidated revenue, up 4% for the quarter and driven by a 10% increase in television advertising.
These television advertising results exceeded our expectations. Consistent with what we have seen so far this year, we've a number of contributing factors to the strong performance, including increased yield on our networks, momentum with our audience based buying, innovative new advertising formats, direct-to-consumer advertisers spenders and double-digit growth in digital advertising.
In terms of consolidated segment profit, we were consistent with the prior year at $171 million. Doug, will take you through the details later in the call.
We're very pleased to report, that our leverage target has been achieved one quarter ahead of our goal, which is a direct reflection of the disciplined execution excellence of our talented team. These Q3 results once again improved the Company's financial flexibility.
This improved financial flexibility enables us to invest in our core business and make additional investments as we build for the future, both of which were evident in our recent upfront held in early June. Moving to Slide 4.
I want to share what's new and exciting for the upcoming year on our Corus networks. Global Television is a powerhouse brand in Canada with 16 hours of simulcasts, and just the right balance of new and returning series this fall.
Our 16 returning series include fan favorites, New Amsterdam, 911, The NCIS franchise and Survivor. And we have 12 new series on the schedule, including the debut of FBI: Most Wanted, a spin-off of the popular series FBI, two of the budgets new dramas at the LA screenings this year, the Prodigal Son and Evil and for its 11th and final season, the hit comedy Modern Family.
Now, turning to Slide 5. Our specialty channel portfolio is equally powerful, and features five of the top 10 specialty channels in Canada, including the sports channels for the year-to-date with W Network, Showcase, History, AC TV and Y TV being those five monster channels.
Put simply, we have more top 10 specialty channels than any other broadcaster in Canada, and remain steadfast in our pursuit of smart opportunities to strengthen our channels and grow our audiences. Over to Slide 6.
Last quarter, we highlighted our partnership with Hallmark, and a significant audience growth that resulted on W Network. This quarter, we rebranded the channel action into Adult Swim.
A brand with strong appeal to the coveted male millennial audience, Action had broad distribution, but declining audiences, so is a perfect target for a rebranding. The results speak for themselves.
A hugely successful launch this past April has catapulted Adult Swim into a top 10 specialty entertainment channel for this demo. Adult Swim delivered exciting new series, such as Harley Quinn from the DC Universe, and a number of new seasons of fan favorite animated adult programming, including Robot Chicken, Family Guy, and the long awaited fourth seasons of Rick and Morty.
This is a great example of our specialty channel portfolio optimization strategy and action. I’m now on Slide 7.
Our steadfast commitment to maximize audiences across our networks underpins our efforts to better monetize them. One of the key elements of our ad tech strategy is to build and deliver audience segments to help advertisers target audiences that are most meaningful to them.
Our audience segment sales accounted for 16% of our total TV ad revenue in Q3. Further we're building momentum towards the full-scale launch of our automated audience based baying technology Cynch, a platform that will deliver and drive greater efficiency, improve ease of transacting and provide fast accurate reporting.
To date, we have on boarded more than 50 buyers and we will soon launch a new user interface and add inventory from global and our kids network. Corus has been and will continue to advocate for the need to work together as an industry in Canada.
A good example is audience segment selling, something that is critical to the future of TV advertising, not just in Canada but around the world. And industry wide made in Canada solution using common audience segments would create a more robust and effective ecosystem for advertisers and agencies to better target audiences from maximum campaign impact and accelerate the transformation of how we sell Television.
This industry initiative is gaining traction and we are very pleased to announce that advertisers will be able to buy common audience segments from both Corus and Rogers this fall, covering nearly half of the TV landscape. Turning to our regional content business beginning on Slide 8.
Another key strategy of ours is to diversify our revenues for the sale of our content around the world. The Corus advantage is a pillar of our own more content strategy where we maximize the CRTC required spending on Canadian program expenditures or CPE to build an ever-growing slate of programming that drives ratings on our network in Canada and is then sold internationally.
Nelvana and Corus Studios are at the heart of this strategy. The recent reorganization of our executive team announced in February has brought an intensified leadership focus to this important growth strategy at Corus.
Let’s hone in on the latest developments at Nelvana and Corus Studios. Increasing our slate of Nelvana content we will diversify our revenues as we sell these series internationally, and reap the benefits of a return to merchandising revenue growth in the years ahead.
We had 15 series that will be delivered or are in production this year and that’s up from nine series in 2018. Together, Nelvana and Corus kids networks have collaborated on seven new and returning animated series.
Two of these series, namely Agent Binky: Pets of the Universe and the Remarkable Mr. King are from our Kinds Can Press publishing business, Canada's largest children's publisher, providing an impressive source of intellectual property to synergistically fuel future growth in our kids' content business.
We remain committed to priming the pump in Nelvana as we set the stage for growth later this year and into fiscal 2020. Now to Slide 9.
Corus Studios has announced 19 series for 2020 with 11 dynamic new series, including Wall of Chefs, Junior Chef Showdown, Big Home Overhaul and Big Timber as well and importantly, we are building on our most successful franchises announcing subsequent seasons of the hit show Save My Reno, Backyard Builds, FireMasters and Home to Win with a fresh take on Home to Win for the holidays. We're committed to growing our very successful portfolio of faster reality and livestock programming to drive audiences on our networks here in Canada and for sale around the world.
Over to Slide 10 and I want to take a moment to celebrate the tremendous success of HDTV's highest rated series in over a decade, The Island of Bryan, a top three hit show across all Canadian specialty entertainment this spring. This is a true success story for our Corus Studios content team.
Stay tuned for the highly anticipated second season as Bryan and Sarah work to restore that awesome resort in the Bahamas. Now looking at Slide 11.
As a pure play media and content company, we have purposely decided not to invest in our own distribution platforms, but rather focus on what we do best, building premium channel brands with great content. Our preferred approach has always been to build scale through deep strategic partnerships with our distributors.
We all know the way people watch content is changing. Our content and our brands must be accessible and discoverable in the evolving market here in Canada.
We must anticipate where our viewers are going. We were extremely excited to announce the launch of Stack TV, which is designed to target cord-cutters and cord-nevers, now available in Canada via virtual distributor Amazon Prime video channels.
A first offering of its kind for Corus, Amazon and Canada, Stack TV is an example of how we will deliver our diverse portfolio of premium broadcast content and brands to new audiences in a growing segment of the population that are turning to streaming platforms. With Stack TV, Canadians with a Prime video subscription can pay an incremental fee to access 12 of our most popular live broadcast networks, including lifestyle, drama and kids network and global, as well as all of those on-demand.
And in addition to Stack TV, we launched a standalone Nickelodeon subscription video-on-demand channel for Canadians, delivering the very best of Nick's live action animation and Nick Junior programming to audiences in a new and exciting way. Turning to Slide 12.
In the past year, we have purposely set out to increase our delivery of both millennial and male audiences. We spoke a moment ago about how Adult Swim was a first step in that direction.
Here's a second step. Corus recently announced a 360 degree partnership with the global media company, Complex Networks.
It is the number one entertainment brand in United States for males 18 to 24, with more views than Netflix in its demo, and it is number two with women 18 to 24. Complex offers a portfolio of premium video-first brands, delivering Corus significant reach with millennials and Gen-Z.
Corus will act as the exclusive ad sales partner for Complex Networks in Canada, and will license content from their diverse library to be distributed on both linear channels and on-demand this fall. Complex Networks' Hot Ones from the food brand, First We Feast will get will get a one-hour block on global television, following Canada's number one late night show for millennials and adults 25-54 Saturday Night Live.
We will also manage complex social channels in Canada, extending our offering for advertisers across those platforms. And here's step three as we pursue these younger audiences.
Global television's fall schedule will be home to one of the most successful and lucrative YouTube stars, Lilly Singh, and her new show, a Little Late Lilly Singh. The show will air Monday to Friday night after the Late Show with Stephen Colbert.
These initiatives amplify our reach bringing advertisers both the passionate, young millennial audience and increasing our reach with males in the entertainment and lifestyle space, providing a great and attractive alternative to sports when you're an advertiser. Moving to Slide 13.
We are also creating new types of great content and making it available in more places as we follow our audiences into these growing digital and social markets. I'd like to briefly mention two exciting initiatives as examples of its expansion into short form content.
The first is a deepening of our partnership between Twitter and our social digital agency, so.da with the launch of Twitter Originals, fueled with so.da. This next phase of our strategic partnership will see custom content for advertisers built exclusively for Twitter.
Second, given the emerging opportunities in custom social video, we also announced the launch of Soda Originals, newly produced premium short form social content series that will run across Corus powerful channel brands and platforms, further enabling us to pursue opportunities in the fast growing digital video market. These are two examples of taking Corus' proven brands and content expertise to new and growing platforms.
Looking at Side 14. The Global TV app at 3 million downloads and growing has been expanding on to new platforms, including Chromecast, Android, iOS, Apple TV and Amazon Fire.
This last month, Corus became the first premium broadcaster to launch on Roku, the leader in the U.S. connected TV syreaming gaming market.
In addition, global news.ca has seen tremendous success so far this year, reaching over 12 million unique visitors and is the number one private online news site in Canada. News is an important priority for Corus, and I want to take a second to acknowledge our high quality journalism and the award winning news teams we have across the country.
Now, more than ever, there is a broad appreciation for quality journalism, trusted news sources. And Corus is committed to bringing our news content to more people across more platforms.
With that, I'll now turn things over to John, who'll walk us through our Q3 financial results.
John Gossling
Thanks very much, Doug and good morning, everyone. I'll start on Slide 15.
As Doug mentioned earlier, for a third consecutive quarter, we once again delivered overall revenue results that exceeded our expectations, driven by an impressive double digit TV advertising growth. Our Consolidated revenues increased to $458 million for the quarter and that was up 4% from the prior year.
Consolidated segment profit of $171 million was consistent with the prior quarter with the sale of TLN in the quarter negatively impacting segment profit by approximately $2 million year-over-year. The significant improvements in the top line were offset by cost increases related to $2 million swing in stock based compensation expense, which was driven by depreciation in our share price, a $6 million increase in direct cost of sales, which includes $3 million increase in programming costs and a $9 million increase in general and administrative costs related to variable success based compensation plans pension costs and increased marketing investments in the quarter.
As a reminder, we had close to $2 million recovery in stock-based compensation expense in Q4 of last year, which will impact our comparable for next quarter. Consolidated net income attributable to shareholders for the quarter was $66 million or $0.31 per share, which includes an accounting estimate change in the current year related to useful lives of our television brand intangible assets.
For the third quarter of 2019, this resulted in an additional $17 million in amortization expense, which reduced net income attributable to shareholders by $12 million or $0.06 per share basic. Further details can be found in this quarter's MD&A.
Free cash flow of $90 million improved from that $88 million in the prior year quarter. This result was driven by significantly better working capital management, partially offset by higher payments for programming, more film investment spend and higher capital expenditures.
Looking at Slide 16. As we announced earlier this month, we successfully amended and extended our existing credit facilities.
Furthermore, we remain committed to deleveraging and have made total bank debt repayment of $190 million so far this year. Importantly, our strong Q3 results coupled with our revised capital allocation policy have enabled us to reach our leverage goal one quarter earlier than anticipated.
This is a significant accomplishment, once again illustrating disciplined execution by our entire team. Our net debt to segment profit is now 2.92 times as of the end of Q3 compared to 3.28 times at the end of the prior fiscal year.
We will continue to focus on improving our financial flexibility while investing to build the future. Now, let's turn to our TV results for the third quarter as detailed on Slide 17.
Overall, TV segment revenues were ahead of our expectations, up 5% in Q3 attributable to our significant TV advertising revenue growth, up 10% in the quarter. We continue to benefit from several factors, as Dough mentioned, including increased deal on our networks, momentum with our audience based volumes, innovative new advertising formats such as L-Frame, direct-to-consumer advertiser spend and double-digit growth in digital advertising.
Of note this quarter, we saw strength in the entertainment, telecommunications and food advertising category, which was partially offset by continued softness in the automotive category. We're reporting our Q3 results 10 days earlier than the previous quarter.
And as a result, we're not yet in a position to definitively state that we will report TV advertising growth in Q4, although, we're cautiously optimistic that we will see growth. For Q4, which is a seasonally smaller quarter, we do not expect the level of TV advertising growth that we reported in Q2 and Q3.
Subscriber revenue was down 4% versus the prior year due primarily to the disposition of TLN and the lack of large distribution renewals this quarter. The $1 million decrease in merchandizing, distribution and other revenues over the prior year reflect lower backend payments from our own content and soft publishing revenue compared to the previous year that was partially offset by higher animation software revenues from Toon Boom.
Looking forward, we note that in Q4 of the prior year, we benefited from a sizable multiyear subscription video-on-demand licensing deal of $4.5 million that will not recur in the current year. TV expenses in our third quarter increased by 5% over the prior year.
Direct costs of sales were up 4% with programming amortization expense increasing $3 million on higher Canadian programming costs. G&A expense were up 7% and that was mainly from variable success based compensation costs, driven by the strong TV advertising revenue growth and as well higher pension costs.
TV segment profit increased 4% in Q3, reflecting the strong top line growth. TV segment profit margin was 40%, a solid results and consistent with the prior year comparable period.
Next, let's turn to our Radio results as outlined on Slide 18. Radio segment revenues decreased 4% in Q3.
From an advertising category perspective, automotive continues to be the largest contributor to that decline. Regionally, Alberta is still being impacted by ongoing economic weakness and Toronto continues to be a work-in-progress from a ratings perspective.
Although, we did see some ratings improvements for that cluster in the most recent ratings book. The benefits of our revenue diversification strategy continued in markets where we have Radio and television as we focus on those clients even both local TV and radio advertising solutions.
Radio segment profit decreased $1.7 million in the quarter given the challenging revenue results. Our segment profit margin of 26% was below the 30% in the prior year.
And before I turn things back over to Doug, I would also like to highlight that we declared a quarterly dividend of $0.06 for Class B share, payable in September as detailed in our press release this morning. With that, back to you, Doug.
Doug Murphy
Thank you, John. Over to Slide19.
Our results over the last few quarters validate that our plan of course is working; another quarter of TV advertising growth, another quarter of this demonstrable deleveraging and another quarter of making smart investments for the future. Before I conclude, I'd like to specifically comment on the state of our broadcasting industry in Canada today.
As you all know, the Government of Canada is in the process of reviewing the broadcasting, telecommunications and copyright acts. Our broadcasting policy was written for a system with closed borders.
One, where television and radio broadcasters had a relative monopoly over audiences and governments acted as gatekeepers. As we all know, that world does not exist anymore.
The media marketplace is an entirely open one, and this is a global media industry now. Our competitors are massive.
They are unrestricted and unregulated. Audiences can find content online, on-demand wherever and whenever they want.
And piracy remains a significant issue in Canada with in-action from Ottawa. Many foreign Internet companies do not collect or pay taxes in Canada, and foreign media companies are not required to contribute to the Canadian media system.
This is untenable. And Corus is advocating for rapid change.
We envision and aspire to a stronger and bigger Canadian media and content sector, one that can better compete at home and on the world stage. And while we advocate for a more level playing field and await change, we are not standing still.
We will continue to do everything within our control to win. Finally, onto Slide 20.
We do have a lot to be excited about. Our great channel brands and premium content are getting stronger, and are making their way into more places, building audiences.
We are loading the basis with new digital and social content initiatives, diversifying our revenues into fast growing markets. Our slate of own content is growing, which sets the table for future increases in international revenue from both broadcasters and streaming platforms, and merchandising.
Our advanced advertising and data initiatives are really taking hold. And we have achieved demonstrable success as the advocate for an industry solution based on common audience segments.
And finally and importantly, our focus on driving free cash flow and decreasing our leverage in line with a revised capital allocation policy will enable us to build future financial flexibility. In closing, we would like to thank our talented team who continue to work very hard to deliver these strong results.
And to thank all of you for your support of Corus as we work to deliver on our long term plan and build for the future. John and I will now be happy to take any questions you may have.
Back to you, Jack.
Operator
[Operator Instructions] Adam Shine with National Bank Financial, your line is open.
Adam Shine
So maybe talk -- let’s start with costs. I mean, one thing indicative in the quarter was relatively similar net trends Q3 versus the Q2.
But obviously, that was achieved within the context of tougher or tougher cost comps with respect to TV and arguably, corporate costs as well. John touched on the corporate cost items.
But on the TV side, certainly the strength of TV ad sales growth is hitting you with ad sales commissions, and maybe there's some other timing issues around programming spend. Maybe Doug or specifically John, can you please speak to that dynamic and maybe also talk to efforts underway to address some of those cost items with further saving initiatives?
John Gossling
Adam, it's a very good point and obviously, one that we expected. That's why I gave a little bit more commentary in my prepared remarks.
So we've looked at this, I'd say in many, many ways given the results for the quarter. And you touched on the sequential Q2 to Q3, that's important to look at.
Q3 is a much bigger quarter revenue wise and also programming wise. So that does tend to result in some increases when you look at it sequentially.
Although, I think a lot of the main categories were pretty much flat. When I look at it year-over-year, I think the important thing to remember and as much as we don't want to relive 2018.
Last year was a very difficult revenue year for us. And Q3 was a case.
Remember we also did the dividend change in Q3 last year. So there were a lot of things happening where frankly everything was turned off.
We weren't spending money on marketing. And a lot of the comp items were actually going down rather than up.
So we're comping against pretty tough numbers in Q3 last year on the expense line. I'd say that accounts for about half of the increase this year for it looking at more normal levels.
And then you're right, I mean there's things that are happening. If you look at the mix of our revenue, and Doug spent a lot of time talking about some of the new revenue streams.
Those types of revenues, whether they're digital or other new forms of advertising, they are going to come with a different cost structure. So whether that's because they're cloud based systems, or because they're digital and they have revenue share attached to them.
Those things, new initiatives were probably about $4 million in the quarter of increased costs. So there are a lot of things that are pressuring it.
I think, going forward, we’re going to remain very focused on these costs. Some of them in a self adjust with results and some of them will come with new platforms.
But that doesn't mean that we'll just accept that and we'll figure out ways that we can try to buffer those and make sure that we're not seeing these expense growth that we've had. It is really coming down to -- it was a very difficult comp for us.
And we knew we're going to see this. But it was an even better quarters as well than we expected.
So that's the story cut many different ways.
Doug Murphy
Let me just add some more color to that. Let's go back to first principles.
We always talk about maximizing the audiences, monetize audiences and rationalize the operating model. And those principles are driven deep into our team.
We're maximizing audiences by going into new places. We're going into unregulated diversified revenue sources of market growth in the digital social video areas.
We all know you want us and we all want to achieve consistent revenue growth. We've demonstrated that now three quarters in a row.
These investments in these new markets are going to require us to fund additional headcount and prepare the table to get to more meaningful growth from these new sources. So there will be modest OpEx drags going forward as we look to expand away from the regulated linear system.
But that is a necessary investment in terms of getting to a future state where we diversified our revenue base. And we will always look at them to take costs out of the legacy business where we think we can invest those same resources in new and growing areas to achieve better returns.
Adam Shine
And maybe just one question, obviously, in regards to momentum going into Q4. I understand some of the timing in regards to reporting a little bit earlier.
But given some of the momentum that Doug you've alluded to certainly over the past three quarters, the strength of some of these newer additions that one has to assume continue to carry into the Q4 and the fact that Q4 results are relatively easy comp. Maybe you can speak a little bit more to some of the coloring around Q4?
And just as a side note, it didn't look like the Raptors affected you at the end of Q3. Presumably, they didn't necessarily affect you early in the Q4.
You've historically talked about hockey and Canadian teams and the NHL play-offs being more of an issue in terms of pressure than necessarily what may have transpired in recent weeks.
Doug Murphy
So, a couple of things. I mean, some of the numbers I have seen would suggest that the Raptor's run in the final were equal to two times the average Canadian Olympics audience is.
So it was a pretty massive drain on impressions that's back of the envelope because of calculation and I'm not a market research expert. But Q4 is a smaller quarter it's a soft quarter, because most Canadians up at the lake not watching television, so we typically have capacity issues.
We were pretty cautiously optimistic that we'll get to growth in Q4. But right now, because we have an early close on this quarter and the timing of our analyst call is typically, as John said, 10 days earlier than it's been so far this year, we are not in a position to definitively state that we're going to be there.
But I'm optimistic we'll have modest growth. It won't be of the order of magnitude we've seen in Q2 and Q3.
But we hope to continue this momentum. The fundamentals of our strategy to transform how we sell television, the core operating knowhow of our programming team in terms of scheduling the best shows.
And we came out of L.A. screens with a great schedule, very, very happy with that.
And I took the time to talk about our smart decisions and investments in rebranding actions in Adult Swim. And last quarter we talked about Hallmark.
So we continue to make sure that we are playing offense and defense. And that combination of investments to build audiences, investments to monetize audiences, we think we will continue to have a positive impact on the momentum going into Q1.
All that said and as I've said consistently in every call for the last -- this is the fourth quarter, we really can't see around the corner. And so we need to be measured in outlook and we'll just continue to keep our head down.
And hopefully, all of you will recognize that we're disciplined operators, both financially and strategically and continue to do smart things as we work to transform our company.
Operator
Jeff Fan with Scotiabank, your line is now open.
Jeff Fan
Maybe start with the subscription revenue. I know there was a tele-Latino impact in our number.
But even excluding that, it looks like it was still down year-on-year. Maybe you can confirm that.
And what the softness was related to and also to some of the upcoming carriage renewals. If you can just remind us what's coming up and the outlook for that particular revenue line.
And then perhaps a bigger picture question for Doug. I guess in the last little while, you've done a lot in terms of shifting the Company with respect to the distribution deals like the ones you signed with Amazon, some content deals, Complex, Twitter, et cetera and audience based buying initiatives.
I'm wondering if you feel like as you sit back you've got enough momentum on these fronts. Or do you think you need more to sustain top line picture as we look beyond this current fiscal year?
John Gossling
Jeff, I will take the first one on Q3. So, we have normalized subscriber revenue of minus two, if you strip out TLN.
So part of what's happening there is we're in negotiations now for renewals with two of our largest distributor. Those didn’t close in Q3.
And why it's important when they close is couple of things happened. One is there's typically a retro pick up on those.
We book revenue based on the previous deal until we have a new deal. So there's typically a retro pick up once we got a deal finalized and as well, we are seeing rate increases.
So that would also help the revenue as going forward and in the quarter specifically. So if we look at Q4, not sure we're going to get both those closed.
But we expect to have better subscriber numbers, even with the TLN effect that will also happen in Q4. So that's really the story on the minus two.
We're just waiting until we get these two deals renewed and that can take some time just given how large they are.
Doug Murphy
Just here is a big picture question. So, I believe that we're making a lot of smart bets on growing areas, new areas in the core business.
So a disciplined approach to core and explore, if you would. We often talk around here about we're trying to hit singles, we're not trying to swing for the fences.
And we have a lot of investments that are both offensive and defensive. Defensive ones are basically systems, back house automation strategies, machine learning things we're working on.
Offensive or many ones I talked about in the call and in my prepared remarks. I'm actually very pleased with the success of our singles we hit -- we're getting on base to borrow for Moneyball, as long as we get on base -- the more we get on base, the more runs we're going to score.
And I think we're starting to see some pretty consistent scoring in fiscal '19. And my bias is to continue to make organic investments that our teams bring to us.
We empower all of our teams at Corus to bring forward entrepreneurial innovative ideas. And we're always looking to find new ways to fund different ways of doing things.
So you will continually hear from us new things that we're doing on the order of what you just heard in this call and what you heard in the last call. And I think that for the moment is the prudent way to manage the Company and to continue to focus on making smart reasonable bets at the same time, paying down our bank debt.
Operator
Your next question comes from the line of Aravinda Galappatthige with Canaccord Genuity. Your line is open.
Aravinda Galappatthige
I've the question on the flexible pricing models. I know you talked about that as a tailwind to the quarter this time as well.
Is it fair to say that at this point all the specialty channels are on that flexible model? And connected to that maybe for Doug.
Do you feel that that introduced potential volatility going forward when you think about ad growth? Obviously, when ratings are good you get that uptick in pricing.
And it obviously accentuates the strength. But does that potentially increase the downside as well when you have lighter ratings?
Doug Murphy
So, I'll go to top of your question. So no, not all of our specialty channels are on floating rate cards.
Our biggest ones are on floating rate cards that was an innovation that the team brought to the floor for this fiscal, and we've been very pleased with the results. And yes, it does introduce a little more volatility, you can cut both ways.
So we're putting our money where our mouth is in terms of those big specialty networks, which is why we're making concerted efforts to improve those brands. Quite honestly, the old system of trading on the specialty channels was high and low demand seasons.
And the people that benefited the most from that was not Corus. So we want to find ways.
One of the real tales of the tape this year for Corus is managing price and getting better yields. And whatever you sneak has happened with audiences, you can get more value per audience because we're smarter but then its audience segmentation or floating rate cards or other digital strategies then that is obviously an additive outcome.
Aravinda Galappatthige
Great, thanks, Doug. And on another topic, relating to the Amazon Prime Video Channels, obviously, the first sort of known as vMVPD in Canada.
It sounds like the model like from the economics to Corus are attractive potentially even more attractive than sort of a BDU model at least as attractive. What is sort of -- what are you hearing in terms of additional set of players coming into Canada, obviously, in the U.S., it's tracking towards sort of 10% of the linear subs are on these platforms.
Could, if it expands to that level, obviously be arguably quite beneficial for Corus so just want to get your take on how you see that aspect playing out?
Doug Murphy
Thank you, happy to. Well, as I said in my remarks about the government, it's a global marketplace.
So, we anticipate many more of these VBDUs coming to Canada. Virtually, all of them are doing their homework right now on this market.
Obviously, it's a very easy adjacent market for them to penetrate. And so, I would suspect that in the coming 12 months, there'll be at least another one that will come to the market and then behind that one probably another one after that.
So, I think it's -- I think this is the beginning of an opportunity for our company to go to some more interesting parts of the marketplace where the traditional system haven't been able to pursue. And I think it also opens up an interesting conversation about packaging in general, and how audiences don't necessarily want to have sports in their bundle, and the success of our package on STACKTV.
As their quarter's play out, I think we'll be very telling in that regard.
Aravinda Galappatthige
And lastly for me, obviously, our leverage is now below three times likely to get better given the free cash flow you’re generating. Is there a point at which you may be sort of shift your mindset with respect to M&A, obviously, deleveraging was a huge priority for you guys.
Is there a point beyond which you think you are more open to M&A options be it digital, be it in your core business? How you’re thinking about that?
Doug Murphy
Obviously, we have a team that looks at potential acquisition opportunities. But in all candor, I think everything is too expensive out there, especially given how cheap we are.
So my bias really is to continue to deleverage the balance sheet and make sure we've got the financial flexibility to make organic investments. I think there's a lot of businesses out there for sale, they want multiples on nascent earnings, and negative cash flow business models that just are not justifiable.
So, my perspective at this point in time is absence a complete reset evaluations where it's going to stick to our knitting.
Operator
Drew McReynolds with RBC. Your line is open.
Drew McReynolds
Thanks very much. Good morning.
Following up on, I guess, all the moving parts to the TV business and Doug, you alluded to it all the investments you're making. We've seen other media companies now go through a transformation where rightfully so they're reinvesting in some new growth opportunities and certainly you've had that underway for now.
But with these other companies, we typically get negative margin surprises as those levels investments ramp up unexpectedly or what have you, is there any broad parameters you can give us to modeling TV margin, let's say over the medium term? And how all of that looks from your perspective at this point?
Doug Murphy
It’s a tough one. I mean, if you -- in terms of your examples, if you're referring to some of our big U.S.
content that it isn't in the investments they have made i.e., Disney and Maker and Fox and MySpace that exactly my comments earlier, but we're not swinging for defenses as any of this stuff. We're not getting hurt in anything we're doing.
We are just trying to get on base and we're trying to do smart things to on a measured way transform our business. But as far as try to give you guidance on EBITDA margins on TV, we're hoping it's going to be manageable within the existing margin structure as certainly our goal.
As I mentioned in my comments, rationalizing our operating model is a one of our first principals. And we want obviously to grow both top and bottom line.
This quarter was particularly noisy because of the comparables of last year but also because of some of the investments we're making, now that we continue to deliver and acquired some momentum on top line. We want to continue to pursue these growth areas.
So, I would say net, net, we wouldn’t give any sort of guidance on margin impact, but I think I would like to think that you respect us to be as diligence as possible in expense control.
Drew McReynolds
And that's helpful, and may be put it a different way. Do you know when you look at singles, is there -- opportunities there that perhaps doubles, triples or home runs where you could spend, take on a little bit more risk and invest.
And do you feel constrained by having to stay within a kind of TV margin range particularly now that the balance sheet friction and pressure is -- certainly looks well behind you now?
Doug Murphy
That’s an inversion of the prior question, but I’m happy to answer that too. No, no, no, I'm pulling your leg.
I think I will give you that example of the single just running into a double and that’s audience segment selling. I hope those in the call recognized just how foundational this is to reinventing the television sales industry in Canada.
Now that we have Rogers on board, we are selling the same definition of those audience segments. Look at page, whatever it is on the presentation, this shows all the segments.
We've been told by our advertising agencies, guys, if you could just have the same definition of audience segments, we will more rapidly embrace that. And so, I think you're going to see that trending into a double, if not more.
And we're talking to other broadcasters in Canada to get them in. We have a really unique opportunity in Canada talked about it before and described this forth this Canada.
We have two large distributors that own media companies, Rogers and Bell and we have us. We have two video platforms, X1 and Kin rolling out.
And we should be able to work together to build a really sort of robust broadcasting and media sector in Canada, setting aside the brain damage or a regulatory backdrop. So, I think the audience segment selling is a real exciting development and that really doesn't require lot more capital.
It does require lot more sort of relationship capital than it does financial capital.
Drew McReynolds
Okay, that’s helpful, Doug. You've actually answered my next question.
So last one here on the regulatory front. I think anybody on this call with common sense would realize all the points you've made.
What, not getting in the politics here, but what's the gating factor in terms of leveling the playing field in whatever way with some of the bigger global platforms you're competing with? What is that gating factor from a regulatory standpoint?
Doug Murphy
I think that our government lacks the will to do what is right because it's politics. And I think it's unfortunate.
I think it's really unfortunate. I mean, anybody that's got even half knowledge of economics knows that Canadian small businesses pay sales tax.
They -- why we allow for Internet companies to come in here without paying any taxes into the system, why we allow for me to come in here not paying taxes the system. Canadians abide by experience and first principles, I think that is -- to me, it's untenable how we've gotten this far.
We're going to see today at 10:30, the Janet Yale panel, what we've heard review. I have little expectations in that.
And I look forward to those of you on the call commenting on what we what we see there. But I just think it's massively frustrating and I think the time is now to act.
And I'd like to see more action at Ottawa.
Operator
Vince Valentini from TD Securities. Your lines open.
Vince Valentini
Let me start by trying to unpack a couple of things I've heard already on the call and then I have a couple of my own bigger, bigger questions. First, when you talked about the floating rate cards for your special channels.
Can you just clarify all the new eyeballs you're reaching on Roku or now on Amazon with STACKTV? Do you get to include those in the total audience that you've deliverd to the advertising?
Doug Murphy
Once, they're -- if they're on those big channels and once we've got the platforms built, we do. But at the moment, Amazon does not.
We don't have that in their tech roadmap right at launch.
John Gossling
That's for VOD, right. They do count in a linear stream.
Doug Murphy
They're measured in linear. Yes, yes.
Vince Valentini
If I watch a linear show on Roku or Apple TV, I mean I watch at the exact same time it airs on Global at 8 o'clock on Thursday night, but I watch it sometime in the next three or seven days. That still counts, right.
John Gossling
So, those are two different things, Vince. So, there's -- as far as I know there is not a PVR-type functionality right now, so you can't record a live show and then play it back.
You can watch it on a video on demand choice or channel. That's what Doug was talking about.
There's no ad insertion right now in those streams. But if you're watching it live, then it does count in the ratings ecosystem.
Vince Valentini
Okay. So, this is still in development.
I assume, you have plans to try to monetize those eyeballs as they move to new platforms you're getting your content.
Doug Murphy
Yes, so let's go there for a second, Vince, because that that's the big, that's a big one. Where we hope to be in maybe in 6, 9, 12 months from now is being able to take our synch platform to monetize our linear audiences, monetize our VOD audiences on the existing video systems, monetize our linear audience on STACKTV, monetize our linear audiences on connected devices, monetize our on demand audiences on STACKTV and connected devices, all through one platform, buying audience segments.
Vince Valentini
Correct.
Doug Murphy
And then to attempt to which we raise the rates on the floating rate cards and the big specialties that will be raised through the system.
Vince Valentini
STACKTV, I'm just -- I'm not 100% sure. Is this your brand name and concept?
Or was it Amazon's brand of STACKTV like, can you just take STACKTV and those 12 channels and that concept and inserted into another virtual distributor that comes along to Canada in the future?
Doug Murphy
So that is our brands. We've made that brand.
We’ve had much discussion around here what the brand should be and we've tailored it for Amazon in particular. Right now, we take it out to another VBD or not, we haven't discussed that.
But we -- that one was built and designed for the Amazon partnership.
Vince Valentini
Okay, and ABB, I mean it seems very exciting, you've given some more data points in this call as the outlook, I mean getting better with Rogers on board and the common definitions. But obviously it stepped down, a touch in Q3, it's now 16% of your total ad revenue versus 17% in Q2, I found that a bit surprising.
I’m wondering, is this just because Q3 was so busy, you may have even run out of inventory, that using that better platform to be able to get better yield and get ads into some of your less reviewed shows perhaps wasn't even necessary or couldn't be used properly, because you had so much demand across the board?
Doug Murphy
It'll it will float around Vince, I mean, it was a 17% last quarter, 16% this quarter, it'll be it'll be into the 20s in Q4, just because we're seeing what the campaign's look like. It really depends on the campaign.
Some buyers, some advertisers just want to buy the demo still. They know back up the truck and buy a whole bunch of adult 25 to 54 and that will kind of preclude the segment selling.
Other buyers, most particular the direct-to-consumer advertising, we talked about at length, my survival guide and metaphor, they will work with us on artist segments because they're more of a targeted advertiser. So you will see that mix move around on any given quarter.
But directionally speaking, the slope is going up from left to right.
John Gossling
In an absolute dollar, Vince, it was up. It's just that you're right, the percentage of Q3 being such a big TBI quarter.
That's just the math of diluting the percentage a little bit.
Doug Murphy
I mean put it this way. We're growing the absolute dollars on ABB double digits every quarter.
Vince Valentini
Last clarification one and then before my two bigger picture ones apologies for multiple questions, but the subscriber revenue you mentioned specifically adjusting for Telelatino, John. Is -- was there any impact from action disappearing and Adult Swim taking over that Channel?
But it was in free preview for much of the quarter, should we expect some boost from Adults Swim in Q4 results.
Doug Murphy
So in the quarter, no, there wouldn't have been any impact. We don't effectively zero rated well, it’s a free previews just open to everybody in the ecosystem to watch it.
Yes, look, we're hopeful that one of the reasons we launched it was to improve the penetration of that channel. So that will take some time potentially packaging changes take time, our negotiation cycle can be two to three years of BDU.
So in terms of any rate improvements, that will potentially take some time. But I think the first shoe to drop will be just more demand for the channel coming out of free preview, and hopefully more customers will want to package that with their service.
So, yes, we're very hopeful, it's probably going to be a slower start just given the dynamic with the BDU negotiation.
Vince Valentini
Okay. And as you may have for your questions, there's been a lot of talking about OpEx and you mentioned last year being extremely low.
Can I step back here and say, in a period where you had, if I can call, I mean, pretty horrendous top line trends in 2018 plus a distortion of the dividend cut. You were able to keep EBITDA almost flat in ‘18 versus ‘17.
And now we're seeing a bounce back to more normal levels. Is there an inherent skill set?
Would you agree that you can manage your costs dynamically as revenue trends go up and down? So, if people do want to think that there's a bigger head coming in the next couple of years, maybe a recession or whatever else that the top line won't be as strong that you're probably able to immediately go back to that sort of behavior you had last year of cutting discretionary costs to keep your EBITDA a free cash flow stable even in bad times?
Doug Murphy
Look, I think there's a whole lot of different components in the cost structure. So, there are some that are quite a bit fixed, but I think programming of that category and that’s a biggest expense.
Yes, on anything that's variable with either revenue or EBITDA or free cash flow, or stock based comps, obviously with the share price, those things will adjust up again depending on how we're performing. So, of the $17 million increase half that was related to comp item, this quarter.
So I think that -- in last year we have the opposite happening. So when I look at our full year 19, we're probably going to see a swing in stock based comp items of at least $15 million that stage, to the extent that our EBITDA is running flat if we didn’t have that swing we will up 3% or 4% just on that item loan.
Yes, there is some dynamic nature of these cost, I wouldn’t necessarily cover in discretionary, because they do move based on targets that are set and plans that are in place. But you know self adjusting nature its helpful and in that direction you mentioned in 18 where we were able to recover a lot of cost because they perform.
And conceptually just I would say that as I mentioned couple of times that we want to that sort of core business, we want investment in future state and we also want to always look for ways to take cost of the legacy business to stop behaviors and activities that have values, so we can redirect resources into one's that do and that’s fit kind of a fundamental cultural philosophy of our business been. So I appreciate the compliment very frankly what we don’t want to do, last year we could have very easily guide very, very, very defensive and it is kind of it is cover it up and gone to our bunker, we have to do that it's on level, but we also have to make a tough decision on a capital allocation policy.
It was not doubt that it was a right decision, it give us some financial flexibility to make both to more accelerate our payment of debt we're in a big 190 million down already the three quarters this year, so we're tracking nicely. But we're also now been able to make smart investments and transferring the business.
So we got to a big recession, we would go back more probably more into a defense mode but we also can't stop making these smart investment. So that’s why the question that we got more of in that, so I just want to come back to that, we have a very little appetite to make over value acquisition right now.
There is this no outside present doing that. So our buyers would be to take that debt leverage and keep driving that down as low as we can so that whatever happens on the economy, the recession and how would that impact our top line and our EBITDA accordingly get's that leverage low and I think will be in a good spot to survive some choppy waters shouldn't if bad time come.
Vince Valentini
Thank you. And last one for me.
Just in the merchandizing and distribution other segment, so, I mean, it's down -- revenues are down 5% year-to-date and you've given all kinds of examples of the production pipeline being up in both Nelvana and Corus studios. I appreciate you don’t want to stick your neck out on advertising revenue in the future quarters, but on this category do you not have some visibility that although shows starting to find buyers and you should see a pipeline that you can give us some sense of confidence in what 2020 could look like for that segment versus what somewhat we trend so far in 2019?
Doug Murphy
Yes, we should be -- this has taken quite frankly slower than I would like to just start ramping up. A lot of it's been from changes and how we recognized revenue, some delays in episodic delivery at Nelvana, but that's just part of the business.
I think it will be confidently double-digit revenue growth beginning in the fourth quarter and rolling through all of fiscal 20. I will give you that.
John Gossling
Excluding, that's what sale in Q4.
Operator
David McFadgen with Cormark Securities. Your line is open.
David McFadgen
A couple of questions. So, I think one of the reasons why the TV advertising revenue growth has been fairly strong in the first three quarters this year as there's been some shifts going on in the marketplace between digital back to traditional linear TV.
Do you think we're done with that and then advertisers feel that now the mix is appropriate? Or do you think that's going to continue to progress into next year?
Doug Murphy
Yes, well. That is the right question, David, and that certified the crystal ball.
Here is one way to get that number. Let's look at the Accenture study which I believe all of you had a chance to review, which suggested that.
TV is under invested in the media mix when you look at your outdoor radio, digital television. Print is under weighted by kind of five points 42 to 47 is the optimal based on our analyses of all those studies, which I think you familiar with.
You take 5 points of $11 billion total advertising market in Canada, roughly some of those media mix at $550 million. We've seen a nice growth in revenue this year of $70 million, 40% times 550s, to ‘20.
So maybe we're close to the halfway mark, without money coming back in I don't know. That’s the best I can figure that that's probably the optimistic cut because it's not as simple as that.
But we're doing all the right things on audience delivery. So as long as we stay strong on a on a delivery basis, as the media mix, I think it corrects itself, we should be in a position to reap the rewards.
But that's the best piece of analysis I can give you on that question.
David McFadgen
Right, but have you -- have you seen any or have you heard any comments from your clients, your advertising clients that feel that now the next appropriate or you haven't heard anything like that?
Doug Murphy
I think quite frankly, I think everybody -- every CMO is reinventing their campaign strategy every quarter. It's just -- there's just so much dynamism in the marketplace.
And so they're experimenting with different business model and all kinds of a campaign. So I don't think anybody is saying, okay, I got the -- I've got the right, you know, I'm going to fix it at this type of a mix.
I think it's very, very fluid. And so partly why we wanted to go hard at millennials was, we wanted to offer our advertising solutions in a new audience segments and demo that we haven't heard before been able to do help accelerate some of that shift into TV.
David McFadgen
Okay. I was just wondering if, given the lack of clarity I guess for fourth quarter on TV advertising front, maybe I think we were done on this effort, I guess, I guess it's hard to know right now.
Doug Murphy
So, the only reason why we're not being as definitive is the biggest quarter and we wish we could look at a book. But here we had the sales on the books, because we're recording a couple of weeks earlier than we would have the last prior quarter.
And we're just not going to be able to say that. So but we are, we're pretty optimistic we’ll be in a in a monastery.
It was not going to be as big as Q2 and Q3.
David McFadgen
And so just moving on, just on the radio side, I mean, this is sort of continues to be week. Is there any signs that, that business is going to be stable on the short term?
Doug Murphy
I think radio in general across the country is soft this year. So I think all of us are feeling that.
In our particular case, we've isolated to two major markets that that we're doing triage on, Toronto and Edmonton, primarily. we've seen nice results on Q here in Toronto.
So, we're, -- we've got a great programming team in the radio side, just looking at driving it. Was getting was reading through, which I don't know, if you picked up on in John's comments, that the automotive categories is soft in both TV and radio, but especially in radio.
So, whereas auto dealerships would advertise aggressively to move cars up a lot, especially in Alberta, things are pretty dire out there at the moment. So, there are macro levels, there's category issues, there's course specific issues that are all kind of a play here.
I think it's not dissimilar to some of the disruption we saw in television last year, where we saw some real interesting swings in the industry and in the audience delivery, that we’re seeing similar things on radio. I do think it'll stabilize, but it's going to rise through the choppy waters at the moment.
David McFadgen
Okay, and then I have a couple of questions for John. So just looking out into fiscal 2020, can you give us any idea in terms of the programs spend and CapEx?
How it was compared with successful ‘19 your expectations at this point?
John Gossling
Yes, David, we're just in the middle of that planning cycle. So, it's a bit early to comment on either of those.
I mean CapEx is generally relatively all around here. I mean that’s, I don’t want to pile on too much on the commentary on the growth spending side.
Keep in mind, if we run CapEx $25, $33 million, that's pretty low intensity, we don't have the luxury of investing for growth through the CapEx line, I mean we're doing a lot of that drop back fill. So that's, I think, a good thing from our cash flow perspective, but I don't expect there's lots of demand for CapEx, but it's not ever going to be that material.
So and then, as I say, we're just kind of rolling up all of the 2020 plans right now. And we won’t have a good view of that, probably until the next quarter.
Operator
Maher Yaghi with Desjardins. Your line is open.
Maher Yaghi
Thanks for taking my question. Just wanted go back to your comments about the investments you want to make and getting some growth in the business.
I mean have you quantify how much that is going to be trying? I am trying to figure out, what's the path for continue deleveraging of the business as you are ramping up these investments?
And also, in addition to that, why do you feel three-time leverage is the time is the right metric or the right value at which you want to start making these investments wise and 2.5 or two times trying just trying to understand how you arrived at that three times as the right metric. And my second question is on the subscriber revenues and subscriber seasons in TV excluding TLN, how much subscriber fees were down year-on-year?
Doug Murphy
I'll take the first one, and let's John the second one. No, listen Maher, the three times was a target that we set when we bought Shaw media.
And we were delayed because of a variety of things, not the least of which was a soft revenue year last year and the government's denial of a $200 million sale of two French channels to Bell. The same date the Department of Justice approved the $85 billion sale of Time Warner to AT&T, I will have you note.
Back to my earlier comments on Ottawa. Now, three is not to limit here.
I want to be perfectly clear, we will come out and talk more about leverage target, but I want to make these investments and continue to deliver. To me those things need to be part and parcel of our going forward strategy.
John Gossling
Now, the target is under three which we've now achieved, but I don’t think there is any suggestion that we stop at three. So, it was that target going back now over three years and it was -- it was the right target for us to put up internally and externally to make sure that we continue to deliver.
So, we're there. Now, we're just going to keep going and it's a big undefined obviously with a under three, but we've got some more work to do now to see what the optimal capital structure is.
But we understand all the moving pieces given volatility and uncertainty and trying to balance that with cost to funding and what the right place to be. So, as Doug has said many times in the call, we're going to keep going.
In terms of the subscriber ex TLN that was going to be regularly, that was about 2% was the normalized 2%, negative 2% with normalized number for Q3 without TLN. And then just back to your first question about investment levels.
I think the good news, it ties a bit to the last question on CapEx. But the nice thing about, a lot of initiatives are that they will require funding as success comes.
So because some of them are revenue based or activity based, we don’t have to commit to mass investments as we head into these initiatives to the extent that we end up with revenue growth and they're successful then that will come with the OpEx, but it's not like we have to commit a whole lot of money upfront.
Doug Murphy
It's very much a test -- if the test learned in an agile philosophy that we're doing in all of these different things. So, that's my notion about none of these bets are going to be mortal if they don’t work.
Maher Yaghi
And how fast would you be able to figure out the return on these investments? What's the return metric on them in terms of payback you've figured?
Doug Murphy
I mean to simply put, none of these investments are made without a very diligent green light process. So, the team goes through significant brain damage to get approval on these things, because we want to make sure that we have the right analysis to support.
What we're looking for is instrumentality on revenue and our contribution margin on a cash basis that over a three year period.
John Gossling
And frankly, a lot of the investment to the extent there is any, you might call it, upfront investment it tends to be a handful of people that we need to get on board to run these platforms.
Doug Murphy
It's an OpEx drag and it's little bit when we started up.
Maher Yaghi
And just a follow-up on subscriber fees excluding TLN -- sorry, I missed that earlier. We're getting subscriber numbers ad hoc from the cable companies with that goes what's we're hearing some information from other sources.
Can you talk a little bit about the current trend in subscriber in the cable business in general? In Canada, have you seen a slight uptick in disconnections or the trend is pretty much the same as you've seen in the last couple of quarters?
Doug Murphy
It would seem like the trends now are in a basic subs and similar, right. We are planning for cord cutting of somewhere around 2% and then you get some packaging changes and some cord shaving on top of that.
So, I don’t think we've seen an uptick in the loss of basic subs. In fact, some of the distributors were reporting pretty good, positive numbers.
So, but yes, it's a mix. But, you see all that in probably follow them every quarter in terms of the basic video numbers that everybody reports.
Maher Yaghi
Yes, we'll add them up as much as we can. And some companies won't have the same accounting methods as others.
So, thank you very much.
Doug Murphy
Thanks Maher
John Gossling
Thanks very much.
Operator
There are no further questions at this time. I would like to turn the call back over to Doug Murphy for closing comments.
Doug Murphy
Thanks Jack. Thanks everybody for your interest in Corus.
As ever, we're available for follow-up questions. There is a lot of information we provided on this call.
We remain excited about the future. I want to take a moment and thank the Corus team and many of you who are on the phone at the moment.
And we always appreciate the good hard work that we bring every single day. And have a great day and enjoy your summer.
Bye.
Operator
This concludes the Corus Entertainment Q3, 2019 analyst and investor conference call. We thank you for your participation.
You may now disconnect.