Oct 23, 2014
Executives
John M. Cassaday - Chief Executive Officer, President, Non-Independent Director and Member of Executive Committee Douglas D.
Murphy - Chief Operating Officer and Executive Vice President Thomas C. Peddie - Chief Financial Officer and Executive Vice President
Analysts
Paul Steep - Scotiabank Global Banking and Markets, Research Division Aravinda Galappatthige - Canaccord Genuity, Research Division Vince Valentini - TD Securities Equity Research Tim Casey - BMO Capital Markets Canada Haran Posner - RBC Capital Markets, LLC, Research Division Robert Peters - Crédit Suisse AG, Research Division
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Corus Entertainment's Q4 and Year-End Analyst and Investor Call.
[Operator Instructions] As a reminder, today's conference is being recorded, Thursday, October 23, 2014. I would now like to turn the conference over to Mr.
John Cassaday, President and Chief Executive Officer of Corus Entertainment. Please go ahead, sir.
John M. Cassaday
Thank you, operator. Good afternoon, everyone.
I'm John Cassaday, and welcome to Corus Entertainment's fiscal 2014 fourth quarter and year-end report and analyst call. And thank you for joining us today.
Before we read the cautionary statement, we would like to remind everyone that there are a series of PowerPoint slides that accompany this call. The slides can be found on our website in the Investor Relations section.
And we will now run through the standard cautionary statement. This discussion contains forward-looking statements, which may involve risks and uncertainties.
Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's filings with the Canadian Securities Administrators on SEDAR. Now we would like to introduce to you the Corus Entertainment team joining me on the call today.
We have Tom Peddie, Executive Vice President and Chief Financial Officer; and Doug Murphy, our Executive Vice President and Chief Operating Officer of Corus. So first of all, turning to Slide 3 of the PowerPoint presentation.
We've had a successful year growing revenues, matching our best-ever performance in earnings and our best-ever performance in margins and then delivering a record-setting performance in free cash flow. Also, importantly, we completed ahead of target the integration of our newly acquired assets, Historia and Séries+.
TELETOON's 5 specialty television networks were also integrated and 2 Ottawa-based radio stations, all of these contributed to double-digit revenue growth of 11% for the quarter and for the year. As a reminder, our year-end results include 100% of TELETOON as of September 1, 8 months of Historia and Séries+ and 7 months of the Ottawa radio stations.
With the adoption of IFRS 11 - Joint Arrangements our operating results for fiscal 2013 have been restated to eliminate the segment profit related to our 50% economic interest in TELETOON, which is now recorded under other income. This restatement did not change reported net income for fiscal 2013.
Moving to Slide 4. In addition to delivering significant top line growth in the quarter and the year, the company's ongoing focus on cost controls, coupled with our swift integration of the acquisitions, resulted in impressive segment profit growth, up 15% in the quarter and for the full year.
Turning to Slide 5 for a review of the fourth quarter and full year. With our favorable financing, we exceeded our targeted cost synergies for the acquisitions, realizing accretive net income and free cash flow growth for the company.
As a result, adjusted net income attributable to shareholders and adjusted basic earnings per share were up 8% and 7%, respectively on a full year basis. Free cash flow continues to be a key strength for Corus, and we were extremely pleased to have delivered record free cash flow of $175.3 million for the year, which was a significant increase of 13% from the prior year.
Growing free cash flow remains an ongoing priority for us since it supports our dividend strategy, as demonstrated by our dividend increase of 6.9% in January 2014, and enabled us to further enhance shareholder value. Turning to Slide 6, and a review of our Radio business.
Fiscal 2014 was a disappointing year. A soft advertising market and ratings issues in certain key markets resulted in revenue and segment profit declines of 6% and 18%, respectively, for the full year.
While Radio did a very good job focusing on cost controls, which contributed to segment profit margins of 26% for the year, including the impact of the Ottawa radio acquisitions, it was not enough to offset revenue declines. In Q4, Radio implemented a number of changes to refine programming and sales strategies resulting in annual savings of around $4 million.
Turning to Slide 7. Television delivered double-digit increases in revenue and segment profit, up 16% and 19%, respectively for the full year.
With our recent acquisitions, specialty advertising and subscriber revenues were up 36% and 21%, respectively for the fiscal year. Ongoing softness in the ad market, due in part to currency fluctuations and account movement between ad agencies and, of course, advertiser experimentation with nonlinear platforms, has created some demand challenges for the overall television advertising market, and I'm sure we will get into a discussion of this a little later.
However, we are pleased to see that our programming strategies continued to deliver solid ratings for the quarter and for the year on some of our key brands, particularly our flagship service W Network, which was #1 amongst its competitive set. While subscriber revenue grew due to the acquisitions, this was offset by a slight decline in pay TV subscribers, as well as from ordinary course packaging and rate changes.
In Q4, we concluded a significant content licensing deal with Rogers and Shaw's new SVOD service, Shomi, and we are excited about further sales of our content as new over-the-top offerings emerge. However, these gains were not enough to offset lower merchandising, distribution and other revenues, which were down 16% in the quarter and 28% for the year, primarily as result of the higher Beyblade revenues in our prior year.
The Television division did a great job in controlling their costs and exceeding the synergy targets for our acquisitions, resulting in excellent segment profit margins of 41%, which was up from 40% last year. Moving ahead to Slide 8 and our outlook for the first quarter.
As we enter a new fiscal with an expanded portfolio of assets, ratings strength on our key Television brands, the repositioning of certain large market radio stations and a number of new digital opportunities on the horizon, we are optimistic about the future. Our focus is on strengthening our core business, maximizing the opportunities our new assets present and leveraging synergies across our segments to drive our financial results in this fiscal year.
Now to address guidance, given our fiscal 2014 results, we have adjusted our financial guidance for fiscal 2015, lowering our consolidated segment profit guidance to a revised range of $300 million to $320 million. The lower end of the range contemplates continued softness in the economy and its impact on discretionary advertising expenditures and minimal growth in subscriber, merchandising and distribution and other revenues.
The upper end of our range reflects our strong operating leverage should there be an improvement in the economic and advertising environment. Turning to our free cash flow guidance.
With our strong performance this year, we are increasing our free cash flow guidance to $180 million for fiscal 2015. Now onto our outlook for Radio.
While advertising softness continues, our research has led us to conclude that the issue for Corus is largely formatic in nature as opposed to secular. In Q4, we introduced a number of programming initiatives focused on improving soft ratings in some of our key markets.
We've rebranded stations, we've reformatted programming lineups and we've refreshed content on many of our key Radio brands, while implementing new sales initiatives to lower our cost base. These initiatives, we're pleased to say, are starting to take hold, and we are very encouraged to see ratings growth in some of our key markets, particularly Vancouver and Toronto.
Recently released Numeris, which is the former BBM Data, indicates that Corus' market share is up, with growth in Toronto and gains in Vancouver and Calgary. In Toronto, for example, Q107 shifted its focus from a pure classic rock station to Toronto's rock Q107, which gives us a broader audience appeal.
This rebranding has been very well received and ratings are up nicely and we expect continued growth from these key stations throughout the year. 102.1 the Edge is also revamping its programming lineup and has brought back popular musicologist, Alan Cross, to produce new content, host a new show, Adventures in Vinyl, and importantly revive the iconic series, Ongoing History of New Music, which of course, has been syndicated across many of our radio stations and is part of our drive to extend more of our content across multiple platforms.
In Vancouver, we've also seen some retooling, where our stations have adopted strategies to broaden the audience base with fresh branding, new lineups of personalities and social media savvy hosts. Calgary's Country 104.5 has been nominated by the CMA awards as one of the top 5 stations in North America in the Large Market Station of the Year category.
So that is in fact one of the top 5 stations in North America, not just in Canada, and we're very proud of this particular nomination. The winners will be announced in Nashville, Tennessee on November 5, and this prestigious nomination demonstrates the power of our country music format in Calgary.
In our newest Radio market, Ottawa, our newly rebranded station, JUMP! 106.9 is gaining traction, and we expect its favorable reception will be reflected in November's rating books, which are now again, as we mentioned earlier, the Numeris results.
Ottawa's 99.7 Boom FM has also made changes, introducing a new roster of fresh and favorite faces to the station's lineup. Turning to Television.
While we are facing some ongoing advertising demand softness, we are encouraged that audience delivery on our core brands remain solid. In Q1, Television continues to focus on maximizing sales opportunities and sustaining the ratings momentum over the course of the year.
While advertising pacing is currently behind year ago, on our Women's and Family networks, kids-directed advertising on our kid’s services is pacing well, with solid performance across key categories, fueled by new and returning businesses. We expect the stellar lineup of new fall series on our kids networks will bolster ratings and continue the positive trends we're seeing in kid-targeted ad spending through the fall and into the important holiday season.
On the international front, Nelvana is focused on leveraging its deep library of globally recognized brands to drive revenue across linear and digital platforms. On the production side of the business, Nelvana continues to target content deals with toyetic potential.
Our newest preschool properties, Trucktown and Little Charmers, were showcased at the international trade market, MIPCOM, last week, and we're excited about progressing these merchandisable brands, which were well-received internationally. Little Charmers debuts worldwide on Nickelodeon in spring 2015 and Spin Master is on board as our master toy partner with the superb lineup of toys and accessories that are slated to roll out globally.
Trucktown premiered this September on Treehouse in the #1 spot and ranked #2 on iTunes for top episodes aimed at kids. As well, we have just secured major broadcast placement for Trucktown, with France's public national Television broadcaster, France Television.
In our Women and Family portfolio, ratings momentum is expected to continue across our women's brands, including recent ratings resurgence on CMT, where audiences have been showing good growth on a total day basis for several months. In our Corus Média business, with the integration of new assets now complete, the Québec market represents a new and exciting important growth opportunity for us moving forward.
This week, Corus Média concluded a key strategic output deal with A&E Networks, which deepens Historia's content offering with a new lineup of global hit franchise series from history's catalog, which is slated to roll out this winter. On the subscriber front.
In Q1, we anticipate some softness in our pay television business due to movement in bulk accounts and declines and discounts in promotional subscribers, which will be offset by subscriber gains primarily from our newly acquired assets. With regards to pay TV subscribers, from this point forward, we will no longer be providing subscriber numbers on a quarterly basis.
As part of our CRTC filings, this information will, however, continue to be made available to you annually. In the coming months, we will be offering targeted promotional campaigns to both existing and potential pay customers that focus on what we believe is a great value proposition.
We have exclusive content from HBO and Showtime, plus we have popular theatrical films from 5 major studios and, of course, we continue to have access to great series programming offered on an exclusive basis. We expect this fall's lineup of programming, including the final season of Boardwalk Empire, new seasons of Newsroom and Bill Maher and a new critically acclaimed Showtime drama, The Affair, starring Dominic West and Joshua Jackson, will be well received.
We have also, as you're aware, just recently closed a landmark multi-year deal with HBO, securing in-season library rights to our hit series, further enhancing the value of our pay offering and allowing our customers to binge or marathon view entire past seasons of their favorite shows whenever they want. Recently, HBO announced that it is launching a streaming service in the United States.
Here in Canada, Corus continues to be the home of HBO programming in the West and we have a multi-year, multi-platform deal in place with HBO to deliver its program exclusively in our markets. We are working to better understanding -- understand the mechanics of this deal to HBO in the United States and ultimately, to Corus, as its partner in Western Canada.
But let us say today that the spirit of our arrangement with HBO is that we would be allowed to mirror whatever innovations HBO implements in their domestic market. We will continue to work closely with HBO and our distribution partners to determine what works best for our market as the landscape evolves.
One of our strategic priorities for Television and Radio is to own and exploit more content across multiple platforms. As part of this strategy, we've also announced a number of new initiatives.
On Monday, for example, we are premiering an exclusive in-depth music special with Taylor Swift that will air nationally across 4 of our Television networks, CMT, ABC Spark, Cosmo and YTV, and 13 of our radio stations. The special, Taylor Swift, 1989, debuts on the same day, Swift releases her highly anticipated new album.
Additional related content will be pushed to Corus Radio's websites as well. This is our biggest cross-platform initiative to date, and it will be the first of many.
We recently entered into a strategic partnership with the U.S. digital media company, KIN, which operates the #1 female-focused lifestyle multi-channel network on YouTube.
This forward-thinking deal represents our first entry into the fast-growing YouTube MCN space, and it will provide Corus with new scale and appeal to media buyers looking to reach the highly coveted women's demographic with expanded native advertising campaigns that can be delivered across broadcast and YouTube platforms. We also signed a ground-breaking multi-year co-development deal with Bento Box, an Emmy award-winning primetime animation powerhouse known for such hit series as Bob's Burgers and The Awesomes, which will give us an ownership position in primetime animation.
Together, we will develop animated contact -- sorry animated content, targeted to the 18 to 34-year old market that will bolster TELETOON at Night's lineup of original series and will be distributed on multiple platforms domestically and internationally. Here and abroad, we are seeing significant SVOD and OTT opportunities for Nelvana's library of titles and for newly commissioned first-run content as new players emerge and demand for kids content in the digital space continues to grow.
Internationally, progress has been made in closing digital content deals with Netflix Europe, Digital Latin America and MaxStone [ph] in Germany. Closer to home, the emergence of multi-platform product offerings in Canada provides new outlets for our own kids content.
In conclusion, as we head into the new fiscal, the ongoing strength of our brands, opportunities from our new assets, strong audience delivery on Television, the repositioning of key radio stations and our growing investment in content and digital media will drive growth for our business and deliver value to our shareholders. Before we turn the call over to you, we would, however, like to confirm the date of our Annual Investor Day, which will be held at 9 a.m.
Eastern Time on Thursday, November 20, 2014, at which time we will update our investors on our fiscal 2015 priorities, particularly focusing on that, of which we are most excited for the year to come. This event will be webcast live on our website.
We will now be pleased to take any questions that you may have. So operator, we'll turn the call back over to you.
Operator
[Operator Instructions] And we'll proceed with our first question from the line of Paul Steep from Scotia Capital.
Paul Steep - Scotiabank Global Banking and Markets, Research Division
I guess, John, maybe we could start off and get your thoughts or some of your commentary. We obviously appeared before the commission for the Talk TV hearings.
Maybe some thoughts around how you're thinking about pick and pay and what that potential holds and how you're positioning the business?
John M. Cassaday
I think the -- thanks, Paul. First of all, to focus on our specific 3 recommendations, first of all, the premise that we had is that Canadians are satisfied with the services that we provide and that the status quo should be allowed to prevail.
If, however, the commission feels, in response to the speech from the throne, that more consumer choice is the order of the day, then what we said is first and foremost, we strongly recommend that the default be the status quo. So that if people, after having tried to make numerous selections, which we think will be more paralyzing than empowering, get frustrated, that they can simply default to accept the services that they are currently enjoying in their homes.
So we're really hopeful that, that recommendation would be accepted. The second recommendation that we made, that we positioned very powerfully to the commission, is that if in fact they do decide to move ahead with the Skinny Basic, that children's programming services be included in that particular offering and specifically, we said at least a service dedicated at 2 to 6-year-olds and at least another children's service dedicated to 6 to 11-year olds.
We felt that children's programming was critically important to Canada and that it was important for kids that those services operate under the protection of the basic broadcast regulations that we have in place to protect children while they're watching the shows of interest to them. And then the third thing that we recommended is that they take a more anthropological approach and test this.
We argued that no one would put a new airline in the air without first testing it out, and let's go and watch some families try to make these choices and make sure that we know precisely what the impact is going to be. So we thought that, that could be accommodated within the time frame that they were looking to and that it was worth doing.
So we'll see where we net out. We expect that there will be a decision made probably in the first quarter of calendar year 2015.
And that implementation would take place probably at the beginning of 2016, but no later than the end of 2015. And we believe that there are some complications associated with the transition to a pick and pay environment that the -- particularly, the cable; industry will have to explore with the commission, which could further slowdown this thing.
In fact, if I was to make a prediction today, we'd probably say it would be the end of 2016 before we see this in place.
Paul Steep - Scotiabank Global Banking and Markets, Research Division
Great. And then I guess, for a follow-up here.
If we think about HBO and the CBS OTT deals, obviously, there's no change in Canada until at least 2018. And maybe put in context the deal that you just did for extra content, how are you thinking about these sort of shift to OTT or experiment in the U.S.?
John M. Cassaday
Well, certainly, we're seeing multiple platforms emerging and we're seeing a lot of experimentation. No one really knows precisely what HBO has in mind.
There's -- God is in the detail in these things, and I'd rather look at this as not as dissimilar to Air Canada deciding to introduce flights out of Billy Bishop airport. It didn't mean they were walking away from Pearson.
It fact, Pearson is still going to be their principle point of deportation. But there was another airport, and they took advantage of that.
In this particular case, HBO identified an opportunity to make content available to broadband subscribers that aren't video subscribers, and we'll see what can happen. But they need to figure out how they're going to price it and how they're going to market it and how they're going to bill for it and how they're going to share with their partners, because I think HBO has been clear for quite some time that they want to protect the Canadian ecosystem.
As we said in our opening remarks today, in the spirit of the agreement we had with HBO when we entered into it, was that we would be able to stay in lockstep with them because none of us really could predict with any certainty what the future looked like. So in summary, we're -- we would include ourselves in a group of people that think protecting the ecosystem is important to all of us but continuing to be experimental as critically important.
And we've announced recently that we, ourselves, plan to have at least 5 of our networks available as apps over the course of this year. And we are, of course, selling as much content as we can to OTT providers right around the world and many of those deals we talked about in our opening comments.
Operator
And we'll proceed to our next question from the line of Aravinda Galappatthige from Canaccord Genuity.
Aravinda Galappatthige - Canaccord Genuity, Research Division
I just wanted to start off with Radio. You touched on some of your plans, your turnaround plans and sort of the progress that you've been making.
So given sort of improvements that you're seeing in the ratings and the rebrandings that you've done, is it -- I wanted to get a sense of what your outlook is in terms of sort of getting back on track with respect to the market if you've had a period of declines. Is it fair to say that given sort of the trends we're seeing now, sort of towards the back-end of '15, you will be back on track with sort of whatever the market growth is in your geographies for Radio?
John M. Cassaday
I would say it would be no later than the back-end of fiscal '15 and maybe as early as Q2. The bottom line in Radio is it really comes down to the 4 key markets of Vancouver, Calgary, Edmonton and Toronto.
We're rock-solid in Calgary. Edmonton has improved nicely.
And then in Vancouver, we've seen very, very nice pick-up at Rock 101, and in Toronto with Q107. The 2 stations that we really got to get back on track are the 2 alternative rock or new rock stations, and I think those are both work in progress so we're very confident that we can start to see progress there.
But it's clear that they're still generating cume [ph] and share below year ago and we've got some work to do. But if we had to say what we really need to ensure we're successful, we have to get Rock 101 and Q107 back on track.
And the most recent PPMs, as you know, have been very, very positive for both of those 2. So we're very optimistic about our ability to start to see some growth again in Radio and very optimistic and confident in saying that we've hit bottom.
Aravinda Galappatthige - Canaccord Genuity, Research Division
I just wanted to switch over to the cost side a little bit. I mean, you've talked about your synergies and the fact that you've kind of gotten them, you have exceeded expectations.
Is there an element spillover into fiscal '15 as well? I mean, I guess what I'm specifically asking is the Q4 numbers.
Do they fully reflect that fully ramped-up level of synergystic savings? Or is there a little bit more to go as you kind of look to Q1 and Q2 in fiscal '15?
John M. Cassaday
I would say that the savings are pretty much fully reflected. We've pretty much captured everything that was available from those synergies.
I would say, Aravinda that part of our culture here has been to hold and protect our margins. So we're constantly looking at opportunities to operate more efficiently.
And to ensure that we can maintain those margins. We were really pleased with our TV margins.
We're disappointed that our Radio margins were allowed to slide below our historical $30 million level. But as we've said many, many times, Radio is a fixed cost business.
If we can get those revenue numbers up even 2 points, that could result in a 6 and 7-point increases in EBITDA. And again, we're very optimistic that, that, in fact, is a part of the art of the possible here.
Aravinda Galappatthige - Canaccord Genuity, Research Division
And my last question. I know you don't give specifics on this.
But just so that we appreciate where things stand with respect to Television advertising, sort of working back through some of the acquisitions, is it fair to say that this quarter sort of the ad declines that we're looking at, sort of in the mid- to high single digits, is that a reasonable estimation just for the Television side?
John M. Cassaday
This past quarter was a disappointing ad performance for us. As we mentioned, we were pretty darn satisfied with our ratings and our competitive position.
It was really demand related. So there's a couple of factors that we would point to.
One that we can overstate was the devaluation of the Canadian dollar and the fact that so many of our customers are foreign multinationals reporting to their U.S. parent in U.S.
dollars. So they had to offset those currency declines with reductions in variable costs.
Advertising was one of them. We also talked about account movement being a factor this year and we also talked about the fact that there's no question.
Particularly in the women's side of our business, we're seeing some migration to digital. Those factors all continue.
The other things that I would say is that one of the frustrating things for us is just the business comes in so much later than it has in the past. And I'm going to give you an example, just because I think I want everybody to understand just the challenge that we're having in being as forthcoming with you all as you would like about this.
But just last week, we booked $2.5 million of revenue, which was about double what we did in the same week year ago. And 60% of that booking was for Q1, which only has 5 weeks to go.
So in the past, we never would have seen that level of volume being booked against the quarter, which is more that half done. So this is a rather new phenomenon, and we've been sort of taxing ourselves as to why this might be.
And one of the theories that we have, which is yet to be proven, is that there was a pretty massive change in the market structure this year with the significant investment that Rogers made in hockey and the relative lateness of all of that product inventory being put into the marketplace. And we're wondering if, in fact, there is some pent-up demand for inventory that will spring loose once all of the hockey decisions are made by so many of our advertisers in the marketplace right now.
So we continue to be optimistic because of our ratings strength, and we're starting to see business roll in, as you can see from that one example I gave you, substantial amounts of advertising but very late. And it's making it harder to forecast than we have in the past it.
And I'd invite Doug to make any other additional comments that he'd like to on this broad subject of what's happening in the ad economy.
Douglas D. Murphy
John, you covered a lot of good parts. I'd add just 2 things.
One is that we had our KIN committee team up here a few weeks ago when we did a bit of a roadshow with all our agencies and clients. And I can tell you that, to the letter, every single agency was thrilled to engage in discussions with Corus about how to launch new native advertising campaigns 2 to 5-minute premium branded video, online YouTube base, targeted-at-women campaigns, which clearly is an area that is a high-growth area.
And it's what we've been hearing so many times from our agency partners, "I've got to go to digital, but I don't want buy display ads, give us a solution: Well, we've got one. So we really rang the bell there and we're looking and feel very confident that this KIN opportunity will be the first of many as we look to similar investments and similar digital platforms that reach our targeted audiences and are a perfect complement to our linear Television advertising.
Relatedly, the second area I'd just note in terms of looking forward is, and I'll come back to this later when we talk about content ownership on women's and family because I know many of you are looking for an update in that regard, is we have a number of fantastic unscripted reality shows on W, either now or coming, Pressure Cooker and others, Game of Homes, which have an unprecedented amount of client integration built into the show. Again, high-margin, premium value advertising that we're being asked to deliver to our agencies and clients.
And this heightened level of focus, the sort of intersection of programming and advertising, is the kind of innovation that we're going to continue to focus on to address softness in the sort of what we call the traditional ad spend economy. So those are 2 examples of things we're doing to address the macro softness.
We can bring forward some, if you would, micro strategies that are targeted and very effective and are of high value to our audiences and agencies.
John M. Cassaday
But then[ph] you asked if, and I think I answered the question, was the advertising soft on your core business in the fourth quarter? And the answer to that is, it was, and it was below our expectation for many of the reasons.
And in fact, I guess, all the reasons I mentioned would capture why that situation existed. But I think your intuition or assumptions about the dynamics of our revenue case in Q4 are accurate.
Douglas D. Murphy
I might add one more thing. In terms of the look-back and what happened is that, let's not forget, the FIFA World Cup in the summer time and then, of course, the Olympics in winter.
And so back to our analysis, that sucked up a of couple -- probably $100 million of our advertising. Other than the market, it might have come to the rest of us that didn't carry those sports programming tent pole.
So it certainly was a year of interesting outcomes. But that would be the other item in addition to foreign exchange, CPG, shift to digital would be a real wake-up call in terms of some of these big sports tent-pole events.
Operator
And we'll get to our next question is from the line of Vince Valentini with TD Securities.
Vince Valentini - TD Securities Equity Research
Just levering off that last question I'm not sure you'll be able to answer because you seem to not have the visibility yet. But is the -- your impression there's just been a delay in maybe advertising decisions because of this huge hockey launch on Sportsnet, or do you think there may be somewhat of a permanent shift here that PSN is still out there, with pretty good hockey rights, and I'm sure they're pushing hard.
Now Sportsnet has much more compelling offering. Is there just a possibility there's a permanent shift in ad dollars away from your type of channels to those sports networks as they're making a big splash?
John M. Cassaday
No, I don't think so. I think there's somewhat of a demand issue for women's content.
Yes, it's true, the women are watching these sporting events and some dollars are going into there as they always have. But this is a discreet segment.
It's demand-related and I think it's largely economy-impacted. Our kid’s brands are in fact pacing about flat with year ago.
In fact, they are pacing flat versus a year ago. The softness that we're seeing right in our Q1 bookings is exclusively on our women's brands.
And I think some of its just dollars tied up, but waiting to find a home, if they don't decide to lock into hockey. But I just think that for whatever reason, there's a demand issue right now on women's demos.
And I can't, for the life of me, see a scenario where that's going to continue for too much longer into the future. As Doug said, we're all getting much more involved in integrative activities.
We're all providing the value-added, multi-platform opportunities that our advertisers are looking for. And we've got good ratings and good services with W, Cosmo and OWN.
So we're very optimistic about those businesses, but the visibility today is not great. The other thing I'd say, Vince, is that if I look at the bookings report, September was very soft; October and November, just absolutely fine.
So we're playing some catch-up here, and hopefully, September was the exception as opposed to the new norm.
Vince Valentini - TD Securities Equity Research
A couple of maybe for Tom. You mentioned the Shomi revenues.
Just trying to get my head around this. You would have booked revenues for selling your content to Shomi, even though Shomi hasn't commercially launched yet.
Is that how the dynamics of your content sales work?
Thomas C. Peddie
Yes. All of the content was available to them by our year-end.
So under our revenue recognition, we would have recognized it.
Vince Valentini - TD Securities Equity Research
So is there an ongoing revenue stream as well? Or is it kind of a one-time sale?
Thomas C. Peddie
It would be a one-time sale.
Vince Valentini - TD Securities Equity Research
Okay. And then last one here, on the free cash flow.
Just can you walk us through a little bit the delta between, call it, a fairly meaningful reduction in your EBITDA guidance, but yet the free cash flow guidance is up. So is this program investment -- investing that you're cutting back on, or are there CapEx or is it interest or something else?
Tell us how you get to the higher free cash flow.
Thomas C. Peddie
Well, I'll build on John's earlier comment that we've delivered record free cash flow this year, $175 million on $290 million worth of EBITDA. So as you look forward, we'll have our cash flow from our acquisitions of H&S for an extra 4 months.
And so you take that into consideration. And so I think the number...
John M. Cassaday
And that's at the bottom end of our range, $10 million more on EBITDA. And at the top end of our range, $30 million more in EBITDA.
So that would be the sort of circular route to getting to that new cash flow number.
Vince Valentini - TD Securities Equity Research
So can I sum that up that your old free cash flow guidance was extremely conservative and you had built in lots of buffer that you don't have any more or something? Just trying to figure the difference between the old free cash flow guidance and the new as opposed to -- I understand your year-over-year point you're making.
Thomas C. Peddie
I never really like to use the word whether the target is conservative or aggressive. It's the target that we felt comfortable with at that particular point in time.
And the target that we've given now, we're comfortable with. Based upon our track record, though, we generally seem to provide a number that's lower than what we actually achieve.
John M. Cassaday
And we did do better. We did do better on our cash flow at year end than we anticipated.
So that -- it's off a higher base as well, Vince.
Thomas C. Peddie
Yes, we did a -- we have spent a little less on capital expenditures in fiscal '14 than we had, so that helped the number and so -- and we also did a much better -- we expect to do a good job on collecting our tax credits and managing our working capital. So it's a number that we're comfortable with.
Vince Valentini - TD Securities Equity Research
Can I tie it altogether with one last question, probably for you John? The free cash flow is good, but the organic trends in terms of revenue and EBITDA have been a bit soft.
And we have this overhang of uncertainty on what the CRTC might do with the Let's Talk TV hearing. So was that all sort of surrounding you?
Does it make sense that there could be a dividend increase in the next little while? Or do you think you need to let some time go by to see what the CRTC has to say and maybe wait until second or third quarter to see your organic trends in ad revenue?
John M. Cassaday
Well, that's going to be a decision that the board will have to make, Vince, so I really can't comment on that today. You're aware that as sort of a strategy that we like to commit 50% of our free cash flow to dividend.
Our free cash flow is up. So I think the board will have to take that into account.
Given some of the uncertainty in the ad economy, I don't really think the Let's Talk TV hearing is going to be a significant driver in their thinking because there's just too much ambiguity about what that might look like. And as we said, our expectation is, is it's probably not going to be a factor in our lives, if at all, until late in 2016.
Operator
And we'll get to our next question from the line of Tim Casey with BMO.
Tim Casey - BMO Capital Markets Canada
John, with your focus on margins, as you stated, given the revenue environment, can you talk about what you are investing in? I mean, if you are launching channels on apps, presumably you need some marketing and billing strategies there.
And I'm assuming you're still investing in your core products. So what reassurances can you give us that you're not foregoing future growth opportunities as you focus on near-term margins?
John M. Cassaday
Well, Tim, it sounds like you were listening to our board meeting this morning because it is a balancing act. The one thing that we can assure is that we're continuing to invest in programming.
One of the things that we've been pushing for a number of years now, which we've ultimately got, was grouped-based licensing. And this has allowed us to really target our program spend against those brands or networks that we feel have the most up-side potential.
So you can certainly expect us to continue to invest in programming and certainly, we've talked in the past about our programming expense line being in the 4% to 6% range incrementally. That would continue.
As it relates to the investment that we're making in the introduction of new apps, I'll let Doug comment on that.
Douglas D. Murphy
Thanks, John. I'll give you 3 or 4 examples of ongoing investment that is critical to our business and that we're quite excited about launching.
First and foremost, our kids apps on TV Everywhere, so that will happen beginning in March. And well, details will come in Investors Day, but I'll give you a bit of a flavor.
That we'll have all of our major kids services launched on a TV Everywhere basis, authenticated to the BDUs in fiscal '15. That's an important competitive answer to fragmentation from OTT and nonlinear competitors.
So that's one that requires an investment. Not significant but meaningful in terms of protecting the core business.
Nelvana, of course, we continue to spend a significant amount of dollars in that business, targeting 100 to 125 episodes a year. We just came back from MIPCOM last week and we have a number of properties, some of which you've heard of before that John mentioned in his opening remarks, like Little Charmers and Trucktown, which are looking fantastically well positioned.
And some other ones Mr. [indiscernible], which have boy's action and some newer shows like Ranger Rob and one which will be announced in the coming weeks.
So we are feeling very enthusiastic about the Nelvana slate. Next up, investing in Radio.
Radio, as we've discussed, has been a turnaround project. The investments we were making in Radio starts with research.
So really understanding what's going on in the marketplace. We've been in all of our clusters and we've experienced ratings erosion.
We have been investing in research to understand first and foremost, where's the hole in market, where can we go, what's the right music recipe. We test those in our first and second preference listeners.
We then look at our on-air talent. Do we have the right talent that matches up with our recipe?
If not, let's change them out. We've secured some of our best talent.
John mentioned, Alan Cross, coming back to the Edge here in Toronto. Rock [indiscernible] and Rock 101 in Vancouver.
We've made significant changes in all of our a.m. talks out west.
All of these align with our research base on either improving the music recipes or aging down the top targets. And I think the final one, I'd just touch upon in a little more detail is the HBO investment and in-season content, which we announced most recently.
We're aware that we continue to be challenged to grow quarter-over-quarter with the HBO subs. We're not concerned.
We know we have got the best value pop out there in terms of the content we're now able provide. You'll be able to watch all of the prior seasons of Boardwalk Empire, game of Thrones, True Blood, Girls on our stack SVOD and scheduled prior to season launches that will draw audiences.
That will be used in our acquisition campaigns to attract new subscribers. So rest assured that whilst we are intensely focused on cost, we're not losing sight of the long game, and that's to grow our business.
John M. Cassaday
Tim, just a couple of other quick things. Because I think this whole focus on the future is really important.
And I'd just remind everyone that we continue to invest over $50 million a year in new content for our kids business, producing on average 100 -- 125 to 150 new episodes, obviously, in quest of the next Beyblade or Bakugan, which will make us all look a lot smarter if we get another one of those again. Fingerprint is another investment that we've made, that's looking very good.
And you may recall, there was a recent announcement that DreamWorks has joined us on that in the last round of financing and increasing the value of that and putting additional focus on just what a good business opportunity that we have on our hands there. Our investment in Steamboat is turning out to look really nice, with, of course, their position in GoPro, which has been a huge success.
But our investment in Steamboat. And our relay investment were really to give us a first look at new and emerging companies, particularly in the mobile space, so that we can get kind of a first-look advantage there.
And while we haven't found a particular M&A opportunity out there, those have turned out to be pretty good-looking investments for us. And then under Scott Dyer's hospices, we've invested in 2 or 3 incubators, again giving us a first look at some of the emerging talent, idea and ideas that are coming in this new digital space, particularly as it relates to mobile.
So we're not skimping on any of the investment as we get through a choppy ad market.
Operator
And we'll now proceed to our final question from the line of Haran Posner from RBC Capital Markets.
Haran Posner - RBC Capital Markets, LLC, Research Division
Most of my questions have been answered. Maybe just a follow-up on pay TV.
So I think obviously, a lot of news this quarter. There's the expanded HBO deal and at the same time, I guess, we've lost the Disney output deal to Netflix.
I'm just curious, when you look at these 2 changes and you think about margins and pay TV, should we think that the net impact should be margins going up or down?
Douglas D. Murphy
It's Doug, Haran. I would say margins will remain where they are.
I mean, we're very, very judicious about what we prepared to invest in these output deals. It's obvious that one of the reasons why Disney pay run window went to Netflix because they paid more.
And frankly speaking, we've got to our threshold of what we we'd be willing to pay for that content and at certain points in time, we just have to pass and we have a strong offering with our existing studios. And we think we've got -- and the new HBO content was a better relative investment for us to drive subscription and acquisitions of pay.
John M. Cassaday
And then, Haran, just to build on that. There's no renewals scheduled for this year, so we have 100% visibility on our program costs for this fiscal year on pay.
Douglas D. Murphy
And some of the noise on the subs, there's a lot of system subloss out there, moving back and forth, packaging changes that continue to kind of be a challenge. But we still are optimistic that we're going to be able to get on a growth trajectory with pay on subs.
As we noted in our opening remarks, we'll stop reporting those in a quarterly basis, but we'll be reporting those as we file with the commission on an annual basis. But we still feel like we can grow the pay business because it's one of the best content offerings available.
And we remain optimistic with the future of that part of our business.
Haran Posner - RBC Capital Markets, LLC, Research Division
So maybe just one follow-up on that one, Doug, if I may. And I think one of your goals was, at least in the last couple of years, was to increase Movie Central's penetration on the Shaw cable system.
Obviously, they now have a stake in Shomi. Is that at all a concern to you that I guess the Shaw call center reps are now going to be focused on that as opposed to Movie Central?
Douglas D. Murphy
No, it's not. Shaw still makes more money on pay than they're going to make on Shomi.
So we think pay remains a profitable business for all of our BDUs. And, as they say, it's a -- and quite honestly, depending on where we end up with Let's Talk TV, if you have the opportunity to buy Skinny Basic and HBO in Movie Central, I could argue that, that'd be a very favorable outcome for our pay services and we've grow.
So we're -- it's still a good margin business for the distributors and it's still a good margin business for us.
Haran Posner - RBC Capital Markets, LLC, Research Division
Okay, that's great. And then just maybe one last one for me.
You've made the $10 million investment in KIN. I think it's going to be equity accounted.
Maybe for Tom, is there going to be any revenue through your top line from this, just with respect to KIN Canada?
Thomas C. Peddie
Yes, it's Tom. Yes, so we will equity account for our ownership position, but we do -- we will generate sales revenue, so we'll have some top line in Canada, and from that sales revenue, ultimately have some EBITDA.
John M. Cassaday
We'll use this to bundle and package. So this is a integrative sort of offering.
So people will be able to wrap around KIN and Cosmo, and wrap around KIN and into Oprah, and KIN into W. So what this does it provides us with that sort of proverbial almost cliché added value that everyone's looking for right now with the ability to drive people to the native advertising that gives them a better opportunity to tell their story than they get in a 30-second spot.
Haran Posner - RBC Capital Markets, LLC, Research Division
And I would agree with that and I like the investment. I guess, John, is that something that we should expect to see more from you in terms of the multichannel network space?
John M. Cassaday
We're looking -- we have so much deal flowing on our pipeline and we're -- I'd say, 80% of it is in the digital area and just trying to find the right deals and trying to find the right sort of economics to put them together. That's the focus.
It's certainly not lack of activity or lack of interest. It's just bringing it together.
Fingerprint, a good example. Our investment in SoCast for social media on Radio, good example.
The KIN investment, a good example. And we think -- see the MCN space as the area that we really want to work hard on.
And we're also becoming way more active on not only launching YouTube services with our kids franchise but also mining the revenues that are being generated on YouTube right now without really any actual activity on our part.
Douglas D. Murphy
I've got a couple of things. It's on YouTube.
I want to just note that we now have successfully launched the entire Nelvana library up on YouTube. So that's out there now and that's been -- has been a long time coming to make sure that we had the right quality content up there just in terms of generations because it gets loaded up by others and it gets grainy.
So we have good quality content up there now. So that YouTube business for Nelvana is alive and growing business.
I want to talk a little bit more about Radio. I'd like to ask myself a question on your behalf about Radio.
We think Radio is still a very attractive medium. In fact in a couple of hours, we're going to gather upstairs in our 8th floor, with Nielsen Catalina Solutions, with 100 people jammed at the reactors, talking about why, against all other medias, Radio's ROI is 6x the investment.
It's hard data that's come from Nielsen Catalina. We're thrilled with it because it reminds the agencies and our advertisers that yes, digital is a very splashy area right now with reason, but let's not forget about traditional media, in particular, Radio.
And we have a counterpart to this Digital to Radio, and that's the investment we made in SoCast, which John mentions. And just for the benefit of all, we'll be launching each and everyone of our radio stations their own -- with own station brands, be it the SoCast platform in the coming months and they all's have companion digital sales assets which we can then use to integrate digital selling with the linear radio selling.
So this is another bit of a teaser for what we'll talk about in our Investors Day in November 20. But rest assured that in all of our businesses, we are looking very deeply at what's the digital, the counterpart that we can tie in with the linear products to improve our customers' ability to reach their audiences.
Operator
We do have another question on the line of Robert Peters from Credit Suisse.
Robert Peters - Crédit Suisse AG, Research Division
I just had a question around Nelvana. And I know at the last Investor Day, you talked about the digital revenues that you had coming in.
I believe it was expected to be -- it was $14 million in 2013, growing up to about $20 million in 2015. I was just wondering, given that we've seen a lot of digital deals recently and with the launch of other over-the-top services, do you think that opportunity is growing from when you looked at it last year?
Or can you give any context around how you're doing on that front?
Douglas D. Murphy
We're comfortable that directionally, we're on plan given what we talked about last year. But just coming back from MIPCOM, it's not the best metaphor, but new digital S5 players are popping like mushroom after a spring rain, they're just everywhere.
And we're also finding that all the distributors around the world, we call them BDUs, U.S. Column, NBPDs, whatever you want to call them, they're all saying "Hey, I got to buy some content from you guys because Netflix is launching in Germany or in France or in Netherlands, "so we're talking to France Télécom, Deutsche Telekom, Orange, whatever you want to name it, everybody wants to answer the OTT competitive threat.
So yes, there's still lots of headroom in the digital licensing space, whether or not it's to the over-the-top providers or to the sort of existing ecosystem distributors globally, it's still ripe with opportunity.
Operator
Thank you. And Mr.
Cassaday, we have no further questions. I'll turn it back to you for any closing remarks.
John M. Cassaday
Thank you, operator. Thanks, everyone, for your continued interest in our company and we look forward to seeing most of you in person at our Investor Day on November 20.
Bye for now.
Operator
Thank you very much. And ladies and gentlemen, this concludes the conference call for today.
We thank you for your participation. Please disconnect your lines.
Have a good day, everyone.