Tag Archives: Shaw

The Wonk Report: Group Licence Renewal

Over the past two weeks the CRTC held hearings on first the French and then the English licence renewals for the big broadcast groups.  For the English (my focus) that means Corus (which now owns Shaw), Rogers and Bell.

A lot of the hearing went as expected.  The broadcast groups have argued that because of competition from Netflix they need more flexibility and that has as always been code for lowering their CanCon obligations.  They want lower CPEs (Canadian Programming Expenditures) for all Canadian programming and in particular, PNI (Programs of National Interest—drama, documentary and award shows).   The biggest issue for the content side of the industry is what will be the group CPE (set by policy at 30% of revenues but was it intended to be a goal or floor?) and the PNI CPE (set by policy for Bell, Rogers and Shaw at 5% but for Corus at 9% and now proposed by the CRTC as 5% for all).   The CRTC had said in the notice of hearing that spending levels would be maintained, the broadcasters all asked for breaks and the content side of the industry argued that historical levels should be maintained.

Traditionally, licence renewal hearings are about implementation of policy and are not intended to make policy.  Off the top, the Chair suggested that the TalkTV policy decision needed to be tweaked to reflect the changing circumstances so there were few challenges from the Commission about whether a discussion was really about policy and not licence.  Stakeholders brought up the question when it suited them (i.e. Corus complaining that the CMPA proposed definition of independent production was policy but still requesting a change to the policy to lower the PNI expenditure requirement). Some stakeholders reiterated policy proposals that they had taken during the TalkTV hearing.  CAFDE asked for a sub-quota of PNI for feature films, DOC for a sub-quota for documentaries and WGC for a sub-quota for development.  They were not challenged by the CRTC on the basis that these proposals were still policy proposals.

CMPA did refer to Terms of Trade in their questioning but their real goal was to block Corus’ use of Producer of Record (producer is pretty much independent in name only to get tax credits and other financing but Corus owns distribution rights and profits) agreements through a tighter definition of independent production.  There is no love lost between CMPA and Corus right now, which led to a rather surprising allegation that the CMPA had snuck in the independent production definition proposal in their presentation, which the Chair had to correct (it was in their submission as well as presentation – Corus admitted to never having read it).

Corus had asked to have all its conditions of licence specific to its children’s services removed as that would be consistent with the removal of the genre exclusivity policy under TalkTV.  That would mean that there would be no obligation to maintain YTV, Teletoon and Treehouse as children’s services but also that there would no longer be ad restrictions or a higher than average obligation to spend on Canadian programming.  Surprisingly, the CMPA appeared to be the only stakeholder concerned about this and had proposed keeping the restrictions or treating the Corus kids services as a mini-group.   As no one else expressed any concerns about the potential loss of significant players in Canadian children’s television, there is a serious risk that the CRTC will agree to Corus’ requests.

Two recurring themes in the questions in the hearing come from the TalkTV decision.  In that decision the CRTC proposed two pilot projects which would lower the required Canadian key crew point count (only screenwriter and one lead performer need to be Canadian) for certain circumstances:  literary adaptations and dramas with budgets over $2 million per hour.  The CRTC has the power to change the eligibility for CRTC certification to allow for these two exceptions but not to change all the other financing components.  In the recent new CIPF framework, it lowered the point count to 6 points in part to allow for these pilot projects.  The CRTC has not been able to convince Heritage that CAVCO and the CMF should also be amended to allow for these pilot projects.  Heritage is apparently still studying it.

It is not that surprising that Heritage might be reluctant to lower the point count for these two circumstances, particularly as there does not seem to be a need.  There are plenty of literary adaptations being produced under the current system and average budgets for one-hour dramas are over $2 million and are being financed.  What is surprising, a little, is the Chair complaining publicly about the lack of support from Heritage.

The other theme that came from TalkTV was the idea that there are too many thinly capitalized production companies.  The decision quoted the approximately 900 production companies tracked by the CMF, failing to understand that many of them were single-purpose production companies incorporated for a production but owned by the main production company.  The Chair revisited this theme several times during the hearing, asserting that there was not enough consolidation in the independent production sector and this was likely the reason that producers were not able to fully exploit their programs.  Stakeholders responded with different strategies.  On the one hand, the CMPA tried to explain the need for a diversity of production company sizes to ensure the existence of the next generation of successes while DOC took the position that its 700 members needed support so that they could stay “mom and pop” shops.

There were other themes of more interest to other participants in the broadcasting system, such as news, the application for OMNI to reduce its third language programming and have s.(9)(1)(h) status and whether there was any undue preference taking place among the vertically integrated media groups.

What happens now?  Based on past decisions there is no way to predict what the final decision will be, but the production industry is right to be worried that requirements to spend money on Canadian programming may be reduced for the next licence term.


Link: CRTC chairman knocks Rogers, Shaw for axing video streaming service Shomi

From Emily Jackson of the Financial Post:

Link: CRTC chairman knocks Rogers, Shaw for axing video streaming service Shomi
Jean-Pierre Blais, the head of Canada’s telecom regulator, took a swipe at two telecommunications giants for killing their nascent video streaming service in an age in which the Internet has disrupted traditional platforms and the “viewer is emperor.”

In a speech in Ottawa Wednesday, Blais revealed he was shocked at the September news that Rogers Communications Inc. and Shaw Communications Inc. planned to shutter Shomi, a joint venture in which the cable companies had sunk hundreds of millions of dollars. Continue reading. 


Link: Corus channels to see some major changes as Shaw integration continues

From Greg O’Brien of Cartt:

Link: Corus channels to see some major changes as Shaw integration continues
“We’re in pretty good shape for the 17 channels which are our big ones which are going to get picked (by viewers and advertisers. What happens to the bottom 15 services are something we’re going to be spending a lot of time working on in the next 24 to 36 months… I think you’ll see some culling occurring across all of us in the sector.” Continue reading.


Global renews Private Eyes for second season

From a media release:

Following a blockbuster first season that averaged over 1 million viewers (Ind. 2+) per episode, Global’s breakout hit and #1 new series of the summer, Private Eyes is renewed for a second season. The series, from leading independent studio Entertainment One (eOne), has received an impressive 18 episode order, with production set to begin in Toronto this fall.

The Canadian original detective drama follows the P.I. powerhouse duo, Matt Shade (Jason Priestley) and Angie Everett (Cindy Sampson) as they lead Everett Investigations together and test each other both professionally and personally. At the end of Season 1, Angie offers Shade a full and equal partnership in the agency.  However, with Shade intent on putting his stamp on Everett Investigations, will Angie live to regret this new arrangement?  And will they be able to navigate their complicated – but undeniable – romantic attraction?  Only time will tell.

Viewers who missed Season 1, can catch up on Private Eyes on GlobalTV.com and Global Go.

Private Eyes season two is executive produced by John Morayniss and Tecca Crosby for eOne, Shawn Piller and Lloyd Segan for Piller Segan and Jason Priestley.

Private Eyes is produced by eOne in association with Corus Entertainment, with the participation of the Canada Media Fund, the Canadian Film or Video Production Tax Credit and the Ontario Film and Television Tax Credit.

eOne controls international rights for the series.


Corus Entertainment to Acquire Shaw Media in Transformational Acquisition

From a media release:

Corus Entertainment Inc. (“Corus”) (TSX: CJR.B) announced today that it has entered into an agreement to acquire all of Shaw Media Inc. (“Shaw Media”) from Shaw Communications Inc. (“SCI”) for $2.65 billion to be paid through a combination of cash and Corus Class B Shares. The transaction will give Corus ownership of all of Shaw Media’s leading brands, resulting in a combined portfolio with significant scale, including 45 specialty television channels, 39 radio stations, digital assets, the content studio, Nelvana, and 15 conventional television stations.

The combined leadership team is expected to be announced at or prior to the close of the transaction.

Shaw Media’s assets include the specialty channels Food Network Canada, HGTV Canada, DIY Network Canada, Slice, Lifetime, History Canada, H2, Showcase, National Geographic Canada, Nat Geo Wild Canada, Action, MovieTime, IFC Canada, Global News: BC1, BBC Canada, DejaView, Crime + Investigation, DTOUR and FYI. It also includes Global Television’s national conventional service with stations in Vancouver, Okanagan, Edmonton, Calgary, Lethbridge, Saskatoon, Regina, Winnipeg, Toronto, Montreal, Halifax and Saint John.

On a fiscal 2015 basis, Corus and Shaw Media combined generated ~$1.9 billion in revenue, ~$619 million in adjusted EBITDA and ~$430 million of free cash flow. The transaction is expected to generate $40-$50 million of annual cost synergies to be realized within 24 months, in addition to significant revenue synergies.

Transaction Terms and Financing 

Under the terms of the transaction, Corus has agreed to acquire 100% of Shaw Media for a total purchase price of $2.65 billion, representing a multiple of ~7.7x FY2015 consolidated reported adjusted EBITDA. Upon closing of the transaction, SCI will receive ~$1.85 billion in cash and ~71 million Corus Class B Shares at $11.21 per share, which is based on current volume weighted average trading prices on the Toronto Stock Exchange.

RBC Capital Markets is providing fully committed financing in connection with the transaction. The acquisition and the refinancing of existing Corus debt will be funded with $2.3 billion of committed credit facilities and $560 million of bridge financing. The bridge financing is expected to be replaced with a combination of new senior unsecured notes and a potential offering of subscription receipts for Corus Class B Shares.

Upon completion of the financing, at close of the transaction, Corus intends to redeem its 4.25% senior unsecured notes due February 2, 2020, of which $550 million principal (plus accrued and unpaid interest) is outstanding.

Pro forma the acquisition, including completion of the potential subscription receipt offering, SCI will own approximately 39% of Corus’ total issued equity, including Class A and B Shares. SCI has agreed to hold and not sell any of its Corus Class B Shares for the first 12 months following closing. This holding restriction will expire with respect to one-third of the shares on each of the 12, 18 and 24 month anniversaries of closing (the “Lock-Up”).

In addition, as a further sign of its support for the combined company, SCI has agreed to have 100% of its Corus Class B Shares, which are subject to the Lock-Up, participate in Corus’ dividend reinvestment plan until at least August 31, 2017, so that the dividends payable on those shares will be paid with additional Corus Class B Shares. This not only signals SCI’s on-going support for the company but also provides Corus additional cash flow that can be used to repay debt or be re-invested in the business.

Corus and SCI have also agreed to enter into a Governance and Investor Rights Agreement upon closing of the acquisition. The Governance and Investor Rights Agreement will provide SCI with specified rights to nominate up to three members of the Corus Board of Directors, subject to certain continued minimum ownership thresholds; pre-emptive rights that allow it to maintain its pro rata ownership level of the Corus Class B Shares in various circumstances; and registration rights that require Corus to assist SCI in effecting sales of Corus Class B Shares through a prospectus qualification process.

Pro forma Total Debt / LTM adjusted EBITDA will be approximately 4.0x at closing and, given the strong free cash flow profile of the company, Corus is expected to de-lever to below 3.0x by the end of FY2018, consistent with Corus’ financial policies. The acquisition will be earnings and free cash flow per share accretive from the outset. Corus intends to maintain its current annualized dividend of $1.14 per Class B Share. Corus will continue to have a strong liquidity profile with approximately $300 million of revolving credit capacity and strong free cash flow.

The Special Committee, Formal Valuation and Board Recommendation

Corus appointed a Special Committee of independent directors of the Board of Directors of Corus to oversee the review and negotiation of the acquisition given the related party nature of the transaction.  Corus and SCI are affiliated companies since JR Shaw exercises effective voting control over Corus through the Shaw Family Living Trust, an entity ultimately controlled by him, and exercises similar effective control over SCI.  The Shaw Family Living Trust has provided a written commitment to Corus’ Board of Directors indicating its support for the acquisition.

The Special Committee was advised by Barclays Capital Canada Inc. (“Barclays”) as independent financial advisor and valuator, and by Borden Ladner Gervais LLP as independent legal counsel.

As independent valuator, Barclays has concluded that, subject to the assumptions, limitations and qualifications set out in its valuation as of January 12, 2016, the fair market value of Shaw Media is in the range of $2,450 million to $2,850 million.

Barclays has also provided an opinion to the Special Committee that, subject to the assumptions, limitations and qualifications set out in such opinion, the consideration offered for the purchase of Shaw Media is fair, from a financial point of view, to Corus.

RBC Capital Markets has also provided its opinion to the Board of Directors of Corus that, subject to the assumptions, limitations and qualifications set out in such opinion, the consideration to be paid under the transaction is fair from a financial point of view to Corus.

Following an extensive review and negotiation process, the Special Committee unanimously determined that the acquisition is in the best interest of Corus, and recommended to the Board of Directors of Corus that the final terms of the acquisition be accepted. In making its recommendation, the Special Committee considered among other things, the opinion of RBC Capital Markets and Barclays’ valuation and fairness opinion.

The Board of Directors of Corus approved the proposed acquisition of Shaw Media following its acceptance of the unanimous recommendation of the Special Committee and has recommended that shareholders of Corus vote in favour of the transaction.

Approval Process

This transaction is subject to approval by the Canadian Radio-television Telecommunications Commission. It is also subject to approval by Corus’ minority shareholders, at a special meeting of shareholders expected to occur in March 2016. More particularly, the transaction is subject to approval by more than 50% of the votes cast by Corus’ Class A Voting and Class B shareholders, excluding any shares held by an “interested party” and any of their respective affiliates, each voting separately as a class, pursuant to the requirements of National Instrument 61-101 Protection of Minority Security Holders in Special Transactions, and of the Class B shareholders of Corus pursuant to the requirements of the Toronto Stock Exchange. As a result, shares held by JR Shaw, the Shaw Family Living Trust and their affiliates, will be excluded for the purposes of Corus shareholder approval. Subject to the receipt of all necessary approvals, the transaction is anticipated to close in the third quarter of fiscal 2016.  The transaction is also subject to listing approval by the Toronto Stock Exchange.


RBC Capital Markets acted as exclusive financial advisor and Osler, Hoskin and Harcourt LLP acted as legal counsel to Corus in connection with this transaction.

The Special Committee was advised by Barclays as independent financial advisor and valuator, and by Borden Ladner Gervais LLP as independent legal counsel.

Investment Community Conference Call and Webcast

Corus will be holding a conference call for financial analysts to discuss this transaction as well as its Q1 2016 results today, Wednesday, January 13, 2016 at 7 a.m. MT / 9 a.m. ET.  Media are welcome to participate on a listen-only basis. To participate, the dial-in number for the conference call is 1.800.925.4693 (toll-free North America) or 416.641.6202 (local or international). PowerPoint slides will be posted 15 minutes prior to the start of the call on www.corusent.com in the Investor Relations section.

Non-IFRS Measures

This press release makes reference to certain non-IFRS measures.  These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.  Corus believes these non-IFRS measures provide additional information to complement IFRS measures by providing further understanding of operations from management’s perspective. Accordingly, non-IFRS measures should never be considered in isolation or as a substitute for other financial measures determined in accordance with IFRS as issued by the International Accounting Standards Board. Corus presents non-IFRS measures, specifically EBITDA, adjusted EBITDA (which is also referred to by Corus as “segment profit” and by Shaw Media as “operating income before restructuring costs and amortization”), free cash flow and Pro forma Total Debt / LTM Adjusted EBITDA as it believes these non-IFRS measures are frequently used by securities analysts, investors and other interested parties as measures of financial performance and to provide a supplemental measure of operating performance and also to highlight trends that may not otherwise be apparent when relying solely on IFRS financial measures. The definitions of the non-IFRS measures contained in this press release are as follows:

EBITDA is calculated as net income before interest, income taxes, depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA adjusted for items not indicative of Corus’ core operating results, and not used in management’s evaluation of the business segment’s performance, such as: broadcast license and goodwill impairment; significant intangible asset impairments; debt refinancing; non-cash gains or losses and certain other income and expenses.

Free cash flow is calculated as cash provided by (used in) operating activities less cash used in investing activities, as reported in the consolidated statements of cash flows, and then adjusting for the following items: cash used for business combinations and strategic investments and; cash received from strategic divestments; and cash due to parent.

Pro forma Total Debt / LTM Adjusted EBITDA for Corus is calculated as the total debt of Corus to be assumed upon completion of the acquisition divided by the sum of the segment profit of Corus for the 12 months ended November 30, 2015, plus the operating income before restructuring costs and amortization of Shaw Media for the 12 months ended November 30, 2015.