Pick-and-pay news slams Corus stock
Shares of Corus Entertainment Inc. fell 11 per cent, the most in a single day since 2001, on Friday as Bay Street deemed it the most vulnerable to sweeping changes introduced Thursday to Canada’s television industry. Consumers will have access to basic TV packages for a maximum $25 monthly fee and the ability to pay only for the channels they want, starting next year.
While the specifics are still unclear, the Canadian Radio-television and Telecommunications Commission mandated four types of channels — including provincial educational, legislative and all local stations — into the so-called “skinny bundle” offering, which it says will be made available by March 2016.
But it’s believed Corus’s specialty channels, W Network and YTV, didn’t make the CRTC’s final cut, though both are currently offered in most entry TV plans.
If these cheaper, slimmer TV arrangements end up being well-subscribed, some equity analysts warn Corus may be the biggest loser of the CRTC’s latest overhaul to its policy. The Torontobased media company generates almost 70 per cent of its revenue from TV broadcasting, making it the most exposed of the nine major Canadian companies in the television business.
“The introduction of the ‘small basic’ would potentially compromise the revenue base of two of Corus’s largest networks: W Network and YTV,” Canaccord Genuity analyst Dvai Ghose wrote Friday in a note. “If there is a substantial movement toward the small basic, the subscriber base of these channels would decline, and with it potentially the reach of these channels which in turn impacts the advertising levels.”
In 2013, kids’ channel YTV had more than 11 million subscribers and earned almost $90 million in annual revenue, according to the CRTC’s most recent figures. Women’s lifestyle station W Network, with just 8.3 million subscribers, recorded $91.2 million in sales during the same period.
Corus could attempt to offset a shrinking TV audience by hiking the rates it charges advertisers. But unlike rivals BCE Inc. and Rogers Communications Inc., Corus can’t hedge any losses it might realize in broadcasting on a thriving Internet business, which is expected to be boosted by the fast-growing number of Canadians who are consuming more data to surf the web and stream their favourite shows instead.
Uncertainty over what this will mean for Corus and its broadcasting business was too much for investors, who pushed shares 11 per cent lower Friday to $18.41, marking the biggest single-day plunge since July 26, 2001. Ghose has a sell rating on the stock with a 12-month price target of $19. Corus, with a market capitalization of $1.53 billion, was formed in 1999 when Shaw Communications Inc. spun off its media assets into a separate, publicly traded company.
Emails and a telephone call to the company requesting comment were not immediately returned Friday. But in his testimony at the Let’s Talk TV hearing last September, Corus CEO John Cassaday warned that “the pick-and-pay model could well result in the destruction of the existing broadcasting infrastructure and a massive reduction of jobs across Canada.”
Customers who are satisfied with the status quo can keep their current plan and pass on the new leaner alternatives. Existing packages don’t have to be dismantled in favour of the new lower-cost options. Instead they’ll coexist, which will lessen the blow for TV distributors.
“With the many questions still to be answered ... we may not see material pressure on most of the affected stocks in our coverage,” National Bank Financial analyst Adam Shine concluded in a note, “but Corus is surely due for incremental near-term declines.”