The new chief executive at Corus Entertainment Inc. is tempering expectations for the company as a weak advertising market and a series of new regulatory rules promise challenges and uncertainty in the months ahead.
On Thursday, the company reported an $86.8-million net loss for the second quarter, due largely to a writedown on some assets. Revenue remained flat from the prior year, as weaker radio revenue offset an improvement in television results.
Anticipating continued struggles with ad revenue in the back half of the year, Doug Murphy, who took over as CEO of Corus on March 30, lowered the company's outlook for 2015, saying its earlier guidance now looks out of reach. And though a new "pick-and-pay" regime that will unbundle television channels from cable and satellite packages is still more than a year away, concerns about the effects the new rules might have is already casting a long shadow over Corus.
"What we can say with complete certainty is there's a lot of uncertainty out there (in the advertising market)," Mr. Murphy said on a conference call with analysts. "We're taking a cautious stance."
In a recent research report, Credit Suisse AG analyst Robert Peters downgraded the bank's target price for Corus stock from $22 to $17, citing the impact of pick-and-pay and "advertising headwinds" as key factors. He also estimated the company could take a hit of up to $54-million in 2017, when pick-and-pay is fully implemented, thanks to the new rules.
Corus' stock took a dive after the March 19 announcement of the pick-and-pay rules, falling more than 10 per cent, from $20.67 to $18.41, on the Toronto Stock Exchange. But Mr. Murphy said Thursday that "we do feel it's been an exaggerated response, absolutely."
He said the company is upbeat about the flexibility the new rules will give Corus to program its TV channels, and optimistic about the possibilities for digital video. Late last month, Corus announced an expanded all-rights deal with Nickelodeon, which includes all digital platforms in Canada, and on Thursday, Mr. Murphy mused about how the company might deploy the popular network HBO, which is currently packaged with several channels under the Movie Network, in partnership with Bell Media.
"In the short term, we think Game of Thrones is the ticket," Mr. Murphy said, in reference to the popular HBO series.
Corus reported a net loss of $1.01 per share, compared with a profit of $6.1-million, or 7 cents a share, in the same quarter of 2014. The downturn was due mostly to impairments of $130-million on the value of radio licenses and goodwill related to past acquisitions.
With the writedowns, restructuring costs and an investment gain excluded, Corus reported adjusted earnings of $28.5-million, or 33 cents a share, up from $26.8-million, or 32 cents a share, in the second quarter of 2014.
Revenue was $191.5-million, effectively steady from $191.4-million a year earlier.
In the television segment, Corus saw advertising revenue fall 7 per cent for the quarter, year-over-year. Subscriber revenue increased 2 per cent, boosting TV revenue to $155.2-million, from $152.1-million in the second quarter of 2014.