Corus Entertainment Inc. (OTCPK:CJREF) Q3 2022 Earnings Conference Call June 29, 2022 8:00 AM ET
Company Participants
Doug Murphy – President, CEO
John Gossling – EVP, CFO
Conference Call Participants
Adam Shine – National Bank Financial
Aravinda Galappatthige – Canaccord Genuity
Vince Valentini – TD Securities
Drew McReynolds – RBC Capital Markets
Scott Fletcher – CIBC Capital Markets
David McFadgen – Cormark Securities
Operator
Good day, ladies and gentlemen. My name is George. I’ll be your conference operator today. At this time, I would like to welcome everyone to the Corus Entertainment Q3 2022 Analyst and Investor Conference Call. [Operator Instructions] As a reminder, this call is being recorded.
I’d like to turn the call over to Mr. Doug Murphy, President and CEO of Corus Entertainment. Mr. Murphy, you may begin your conference.
Doug Murphy
Thank you, operator, and good morning, everyone. Welcome to Corus Entertainment’s fiscal 2022 third quarter earnings call. I’m Doug Murphy, and joining me this morning is John Gossling, Executive Vice President and Chief Financial Officer.
Before I read the cautionary statement, I’d like to remind everyone that we have slides to accompany today’s call. You can find them on our website at www.corusent.com under the Investor Relations Events and Presentations section.
Now let’s move to the standard cautionary statement found on Slide 2. We note that forward-looking statements may be made during this call. Actual results could differ materially from forecasts, projections or conclusions in these statements. We like to remind those on our call today, in addition to disclosing results in accordance with IFRS, Corus also provides supplementary non-IFRS or non-GAAP measures as a method of evaluating the company’s performance and to provide a better understanding of how management views the company’s performance.
Today, we will be referring to certain non-GAAP measures in our remarks. Additional information on these non-GAAP financial measures, the company’s reported results and factors and assumptions related to forward-looking information can be found in Corus’ third quarter 2022 report to shareholders and the 2021 annual report which can be found on SEDAR or in the Investor Relations Financial Reports section of our website.
I will start on Slide 3. Corus delivered another strong quarter of consolidated revenue growth, marking our fifth consecutive quarter of year-over-year revenue gains. This once again demonstrates the resiliency of our portfolio of businesses that are working in concert to deliver on our commitment to achieve consolidated revenue growth.
The purposeful investments we are making, faithful to our strategic plan and priorities are on full display with these top line results as we execute our game plan to put more premium video content in more places, to transform how we sell television and to grow our content licensing studio business internationally.
Let me take a moment off the top to spotlight what I believe is noteworthy. We have secured another market-leading offering of premium video content that will delight audiences across all of our platforms in the coming year. Unveiled at our upfront just a few weeks ago, we will premiere another powerful fall schedule on Global across our specialty channels and our streaming offerings with the perfect balance of returning hit shows and promising newcomers buzzworthy starts and storylines.
We revealed yet another expansion of our streaming strategy at our upfront, once again demonstrating the smart organic investments we are making to expand our digital business in the pursuit of revenue growth opportunities with premium video.
First, it was the launch of STACKTV in 2019, then it was a significant upgrade to our Global TV app relaunched in 2020 and now the exciting announcement of Pluto TV coming to Canada. This quarter also marks a significant acceleration in the growth of our content business with the addition of aircraft pictures and revenue resulting from our investments in our production slate at Nelvana and Corus Studios in addition to ongoing growth at Toon Boom.
Our focus remains on shareholder friendly activities that have and will deliver investors a leading shareholder yield. The thoughtful management of three specific initiatives is expected to accrete equity share value through ongoing debt reduction, providing an attractive dividend with a current yield near 6% and opportunistic share repurchases.
Moving to Slide 4. Consolidated revenues of $432 million grew 8% with TV up 6%, radio up 27% and standout results from our content business up 61%. Total consolidated segment profit was $124 million for the quarter with free cash flow of $27 million.
The progress we are making in our efforts to transform how we sell television and to put more content in more places is evident in this quarter’s record results for both our optimized advertising revenue and new platform revenue metrics. These revenue metrics first introduced seven quarters ago to hold us accountable to our growth ambitions, demonstrates the successful execution of our strategic plan and priorities. John will take you through the detail in his remarks.
I know many of us are carefully watching the economy for emergent signs of a potential recession. From our vantage point, the reopening of the economy is well underway with obvious tailwinds from the lifting of pandemic-related restrictions. It’s an unusual time with many different trends in vectors in play, surging inflation, a conflict in the Ukraine driving up oil prices, the current cycle of interest rate hikes, not to mention our societal shift to a new way of living and working as we enter the next normal.
We are seeing a shift in consumption patterns with the long awaited summer upon us. Supply chain factors persist, and this is affecting the goods economy, while at the same time, we are seeing a preference amongst Canadians to spend on services and experiences away from home such as travel, dining, concerts and live events. Despite these early signs of a post-pandemic economic recovery, the advertising market environment currently remains uncertain with limited visibility.
On to Slide 5. Last fall, Global ranked as the most watched Canadian network in core prime time for the first time in almost 20 years, get ready for our repeat performance. Global is prime to win again in prime time with the most impressive roster of premium content on conventional network television in Canada.
Let me offer a little more detail. Returning fan favorite this year include Canada’s #1 series, Survivor, now in its 43rd season; 911, the hit drama exploring the high-pressure experiences of first responders, last fall’s most watched new series CSI Vegas, the sequel to the world phenomenon series, CSI; and the haunting Comedy breakout hit, Ghosts, claiming the #1 new comedy spot.
Our new shows on Global this fall will feature some of the biggest names on network television. Former Seal Team Star, Max Thieriot, who plays a young convict in Fire county, where we partnered with Elite firefighters to extinguish massive unpredictable wildfires. So Help Me Todd, the much talked about lighthearted drama, where a talented PI agrees to work as the in-house investigator for his mother played by Academy Award Winner, Marcia Gay Harden, and Susan Sarandon, Stars in a multigenerational music drama about America’s first family of country music, Monarch.
Now the secret to winning schedule is to balance returning hits and new premieres with efficiency. Global schedule features 17.5 hours of simulcast programming, including popular top 20 shows, Saturday live. Our proven hit anchoring global schedule combined with fresh buzzworthy new series will deliver audiences the most entertaining lineup, all available on our traditional networks and our streaming digital video platforms such as STACKTV and the Global TV app.
Moving to Slide 6. Our specialty channels this fall were premier an impressive slate of the most sought after series from our U.S. studio content partners accentuated by a slate of returning hits in new Canadian originals from Corus Studios and Nelvana. Our scripted originals from Peacock made waves across our networks and streaming platforms this last year, and we are set for a repeat performance with new engaging content and subsequent seasons of returning hits.
As Peacock invests to grow its slate of originals, Corus is the clear beneficiary given our exclusive partnership with NBCUniversal in Canada. Notable new shows include Pitch Perfect, based on the hit film franchise, Bupkis starring SNL alumni, Pete Davidson, in a fictionalized version of his life with a wonderful Eddie Falco playing his mom a friend of the family, which is a compelling true crime series starring Jake Lacy, Colin Hanks, Lio Tipton and Anna Paquin, and the most talked about series at the L.A. screenings time bending action thriller The Lazarus Project.
Corus has continually worked to strengthen our portfolio of highly differentiated specialty channel brands. This March, we launched Magnolia Network Canada, a new powerhouse channel brand providing a unique viewer experience curated by lifestyle icons Chip and Joanna Gaines in partnership with Warner Bros. Discovery. This rebrand of the DIY channel has soared out of a gate with a lift in audiences of 30%, once again demonstrating our ability to grow audiences with new brands and content.
When thinking about our exciting schedule, one cannot forget about our annual holiday season programming launching this fall as is our custom. Our strategic nesting of the Hallmark Channel content on the W Network drives massive audiences with popular heartfelt seasonal content for our passionate and dedicated Canadian fan base. W is Canada’s Christmas network and the most watched holiday programming event hallmark channels countdown to Christmas has become an annual tradition in Canadian homes. This highly anticipated seasonal stunt continues to be a top audience driver, propelling W Network to the #1 specialty station overall with women 25 to 54 this past year.
Moving to Slide 7. We recently announced another strong line up of premium originals from Corus Studios for the 2022, 2023 broadcast year. Corus Studios is really on a role, delivering Canadian original programming that resonates with our audiences. Building on our growing portfolio of almost 900 episodes, we announced an exciting slate of 24 new titles and returning hits for this upcoming year.
Even better, when we have hits at home, we generate sales abroad as we grow our international content licensing revenues. Nelvana is also making waves, further building franchise IP with new and subsequent seasons of shows including Best & Bester premiering this fall on YTV, new episodes of Bakugan: Evolutions, Super Wish and Agent Binky: Pets of The Universe as well as Hamsters of Hamsterdale and Zokie of Planet Ruby from our coproduction framework with Nickelodeon.
With the addition of Aircraft Pictures to the portfolio, we are also excited to premiere popularity papers on YTV in 2023, the first scripted series to be greenlit since the acquisition. The bottom line here is that our originals from Corus Studios, Nelvana and now Aircraft Pictures are driving audiences, diversifying our content supply from output deals with U.S. major studios and accelerating the growth of our own content business witnessed the 61% content revenue increase we had in the quarter.
Over to Slide 8. I’m thrilled about our recently announced deal with Paramount Global to launch Pluto TV in Canada exclusive to Corus. Free ad-supported streaming television or FAST channels are an emerging class of streaming video services with hundreds of live and linear channels and thousands of movies and television shows available on demand.
Launching with more than 100 unique curated FAST channels and over 20,000 hours of content, the service will offer a full spectrum of free programming, including drama, comedy, lifestyle, kid’s movies, around the clock news, in addition to a curated slate of Corus original library series to span a variety of genres.
This opportunity pairs our leading ad sales capabilities with Pluto TV’s best-in-class platform and technology serving compelling content to audiences and providing more premium video options for advertisers. This is truly a blue ocean opportunity for Corus in Canada. There’s work to be done to operationalize this, but we intend to scale quickly once things are up and running.
Moving to Slide 9. The sheer scope and scale of our channels business, which provides Canadians their preferred news, entertainment and lifestyle content, mostly sourced from our U.S. content studios has opened the doors to new avenues of growth. More than 2 years ago, we revealed our strategy to get to overall consolidated revenue growth year-over-year over year as we emerge from the COVID-19 pandemic.
STACKTV is a key part of the strategy in a major market and industry innovation, delivering the reaggregation of our channels business on a direct-to-consumer streaming platform, all ad-supported and available live and on-demand. Our AVOD business is growing with the Global TV app providing authenticated linear TV subscribers another streaming option and also offering more and more free ad-supported content for audiences in front of the paywall.
We have very quickly realized that free was popular with Canadians. The recent announcement of our exclusive Pluto TV relationship with Paramount Global is the next beat of a very purposeful strategy to grow our streaming businesses. This is the third anniversary of STACKTV and there remains a lot of runway to grow.
Now with a few years under our belt, we are recognizing that there is a seasonality when it comes to subscriber growth, primarily driven by content and the schedule, we expect to resume in the fall, super charts with purposeful new content drops from Peacock to drive subscriber acquisitions. At this point in the year, our growth rate has started to level off, which is not unexpected.
Given the strength of our content and marketing initiatives, we remain very comfortable with our goal of 1 million subscribers on STACKTV. On the last two calls, I have purposely used the term portfolio. Our portfolio of businesses diversifies our revenue profile and build long-term resiliency in our business model.
From a streaming perspective, STACKTV, the Global TV app and now Pluto TV enable us to deploy our broad basket of content rights effectively and efficiently across our networks and all streaming windows to maximize the value of those rights delivering more audiences, hence, digital impressions or inventory and thus, revenues. This is also emblematic of our strongly held conviction that we can secure the rights we need to grow our business and that we remain an indispensable partner with our U.S. content suppliers.
With that, I will now turn it over to John to discuss our Q3 results.
John Gossling
Great. Thanks, Doug, and good morning, everyone. I will be starting on Slide 10. For the fifth consecutive quarter, we have delivered consolidated revenue growth. In Q3, all three sources of revenue contributed to this momentum, and that resulted in consolidated revenue of $433 million which is a significant increase of 8%.
Consolidated segment profit was $124 million for the quarter. And as a reminder, in the prior year quarter, we benefited from over $5 million in wage subsidy and regulatory fee relief that did not recur this year. Consolidated segment profit margins were 29% for the quarter and consolidated net income attributable to shareholders for the quarter was $30 million or $0.14 per share.
We delivered free cash flow of $27 million in the quarter, and net debt to segment profit was 2.76x at May 31, 2022, and that was consistent with at year-end August 31, 2021. As we indicated previously, we are seeing the impact on free cash flow from an expected catch up in programming investments, including CPAs required by the CRTC in the second half of our fiscal year.
Now let’s turn to our TV results for the third quarter as detailed on Slide 11. Overall, TV segment revenues of $404 million for the quarter were up an impressive 6%. These gains reflect advertising market improvement, positive year-over-year uptake of our streaming services and a substantial increase in content revenues. TV advertising revenue was up 2% reflecting improvement in advertising sales as pandemic-related restrictions eased. In particular, we are seeing strong growth in entertainment, financial services and retail with supply chain pressures continuing in automotive.
Subscriber revenues increased 5% in the quarter compared to the prior year, and that was driven mainly by increased year-over-year demand for STACKTV as well as a retroactive adjustment from a BDU distribution agreement renewal.
Seasonality has begun to emerge in our streaming subscriber numbers as we expected with recent subscriber levels relatively consistent to the numbers we reported in April. This seasonality reflects lower viewer patterns — viewing patterns typically seen in late spring and early summer combined with fewer content premiers. There was also a shift in timing of a key subscriber acquisition promotion into July of this year.
As Doug highlighted, we unveiled an incredibly strong schedule for our networks heading into the fall, which we will leverage to support our subscriber acquisition strategies. Merchandising, distribution and other revenues of $36 million increased a substantial 61% compared to Q3 last year.
As we outlined on our Q2 call, this expected improvement was attributable to the timing of our Corus Studios output agreement with Hulu. And this revenue line also reflects the addition of Aircraft Pictures in February this year.
In the fourth quarter, given potential macroeconomic conditions and risks, we are currently expecting some year-over-year softness in TV advertising revenue, along with moderate growth in subscriber revenue and growth in merchandising, distribution and other revenue.
Direct cost of sales was up 15%. Over the last few quarters, we have highlighted the programming costs were expected to grow, and our Q3 costs are within our expected range with amortization of program rights increasing 8%. This is mainly a result of our required catch up CPE investment as well as increased programming deliveries and the extension of output deals.
We are very pleased with our recent content renewals, which provide us with extended terms and broader rights to pursue growth initiatives, as Doug mentioned. We are making good progress on advancing our plan to wisely deploy our required CPE investments with a goal of accelerating our owned content aspiration and related sales into the international marketplace. While these programming investments impact our cost structure, our plan is to drive top line growth through new platforms and to further diversify our sources of revenue, the results of which are evident in our Q3 results.
Film investment amortization increased by $9 million, and that’s mainly as a result of the addition of Aircraft. Other cost of sales growth resulted from lower margin content service revenue. We expect to continue to see elevated programming amortization in the high single digits in the fourth quarter as schedules return to more normal patterns, and we work through the ongoing impact of the CPE catch-up.
Our G&A expenses were up 16% from the prior year quarter. And as a reminder, last year included $5 million of wage subsidy and regulatory fee relief for the TV segment. In addition, in the current year quarter, G&A mainly reflects increased people costs, advertising and marketing investments to promote with the Global TV schedule and STACKTV as well as higher fees related to streaming and digital services, system fees and a return of travel and entertainment.
Overall, TV segment profit was down in the third quarter, primarily resulting from the Federal wage subsidy and regulatory relief last year as well as higher amortization costs resulting from programming rights investments and G&A cost increases. TV segment profit margins were 32% in the current year quarter and that compares to 37% a year ago.
All right. Now as detailed on Slide 12, we are once again delivering strong performance in our new platform and optimize advertising revenue metrics. New platform revenue combined subscriber revenue from streaming initiatives and advertising revenues from digital platforms expressed as a percentage of total TV advertising and subscriber revenue.
New platform revenue was 11% or $41 million of total TV advertising and subscriber revenues in the third quarter, and that was up 40% or $12 million from last year. These gains reflect the disciplined execution of our strategic plan as we deploy our expanded content rights in new places and connect with audiences in new ways to drive additional sources of revenue.
Optimized advertising revenue was also up significantly in Q3, representing 47% or $113 million of total television advertising revenue. This is an increase of 29% or $25 million from the prior year quarter, reinforcing our leadership position in the transformation of how television advertising is sold. Included in this metric are revenues attributable to audience segment selling and to using automated buying platform in Expressed as a percentage of advertising revenue, which continue to gain significant traction.
All right. Now let’s turn to our Radio results on Slide 13. Recovery in the radio segment accelerated in the third quarter. Radio segment revenue was up 27% compared to last year, and that reflects improvement across key advertising categories with the lifting of pandemic-related restrictions and the emergence of new local businesses. We are very encouraged by these trends.
In the fourth quarter, given, again, potential macroeconomic conditions and risk, we are currently expecting a moderate growth in Radio revenue this year versus what we saw in Q3. Radio segment profit increased $4.4 million to $5.7 million in the quarter, and that was primarily as a result of the revenue growth. Radio segment profit margin for Q3 was 19%, up from 6% in the prior year.
Over to Slide 14. On our last call, we reviewed the purposeful steps we have taken to strengthen our capital structure. We have built a solid financial foundation for providing us with more options in our toolbox to accelerate the advancement of our strategic plan and increase our focus on shareholder-friendly activities.
Our goal to drive net debt to segment profit below 2.5x remains a focus as we pay down debt to create additional financial flexibility. As a reminder, we have now paid down over $700 million of total debt since the changes to our capital allocation policy took effect in September of 2018. We are now 6 months into the normal course issuer bid that we commenced in January, and that was for up to 5% of our public float. Given current financial market conditions and resulting impact on our share price, we’ve been opportunistically buying our shares given the attractive valuation and available free cash flow.
Since we put our latest NCIB in place this past January, we have purchased a record number of shares compared to other NCIB programs we’ve undertaken during our history. As of May 31, 2022, we had repurchased almost 5.4 million shares, and that represented 55% of the total NCIB program. Over 3.3 million of those shares were purchased in May alone, and we are still buying at these prices.
In addition, this morning, we issued a press release declaring our September 2022 quarterly dividend of $0.06 per share for Class B shareholders, once again providing a very compelling dividend yield of 6%. These shareholder-friendly activities of paying down debt, buying back shares and paying attractive dividend were in aggregate $58 million in Q3 and $158 million for the year-to-date. Since our new capital allocation strategy was introduced in September 2018, this amounts to $944 million. We’re making significant progress in advancing our strategic plan and priorities delivering on what we said we would do.
Our Q3 results reflect the results of these efforts. We remain squarely focused on positioning Corus for the future by investing in the business, delivering and providing attractive returns for our shareholders.
With that, back to you, Doug.
Doug Murphy
Thank you, John. Finally, over to Slide 15. On today’s call, we wanted to spotlight the conviction we have in our business as we execute our strategic plan to deliver consolidated revenue growth in the years ahead. As I have described previously, Corus operates within a unique market structure in Canada, one that is concentrated, vertically integrated, regulated penetrated and highly collaborative. This sets up our industry to be very innovative, delivering globally recognized world firsts, such as our shared common industry advertising segments. And in Corus’ specific example, the launch of STACKTV, the first-ever channels bundle on Amazon Prime Video.
In Canada, subscribers to channel packages pay roughly half of what they do in the U.S. Industry players create ever improving value propositions for these subscribers, and there is alignment in the industry to drive innovation and advertising and on the need for regulatory regime change. Furthermore, at Corus, we have great business relationships with our content suppliers. And Corus’ continued success aligns with their business models. This is evidenced by our continued ability to secure extensions to our content supply agreements and broaden the rights that we acquire. Corus has a long-term resilient business model, and we are confident in our future prospects.
Consider the recurring revenue we enjoy from our subscription business. If you add STACKTV subscribers to the already 70% of Canadians with the traditional channel subscription through set-top boxes, you will realize that 3/4 of Canadians currently enjoy a Corus channels bundle. In fact, this year, we are on track to post the highest subscriber revenue in the company’s history in excess of $500 million of recurring annual revenue. Our confidence in our ability to secure premium video content is resolute.
We have demonstrated consistently an ability to renew our programming licensing agreements with our U.S. studio content partners even as they simultaneously launch their own direct-to-consumer video services. These renewals deliver extended terms and an expansion of rights that enable our strategic plan and priorities as we strive for consolidated revenue growth.
Let’s take, for example, the case of Pluto TV. It’s a great example of our two way relationship with tremendous value for all involved. Not only did we renew our CBS and Nickelodeon deals for an extended term, we also established a new long-term exclusive business opportunity with the world’s leading fast channel digital video platform.
For our partner, Paramount Global, we think that is the best of both worlds. They optimize their content licensing revenues in the market with a long-standing partner in Corus and in turn, leverage their global experience with Pluto TV with our local content and leading advanced advertising capabilities.
Corus has firmly established ourselves as an indispensable partner and an innovative and agile one for our U.S. content suppliers, enabling growth for everyone and affirming once again our continuous accents access to premium video content.
Today, we have also described our efforts to maximize shareholder yield through employing a variety of deliberate shareholder-friendly activity over the past years. As John noted, since 2018, we have paid down more than $700 million in bank debt. Our shareholders enjoy an attractive dividend yield of 6% at today’s prices, returning to shareholders $50 million a year in dividends. And most recently, given our improved financial flexibility, we have been very active repurchasing shares through our NCIB.
We believe that at today’s price levels, our shares are an enormously attractive investment. Our priority remains the faithful implementation of our strategic plan and priorities, which we expect to deliver consolidated revenue growth in the years ahead. Our ongoing focus on maximizing shareholder yield through more shareholder-friendly activities complements this strategic plan.
I would like to congratulate our Corus people on all the exciting announcements coming out of the upfront earlier this month. We have a lot to be excited about, and our talented team remains focused on advancing our strategic priorities and to deliver consolidated revenue growth year-over-year-over-year.
With that, back to you, operator.
Question-and-Answer Session
Operator
Thank you much, Mr. Murphy. [Operator Instructions] Today’s first question is coming from Mr. Adam Shine calling in from — very sorry, my line is just freezing at this moment. I’m opening it as fast as possible.
Doug Murphy
We know who Adam is operator, let him roll.
Operator
No, I’m trying to open his line, sir, but my system is just frozen over here. I’m opening the line as fast as possible, sir. One moment. Okay. Mr. Shine, your line is open. Very sorry for delay. Thank you, sir.
Adam Shine
That’s okay. Thank you. Okay. Good morning. Thank you very much. Hi, there. Maybe just a few housekeeping items and then some couple of bigger questions. Last quarter, the retro charge in subscriber revenue was about $3.6 million, John. Is that sort of a similar assumption this go around?
John Gossling
No, look at every renewal is different in terms of timing and there was only really one big one this quarter. So the normalized subscriber growth number for this quarter is 3%.
Adam Shine
Okay, all right. So I’ll back that out. Thanks. Additionally, just in terms of the Hulu deal, I think initially, the assumption might be that it was going to be spread out over a few periods. Maybe quarter sort of a $5 million-ish bump. And then, of course, as Doug alluded to, the addition of Aircraft Pictures as well, can you give any additional color just around maybe one or two of those items?
Doug Murphy
Well, the Hulu deal was in discussion in final stages of closing in the last quarterly print and couldn’t quite get it in time. It’s a multi-series large license of virtually all of our available content in the U.S. marketplace for that platform. And it’s a strategic partnership in the sense that there’s ongoing interest in subsequent seasons of those same shows that we continue to produce them. So Hulu, in addition to the Corus Studios deal is also our partner on Hardy Boys. And so we found a very strong buyer in the market, which is very promising for continued production on both Corus Studios and Nelvana
John Gossling
You’ve got the numbers directionally correct, what you said about Hulu. And then Aircraft makes up pretty much the balance of the growth there.
Adam Shine
Okay. And again, this is going to be spread over not just the Q3, but ultimately perhaps into the Q4 and the first half of the next fiscal, correct?
Doug Murphy
Correct.
John Gossling
Yes. It’s a new layer. I mean — Hulu is — I’m just saying Hulu will be spread over multiple quarters and then Aircraft, of course, is another layer on top of that.
Adam Shine
Absolutely. Okay. So Doug, just in terms of Pluto, obviously, you are excited about this. We’ve heard about it also at the upfront when it was, I think, first revealed. Is there any sort of color in terms of potential lift to add sales going into next year? Is there sort of a bucket or a range that we should be thinking about as well as the context of potential level of margins ascribed to those revenues?
Doug Murphy
We — so we will be standing up the service next fiscal. And so I would say that the revenue impact is going to be sort of somewhat marginal in the first year of its existence as we get rolling. So I will just sort of make that comment. From a business relationship perspective, it’s effectively an ad representation deal plus a content revenue share. So it will be margin enhancing right out of the gate effectively saving except for some of the one-time start-up costs will have. But it will be — it will contribute once it scales, we think, right away.
And sizing-wise, all I would say to everybody is Pluto in the U.S. market, and this is from Paramount Global’s Investor Relations material, it’s a $1 billion business in the United States. So they’re the world leader in FAST channels and AVOD. We are thrilled to have them as our exclusive partner in Canada, standing up another streaming play for us in this market. And we have heard time and time again from our advertisers that they want more premium video digital impressions, and so this plays to that demand. So I think it’s another promising tailwind for our business. But in fiscal ’23, I would have — I would moderate your expectations from a revenue perspective.
Adam Shine
Okay. That’s helpful. And I don’t know if you want to share yet sort of the level of [indiscernible] catch up dynamic? I’m presuming it’s just over 40%, perhaps hitting through this fiscal year with the goal of perhaps of otherwise having been maybe a bit closer to 50%. But anything maybe Doug or John, that you can add to that, that would be helpful. Thank you.
John Gossling
Adam, I can. When you say 40%, you are saying 40% of the catch up?
Adam Shine
Correct, correct, of the 100%.
John Gossling
Yes, I think that’s a good estimate. If you look at Q3, for example, the Canadian increase was around a third of overall increase in programming costs. So we are chipping away at it every quarter.
Adam Shine
Okay. I will leave at that. Thank you very much. I appreciate it.
John Gossling
Thank you, Adam.
Operator
Thank you much sir. The next question is coming from Aravinda Galappatthige calling in from Canaccord Genuity. Please go ahead.
Aravinda Galappatthige
Good morning. Thanks for taking my questions. I will just maybe switch over to the ad side, Doug. Maybe you could just talk a little bit about the headwinds and tailwinds that I think you’ve touched on in the MD&A, maybe elaborate on that. Trying to get a sense of how much the supply chain factors are sort of keeping ads are affecting ads. I mean, when I look at the Q3 number, we are still double-digit percentages below pre-pandemic levels. Perhaps that’s not the best comparison, but trying to get a sense of how much of a recovery — pent-up recovery may be there as we perhaps move toward some normality or at least on the supply chain side of things in fiscal ’23. So maybe I will start there.
Doug Murphy
Great. I mean I will just as a general comment for this point in time, there’s a lot of noise out there in everything. I mean, top line and through various expenses. We talked about the CPE catch up with that a moment ago, the kind of return to the next normal from an employee perspective coming back and getting back to some degree of that next normal. The top line has got a lot of tailwinds in certain categories and yet some are being withheld because of supply chain issues. So the usual suspects are at play. The software categories remain automotive and health and beauty are both down.
As I mentioned in my comments, out-of-home experiences are up, financial services are up, government is up. And then there are other categories like accommodation and air fare that are so much in demand that the sticker shock on the pricing of airline tickets and hotel rooms as you probably know if you’ve traveled is [indiscernible] through their roof. And so there’s more demand than supply from an inventory perspective. And so those categories don’t necessarily have to be advertising right now.
So all of that, I would say, leads us to feel sort of cautiously optimistic that the recovery is underway and then balancing that with what’s happening in the macroeconomic backdrop with the interest rates jacking up and oil prices. And that at this point in time, we are sort of expecting some moderation of demand through the summer. And as far as the fall is concerned, we are thrilled about our schedule, but it’s too early to make any kind of commentary on pacing other than to say that we are very bullish on our schedule and our prospects for the biggest quarter of the year.
Aravinda Galappatthige
Thanks, Doug. And maybe just a couple for John. I will just sort of ask them both questions together. On the G&A front, I think you’ve explained sort of the inflation there. I mean, television G&A inflation is something like 17% that I think you indicated some of the marketing spend or the ad spend around your digital platforms. How should we think of that line item going to Q4 and maybe sort of an early preview of ’23 when we think about what your plans are? And then I just wanted to come back to working capital, significant burn yet again. And we’ve kind of seen last year and again this year, like fairly substantial working capital burn. I mean, are we getting to a stage where we should see some sort of reversal here just to get — make sure that we can get as accurate as possible in our free cash flow numbers.
John Gossling
For sure. Just to give you a little bit of color on that working capital change in Q3, there’s a normal seasonality that happens on receivables as they move with the revenue. But of course, we are monitoring our days outstanding quite carefully, and we are in decent shape there. So the real change that you saw in Q3 compared to last year was really on the payables line. That’s just a matter of how things are flowing and as much about what was happening last year and this year. But yes, we would expect that you’ll see a big working capital reversal and an improvement in that should offset what you saw in Q3. Now that will be definitely from receivables as we go into a seasonally slower quarter and some of that money comes in from Q3. And again, payables is a question of flow and how things are coming in and going out. And that was a little harder for us to predict, but certainly one that we manage pretty carefully. So I think that’s the story of Q3 and Q4.
On the G&A cost, there’s obviously a couple of big year-over-year impacts in Q3, the wave subsidy that we mentioned and you mentioned. And as well, just the way that certain things were flowing again last year in terms of some of the short-term compensation elements, we wouldn’t expect those to be nearly as high as they were in Q3 going into Q4. So I wouldn’t call it a reversal, but you’re going to see a big step down there. I mean, salaries and benefits after programming was our biggest cost increase in TV in Q3. So it’s across a bunch of categories, wage subsidy, variable comp. There’s definitely some overall inflation going on with salaries and benefits. So there’s a mix of things, but we would expect those to be moderating into the summer.
Aravinda Galappatthige
Okay. Thank you so much.
John Gossling
Thank you.
Operator
Thank you much, sir. We will now move to Mr. Vince Valentini calling in from TD Securities. Please go ahead. Sir, your line is open.
Vince Valentini
Yes. Thanks very much. Let me start with a big picture question. So your slide shows a combination of debt repayment and returns of cash to shareholders just in the past 4 years since 2018, it’s actually greater than your entire market cap is today. Does that give any pause for consideration by management or the Board to think about some sort of strategic review and perhaps the private markets would covet this incredible cash flow more than more than the public markets seem to? Or is complacent to focus on the business and eventually the share price will turn around?
Doug Murphy
I will comment on the shareholder yield. Our goal in sort of reframing the share price value creation that we believe we’ve provided the last number of years was to underscore the fact that we believe that our company is a promising investment that we’ve demonstrated through good times and bad, a resiliency that we’ve been really faithfully executing our plan. The new metrics which we rolled out seven quarters ago, up and to the right, as you can see on Page 12, I think it is, Vince, and all — and so it’s more that we have every expectation that we are going to continue to deliver a high shareholder yield, one of the highest I would offer probably you can find. And so that was — our intention was perhaps to recharacterize our company, and all of you know this already, but we felt that it was important for us just to share that we are balancing purposefully our commitment to returning to consolidated revenue growth, which we hope will earn us a rerate on our multiple while simultaneously, embracing more and more shareholder friendly activities given our new financial flexibility. I’m not going to offer any comment on the private market versus the public market. We just believe that we are doing everything right, and we hope that at some point in time, that performance will be recognized by the capital markets.
Vince Valentini
Okay. And looking forward to next year, Doug, you’ve been confident in your goal to achieve positive consolidated revenue growth year after year after year. If we do go into a recession, typically, your ad revenues drop 5% to 10%, they bounce right back after the recession, but there’s nothing you can do, they usually go down temporarily. Is there any way you can achieve positive consolidated revenue growth in 2023 if, in fact, Canada is in recession? Is there enough juice in the content sales and subscriber revenue? And any other initiatives you have? Or is it kind of a foregone conclusion that you’d have to take a temporary pause from that objective?
Doug Murphy
A couple of comments. The primary area that — that’s been effective historically from the recession is the advertising line. I continue to believe that we can keep growing subscriber revenues. STACKTV, in my view, is more compelling in a recessionary environment because this incredible value for the millions of Canadians that are prime members at $12.99 when skinny basic is, what, $45, to me, it’s a great value. So I’m not concerned about sub revenues. I’m not concerned about content revenues. You’ve seen in this last quarter that we’ve really got some tailwinds there.
And then the advertising line piece of it, I think you’d have to break it down through a variety of different segments. So I’ll let you tie it all together, but digital is growing significantly for our company. That’s the 11% new platform revenue in part and the continued expansion of our Global TV app. Part of our recent content renewals has been the acquisition of a substantial amount of additional rights to populate the AVOD on-demand opportunities on Global TV app, not to mention the fact that the pending launch of Pluto TV. Those are both tailwind opportunities given the digital video growth. So I’m not going to speculate as to the sum of the parts and whether or not in a recessionary environment, we continue to grow or not. But I do believe that we’ve put together a portfolio of businesses that are designed to be more resilient to withstand potential recessionary pressures.
The second thing I would just say is in the event that there is a recession, and it’s obvious to all of us that there’s pressure out there. We do have levers we can employ to manage our cost structure. The timing of programming being aired, certainly our Canadian programming and other programming does — is a tool we can use. If there’s no demand, we are not going to build supply. The simulcast content coming in from the U.S. is less manageable other than to say, if there’s a recession in Canada, there’s going to be a recession in the U.S. And so our simulcast partners will temper their schedule accordingly because no one wants to overdeliver on inventory, if you can’t sell it.
And then, of course, we will always — and we’ve demonstrated this during the COVID pandemic, we will be very disciplined in our expense control across all other discretionary line items, balancing the need and the desire to continue to invest in transforming how we sell television, and putting more content in more places and growing our studio business. So it’s — I think it’s a balancing act, Vince, one that I’m confident that we can manage through should that occur.
Vince Valentini
Any — that’s great. I was actually going to ask about costs. But maybe just — is there anything additional, John, on specific discretionary expenses you can control like travel and entertainment and marketing costs? I assume sales commissions just toggle with ad sales. So that automatically comes down in a recession. But other than the things Doug mentioned, is there anything else you can add?
John Gossling
Yes. I think you’ve hit the main categories. As much as I mentioned, travel and entertainment had increased, there’s maybe $1 million there. So yes, it’s something we are obviously going to look at and be very careful about. But the big lines, as I mentioned, are programming and the people cost.
Vince Valentini
Okay. I will leave it there. Thank you.
John Gossling
Thanks, Vince.
Operator
Thank you much sir. We will now go to Mr. Drew McReynolds of RBC. Please go ahead.
Drew McReynolds
Yes, thanks very much. Good morning. John, just on, I guess, the TV margin. Like there’s so many moving parts in that TV segment. You obviously had a big quarter on the content side and a lot of different initiatives underneath the hood. I know I kind of beat a dead horse here. Just wondering if you can kind of help us think about TV margins through the medium term, just given what you see on the revenue mix. And then secondly, maybe for you, Doug. Just thank you for just all the commentary on kind of recession sensitivity and the ad outlook, et cetera. Just in terms of your discussions with advertisers in real time, do you sense some caution there? I would think everyone on this call would completely agree with you. We are in strange times all around given all the dynamics, but just wondering how those conversations are going in real time.
Doug Murphy
Maybe I will take the first — or the last question, and John can follow me. Obviously, we are always in dialogue with our advertisers, especially now as we come out of the upfront season. And I think some general themes we are hearing, some of it is core-specific, continued accolades for the leading position we are taking in our audience segment selling and our deployment of our synch [ph] platform it’s scaling now and the work that we are doing to stand up new digital video impressions of which they’re looking for, there still remains a large degree of interest in television as part of the media mix and increasingly, concerns about the other digital platforms that continue to have environmental problems, moderation problems as well. So that gets into the ongoing work we’re doing to shift media mix in our favor, such has happened back in our fiscal ’19 year.
Recall that we grew TV ad by 7%, and we are not giving up on the hope of having some share shifts that recognize all the good work we are doing both in terms of targeting automation and new platforming. And then I guess the final thing would be advertisers are conscious of the fact that it’s the summer. Canada had a brutal winter, people are going to be outside more than their inside. And so they’re focusing on the big quarters, which is more the fall quarter as they’re thinking about where they’re laying their weight in. And that gives us some promise because of the strength of our schedule.
All of the shows that were hit last year are coming back as well as a variety of great new shows, and we have all the Peacock content exclusively, which — with a handy amount of new series coming, which we’ll use both to drive acquisition of STACK as well as to drive audiences on our networks. So I think for the big quarter, we are setting up nicely and advertisers see and they like what we have on offer. And I think for the summer, a smaller quarter, I think people are just kind of watching carefully to see how Canadians will behave, given the sort of pandemic exit, hopefully. So that’s not a lot of specifics. That’s just some more color commentary, but hopefully, that’s some help to you.
Drew McReynolds
Yes, that does. Thank you.
John Gossling
And, Drew, on the margin question, we talked about this a lot and have in the past. Even within some of the content revenues, there’s sort of a mix effect going on. So I mean by that, original production, whether it’s at Nelvana or Aircraft, tends to come with a pretty high upfront amortization as we deliver those new shows. So I’d call those lower margin revenues, things like Corus Studios library sales are very high margin. And then you’ve got all kinds of things in between. For example, our animation software business is a very decent margin business and the kid publishing business is small, but also a decent margin business.
So within that and then other new growth areas we have that are relatively small, but they are contributing, again, a different margin profile, whether it’s some of the agency services we are doing. Even some of the digital businesses are lower margin. I’d say all those things combined, though are relatively small impacts on the overall TV margin, especially in a big quarter like Q3. So it’s really coming down to, as I said, the programming cost, the people costs are the big drivers there. Look, if — as you know, TV ad revenue and subscriber revenue have very, very high incremental margins associated with them. So that’s obviously, I’d say, right now, the biggest driver.
Drew McReynolds
Okay, got it. Thank you, John.
John Gossling
Thanks, Drew.
Operator
Thank you much sir. Thank you much gentlemen. The next question is coming from Mr. Scott Fletcher calling in from CIBC. Please go ahead, sir.
Scott Fletcher
Hi, good morning. Lots of good information so far on the call. So I just had a few follow-ups that I wanted to touch on. The first was on the subscriber on the STACK TV growth. John, I think I just want to confirm, you said in your comments that the subscriber numbers were relatively flat or comparable to the prior quarter. Just to make sure if I heard that right.
Doug Murphy
Yes.
Scott Fletcher
Okay. Thanks. Thank you for that. And is there anything — and has there been any sort of additional take up as the Rogers Ignite and the Smart Stream has rolled out? Or are we still in early days to really gauge the impact of subscriber growth of that?
Doug Murphy
Hi, Scott. It’s Doug. I will take that. I would say we are still in early days. We expect their focus to kind of return to other aspects once the other thing is concluded — if it’s concluded. So at this point in time, we are just kind of conscious of the fact that it’s bigger fish to fry up on [indiscernible], but we know that they’re very keen to get some serious shoulder into the growth of STACKTV on Smart Stream. So that’s a question of timing.
John Gossling
Scott, maybe — I gave you a one word answer on the STACK up. But just let me give you a bit of color on what is happening there. So the good news is we’re not seeing an uptick in churn. In fact, churn is coming down a little bit. We are also not seeing any change in the conversion from free preview to paid. So those are very key indicators for us that tells us if the product is performing well. Where that — where the change is happening in the last couple of months is the gross ads have come down a little bit and the win backs come down a little bit. And that tells us that, yes, it’s about the program selection right now, and it’s about seasonality. Now we are still relatively new with this product. So this is establishing a little bit of a path that we haven’t seen before, but we are certainly very focused on we are going to be driving gross ads and win back and get into the fall season for sure.
Scott Fletcher
Okay. That’s helpful. And then just one last follow-up. On the Pluto TV, eventually, when it gets to maybe more scale, is the larger revenue opportunity on the advertising side versus the content licensing side, just so I can get an idea of how that relationship.
Doug Murphy
I would say that’s correct. We are excited to stand up a very good offering of Corus originals from — primarily from Corus Studios, which would attract a rev share as will our news OTT products. We have 14 of those, as you recall. But the larger revenue will come from our representation agreement on the whole Pluto TV offering, which will be substantial and I think will make a really meaningful impact in terms of digital advertising in Canada.
Scott Fletcher
Okay. That’s helpful. Thanks. I will leave it there.
Doug Murphy
Okay. Thanks, Scott.
Operator
Thank you, Mr. Fletcher. [Operator Instructions] The next question is coming from Mr. David McFadgen calling in from Cormark Securities. Please go ahead, sir.
David McFadgen
Hi. A couple of questions. So you indicated that for the fourth quarter, you expect some softness in TV ad revenue. I was just wondering if you could be more specific. Do you think that would be down low single-digit or mid-single-digit? And then just on the cost side, obviously, you’ve had a lot of cost increases this year. I was wondering if you can give us some idea of what you think the cost increases will be in fiscal ’23, particularly on the programming side. Thanks.
John Gossling
Thanks, David. I think, frankly, the answer to both those questions is, it’s a little bit early to say. We obviously know for next year what our programming lineup is looking like. There’s still a bit of a question mark around Canadian and how that’s going to play. There’s things going on in Ottawa right now. So it’s just a little early. We are not quite there getting [indiscernible] on the plan for next year. And in terms of what Q4 looks like, again, we are earlier — in this quarter, we are always earlier reporting than in most quarters. So I think, again, given Doug’s comments about what we are seeing in terms of the fall and how that might be affecting the summer and other things going on, I think it’s a little too soon to call it.
Doug Murphy
Maybe I will add a comment on that, David. I think — on the programming side, there’s two pieces that are at play here. One is the foreign programming acquisitions, which has some inflation, but we’re actually quite excited by it because it’s providing us with opportunities to grow. As I mentioned, more content on AVOD and Global TV app, the extension and broadening of rights to pursue more STACKTV growth, and of course, the Pluto TV. So those are all — those all come with incremental revenue, profitable incremental revenue. So whilst it’s anomaly inflationary, it does help us with our ambition to grow the top line. The CRTC catch up CPE decision, as you know, we feel is completely nonsensical, but it is what it is. We just have to have that bowling ball pass through the snake as it were. And that will come out the other end at the end of next year. And therein will reduce some of that one-time cost pressure. And that’s just an unfortunate regulatory decision that we just have to contend with.
David McFadgen
Yes, okay. All right. Thanks, guys.
Doug Murphy
Thanks, David.
Operator
Thank you much sir. As we have no further questions at this time, I will turn the call back over to Mr. Murphy for any additional or closing remarks. Thank you.
Doug Murphy
Thank you, operator, and thank you, everyone for your time on the call today and your great questions. We look forward to speaking to you maybe today in some instances. And in the meantime, I wish you a very happy Canada long weekend. Stay safe, well enjoy the summer, and we will talk to you soon. Take care now.
Operator
Thank you much sir. Ladies and gentlemen, that concludes today’s conference. We thank you for your participation. You may now disconnect. Have a good day, and goodbye.
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