Corus signage in Toronto on June 22, 2018.Tijana Martin/The Canadian Press
Dvai Ghose is the principal at Ghose Investment Corp. His clients include Telus Communications Inc. He is the former head of global research and strategic development for Canaccord Genuity Group.
Corus Entertainment Inc. CJR-B-T cut 35 jobs at Global News last week. That came after Rogers announced that it had won from Corus multiyear Canadian rights deals for leading U.S. lifestyle content including HGTV, Cooking Channel and Food Network.
Corus shares have declined to $0.15, implying a market capitalization of only $29-million, down from a $25 share price and $2-billion market cap at the end of 2014. Long-time CEO Doug Murphy has retired, and a TD report has argued that the actual equity value may be zero, given $1.1-billion of net debt.
So, what went wrong and what lessons can be learned for investors, regulators and the Canadian public?
Corus’s challenges come down to a combination of consistently bad regulatory decisions that have favoured behemoth global content providers, such as Netflix, over domestic players: changing viewership, rising U.S. content costs, the questionable acquisition of Shaw Media in 2016, poor execution and a lack of substantial cost cutting.
Some of that is unique to Corus, but the most important part of it is not. Corus’s woes point to a future of American-media dominance and ever-shrinking Canadian content.
While online content has hurt all conventional TV content providers, Canadian companies have been particularly hard hit by Canadian Radio-television and Telecommunications Commission regulations that were ironically designed to protect Canadian content. Conventional Canadian content distributors such as Corus, Bell Media and Rogers Media have to spend as much as 30 per cent of their revenue on Canadian content, regardless of profitability, while global behemoths such as Netflix, Hulu and Amazon Prime were historically exempt.
Even today, as the federal government tries to level the playing field, these non-Canadian content distributors only contribute 5 per cent of revenue toward Canadian content.
Meanwhile, the CRTC has been incredibly inflexible in enforcing these rules on broadcasters. The Canadian Association of Broadcasters filed an application requesting a suspension of Canadian Programme Expenditure requirements because of COVID-19. CRTC rejected this application and ruled that any CPE shortfalls incurred during the pandemic have to be paid by August of 2024, despite economic hardship, while non-Canadian content providers were exempt.
A policy that was designed to help Canadian content flourish has led to discrimination against Canadian content distributors such as Corus, and in favour of global streaming giants such as Netflix. This is not good for Canadian content, and especially for a debt-laden company such as Corus.
In January of 2016, Corus announced the acquisition of Shaw Media (formerly Canwest) for $2.65-billion financed by debt. The deal raised eyebrows as the Shaw Family controlled both the buyer and seller.
U.S. hedge fund Catalyst, a shareholder, argued against the acquisition, saying that Corus overpaid as much as $858-million or 32 per cent. “The Shaw family has a larger ownership stake and a larger economic stake in Shaw Media, so the [higher value of the] transaction is being transferred from Corus to Shaw.”
While Catalyst was defeated and the deal went through, it left Corus with a mountain of debt and declining cash flow, driving some to conclude today that Corus may have no equity value.
Corus has also suffered from the necessity to secure U.S. content through multiyear deals, often with annual price increases. This makes it very difficult to offset declining advertising and subscription revenue. Avoiding U.S. content would only deliver lower viewership.
As well, Corus management must take some blame for its current precarious position. While Corus did respond to the online threat from Netflix and Bell’s Crave, by launching Stack TV in 2019, it lacked scale and compelling content and after some initial success, it lost momentum. In addition, while Corus’s EBITDA declined from $525-million in 2021 to $317-million over the past 12 months, management was slow to cut costs, and the recent layoff of 35 Unifor members at Global News was arguably too little, too late.
So, what does this mean for the future of Canadian content?
While Corus may be in a particularly weak position, larger conventional peers such as Bell Media and Rogers Media are also suffering from an unenviable combination of industry and regulatory pressure.
Over time, Bell Media and Rogers Media may be the only significant Canadian media companies left, but this is owing to their rights to live sports and their behemoth parent companies. This in turn puts the future of Canadian content in a precarious position.