Message to shareholders
What’s the outlook for Radio?
Radio as a medium, not only has a great past; it has a very exciting future as well. Radio advertising in Canada grew by a healthy 6% in 2007, while the industry’s projected compounded annual growth rate (CAGR) over the next four years is expected to be just over 3%.
We expect our radio results to be stronger than that.
In such a growth environment, the Standard acquisition is very promising. Standard has already delivered value to Astral Media’s shareholders. The acquisition was earnings-accretive from the beginning and our new national footprint and position as Canada’s leading radio broadcaster gives us unique leverage to capture maximum value from industry growth. We will use our combined strengths to improve our position in each of our markets.
Prior to the acquisition, we had the #1 or #2 ratings spot in each of our markets in Québec. We are committed to replicating this performance in every one of our markets across Canada. Radio’s senior management team is already laying the groundwork for achieving this goal with initiatives that aim at optimizing performance. These include some recent organizational changes that have attracted new talent in senior management positions as well as on-air. On the programming side, we rebranded one of our Toronto stations to Virgin Radio 999, the first Virgin Radio station in North America. If the recipe is successful, we intend to bring the Virgin Radio brand to other markets across Canada.
Higher ratings mean more revenue; it’s as simple as that. In the greater Toronto area, one percentage point in market share would mean approximately $2.3 million dollars in additional revenue; a healthy portion of which goes directly to our bottom line.
In other markets, we launched a new station in Regina, and we were recently awarded a licence for a new radio station in the Ottawa-Gatineau market, which we plan to launch in the new year.
In sum, we will have a growing share of a growing market that will attract new advertisers. That is how the Standard acquisition will create more value for our shareholders!
What are the key highlights in Television this year?
In specialty television, we continued to grow our market share on the majority of our channels. We also launched TELETOON Retro to the English market in January and the French version in September 2008. During the year, we also launched Playhouse Disney, a Family multiplex channel, which provides Disney and other quality content for a younger clientele. On the French specialty front, we have been diligently working on the rebranding of MusiquePlus, which launched in October 2008. It was less than a year ago that we became the sole owners of MusiquePlus and since then we have been working on optimizing the service’s performance.
On the pay television side, we are of course very excited about the recent launch of HBO Canada on all major cable and satellite affiliates. HBO is one of the most sought-after entertainment brands in the world. Our new service offers all the HBO content that we have traditionally offered to our consumers along with an additional 200 hours of new HBO titles, all on one channel. We are giving our consumers what they have been asking for, for years… HBO in Canada!
I would call that a very good year.
How is Outdoor Advertising evolving?
Fiscal 2008, for Outdoor Advertising, has been a watershed year. We posted very strong results at the revenue and EBITDA lines. A fair portion of that growth was generated by our new Toronto Street Furniture (TSF) program.
The TSF program is not just profitable for us. It is profitable for Toronto as well, because it is improving the way the streets look. Over the next five years, we will be installing well-designed, well-maintained, street furniture – 26,000 pieces in all! And, beyond the immediate benefits, Toronto also provides us with a very compelling showcase for other Canadian cities who also want to improve the way their streets look.
Fiscal 2008 was a good year for Outdoor Advertising in other respects as well. Astral Media is innovation- and quality-minded in Outdoor, continually integrating new styles and new technologies into our designs, for maximum impact. We will continue to develop our digital offering, as well as other technology-driven innovations, integrating SMS opportunities, Bluetooth technology as well as backlit boards, Tri-Vision, 3D advertising and more.
Where are the next opportunities for growth going to come from?
First, I believe that the media industry in general will continue to grow.
Audiences have an appetite for quality content, whether it is informational or entertainment. And organizations are willing to invest substantial amounts of money to reach these audiences.
Audiences and advertisers are all becoming more demanding, and I think that we are uniquely positioned to prosper in that environment. Our portfolio of television channels is already well segmented in terms of audience demographics; both advertisers and audiences value this. As well, we are leading our industry in the implementation of on-demand models. On the radio front, with 83 licensed stations in Canada, we operate more than one brand in every major market in the country. We are therefore able to segment these markets in terms of programming for audiences, and then in terms of targeted demographics for advertisers. Moreover, many of our radio stations now provide on-demand content through the Internet. Even in outdoor advertising, we offer geo-marketing, which allows advertisers to focus their investment on their target demographic.
That is for organic growth. Of course if there are acquisition opportunities which are in-line with our business ambition and our business model, we will certainly pursue them. We have the financial flexibility to do so.
How do you transform growth into sustainable value for shareholders?
Our first belief is that the only growth worth pursuing is profitable growth. Which means we are as focused on our costs and our margins as we are on ratings, market share and revenue growth.
Our record speaks for itself. In television, radio and outdoor advertising, our margins are among the best in the industry. We continue to grow them. Fiscal 2008 was no exception.
Our second belief is that business is ultimately not only about earnings, but about cash. And we produce healthy cash flows. We can make investments for further growth, reimburse debt, channel money back to shareholders in the form of dividends or share buybacks and still keep a solid balance sheet. We are continually making decisions regarding the best way to manage this cash flow in order to optimize shareholder value.
Our third belief is that shareholder value is about sound risk management. Our portfolio of media properties give us balance among four large media segments, namely television, radio, outdoor advertising and interactive media. We have balance between advertising and subscription revenues and, with our new geographic footprint across Canada, we also have balance across the different Canadian regional economies, thereby limiting our exposure to the cyclical vagaries of any one Canadian region.
That is how we turn growth into shareholder value.
What is your strategy in the interactive media segment?
Increasingly, audiences are consuming media across different platforms depending on the time of day. Our interactive strategy is to follow our audiences across platforms and dayparts and to serve these audiences compelling content and services; and then to sell this audience engagement to advertisers.
To that end, Astral Media operates close to 100 websites, extending its television and radio media experiences online, reaching 13% of the digital universe in Canada with over 3 million unique monthly visitors.
We are a media company. We are creative. We are innovative. We are constantly looking for new ways to captivate audiences and to help advertisers reach them. This is why we are very interested by any kind of innovation online or elsewhere, as long as it supports a profitable business model.
President and Chief Executive Officer
Chairman of the Board
October 29th, 2008