Corus Entertainment Inc. (CJRB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Corus Entertainment Q3 Analyst and Investor Conference Call. [Operator Instructions] I would now like to turn the call to President and CEO of Corus Entertainment. Mr. Murphy, you may begin, sir.

Thank you, Michelle, and good morning, everyone. Welcome to Corus Entertainment's Fiscal 2023 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 -- 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 as projections or conclusions in these statements. I'd like to remind those on the call today that in addition to disclosing results in accordance with IFRS course and IFRS or non-GAAP measures as a method of evaluating the company's performance and to better provide an understanding of how management views the company's performance on 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 2023 report to shareholders and the 2022 annual report, which can be found on SEDAR Financial Reports section of our website. I will start on Slide 3. The advertising recession that began last summer remains impacting our revenues in those of media companies the world over. In addition, our required spending on Canadian programming this year based on both last year's higher regulated revenues, combined with the required catch-up pandemic Canadian programming expenditures as mandated by the CRTC have put unacceptable pressure on our financial performance. To protect our margins, we are focused on driving efficiencies and productivity. A far-reaching enterprise-wide cost review remains in effect as we leave no stone unturned in an effort to reduce all costs to offset lower advertising revenues. Our meaningful progress in expense control is evident in Q3 and will continue to improve in Q4 as we streamline our operating model and asset base. We are undeterred that said, in our pursuit of aggregating premium video content and audiences on linear and digital services, while we expand our cross-platform monetization capabilities. Our smart broadened investments in U.S. content acquisitions will generate growth of growth as we also sustain our linear channel business. At our recent upfront, we revealed the premium content offering that will debut this fall at specialty channels and throughout our streaming portfolio. I'll speak more to this later in my remarks. This is a cyclical business, and while visibility remains limited, our purposeful focus is on positioning our company for the future and the inevitable economic recovery. We see in premium video, both on our linear channels and on our growing portfolio of streaming platforms and the monetization of those audiences with erect sales strategies and capabilities. Before diving in, let me briefly highlight the results for the quarter, which was another difficult one. Our consolidated revenue of $397 million was down 8% in the third quarter resulting from lower television advertising and subscriber revenues, partially offset by growth in our content business. These revenue declines when combined with higher amortization of program rights, resulted in lower total segment profit of $97 million cash flow of $26 million. Over to Slide 4. And before I begin on video, I want to take a moment to address the Writer's Guild of America's strike currently underway in the United States, which impacts broadcasters and streamers alike. While we remain hopeful for a timely resolution, we are scenario planning, working with our U.S. content supply partners and our own in-house studio production teams to address any potential impact, our industry faced a similar yet different situation at the start of the COVID-19 pandemic when production was on a prolonged hiatus. We have confidence in our teams and our partners with their deep collective experience in navigating these types of disruptions. Now let's talk about our premium video content offerings for the fall and the upcoming year. Our upfront this year marked a meaningful step forward in our evolution as an aggregator of premium video across our many leading platforms. Our Premier this year will drive 17 hours of simulcast on global with powerhouse fan favorite franchises such as NCIS and FBI. Top comedies, Abbott Elementary, Ghosts in last year, last fall's #1 new show, So Help Me Todd. All will return. Buzzworthy new scripted drama is Matlock starring Oscar award winner, Kathy Bates and Elsbeth based on the character in the good wife played by Carrie Preston will make their debut very strong offering of winning unscripted content, which includes the 45th season of fan favorite and #1 reality series Survivor, I Can See Your Voice with Ken Jeong, returning with the third season. And season 25 of parental favorite Big Brother, not to mention our Maiden Canada version, Big Brother Canada. Our Canadian productions have not been affected by the writer strike. On Global, we have new original scripted series, Robyn Hood debuting this fall. We have Season 3 of award-winning thriller Departure starring Archie Panjabi and season 2 of Family Law. We are stocked up with a deep library of specialty and foreign content through our exclusive deal with Peacock produced and available across all platforms in a include Ted, based on the blockbuster film franchise, we'll debut this new comedy with Seth MacFarlane reprising the voice role of Ted. Returning hit Peacock drama franchise as Dr. Death and Bel-Air and an exciting new drama title based on a true story, starting the Big Bang series in 7 short months, Pluto TV has quickly become a leader in the Canadian market. Pluto TV has broad appeal with well-known series like Comedy Classics Cheers and Frasier, popular dramas, Beverly Hills 90210 and Baywatch and classic TV fixed order back seasons of crime franchise hit, CSI and NCIS, tens of thousands of hours of content Canadians haven't seen and they're available for free. So if viewers can stream now and pay never. In some ways, Pluto TV stands to benefit from a slowdown in the new content deliveries as viewers explore the many past fan favorites, given its enormous library of gold programming. So our research and insights team at Corus has always been an important part of our test and learn culture and has driven many sales and product innovations over the years. Today, I wanted to share over to Slide 5. Recent research provides compelling evidence that our lifestyle and entertainment specialty channels are very well positioned to compete with sports. Contrary to the popular belief that you have to buy sports to get live audiences, live tuning across our specialty portfolio of total viewing, whether it be the latest big dramas, stunning home rental projects or delicious dinner ideas, window, lean back, air broadcast television. Consider news, which could be described as our sports produced and widely distributed across many platforms live every day in real-time. At the Canadian Screen Awards this April, Global News topped the charts in the 2 biggest categories. Global National was recognized and Dawna Friesen was recognized for the best national news anchor. Further, Global is the only broadcaster to provide Canadians with completely free dedicated news fast channels nationally and across many regional markets, and this growth has been a standout in the industry. So in efforts, we explored the merits of sports-only advertising buys compared to Sports Plus lifestyle entertainment and news buys. Interestingly, reach with lower required ad frequency when a campaign is balanced across a wider array of specialty networks. Simply put, it delivers better marketing. And this validates our conviction that entertainment, lifestyle and news are critical parts of a smart advertising buy. Advertisers who narrowly focus on sports compete for attention in a cluttered environment, and the risk that their campaigns will not reach a significant portion of TV viewers that do not watch sports. To make this point, this past fall, sports made up 20% of total viewing, as did news in [indiscernible]. The remaining 50% of viewing was to genres like scripted dramas, comedies, reality shows and movies. Now when you look at the specialty channels, we see that 59%, 59 of TV viewers do not watch specialty sports networks at all in an average week. So we are taking the tour upfront buys as we work to change the channel on these outdated miss and demonstrate the value proposition of our specialty portfolio at Corus. Slide 6. I want to reiterate the confidence we have in the long-term resiliency of our premium video business model in Canada, given what forward strategy for a big U.S. studio content partners. Across North America, we are all contending with the advertising recession, while our U.S. partners are aggressively pursuing a disciplined path to profitability for their streaming platforms. In Canada, Corus has a partner-led capital-light strategy to grow our streaming audiences and revenues. This 4 Corners model is clearly the smart path forward. The U.S. studio majors are investing more, more TV, more films, more franchise IP. They are optimizing our core linear channels business worldwide that generate significant revenue, earnings and free cash flow. They are launching streaming platforms that are distinct, but similar to their channels businesses, and they are embracing their international content business licensing to partner profits and cash flow. What results is an assured supply of content to sustain our linear channels business but to expand also our premium digital video platforms. Over to Slide 7. An important part of this year's upfront narrative has been our effort to modernize television level playing field with our digital competitors. To date, digital advertising is sold against the entire 2-plus universe of viewers, whereas television demographics like selling the adult 25 to 54 demo, which effectively excludes more than 70% of the total audience. This overlooks billions of valuable ad impressions that TV delivers, which is why Corus is leading the charge to redirect marketing investments and advertising spend towards audience segments that offer more targeted ways for advertisers to reach their desired audience. In Q3, 53% or $111 million died, which is an important step towards breaking out of the legacy TV trading model. Moving to Slide 8. Our streaming portfolio offers premium long-form video that attracts compelling audiences at scale and a brand safe and trusted environment, delivering incremental audiences that our 3 fully ad-supported digital video platforms achieved great engagement, delivering more than 90% ad completion and benefit from the growth of connected television. With the recent launch of Pluto TV alongside the Global TV app, STACKTV and our Global News fact channels more digital video ad impressions than just 2 short years ago. In Q3, 12% or $39 million of total attributable to new platform revenues. STACKTV is our flagship streaming product with 16 channels live and on demand. The appeal of lean back as broadcast television viewing is evident in the fact that more than half of viewing on STACKTV is on our live channel feeds. The live channel viewing is broadcast campaigns into the streaming universe while adding new subscribers and thus, audiences to the pay TV ecosystem. Digital platforms also provide many new opportunities to innovate our go-to-market strategies and advertising solutions. By way of an example, the introduction of dynamic ad insertion or video-on-demand, VOD has been wholeheartedly embraced by advertisers since it's launched in 2021, and we expect to do $10 million in additional revenues this year. Our Global TV app offers 11 live channels plus the robust offering of on-demand choices for authenticated subscribers, authenticated subscriptions, the Global TV app has something for everyone, including 7-day access to broadcast premiers and a robust free section that includes the global news of free view content. Like STACKTV, live viewing on the channels on the Global TV app is measured by NUMERIS, and BOD is sold via DAI. Pluto TV has grown leaps and bounds since launch, now offering 140 channels, including 45 customized channels from Corus. As Pluto TV's exclusive advertising representative, we are very encouraged by the growth we are seeing on this 100% free service. Since launching 7 months ago, time spent per user has more than doubled and total viewing hours have grown 74%. As the service continues to gain traction, it delivers mass incremental revenue opportunities for Corus in the years ahead. Over to Slide 9. Corus continued to produce great in content for our premium world with 25 new original series announced at our upfront. Our slate of original content entices viewers with scripted and unscripted series, which showcase real-life experiences, engaging storylines and Canadian talent. This slate will also serve to shore up our schedule with new premieres troughing the writer strike. Our proven leader in Canadian lifestyle and scripted content, we are debuting Bryan's All In with HGTV Canada Star Bryan Baeumler, as it travels off the beaten pauses Scott's Vacation House Rules, Scott McGillivray is using his 5 rules to turn problem properties into profit. Fan favorite, Rock Solid Builds kicks off season 3 showcasing even more unique and challenging builds by Randy Spracklin and his crew in Newfoundland, Hollywood icon, Pamela Anderson returns for Season 2 of Pamela's Garden of Eden. Deadman's Curse returns for Season 2 and Season 3 already greenlit with more epic ventures for the search for gold in BC and Rust Valley Restorers for season 5, offering classic car fanatics, some fresh adventures from Mike Avery and Connor. Nelvana, maintaining its position as a rural reninanimated and live-action content, this upcoming year will see 8 newer maturing series. And one notable highlight being the premier of Millie Magnificent inspired by the popular children's book, the most magnificent thing published by our own kids campress. From aircraft pictures based on the best-selling book series popularity papers follows middle school besties Julia and Lydia on their quest to demystify one of life's greatest questions what makes someone popular. And finally, from Waterside Studios, the highly anticipated new series Geek Girl based on the best-selling novels by Holly Smale is slated to premiere worldwide on Netflix next year. With that, I will now turn it over to John to discuss our Q3 results.

Thanks, Doug, and good morning, everyone. I will start on Slide 10 with a review of our consolidated results. The challenging advertising environment and lower subscriber revenue was partially offset by positive results related revenue of $397 million for the quarter, and that represents an 8% decrease from the prior year. Consolidated segment profit was $97 million for the quarter, and that reflects lower advertising and subscriber revenue and increased programming costs, including $5 million of additional Canadian programming expenditures, partially offset of general and administrative cost saves identified as a result of our enterprise cost review. Consolidated segment profit margins were 24% for the quarter attributable to shareholders for the quarter was $2.48 per share, and that includes goodwill broadcast license, trademark and brand impairment charges totaling $590 million before tax in the Television segment as a result of continued contraction in advertising, which has a notable impact, obviously, on our share price and delivered free cash flow of $26 million in the quarter, which was relatively consistent with the prior year. Net debt to segment profit was 3.85x at May 31, 2023, and that compares to 3.59x at the end of Q2 and 3.2x at the end of the last fiscal year. And that obviously reflects the -- now let's turn to our TV results for the third quarter, and those are on Slide 11. TV advertising revenue declined 12%, similar to the trends that we saw in our first quarter this year. Subscriber revenue was 5% lower compared to last year. When you normalize in both years, subscriber revenue to distribution, production and other revenue grew 6% for the quarter and that was driven mainly by content deliveries from Nelvana, partially offset by lower cost a multiyear content licensing deal with Hulu for a package of core Studio titles in the third quarter of the prior year. Direct cost of sales was up 3% for the quarter, and that was a result of the 6% increase in the amortization of program rights, driven by the ramp-up in Canadian spend as well as investments in U.S. studio output deals -- and that was offset by a $3 million decrease in other cost of sales due to lower production service work. Importantly, total general and administrative costs, employee costs were down 6%, and other G&A expenses declined by 9%, driven by lower marketing costs and CRTC fees and offset slightly by higher Overall, TV segment profit was down in the third quarter, primarily a result of the contraction in advertising demand, reduced subscriber revenue and higher amortization of program rights and by aggressive cost control. TV segment profit margins were 26% in the current year quarter compared to 32% in the prior year. Next, let's turn to our Radio results outlined on Slide 12. Third quarter results reflect emerging revenue softness, particularly in the professional services, communications, entertainment and retail categories, while local markets for both radio Intelligence remained very resilient, it was not enough to offset the impact of ratings and the broader macroeconomic environment. Radio segment revenue decreased $3 million for the quarter as a result of lower advertising sales, but that was partially offset by higher podcasting revenue. Radio segment profit was $1.6 million lower in the quarter, and that was due to the revenue decline, partially offset by our progress on cost reduction in the radio business. Q3 segment profit margins for radio. Right, over to Slide 13. We exited the quarter with $56 million of cash and cash equivalents and $197 million available to be drawn on reorienting to one or our bank credit facility to address the persistent headwinds in the current economic environment. These revised covenants provide additional flexibility under the quarter we were in compliance with all covenants. This morning, we declared a quarterly dividend of $0.03 per Class B share payable on August 15, 2023, to shareholders of record on July 31, 2023. This represents the first payment under our new quarterly dividend payment schedule of August, November, February cost reduction measures, which are starting to be reflected in our financial results. As we navigate this low visibility environment, these cost reductions combined with an unused and carefully manage our expenses and cash are not at the expense of our strategic plan and priorities. We continue to make the necessary investments in growth initiatives that will position Corus to benefit from the eventual recovery in marketing conditions -- sorry, market conditions while delivering our balance sheet and providing a compelling return to our shareholders. or that -- sorry, back to you, Doug, on that.

Thank you, John. Last quarter, I said we were finally on the and I'm happy to report the Broadcasting Act of 1991 is finally ready to die and be buried. On April 27, Parliament passed Bill C-11, which amended the over 30-year-old Broadcasting Act by finally bringing foreign digital streamers into the regulatory framework, Bill C11 got the biggest things right, an equitable broadcasting rules attainable for our company. Last quarter, I also urged the CRTC to move very quickly to implement the new legislation and we were happy to see the commission launch consultations on May 12. We continue to urge the regulator through those consultations and other forums to revisit broadcasters as soon as possible. leveling the playing field, not only means regulating foreign players by recalibrating and reducing outdated spending regulations and offering more flexibility to Canadian companies like Corus. We're also very pleased the Parliament pass comes into force in 6 months, and we'll have more to say about it in future quarters. But for now, we can say that the legislation clearly recognizes the value of online Canadian news content, and we are confident it will help journalism organizations like global news extract market compensation for our news productions from the massive foreign digital platforms in the future. I also wanted to take a moment to underscore our efforts to improve productivity and drive efficiencies as we streamline our operating model. The results are evident in the third quarter and expected to continue in quarter 4. I would note that since the beginning of fiscal 2023, we have reduced more than 250 full-time positions, representing approximately 8% of our workforce. These are difficult times. It is precisely at these moments when we see the true character of our Corus team at play who remain resilient and steadfast in their efforts to advance our strategic priorities while at the same time streamlining our operating model to position Corus well for the future.

[Operator Instructions] One moment, please, for your first question from Adam Shine at National Bank Financial.

Doug, just starting first question around the 250 positions, 8% productive workforce. In terms of savings, are you able to quantify these for us and all in rate that might have occurred in Q3 and could potentially build into Q4? And then I'll just circle back with 1 or 2 more.

I think the eliminated positions that show up in this quarter and the next -- so -- and the objective Adam is for all of those to achieve run-rate savings going forward. So of course, there will be sort of variable compensation that will come back in future years that will be attached to some of the eliminated positions that we hope to have stick to our ribs in the years ahead.

Okay. In terms of the new platform revenues, obviously, we're starting to see STACKTV a few quarters now having plateaued -- can you speak to a try and reboot that. Is it a plateau? Or have we started to see some greater churn? And anything else -- metrics?

Thank you, Adam. That's -- obviously, that's a key focus of ours. You know what, we're bringing sort of strategically here as we're looking to drive meaningful lasting efficiencies in the operating model, but at the same time, keep our foot on the gas on our strategies to grow premium digital video audiences and revenues in the years ahead now that we have this. STACKTV, we still are confident in our 1 million sub target. We are learning so much this year on a variety of different fronts. In terms of improving the value proposition. As you know, we've added more channels, Disney suite of services, Magnolia, Lifetime recently. We've broadened the VOD offerings with more deeper seasons of fan-favorite NCIS, FBI, Saturday Night Live. We have a hallmark VOD channel there at this time and exploring other ways to increase the content offering. We also have been playing around with new credit save strategies with Amazon and because it'd be here for a couple of hours, but I went to in great detail yesterday with our STACKTV core working group, all the key learnings and postmortems on our various campaigns, there's a coming campaign with Amazon that begins next week as a matter of fact, which we hope to resume that growth profile. It has flattened out quarter-over-quarter, year-over-year recently, as you know, but there's been strings of weeks where we've seen some nice growth, which has been in response to some of our programming and marketing strategies. And so we're taking those learnings and kind of reinvesting them into marketing and acquisition strategy. My final comment would be that we have complete support from our partners at Amazon and they are continuing to turn on new technologies and new acquisition strategies with us that we think will be very informative and helpful going forward inside the Amazon network, and we've only begun to scratch the surface.

I appreciate the added color. Just one last question quickly your comp in the Q4. You touched on that sort of the outlook in terms of a modest decline. There's a lot of movers strike ongoing saga after negotiations, probably more of an issue for the new fiscal. But can you speak at all to the advertisers prepared to dip in? Or is it very much a last minute wait and see approach that continues?

Well, we are coping against last year's challenging fourth quarter. So that's why we're confident in modest advertising declines comparatively the kind of unbelievably unique ad economy remains as it's been the last few quarters. We just continue to see -- and I have been -- I was in New York a few weeks ago, I talked to all the brass at the big U.S. studios and networks. Everybody still continues to see the very same thing. And that is demand for goods, way down, demand for service is way up, whether or not that's cleaning supplies or appliances or furniture or renovations, anything out of home, like entertainment, travel is up, but no one is advertising on travel because the demand exceeds the supply. The one category that seems to be making a comeback, which is encouraging, is automotive clients and financial services, telecom, direct-to-consumer, government, government is more in Canada than the U.S., as you'd imagine. So the variability is still very much there. And we still think it's effectively supply chain and consumer behavior patterns driven. So it's hard to say when those conditions are going to return to a more normal space. But I can't tell you right now, Adam, that anything has changed in the advertising outlook. Fourth quarter is always in Canada. People thankfully are not in front of their television as much appropriately muted in our forecast for the fourth quarter.

Your next question will come from Maher Yaghi at Scotiabank.

My question. Maybe I'll start with a big picture question here on TV. We're continuing to see movement by U.S. studios to improve their streaming services, nothing new, really, but we're also seeing sports channel looking to do the same with recent discussion by ESPN looking to eventually leave the cable TV system. As you said, audience on TV is not just purely there for sports, but sports does act like a magnet for consumers to remain within the cable system, the cable TV system. Canada is a bit protected from sports fragmentation. But when you look at the system long term, do you think this move by sports channel to mean to cable TV in general for you guys?

That's a big picture question, but I'll make a couple of comments. The anchor on sports is NFL and that deal is done until 2034, both in Canada and U.S., number one. I won't speculate as to whether or not in is going to unbundle is going to do that. And I think for us, then the point we were trying to make on sports is it underpins 2 things. One, there's better value for advertisers to include Corus and their buy and not to pound all their money into the sports services in Canada. Number 2, it really shines a the majority of Canadians are watching sports, why are they paying for it in their packages and why not consider STACKTV as an entertainment and lifestyle service. When it feels very much like traditional TV given that more than half of all viewing is on as broadcast live, right? So I would take your question and we're going to speak over a couple of coffee one day, but my opinion on sports anchoring the bundle. And I think in large part is an important part of that proposition. But I think the real note here is that Corus is competitive in the advertising economy to provide better efficiencies to advertisers and their buys, but also in the product economy when we have a product like STACKTV, which is a great way for Canadians to consume entertainment, lifestyle and news content.

Okay. That's fair. And maybe just a follow-up on the TV at Q4 to show a slight decline year-on-year. Over the last 4 quarters, we have seen the decline stabilize at, let's say, double-digit rates year-on-year. But last year, in Q4, you had a significant decline in New York TV. So I would have thought, like basically, we're touching bottom here, but you're kind of indicating that there's still a little bit more we turn around. How does it look for Q1, let's say, as you look forward, are we touching bottom here? Or there's still uncertainty as to where the bottom is?

There's a lot of uncertainty in Q1 really because that is a new layer of complexity into the outlook conversation. That said, as I went to some great pains to describe in my remarks. We actually believe we have a very strong schedule one way or the other. And so Q4 really is given what happened last summer where the back half of the quarter just sort of really kind of fell off, not in a position, I think, to say we could get to growth in Q4, but we do believe that single-digit, low single digits is a reasonable -- I'll take a stab at that. John, do you want to make a comment on that?

No, there's too much uncertainty around the strike and program deliveries, and it's really hard to know now.

Your next question will come from Vince Valentini at TD Cowen.

Let me start off with the operating cost question to try to come at it from a different angle. Your head count reduction is at 8% employee costs are down 6% where the employees that are still at the company are probably seeing some sort of wage inflation given the environment we're in. It's tough to keep them if you don't increase their wages. So is this net reduction of 6% in your mind, sort of the full run rate? Or does it even get less than that escalating in Q4 and Q1? Or is there more of the net headcount reduction that's not fully reflected in Q3? I'm just trying to get a sense of 6% is the right run rate. Or if it goes, it's better or worse?

So there are a lot of moving pieces. The biggest ones are variable pieces of compensation, whether it's short term, long term related to revenue. So that's a big part of it in Q3. You're right, there have been increases. They were done for our nonunion employees at the beginning of Q3. So you'll see the effect of that in the Q3 numbers. On the headcount reductions vacancies, so they may have never been in the actual run rate, but that's certainly part of our planning as to how we keep these costs from growing. So I think -- but we're certainly pushing into Q4 to continue to see that kind of momentum.

Okay. That's revenue. I know this seems like there's been retroactive adjustments every quarter the last 3 or 4. The decline rate on a normalized basis of just under 4%, you said, I mean that certainly seems like it's a bit of a step down versus prior quarters and more 2%. So what is causing this incremental step-down? And is it anything to do with the Eastlinked channels be for that because you know it wasn't being renewed? Or is that still in future periods?

Yes. No, it's not anything to do with that. It's all to do with the streaming subscriber revenue is basically flat. Right. So that was in the past when we were reporting pretty solid growth on the subscriber line even normalized and you have the linear declines. But now that it's flat, we're seeing the linear declines having a bigger impact. But the run rate remains -- core cutting still remains around 3% is what we're seeing right volume, total subscriber volume, mid-single digits.

Yes, yes. That's fair. So Q4 then from 2 aspects, I guess, is there anything on the lumpy retroactive side that could be coming up? I think is a pretty small distributor. I think let's just call them a large now national distributor. Anything that could come up on that on Q4?

Yes. You know what, I think in any quarter, that's always a possibility. And for sure in Q4, that's a possibility. Yes.

And that will start to show up in Q4, whatever you lose.

We'll certainly get part of June in and then yes, that will affect July and August. But keep in mind that we're seeing a pretty good increase in demand from other places for those channels. So there will be some offset to that.

Tie out this topic, I have one other topic, but to tie up this topic. I mean is that -- how do you think about that? If -- how many of the linear subscribers do you need to replace if they take STACKTV instead because they can't get your channels on Eastlink cable. Is it -- if you replace 75% of them, would you replace 100% of the EBITDA, given you make better subscriber revenue on STACK than you do on cable? Or is there any sort of ratio we can think about? Oh, it's only 50% Okay. -- and sorry, one last topic I had is just the production -- let's call it free cash flow in general. But this seems like an unusual year where your spend on production has been higher than your amortization for 3 straight quarters. It usually bounces around from quarter-to-quarter. Is there some big recovery coming in potentially in the fourth quarter to help free cash flow? Or you're down $72 million of cash year-to-date of what you spent versus what you've amortized it's unusual.

I think it's a little bit of the office of that. So there's not some big expected recovery coming in Q4. But I think the good news is, and we've seen this through the first half of the year that we were running quite a bit higher on cash versus more. That was a couple of things. One is just simply a catch-up for whatever reason, we were quite far behind in invoicing. That's nothing to do with us. That's all to do with when we get the paper. And the second thing was we're building Canadian obviously, to hit that $50 million catch-up. So I look at Q3, I think the good news is that now, which is what the typical pattern should be. And we hadn't been there, as you know, for quite a while this year. So that feels a lot better that's largely behind us now. So I think that's good news. But that's -- look, that's the challenge with Canadian is you have to spend pretty much all the money upfront to be able to make that amort that comes in over a period of time to hit the $50 million not. So we'll see Q4 could be a little lower on the cash than the Mwork but it's pretty hard to predict right now.

Maybe more important from what you're saying, John, if I don't mishear you. You're now at a more stable point to enter fiscal '24. There's no big imbalance of catch-up payments to either the U.S. players or the Canadian players in working capital or production burn, if you call it that, should be a bit less of an issue in '24?

For sure. Yes, we've almost -- I would say that catch-up spend requirement setting aside the mix right, Vince, which is like prior year's reg revenue next year on the MR, which is challenging in the best of times, but it's even worse when you're down in the following year on your revenue. But saying that aside and just looking at the CRTC catch-up decision, the cash impact, I think, of that is primarily as the door register the AMR to be compliant. We care more about the cash.

Your next question comes from Aravinda Galappatthige at Canaccord Genuity.

Start with Vince left off -- when you think about the combined amortization, not just on the program, right, but on the film investments you suggest -- is it fair for me to think that the actual cash on both those pieces, the net spend on the film and the payment of program rights, it's essentially kind of will be 1:1? Or is there still going to be like a little bit of an incremental outflow net basis?

I wouldn't say that automatically. I think what there will be is there's definitely variability between quarters that a film investment side, we do get the tax credit cash in the door usually in the summer. So that helps Q4. But other than that, there's nothing systemic in the system that's going to cause it to always be higher. It really is primarily timing.

Okay. So maybe just a little bit more help on the programming cost side, John, as I kind of -- as we look at the Q4, Q4, are we done at this point for the year? And maybe just talk to how that number -- the extent to which that number is sensitive to a decline in Q1 if the right of strike persists.

Yes. Look, the writer strike really isn't affecting Q4. I know it's not what you just asked. And that's the work we're doing right now to understand based on what deliveries might look like, what's that going to do to program anode, especially on 1 of '21. There was a big decline of program amort, and then it came back out of the following year, and we had a big step up in Q1 of '22, on programming costs in Q1. I'm just looking for the upcoming quarter, what's happening with Canadian, it's not really it will be similar to last year.

Okay. Great. That's helpful. And then last question maybe for Doug. Again, connected to the temporary benefit, I think, as John mentioned, on the programming side, but then it affects advertising. I'm just going back to a comment you made about Q1. Do you think that the impact is almost that immediate? Or is there -- will there be a bit of a lag as to when it affects ratings and then affect advertising?

Yes. That was the answer to that question. But when I was in the U.S. with our partners most recently, the general comment was if you're going to have a registry have it during an advertising late and it's hard to help your model. But if we were shooting the lights out with big demand and all of a sudden, audience levels dropped because of that, then that I think would be more painful than at a time where your demand is a challenge too. And now you're going to have a supply challenge the questions is always to kind of run your revenue model so that you're kind of matching your supply and demand and you don't burn any inventory, right? So it's really the really strong unscripted schedule. And I talked about Big Brother type with Survivor -- Can You Hear My Voice. We've got the wall from NBC. We've got our Big Brother Canada, which is in the mid-season. And we've got our Global News, which is the highest growing news continues to do very, very well. So we're just going to continue to lean on our Canadian product lean on the unscripted product. And then it won't surprise you to know that our programming teams are in constant contact with our U.S. to partners. And the U.S. studio partners are incredibly aligned with the streamers to come to a lesional to economic interest in resolving this. So I'm hopeful, based on what I learned that there's no oppositional views in terms of the new economics of content aligned with the needs of the guild.

Your next question comes from David McFadgen at Cormark Securities.

Yes. So just on STACKTV. So STACKTV, it seems like it's probably been flat for a few quarters now, advertising all the time for STACKTV. So I'm just wondering, are you seeing any signs that the growth will pick up and we will start to see growth? Any comments on that?

Yes. We actually have -- I mentioned it in the last few months, there's been 2-week runs where what we've been doing on marketing has worked. And so we're kind of iterating that to build our plan for next year. That's the only expense item you're going to see not going down in terms of the nonpeople nonprogram -- we want to invest in marketing. We actually think that there's more runway ahead for us with the more -- so again, David, we're holding to our 1 million subscriber target on STACK, and we believe it's a compelling product. We're investing in the programming tech. I mentioned the meaningful growth in dynamic ad insertion on VOD, 0 now to $10 million accounting. And the team is continuing to get smarter campaign management and then Amazon is turning on new tactical tools that I think will bring us into a much better spot to start driving towards target.

Okay. And then just a question on the dividend. Obviously, we know you've reduced it. It's a big anymore, just a dollar payment, but still not there when we see leverage climbing where given the reduction in EBITDA. Do you think it might cancel the dividend altogether and that cash or to try and get that leverage down to protect the equity?

So David, a couple of things on the dividend. One is it's always subject that there's that just always point that out. And when we changed the dividend in March, this situation was fully contemplated that you're seeing as we report today. So I don't think anything has really changed in terms of what was happening when we reset the dividend to $0.12.

[Operator Instructions] Your next question will come from Scott Fletcher at CIBC.

I might ask another question on the leverage. I mean, it seems like we may be hitting something of a peak on the leverage -- is there any -- outside of free cash flow and EBITDA growth, is there any other -- is there any appetite to maybe look to monetize any of the assets within the business to sort of take a look at leverage?

I think we haven't been dealt with a strong hand from the regulator in that respect, thinking of the radio decision. But yes, that's an option. Look, anything to reduce debt. We're going to delever mostly by improvement in segment profit, right? That's where we're going to get the juice on it. But because that's what's happened in the last year to make it go the other direction. But certainly, anything around debt reduction that we can do, we will pursue.

Okay. Fair enough. And then bigger picture question. One of your -- one of the media competitors have recently announced some pretty notable changes to the way they plan on delivering the news because they basically how much on the profitability of your new business and whether you're seeing the same type of pressure and of similar if there's anything somewhere on the table?

Yes. Well, Scott, we multi-market content where we have 4 green screens across our 14 stations, and we -- those are the hubs that generate the news, which is what the competitor is moving towards -- our team won the -- our Moro Award for technological innovation and news, which is a U.S. award don't comment per se on the profitability of news. It's an expensive investment. And we remind the regulator that, in our opinion, our only right is rooted in 1991. But that said, we're finding ways to be more a function of cost reductions by operating more efficiently using our multi-market content techniques, for example, but also I made a purposeful mention of our global, which are free and which we launched during the pandemic at expense and capital investment in order to provide news and information we're doing the very best we can to make news kind of wash its face and we are always looking for cost savings and it's still part of our enterprise-wide -- but I also believe that we have a real opportunity with news because it's -- as I described in my comments, it's sort of like our sports in a way. Now that we have the #1 national broadcast and news and the #1 anchor is growing. And so we're gaining share and we're getting ad dollars.

There are no further questions. So at this time, I will turn the conference back to Doug Murphy...

Thank you, operator, and thank you, everyone, who joined us on the call as everywhere here for follow-up questions if there are any, and have a great, happy candidate, long weekend. Take care now. Bye-bye.

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.