Market Movers: Corus Entertainment Crashes 26% After Losing Warner Bros Discovery Licensing Deal

Corus Entertainment (TSX: CJR.B) is one of the biggest movers today in the market, crashing as much as 29% today off the back of a news release published Friday evening after the market closed.

It appears that Canada’s largest independent media company has lost a major licensing deal with Warner Bros. Discovery that was set to renew at the end of the year. The agreement is set to expire on December 31, 2024, resulting in programming changes in 2025.

Those changes are expected to impact a number of channels, including HGTV, Foot Network, Cooking Channel, Magnolia Network, and Oprah Winfrey Network, all of which Warner owns a 20% stake in. Corus meanwhile has three channels – Adult Swim, Cartoon Network, and Boomerang – which heavily utilize content from Warner, which will now have to be replaced. Going forward, that content is expected to have a heavy leaning towards Canadian and alternate foreign content.

“I want to reinforce Corus’ intent to continue operating the country’s largest and most widely distributed lifestyle channels based on the strength of top-rated Canadian programs and alternate foreign content supply. We have an exceptional fall schedule coming in September and a vast amount of Canadian and U.S. content to carry us into the future,” commented Troy Reeb, EVP of Networks and Content for Corus.

The massive hit to Corus comes courtesy of Rogers Communications (TSX: RCI.B), whom on Friday revealed that they had struck an agreement with both NBCUniversal and Warner Bros. Discovery. The telecom giant is set to launch the Bravo channel, an asset of NBCUniversal that tends to focus on reality shows such as the Real Housewives franchise, here in Canada in September after obtaining English-language television content rights for the country.

And come 2025, Rogers will be the home of those Warner Bros. assets that Corus lost access to – including the Food Network and HGTV brands. The company intends to make the programs available on Citytv+, “so viewers can continue to watch the programs they have come to know and love.” Financial terms of the transactions were not released, however it’s fair to say that they likely trumped whatever Corus was offering.

“This is an unfortunate example of inequitable structural relationships in the Canadian media and telecom industries, particularly affecting independent broadcasters like Corus. It highlights the urgent need for regulatory reform, including to rules affecting how market-dominant players interact with suppliers and competitors. Corus intends to explore all potential remedies,” commented Doug Murphy, CEO of Corus.

A series of unfortunate events

For Corus shareholders, it represents just another hit to the pocketbook. The media company is now down 49% year to date, 72% over the past year, and 94% over the past five years – meaning the latest development is just the latest in a series of losses for the firm.

Like many operators that loaded up debt during a period of low interest rates, Corus has been hit by rising rates amid a high debt load. In March of last year the corporation cut its dividend in half to 2.875 cents a share, before eliminating it entirely in October, making 2024 the first year since 2002 that the company will not issue a dividend. The cut was a necessity in order for the firm to focus on redirecting free cash flow to paying down debt.

Yet things are not looking to get any better for the company any time soon, even if one were to set aside the recent programming loss. In April, the company indicated that it expects year over year declines in television advertising in the third quarter of somewhere between 10% to 15%. The segment represents its largest source of revenue, accounting for over 92% of revenue in the second quarter.

Net debt to segment profit as of the end of the second quarter stood at a multiple of 3.55x, and on a proforma basis climbs to 3.62x, which excludes contributions to segment profit from Toon Boom Animation, which the company sold last year for $142 million in an effort to pay down debt.

Yet that additional reduction in debt wasn’t quite enough for Corus, whom was forced to amend its credit facility in October of last year to avoid breaching covenants. The new amendments increased the maximum total debt to cash flow ratio permitted through to August 31, 2024, reintroduced quarterly repayments of the term facility, changed conditions related to the use of net proceeds from asset disposals, and introduced further restrictions on distributions to shareholders – which ultimately led to the suspension of the firms dividend.

In other words, the company needs to tackle its debt problem in a hurry. The new amendment enables the company to carry a total debt to cash flow ratio of 4.75x through the third quarter, 4.50x through the fourth quarter, before returning to 4.25x by the start of fiscal 2025.

Whether it can manage to hit those targets remains to be seen. But what we do know, is that a boost in debt paydown likely won’t come from asset sales based on commentary from Corus CFO John Gossling on the most recent earnings call.

“Look, I think the situation on asset disposals actually relates to what you’ve asked about changing regulatory environment. It’s essentially impossible to sell regulated assets in our case,.”

---

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.