Rogers 2004 Annual Report Download - page 45

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Rogers Communications Inc. 2004 Annual Report
• Through its 50% ownership of Dome Productions, a mobile production and distribution business, acquired in January 2004, Media has
worked to increase production and distribution of HDTV content in Canada, resulting in increased HD programming from Sportsnet.
In October 2004, the OMNI channels began broadcasting in HD, with its signals available exclusively via Cable.
• In August 2004, Media’s Publishing division successfully launched LouLou, Canada’s first paid circulation shopping magazine for
young women.
Overview of Media 2004 Financial Results
Total revenue for Media was $899.8 million in 2004, an increase of $44.8 million, or 5.2%, from $855.0 million in 2003. Of the $44.8 million
revenue growth, $27.5 million was generated by Radio, The Shopping Channel contributed $20.4 million of the growth, and Television
contributed $18.8 million. These increases were partially offset by an $11.3 million reduction in revenue at Publishing. The year-over-
year changes for the respective divisions are discussed below. Across all of Media’s divisions, approximately 53.5% of the total 2004
revenue was advertising based, as opposed to subscription or transaction based, essentially unchanged from 53.4% in 2003.
Total Media operating expenses were $778.3 million, up 4.0%, or $30.0 million over 2003. This increase was driven by an increase
in cost of sales of $10.9 million attributable to increased sales at The Shopping Channel, an increase in operating, general and adminis-
trative expenses of $9.9 million, or 2.2%, and an increase in sales and marketing expenses of $9.2 million due to initiatives at Media
focused on building brand recognition and promoting the various properties within its respective target demographics.
Total operating profit was $121.5 million in 2004, a year-over-year increase of 13.9%, or $14.8 million, which was primarily attrib-
utable to the results at the Radio and Television divisions. The year-over-year changes in operating expenses for the respective
divisions are discussed below.
Publishing
Revenue at Publishing was $278.6 million, a reduction of $11.3 million, or 3.9%, from $289.9 million in 2003. Publishing experienced con-
tinued growth in its Women’s group of magazines, including the successful launch of LouLou in August, 2004, which was offset by the
closure of Physicians Financial News (“PFN”) in August 2004, the transfer of Rogers Medical Information Solutions (“RMIS”) to RCI at the
end of the third quarter of 2004 and modest declines in certain of its other groups.
The combination of the closure of PFN, the transfer of RMIS and the continued focus on its cost structure, partially offset by
startup costs associated with the launch of LouLou, enabled Publishing to reduce operating expenses by $5.0 million, or 1.9%, from
$260.5 million in 2004. The decrease in revenue, offset somewhat by the decrease in operating expenses, resulted in operating profit at
Publishing of $23.1 million, a $6.3 million, or 21.4% decrease from 2003. Through 2005, Publishing intends to continue to build LouLou
and all publication revenues while leveraging its reorganized infrastructure and reduced cost structure.
Radio
Radio revenue was $204.7 million, a $27.5 million, or 15.5%, increase from $177.2 million in 2003. The increase in Radio’s revenues over
2003 was primarily attributable to the continued success of the JACKFM format and 680 News and a general upturn in demand for local
advertising over prior year levels.
In addition to the costs associated with several reformatting initiatives, Radio increased spending on sales and marketing by
13.1%, as compared to 2003, in an effort to promote the reformatted stations as well as to reinforce the positioning in the market of
certain stations in key markets in Canada. The result was a 5.9% increase in year-over-year operating expenses at Radio.
With Radio’s revenue growth far outpacing its operating expense growth, operating profit increased by $19.3 million, or 49.9%,
from 2003, to $58.0 million and operating profit margins increased by 650 basis points, to 28.3%.
In 2005, Radio intends to launch the three newly licenced FM stations in the Maritimes, which will provide these communities with
comprehensive local news and information along with in-depth coverage of local weather, traffic, sports and other community events.
Television
Television in general experienced softness with respect to national advertising sales coupled with the impact of the NHL player lockout
and this was reflected in the results of both the Sportsnet and OMNI properties. The $18.8 million increase in Television’s total revenues
over 2003 primarily reflects the acquisition of the 50% interest in Dome Productions.
While the NHL player lockout was a significant contributor to lower advertising sales at Sportsnet, it also led to a significant
reduction in programming and production costs as a result of games not being produced or aired. The reduction in costs associated
with the NHL player lockout was more than offset by increased operating costs from the newly acquired interest in Dome Productions,
resulting in the $9.7 million increase in Television’s operating expenses from 2003 levels. Revenue growth surpassed the increase in
operating costs, resulting in a $9.1 million increase in Television’s operating profit, compared to 2003.
In 2005, the Television division intends to focus on continuing to grow both the Sportsnet and OMNI properties, and will look to
complete the acquisition of and then integrate NOWTV, a Vancouver over-the-air television broadcaster, pending regulatory approval
of the transaction.
The Shopping Channel
The Shopping Channel’s revenue increased by $20.4 million, or 9.7%, to $230.9 million, from $210.5 million in 2003, driven by increases in
Health and Beauty and Jewellery product categories. In 2004, off-air sales represented 27.5% of revenue, up from 26.8% in 2003, which
included catalogue, website and physical store sales.
Operating profit at The Shopping Channel was $23.4 million, a $4.2 million, or 21.9%, increase from $19.2 million in 2003. Results
at The Shopping Channel in 2004 reflected a generally improved retail climate over that experienced during 2003, which was impacted
by such factors as the SARS outbreak, combined with a continued focus on reducing product return rates, driving operating efficiencies
from our national distribution centre and favourable purchasing power enabled by improved Canadian dollar exchange rates.
In 2005, The Shopping Channel intends to grow the selection of unique product offerings and various sales channels that have
made it one of Canada’s largest retailers while at the same time looking to reduce costs through further operating efficiencies.