Rogers 2005 Annual Report Download - page 77

73 ROGERS 2005 ANNUAL REPORT . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Media Risks and Uncertainties
A D E CL I NE IN D EM A ND FO R AD V ER T IS I N G W OU L D A D VE R SE L Y A F FE C T M EDI A ’S RE S ULT S O F O P E RA T IO N S
Media depends on advertising as a material source of its revenue and its businesses would be adversely affected by a
material decline in the demand for local or national advertising. Media derived approximately 44.7% of its revenues
in 2005 from the sale of advertising. Media expects advertising will continue to be a material source of its revenue in
the future. Advertising revenue, which is largely a function of consumer confidence and general economic conditions,
remains unpredictable, although the diversity of the businesses Media operates, both geographically and in terms of the
breadth of media, helps to provide some stability to the advertising revenue base. Most of Media’s advertising contracts
are short-term contracts that can be terminated by the advertiser with little notice. A reduction in advertising spending
or loss of material advertising relationships would adversely affect Media’s results of operations and financial position.
ME D I A’ S A B IL I T Y T O G EN E R AT E A D VE R T IS I NG REV E NU E I S AD V ER S EL Y AF F EC T ED BY L OC A L A N D R EG I ON A L
EC O N OM I C D OW N T UR N S
Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying
patterns outside of Media’s control. Moreover, because a substantial portion of Media’s advertising revenue is derived
from local advertisers, Media’s ability to generate advertising revenue in specific markets is adversely affected by local
or regional economic downturns. This is particularly true in the concentrated Toronto market, where the combined
revenue from Media’s four radio stations and two over-the-air television stations represented approximately 11.7% of
Media’s revenue in 2005.
ME D I A’ S B U SI N E SS IS SE N S IT I VE TO E XT E RN A L E V EN T S
External events and consumer behaviour substantially influence advertising patterns and media usage. An unforeseen
event such as a terrorist attack or war could result in a shift in consumer focus and a change in the price or quantity of
advertising purchased. If advertising and media spending decline following an unforeseen event, Media’s advertising
revenues could be adversely affected.
A L O SS IN ME D I A’ S L E AD E R SH I P P OS I T IO N I N RA D IO , T E LEV I SI O N O R M A GA Z IN E RE A DE R SH I P C O UL D A D V ER S EL Y
IM P A CT ME D IA ’ S S A LE S V O L UM E S A ND A DV E RT I SIN G R A TE S
It is well established that advertising dollars migrate to media properties that are leaders in their respective markets and
categories when advertising budgets are tightened. Although most of Media’s radio, television and magazine properties
are currently leaders in their respective markets, such leadership may not continue in the future. Advertisers base a
substantial part of their purchasing decisions on statistics such as ratings and readership generated by industry associa-
tions and agencies. If Media’s radio and television ratings or magazine readership levels were to decrease substantially,
Media’s advertising sales volumes and the rates which it charges advertisers could be adversely affected.
ME D I A’ S F A IL U R E T O I DE N T IF Y , C OM P L ET E A N D I N TE G RA T E A C QU I SI T ION S C O UL D SL O W T HE G RO W TH OF I TS
BU S I NE S S A ND A DV E RS E LY A FF E CT IT S FI N AN C IAL CO N DI T ION AN D R E SUL T S O F O PER A TI O NS
Historically, Media’s growth has been generated, in part, by strategic acquisitions. Media intends to continue to selectively
pursue acquisitions of radio and television stations and publishing properties and has acquired sports properties. Media is
not able to predict whether it will be successful in acquiring properties that enhance its businesses. If Media is unable to
identify and complete acquisitions, its growth could slow from historical levels. In addition, Media could face difficulties
associated with integrating the operations of businesses that it does acquire, which could have a material adverse effect
on Media’s business, financial condition or results of operations.
ME D I A F AC E S I N CR E AS E D C O MP E TI T IO N
New programming or content services, as well as alternative media technologies, such as digital radio services, satellite
radio, DTH satellite, wireless and wired pay television, Internet radio and video programming, and on-line publications
have either begun competing, or may in the future compete with Media’s properties for programming and publishing
content, audiences and advertising revenues. These competing technologies may increase audience fragmentation,
reduce Media’s ratings or have an adverse effect on its local or national advertising revenue. These or other technologies
and business models may have a material adverse effect on Media’s results of operations.