Rogers 2010 Annual Report Download - page 37

ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MEDIA’S STRATEGY
Media seeks to maximize revenues, operating profit and return on
invested capital across its portfolio of businesses. Media’s strategies to
achieve this objective include:
• Continuingtoleverageitsstrongmediabrandsandcontentacross
its multiple media platforms to offer advertising customers more
comprehensive audience solutions and reach;
• Driverevenueshareincreasesbycontinuallyimprovingbroadcast
ratings through strategically developing and securing the rights to
unique and compelling content;
• CollaborativelyworkingwithWirelessandCabletoprovideunique
video, online and wireless content experiences to customers over
advanced network distribution platforms and in association with the
“Rogers” brand;
• Focusingonspecializedcontentandaudiencedevelopmentthrough
its broadcast and sports properties, as well its growing portfolio of
specialty channel and online assets;
• Continuing to invest in technology and content to leverage the
trend of audience migration to the web, wireless and other digital
platforms; and
• EnhancingtheSportsEntertainmentfanexperiencebycontinuing
to invest in enhancing the Blue Jays and in upgrades to the
Rogers Centre.
RECENT MEDIA INDUSTRY TRENDS
Migration to Digital Media
The media landscape continues to evolve driven by the following major
forces impacting audience and advertiser behaviour:
• Digitizationofcontent;
• Increasedavailabilityofhigh-speedbroadbandnetworks;
• Increasinglyfragmentedandtime-shiftedaudiencetimeandattention;
• Explosionofuser-generated,freeandpiratedcontent;and
• Marketerssearchingforhigher-ROImediavehicles.
The impact of the foregoing is that audiences are shifting a portion
of their time and attention from traditional broadcast and print to
online and other digital media. As a result, advertisers are following
this trend by shifting a portion of their spending from traditional to
digital media formats.
Consolidation and Ownership of Industry Competitors
Ownership of Canadian radio and TV stations has consolidated through
several large acquisitions in the sector by other media and
telecommunications companies. This has resulted in the Canadian
media sector being composed of fewer owners but larger competitors
with more financial resources to compete in the media marketplace.
MEDIA OPERATING AND FINANCIAL RESULTS
Media’s revenues primarily consist of:
• Advertisingrevenues;
• Circulationrevenues;
• Subscriptionrevenues;
• Retailproductsales;and
• Salesoftickets,receiptsofMLBrevenuesharingandconcessionsales
associated with Rogers Sports Entertainment.
Media’s operating expenses consist of:
• Cost of sales, which is primarily comprised of the cost of retail
products sold by The Shopping Channel;
• Salesandmarketingexpenses;and
• Operating, general and administrative expenses, which include
programming costs, production expenses, circulation expenses, Blue
Jays player salaries and other back-office support functions.
Summarized Media Financial Results
Years ended December 31,
(In millions of dollars, except margin) 2010(1) 2009 %Chg
Operating revenue $ 1,501 $ 1,407 7
Operating expenses before the undernoted 1,354 1,288 5
Adjusted operating profit(2) 147 119 24
Stock-based compensation (expense) recovery(3) (9) 8 n/m
Settlement of pension obligations(4) – (15) n/m
Integration and restructuring expenses(5) (12) (35) (66)
Other items, net(6) (4) –n/m
Contract termination fee(7) –(19) n/m
Adjustment for CRTC Part II fees decision(8) – 15 n/m
Operating profit(2) $ 122 $ 73 67
Adjusted operating profit margin(2) 9.8% 8.5%
Additions to PP&E(2) $ 46 $ 62 (26)
(1) The operating results of BV! Media Inc. (“BV! Media”) are included in Media’s results of operations from the date of acquisition on October 1, 2010.
(2) As defined. See the section entitled “Key Performance Indicators and Non-GAAP Measures”.
(3) See the section entitled “Stock-based Compensation”.
(4) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(5) For the year ended December 31, 2010, cost incurred related to i) severances resulting from the targeted restructuring of our employee base; and ii) the acquisition transaction costs incurred and the
integration of acquired businesses. For the year ended December 31, 2009, costs incurred relate to severances resulting from the targeted restructuring of our employee base.
(6) Relates to the resolution of obligations and accruals relating to prior periods.
(7) Relates to the termination and release of certain Blue Jays players from the remaining term of their contracts.
(8) Relates to an adjustment for CRTC Part II fees related to prior periods.