Rogers 2012 Annual Report Download - page 48

MANAGEMENT’S DISCUSSION AND ANALYSIS
Media Operating Expenses
Media’s operating expenses mainly consist of: (i) the cost of retail
products sold by The Shopping Channel and Sports Entertainment;
(ii) broadcast content costs; (iii) Blue Jays player payroll; and (iv) other
expenses incurred to operate the business on a day-to-day basis.
Media’s operating costs decreased modestly from 2011. This was due
to lower publishing costs, lower sports programming costs and
significant cost efficiencies achieved across most of Media’s divisions.
The lower sports programming costs were primarily related to the
NHL player lockout, as no NHL games were produced or aired during
the first half of the 2012-2013 season. The decreased costs were
partially offset by planned increases in conventional television
programming, as Media continues to secure rights to premium and
exclusive content on its broadcast and digital platforms to improve
audience ratings in key demographics. Excluding the impact of the
NHL player lockout, operating expenses would have increased by
approximately 3% year-over-year.
Media Adjusted Operating Profit
The increase in Media’s adjusted operating profit for 2012, compared
to 2011, primarily reflects the revenue and expense changes discussed
in the preceding sections, including an estimated $30 million of net
positive impact of the NHL player lockout.
(In millions of dollars)
MEDIA ADJUSTED
OPERATING PROFIT
$131 $180 $190
2010 2011 2012
(%)
2012 MEDIA ADJUSTED OPERATING PROFIT MIX
TELEVISION 43%
RADIO 35%
$0.19
BILLION
PUBLISHING 13%
CHANNEL 9%
THE SHOPPING
Media Acquisitions
In October 2012, Media completed the purchase of 100% of the
outstanding shares of Score Media Inc. for $167 million. The shares of
Score Media were transferred to an interim CRTC-approved trust
which is responsible for the independent management of the business
in the normal course of operations until CRTC final approval is
obtained, at which point control over theScore Media business will
transfer to Rogers. Score Media owns theScore Television Network, a
national specialty TV service providing sports news, information,
highlights and live event programming across Canada. Upon final
regulatory approval, which is anticipated in the first half of 2013,
Rogers will wholly own and control theScore Television Network and
its related television assets, and expects to rebrand it under the
Sportsnet brand.
On February 4, 2013, Media closed the agreement to acquire Metro14
Montreal for approximately $10 million.
Other Media Developments
The Toronto Blue Jays made several off-season all-star calibre player
acquisitions and other moves that will significantly boost the team’s
depth. The 2012 season demonstrated a renewed appetite for
baseball in the city of Toronto, with increased ticket sales,
merchandise sales and viewership. The growing revenue helped
enable the off-season investments, which are consistent with Rogers
Media’s sports-focused strategy to significantly improve game
attendance, merchandising and Sportsnet ratings.
VIDEO
As of June 2012, Rogers’ retail stores no longer rent or sell DVDs and
games and now focus exclusively on sales and service relating to
Rogers’ wireless and cable products. The second quarter of 2012 was
the last period for operations of the Video sub-segment of the Cable
segment, with the remnants of that business now treated as
discontinued operations for accounting and reporting purposes.
CORPORATE
Acquisitions and New Initiatives
In an ongoing effort to maximize subscribers, operating profit and
return on invested capital as part of our strategy to be Canada’s
leading diversified communications and media company, Rogers
initiated or completed the following acquisitions and initiatives
during 2012:
> Investment in Maple Leaf Sports & Entertainment
On August 22, 2012, along with BCE Inc., we closed the joint
acquisition of a net 75% equity interest in MLSE from the Ontario
Teachers’ Pension Plan. MLSE is one of Canada’s largest sports and
entertainment companies which owns and operates the Air Canada
Centre, the NHL’s Toronto Maple Leafs, the NBA’s Toronto Raptors,
the MLS’ Toronto FC, the AHL’s Toronto Marlies and other real estate
and entertainment assets. Rogers’ net cash investment was $540
million, representing a 37.5% equity interest in MLSE.
> Banking Licence
In 2011, we applied for a banking licence as required under the
federal Bank Act to enable Rogers to engage in credit card and other
mobile payment services. During 2012, key management with
extensive experience in credit card operations joined the company
and third party vendors were selected to support the operations. We
expect to receive our licence from the Office of the Superintendent of
Financial Institutions (OSFI) in mid-2013.
> Rogers Smart Home Monitoring
Rogers Smart Home Monitoring is an advanced real-time home
monitoring, automation and security service. It allows for remote
access, monitoring and control from Internet-connected computers
and smartphones, as well as real-time alerts and remote viewing.
Rogers is in the early stage of developing and deploying this product.
The product is generally marketed and installed by Cable.
44 ROGERS COMMUNICATIONS INC. 2012 ANNUAL REPORT