Profitable Canadian ISP Rogers Calling for Government Bailout

Last April, we checked in with Rogers and found out that they are raking it in. Now, they are demanding a Netflix funded bailout from the government.

The FairPlay Canada scandal is the last time there were efforts to import Internet censorship into Canada. The argument was that companies like Rogers are on their last heels because piracy is so incredibly out of control. If government intervention doesn’t happen soon, they would be forced to shut down altogether.

Well, at the time, we did a reality check last April amidst the scandal and found that companies like Rogers are actually not only breaking even, but have never seen better days. Revenue from television and Internet sectors of the company were up and it seems like the good times continued to roll.

While some during the debate issued threats against us for figuring things like this out, we nevertheless forged ahead with publishing facts.

So, imagine our surprise when we found out who was returning to the Canadian government with cap in hand. Rogers. According to Michael Geist, the company requested in a submission for a Canadian content bailout and is wanting Netflix to pay for it. From Geist’s comments:

There are several notable aspects to the submission, but perhaps none more than Rogers calling for an expansion of the new tax credit for media organizations by extending the approach to broadcasters and expecting Netflix to help pay for it. The media bailout has attracted considerable criticism, particularly given the government’s implementation that has raised serious independence concerns. Before the recent controversies, Rogers envisioned expanding it:

Consistent with the Government’s tax credit proposal, we believe that a similar mechanism should be adopted for the Canadian broadcasting system. By allowing broadcasters that produce news programming to access labour tax credits, which provide an objective and arm’s length subsidy, we are confident that independent high quality news will continue to be produced in this country.

But the proposal goes even further than simply expanding the government media bailout to broadcasters. It also envisions Netflix and other non-Canadian services that do not produce news paying for the bailout by requiring them to help fund the labour tax credits:

In order to encourage and adequately support the production of professional news in Canada, we are proposing that a new policy objective be added to subsection 3(1) of the Broadcasting Act. The new objective we propose would expressly recognize that the Canadian broadcasting system should include local, regional and national news and information programming produced in accordance with professional journalistic standards. All Canadian broadcasting undertakings would be required to contribute to the production of local, regional or national news in some fashion. Those non-Canadian digital media services that do not wish to make direct investments in Canadian news programming would contribute indirectly by helping to fund labour tax credits.

All this is obviously a very curious thing to propose. Of course, to be fair, our findings about the financial state of Rogers is from last year. A lot can obviously change between then and now. So, we decided to do some digging around to see where things stand more recently with the company. Our research turned up the first quarter of 2019. That contains some very interesting information (PDF). From page 2:

Total revenue decreased 1% this quarter, largely driven by 12% decreases in both Wireless equipment revenue and Media revenue. Declining Wireless equipment revenue was primarily a result of our disciplined approach to postpaid subscriber loading this quarter, whereas Media revenue decreased due to a distribution from Major League Baseball in the first quarter of 2018.

These declines were partially offset by strong service revenue growth of 4% in Wireless, where blended ARPU continued to increase year on year for the twelfth consecutive quarter, and 1% in Cable, where Internet revenue growth of 7% continued to drive this segment. Overall, total service revenue increased by 1% this quarter.

When I read things like this, it doesn’t exactly say hemorrhaging money left and right. Here’s some more comments:

We continued to generate substantial cash flow from operating activities of $998 million this quarter, up 13%, and free cash flow of $405 million this quarter, down 8%.

Our solid financial results enable us to continue to make investments in our network and spectrum holdings, strengthen our balance sheet and liquidity, and still return substantial cash to shareholders through dividends and share repurchases. We paid $247 million in dividends this quarter and announced a 4.2% increase to our annualized dividend rate, bringing our annualized dividend rate to $2.00 per share. We also repurchased for cancellation 2.2 million Class B Non-Voting common shares (Class B Non-Voting Shares) for $155 million under our normal course issuer bid (NCIB) program and ended the first quarter with a debt leverage ratio of 2.7, up from 2.5 at the end of 2018, as a result of our adoption of IFRS 16.

As a result of our financial strength, in April 2019, we secured $1.7 billion of 600 MHz spectrum licences. We also entered into a new US $2.2 billion ($2.9 billion) non-revolving credit facility in April, which provides us with significant incremental available liquidity we can use to make the required payments for the spectrum licences.

Really, the only bump in the road based on what we were able to see revolves around Major League Baseball.

Pessimistically, Rogers is doing fine. So, really, it puts them in an awkward position. On the one hand, they are raking in the cash. On the other hand, they are making the argument that a big media bailout is necessary. That’s setting aside the fact that they are asking other companies to pay for this bailout over top of the Canadian government. All this makes the argument difficult to make in the first place.

Drew Wilson on Twitter: @icecube85 and Facebook.



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