TORONTO. JANUARY 26, 1981
Ladies and Gentlemen: This is the first opportunity I have had to speak to you as shareholders of CCL since the merger between CCL and Premier. For that reason I will give you a bit more background on the Premier side of the operation than will likely be required in subsequent years.
First let me tell you how pleased we all are to be part of the CCL family. I am also pleased to be able to report that the integration of the two companies where required has gone very smoothly.
We saw the advantages of the move:
• a balanced East/West presence in the cable industry in Canada;
• a pooling of the ideas and people to make the combined organisation one of the strongest forces in the cable television industry anywhere.
The fact that we are such a large factor in the industry means that we are expected to lead by providing new ideas and new developments. This is the challenge we face, and one that I believe we are meeting.
Let me outline something of the Premier operations to give you an idea of the many things we have underway.
Victoria is a mature cable system with about 75,000 subscribers. Revenues are running at over $5,000,000 a year, with a profit after tax of about $760,000 expected. The company has over 90% penetration in its marketplace.
One of the unusual features of Victoria is that it has one of the lowest rates of any cable system of its size in Canada – $5.25. Obviously, there is substantial room for improving the earnings of Victoria, but with that kind of penetration this can only come from new services and from rate increases.
Leaving aside the outlook for pay television, we are concentrating the perceived value of our service to the subscribers in Victoria:
• we are adding a number of new services, including a shopping guide, weather information, a financial channel and a TV guide;
• we have recently announced the opening of a Bureau in Victoria to provide an opportunity for members of the B.C. legislature to report directly to their constituents;
• we have offered to assist in the provision of coverage of the B.C. legislature;
• we are planning to be able to add live coverage of major events in the Victoria area on our community channel;
• we have applied to the CRTC to add a new U.S. station, which we believe would be attractive programming for the area.
One of our aims will be to improve the community awareness of the many fine services offered in Victoria. To assist us in this we will be pleased to welcome Glenn Terrell, the new Manager, who takes over in the middle of February.
Finally, with these many new services to be offered in Victoria, we believe it is appropriate to apply for a rate increase and although the amount has not been finalised, an application will go in shortly for this.
This is also a well established system, with over 90% penetration. Vancouver has over 245,000 subscribers providing an annual revenue in excess of $17,000,000 and an anticipated after tax profit of about $1,750,000.
We are taking the same approach here as in Victoria. Vancouver is generally regarded as being a stable system technically, but we must improve the perception of the services we provide and must of course continue to improve these services.
In addition to adding about half a dozen new channels as we are planning in Victoria, we are also going to add two new studios from which live broadcasts will be possible. One will be in Burnaby and one will be in Richmond.
We are further planning coverage of events at City Hall in Vancouver which should be of great subscriber interest with the many lively happenings in that dynamic city.
As you know, we have undertaken to expand the plant. By September 1st the plant should be a 24 channel capacity and there will be an estimated capital expenditure of approximately $4.3 million for this in this fiscal year. The plant will be further expanded by December 1985 to at least 35 channels.
Last week we submitted a rate increase application to move our rate from $5.75 to $7.00. If one were to look at the impact in a full year, and this would not have any effect on the 1981 fiscal year, the increase in revenue would be substantial, e.g. $3.75 million in one year. Of course, not all this will drop through to the bottom line as our expenses are going up rapidly as well, but this is a substantial increase in what one might call the plain old Cable Service alone.
We were also pleased to add Dave Smith as the new General Manager for Vancouver last Fall.
Fraser is a long system covering over five major municipalities up the Fraser River valley. The system has 47,000 subscribers, with an annual revenue in excess of $4,500,000. Because of the scattered areas serviced, the profitability of the system is still low and will probably be in the area of $180,000 this year.
We have already applied to move the rate from its present $7.00 level to $7.75 and this will be heard at a CRTC Hearing in April.
Fraser also has a new General Manager, Bruce MacCormack, who joined the system about a year ago.
An Agreement has been signed, subject to CRTC approval, for Premier to increase its holdings of this company from 45% to 87.5%. The McDonald family, who have successfully managed this cable company for many years, decided to sell and Premier had a right of first refusal which of course we felt we had to exercise. I am pleased to say, however, that Steve McDonald the long time President of the company will remain as a shareholder of Western and will continue in the management of that company.
Western covers the Surrey area of B.C., which is a very attractive growth area. We believe we will be able to expand the services offered to the residents of Surrey by sharing these with Premier. This should have the effect of keeping the costs down, while standardizing the services available in the Lower Mainland of B.C.
At the moment, Western has revenues of about $7,000,000 with a profit after tax of about $900,000. Western already has over 60,000 subscribers.
An application has just been filed to move their rate from $7.25 to $8.00.
The Community Antenna Television organisation in Calgary also has about 60,000 subscribers. This company, with revenues in exec
of $7,000,000 and profits expected to be in the $720,000 area, just received a rate increase to $7.75, although this does include about 50 cents for microwave costs. CATV will also apply for another rate increase very shortly.
You will note in all these systems that we are taking the approach of applying for regular rate increases as we expand and improve the services offered, and to keep pace with mounting operating costs.
We also believe there is substantial potential in all these Western systems for converter rental revenue which we have not yet launched in a major way.
As you may know, Premier has developed an over-the-air pay television operation in Portland, Seattle, San Francisco and Sacramento. This non-cable approach is known as MDS, or multipoint distribution service.
At the present time we have over 38,000 subscribers, although, as we have 50% partners in some of these operations, the net subscribers for Premier is about 24,000.
At the present time we are considering how these operations can best be integrated with cable where we could be involved in both cable and over-the-air pay TV operations.
Our operations in Dublin and Waterford continue to be successful contributors to the bottom line. We have over 74,000 subscribers between the two systems generating a revenue of about $4.2 with a contribution to net profit after tax of about $435,000.
The Irish systems are prospects for pay television as well.
Recently the Home Office announced the granting of 13 licenses for pay television operations in the United Kingdom. We are currently negotiating with a couple of organisations who have cable licenses now, with the intention of becoming a partner in what could be a very attractive new market in the United Kingdom.
I am very optimistic about the outlook for our current operations and the potential for adding new services. I believe that the CRTC now recognises the necessity of allowing the cable companies to develop into retailers of a range of services beyond the normal definition of broadcasting.
As we have said on several occasions to the financial community, the going-in costs to position ourselves for new franchise areas and for new services will be high. We have no doubt, however, that the market for new in-home or in-the-office cable services is immense.
We understood that we needed the size to be effective and to be able to compete in international markets. Those in the Premier organisation are very pleased that this has been achieved and are enjoying the challenge of working with the very dynamic CCL organisation.