Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Carl Bayard - Genuity Capital Markets.
Carl Bayard – Genuity Capital Markets
Couple of questions. First off, a question for John Maguire. I was just wondering if you have an estimate of what the clean EPS number would be if you were to strip out the restructuring, the costs to re-brand E!, the slots and so on.
And my second question had to do essentially with Publishing. I know you mentioned a quarter ago you had a pretty favorable newsprint agreement and I noticed that your newsprint costs were down 17% in the quarter, I was just wondering if you would comment on the sustainability of that. I know that newsprint prices fluctuate, but in light of that agreement you referenced to.
I was wondering if you could just disclose linage versus rates and the dynamic during the quarter there.
Leonard Asper
We haven’t looked at it quite the same you did, but if we strip out the restructuring costs, the slot losses, the foreign exchange gains, and the investment gain, net-net there was about a $0.10 negative impact on earnings.
Carl Bayard – Genuity Capital Markets
And the only thing you are not stripping out there is the cost to re-brand E! I am assuming?
Leonard Asper
That is correct.
Dennis Skulsky
On the newsprint side, obviously newsprint pricing is going up as a commodity around the world, so we are protected for a bit longer until at least the end of Q2, and we have in our budget some form of an increase already built in. We are at this point not sure it is enough to cover, but we won’t be able to sustain that same level of reduction.
Carl Bayard – Genuity Capital Markets
Okay, and you have been doing a great job with classifieds and obviously you have been benefiting from the fact that a big part of your newspapers are out in Western provinces but could you comment on the sustainability on what you have been seeing in classifieds, other than the geographical footprint; what you have been doing other newspaper publishers haven’t been doing in North America.
Leonard Asper
Clearly I think it is going to be a challenge to sustain that through the year but that is our objective. I think what we are doing is we are being very competitive with rates and we are also offering new product lines that are allowing us to take advantage; there are dollars out there for classified business; it doesn’t have to be all be free but you have to deliver to the right audiences.
We are still confident that between both our online and our print classifieds, that we are going to be able to continue to grow that business but it may be difficult to keep it at the level that we had in the first quarter.
Carl Bayard – Genuity Capital Markets
Okay. And a question for Kathy, you mentioned your OpEx was up about 5% in TV; could you break that down between SG&A and your program spend inflation?
Kathy Dore
It was primarily, if not entirely, programming. And then the one-time cost to launch E!
Carl Bayard – Genuity Capital Markets
Okay. But you expect that the OpEx to come down in quarters to come as some of those few hundred lay offs you made reference to start cycling through right?
Kathy Dore
Yes, a number of factors will cause it to come down over the course of the year.
Carl Bayard – Genuity Capital Markets
Okay. I will leave it there. Thanks.
Operator
Your next question comes from Bob Beck - CIBC World Markets.
Bob Beck – CIBC World Markets
Just to stay on the television Kathy, you mentioned that the aggregate markets were reasonable. Can you give us a bit of color as to what you are seeing and given your ratings gains to date, are you at all disappointed with what has been limited advertising growth in the fall?
Kathy Dore
I’ll fix that a little bit, I think there are a couple of things to keep in mind. In terms of the fall, we are slightly above prior year. But remember that we don’t have the NFL this year, which was a significant source of revenue in the September to November time period.
In addition, the advertising community, some of the agencies took a wait-and-see approach to what would happen with our re-branded CH to E! We have demonstrated some significant success in the fall season. Our ratings have been consistent, including actually just this past week a stunning premier of Cashmere Mafia on E! where it got 10 rating points, the most among women, and 5 overall, adults 18 to 49.
Weekend viewing on E! is up a full rating point on average and we have been able to reduce the average age of that Network in a 3-month period by about 5 years, and that is really also a stunning accomplishment in a very short time period. We think that any skepticism with regard to the E! brand has now been overcome and now we think that revenue there will pick up significantly.
In addition, the other thing with regard to E! was that we were unable to actually get our translators up in Calgary and Edmonton as quickly as we would have liked, so we weren’t actually in simulcast in Alberta until late September. That was somewhat problematic in securing advertising dollars in the early fall season. So we expect growth there as well.
Bob Beck – CIBC World Markets
Okay, and just given the ad market, do you think it is still reasonable to get some of this strength in the back two-thirds.
Kathy Dore
I agree the market’s been a little soft in the fall season. Certainly we didn’t see the strength that we had seen in the fall of 2006. But we think overall that even in spite of the writers’ strike, we haven’t seen the decline in sales. We are monitoring the clients’ campaigns very closely and we’re working with them on a weekly basis to continue to deliver the audience numbers. We are still optimistic about particularly as we look at the spring and summer.
Leonard Asper
I would like to add, in terms of the overall primetime schedule, particularly Global, it does take a cycle or two to monetize that audience. E! will monetize itself faster, I think than some of the usual stuff, it does take a fall to a spring or even to another fall before you can start to sell off those (assets?)
Bob Beck – CIBC World Markets
Speaking to that timing, now that you have an idea as to Alliance closing, do you think we can see many of the synergies that you’re hoping for by this fall, or is that a bit aggressive to run through some of that stuff through with your conventional?
Kathy Dore
I think you’ll see some of the synergy certainly before the end of this fiscal year, and it will be primarily in the SG&A area.
Leonard Asper
I think you’ll start to see the programming synergies come a little bit into 2008, but beginning the production cycles, it is more into 2009 that you will see that. You’ll see the SG&A stuff coming first and then followed by the programming.
Bob Beck – CIBC World Markets
One more question if I can for John. How are we going to see these quarters reported to us once you have the full consolidation? I was just wondering, is Q1 going to be shown still as it is here with the equity treatment or is it going to be some kind of retroactive to clean up the year as we work through the model?
John Maguire
Unfortunately, I don’t think from a GAAP reporting perspective, we can go back and retroactively do anything other than the equity accounting that we have done to date.
Bob Beck – CIBC World Markets
Okay. Thanks so much. I’ll leave it there.
Leonard Asper
I think it is fair to say what we are going to do is show the existing asset base we have for the remainder of this year, then show Alliance Atlantis (?) separately, or our CW Media Group separately, and then just to make it easy, we’ll show it combined as well, so you can follow the sense of it. Starting next fiscal year, I think, we will be looking at it as a whole business and that is how we’ll show it.
Operator
Your next question comes from Jason Jacobson - GMP Securities.
Jason Jacobson – GMP Securities
Just a couple of questions, first on the conventional TV, I was just wondering if you could break down the market growth in Q1 and compare that to your own revenue growth on the conventional TV side specifically.
Also, just wondering if you could talk about the dynamic of the two going forward. As it relates to the writers’ strike, I guess at this point you are not seeing any impact on the revenue side of things, I am just wondering what the impact on the cost line might be, particularly on the programming expense side, if some of the shows aren’t delivering as expected.
And further to that, you mentioned that you have some new episodes of House coming, just wondering how many of those you have in the can and if there would be any negative impact if that wasn’t finished.
Kathy Dore
Let me start with your last question. In terms of new episodes, we have a few new episodes of House, a few of Brothers and Sisters and Bones. We have certainly with shows like Simpsons and American Dad, thirteen and ten respectively and several of Las Vegas and Prison Break. Interestingly House repeats do quite well as do repeats of other purely episodic shows. So in terms of a series like House, there is less risk to ratings even if that show goes into repeats.
We do certainly have a new series like The Cashmere Mafia in the dramatic category and a couple of shows, series that we bought last spring that were held by the networks to premiere in the second half of the year like New Amsterdam that we are expecting the networks may roll out at some point here in the next month or two.
In terms of any cost savings, the cost implications of the strike, I think that it’s hard to get a lot of accurate visibility on that. We’ve seen some slight cost savings even in December. Overall I would say that the longer the strike goes, the more cost savings we are likely to see; of course, the more with risk to revenue you see at that point as well.
The big unknown in terms of cost savings for us is what series the networks will choose to rerun; what particular shows and how many. Because we pay for those as well, and the jury’s still out on that and that will, I think, never be completely clear from week to week. But generally we are seeing I would characterize it as slight cost savings at this point.
Then you asked about where we are with regard to the market in terms of our price increases or in terms of ratings?
Jason Jacobson – GMP Securities
No, more in terms of the revenue growth or the increases.
Kathy Dore
In terms of the total market we are up in September and October for that two-month period which is the latest report we have. We are up about 2.2% in the overall; spot markets up 1.4.
Leonard Asper
So we are not using shorthand here, we don’t sell networks into the network advertising market, we sell them spot market which is national spot and local, so we don’t look at the network numbers. It may be a little difficult to get a whole picture there. I think that the message is though I think we are slightly above the market because we have been taking a bit of share from our competitors.
Kathy Dore
Total in Western Canada is up 2.2 as well. So if you took network and spot for our average.
Operator
Your next question comes from Adam Shine - National Bank Financial.
Adam Shine - National Bank Financial
With the newspapers, if I break out the LP, it looks as though National Post and I guess other actually posted a pretty decent profit of about $7 million. Can John or someone talk to what exactly went on there?
Leonard Asper
Can you repeat that question?
Adam Shine - National Bank Financial
What did you post for newspaper EBITDA this quarter? I think it was 102, right?
Leonard Asper
Yes.
Adam Shine - National Bank Financial
Then if you look at the other results in terms of what was disclosed in with the LP results, MediaWorks Limited partnership, you’ve got $95 million in there, right?
Leonard Asper
The answer is related to the restructuring costs, Adam, which are below the line on the CanWest reported?
Adam Shine - National Bank Financial
So I’ve missed something where? In the reporting regarding the CanWest LP or regarding CanWest itself?
Leonard Asper
CanWest itself.
Adam Shine - National Bank Financial
So maybe you can help me then. What would the trust net have done? I mean, so we’re still looking at, as expected, losses being incurred within the context of National Post, correct?
Leonard Asper
Yes.
Adam Shine - National Bank Financial
I guess I must have missed a line item.
Leonard Asper
If you just look at the publishing segment as we reported on our segment results and then reduced it by $7.8 million for the restructuring, and then did your comparison to what’s reported for the LP, you can get a different result.
Adam Shine - National Bank Financial
Perfect, okay. I just must have missed that. A lot of stuff to read.
If we then flip to the TD side of the equation, another thing for Kathy just building on some of the above-asked questions, is there no change to how the advertisers are approaching the second half of the season, again with a degree of caution trying to figure out some of the changes to the schedules and what’s unfolding? Clearly just as an example in your case you guys putting Big Brother, a show that otherwise runs through the summer up in the winter, what are some of the pricing dynamics in that regard as we segue from the fall into the winter with more reality, and I will call it stunting, but clearly a strike-related dynamic?
Kathy Dore
I think you have to start with the assumption that the advertisers don’t really want to move their money from conventional television so they are looking to ensure ongoing delivery of ratings and audience composition. So there is a lot of juggling of buys back and forth among programs. But we have as yet to see any reduction in terms of revenue or money not coming to conventional. Frankly, from the standpoint of being able to weather a lengthier strike, with the expanded specialty asset portfolio that we now have, if that money goes anywhere it will, I imagine, will go to specialty first.
Adam Shine - National Bank Financial
So, maybe just on that note if we flip into some of the data points I think Leonard was giving regarding Alliance’s performance, I think Leonard indicated Alliance EBITDA was up from 29%. Could we talk to what exactly was going on there, any data points in terms of what particular cost savings are materializing there?
I can’t assume that it’s been driven by CanWest quite yet because you haven’t got your hands on these regulated assets quite yet, but what’s the driver there?
Leonard Asper
I will turn it over to Kathy in a second but it was a bit of an extraordinary quarter. While the asset was in limbo, there are probably a few expenses that didn’t get made. It doesn’t mean they are going to get made necessarily in the next few quarters but I think you can assume that revenue growth continued in the double-digits where it’s been but there were some expenses I think that were held off, just because of uncertainty there. Our run rate isn’t 29% EBITDA growth every year necessarily.
Adam Shine - National Bank Financial
No, I certainly realize that.
Leonard Asper
I think there are some decisions on hold for a bit.
Adam Shine - National Bank Financial
Can you just repeat what happened with the transmitters in Calgary again, briefly? Was it related to E?
Kathy Dore
Yes, actually we were just not able to get the equipment as quickly, we didn’t get the decision as quickly as we hoped. And then there was a delay in our getting the equipment to actually get the transmitters and install them. So therefore we were not actually able to get our cow position and simulcast until late in September and we couldn’t give advertisers a firm date until early September.
Therefore, a lot of the buying had been done before we were able to start actually selling these two major markets in Alberta. So that’s again, a one-time thing that actually would have deflated our ongoing or run rate revenue in that market.
Adam Shine - National Bank Financial
With regard to Australia, I think if we go back probably a couple of quarters now going back into August or maybe July when you reported Q2, I think there was some talk in terms of working on the structure in Australia in regard to a more optimal structure that more fully takes advantage of evolving growth within Eye Corp.
Has that evolved yet? Have we missed something or is that still something that’s being contemplated at the board level?
Leonard Asper
I think honestly, the financing package is there, the senior debt and the two notes we have, the private placement notes with some US accounts is such that we have to be careful. There may be some fees involved in breaking the assets apart and so we are not really ready to do them unless we have a specific reason to do so. I think there is nothing further being contemplated there at this time. There is no effect one way or the other if we do it.
Operator
Your next question comes from Scott Cuthbertson - TD Newcrest.
Scott Cuthbertson - TD Newcrest
John, can you help me understand the accounting with the intersegment revenues? You have a couple of different back outs there, if you could quickly explain that?
John Maguire
Let me just catch up with you for a second. We have activity between trust assets and non-trust assets, so that’s one thing that has to be adjusted for. Within the publishing group we also report intercompany. There are transactions between various pieces of the group, divisions of the group and we have to adjust for those as well and eliminate them on a consolidated basis.
Scott Cuthbertson - TD Newcrest
The CW property is close to a 38% margin and a $60 million COGS line. From the comments that Leonard just made that COGS line looks a little light. I just wonder if you could comment on the sustainability of that margin and what that cost line might do for the rest of the year?
John Maguire
I am looking at Kathy here.
One of the reasons we are hesitating is because we are factoring synergy related cost reductions to see how this all nets out on a year-over-year basis.
Scott Cuthbertson - TD Newcrest
I am just trying to get a feeling, because if there is going to be some seasonality and also the timing of the synergies kicking in and then offset by the fact that there weren’t many costs in the quarter you just reported, so I an just trying to get a handle on that.
Kathy Dore
You are probably looking at a few million dollars of expense that didn’t get spent in that quarter that would normally have gotten spent. Then you are looking at ordinary increases in cost base offset by synergies, which the timing of that is going to vary. I would not look for that level of total expenses to be the same over the next three quarters.
Scott Cuthbertson - TD Newcrest
I think you talked about – and I realize you don’t have control of the assets yet pending the final decision, but you guys talked about $30 million in annual synergies. How much of that do you think will hit the cost line for CW in this fiscal year?
John Maguire
How much of the $30 million? I think $5 million to $7 million is a pretty safe number, I think.
Scott Cuthbertson - TD Newcrest
And that will be obviously back-end weighted. Obviously conventional cost lines are more seasonal than specialty cost lines. Do you expect a big difference in general in the cost line in Q4 for these assets, relative to other quarters?
John Maguire
Sorry, which assets Scott?
Scott Cuthbertson - TD Newcrest
The specialties that you just acquired.
Leonard Asper
It is hard to go quarter by quarter because there are built-in changes that are already there based on program expenses that are tied to revenue increases. I am just looking at the margins. Maybe another way to look at it is, last year the margin of the group were 26% in the first quarter – sorry, the forecast for us is that it’s going to get up to about 30%. I think that’s another way we would look at it. Trying to put the expenses into different quarters is a bit tough because there are some things we are doing.
For example, we have to invest in some software and as soon as we do that some other synergies are going to hit and assuming the equipment is delivered in May, in the May quarter, if they deliver June 1st you are into a the different quarter.
So I don’t want to be evasive, but when you start to break up into different quarters, it becomes a little bit difficult. If we take last year’s EBITDA of the group that you know and ascribe an increase in that EBITDA consistent with what it has been doing already in terms of percentage growth and then add what I am talking about in terms of the dollar number of synergies, the $5 million to $7 million that fall into the fiscal ’08 year, I think that is how you would probably best guess where the Alliance Atlantis CW media broadcast end up in fiscal ’08.
Does that help?
Scott Cuthbertson - TD Newcrest
Totally. That’s very helpful. It’s just tough to model; it is tough for you to allocate, it is tough for us to model.
Leonard Asper
By the way Scott, sorry to interrupt you. Some additional synergies will follow into the CanWest side of things too. So when you are saying $18 million it is only $5 million this year, how do you get to $30 million? Several million more, I think $5 million more falls into the current Global group too. That’s why we think when I say at the outset of my comments that we were down a little bit in the quarter in conventional TV, but don’t forget ratings are good and we’ve got some of these synergies coming through. That’s why we think overall the EBITDA line is going to be in conventional, or what we call conventional assets but what is really TVtropolis and these cable channels and Global and E, that group. That is why we expect some growth in the EBITDA line there too.
Scott Cuthbertson - TD Newcrest
I noticed a 19.4% liability accretion rate on the Goldman Sachs puttable interest in CW. Is that a reasonable proxy to what you expect their IRO is going to be on this investment?
John Maguire
First of all, that’s going to change depending. Is it a reasonable proxy? The answer is yes. It’s going to go up and down a little bit, it’s actually tied to the trajectory of the EBITDA and based on the cost of the put, the estimated cost of the put in 2011, it’s going to change pretty much every quarter.
Leonard Asper
Well, no. I think provided we don’t change our estimate as to what the cost of the settling puts will be that accretion rate should stay. Where there will be a difference though, is if we are a caller of their shares as opposed to having them put to us. That mix and the deal is such that it is a different equation.
Scott Cuthbertson - TD Newcrest
I won’t get into all the debt stuff that is complex. But big picture on the balance sheet, any major initiatives to reduce debt or restructure or anything else like that?
The second part of that question is, I just wondered what the status of the unsyndicated portion of CW media investment debt is? I think it is $299 million now and I think you had a couple hundred days to refinance. Any plans you may have or initiatives to address, to do anything with the balance sheet in the short term?
Leonard Asper
There are no major initiatives underway. I think it’s fair to say that when we were asked this question and the chairman of Channel 10 in Australia was ask this question more specifically to Channel 10, of course, at their annual meeting in December, I think the words used were we were [inaudible] about what they call a capital return.
I think the point is that we did say as a board of 10 Holdings is we will constantly review whether it makes sense to return some capital to shareholders from Australia in that aspect.
I would just say that is something that is under review as a potential source of capital for the parent company, in our case CanWest, but as you know, the sale process there is not fun and the review that we did there is finished. I think that is the only potential situation we have.
As I say, it is something we consider from time to time and there is nothing specific underway.
Scott Cuthbertson - TD Newcrest
Have you been able to do financing for that or is that just going to fall into that default rate?
John Maguire
At this time, Scott, the initial lenders have fully participated that debt so there are new participants in the debt. There are still, however, expectations that it will be refinanced, if and when market conditions improved. It doesn’t turn into permanent financing at the default rate.
Operator
Your next question comes from Ben Mogil - Thomas Weisel Partners.
Ben Mogil - Thomas Weisel Partners
Hi, guys, good afternoon. I just want to make sure I have the synergy situation straight. There were no synergies from the Alliance deal in the quarter, is that correct?
Kathy Dore
That’s right.
Ben Mogil - Thomas Weisel Partners
You are looking for $5 million for fiscal ?08, that’s correct as well?
John Maguire
In the CW Media assets.
Ben Mogil - Thomas Weisel Partners
Okay. And then obviously more at the Global side?
John Maguire
Yes.
Ben Mogil - Thomas Weisel Partners
The 19.4% accretion versus I think 17.5% was the earlier number. Can you disclose what has changed to have let it to have gone up by 200 odd basis points? Did you see better trajectory in deal terms change between yourself and Goldman? Are you able to talk a little bit about that?
Leonard Asper
I don’t know that we are going to say very much, Ben. It is attributed to a finalization of the estimates of the final liability for both puts to be exercised.
Ben Mogil - Thomas Weisel Partners
Lastly, this is much more of a strategic question. You talked about the cable companies. They will talk a lot about the fact that television VOD of network programming has the ability to help the broadcasters really blunt the impact of a PVR, particularly as on the VOD side they are willing to allow commercials that are not able to be skipped through at the beginning or the end.
Can you talk little bit about your VOD strategy? I mean clearly we have seen a lot of product or relatively speaking, a lot product out there by CTV. What are your thoughts on VOD and how it impacts your market on a PVR basis as well?
Kathy Dore
We are in very active discussions with the distributors about an ongoing strategy and we have tried a number of things with them. I think the jury is still out on VOD and I think to compete with the PVR the convenience aspect is the biggest issue with regard to the comparison between VOD and PVR.
In terms of actually on-demand viewing of VOD I think there is significant potential there for it to, as you say, blunt some of the negative impact of the PVR and we are excited about the opportunity that is there from a long-term perspective.
Ben Mogil - Thomas Weisel Partners
Are there rights issues which are holding back releasing more product, or is it more just trying to get an overall strategy before going into the waters there?
Kathy Dore
I think it is both of them, particularly with US programming. There are always rights issues and those range from who actually has the rights, who is dealing with the distributor and as well there is some potential for there to be either a negative impact to us or a very low upside and so it’s a matter of getting the deal and the strategy right as well.
Leonard Asper
Ben, there are just a couple of dynamics at play here also. The issue of course is also the revenue split between the distributor and the broadcaster in this case. I think we are still working on what those ought to be with our distributor friends. I think there is a bit of maybe we haven’t issued enough our press releases, as many as CTV has, but I think we are probably doing about the same thing as they are in terms of VOD. They have had the cable channels longer; the cable channels have some more programming that you can put on the VOD, so you will see National Geographic and I think Home & Garden TV do have a place on the VOD offering with Rogers, for example, in Toronto.
So now jumping into the Alliance Atlantis issues and then having more of these cable channels I think there is more opportunity with the program we have to go into VOD without the rights issues from the US being a problem.
I think overall we are above where our competitor is and we want to make sure that we get the splits right before we get into any long-term situations here. The conundrum facing broadcasters too is do we go VOD or do we go streaming? Because we have been streaming a lot of the programming, we have been able to get the streaming rights to a lot of our programming like Survivor and Heroes and some of the ?Kink In My Hair?. So CTV is having success as well. We are again about the same level of success, but some studios seem to be more amenable to it than other,
But that’s a potentially very interesting model because it also leads into a lot of website traffic and stuff we can monetize very quickly whereas VOD again that’s the revenue split, we don’t get any residual benefit from it necessarily.
Part of it also is the ability to sell ads in VOD. I think in Canada right now it’s very limited, the ability to sell ads on VOD. I think we are all, by the way distributors as well, are all looking at this as part of this overall broadcast review coming up in April looking at how we can make VOD a more consumer-friendly thing as well and broadcast-friendly thing as well.
So, it’s complicated, but it’s certainly something we are not ignoring.
Ben Mogil - Thomas Weisel Partners
But they are not mutually exclusive, the streaming and VOD. I mean there is no reason why you can’t be doing both for a show from a rights perspective, is that correct?
Leonard Asper
No, true, again, we are looking at alternative display of media. It is just that we have made more progress there than we have because of the third party involvement of cable. Between we and the studios we were able to make progress on the streaming side than we have trying to work out the deal with the cable peoples as well.
Operator
Your next question comes from Drew McReynolds - RBC Capital Markets.
Drew McReynolds - RBC Capital Markets
Just on the swap liability, I gather the equivalent value that the mark-to-market swap to the $324 million at the end of August 31st, is that the $344 million that we see at the end of Q108?
John Maguire
Yes. The CMI total swap liability for both swaps that qualify as hedges as well as the overhang against that $500 million threshold is $341 million at the end of November.
Drew McReynolds - RBC Capital Markets
Is that then presumably because of that $18 million payment pop over the $500 million threshold in the quarter?
John Maguire
No, we actually did not cross the threshold on the $500 million basis; we came pretty close to it when the dollar was at its strongest. Again, we do have individual thresholds with some of the bank counterparties that get triggered or were about to get triggered so that’s what precipitated the payment.
Drew McReynolds - RBC Capital Markets
Just with respect to the CanWest MediaWorks there is a $250 million threshold in there presumably you are not even close to that?
John Maguire
I believe it’s $61 million at the end of November.
Drew McReynolds - RBC Capital Markets
Just back to that $341 million, can you give us what it is today?
John Maguire
No, I can’t. I don’t have the data readily at hand, although I think it’s approved.
Drew McReynolds - RBC Capital Markets
Switching gears a little bit just so I am clear here with all the noise on the balance sheet from some of the reclassifications, et cetera, there was no real core debt repayment in the quarter or was there debt repayment that was offset by an FX impact or other noise?
John Maguire
No there was really no change in the debt. We will be seeing, as we mentioned early, with the 10 dividends there will be in Q2.
Drew McReynolds - RBC Capital Markets
We have talked a little bit about the conventional advertising market. On the newspaper advertising market side, I guess the fear is a slowdown South of us spills over into Canada and I just want to get a sense as of today whether you are seeing any change out there in the ad market in terms of visibility?
Dennis Skulsky
No, we haven’t, Drew. Part of it is in fact we’ve had a little bit of a spillover in a positive way because of the matching of the auto sector with some of the pricing in the U.S. We had a pretty good auto industry revenue month in December because of that.
So, I think it’s hard to tell, but there is one thing that’s happened. Over the last numbers of years we’ve had big box stores coming here that are U.S. driven and you always worry when things get tough for them there, whether they take some of that or make some decisions based on what’s happening in their backyard, even though whatever the retailer happens to be, Linens ?n Things is in BC or in Alberta. We’d rather see them doing a little better there, but we don’t see any direct correlation.
John Maguire
Drew, just to go back to the debt balances, you should remember that the first quarter of our fiscal year is our strongest quarter from a revenue perspective. We are a user of working capital during that quarter and we build up our receivable balances and we see that cash come in the second quarter.
Drew McReynolds - RBC Capital Markets
Thanks John, for that. Just on that point, I noticed I believe the use of cash was a lot less year over year. Was there any specific reason for that?
John Maguire
You are right, we were I think positive $7 million in the quarter this year and I can’t point to anything off the top of my head as to why that was.
Operator
Your next question comes from David McFaggin - Coremark Securities.
David McFaggin - Coremark Securities
Can you quantify the cost of launching E in the quarter?
John Maguire
It was probably a couple million dollars
David McFaggin - Coremark Securities
Say $2 million?
John Maguire
Yes.
David McFaggin - Coremark Securities
What would be the anticipated synergies or cost savings for the balance of your fiscal ?08 year from the restructuring that you took in the first quarter?
John Maguire
That’s really not the Alliance Atlantis, that’s the digital newsrooms. Are you asking for the company, or just for television? There were two separate initiatives in publishing and television.
David McFaggin - Coremark Securities
Can you quantify those separately?
Kathy Dore
Yes, in television included in the numbers that we were talking about in terms of CW Media and CanWest, all of the synergies from both the transactions and digital news are included. It might be up a little bit more there on the CanWest side. Generally overall it is in the $5 million to $7 million range for this year on the CanWest side.
David McFaggin - Coremark Securities
What about on the newspaper side?
Dennis Skulsky
On the newspaper side, some of what we took is severance, the people are leaving as we speak and there was about $4 million in savings in the back end of the year for this year.
John Maguire
If you want to sort of break out the digital newsroom and some of the HD initiatives in TV, I think it’s hard because they are all quite connected. Probably this year’s savings they are somewhere in the $3 million range. Of that, $5 million or $6 million is going to accrue to Global or CanWest of those cost savings we talked about earlier.
Kathy Dore
The expectation is basically the first of the digital news production centers goes into operation in Vancouver in March so you are looking at very much a partial year of synergies there on the television side.
John Maguire
I think you will start to see again in fiscal ?09, you will see again a bigger cost savings as the full brunt of it starts to be felt. Probably some more restructuring costs there too but they were taking the restructuring costs upfront from some savings this year, the bulk of the savings coming in next year and a few more millions worth of savings the following year into 2010.
So, it’s really a two-year program that straddles three fiscal years. It’s got a very good payback associated with it. But you will see the real bulk coming to 2009 in savings. Whereas publishing is probably split about 50/50, you will see more --
David McFaggin - Coremark Securities
Just on the publishing side, if you are able to generate $4 million savings in the back end, could we then annualize it and say it would be $8 million on a full year basis?
John Maguire
That is correct. In fact a little bit more than that.
David McFaggin - Coremark Securities
And then on TV, I guess it would be the same sort of math, no?
John Maguire
Yes, it is a little higher in TV.
David McFaggin - Coremark Securities
And then you grow from there as you said, in 2010?
John Maguire
Yes.
David McFaggin - Coremark Securities
In the MD&A you talk about, in terms of the Canadian television business, about the costs being up marginally or very minimally. Does that factor in, these cost savings we were talking about?
Leonard Asper
We are just trying to find it. When you say the MD&A, cost for which?
David McFaggin - Coremark Securities
The Canadian Television business, CanWest, excluding Alliance Atlantis? Sorry, I guess it was talking more about programming spend, it just says programming expenses will moderate over the remainder of the year.
John Maguire
No, I don’t think that refers to the synergies at all.
David McFaggin - Coremark Securities
I just wanted to be sure I wasn’t double counting.
John Maguire
Just so you understand, the program expense there usually appears in the first quarter, but there is obviously replacement programming and there is I think some amortization coming in the first quarter that gets packed out when it gets to the third quarter.
Kathy Dore
The vast majority of your network premieres are happening in the first quarter and they are repeating a number of those episodes to try to gain viewers. So if you look at the whole year, certainly your programming costs are higher in the first quarter.
John Maguire
Also I think last year a few of the premieres were in August and this year they were mostly in September so you have programming crowded in September than last year.
David McFaggin - Coremark Securities
On the interest income, it was fairly high in the quarter, $16 million. I just want to make sure I understand this correctly. This is CanWest lending money to CW Media because it’s not consolidated, you don’t eliminate this on consolidation, so that’s why there is $60 million there and that will continue high or continue like that until you actually start consolidating CW Media, is that correct?
John Maguire
That’s absolutely correct.
Operator
Your next question comes from Bill Kenny – Numura.
Bill Kenny – Numura
I am just looking for some clarity on the debt. I am looking at the financial statements for CanWest Media and there is $1.26 billion of debt, on the PowerPoint you show $1.35 billion of debt. Can you just reconcile that, how much is FX? I know $20 million is the initial fair value of the transaction cost, but what’s the rest of it?
John Maguire
The CMI debt will be a combination of interest fair value as well as the FX. Maybe I can provide that to you later, if you give me a call.
Bill Kenny – Numura
I had a question about the real estate market in Western Canada. I was surprised to see that real estate classifieds were up 30% in the quarter. Can you just give me some outlook regarding real estate classifieds going forward and if you see the potential for weakness from the U.S.?
Dennis Skulsky
I think in the end a little softening in a red hot market is not all bad for us, and that is why we benefited a little bit because there weren’t lineups to sell houses or condos, you actually had to advertise to get people to come and buy them. We have benefited from that slowing down a little bit.
We are in a position on the publishing side where when the real estate slows down, then the rentals normally get better for us. We are not doing as well on the rentals because there is very low vacancy rates right now.
It is going to slow down at some point in time, but Western Canada -- Saskatchewan, Alberta and BC are still pretty well primed for this to go on for the next year or so.
Leonard Asper
I think as a general comment, you asked about how sustainable is 6% growth in print classifieds? We’ve been pointing it out not to say hey, this is a new benchmark, versus to point out that there is some good operational execution going on in our classifieds business.
For example, we have one person who is now responsible for all classifieds, both online and in print. That’s made a difference in terms of how it’s all coordinated. There are lot of other things we are doing, just making easier for people to buy a classified ad, for example, allowing people to buy a classified as in more than one paper; If you want to put this in the Edmonton Journal, what about the Calgary Herald? . The online order entering will create more – usually people write more words and when they are trying to sell their car they write about how great it is, they write a lot more than they speak over the phone to our sales agent.
So there are a number of little things that are going on there that we think bode well for us. The combination of print and online classifieds continues to be a strong category for us. I think that’s the message we really want to convey today.
It is made up of a lot of different sources from the print to the online to the real estate versus automotive and general classifieds. So I think it’s a good story there, and I think part of it is because we are simply just taking more of a consumer friendly approach in relation to it.
Operator
Your next question comes from Andrew deMoncton - Scotia Capital.
Andrew deMoncton - Scotia Capital
Hi, just going back to the WGA strike a little bit, is there any way that you could possibly quantify the percentage of prime time programming in Canada and to a lesser extent in Australia?
Kathy Dore
I will tell you the numbers, it’s all dramatic series from the US, that’s what it impacts. But there are new series coming on board, there are new episodes being produced of series; it’s actually, there are a lot of moving pieces and it gives us very little visibility.
I could say so many hours today and one of the series that I was mentioning, like a [inaudible], could be announced that its launching tomorrow.
I guess the only real visibility there is that the impact is on all dramatic programming from the U.S.
Leonard Asper
I think the overall message we are trying to convey here is that from January to March, we’ve pretty much got a full program slate, you know, if you talk about the new series, you take the reality series and other product that we stuffed from the cable channels that we have.
April to June gets a little more thin and the summer is always obviously a lower time for programming. But in terms of how we are looking at the overall business, we think between keeping and reallocating most of the money that’s been already legislated for conventional and lowering program cost, we are budgeting for growth in the Canadian TV business. We have ex Alliance Atlantis [inaudible] and we’re still expecting to be there with about the same growth levels. We’ve got some cost reductions, things in places.
I think when you try to add it all together, there’s just too many variables with the program situation to try to actually itemize it. But when you look at the bigger picture and step back, we think we can keep about the same amount of revenue. There may be some slight reduction but there’s probably a corresponding cost reduction around there. That’s why we think we’ll probably end up about where we thought we’d end up in conventional television -- the group, the Global -- the existing Global group.
Don’t forget again, specialty is outperforming its ratings from last year, so there’s revenue associated with that, so that’s kind of where we look. If you start to get into what happens next year if there’s no new product, that’s a very hard question and I don’t think anybody can quantify that.
Andrew deMoncton - Scotia Capital
Is there any kind of timeline where it’s absolutely going to have a serious negative impact on the bottom line if the strike goes to March or if the strike goes to whenever?
Kathy Dore
Well, I think that the longer the strike goes, the real issue gets to be not so much this broadcast year but how does that impact the next broadcast year, to Leonard’s point? Then you get into delays in new series launching and the up-fronts and so I think really all you can say is generally, the longer it goes the more risk there is to the bottom line.
We don’t anticipate that there is significant risk to the bottom line in this fiscal.
Andrew deMoncton - Scotia Capital
Okay. Thank you very much.
Operator
Your next question comes from Eric Mencke with UBS Securities. Please go ahead.
Eric Mencke - UBS Securities
My question has been answered. Thank you.
Operator
Your next question comes from Jeff Watson of TD Asset Management. Please go ahead.
Jeff Watson - TD Asset Management
I have a question about the limited partnership. I notice that there was a 4% decrease in circulation volume during the quarter. I am wondering if you can comment on that. It was a little bit of a higher decrease than I would have expected, and whether you can comment on any trends you saw in readership during the same quarter.
Dennis Skulsky
Well, the circulation trend has continued. I think what we are starting to wonder about, Jeff, is we’ve been very aggressively working online with content and working on a 24/7 basis to get content put up on our websites and we are seeing some of that playing a role in the paid circulation. But that 4% I think is -- I don’t see that sustaining at that level. I think we’ll get back closer to an industry average of the 2%.
Jeff Watson - TD Asset Management
Okay, that’s great. And how about readership? Any comments on the quarter there?
Dennis Skulsky
We don’t have -- those results weren’t out. The last results that were out in September were from, of course, last Spring as the measurement period. And we actually -- readership was pretty stable and we held our own there.
Jeff Watson - TD Asset Management
Okay, that’s great. Thanks very much.
Leonard Asper
A statistic worth adding to, and it’s another potential area for monetization, is of the -- we had gone with an electronic digital edition, a PDF version. We were trying to see if we can get people to pay for that edition. That’s the PDF version of the newspaper and we’ve, like most media companies, have found that there was little receptivity to that.
We have a core group of several thousand people who were doing that but mostly that didn’t catch on. And what we’ve done over the past years is gone to subscribers with a different proposition, which is that if you are a print subscriber, you can register and use the digital PDF edition for free. And that has seen about a quarter of our entire subscriber base, or about a couple hundred thousand subscribers, register for the digital edition.
And what we are being able to do now is to start to sell ads that are digital edition only, so it’s another revenue stream. It’s very nascent but we are seeing that we can also sell a different ad to a digital subscriber than the one that appeared in the paper and we just started that initiative before Christmas, the ad selling, and the registering has taken place over the last 12 months.
So overall again, where the future of this business lies is looking at the overall audience, whether they get a hard copy, a digital edition, or they go to the website and being able to monetize that and raise the CPMs, the cost per thousands that we can charge on those alternative distribution platforms.
Operator
Your final question is a follow-up from Carl Bayard of Genuity Capital Markets. Please go ahead.
Carl Bayard - Genuity Capital Markets
Thanks. I was just wondering, now that you’ve got an approval for CW Media, I was wondering if you had identified any non-core assets you might look at disposing. I’m thinking some of the non-regulated assets, or the 50% series plus and Historia.
And also on Hollinger, I was wondering if -- I mean, is it conceivable that we might see a ruling on the Hollinger litigation prior to the end of ’08?
Leonard Asper
So far, it’s too early to tell. The preliminary presumption is no, we’ll keep it all. They’re all good and you know, those French specialty channels do quite well, I would say and I think that’s a matter of public record in terms of what we file, what’s filed with the CRTC.
Some of the lesser assets, the group -- we own 27% of the Score Media and it’s a profitable business. [The Screen] is another one. We own 49% and I think Corus owns the other 51%. So there are these five partly owned digitals are by and large pretty good assets and capable of further growth along with the rest of them. We just don’t happen to own 100% of them.
So far, no plans to divest of anything and I’m forgetting what the other question was.
Carl Bayard - Genuity Capital Markets
Just on Hollinger.
Leonard Asper
I think I would be safer saying calendar ’08. It’s probably -- a lot of the evidence presentation and discovery component of this to the arbitrator would be done throughout the summer. Then I think you’d probably need a few months to get a decision. But it is winding its way to a conclusion, which is the good news.
Carl Bayard - Genuity Capital Markets
Okay, great. Thank you.
Operator
Mr. Asper, there are no further questions at this time. Please continue.
John Maguire
In response to the caller from Numura, if I understood the question correctly, you were comparing the CMI debt that’s shown on slide 12 of $1.21 billion to the aggregate as it’s shown in the financial statements of about $833 million. The difference, in addition to the $13 million of financing costs, which you cited, the other difference is simply the difference between the spot rate for the currency at the end of November and the hedge rate of 176.
Leonard Asper
Thank you, John and Operator, thank you. That concludes our conference call then.
Operator
Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
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