By Brea Elford
Despite losing four per cent of their television subscribers from 2014 to 2015, Canada’s largest telecommunications company saw an increase in their cable sector, according to their third quarter financial statement.
Echoing a national trend in technology, in the cable sector, the television and telephone networks are slowing while the wireless network shows an increase in profit. Yet Rogers Communications is continuing to put resources into their television stream, which begs the question: are they pouring good money after bad?
Pier Morgan, a senior financial analyst, said because Rogers has since increased their Free Cash Flow- that is, the money they have left to spend after paying off their expenditures- by 20 per cent, they are well positioned as an organisation and “can run very easily.”
He said since “they won’t go broke any time soon,” Rogers can afford to take more risks in terms of where they put their resources. With a larger cash flow, they can reinvest back into their company and produce opportunities that will in turn increase the shareholder value.
A reinvestment
One of the ways Rogers is using some of their cash flow in 2016 is with the launch of the new Rogers 4K TV Plan, the highest quality streaming service currently available to viewers. Simply put, it is a high definition streaming service with a slightly higher pixel rate, which, according to Rogers, will increase the image quality and improve the viewers’ watching experience.
But Morgan says that television and home phones are a dying breed, being propped up by cell phones and the internet. He adds that although the company has increased its revenue over the last quarter from its TV advertising, “less people are using Rogers TV, so how long can that continue to be the case?”
Indeed, since this time last year, Rogers has lost six per cent of their television subscribers and four per cent of their telephone users.
Dave Barnard, an accountant and portfolio manager with RBC Dominion Securities Inc., said since Rogers has been around for a long time, there are “lots of things making money for them, and a lot of big things they can sell.”
But he questions whether or not they have made the right decision.
“They are not always going to get it right,” he says.
Is it sustainable?
Barnard likens the current Rogers business plan to eating out at a restaurant. “You want a high value for your meal, but a 30, 40, 50 dollar plate means more profit for the restaurant,” he says.
A large company like Rogers, he adds, is in a better position to absorb some of the initial consumer costs that go along with a launching a program, which helps in ensuring its long term success rate.
Rogers Communications Inc. Toronto Stock Exchange by breaelford on TradingView.com
Jack Carr is an economics professor at the University of Toronto who said even though things are more uncertain in this economy, Rogers will likely be fine.
“It’s hard to live in the city and not use some of their services,” he says.
Rogers currently operates more than 50 radio stations, publishes over 40 well-known magazines, and owns the Toronto Blue Jays Baseball Club and Rogers Centre, among many other significant holdings.
“There are lots of things making money for them,” Carr said. “A lot of big things they can sell.”
Although they were unable to be reached for comment, in a recent media release, Rogers said they are hoping to strengthen their cable proposition and “re-accelerate growth in a sustainable way.”
The fourth quarter numbers will be released early next month.