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Demand Media (NYSE:DMD)

Q4 2012 Earnings Call

February 19, 2013 5:00 pm ET

Executives

Julie MacMedan - Vice President of Investor Relations

Richard M. Rosenblatt - Co-Founder, Chairman and Chief Executive Officer

Mel Tang - Chief Financial Officer

Analysts

Sameet Sinha - B. Riley & Co., LLC, Research Division

Ross Sandler - Deutsche Bank AG

Sachin Khattar - Jefferies & Company, Inc., Research Division

Douglas M. Arthur - Evercore Partners Inc., Research Division

Patrick D. Walravens - JMP Securities LLC, Research Division

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Laura A. Martin - Needham & Company, LLC, Research Division

Operator

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome, everyone to the Demand Media's Fourth Quarter 2012 Fourth Quarter Results Conference Call. Today's speakers will include Julie MacMedan, Richard Rosenblatt and Mel Tang. A Q&A session will be available to all attendees at the end of this call when prompted. [Operator Instructions] And now, we will turn the call over to Julie MacMedan, Vice President of Investor Relations. Ms. MacMedan, you may begin.

Julie MacMedan

Thank you, Mike, and good afternoon, everyone. On behalf of Demand Media, welcome to our fourth quarter 2012 conference call. And thank you to everyone for joining us today. You can find our related release, along with supplemental materials posted on the Investor Relations section of our corporate website located at ir.demandmedia.com.

On the call with me today are Richard Rosenblatt, our Chairman and Chief Executive Officer; and Mel Tang, our Chief Financial Officer. Following the Safe Harbor statement that I will make, Rich will update you on our business. Mel will then provide details on our fourth quarter financial performance and key operating metrics and finish with guidance for the first quarter and fiscal year ending December 31, 2013. Following prepared remarks, we will open the line for Q&A.

Before we get started, we need to make the following Safe Harbor statement. We would like to remind everyone that during today's conference call, management will make certain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations discussed in such forward-looking statements. In particular, comments about our anticipated future revenue, earnings, operating expenses, page views and growth rates, as well as statements regarding our business strategy and objectives, plans, intentions, operating outlook and planned investments are considered forward-looking statements. Factors that could cause actual results to differ materially from anticipated results are detailed in our press release furnished to the SEC.

I would also like to point out that during this call, we will discuss certain non-GAAP financial measures while talking about the company's financial and operating performance, including Revenue ex-TAC, adjusted EBITDA, adjusted EPS and certain free cash flow metrics. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in the financial tables included at the end of our press release. In addition, unless otherwise noted, all references to traffic-related metrics in our remarks today are based on comScore data.

Lastly, before we begin, I would like to remind everyone that today's conference call is being recorded and that it's also available via webcast on the Internet through the Investor Relations section of our corporate website. A replay will be available.

With that, I'll now turn the call over to Richard Rosenblatt, our Chairman and CEO. Rich?

Richard M. Rosenblatt

Thank you, Julie, and welcome to our 2012 fourth quarter and year end results call. I am pleased to report that we delivered record Q4 results, closing out the year with solid momentum. Driving this performance was strong growth in our Content & Media business due to investments in our content creation platform, which improved quality and diversified our distribution. Out long-term growth is driven by the scale of our audience and the type of very specific evergreen content we produce. We call it Content For Real Life because it's practical, actionable and can be used as a resource every single day. In fact, 1 in 3 Americans online visit our site every single month. This reflects our ability to anticipate the content our consumers need even before they know they need it.

In 2012, our Registrar business also grew significantly and we voted for our position as the world's largest domain name registrar, servicing nearly 8,800 resellers and millions of businesses and consumers. Over the last 3 years, the platform, including Name.com, has grown by 6 million names or 66% to a total of more than 15 million. Additionally, we are now positioned as a leading player in the upcoming new generic top level domain market opportunity scheduled to launch soon.

Because of the opportunity in each of these businesses, our board has authorized us to explore the separation of Demand Media into 2 independent publicly traded companies. An online media company that delivers quality content to over 125 million monthly consumers and one of the largest domain services companies providing millions of businesses and consumers with registrar, registry and related services. We believe that a separation will better position each of our companies to preserve its increasingly diverse and strategic priorities and opportunities. But I'll come back to this point at the end of my remarks.

I'd like to now review our 2012 accomplishments in more detail and our strategic focus for 2013 and beyond. In 2012, we achieved the following: We revamped and enhanced our major owned and operated properties by delivering better, more engaging consumer experiences. We significantly evolved our consecration platform so we could increase our content production in 2013 with higher quality and more engaging content. Led by qualified category experts, we expanded the variety of content we produce, such as slide shows, videos, feature articles and mobile-friendly formats.

We greatly expanded the distribution of our content to a broader range of partners and geographies. In fact, we published the majority of our new content in 2012 to our rapidly growing network of content partners, which grew page views nearly sixfold year-over-year, and our own international site, which grew page views by more than 350% year-over-year.

In 2012, we also grew our Mobile audience and RPM substantially with 26% of our business to our core sites in Q4 coming just from Mobile. As we discussed in the past, our content is well-suited for Mobile, which enabled us to significantly improve Mobile monetization, growing RPMs by over 75% throughout the year. These achievements, combined with our continued same-store sales growth of our content, led to record traffic growth to our sites. We climbed from the 18th largest web property in the U.S. at the start of the year to the 13th largest in January 2013. This move reflects a 35% growth in unique visitors over that period, which is the highest percentage growth among the current top 20 properties on comScore.

comScore also released its worldwide numbers this morning, and we now reach global audience of 125 million global visitors each month, and this ranks us as the 28th largest property in the world.

Turning to our Registrar business. In 2012, we increased the names on our platform by approximately 2.4 million, including the 1.4 million domains registered through Name.com, an acquisition we made at the end of the year to further expand our platform into retail.

In addition, we also invested substantial time and resources towards the new gTLD growth opportunities for 2013 by merging as one of the leading participants with 26 standalone applications and equal rights to an additional 107 TLDs. We are also leveraging our technical know-how to establish ourselves as a leading registry service provider, allowing us to provide high margin back-end services to other TLD owners.

As you can see, 2012 was a very productive year and we're prepared to invest in 2013 as we see many future growth opportunities.

Okay, let's talk about 2013. In 2013, we intend to increase our investment in our people, our content production and our gTLD initiative. We're increasing our investment and are tracking and retaining the best talent. We're enhancing our recruiting resources and presence, implementing additional training programs for employees and expanding our employee benefits.

Later this year, we will complete our new corporate headquarters in Santa Monica, bringing our teams closer together in the same campus. We know that a company is only as good as its people and we intend to ensure that we continue to attract and retain top talents.

In addition to our people and investments, we intend to invest in Content & Media in the following ways: First, we will continue to evolve our studio. We expect to more than double our investment in content this year based on the production and distribution progress we made in 2012. We will further develop our algorithm, implement additional quality improvement and expand our production capabilities. Second, we will continue to diversify our distribution, both through our partner network and internationally. Our partner network, which we call Content Channel, is our white-label solution for brand and publishing partners. This part of our business doubled revenues in 2012 and we expect revenues to double again in 2013, representing a meaningful driver of our network revenues.

International. In 2012, we expanded the features of our international platform and grew eHow en Español to 6 million unique visitors per month. Our international success comes from a social programming PlayBook, content formats customized the local market and local talent and original videos that can be shared across multiple languages and cultures. We plan to apply these learnings to more developed markets, such as Europe.

In Q4 2012, we launched eHow Germany and plan to launch sites in at least 2 additional countries this year. We also plan to continue our investments in Mobile. We're ending 2012 with a $20 million annual Mobile revenue run rate and are testing Mobile centric formats that leverage our studio and diversify our content offering.

Lastly, we are going to diversify into new content models. We will leverage our audience, our data and our content creation platform to expand beyond our core advertising-driven content model with new paid content opportunities. We plan to leverage our premium video expertise to launch subscription and on-demand e-learning content by midyear.

In addition, we've already begun beta testing eHow Now, a product that offers real-time expert advice where we leverage our studio's expert talents to provide real-time answers. In our beta, we've experienced strong conversion rates and a 90% customer approval rating. We're also developing LIVESTRONG platinum, a subscription service. We've hired senior executives from the popular maker of P90X to help developed this product offering, which we plan to launch in Q2.

We're very excited about the long-term opportunities that these initiatives present, and we look forward to providing you updates on our progress.

Turning now to Registrar and new gTLD opportunity. The release of new gTLDs represents, in our opinion, a historic event, unlocking more consumer choice and new growth opportunities. We are investing here for a number of reasons. First, consumers and businesses place a high value on desirable names that are specific to their interests and it's increasingly difficult to find them on .com and .net. For this reason, the growth rate of country code level domains such as .co, .tv or .au, which offer more choices, was triple that of .com and .net based on VeriSign's most recent quarterly report.

Second, Google and Amazon are 2 of the largest applicants. We believe their participation will help raise consumer awareness and lead to a bigger market for everyone.

Finally, marketers have important plans for gTLDs, including location-based marketing and customer loyalty programs for some of the largest, most visible and trusted consumer brands in the world. When major brands utilize our new gTLDs, it will help build overall consumer awareness of the existence and benefits of more distinct and recognizable domain names.

Last year was an important year. We positioned ourselves to lead in this new market and opportunity. We did this in a number of ways. We used our data and algorithm to select what we believe are highly viable TLDs, leading to 26 direct applications and equal rights and up to 107 TLDs through a strategic relationship. We expanded our position as the #1 wholesale Registrar in the world through continued organic growth and strategic partnership with large partners, we continue to grow NameJet, our joint venture with web.com into the leading auction platform for buying and selling premium domain names. And we enhanced our direct connection to consumers in small businesses by acquiring Name.com, a leading retail registrar.

Last year, we spent a few million dollars in new gTLD formation expenses so we could develop and deliver expanded offerings, such as registry and technical infrastructure services. Now with the launch of the first new gTLDs anticipated as early as next quarter, we plan to substantially increase of spending on hiring, marketing infrastructure buildout.

The upcoming launch of TLDs is a transformative event for our domain services business. As announced earlier today, we are exploring a spinoff in this business into its own publicly traded company. We believe that a separation of the 2 independent companies will better position each business to pursue their increasingly diverse strategic priorities and opportunities. As part of this process, Michael Blend is transitioning from his role as President and COO to focus exclusively on the evaluation of the spinoff and all the related operational requirements. I will be reassuming direct responsibilities for the media business, where we have strong team of seasoned media executives. Assuming the spinoff is completed, Demand Media will become a pure-play media company with a powerful outsourced creation platform, leading web properties that reach over 125 million monthly unique visitors and a unique monetization platform that incorporates branded, network and mobile optimizations. Our spun-off new company will be the only end-to-end domain service provider with a large scale registry with numerous owned and partner TLDs, expansive wholesale and retail distribution and a dominant aftermarket platform to buy, sell and monetize domain names. In the meantime, both businesses are pushing forward with their respective strategies and we don't expect the spinoff to distract us from that plan.

In summary, in 2012, we successfully reengineered our content creation process, revamped our properties and expanded our distribution, leading to record traffic growth and financial results. We also laid the foundation for future growth with our investments in Mobile, international, Content Channels and TLDs.

We see 2013 as an important investment year for Demand Media and believe these investments will further strengthen both our Content & Media and domain service businesses and position them as leaders in their respective markets.

With that, I'll turn the call over to Mel. Mel?

Mel Tang

Thank you, Rich. I am pleased to report that Demand Media delivered another record quarter and record year of revenue, adjusted EBITDA and EPS, highlighted by accelerating revenue growth for our Content & Media business throughout 2012. We also tripled free cash flow in 2012, which more than funded our growing investments in content, our December retail Registrar acquisition, as well as our open market stock repurchases.

Importantly, investments in 2012 positioned Demand Media as a leader in the new gTLD opportunity, which is expected to go live in a few months. We are excited about the long-term growth opportunities in front of us, and we intend to substantially increase investments in our business lines in 2013.

Now let's discuss our fourth quarter results in more detail. Revenue, excluding traffic acquisition costs, or TAC, was $96.8 million, up 19% year-over-year. Adjusted EBITDA was $29.4 million, up 24% year-over-year, reflecting 110 basis points of year-over-year margin expansion as a percentage of Rev ex-TAC to 30.3% and free cash flow was $17.1 million.

Our Content & Media business drove the majority of our top line growth. More specifically, year-over-year Content & Media Revenue ex-TAC grew 25% in Q4 to $62.3 million. Owned and operated revenue grew 25% and network Revenue ex-TAC grew 26%. Our owned and operated revenue increase was driven by 24% year-over-year growth in the owned and operated page views to 3.4 billion, led by growth in our 4 owned and operated websites, particularly eHow and LIVESTRONG. Owned and operated RPMs of $14.55 were similar to $14.53 in the prior-year period.

Network Revenue ex-TAC growth was driven by revenue growth from our network of content partners, including YouTube. Specifically, we saw a 37% increase year-over-year in network RPM's ex-TAC to $2.98 due to the YouTube channel's partnership, as well as growth in our Content Channels business. And an 8% decrease in network page views to 4.5 billion due to lower reported page views from our Pluck enterprise partners, offset partially by growth from our new content channel partners and our IndieClick publisher network.

On to our Registrar. Revenue was $34.5 million, up 10% year-over-year, driven by an 8% year-over-year increase in the end-of-period domains of $13.7 million, due primarily to the addition of high-volume customers and continued growth from existing resellers and annualized revenue per domain, or ARPD, of $10.09, which was flat year-over-year. Note that these numbers excludes the impact of 1.4 million domains managed by Name.com, which we acquired on December 31 of 2012.

Turning now to consolidated operating expenses. Our Q4 GAAP operating expenses were $97 million, up 9% year-over-year. Excluding depreciation, amortization and stock-based comp, total operating expenses were $75.2 million, up 70 basis points as a percentage of revenue due to higher cost of services as a percent of revenue in sales and marketing investments, offset partially by increased operating leverage from product developments and G&A expenses, which takes us to Q4 cash flows.

Cash flow from operations was $26 million, up 6% quarter-over-quarter. As compared to last year, cash flow from operations was down 4% year-over-year, primarily due to the timing of YouTube payments related to our premium channel field, an increased investment in working capital as our business continues to grow. Discretionary free cash flow was $21.8 million, up 8% quarter-over-quarter and down 8% year-over-year, due primarily to higher infrastructure CapEx related to our gTLD initiative.

Now onto free cash flow. In Q4, we generated $17.1 million of free cash flow, an increase of 3% quarter-over-quarter, even with our third consecutive quarter of increased content investment. Year-over-year, free cash flow was lower by 7% due to the aforementioned working capital and CapEx investments.

A brief update on our balance sheet and liquidity. As of December 31, we had nearly $200 million of liquidity comprised of approximately $103 million of cash and equivalents and $95 million available under our revolving credit facility. We had no long-term debt at year end.

Now on to financial guidance. We are introducing guidance for Q1 and full year 2013. First, I'd like to provide some color on trends reflected in our guidance. 2013 projected consolidated Revenue ex-TAC growth, reflects high teen Content & Media growth consistent with an 18% growth rate, excluding YouTube in the second half of 2012, driven by owned and operated revenue growth accelerating to over 20% relative to 14% year-over-year growth in 2012. And network revenue declined year-over-year due to the end of the YouTube channel deal, partially offset by growth in our Content Channels business and in our publishing network, and high-single digits Registrar growth due to expected deceleration as we come to last year's aggressive reseller base expansion, which helped position us for 2013 launch of new gTLDs. That deceleration will be offset partly by revenues from Name.com.

Direct registration cost as a percentage of our core Register revenue is expected to increase by approximately 5%, which will compress margins. The relative cost increase is due to pricing concessions from 2012's aggressive reseller base expansion. Long term, we expect that our margins will improve once revenues from new gTLDs gain momentum.

Specifically on forecasting impact from new gTLDs, given our lack of visibility around exact launch timing and portfolio composition, our guidance does not include any impact from the new gTLD opportunity in 2013. However, based on some high-level assumptions, we believe the new gTLDs can generate up to a few million of cash flow in late 2013, growing 5 or 10x in 2014.

Now I'd like to discuss our investments and their impact on adjusted EBITDA. Our 2013 adjusted EBITDA guidance reflects disciplined reinvestment into 3 key areas that Rich mentioned earlier: One, our people; two, our content platform; and three, our gTLD initiative. Let me get more specific.

Our people. As Rich mentioned, one of our top priorities continues to be attracting and retaining the best talents to Demand Media. Our employees are the reasons behind our success and we're committed to making sure we do attract and retain the best and brightest to drive our future growth. We expect the investments in the employee programs Rich mentioned earlier to be approximately 1% of Revenue ex-TAC.

Content. Also as Rich mentioned, in addition to ongoing investments in our content platform, we intend to make investments to diversify into paid content services, such as subscription base and on-demand models. The order of magnitude of these paid content investments are expected to be 1% to 2% of Revenue ex-TAC in 2013.

Registrar and TLD. Finally, the third major area of investment is accelerating investment ahead of the expected launch of new gTLDs in 2013. We are making OpEx investments in 2 areas. First, augmenting our products, engineering and sales and marketing teams in our core Registrar business. As Rich mentioned, we need to make sure that our Registrar is appropriately prepared to market and register new gTLDs. We expect this investment to be approximately 50 basis points as a percentage of Revenue ex-TAC in 2013.

Second, we intend to continue to build out our registry team and infrastructure. Of the $5 million of gTLD formation expenses that we project in the 2012, we incurred only about half of that due to delayed timetable. So for 2013, we need to catch up on those expenses, as well as make additional investments in operations and infrastructure for a total of $5 million to $10 million in formation expenses. This $5 million to $10 million is not included in our adjusted EBITDA guidance consistent with last year.

In addition to this OpEx, we are prepared to invest substantially more in the upcoming process to determine ownership rights for contested gTLDs. We have done an enormous amount of work valuing gTLD assets and intend to be disciplined in deploying our capital.

As a result of the investments mentioned above, in the near term, we expect our expenses to grow faster than revenue, which is reflected in our 2013 adjusted EBITDA guidance. Ultimately, our long-term model is for sustained, adjusted EBITDA margins of 30-plus percent. We demonstrated in Q4 that those margins are achievable, but given the growth opportunities in front of us, we believe it is important to continue to lay the foundation for our long-term success.

Turning now to cash flows. We plan to more than double our capitalized investment in 2013 versus 2012. The majority of our content investment will be directed towards our high-growth Content Channel and international plate. We intend to also publish content back on eHow and LIVESTRONG. Moreover, we expect to maintain the current 5-year return on this content in the 40% to 50% range. Additionally, we expect to incur approximately $10 million of CapEx related to our new headquarters buildup in the first half of 2013.

Onto our guidance ranges. For Q1, we are guiding to Revenue ex-TAC of between $94 million and $96 million, implying 15% year-over-year growth at the midpoint. Adjusted EBITDA between $23.5 million and $25.5 million, implying a 25.8% margin on Rev ex-TAC in the midpoint and adjusted EPS of between $0.07 and $0.08 per share.

For 2013, we are guiding to Revenue ex-TAC between $410 million and $418 million, implying 15% growth at the midpoint. Adjusted EBITDA between $110 million and $115 million, implying a 27.2% margin on Rev ex-TAC at the midpoint and adjusted EPS between $0.39 and $0.43 per share.

To summarize, we closed 2012 with a strong Q4, and we are excited to enter 2013 positioned to increase our investment in long-term growth opportunity.

That concludes my prepared remarks, I would now like to open the lines for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Sameet Sinha from B. Riley.

Sameet Sinha - B. Riley & Co., LLC, Research Division

Just a question on separation. So can you provide a timetable on when that could happen? Second question on the same topic is so would it imply -- actually, can you give us some initial expectations as to the margins of the 2 business units so we can see what the 2 separate business units look once the separation happens? And third is, can you address the traffic slowdown that was seen that was the end of last year and how are you seeing that trending in the new year?

Mel Tang

Sure. I'll take the separation question. So on the timetable for our release, we expect the completion of the separation to move forward in the next 9 to 12 months. And then in terms of the size of both business units, we still have a lot of work to do in front of us. But again, our high-level math is that the domain services business would be a business with revenues north of $150 million with margins approaching 20%. Note that, that doesn't include the impact of TLDs, which could improve both the top line and the bottom line. And so on the media side, what you have is a business that's north of $250 million with margins north of 30%. And on the question of traffic?

Richard M. Rosenblatt

There were a lot of factors in December. There was Sandy, there was weather, there was a number of different things that affected our properties. We rebounded really nicely in January. There wasn't anything specific that we can tie it to. But January is up significantly from December, and it's up significantly year-over-year. And again, as I talked about, if you look at the overall year, we were the fastest growing site in comScore's top 20. And as I mentioned just yesterday, it just came out this morning. If you look at our worldwide traffic, we grew to the 28th largest property in the world from the 31st and up from the 35th last year. So we continue to grow each and every quarter.

Operator

Your next question comes from the line of Ross Sandler from Deutsche Bank.

Ross Sandler - Deutsche Bank AG

Just a couple questions. So first on the spin, so it looks like there's basically 3 larger complexes forming in the Registrar space. There's you guys, that's kind of the GoDaddy team and the Web.com team. Is that how you see it? And those other 2 companies have levered up a bunch and have been a little bit more acquisitive. Do you guys see yourself as playing that type of a role in the space? Or just strategically, how do you see all this evolving the next 12 months? And then, Mel, on the EBITDA margins per segment, I think you said approaching 20 for domains and media north of 30. I'm just trying to tie that with -- it looked like sub 20, 2013 EBITDA margin guidance at the midpoint, on a EBITDA to Revenue ex-TAC. So am I doing the math wrong? Or can you reconcile that? And then I've one follow-up.

Richard M. Rosenblatt

Do you want to take the first one? Let me go and take the first one.

Mel Tang

Yes.

Richard M. Rosenblatt

Yes. Ross, there's a few large players in the space. The 2 you mentioned are definitely large players, GoDaddy and Web.com. Their business models are distinct from us. And in fact, if you look at the number of TLDs that we expect, it's far, far greater. They both applied for what I believe are just a few. But we do afford to partnering with them and helping distribute our own TLDs. We also have a partnership with Web.com on NameJet, which is the most popular auction platform for the buying and selling of domain names. The reason why we're excited about the spin was we spent the last many years, particularly the last year, expanding our platform with a bunch of very large resellers for distribution, investing in our own set of TLDs, as well as partnering with a large partner for the other 107, fortifying NameJet and buying Name.com. And we think those assets together position us as really the only end-to-end player with scale in the space. And there's a number of other great big players but there isn't anybody that we've seen that has all of those components. And that's why we're excited about spinning it off into its own public company this year.

Ross Sandler - Deutsche Bank AG

Okay. And do you think the opportunity for you, I mean, it's somewhat apples and oranges in terms of the strategies, but those 2 entities are going after more of like the services kind of after capturing the registration, you guys have eNom, like you said, several. Is there an opportunity to move that direction? Or is it mostly going to be what you're doing on the gTLD side?

Richard M. Rosenblatt

You know what? I think now that we own Name.com, we have a number of opportunities to move if we choose to into more of the retail services, which is I think what you are referring to. And that acquisition so far looks like it's going very well so we'll continue to evaluate that component. But we do now have all the pieces that we believe we need to be a significant player in the space. And we'll continue to grow strategically as the business unfolds.

Mel Tang

On your question about the EBITDA margins, the math works for me. Maybe you can follow up offline on that, Ross. But I did want to also just highlight that we still have a lot of work in front of us in terms of allocations as we progress down the separation. So don't hold those numbers as gospel. But it should be a pretty good strawman. But we can talk offline about the math.

Ross Sandler - Deutsche Bank AG

Yes. No, I think you're right. We were looking at gross net. Okay. And then one other follow-up. So the $20 million revenue run rate for mobile, where do you think that could be reached by the end of 2013? And do you think you guys will, like other advertising-driven models, be able to sustain a decent growth rate in your kind of desktop owned business while growing the Mobile channel? Or could you see this air pocket that some companies are seeing with that transition in '13? And that's it.

Richard M. Rosenblatt

So I do think -- and I'll let Mel address the numbers more, but I do think that Mobile will continue to grow. And I do not think it's going to affect us on our core properties substantially this year on the desktop. And the reason why is from what we've seen and we've dug very deep and people are accessing the Mobile content at different times of the day, for instance much more at night, early morning. And they're accessing different types of content. So what we have the teams focused on is with the size of our network, we know very well what type of content people want in a mobile device and what type of content they want on the desktop and our algorithms and our team continues to focus on being able to produce that type of content. Without going to too many details for competitive reasons, we believe we have a really good handle on the type of content that consumers wants in a mobile device and as important, the type of format, which is very different, that they want on the mobile device. So we, overall, are very bullish on the growth opportunities in Global near-term and long-term.

Ross Sandler - Deutsche Bank AG

If I could squeeze just one more, sorry. This one I forgot to circle back on the Registrar side. Mel, I think you said high singles Registrar growth, including Name.com. So is that kind of flattish for the core? So is there something going on?

Mel Tang

Low- to mid-single digits on the core.

Ross Sandler - Deutsche Bank AG

Low to mid, okay. That's a little bit of a deceleration versus prior. Is that just prepping for gTLD or is...

Mel Tang

Yes. It's a big deceleration relative to the past 6 quarters, given that we aggressively went after and brought on resellers.

Richard M. Rosenblatt

Right. And I think that's what's really important. I mean, we've been talking about this on all the conference calls that this was part of our strategy because the way in which we believe that gTLD opportunity will unfold, is by more important large resellers plugging into our technology. We're able to provide the TLDs that we believe will be the most apt for their customers, subject to their approval and gives us the ability to put upfront the TLDs, such as our own, that we think are most apt for their customers. So it was really important for us to build the largest distribution footprint in front of TLDs and have these resellers plug into our system. So we're really pleased with the amount of resellers we add in our domains we added and it's that growth that is difficult to comp against this year but won't be -- it should not be a problem going forward.

Operator

Your next question comes from the line of Brian Fitzgerald from Jefferies.

Sachin Khattar - Jefferies & Company, Inc., Research Division

It's Sachin sitting in for Brian. 2 questions. The first is, can you talk about the -- I think you mentioned the YouTube content deal has ended. Can you just kind of elaborate on that? I know, Mel, you said at a recent conference that you didn't expect it to be kind of an upfront rev arrangement as it was before. So what's that going to look like going forward from a P&L perspective? And then the second question is, does your guidance include any sort of assumptions for the LIVESTRONG subscription revenue?

Mel Tang

Yes. Let me take that. So on the first point, on the YouTube content deal done, our guidance can sort of reflect no additional revenues related to the premium video. I think as Rich mentioned in his prepared remarks, a lot of our focus on premium video is towards paid content models versus ad supported. So I think that's where our focus is in and our investment dollars are going this year and going forward. And then on the guidance, there is de minimis dollars for the LIVESTRONG Platinum. I think in our guidance we have a few million dollars but, again, relatively conservative, I think, that the ahead of the launch and seeing how that plays out.

Richard M. Rosenblatt

If I could just add one more comment. I think what the YouTube experience showed ourselves, as well as almost all publishers and the reason why we did that arrangement, where obviously they prepaid for it. While if you're looking at an audience that's over 25 years old, it's very difficult for YouTube even themselves to monetize that audience on YouTube. There's a number of models out there that we've been tracking and testing for the better part of a year, where the 25-plus audience in categories, certain categories like finance or crafts or advice are willing to pay significantly for high-quality video, much like the video we produced on YouTube. So we're now launching, as I talked about in my prepared remarks, into the model. And we think a combination of the demographic we serve through our 125 million uniques plus our ability to create content at a very low price and some of our experience in subscription will allow us to build a significant model for that going forward. That will not likely be on YouTube. That will likely be directly on our own website.

Sachin Khattar - Jefferies & Company, Inc., Research Division

Okay, so you're no longer going to be producing content necessarily for YouTube in that same format?

Richard M. Rosenblatt

Right. Not in that format. In fact, we did increase almost 40% though, quarter-over-quarter, our standard video. The 200,000-plus videos we have on YouTube. Those paybacks continue to be the 40% to 50% IRRs plus. So we'll continue to ramp the short video content. But for the long form, more expensive content, we believe we'll get the best payback by building a direct pay-for-content model.

Operator

[Operator Instructions] Your next question comes from the line of Doug Arthur from Evercore.

Douglas M. Arthur - Evercore Partners Inc., Research Division

Mel, I wonder if you could just expand a little bit on the pretty sizable sequential uptick in rate -- RPM in the owned and operated Content & Media business. Was that a mix issue? Was it a seasonal issue? Is it video? Can you just -- that seems like a pretty big number. And then I would assume based on your comments about YouTube, that the RPM and the network business, and this is assuming your guidance, would come down quite a bit in '13.

Mel Tang

Are you talking about the step up in -- the almost dollar step up in owned and operated RPMs?

Douglas M. Arthur - Evercore Partners Inc., Research Division

Yes.

Mel Tang

Yes. I think what you saw is some seasonal strength. Q4 tends to be a seasonally stronger quarter in terms of advertising, coupled with a little bit of mix shift there as well.

Douglas M. Arthur - Evercore Partners Inc., Research Division

And then on the network RPMs? I mean, that's obviously moved up smartly in part because of video. Based on this nonrenewal of YouTube, will that likely come down quite a bit in '13?

Mel Tang

Yes, it should come down. It's going to be offset with some growth on our Content Channels business. But I think we do expect to see the RPMs come down as a result of the YouTube deal channel ending.

Douglas M. Arthur - Evercore Partners Inc., Research Division

Okay. And then just finally on the RPMs and content owned and operated. So to the extent there was a mix and seasonal benefit in Q4, ergo, you should see -- that probably comes off a little bit, I would think, in early '13.

Mel Tang

Yes, a little bit. What will help drive RPMs in 2013, I think, will be continued convergence of mobile RPMs, the desktop, as well as continued growth in our largest, highest yielding properties.

Operator

Your next question comes from the line of Pat Walravens from JMP.

Patrick D. Walravens - JMP Securities LLC, Research Division

I have 3 questions, if that's okay. First one is for you, Mel. Just to make sure that I understood it right. For CapEx spending in '13, how should we think about it? If I think you spent about -- if I have it right, you spent about $18 million on property and equipment in '12 and $13 million on purchases and intangibles. Are those both going to double? How does that work?

Mel Tang

You want to go through all your questions? Or do want me to answer them one by one?

Patrick D. Walravens - JMP Securities LLC, Research Division

I'll do one by one.

Mel Tang

So the CapEx, the $10 million is on top of the normal PTNE spend. So if you look at kind of the run rate this year and the prior year, basically adding $10-ish million on top of that. It's a one-time buildout.

Patrick D. Walravens - JMP Securities LLC, Research Division

Okay. And then the purchase of intangibles is the part that should double?

Mel Tang

Yes. So that's related to our capitalized content investment, which we expect to more than double.

Patrick D. Walravens - JMP Securities LLC, Research Division

Okay. And then, Richard, question #2 is for you. I don't know how you're going to answer this but how much do you think the Registrar business is worth?

Richard M. Rosenblatt

Pat, well, I'll tell you, I think it's worth more as a separate public company than it's worth today, right, which is one of the strategic reasons why we're doing a spin so we can invest in it appropriately and do the things we need to grow it. I always have trouble valuing these companies, which again is why I look to people like you. But it feels like in an emerging market, that so many people and so many companies and businesses globally seem to be excited about, to be one of the largest players and what we believe is the only end-to-end player, we'll be valuable.

Mel Tang

So I think there's a number of public comps, as well as trades that have happened over the past year or so to give some valuation data points. And again, I think none of those have the large registry potential that our stand-alone will.

Patrick D. Walravens - JMP Securities LLC, Research Division

Great. And then last question is just how is the relationship with Donuts going to work? Can you give us any more detail around that at this point?

Richard M. Rosenblatt

The majority of that relationship is confidential. What I believe we've said publicly is that we have equal rights to the 107 TLDs, which again gives us access to a much bigger pool of applications, where we have a lot of flexibility in which ones we want and which ones we don't. We also have the registry back end for them, which I mentioned is a high-margin business, where we'll be running their registry, which we believe will make us the largest scale registry. They have a number of applications on their own. And for a number of reasons, you know Paul, who is the owner of Donuts, was the one we bought eNom from. So we have a good strong relationship that we think will really benefit us going forward.

Operator

Your next question comes from the line of Peter Stabler from Wells Fargo Securities.

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Rich, a couple on the domain side. To start with, could you remind us of your 26 direct applications, how many of those are uncontested?

Richard M. Rosenblatt

16.

Peter Stabler - Wells Fargo Securities, LLC, Research Division

So with those 16, you guys obviously see something that others don't. Now in terms of thinking about the overall opportunity going forward, now that you're contemplating spinning off the domain bit, not to invest your attention around the potential size of this asset obviously is going to increase, yet you're still at this point, not really willing to offer any sort of guide on the curve, the adoption curve or the total potential. Can help us understand a little bit better around on why that is? I understand 2013 is going to be a slower ramp but on a multiyear basis, do you expect that investors might need to have a bit of a better view?

Mel Tang

Peter, it's Mel. I hear you. I would love to give much better clarity but the truth is there's 2 things preventing me from doing that. One which is knowing exactly which TLDs I will end up with. Remember, they're still an application process and a contention process that governments can raise. For example, again, from those applications, as well as what's the exact timing. While ICANN has come out with some dates, we've seen in the past days, they've moved some of those. So one space and approvals on TLDs get locked down, I think we'll have some better clarity around the curve of the direct ones that we have.

Peter Stabler - Wells Fargo Securities, LLC, Research Division

So would it be safe to say then as the decision process works its way through, that you will be willing to offer a bit more of a view as you come closer to the spin event?

Mel Tang

Yes. My objective is always to be as transparent as possible to help you guys understand the opportunity. So I will do what I can to help you guys as we get more information of all that.

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Okay, great. My last one is for Rich. We're pretty intrigued by your comments around subscription, and moving into alternative revenue stream. You mentioned some experience you guys have had that leads you to believe there's a real market for this. We've also seen a lot of instances where consumers have been unwilling to pay for content. So could you give us a little bit more color on how this might work? Are we talking about areas of eHow that are only available for subscription on a month or year? Or should we be looking at as per content purchases of total [indiscernible] models?

Richard M. Rosenblatt

Great, yes. Let me try and give you some additional detail without giving away too many competitive secrets. But on LIVESTRONG, remember we have a very avid audience of 40 million visitors a month that are focused on fitness and lifestyle around it. We did a test over the last year with a subscription service, a fitness P90X type of program that was much more web customized. And people were paying upwards of, let's say, many hundreds of dollars a year. And we were surprised with the amount of people that signed up through that partnership. So with that partnership expiring, we decided to hire what we believe was the best team in producing this type of content, leverage our video and will launch next quarter our own product, which is a truly integrated fitness health product, which we will release to our entire LIVESTRONG audience, which, as I mentioned, has already shown a propensity to buy a very similar product. So we're pretty comfortable on that one.

On the eHow side, we have 2 different products, one which is -- think of it as a quick-answer product, where you come in, you're on one of our articles and you're reading the article and something pops up and said, would you like a live person to answer that question? Because our content is so specific, and we know exactly why that person is on that page, we connect them with an expert. We've been testing this for a while. The conversion rates are very strong. We've then polled the customers. And as I mentioned, we have a 90% approval rating. So they like the answers they're getting and they're willing to pay between $5 and $20 per question. Think of our studio with thousands of experts that are already producing content for us on text and video that can now make money giving real-time answers. So we're excited about that one. We're testing it, we're rolling out to additional categories.

On eHow, we've also looked at a number of models, some which are very large where you can look at many different areas and people are willing to pay in order to get experts to give them a series of, say, 12 very detailed videos, 15 to 20 minutes each, taking them through exactly how to do a specific craft, let's say, or a specific process. We've been testing that, we've looked at that. That also looks very promising. And again, you've got to consider, we go through dozens and dozens of different opportunities every year. And at the end of each year, we sit around with the management team and pick 2 or 3 that we think have the most possibility. And these are the 3 that explained that we came out with that we're pretty excited about for 2013. And as Mel mentioned, our guidance has very little of those dollars in because we just don't know for sure but we hope to know much more in the next 2 quarters.

Operator

We do have time for one last question. Your last question comes from the line of Laura Martin from Needham.

Laura A. Martin - Needham & Company, LLC, Research Division

Mel, as we start to model the spinoffs, what would you -- could you size for us kind of the one-time expenses related to the spin? And then as we think about the -- looking at target price for the '14, what are the ongoing extra costs of SG&A that have to separately run public companies? That will be my first question.

Mel Tang

Laura, I think I'm not in a position to provide sort of clarity around either one of those. As we get through down the road on this process, I'll be happy to share with you kind of what we come up with but at this time, I don't have the specific ranges around either of those.

Laura A. Martin - Needham & Company, LLC, Research Division

Okay, no problem. And, Rich, for you. Could we talk about pacing today on the user metrics around both eHow and LIVESTRONG? Has there been an acceleration or deceleration since the Q4 numbers in terms of user demand?

Richard M. Rosenblatt

I'm sorry, you cut out...

Mel Tang

Can you talk about pacing post Q4 on eHow, LIVESTRONG in terms of traffic.

Richard M. Rosenblatt

Those were the questions you asked?

Laura A. Martin - Needham & Company, LLC, Research Division

Yes.

Richard M. Rosenblatt

Yes. So we've got significant seasonal increase. We always get on LIVESTRONG as people come back from, let's just say, a very fattening holiday. They're always looking to diet and sign up for our products in January. We always grow significantly, we flattened out for a little while then grow again. eHow acted the same way. It recovered as you saw from the January comScore numbers that just came out from a relatively slow December also. So right now, everything is pacing just as we expected.

Julie MacMedan

Great. Well, thank you and thanks to our operator. That concludes our fourth quarter 2012 results call. We appreciate your participation and we look forward to speaking with you again next quarter.

Richard M. Rosenblatt

Thank you, everybody.

Operator

This concludes today's conference call. You may now disconnect.

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