Dow Jones Q3 2006 Earnings Call Transcript

posted on: October 18, 2006 | about stocks: DJ

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Dow Jones & Co. (DJ)
Q3 2006 Earnings Call
October 18, 2006 10:00 am ET

Executives

Mark Donahue - Director, IR
Rich Zannino - CEO
Bill Plummer - CFO
Clare Hart - President, Enterprise Media Group
Gordon Crovitz - President, Consumer Media

Analysts

Craig Huber - Lehman Brothers
John Janedis - Wachovia
Steve Barlow - Prudential
Frederick Searby - JP Morgan
Lauren Fine - Merrill Lynch
Debra Schwartz - Credit Suisse
Brian Shipman - UBS
Lisa Monaco - Morgan Stanley
Peter Appert - Goldman Sachs
William Bird - Citigroup
Christa Quarles - Thomas Weisel Partners
Paul Ginocchio - Deutsche Bank
Michael Shekter - Mentor Partners

Presentation

Good morning, welcome to our third quarter 2006 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Mr. Mark Donahue, Director of Investor Relations for Dow Jones & Company. Thank you. Mr. Donahue, you may begin.

Mark Donahue

Thanks. Good morning, welcome to our third quarter 2006 earnings conference call and webcast at www.dowjones.com. On this morning's call we have with us Rick Zannino, our Chief Executive Officer; Bill Plummer, our Chief Financial Officer; Gordon Crovitz, President, Consumer Media, and publisher of The Wall Street Journal: Clare Hart, President Enterprise Media Group; and John Wilcox, President, Local Media Group. All will be available to take any questions you may have.

The transcript of today's prepared remarks will be on our website shortly after the call. Finally, if you should have any questions after the call, please feel free to telephone Investor Relations at 609-520-5660.

Our discussion today will include certain forward-looking statements and actual results may differ from those presented here. The factors that could cause such a difference are outlined in our SEC filings and on our website. The reconciliations of any non-GAAP financial measures disclosed today are available in our earnings release that's available on the Investor Relations page of our website at www.dowjones.com. With that it is a pleasure to turn the call over to Rick Zannino.

Rich Zannino

Thanks, Mark. Good morning, all. Thanks for joining us. First, let me start by apologizing if we caused anyone any inconvenience by moving this morning's earnings call. We signed this Factiva deal late last night and wanted to put all of our news out at the same time and felt this was the best way to do it. So we have a lot to cover this morning.

I will start off by discussing our third quarter operating results and the progress we're making to reshape our portfolio and business model to drive long-term growth in our earnings and share price. Bill Plummer, our new CFO will follow with some additional color on our financial results, give details on our continued cost cutting moves and review our fourth quarter outlook. And then Bill, Clare, and I will provide some details on the agreement we announced this morning to acquire Reuters 50% interest in Factiva. And we'll finish up by taking your questions.

Bottom line third quarter EPS came in at $0.19 per share compared to $0.12 per share last year. However this year's EPS includes a $0.09 tax gain. Excluding this tax gain and a $0.01 severance charge, EPS came in at $0.11 compared to $0.12 last year. Total company revenue was up 4% in the third quarter as we posted 5% revenue gains at both consumer and enterprise media, partially offset by 1% revenue decline at local media. We continue to tightly manage spending. Total expenses in the quarter were up only 3%. Excluding Weekend Edition and the severance charge, comparable expenses were flat in the quarter. This enabled us to leverage the 4% revenue gain into a 61% gain in operating income before the severance charge. Unfortunately, higher interest expense and slightly lower equity earnings more than offset this operating gain.

Through the first three quarters of this year, our revenue was up 7%, our operating income before special items in the severance charge is up 33%, and our EPS before special items in the severance charge is up 12%. While we are by no means satisfied with our absolute level of performance, it is somewhat gratifying relative to the difficult print advertising environment and in spite of the planned dilution from Weekend Edition. Excluding weekend, year to date revenue would have been up about 4%, operating income before special items and the severance charge would have been up 42% and EPS before special items in the severance charge would have been up 20%. This proves the operating leverage we have in our business model.

Our long-term strategy is straightforward. We want to profitably grow revenues by extending our indispensable content and trusted brands to all consumer and enterprise media channel. We want to attract more customers and entice each of them to use us across all media channels. We need to smartly manage our costs and we need to diversify our reliance on unpredictable print revenue so that we can generate superior value for our customers and shareholders over the long term.

We continued successfully to execute on this strategy in the third quarter. For example, the Journal’s Weekend Edition continues to please readers, attract more advertisers, extend our circulation and readership, and drive growth in consumer advertising. When we include the advertising we’re getting Monday thru Friday as a result of Weekend Edition, we’re tracking on our original financial projections. Weekend Edition is also a vital element in another of our major initiatives - the revitalization of our print ad sales efforts. The success of these efforts is evidenced by our industry-leading revenue gains and the significant share we’re taking from the bulk of our print competitors.

Weekend Edition is also driving another of our initiatives, extending our reader base and improving our print circulation economics. Journal print circulation revenue has been growing - in each of the past six quarters - driven by rate increases and an increase in the number of truly paying subscribers. This, in turn, has spurred an 8% increase in print Journal readership as measured by MRI. So, as you can see, so far this year, we’re bucking print-industry trends in sales, circulation and readership.

We’re also on track with another major project, Journal 3.0, the redesign and reformatting of the print Journal into a narrower web width. Our aim is to make the print Journal even more indispensable and convenient for readers and save about $18 million per year in costs when it launches in January 2007. Internationally, the repositioning of the Journal’s print and online editions launched in October 2005 is exceeding our bottom line expectations – which was to save $18 million - so far in 2006.

Moving out of print into our digital operations, at Dow Jones Online, we’re also exceeding our profit expectations in 2006, driven by a 30% increase in circulation revenue and 17% increase in ad revenue year to date on solid performance at both the Online Journal and MarketWatch. And at Ottaway, our $170 million investment in The Stockton Record and its new press in 2005 is tracking ahead of profit expectations in 2006, as is our Ottaway-wide internet initiative, which has driven a 49% increase in online ad revenues so far this year.

Organizationally, the realignment of our top team and operations in February of this year into customer-focused, rather than channel-focused, business segments is saving the anticipated $15 million per year while at the same time delivering the intended benefits of improved market focus, integration of print and online, and streamlined decision-making and execution. We’ve also established a news strategy task force comprised of the senior-most editors of all our products.

Our content is our greatest competitive advantage and the primary goal of this task force is to develop and execute initiatives to make our content even more differentiated, indispensable and conveniently accessible to better serve our readers, and also to improve the efficiency and productivity of our news gathering efforts.

We’ve put more major initiatives into the pipeline in the third quarter. We’ve strengthened our management team with three new key hires: Bill Plummer as CFO, Ann Sarnoff as President Dow Jones New Ventures, and Gordon McLeod as President Dow Jones Online. We launched a color ad on the front page of the print Journal which is sold out Monday to Friday thru the end of 2007.

We announced this morning that we’re adding another four pages of color advertising capacity which will come on-line in January 2009. We announced a news content partnership in India. And, on the cost front, we’ve implemented the outsourcing of a number of back office functions. This will reduce our back office and IT costs by about $15 million annually starting in 2007.

More strategically, during the third quarter, we announced the sale of up to six Ottaway properties to reduce our debt and provide investment fuel for growth. And we identified a terrific use for that investment fuel – the planned acquisition of Reuters’ 50% stake in Factiva that we announced this morning.

These are the most major items. They are joined by many other smaller, but nonetheless meaningful, ones. We aim to continue this steady pace of innovation and transformational change in coming quarters, including further diversifying our reliance on traditional print revenue.

Meanwhile, we remain heavily reliant on print revenue and continue to fight through the current headwinds in the print advertising market in our Consumer Media Group. CMG third quarter revenue increased 5% on a 4% increase in advertising revenue and 6% gain in circulation revenue. A slight gain in advertising revenue at the U.S. print Journal was lifted by double-digit ad gains at Dow Jones Online, the International print Journals and Barron’s. The circulation gain was driven by 27% growth in circulation revenue at Dow Jones Online and the sixth consecutive quarter of circulation revenue gains at the print Journal.

On the expense front, when it became evident that September ad sales at the print Journal might be softer than expected, we moved quickly to reduce costs. Across CMG, expenses increased only 3.5% driven by a full quarter’s spending on Weekend Edition. Excluding Weekend Edition, other CMG expenses were down in the quarter. The third quarter is seasonally our lowest for advertising revenue which puts pressure on our bottom line and thus we had an operating loss of $18 million versus a loss of $20 million last year. By comparison, the fourth quarter is seasonally our highest and we expect to see much-improved profits and margins at CMG.

Looking closer at advertising performance at the print Journal, third quarter ad revenue was up slightly on a 1% gain in ad volume. This slight decline in ad yield resulted from July, when we ran a seasonal promotional program. Ad yield was up in both August and September. This marks our fifth consecutive quarter of ad gains. However, our third quarter results fell short of our expectations as September advertising bookings failed to build as expected. This led to our first monthly advertising decline in a year with September ad revenue down 6% and volume down 8%. We expect to be back in positive territory in the fourth quarter.

During the past year, we’ve posted industry-leading gains and taken meaningful market share in both B2B and consumer print advertising. This performance has been driven by the numerous changes we’ve made to our sales efforts, which leverage the Journal’s uniquely attractive, high demo audience. We’ve implemented a new category-focused sales organization and approach, more innovative marketing, more flexible pricing programs, new advertising positions including section fronts, and market-leading collaboration between print and online sales teams.

But one of the biggest drivers of our performance has been Weekend Edition, which launched in September of last year. Reader reaction is very positive and advertisers are being attracted to Weekend Edition in increasing numbers. More than 1,500 advertisers have supported Weekend Edition since its launch, with about 60% of them new to the Journal. It’s having a great effect on the growth of our consumer advertising.

Not only is consumer making up 70% of the advertising in Weekend Edition, but also, the additional sales reps, promotion, marketing, PR and focus we’ve layered on as part of the rollout of Weekend is generating significant incremental revenue for us in the Monday thru Friday editions of the Journal. We estimate the earnings from this Monday to Friday lift to be about 5 cents per share year to date. Including this benefit, dilution from Weekend Edition is running about 13 cents per share through the first nine months of 2006.

We have a number of initiatives in the works to drive Weekend sales, including special sections, advertorials, pricing programs, new ad positions and content adjacencies, and new programs to target specific categories of advertisers. As a result, we expect Weekend to be only a penny or two dilutive in the advertising heavy fourth quarter.

Looking deeper at third quarter ad results at the print Journal. In our financial category, we continued to see positive trends with linage at the Journal up 9.5% in the third quarter driven by strong insurance, wholesale and tombstone advertising.

Technology linage was down a little less than 1% in the third quarter on declines in personal computers, technology services and hardware advertising partially offset by gains in communications, office products and other B2B technology advertising.

In the Journal’s general advertising category, linage was down 2% in the quarter, as a 6% gain in consumer advertising was offset by a 20% decline in B2B advertising. Our newly organized consumer category team is driving double-digit gains in healthcare, electronics, beverages, luxury goods, pharma and other consumer advertising. Unfortunately, these gains were partially offset by a decline in auto advertising driven mainly by a sharp decline in foreign auto advertising. B2B advertising has been up nicely all year but was off sharply in the third quarter due to decreased corporate and professional services advertising.

Classified linage was up 1% in the third quarter. As expected, the strong real estate advertising we’ve been experiencing slowed during the quarter. Color ad pages were up about 3% in the quarter with color revenue up 17%.

At Dow Jones Online, which includes The Online Journal, its vertical websites, Barron’s Online and MarketWatch, total revenue grew 13%. Ad revenue was up 12% on growth at both MarketWatch and the Online Journal. Ad growth in the quarter was adversely affected by a flat July, which dragged down strong performance in August and September. We expect online ad revenues to be back in the 20% range in the fourth quarter. Circulation revenue was up 27% as we continue to benefit from our paid online model at the Journal and Barron’s. This gain was driven by last year’s price increase and 3% growth – to 788,000 - in subscriptions to the Online Journal, as well as 70,000 paying subs at Barron’s Online which launched as a separate site in January 2006.

Elsewhere in Consumer Media, the repositioning of the Journal editions in Europe and Asia continues to generate better than expected results as ad revenue grew 24% in the third quarter on strong performances at both the Asian and European Journals. Rounding out CMG, Barron’s had a very strong quarter as ad revenue increased 23% due to very healthy financial advertising.

Moving on to our Enterprise Media Group, the positive revenue and profit momentum we saw in the first half continued into the third quarter: Total revenue increased 5.5%, operating income was up 10% and operating margins increased 100 basis points to 26.9% driven by strong results at Dow Jones Indexes, Newswires and Financial Information Services.

Newswires revenue was up 5% in the quarter, on gains in international and domestic operations. Three new product innovations – Total Coverage, Wealth Manager 2.0 and a new Enterprise-wide license pricing program will help drive future growth.

We also saw solid results at our Financial Information Services business where revenue was up 8% as our Private Equity Analyst Conference drew a record crowd of more than 1,000 attendees and we saw increased interest in FIS’s other private equity and venture capital products.

Our Indexes business posted another strong performance. Revenue was up 24% in the third quarter driven by a new benchmarking initiative with Wilshire as well as continued strength in international royalties and distribution revenue.

Dow Jones Licensing Services revenue declined 14% as we continued to feel the effects of online broker consolidation along with increased competition which is depressing pricing. We’ve ramped up development spending and launched new products in the third quarter with more to come in the fourth quarter and expect to see an improvement in 2007. Rounding out EMG, we have great expectations for the revenue and profit growth of this business in 2007 with the addition and integration of Factiva. We’ll have more on this in a bit.

Our Local Media Group’s third quarter performance continues to reflect industry-wide challenges. Third quarter revenue was down about 1% on a 1 % decrease in ad revenue, partially offset by a 1% increase in circulation revenue. Linage declined 7.7% on declines in classified and display advertising but was nearly offset by a 59% increase in internet ad revenue as the internet initiative embarked upon last year continues to drive big gains. Operating expenses increased 4%, mainly due to higher pension expenses due to changed actuarial assumptions. As a result, operating income declined about $2 million, or 14%, to $14 million and margins declined 340 basis points to 21.8%.

As previously announced, we’re currently marketing up to six Ottaway papers. On a full year basis, the properties for sale comprise $97 million in revenue and $26 million in EBITDA. Gains on sale will be shielded from most taxes by our existing capital loss carry-forwards. Proceeds will be used to reduce debt and fund our Factiva acquisition. The process is going well and we anticipate closing the sales of the properties in the fourth quarter and we’ll update you on other financial details at that time.

And with that, I’ll now turn it over to Bill Plummer.

Bill Plummer

Thanks Rich; good morning everyone. This morning, I’ll provide some additional background on our third quarter financial results, including an update on our cost-reduction activities. I’ll close the earnings section of this morning’s call with a review of our outlook for the fourth quarter.

Let me start by noting a change in how we are presenting our results this quarter. As a result of our announced sale of the Ottaway papers, and management’s assessment that the sale is probable within a year, FAS 144 requires that we reclassify the results of those papers as discontinued operations. Accordingly, the revenue and expense results of those papers for both 2006 and 2005 periods have been removed from each line item in the income statement and presented as a single line item labeled “Income from discontinued operations, net of tax”. Consistent with that presentation, we have also excluded those results from the segment results presented in this quarter’s release.

In the third quarter, total revenue increased by 4% to $412 million, led by an 8% increase in circulation and other revenues, driven by subscription price increases and higher numbers of paying subscribers at the U.S. print Journal, wsj.com and Barron’s Online. We also saw improvements at Dow Jones FIS and our Reprints business. Advertising revenue was up 3% led by double-digit growth at the International Journal, Dow Jones Online and at Barron’s. Information services revenue was up 2.5%, led by gains at Dow Jones Indexes and Dow Jones Newswires.

Third quarter total operating expenses before special items and the severance charge were up $10 million or 3%. Weekend Edition spending accounted for the vast majority of the increase, leaving all other expenses about flat versus last year. This is considerably better than our initial guidance for reported expenses to increase 6%, with comparable expenses up 2.5%. We pulled back expenses across the P&L led by reduced marketing expenditures and lower newsprint, print delivery, technology and administrative expenses. We also benefited from reduced depreciation on lower capital spending as well as the ongoing benefits of headcount reductions and other cost controls across the company.

We’re committed to hanging on to the hard won cost reductions we’ve implemented over the past 5 years and we’re looking for more. As previously stated on our second quarter earnings call, we’ve identified about $56 million in annualized cost savings before one-time costs. We’ll realize roughly $10 million of that here in 2006 and $46 million, or about 33 cents per share in 2007. Some of this is being reinvested in our growth initiatives, but most of it will flow to the bottom line. We continue to look for new initiatives across the company to further reduce our cost base.

As a result of this expense control, we leveraged the 4% increase in revenue into a 61% increase in operating income to $15 million and total company operating margin increased 130 basis points to 3.7% from 2.4% last year.

Below the operating line, pre-tax equity income was $3.3 million, versus $4.8 million last year, driven by a decline at Factiva related to a change in inter-company payments that shifted more income from Factiva to its parents. There was also a decline at Vedomosti driven by a similar shift in income to its parents, which more than offset improved results at our Stoxx venture.

Net interest expense increased $3.4 million in the third quarter due to increased debt levels incurred to pay the $202 million settlement with Cantor and MDC and to increased commercial paper rates reflecting higher market levels.

Before special items, our effective tax rate was 39.4% in the quarter versus last year’s rate of 33.7%. The third quarter 2005 tax rate included the benefit of the deduction for domestic production under the American Jobs Creation Act.

Rolling all of this together, we delivered reported EPS of 19 cents versus 12 cent last year. In the third quarter 2006, we recorded a special gain of $7.6 million, or 9 cents per share as a result of a favorable resolution of certain state and federal tax matters. Before this special item and the severance charge, we earned EPS of 11 cents per share versus 12 cents per share last year, primarily due to increased interest expense and lower earnings from equity investments.

Looking at some other key figures:

Total newsprint costs in the quarter were up roughly 9%, with consumption up about 2% and average cost per ton up about 7%. As expected, the announced $40 price increase in August met stiff resistance in the market place and was reduced by a number of producers. With industry consumption declining and excess newsprint capacity still in the market, we believe we won’t see much impact from this price increase this year, if at all.

Depreciation and amortization totaled $24 million for the quarter down about $2.4 million from the prior year period as a result of overall lower capital expenditures over the past several years.

Our third quarter headcount, including discontinued operations, totaled about 7,300 and was down about 2% as a result of our restructurings.

Capital expenditures totaled $27 million in the quarter compared to $15 million last year and the increase is primarily related to $8 million in spending for the Journal 3.0 project and about $5 million for a new printing facility at our Portsmouth, NH community newspaper.

We closed the quarter with a cash balance of $15 million and reduced debt levels by $5 million, closing with a balance of $669 million versus $674 million at the end of last quarter.

One final point regarding third quarter: As we have previously announced, the proposed Ottaway sale will result in capital gains which will allow us to utilize a portion of our capital loss carryforwards. If, before we file our 10-Q for the third quarter, it becomes more likely than not that we will utilize those carryforwards, we will increase our third quarter earnings as filed to recognize the expected tax benefit.

Looking at the fourth quarter 2006, the global print ad environment remains challenging, though our outlook for most of our print publications remains positive. While this makes forecasting a bit more difficult, we continue to see a positive pace of new business in our reservations and we’re estimating that Journal advertising revenue will be up in the low to mid single digit percentage range. Together with continued double digit revenue growth at Dow Jones Online, and modest growth at Enterprise Media and Local Media this implies a low to mid single digit percentage increase in total company revenue in the fourth quarter 2006.

Total operating expenses will be down about 1.5% as we start to see the payback on numerous cost saving initiatives implemented this year. While this includes additional spending for web-width reduction and stock option expensing, those increases will be more than offset by lower Newsprint, and the cost reductions implemented over the course of the year. This would lead to an increase in the operating income in the range of 40% over last year. Rolling in a $4 million decline in equity income due to lower profits at Stoxx off a very strong fourth quarter 2005 and the continued impact of the change in inter-company payments at Factiva that shifted income from Factiva to its parent, continued increased interest costs due to a higher debt level and higher interest rates, and a 40% tax rate results in fourth quarter 2006 EPS before special items in the low to mid 40 cents per share range versus 41 cents per share last year.

I’ll now turn it back to Rich.

Rich Zannino

Thanks, Bill. We also announced this morning that we've entered a definitive agreement to buy the 50% of Factiva owned by Reuters. This would bring our ownership of Factiva to 100%. I will give a quick overview followed by some additional color from Clare and some additional financial detail from Bill.

Owning 100% of Factiva will accelerate the pursuit of our mission which is to be the worlds best publisher of high quality, indispensable, and conveniently accessible business and related content across all media channels. The acquisition will nearly double the revenue of our enterprise media group and substantially expand its global reach.

Together with the impending sale of up to six of our Ottaway newspapers, it is a big step forward in reducing our reliance on traditional print publishing. The combined effect of the Factiva and Ottaway transactions will reduce our reliance on traditional print revenue from about 70% in 2006 to less than 60% in 2007.

Since 1999, the Factiva joint venture has created much value for the customers and shareholders of Dow Jones and Reuters. Reuters has been a valued and valuable partner and remains one today. But the time is now right for Factiva to have one owner and one hand at the wheel to guide its future expansion. This transaction makes terrific sense for the shareholders of both Dow Jones and Reuters. Strategically and operationally, Factiva fits our enterprise media group like a glove. Revenue and cost synergy opportunities are abundant. The cost synergies alone should result in a compelling financial return to Dow Jones.

As Bill will describe, we're paying about 8X 2006 EBITDA before synergies and tax benefits and about four times after these items. The deal is expected to be accretive in 2007 and beyond and it will make a big impact on our consolidated financial results as we will fully consolidate Factiva's $290 million in revenue and pick up an incremental $50 million in EBITDA and $32 million in operating income. We believe this will give much better transparency to the full value of Factiva to our shareholders.

Our execution risk is low, as Factiva will be integrated into our enterprise media group which is run by Clare Hart who served as Factiva's CEO from 2000 until her appointment as President of our Enterprise Media Group in February of this year. While we remain committed to the local media business, the planned sale of up to six newspapers reflects our determination to reduce our reliance on print publishing and to deploy our capital to the highest returning investments for our shareholders, as opportunities arise.

With, that I will turn it over to Clare.

Clare Hart

Thank you. Good morning, everyone. I'm going to take a few minutes to give you a little background on Factiva and then talk about the strategic fit with Dow Jones and the enterprise media group. First, Factiva is a 50/50 joint venture with Reuters that was formed in May of 1999. I was the CEO of Factiva from January of 2000 until February of this year, as Rich just mentioned.

Factiva's strengths begin with its market position, Factiva is the number one provider of business news and information to enterprises worldwide as reported by Simba, an industry analyst firm. At its core, Factiva is a content company, it brings together more than 10,000 authoritative sources including the exclusive combination of The Wall Street Journal, The Financial Times, Dow Jones, and Reuters News Wires, and the Associated Press, as well as Reuters Fundamentals, and Dun & Bradstreet company profiles. The content collection includes content in 22 languages, from over 150 countries.

Factiva has long recognized that content is only as good as the delivery vehicle, and for this reason, Factiva has invested in industry standard technologies and developed innovative products that are differentiated from competitors in the enterprise and consumer markets.

Technology investments include an XML-based and web services enabled technology platform that supports the Factiva suite of products and services. Products include the flagship products, Factiva.com, the current awareness and research product that is sophisticated enough for professional researchers, yet is as easy to use as a simple web search engine. The key differences are the quality of the content collection and the relevance of the search results.

Factiva.com delivers the most relevant results through search, alerting, discovery, and visualization capabilities. Rule-based applications in the Factiva product suite include Factiva SalesWork, a product designed for sales professionals that contains news articles as well as company fundamentals and like Factiva.com, visualization capabilities that make it easy to find the most important pieces of information.

Factiva Insight, a public relations and reputation management application designed to help professionals quickly review how their company, products, or executives are being marketed -- are being covered by the media. Traditional media, as well as the web, and user generated content found in over 14 million blogs.

Factiva also offers clients value-added services through Factiva consulting services and Factiva taxonomy services. These offerings help enterprises manage not only Factiva's collection of content but other commercial sources, free web content, and the internal documents, including memos, research, and sales and marking materials belonging to the Company. All of this enables enterprise customers to leverage all of their information assets.

Factiva employs 750 employees in 33 locations, globally. Its target market is global 4,000 class companies in the financial, consulting, publishing, government, high-tech, and telecommunications sectors. Factiva has over 1.6 million paying subscribers.

Factiva sits strategically with Dow Jones in seven important ways:

First, it fits the Dow Jones mission of maximizing value of our brands and content through monetization in all viable enterprise and consumer markets and channels. The integration of Factiva and the enterprise media group businesses will result in growth 2007 cost synergies of $15 million, increasing to $19 million in 2008. These savings are largely the result of cost savings in corporate functions, and back office and operational systems.

Revenue synergies will come from four key areas. Sales of Factiva products and services to Dow Jones clients, sales of Factiva and Dow Jones licensing services custom solutions to all enterprise media group clients, sales of real-time Dow Jones News Wires to Factiva corporate clients, and increased international sales based on the increased global sales presence.

Combining the Factiva, Dow Jones News Wires, and licensing services business will result in richer and more innovative products and services that are built on the collective content, product, and technology assets as well as the commercial expertise in each of these three businesses. Dow Jones Enterprise Media Group through enriched products and services, like those offered by the Factiva consulting services group and Dow Jones licensing services can now provide our customers with access to a full suite of end to end information solutions.

Strong experience and results in international markets, also one of the seven key strategic fits, Factiva's global reach and scale will benefit Dow Jones News Wires, and Dow Jones licensing services in the global marketplace. Over 40% of Factiva's revenues are outside of North America, and about 45% of the employee base is outside of North America.

Finally, Dow Jones Consumer Media Group will be able to leverage Factiva's sophisticated enterprise facing search capabilities to develop business search products targeting the consumer market which was more difficult to accomplish when Reuters owned half of Factiva.

Moving on, our integration and execution plans are in development. We have identified functional executive teams and an integration framework has been developed for integrating Dow Jones News Wire, Dow Jones licensing services and Factiva. These three businesses will combine to create the new core of the enterprise media group. Dow Jones financial information services and Dow Jones indexes are part of AMG, but will not be integrated directly with Factiva. An outside consulting firm will assist in the integration process and help accelerate the execution of our plan.

Finally, on a personal note, I have to say that I'm delighted that this transaction is happening. Having spent seven years with Factiva, and now the most recent seven months with the Enterprise Media Group, the synergies are obvious and the long-term potential for Dow Jones and Factiva is great.

Now, I would like to turn the call over to Bill Plummer, Dow Jones CFO.

Bill Plummer

Thanks, Clare. I would like to focus my comments on the Factiva acquisition, on three areas, really. High level description of what we're buying, followed by our view of valuation, and what it means to Dow Jones P&L. Then I will finish with a couple of comments on how we plan to finance and what it means for our balance sheet and credit metrics.

As a general comment, I will start by saying that all of the following discussion assumes that this transaction closes in the fourth quarter. It also assumes normal operating performance for Dow Jones and Factiva for the remainder of the quarter. What we are buying is a business that is expected to generate $290 million in revenues on a stand-alone basis in 2006, and that is up 5% from the prior year. Given that there are minimal sales to the parent entity, $290 million is also the amount of incremental revenue Dow Jones would report in a pro forma set of financial statements.

Recurring EBITDA for the total Factiva is expected to be $27 million in '06, again on a stand alone basis. That EBITDA, however, includes about $16 million in certain payments made equally to the parents, for content fees and trademark licenses. Those expenses will be eliminated upon the acquisition. Thus, on a pro forma stand-alone basis, Factiva EBITDA would be $27 million, plus $16 million, or $43 million, after eliminating the parent expenses.

As Clare has already described, the cost synergies will reach $19 million a year once we get to steady state in 2008. So adding those in brings Factiva's pro forma stand alone EBITDA to about $62 million and the incremental impact of that EBITDA, when it is incorporated into Dow Jones pro forma financials, would be reduced to $50 million due to the fact that Dow Jones will lose the benefit of $8 million that it previously received for the content fees that I mentioned, because we're also assuming another $4 million or so of additional purchase accounting expenses. That's how we walk to the $50 million incremental EBITDA impact that Rich mentioned in this comments.

In terms of our view of the price we're pay for Factiva, we split it out into three pieces. At the close we'll pay Reuters $153 million in cash, plus they'll retain a $7 million preferred stock interest in the Factiva entity. So their total up front payment will be $160 million. In addition, we will also make certain future payments spread over four years that sum to a net present value of about $25 million. So adding that in gives a total economic value of $185 million.

Netted against that will be some tax benefits that we'll realize from a step-up in tax basis associated with the non-U.S. assets of Factiva. That tax benefit has a net present value of about $25 million as well. So you take those three components together, that gives you our view of the adjusted economic value that we pay of $160 million.

To think about that value in a multiple framework, you need to look at it relative to the incremental VAT revenue or EBITDA that we're acquiring rather than on the accounting based numbers that I just described. So for revenues, the incremental amount that we're buying is the Reuters half of revenues that we don't already own, or $145 million. For EBITDA, we're buying the Reuters half of stand-alone EBITDA, grossed up by the amount of content and license fees paid to Reuters, which will be eliminated. So $13.5 million, half of the 27, plus $8 million, that we saved, gives a rounded $22 million in incremental EBITDA.

Since the economic price that I mentioned earlier was $185 million, that represents a multiple of 1.3 times revenue, and 8.4 times incremental EBITDA. If you incorporate the tax benefit and our cost synergies, and I think it is important to note that it is cost synergies that we focus on here, the revenue synergies that Clare mentioned earlier, are not included in our analysis. So incorporating the tax benefit and the cost synergies, the EBITDA multiple drops to 3.9 times.

Of course, you will all make your own assessment about value; but based on the view that I just described, this transaction easily meets our financially attractive acquisition criteria. And for those of you who are more comfortable looking at value from an internal rate of return perspective, when you factor in the cost synergies, the IRR of this deal is over 20%. That's well in excess of the roughly 11% weighted average cost of capital that we view as our lag.

In terms of accretion and dilution to earnings, we expect the purchase of Factiva to be accretive to Dow Jones EPS in 2007 by roughly $0.03 to $0.05, that's after $0.02 of integration costs. That will follow from a fourth quarter of 2006 in which the transaction will be roughly $0.03 dilutive due to the costs associated with the acquisition.

We expect to finance this purchase with proceeds from the sale of the Ottaway papers. That sale process is well underway and we received multiple indications of interest for each of the properties that are within the range that we expected. The final round bidders are currently conducting their due diligence and we have asked for binding bids to be submitted later this month. On that timeline, we expect to be able to close the sale by the end of the year, right around the same time we expect to close the purchase of Factiva. Should there be any mismatch in timing, we have ample borrowing capacity to bridge the interim period.

Finally, a word on the impact on our credit metrics of the combined Factiva and Ottaway transactions. Under any reasonable set of assumptions, these transactions will support our efforts to improve the Company's credit position and capital structure. Assuming the purchase and sale both happen by the end of the year, and assuming a reasonable range for the Ottaway sale proceeds, which by the way will be shielded from most taxes due to our capital loss carry-forwards, we will have excess proceeds from the Ottaway sales that we will use to pay down debt. Given that we're buying more EBITDA and cash flow with Factiva than we're selling with Ottaway, the combined effect of these transactions will improve our cash flow metrics in future years as well.

Those are my comments on Factiva, and Mark, I guess we want to turn it over for Q&A at this point.

Mark Donahue

Yes. You can open the lines for Q&A, please.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Craig Huber - Lehman Brothers.

Craig Huber - Lehman Brothers

I missed what you said about what you thought your comparable costs were going to be, the percent change here in the fourth quarter. What is also your preliminary outlook for your comparable costs for next year? And I have a follow-up. Thanks.

Rich Zannino

Craig, we said our total expenses in the fourth quarter would be down 1.5%. So we've anniversaried Weekend Edition, so we don't have that issue any more in terms of ironing out comparable costs. But for the fourth quarter, we will be down 1.5%, and that includes some extra spending for Journal 3.0, the web width reduction project. We haven't given any guidance yet for next year on terms of costs.

Craig Huber - Lehman Brothers

In your EPS guidance here for the fourth quarter, does it includes Factiva, or the sale of Ottaway or no?

Rich Zannino

No. It assumes status quo for Factiva and Ottaway. It would have been too confusing otherwise.

Craig Huber - Lehman Brothers

Then my last question, just thinking back three months ago, Rich, when you gave your forecast for the third quarter of 6 to 8% ad linage, I was just wondering, as you think back, did you have roughly 50% of your advertising inventory in hand already in terms of the commitments? I mean what are you sort of playing with here when you make your forecast here for the fourth quarter at this juncture?

Rich Zannino

I think in the third quarter, we had a very good handle on July and August. We didn't have a great handle on September. September, as we've talked in the past is always a difficult month to predict because many ad buyers and many ad sellers are on vacation in the month of August, so it is hard to see in your reservation system what is really happening,.

What happens is you find out when everybody gets back after Labor Day what people's temperature is. So we were a bit surprised that September turned out to be down 6% in revenue. We had obviously planned it to be up a bit. And we're back looking at a positive trend here in the fourth quarter though.

Craig Huber - Lehman Brothers

But do you think you have roughly 50% as you're looking out here in the fourth quarter in hand?

Rich Zannino

Yes, that is probably not far off.

Craig Huber - Lehman Brothers

Thank you.

Operator

Your next question comes from John Janedis - Wachovia.

John Janedis - Wachovia

Good morning, Bill. Best of luck. Can you give us your outlook on the tech category for the Journal in 4Q? Can you talk about any potential impact from advertising related to Vista? And then I have a quick follow-up, thanks.

Gordon Crovitz

I think we are going to continue to see some pressure on tech in the fourth quarter. There are a couple of advertisers I'm not going to name by name, that this year have really had a big decline in their advertising, not just in us but in others, you mentioned the Microsoft Vista delay, that obviously has some impact on advertising.

I would say that we're seeing really good strength in some other categories like semiconductors. We've had very good success with that marketplace, front page units. We've got significant increases in spending in Q3 from advertisers like Intel, HP, Microsoft, Cisco, Boston Scientific, so we do think that we are going to be carrying some new product launches in Q4 hardware and software, but these probably won't be large enough to offset a couple of these other trends that I've mentioned in tech.

John Janedis - Wachovia

So do you think you will start seeing some Vista in Q1?

Gordon Crovitz

We don't expect to see it in Q4. I think we expect to see it soon thereafter based on everything we're hearing from them.

John Janedis - Wachovia

Just quickly on the color side. Can give us an idea of how many days you're actually sold out in the third quarter or throughout the year? What is the long-term expectation there for color as a percentage of total ads?

Gordon Crovitz

Yes. I think the way I would look at it is we have gone from a color penetration of about 49% to 54% so far through Q3. Color pages rose 3% this quarter. We expect continued demand for color. This is why we announced the color capacity investment this morning.

There is a shift going on to color from black and white. That's very clear. There are some peak days when we've come very close to capacity. So far, we've been able to move ads to different days, or shift the ads to black and white when we've had to, but this is why we thought this was the right time to invest in more color capacity.

Rich Zannino

John, I would just add to that, that that is only on a handful of days per year right now, that we run into those constraints. For the most part we have capacity on virtually almost every day of the year, we have the capacity. As Gordon says, we are able to work the capacity to fit the color demand, but as color continues to grow, over the next couple of years, it would be tight, very tight in 2009, so we embarked on the $30 million project that we announced this morning to add another four pages or increase our capacity by about 17%.

As we've talked in the past, it sells at a 30%, 35% premium to black and white for a full page; for half-pages sell at a 45% or so premium to black and white. So it is very, very profitable advertising.

John Janedis - Wachovia

Thanks a lot, guys.

Operator

Your next question comes from Steve Barlow - Prudential.

Steve Barlow - Prudential

Hi, it is Steve Barlow. Rich or Gordon, could you just give us what the estimated revenues for the front page will be for all of 2007? Back on Factiva, just maybe go through the process, 50/50, someone have a right of refusal, why did you buy it, they didn't, et cetera?

Rich Zannino

Yes. I will take Factiva and then Gordon can talk about your first question. The contract has all of those things that you would expect. The reason for the end of the partnership, if you will, I think all partnerships come to an end, and we've had a great run with Reuters on this. It was time for really there to be one owner of Factiva, so that it could grow the way it needs to grow going forward without any encumbrances by either parent in terms of where Factiva could go with their products and services and content. I think the bottom line is Factiva is much more strategic to Dow Jones than it is to Reuters.

In terms of where we're going with our strategy, which clearly is to monetize our content in every conceivable consumer and enterprise media channel. It is also more strategic to us in that the Dow Jones and Wall Street Journal exclusive inside Factiva is very, very valuable. It is the most sourced content within the Factiva content set. So from that perspective, it generates more revenue to us and is more strategic to us.

It also, as I said, fits our enterprise media group like a glove in terms of what Factiva does, which is basically sells content tools, and technology enabled solutions into the enterprise media market, which is really what we would also do with licensing services, and with our News Wires business.

I won't rehash all of the strategic fit items that Clare enumerated, the seven of them, but I think it is an obvious strategic fit for us. To me, the best definition of strategic fit is cost synergies, and as both Clare and Bill mentioned, we expect to generate $15 million of cost synergies in 2007, ramping up to $19 million in 2008, that is pretty strategic.

As a result of that, it turns out to be a very attractive price to us, and high ROI for us, while at the same time being an attractive price to Reuters. So we were able to use some of those synergies.

We estimate we paid Reuters for about half of those synergies in the way we did it, and any time you can buy a business for 8 times EBITDA, like Factiva, it is great, and when you incorporate synergies and tax benefits, we're paying four times EBITDA which is almost unheard of. So Reuters could not replicate the strategic fit, nor could they replicate the financial attractiveness if they were to be the buyer, and we ended up being the buyer, and so it worked very logically and we're thrilled to own 100% of Factiva and to really leverage it as part of AMG going forward.

Gordon Crovitz

Steve, on your question on the page 1 ad, just to set the context here, this is part of our strategy of optimizing all the channels in which we operate very much including print. We know that display advertising in print is terrifically powerful, no place more than in The Wall Street Journal and on section fronts. We now offer every section front.

We have not disclosed the revenue that we are getting from those ads or have the media reports of pricing between $85,000 to over $100,000, depending on whether advertisers are global, that is our overseas Journals, also; and also, online. That range is pretty accurate. Of that revenue, we're estimating most probably some three quarters is truly incremental revenue, that is revenue we would not have otherwise gotten from those advertisers.

Steve Barlow - Prudential

Okay. Then lastly, international did well in September and the quarter. Is that still going to be ongoing in the fourth quarter do you think?

Rich Zannino

The international pubs were up about 23%, 24% in the third quarter. That will not continue in the fourth quarter. I think the fourth quarter, I think will be more like flat, so no, that won't continue in the fourth quarter.

Steve Barlow - Prudential

Thank you.

Operator

Your next question comes from Fred Searby - JP Morgan.

Fred Searby - JP Morgan

A couple of questions. One, just on Factiva, can you help me understand the precipitous EBITDA decline? It sounds like you got a fantastic multiple when we look through all of these things, but the EBITDA decline that we're seeing in Factiva the first nine months, what was driving that? When are you going to arrest that?

Secondly given the Weekend Edition what is your expectation in the fourth quarter that you built into this low to mid-single guidance at the Journal for consumer advertising? Can you, Rich, help us think through the historic operating leverage we've always talked about, and what we should expect in the fourth quarter in terms of the flow-through on ad dollars? Thank you.

Rich Zannino

Yes, Fred, the Factiva EBITDA decline that shows up in our filings, if you will, in our public reporting, is really, it is not indicative of, at all, of what is happening in Factiva. More simply put, we and Reuters charge Factiva for our content. We charge Factiva for various other services, and we charge Factiva for the use of our marks, for the use of the Dow Jones and the Reuters trademarks. In earlier years, those rates were below market that we were charging to Factiva as we were nurturing and growing Factiva.

As Factiva has become stronger and stronger, and grown its revenue and grown its margins, we have increased the amount of fees that we take out of Factiva, we and Reuters have, to the point now where they're at market. If you were to normalize and neutralize those fees at a constant level, you would see the EBITDA and the operating income at Factiva growing nicely over the last few years.

Fred Searby - JP Morgan

Just to follow-up on that, if I look at the revenues, and that's a great point, but if I look at the revenues nine months, it still was only up like 2.5% for Factiva and I just, that sounds for this type of business kind of still at the lower end.

Rich Zannino

We think they will be up roughly 5% for the year, Fred, by the time the year is done. So it is not bad. Mid-single digit growth for a B2B business, and part of having one owner of Factiva is we will free Factiva to compete in ways that it couldn't compete when it had two parents constraining it in various ways.

Our view of it is it is a mid single-digit top line growth business; for the next few years it's going to have terrific bottom line growth as we build those synergies into the business.

Fred Searby - JP Morgan

Great. And then just secondly, on consumer dollars, and your thoughts on operating leverage?

Rich Zannino

Let me take the operating leverage point and then Gordon will take the other bit of it. As part of our non-GAAP reconciliations, we now put up on our website information that lets you see how much Weekend Edition revenue and operating income is or operating loss is.

If you were to look at our year-to-date CMG revenue and operating income, and if you were to back off from that, the Weekend Edition revenue and the Weekend Edition operating loss, and then you just made some assumptions to normalize newsprint prices, to keep them constant, you would see that our flow-through for year to date 2006 through September is about 80%. 78%, is the actual figure that we get which is right in line with the 80% flow-through that we've said we will get.

If you project it out through the balance of the year, it is over 100%. The fourth quarter is an advertising heavy quarter. We're going to have well over 100% flow-through in the fourth quarter, at CMG, which will bring the flow-through for the year, at CMG, to over 100%.

So the leverage is absolutely there, we have been plowing some of that leverage back into our investment in Weekend Edition, which we believe is the right long-term strategy for The Wall Street Journal franchise, because of all of the benefits from Weekend edition, whether it be consumer ad revenue growth, or expanding our readership, or improving our circulation economics, or the benefit that it will ultimately have to our digital businesses as we translate that Weekend Edition franchise over to online, et cetera, and then in and of its own right, the add revenue that it is generating which over time will become accretive to Dow Jones' bottom line, CMG's and Dow Jones' bottom line.

We won't have this lack of transparency to flow-through in the fourth quarter, because we will have anniversaried Weekend Edition. So you will be able to just do the arithmetic on the CMG revenue and operating income changes and the flow-through, will be very, very apparent at CMG for incremental print revenue. So I will flip it over to Gordon now on the consumer ads.

Gordon Crovitz

Let me just give you a couple of data points for back ground. We've been saying all year that The Wall Street Journal has been the largest share in terms of increased revenue of all 252 newspapers and magazines tracked by CMR, a big driver of that is consumer advertising through Weekend Edition.

Another data point when we look at our core field group, we have always had a very large share of the B2B advertising which we've increased this year to almost 30%, but on the B2C side, our share is now 16.5%, that's an increase of 2%, largely driven by Weekend Edition. You saw some ads in Q3 in Weekend Edition that I think are indicative of what you will see going forward from insert in the newspaper from Brooks Brothers, to a tutorial section on ETF's supported by UBS and others.

When we look at Q4, of all of the categories of increased revenues that we project, the two largest are what we think of as other consumer and the luxury categories, that's everything from beverages and shelters, education, sporting goods, consumer products, to watches, high end apparel, and both high end and mass reach retailers. So when we think about where our growth is coming from, very much driven by B2C which is in turn very much driven by Weekend Edition.

Fred Searby - JP Morgan

Great. Thanks a lot. Welcome aboard, Bill.

Bill Plummer

Thank you.

Operator

Your next question comes from Lauren Fine - Merrill Lynch.

Lauren Fine - Merrill Lynch

Just a few questions. First of all, just so I understand, I understand that the fourth quarter includes the properties being sold at Ottaway. Can you estimate what their contribution will be? We estimate that in the third quarter, that maybe they contributed $0.04 to earnings? And then I have follow-up questions.

Rich Zannino

What we said is for the full year, it is $97 million in revenue and $26 million in EBITDA, and I think you could divide those numbers by four, in terms of what the fourth quarter impact would be, and be very close. The $0.04 that is in the discontinued ops line, that obviously doesn't have any income associated with the use of proceeds on the sale of Ottaway, so I wouldn't confuse that with the dilution on the sale of the Ottaway properties, because obviously there will be substantial proceeds, and even if all we do with the proceeds is pay down debt, there will be substantial interest savings from that.

So we estimate, depending on the price, we estimate the annual dilution from the sale of the Ottaway properties in the $0.03 to $0.05 range and that will be dependent on the price we get for them.

Lauren Fine - Merrill Lynch

Switching over to Factiva, the $25 million that you're paying Reuters over three-and-a-half years looks like the payment that you're now taking out of their EBITDA, and so I'm just wondering why you're not still including it in there as an ongoing payment unless you expect not to pay them ongoing and have their content long term. And so I'm wondering if you could clarify that? Then recognizing that you are trying to transform the Company to be less dependent on print at the same time you have launched the Weekend Edition and invested in color, why should I be impressed that Factiva's growth rate is just 4% or 5% top line unless you think that growth rate is different long term? And if you do, what do you think the long term revenue growth rate is?

Rich Zannino

Sure. As far as the $25 million present value of the payments goes, what we have in the Factiva P&L is what we believe is the fair value of the payments we're making to Reuters for the content and exclusive, et cetera, that we're getting back from Reuters. So that is in the expense, and therefore, reducing the EBITDA of Factiva.

These $25 million in payments, we believe, represent excess over that fair value, and therefore, our, in our view, purchase price, and so we treat it in the numerator as purchase price, so we add that, as Bill said, we add that to the $160 million, we add the $25 million to get up to a purchase price of $185 million. So that's why we treat it the way we're treating it. And that's the way we, at this time, believe we will be accounting for it. So that's that.

As far as Factiva goes, there aren't as many opportunities to make 20% plus after tax return on investments in the media business. The fact that its top line will grow mid-single digits, that's not bad. Its bottom line is going to grow by huge percentages, and the impact that it will have on AMG will likewise give a very healthy, double digit profit growth profile to AMG.

So I would say we're much more focused on the rate of growth we can drive in profits than the rate of growth we can drive in revenue. So given that it is mid-single digit top line, and that it is very, very robust bottom line growth, and that it is overall a 20% plus after tax return on investment and it's highly strategic, I guess I would say show us more of those deals, because I think that would certainly be driving our stock price.

So having said that, we of course are looking for other transactions that might have higher top line, but we are very, very selective in what we're going to do. It has to be strategically right. It has to be financially attractive. And it has to have manageable execution risks. So those are our criteria. We're steadfastly sticking to them as we look for opportunities.

Lauren Fine - Merrill Lynch

Well, I can take this offline with Clare, because I know she and I had a discussion years ago about this, but I guess I would argue that you are going to face some of the same secular issues with Factiva defending it over time; and so your you're basing your return assumptions on a growth rate that might or might not be defensible. That is something she and I can take up offline.

Rich Zannino

But I would say on that point, that Google has been around and the free web has been around and RFS has been around for quite some time now and Factiva has managed to grow at mid single-digits through that because of the fact that Factiva sells to enterprises, the fact that it is a superior search project product in terms of the relevancy of the search results, in terms of the roll-based applications that Factiva has, meaning they are an application for IR pros and PR pros and sales professionals, research professionals, et cetera.

Because of the suite of services that Factiva wraps around its search, everything from consulting to wrapping in your internal documents into the search, et cetera, et cetera. We have not assumed robust top line growth, as we said, for Factiva going forward, and we're very, very pleased with this acquisition.

Lauren Fine - Merrill Lynch

Thank you.

Operator

Your next question comes from Debra Schwartz - Credit Suisse.

Debra Schwartz - Credit Suisse

I have a quick question on your online revenues. Can you just give us a sense of in the third quarter, what percent of the consumer media group came from online? Then if you can just give us a little bit more color on what drove the softness, I think you said it was in July and what gives you more confidence that you can get back to 20% growth there for Q4?

Bill Plummer

For Q3, online was about 14% of CMG revenues. By the way, if you're comparing us to other media companies do keep in mind that we don't book licensing revenues or archive revenues, obviously, or some of the other revenues that most other media companies book into this group. That's in our enterprise media group. So we're very pleased by the percentage of our revenues that are coming from online.

What we said about advertising essentially, the best way to understand the advertising in Q3 was that while it was up by 12% for the quarter, it was flat in July. July was really a very tough month, it was up double digits in August, it was up over 20% in September, for the first three quarters of the year, online ad revenues were up in the 20% range, we expect to finish the year in that range as well. We think this compares pretty favorably to others in their display online advertising segment.

Just one final note I think there has been questions in earlier calls about MarketWatch growth rates and while we don't break out advertising across the different properties I would note that MarketWatch ad revenues actually grew faster than the online Journal in the first quarter and we expect they will again in the fourth quarter.

Debra Schwartz - Credit Suisse

Okay. Thank you.

Operator

Your next question comes from Brian Shipman - UBS.

Brian Shipman - UBS

Thanks, good morning. Could you first remind us how much tech and financial advertising contribute now to The Wall Street Journal advertising revenues?

Second, given everything we've heard from the other publishing companies about fourth quarter advertising trends, could you maybe drill down a little bit more into specific categories that you're confident will drive the rebound in fourth quarter trends that you're talking about in your guidance?

Rich Zannino

The second financial YTD are running at about 35% of our linage, probably a little higher in terms of our revenue.

Bill Plummer

As I said before, as we look at the fourth quarter low to mid single-digit growth, that is really going to be driven by financial, where we had a really strong performance again in the third quarter, categories like insurance were very strong in the consumer category, the general business category, real estate classifieds we think will continue to be strong, but as I said that will be partially offset by continued declines in technology and in auto.

Brian Shipman - UBS

Thanks.

Operator

Your next question comes from Lisa Monaco - Morgan Stanley.

Lisa Monaco - Morgan Stanley

Hi. Your guidance for the fourth quarter was, in terms of ad revenue, can you give us what you think ad linage will be in the fourth quarter? Rich, I think you mentioned something about one of the sales initiatives is flexible pricing. What exactly do you mean by that? Thanks.

Bill Plummer

Look, linage will be fairly flat in the fourth quarter, yield will be slightly higher than last year. Let me address the flexible pricing point. I think the way we think about this is we are very focused on delivering relative value to our advisers, we are very focused on strategic pricing, I think if you look to the way we looked at this issue in past years, we were much less focused on the relative value we were delivering to different categories of advertisers.

So we have category rates, we have rates that acknowledge that we deliver different value to different advertisers, and I think that has been very well received in the market, it helps account for our significant increase in market share against our peers, we're going to continue to do that, do not read flexible pricing as abandoning the rate card, that our rate card is sacrosanct, our rate card is also much more complex than it used to be.

Lisa Monaco - Morgan Stanley

Is there any way to quantify what you think on a same-store basis, the Weekend Edition of the Journal will be, there will be growth there in the fourth quarter?

Bill Plummer

Yes. It will be in the 10% range. Maybe in the 10% to 15% revenue growth range.

Lisa Monaco - Morgan Stanley

And that's revenues?

Rich Zannino

Yes.

Lisa Monaco - Morgan Stanley

For just isolating the Saturday paper?

Rich Zannino

Yes.

Lisa Monaco - Morgan Stanley

Great. Thank you.

Rich Zannino

Probably closer to 15%, Gordon is telling me.

Operator

Your next question comes from Peter Appert - Goldman Sachs.

Peter Appert - Goldman Sachs

Rich, I just wanted to confirm, I think, something I heard you say to Lauren earlier, do you have exclusive access contractually to the Reuters content for the next five years?

Rich Zannino

For the next three-and-a-half years, Factiva has exclusive access to Reuters content relative to other major competitors of Factiva. So it is not 100% exclusive, but it is exclusive to the major players.

Peter Appert - Goldman Sachs

Like LexisNexis for example.

Rich Zannino

Exactly.

Peter Appert - Goldman Sachs

And then I assume there is some sort of non-compete with Reuters associated with this as well?

Rich Zannino

A two-year non-compete.

Peter Appert - Goldman Sachs

Rich, my general takeaway from your commentary, is that, not that you're not committed to the Ottaway business, obviously; but in the past, you've always said, sell some papers maybe buy some others. Now it is sounding more like you really do look at the Ottaway business maybe as a source of capital to fund growth in the non-print business. Is that a fair take away?

Rich Zannino

No. I think that Ottaway is a very high returning asset and what we said in the past is if there is a compelling use of proceeds over and above the return that we're getting on Ottaway, and there was no other way to finance it, then we would consider selling Ottaway papers to fund it. That's the position we found ourselves in with our balance sheet after the Cantor takeout on the debt to finance that settlement, and with the acquisition of Factiva, so it made sense, given we could get a 20% plus after tax return on the acquisition of Factiva to dispose of a few of those Ottaway properties in order to get the benefit of that return. That's a higher return than what we could get on those Ottaway properties.

Peter Appert - Goldman Sachs

Got it. So not specifically a strategic decision to exit the community newspapers?

Rich Zannino

No.

Peter Appert - Goldman Sachs

Okay. Thank you.

Rich Zannino

You're welcome.

Operator

Your next question comes from William Bird - Citigroup.

William Bird - Citigroup

Rich and Bill, I guess as you think bigger picture about deriving more revenues from electronic, I am just wondering how you think about acquisitions in general, and in particular, extending into new businesses. Thanks.

Rich Zannino

We're going to stay close in terms of the types of acquisitions that we will look at and certainly the types of acquisitions that we would do, staying close, I mean staying close to our core, which is high quality indispensable, conveniently accessible business and related content that we can pump through all media channels. So I mean that whatever we would buy would have to fit that definition of our strategy. That would preclude most new businesses, but it wouldn't preclude all new businesses, because you could pick up some new businesses that would fit that definition.

And then, I won't rehash the financially attractive and manageable execution risk criteria, but they are certainly part of it.

William Bird - Citigroup

Just to follow-on on Factiva, I was just curious, I guess as you look at the business and now you have the ability to control the business, how do you think about the margin potential of Factiva?

Rich Zannino

What we said was when it comes on to our books, it will be roughly $50 million of EBITDA on 290 million of expense, so that is kind of in the 15%, 16%, 17% EBITDA range. We can get it, we believe, north of 20% over time.

William Bird - Citigroup

Thank you.

Rich Zannino

You're welcome.

Operator

Your next question comes from Christa Quarles - Thomas Weisel Partners.

Christa Quarles - Thomas Weisel Partners

I just had a couple of follow-ups on the online revenue growth. I think you guys said 7% page view growth. I was wondering if that volume growth was sort of uniform across The Wall Street Journal and MarketWatch.

In terms of the weakness in July as well as just specific categories clearly Yahoo! had mentioned that finance and autos were weak for them. I was wondering if you could highlight the relative importance of those categories in the online side and whether or not you saw any weakness. Thanks.

Gordon Crovitz

Yes. Christa, on profit, our monthly page views for the quarter were up 7%, we were down a bit in terms of monthly unique visitors of Dow Jones overall. That partly reflects the summer months of July and August which tend to be traditionally slower for us.

Another factor I would just point to if you really get into the details of this is when we relaunched the MarketWatch home page we significantly increased the use of Ajax technology. I think as you may understand that automatically updates quotes and news headlines and allows a greater personalization, it delivers a lot of value to users but we think it probably did negatively impact page view's per visitor.

We have ways, over time, we are going to use this technology to drive more usage, but that was an issue for us. I would also just give you a little bit of insight that we have got a big project going on on search engine optimization especially around MarketWatch.

In terms of advertising revenues, we paid some attention to what Yahoo! had to say also and I think they really focused their comments on the financial category. In Q3, our financial category was up over 26% in revenue. So maybe we're part of their problem.

Christa Quarles - Thomas Weisel Partners

And autos, any comment there or is that not a big category for you guys?

Gordon Crovitz

It is not as big of a category for us online as it is in print. It is a significant category. We did see some softness during the third quarter. And I think online even more than in print, there is a lot of swinging quarter to quarter in terms of autos.

Christa Quarles - Thomas Weisel Partners

That's helpful. Thanks.

Rich Zannino

Christa, you didn't ask but at Ottaway, through September 30, average daily page views are up over 40% and average daily unique visitors are up over 25% year-over-year. So a little tidbit for you.

Christa Quarles - Thomas Weisel Partners

Does that include the divested papers or?

Rich Zannino

Yes, that would.

Christa Quarles - Thomas Weisel Partners

Okay.

Rich Zannino

That is apples-to-apples. My guess is those numbers are higher if you would exclude the vested papers from both periods, that's why they're divested papers.

Operator

Your next question comes from Paul Ginocchio - Deutsche Bank.

Paul Ginocchio - Deutsche Bank

Thanks. Just a question about Weekend Edition. Is there any way to talk about number of new advertisers coming into the product over the last three quarters just so we can understand if are you still getting new advertisers into it?

Also is there any way to look at spend of those advertisers in the fourth quarter of last year, versus some kind of comparable metric maybe to the third or fourth quarter of this year, just again to see if they're increasing budgets or decreasing budgets? Is there any advertisers who no longer advertise in the Weekend Edition of the Journal? And if so, why is that? If it was, obviously, if they have gone out of business, that is no big deal but if it is something specific to Weekend Edition I would love to know that as well.

And then finally, October looks like it is starting a little bit light for the print edition of The Wall Street Journal. What changes going forward that gives you more confidence? Thanks.

Gordon Crovitz

On Weekend, just to give you some data points you asked for, we now have more than 1500 advertisers in Weekend Edition since launch just over a year ago and I think as Rich mentioned about 60% of them are new to The Journal. The consumer segment is about 70% of the advertising in Weekend Edition as we expected that it would be. About two-thirds probably of the advertisers in Weekend Edition have already repeated advertising in the Weekend Edition. We're very pleased about that.

There were some advertisers in the launch, very first launch issue that might be in a different category, but we're very pleased by the loyalty of the advertisers in Weekend Edition. Just to give you a sense of the kinds of advertisers we're attracting, it is pretty broad-based. It is everybody from La Quinta, the hotel group who are new in Weekend Edition in the third quarter, Sonoma County Vintners, a lot of local business development groups from Ohio to Raleigh, so a lot of new advertisers and we're obviously very pleased about that.

Rich Zannino

I recall, and we will check this while we're answering the rest of your question, but I recall at the end of second quarter that we had 1,000 new advertisers and now we're up to 1,500 which would imply we picked up another 500 in the quarter, but we will double check that.

Paul Ginocchio - Deutsche Bank

That's great. That's perfect.

Gordon Crovitz

Again, I think in terms of Q4, as we said, we are seeing continued strong performance in the financial category, strong performance in consumer, and general business, real estate classified remains strong, but we are seeing some pressure in tech, and autos. So we are cautiously optimistic about revenue growth in the low to mid-single digits for Q4.

Paul Ginocchio - Deutsche Bank

So I guess, for the last six weeks it looks like it has been a little bit light but your forward order book says that is going to change?

Gordon Crovitz

Yes, sir. Yes.

Rich Zannino

And as you know, the comps get progressively tougher through the quarter. We were up 18% last December, but our forward order book looks in line with the guidance that we're giving.

Paul Ginocchio - Deutsche Bank

Great. Thank you.

Operator

Your next question comes from Michael Shekter - Mentor Partners.