News Management Discusses Q2 2014 Results - Earnings Call Transcript

| About: News Corporation (NWSA)

News (NASDAQ:NWSA)

Q2 2014 Earnings Call

February 06, 2014 4:30 pm ET

Executives

Michael Florin - Senior Vice President and Head of Investor Relations

Robert J. Thomson - Chief Executive Officer and Director

Bedi Ajay Singh - Chief Financial Officer

Analysts

John Janedis - UBS Investment Bank, Research Division

Entcho Raykovski - Deutsche Bank AG, Research Division

Justin Diddams - Citigroup Inc, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Craig Huber

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Eric Katz - Wells Fargo Securities, LLC, Research Division

Adam Alexander - Goldman Sachs Group Inc., Research Division

Alice Bennett - Commonwealth Bank of Australia, Research Division

Alan S. Gould - Evercore Partners Inc., Research Division

Tim Nollen - Macquarie Research

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Operator

Good day, and welcome to the News Corp Second Quarter Earnings Conference Call. [Operator Instructions] Also, today's call is being recorded.

At this time, I would like to turn the conference over to Michael Florin, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Michael Florin

Thank you very much, operator. Hello, everyone, and welcome to News Corp's Fiscal Second Quarter 2014 Earnings Call. We issued our earnings release about 30 minutes ago, and it's now posted to our website at www.newscorp.com.

On the call today are Robert Thomson, Chief Executive; and Bedi Singh, Chief Financial Officer. We'll open with some prepared marks from both Robert and Bedi, and then we'll be happy to take questions from the investment community.

This call may include certain forward-looking information with respect to News Corp's business and strategy. Actual results could differ materially from what is said. News Corp's Form 10-Q for the 3 months ended December 31, 2013 identifies risks and uncertainties that could cause actual results to differ, and these statements are qualified by the cautionary statements contained in such filings.

Additionally, this call will include certain non-GAAP financial measurements. The definition of and reconciliation of such measures can be found in our earnings release and our 10-Q filing.

Finally, please note that certain financial measures used in this call, such as segment EBITDA, adjusted segment EBITDA and adjusted EPS, are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of these non-GAAP measures is included in our earnings release.

With that, I'll pass over to Robert Thomson for some opening comments.

Robert J. Thomson

Thank you, Mike, and thank you, all. With this quarterly report, we marked the first 6 months of our existence as the News Corporation, and I would like to provide you with an update of the journey so far, a journey which is certainly in its early stages.

The principles and goals we articulated during our Investor Day in June continue to drive our day-to-day decisions. We said then and repeat today that we want the sensibility and energy of a startup, that we will be conscientious in our cost cutting and that we are determined to take advantage of the 2 great economic trends of our time, globalization and digitization. Our aim is to have a single cost of content and to repurpose that content across platform, whether it be a real estate listing or a great news scoop or a thriller and whether the canvas be a mobile phone, a tablet or a newspaper. That is how we leverage our strength and how we become far more than the sum of our parts.

The conceptual math aside, I would like to highlight a few telling figures ahead of Bedi's more extensive exposition. Direct comparables are, of course, awkward because the company did not exist in this form a year ago, but our financial teams have done their best to make the comparisons meaningful.

Our second quarter earnings showed total segment EBITDA of $327 million, a 9% increase over the second quarter of last year. And adjusted net income available to News Corp's stockholders was $179 million compared to $178 million in the prior year. Adjusted earnings per share for the second quarter were $0.31, flat with the prior year. And free cash flow available to News Corp for the 6 months to end December was $217 million, an improvement of $393 million over the prior year.

It has been a period of particularly significant activity, thanks to the extra focus that has come from being a smaller, more concentrated entity. There is certainly greater cooperation across the companies, with digital strategies and core infrastructure increasingly shared and health and pension plans being consolidated.

Of the individual companies, HarperCollins has made particular progress in its digital transition, with adjusted revenues increasing 8% in the second quarter and e-book revenue rising almost 40%. It is invidious to highlight a single title, but why not, as the Divergent trilogy, for which the HarperCollins team deserves much kudos, has been a remarkable success, and that success is likely to be extended next month with the scheduled release of the first film in the cinematic trilogy. It is reasonable to expect that the publicity around such a high-profile release will stimulate book sales and introduce another generation of readers to the wonders of the Divergent series.

Another highlight was the announcement in December of our first acquisition, the Dublin-based Storyful. Although the purchase involved a modest amount of money, the acquisition will be of relevance to most companies in the new News. Storyful is the world's first social news agency, with a particular strength in identifying and verifying viral video. And those skills will be a benefit to HarperCollins in developing video content to all our newspapers and to our other media properties around the world.

Storyful also aims to extend its long list of external clients, including Vice, ABC News and Yahoo!. But Storyful will be more than a contemporary news and video agency, as its unique blend of individual intelligence and sophisticated algorithms will enable us to provide customized social feeds for corporate clients wanting to track, in real time, how their products are being used and whether there are emerging legal or reputational risks to their company.

Speaking of digital growth and opportunity, we made progress in increasing a digital paid circulation of our newspapers in the U.K. We announced in December that Sun+ had broken the 100,000 subscriber mark in 4 months, which was 3 times faster than the rates seen at The Times and The Sunday Times when they introduced digital subscriptions 3 years ago.

Let me caution, these are early days in a pioneering venture for a popular paper, the most popular paper in Britain. Sun+ is an important part of our mission to redefine the value of digital content. In the recent past, too much of that value has been siphoned off by distributors at the expense of free agents.

The inherent value of Sun+ and the subscriber affinity is recognized by our advertising partners. Last month, O2, one of the largest mobile phone operators in the U.K., announced that it would be packaging Sun+ with its 4G service, giving customers immediate access to The Sun's unique content, including exclusive highlights of English football.

More broadly, advertising saw a sequential improvement in the second quarter. While visibility is limited and the macro environment remains uncertain, we are cautiously optimistic and continue to refine our digital offerings and invest in high-quality content.

In the U.S., as you are no doubt aware, we recently announced a change in leadership with Dow Jones and appointed Will Lewis as the Interim CEO. We are also undertaking a fundamental review of our institutional sales strategy. We have been listening to our customers and intend to make DJX more flexible and, thus, more compelling to clients from a wider range of business sectors. We will be refining our product, our pitch and our prices.

These decisive actions were taken following an intensive assessment of the state of the business, which made quite clear to us the need for prompt action. I will work closely with Will to revitalize the Dow Jones institutional business and to reinvigorate The Wall Street Journal, whose continued cross-platform growth and development is also our priority.

Bedi will furnish you with detailed figures, but it's worth examining a few of the broader economic themes affecting sectoral performance. The fall in the relative value of the Australian currency is likely to be of ultimate benefit to the Australian economy, but it is obviously low at the converted revenue and profit numbers for our businesses in that country.

There has been a degree of equity market volatility around the world, and our strong cash position at a time of some uncertainty is an asset of itself. That uncertainty is also an extra reason for cost discipline, and News Corp's operating expenses was 6% lower this quarter, thanks, in part, to a series of ongoing cost-saving initiatives. Bedi will take you through some of those measures a little later.

Overall, excluding the impact of acquisitions, divestitures and foreign exchange fluctuations, revenues were relatively flat year-over-year, which compares favorably to a 4% decline in the first quarter.

In coming months, there will be further development in cooperation across our company. Foxtel, of which we have 50% ownership, announced that it will launch a triple play of television, broadband and telephone service later this year. We're all familiar with the popularity of triple play packages here in the U.S. and elsewhere, and we are naturally enthusiastic about the potential of this initiative.

At Amplify, our education business, the building of core curriculum continues at pace. There is no doubt that the development of digital education is a priority for the current U.S. administration, which has announced plans to bring high-speed broadband to 20 million students over the next 2 years. The more schools with broadband access, the greater the potential for the products and services that Amplify can provide.

At REA, the company continued to widen its lead in the online real estate business in Australia and demonstrated strong pricing power. Measured in local currency, REA's revenue growth accelerated from 23% in the first quarter to 32% in the second quarter, and we continue to be very excited about the opportunities to expand this leading digital enterprise.

As of today's market close, the company in which we have a 61.6% stake had a market cap in Australian dollars of around AUD 5.87 billion.

In conclusion, as we begin 2014 and start the second half of our first fiscal year, the new News is continuing the proud tradition it inherited and building an increasingly powerful platform for the future. We are determined to be disciplined about costs, determined to be leaders in an increasingly digital world and determined to take carefully calculated risks to build our business and extend our e expertise, thus, producing ever greater value for our shareholders.

Let me now turn to our CFO, Bedi Singh.

Bedi Ajay Singh

Thanks, Robert, and good afternoon, everyone. We reported fiscal 2014 second quarter total revenues of $2.24 billion, a 4% decrease versus the prior year period revenues of $2.3 billion. Excluding the impact of acquisitions, divestitures and adjusting for foreign exchange, revenues were flat with the prior year. The earnings release you will see includes the reconciliation to reflect these adjustments.

Turning to EBITDA. We reported total segment EBITDA of $327 million, which was a 9% increase versus the prior year period. Excluding all acquisitions and divestitures and costs related to the U.K. Newspaper Matters, which were $19 million this quarter, and foreign exchange fluctuations, EBITDA declined by 1%.

Reported diluted EPS were $0.26 versus $2.42 in the prior period, which, you will recall, included a $1.3 billion nontaxable gain from the CMH transaction. Excluding restructuring and impairment charges, U.K. Newspaper Matter costs, the gain from the CMH transaction and other onetime items, our adjusted EPS was $0.31, which was flat with the prior year.

Free cash flow available to News Corp for the first 6 months improved by $393 million compared to the prior year.

Now let's turn to the individual operating segments. In News and Information Services, revenues declined $160 million or 9% versus the prior year, and Australia accounted for $93 million or nearly 60% of the segment decline. Excluding the sale of the Local Media Group and foreign exchange fluctuations, segment revenue declined 4%.

Within segment revenues, advertising declined 10%, an improvement from first quarter, which was down 12%. Looking at advertising performance across our key units, at News Corp Australia, newspaper advertising revenues declined around 20%, which includes a 9% negative impact from foreign currency. So overall, an improvement from down 25%, which we reported in the first quarter, and this is mainly due to the sequential improvement in real estate, retail and auto.

News UK advertising declined low single digits versus the prior year, and Wall Street Journal, both domestically and globally, declined low to mid single digits in the quarter. We remain cautiously optimistic about advertising, although Australia remains very challenged, while the U.K. and U.S. have been more stable.

Circulation and subscription revenues declined 7%, of which FX was 2%. We were impacted this quarter by lower print circulation and a continued decline in institutional sales of Dow Jones, which had a negative $17 million impact to revenues this quarter. The rate of decline in institutional has been steeper than we had initially anticipated, and as Robert noted, we're in the process of reviewing our institutional strategy, with the goal of stabilizing revenues in the near term.

Circulation revenue declines were partially offset by cover price increases at The Sun in the U.K. and several of our Australian mastheads, plus higher subscription pricing at The Wall Street Journal. Additionally, we have taken a price increase at The Times and Sunday Times in the U.K. in the current quarter.

At News America Marketing, sales improved 4% versus last year, led by the in-store business, which was up 5%. Total costs for News and Information Services were down 8% this quarter. That was due mainly to lower headcount as we realized some savings from prior year restructurings, lower newsprint and production costs, partially offset by higher costs related to our Sun+ initiative in the U.K.

Segment EBITDA decreased $37 million in the quarter or 13% as compared to prior year. Results were impacted by continued weakness in Australia and Dow Jones institutional business, offset by a favorable arbitration ruling at News UK and the absence of losses from The Daily, which was closed in December 2012. Excluding the sale of the Local Media Group and foreign exchange fluctuations, segment EBITDA decreased 8%.

Just some additional items I'd like to share on the segment. In Australia, we recently entered into a new multi-year newsprint and ink supply contracts, which should yield approximately $30 million for EBITDA and cost savings for the balance of fiscal '14 and fiscal '15 combined. And we should benefit from lower unit rates going forward.

In the U.S., as part of our ongoing rationalization of print operations, we entered into an agreement to sell our printing facility in Charlotte, North Carolina and entered into a new print supply agreement, which should yield annual cost savings in the $2 million to $3 million range.

And finally, in the U.K., in January, we entered into a long-term lease to occupy The Place, our new headquarters in London. News UK, Dow Jones and HarperCollins U.K. will house their London operations together for the first time and will begin relocating this summer. In connection with this, there will be a primary noncash expense of approximately $30 million in the second half of this fiscal year related to deal rent and other facility charges and a similar amount for the first half of next fiscal year. Over the life of the long-term lease, the office relocation should be net EBITDA-neutral and should also allow us for improved collaboration and additional efficiencies in our operating units in the U.K.

Turning to Cable Network Programming. Segment revenue this quarter were $110 million, and segment EBITDA was $53 million. On a standalone basis, assuming we owned FOX SPORTS Australia in the prior year quarter and excluding foreign exchange fluctuations, revenues increased 9% and segment EBITDA increased 34%. Advertising improved 6%, thanks to solid market share gains, but was partially offset in December by the absence of a domestic cricket rights compared to the prior year. Subscription revenues also grew 6%, helped by an increase in digital platform subscribers and higher contractual affiliate pricing. We also had some additional revenue growth from commercial and pay-per-view offerings. The EBITDA improvement this quarter was due to a combination of the higher revenues, coupled with a 10% decline in expenses, primarily due to the absence of the domestic cricket rights versus the prior year.

In Digital Real Estate Services, our revenues there increased $16 million or 18% compared to last year, reflecting increased revenues from higher pricing and uptake of premium products. Average revenue per agent in Australia improved around 30% in local currency. Segment EBITDA increased $9 million or 20% compared to the corresponding prior year period, primarily due to the increased revenue. Margins were 53.4%, up from 52.9% in the prior year. And excluding foreign currency, revenue and EBITDA grew 32% and 33%, respectively.

Turning to the Book Publishing segment. Revenues improved 4% and EBITDA grew 33% versus the prior year. Revenues, excluding the sale of our Live Events business and foreign currency fluctuations, were up 8%, and EBITDA improved by 38%.

Some titles to call out this quarter. In Children's, we had a very strong performance from the Divergent series by Veronica Roth, including the release of Allegiant, the third and final book in the series, which has sold 2.2 million units to date. In General Books, we benefited from Mitch Albom's The First Phone Call from Heaven and Ree Drummond's The Pioneer Woman Cooks: A Year of Holidays.

E-book sales grew nearly 40% versus the prior year and accounted for 17% of total sales, up from 14% in the prior year period. Segment EBITDA margins of around 17% improved nearly 400 basis points versus the prior year as we benefited from the strong top line growth, continued e-book conversion and ongoing operational efficiencies.

In our Other segment, revenue decreased $10 million compared to the prior year, primarily due to declines at Amplify related to low project-based consulting revenues at its legacy assessment business, coupled with divestitures of certain of the company's non-core Australian businesses during fiscal '13. At Amplify, we are on track to launch our K-8 English Language Arts curriculum for the fall of 2014, and we will begin product demonstrations next month at South by Southwest in Austin.

Segment EBITDA in the quarter improved $4 million, primarily due to decreased fees and costs, net of indemnification, related to the U.K. Newspaper Matters, which was partially offset by higher investments pending at Amplify, higher corporate overhead and costs related to our corporate strategy and creative growth.

In the quarter, U.K. Newspaper Matters net impact on total segment EBITDA declined to $19 million from $49 million in the prior year. Again, that's net pretax costs after the indemnification from 21CF.

Turning to equity income. Earnings from affiliates were $17 million compared to $28 million in the prior year. The lower contribution primarily reflects the absence of the company's 44% stake in SKY Network Television Ltd., which was sold in March 2013, and the consolidation of FOX SPORTS Australia in November 2012. Partially offsetting this decline was a higher contribution from Foxtel, due mainly to the company's increased ownership to 50% from 25% in November '12.

Foxtel's EBITDA was up mid single digits this quarter and up around 10% for the first half in local currency. On operating metrics, total ending subscribers were up 5% to over 2.5 million for the first half of the year versus the prior year, driven by higher digital platform subscribers. Churn declined to 12.4% versus 14.2%, benefiting from the Austar customer migration.

Turning now to cash flow. For the 6 months ended December 31, News Corp's cash flow from operations improved to $407 million compared to $5 million in the prior year, and free cash flow available to News Corp improved to $217 million from a negative $176 million in the prior year.

And just a couple of additional items. We continue to expect full year CapEx to be relatively similar to the FY '12 levels of $375 million. CapEx this quarter was $80 million versus $77 million last year. Our restructuring costs were down again significantly this quarter at $24 million, of which $21 million was related to the newspaper business compared to $62 million in the prior year.

So in summary, the themes we outlined in the first quarter remain broadly intact. I think our operating expenses are generally on the right track in the face of still challenging revenue trends. As Howard mentioned, we made our first acquisition, Storyful, which is a step towards further expanding our online video offerings. And we still view fiscal '14 as a transition year as we balance ongoing operational efficiencies with prudent investments and we continue to focus on stabilizing top line performance.

And with that, let me turn back to the operator for our Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And at this time, we will take our first question from John Janedis with UBS.

John Janedis - UBS Investment Bank, Research Division

Can you give us an update on the Dow Jones Institutional business? You mentioned you're looking at strategy, but is there a point where that asset isn't considered core, if some of the changes you make don't gain traction with customers?

Robert J. Thomson

John, Robert here. No. The Dow Jones Institutional business is very much core, and there is no doubt that the original concept of DJX had much merit to it. But to be quite frank, the execution was not quite right, and the trajectory was not quite right. And so the right thing to do was to make a change promptly and decisively. And what we've already seen is that Will Lewis has been an efficacious President. He's certainly making a positive difference in terms of both mood and momentum, and he's looking very closely at the great assets that are part of the institutional business. In fact, Teva [ph], the Newswires and the journal content as well, which is part of the fuel that makes us the preeminent provider of business news globally. But what you'll see, John, in coming weeks and months is a much more flexible approach to our customers, not a plethora of prices, but a pricing schedule that makes sense to institutional customers according to the hierarchy of usage. It will be based on utility. And I'm sure many of the people on this call uses Dow Jones Institutional News and Analysis, and will be in touch with you.

Operator

At this time, we will move to Entcho Raykovski with Deutsche Bank.

Entcho Raykovski - Deutsche Bank AG, Research Division

My question is around FOX SPORTS Australia. Obviously, that was a good result in the quarter. I was wondering if you could give us any indication of what the domestic cricket rights cost in the third quarter of last year, because I presume there's costs that might be incurred heading into next year -- into next quarter, rather.

Bedi Ajay Singh

Yes. So in terms of the actual cost, it was about AUD 7.5 million that related specifically to cricket, and we had about AUD 1.5 million from ad revenue specifically related to those in the prior quarter.

Robert J. Thomson

Obviously, as you know, there's a great seasonality to the sport in every country, particularly in Australia. And as you have the rolling out of Rugby League and Aussie Rules in coming months, the cost calculation again changes.

Operator

[Operator Instructions] At this time, we'll move to Justin Diddams with Citi.

Justin Diddams - Citigroup Inc, Research Division

Gee, 1 question. I've got so many. So News and Information Services, the number, the EBITDA number came in ahead of my expectations for the quarter. I'm just wondering if you could give us a little bit of a breakdown amongst News Australia, UK and Dow Jones, where the better performances were out of those businesses and the slightly weaker performance is, to give us an idea of where that EBITDA fell in that division.

Bedi Ajay Singh

Justin, as you know, we don't break out EBITDA specifically. But I think the way to think about it is, if you look at what happened on revenues, so Australia was down, but I would say, sequentially, the decline was less decline, if you get what I mean. And in terms of the U.K. and the U.S., we were sort of down very low digits. So I think if you look at the revenue perspective, Australia continues to remain challenged. I think cost cutting has gone on a pace across all of the businesses. I mean, as I mentioned in Australia, we had new contracts for newspaper purchasing and ink. And in the U.S., we're looking at our print operations. And I think we're looking at headcount closely. We have a sort of purchasing council. We're looking at all the things we're buying. So cost containment remains a tryout here, I would say, across all of the businesses. We also -- I think Robert alluded to this. We also consolidated a number of sort of health care plans. What that's done is, it's going to help us mitigate sort of cost increases in the future. I think if you know what's happening in the U.S., costs -- health costs rising here quite significantly. So we took a good, hard look at that and consolidated those. We also froze all of our defined benefit pension plans. These plans had been closed to new participants, but what we've now done is we've basically frozen the entitlements. So that's going to save us, I think, about $5 million roughly in that range going forward. So it's things like that, that we're continuing to do across all of the businesses.

Operator

And we'll move to Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

My long 1 question is, first, on Amplify. Can you discuss some of the key initiatives? Is there any change in outlook? Again, maybe you could also clarify if you fixed the equipment issue that you had in your initial market. And the second question is -- the balance sheet is so flexible. You've got so much cash. And you mentioned it could be acquisitions. Maybe you could discuss capital returns and dividends. But I'm just wondering, to the extent that you do make more acquisitions, what are the areas of interest? Book Publishing seems to be an area that you're doing very well. And would it be that or would it be more digital initiatives?

Robert J. Thomson

Thanks, Jessica. On the go-forward issue, we're continuing to work with the local officials there and, I think, stay tuned quite frankly. As you well know, the most important part of the Amplify suite is the creation of the core curriculum. And as we've indicated both on the Investor Day and subsequently, as you get deeper into this year, there will be real benchmarks for adoption for the fall of 2014. The adoption states for English, we believe, will be California, Idaho, Oklahoma and West Virginia. So keep an eye on those 4, among others, and that will be indicative of the evolution of the curriculum.

Bedi Ajay Singh

And just on acquisitions, clearly, we started off with the Storyful acquisition, which, although modest, I think, was very, very disciplined and key in terms of fit because of the digital propulsion it'll bring to our businesses sort of globally. So I think we continue to think about acquisitions in terms of those that will enhance our existing businesses, those that will enhance technologies. And -- but we want to remain disciplined, and we want to remain sensible in terms of what we buy. Clearly, capital is something we have at the forefront of our mind. Look, I think we're very focused on making sure we maximize long-term value for our shareholders. And with the cash that we have at our disposal, although Robert mentioned, obviously, that given these turbulent times, it's helpful to have a healthy cash balance, we're also mindful that we want to deploy that cash in a judicious and expeditious manner.

Operator

At this time, we'll take a question from Craig Huber with Huber Research.

Craig Huber

On the Cable Network side in Australia, can you just lay out for us how you think about the costs there on a year-over-year basis for the next 18 months, the puts and takes in the various sports contracts I'm trying to get at?

Bedi Ajay Singh

Well, I think in terms of the sports contracts, I think we shared this at the Investor Day. Most of the contracts are kind of tied up for the next 3 to 4 years. So we don't have too many of those renewals sort of coming up. In terms of how the costs and then the existing contracts spread out, clearly, these tend to be lumpy based on how the sports play out. So next quarter, when we start with AFL and NRL, we will begin to see additional programming costs coming to Q3. So that's sort of the cost profile that we expect in the coming quarters.

Operator

At this time, we'll move to Alexia Quadrani with JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

My question is just back on the Australian newspaper. You saw a little bit of sequential improvement, if you exclude FX in the quarter, but still, obviously, it's a tough area for you. Any sense if you're seeing any sort of grounding in the market there? Any signs if you're bottomed out and things might be getting a bit better? And any early color on what you've been seeing in the March quarter?

Robert J. Thomson

Well, under the new leadership of Julian Clarke, who's certainly an inspiring character, there has been an improvement in the atmosphere, as crucially in the outreach to advertisers. And Julian is very much focused on, as he should be, both revenue and expenditure. I think, generally, to sum up, December was a good month. I think as you know, after holiday periods, there is characteristically a little bit of softness, which would have been the case in January. And February seems to be slightly better. Certainly, in the U.S. with The Wall Street Journal, February is looking to be a reasonably good month. Going forward, you obviously have the fall of Easter being a little later this year and the potential impact on, really, the unfolding of the numbers. But all in all, the team is working on bolstering the newspapers and developing, frankly, a more coherent digital strategy that reflects the local strengths of mastheads and making a greater connection between the masthead and the local population and developing that affinity and then using that affinity as part of a new outreach to advertisers in the states where we have papers, as Julian's priority. And from what we can see, he is doing an excellent job.

Operator

Moving forward, we will hear from Eric Katz with Wells Fargo.

Eric Katz - Wells Fargo Securities, LLC, Research Division

It was nice to see the acceleration or, I guess, improvement in advertising in the quarter. I was wondering if you had an advertising and circulation and even an EBITDA number for the organic business. If you were to strip out stuff like DJX, the Local Media Group and foreign exchange as well, it seems like it might be better than the down 10% on advertising.

Bedi Ajay Singh

I don't think we've given out that sort of analysis, but I think, generally, the trends are similar to -- trends are kind of similar. But I think -- I mean, I don't think we can specifically say much more than that. But excluding FX, I think we've got 61% down.

Robert J. Thomson

6%.

Bedi Ajay Singh

6%.

Robert J. Thomson

I think to supplement what Bedi said and, really, to add to what we already explained about the trajectory of advertising, look, it's the visibility, as is customary to say on these calls, is somewhat limited, but it's more mist than fog.

Operator

We'll move to Adam Alexander with Goldman Sachs.

Adam Alexander - Goldman Sachs Group Inc., Research Division

Just a question on books, really solid margin improvement there, about 400 basis points. Just wondering how much of that was driven by your closing and consolidating the warehouse versus the e-book penetration and whether or not this sort of margin level is what we can expect going forward or even some improvement as e-books penetration increases.

Robert J. Thomson

Certainly, Brian Murray and his team and Charlie Redmayne, the new head of the business in the U.K., are focused on costs and consolidation where necessary and where sensible and including consolidation of technological costs with the new News, generally. But what you're seeing at HarperCollins is the development of a very successful digital business. Clearly, the margins are higher in digital books. And one thing that is of particular note is the growing increase in the value of the back catalog. So it's not only the digital component for contemporary releases but the wonderful archive that we're able to exploit to HarperCollins in a manner which is raising the value of those books and, frankly, increasing the margin potentially at the company.

Operator

Moving forward, we will now hear from Alice Bennett with CBA.

Alice Bennett - Commonwealth Bank of Australia, Research Division

I have a question around FOX SPORTS Australia. Just wondering if you can give us a sense of the digital subscriber [indiscernible] had talked about, where that's coming from. Is it mainly through the Telstra T-Boxes? And if the ARPU you received on those digital subscribers the same as you would for a cable and satellite sub. And just a follow-up from several previous questions around the cost base for FOX SPORTS. Just trying to get a sense, as we move into the next few quarters, the NRL, I guess, is already in the base, as it was in the last -- in the PCP. Is there any benefit from the crickets coming into the next quarter? Or was that all received in the second quarter? And are there anything -- or is there anything coming up in future quarters? Like, is FOX SPORTS involved with the World Cup Cricket next year? Is there anything lumpy that we need to be aware of, given this cost base does seem to move around so much quarter-to-quarter?

Bedi Ajay Singh

Alice, so I think that you had 3 questions there, but I will try and answer all of them. So starting with the questions with respect to growth of digital subscribers, yes, most of that is from the T-Box rollout, and I think that's continuing at a sort of steady pace. In terms of what we get, it's about the same as we would get for a television subscriber. So I think that's -- the level of penetration into the T-Box universe might be a little less than what you would have in the TV residential subscribers, but we get paid the same amount. In terms of, I think the cricket rights was your other question, the benefit will continue to flow through in Q3. I don't think I can comment on things that we may be looking at doing. Of course, you must have seen that we did get the V-8 motorsports. So some of those costs, when they come through, will cause some lumpiness in comparison to prior years, and we didn't have that event. But that's a little while away. But I don't think there's anything else specific I could -- I can share with you at this stage.

Operator

And our next question will be from Alan Gould with Evercore.

Alan S. Gould - Evercore Partners Inc., Research Division

With FOX still switching -- or moving into the triple play bundle, what kind of opportunity does that bring to you? How much do you think that could expand the EBITDA at Foxtel? And will there be certain costs involved upfront before they are able to execute on that?

Bedi Ajay Singh

Alan, I think we're very excited, as Robert said, about triple play, and I think we'll see that coming into the market sometime later this year. I don't expect there to be a significant cost impact on Foxtel, but I do expect that Foxtel will benefit from -- hopefully, in U.S. subscribers coming in as a result of triple play being offered. I think it's hard to say exactly what the impact will be on the EBITDA. Well, one would hope that given minimal set-up costs and as you get new people in, hopefully, that will be a positive to the EBITDA.

Robert J. Thomson

Just to supplement, as Bedi said, it's a little early to tell at this stage. There may well be some marketing costs associated with the new offering, but obviously, we perceive the benefit to be much more substantial.

Operator

The next question will be from Tim Nollen with Macquarie.

Tim Nollen - Macquarie Research

My question is back on Amplify. I was curious about the adoptions you're talking about for this fall, if you believe you could compete head-on and win a major ELA contract from a traditional education publisher in a state like California. And secondly, along those lines, I'm hearing a lot of talk and seeing a lot of press about potential delays to the common core from a number of states and it's becoming quite a political issue. I just wonder if you could comment on that, please.

Robert J. Thomson

Well, to be honest, education has always been a somewhat political issue. But look, we are well advanced in the creation of the core curriculum. It's a competitive market. But if you had the pleasure of seeing our team at work, you would have the confidence that we do -- that we'll be more than competitive come the time for the tenders.

Operator

We'll move this time to Lance Vitanza with CRT Capital Group.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Could you talk a little bit about the subscription price increases at The Wall Street Journal? I'm wondering how meaningful those increases were, if you could put some numbers around it. Presumably, you've still got a long way to go to close the pricing gap versus New York Times and FT. Is that right? And I'm wondering what the plan is for closing that gap.

Bedi Ajay Singh

So in terms of The Wall Street Journal subscription pricing, we took pricing increase, I believe, it was November last year. I think it was a magnitude of $1 on the bundled pricing that we had for online and then online plus analog. We no longer offer, I think, for new subscribers a paper-only option. So pretty much, people have to get either just digital or digital plus the paper. Look, I think we talked about this issue earlier, not just at the Investor Day or, I think, even at the last call. We believe that pricing opportunity is for us, but I think we have to be judicious on how we take them because we also want to make sure that we're delivering fantastic value to the readers. And I think at the appropriate time, we probably will take modest pricing.

Robert J. Thomson

And, obviously, one of the imperatives for Will Lewis over the next few months is to look at what the elasticity there is, the type of bundle, the pricing of the bundles and the marketing of those bundles. As Bedi said, we generally believe that what we're offering readers is not only in English in the U.S., but in languages around the world is, by some way, the best possible business briefing and analysis available.

Michael Florin

Okay. Operator, with that, thank you very much for participating, and we look forward to talking to you next quarter. Have a great day.

Operator

Once again, this does conclude today's conference call. Thank you, all, for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!