News' CEO Discusses F2Q 2014 Results - Earnings Call Transcript

| About: News Corporation (NWS)

News Corporation (NASDAQ:NWS)

F2Q 2014 Earnings Conference Call

February 6, 2014 16:30 ET

Executives

Michael Florin - Senior Vice President and Head, Investor Relations

Robert Thomson - Chief Executive Officer

Bedi Singh - Chief Financial Officer

Analysts

John Janedis - UBS

Justin Diddams - Citi

Jessica Reif Cohen – Bank of America Merrill Lynch

Craig Huber - Huber Research

Alexia Quadrani - JPMorgan

Eric Katz - Wells Fargo

Adam Alexander - Goldman Sachs

Alice Bennett - CBA

Alan Gould - Evercore

Tim Nollen - Macquarie

Lance Vitanza - CRT Capital Group

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 - Senior Vice President and Head, Investor Relations

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 will open with some prepared remarks 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 three 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 a 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 will pass over to Robert Thomson for some opening comments.

Robert Thomson - Chief Executive Officer

Thank you, Mike and thank you all. With this quarterly report, we marked the first six months of our existence as the new 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 continued 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 two 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 platforms, 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 show total segment EBITDA of $327 million, a 9% increase over the second quarter of last year and adjusted net income available to News Corp 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 six 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 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 introducing other 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 a 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 (indiscernible) ABC News and Yahoo!. But Storyful will be more than a contemporary news and video agency. As its unique blend the 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 the digital page circulation of our newspapers in the UK. We announced in December that Sun Plus had broken the 100,000 subscriber mark in four months, which is three times faster than the rate seen at the Times and the Sunday Times when they introduced digital subscription three years ago. Let me caution, these are really early days in a pioneering venture for a popular paper, the most popular paper in Brittan. Sun Plus 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 creators.

The inherent value of Sun Plus and its subscriber affinity is recognized by our advertising partners. Last month O2 one of the largest mobile phone operators in the UK announced that it would be packaging Sun Plus 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 macro environment remains uncertain, we are cautiously optimistic and continued 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 at Dow Jones and appointed Will Lewis as the Interim CEO. We are also undertaking a fundamental review about 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 a 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. It has obviously lowered 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 were 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 are 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 two 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 and a market cap in Australian dollars of around $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 leaded in an increasingly digital world and determined to take carefully calculated risks that 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 Singh - Chief Financial Officer

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. This was a 9% increase versus the prior year period. Excluding all acquisitions and divestitures and cost related to the UK 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 non-taxable gain from the CMH transaction. Excluding restructuring and impairment charges, UK Newspaper Matter costs, the gain from the CMH transaction and other one-time items, our adjusted EPS were $0.31, which are flat with the prior year. Free cash flow available to News Corp for the first six 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 $162 million or 9% versus the prior year. And Australia accounted for $93 million by 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 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 remained cautiously optimistic about advertising, although Australia remains very challenged while the UK 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 are 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 UK and several of our Australian mastheads plus higher subscription pricing at The Wall Street Journal. Additionally we have taken a price increase of the Times and Sunday Times in the UK 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 cost for news and information services was 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 Plus initiative in the UK.

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 would 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 to 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 UK in January we entered into a long-term lease to occupy the place, our new headquarters in London. News UK, Dow Jones, HarperCollins UK will house their London operations together for the first time and we will begin relocating this summer. In connection with this there will be a primarily non-cash 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 UK.

Turning to cable network programming, segment revenues of this quarter were $110 million and segment EBITDA was $53 million. On a standalone basis, assuming we own Fox Sports Australia in the prior year quarter and excluding foreign exchange fluctuations revenues were increased 9% and segment EBITDA increased 34%. Advertising improved 6%, thanks to solid market share gains that was partially offset in December by the absence of the domestic cricket rights compared to the prior year. Subscription revenues also grew 6%, up 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 pricings 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 we had a very strong performance from the divergent series by Veronica Roth including the release of Divergent, the third and final book in the series, which is sold 2.2 million units to-date. In general books, we benefited from Mitch Albom’s The First Phone Call from Heaven 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, revenues decreased $10 million compared to the prior year primarily due to declines at Amplify related to lower 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 to the fall of 2014 and we will begin product demonstrations next month at south by Southwest in Houston.

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 is partially offset by higher investments spending at Amplify, our corporate overhead and cost related to our Corporate Strategy and Creative Group. In the quarter, U.K. Newspaper Matters net impact on total segment EBITDA declined $19 million from $49 million in the prior year. Again that’s not pretax cost after the indemnification from 31-CF (ph)

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 34% stake in SKY Network Television Limited, which is 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 the number of growth.

Foxtel’s EBITDA was up mid single-digit this quarter and up around 10% for the first half of 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 the 12.4% versus 14.2% benefiting from the (indiscernible) customer migration.

Turning now to cash flow from the six months ended December 31, News Corp’s cash flow from operations improved $407 million compared to $5 million in the prior year and free cash flow available to News Corp improved $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 FY12 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 this $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 impact. I think our operating expenses are generally on the right track in the face of still challenging revenue trends. As Robert 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.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And at this time, we will take our first question from John Janedis with UBS. Please go ahead.

John Janedis - UBS

Hi, thank you guys. Can you give us an update on the Dow Jones institutional business, you mentioned you are 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 Thompson

Hi, John, Robert here. No, the Dow Jones institutional business is very much core and there is no doubt that the original concept, the 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 have already seen is that Will Lewis has been an efficacious presence. He is certainly making a positive difference in terms of both mood and momentum and he is looking very closely at the great assets. But our part of the institutional business and Factiva, the newswires and by the journal content as well, which is part of the field that makes us the preeminent provider of our business news globally. But what you will 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 am sure many of the people on this call uses Dow Jones institutional news and analysis and will be in touch with you.

Michael Florin

Thank you, John. Operator, we will take the next question.

Operator

Thank you. At this time, we will move to (indiscernible) with Deutsche Bank.

Unidentified Analyst

Good afternoon. 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, but cricket rights cost in the third quarter of last year, I presume this cost might be impaired heading into next year into next quarter rather?

Bedi Singh

Hi, yes. So, in terms of the actual cost, there is about 7.5 million Australian dollars related specifically to cricket. And we had about 1.5 million from ad revenue specifically related to those in the prior quarter.

Unidentified Analyst

Obviously, in that….

Robert Thompson

Yes, obviously, as you know, there is a great seasonality to sport in every country particularly in Australia. And as you have the rolling out of Rugby league in Aussie rules in coming months, the cost calculation again changes.

Unidentified Analyst

Sure. I understand. Thank you.

Michael Florin

Operator, we will take our next question please.

Operator

Thank you. (Operator Instructions) At this time, we will move to Justin Diddams with Citi.

Justin Diddams - Citi

Thanks. One question, I have got so many. So news and information services, the number, the EBITDA number came in ahead of my expectations for the quarter, I just wonder if you give us a little bit of a breakdown amongst News Australia, UK, and Dow Jones where the better performances were out of those businesses on the partly weaker performances to give us an idea of where that EBITDA fell in that division? Thanks.

Bedi Singh

Hi, Justin. As you know, we don’t breakout EBITDA sort of specifically, but I think the way to think about it is if you look at what happened on the revenues, the Australia was down, but I would say sequentially the decline was less decline and if you see – if you get what I mean. And particularly in terms of the UK 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 phase across all of the businesses, I mean, I mentioned in Australia we had new contracts for newspaper purchasing and ink and in the U.S., we are looking up at our print operations, I think we’re looking at the headcount closely we have a sort of purchasing counselor, we’re looking at all the things we’re buying. So project cost containment remains a priority I would say across all of the businesses. We also I think Robert alluded to this, we also consolidated number of sort of healthcare plans. What that done is – it’s going to help us mitigate sort of cost increases in the future, if you know it’s happening in U.S. cost and cost raising quite significantly. But we took a good – I look at that and consolidated growth. We also closed all of our defined benefit pension plans. These plans had been closed to new participants, but now what we’ve now done is basically chosen the entitlement, but that’s going to say those I think about $5 million roughly in that range going forward so, things like that that we’re continuing to do across all of the businesses.

Michael Florin

Thank you, Justin. We will take our next question please.

Operator

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

Jessica Reif Cohen – Bank of America Merrill Lynch

Thank you. My long one question is first on Amplify, can you discuss some of the key initiatives if there are any change in outlook and maybe you could also clarify to fix the equipment issue that you had in your initial market and second question is the balance sheet is still flexible, you’ve got so much cash and you mentioned could be acquisitions and may be you could discuss capital returns and dividend, but I just want to make – to the extent that you do make more acquisitions, what are the areas of interest, we’re publishing seems to be an area that you’re doing very well and would be that or would be more digital initiatives?

Robert Thomson

Thanks, Jessica. On the go forward issue, we are continuing to work with the local officials there and I think stay tuned quite frankly most 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 on subsequently as you get deeper into this year that will be real benchmarks for adoption for fall of 2014, the adoption states for English we believe will be California, Idaho, Oklahoma and West Virginia. So, keeping an eye on those four, among others and that will be indicative of the evolution of the curriculum.

Bedi 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 will bring to our businesses sort of globally. So, I think that we continue to think about acquisitions in terms of those that will enhance our existing business, those that will enhance technologies and we want to be more disciplined and we want to remain sensible returns of what we buy. Clearly, cap returns or 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 in our disposal although, Robert mentioned obviously given in these turbulent times it’s hopeful to have a – have the cash balance. We are also mindful that we want to deploy that cash in a judicious and expeditious manner.

Michael Florin

Thank you, Jessica. Operator, we’ll take our next question please.

Operator

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

Craig Huber - Huber Research

Yes, hi, on the cable networks in Australia, can you just layout for us how you think about the costs there on a year-over-year basis here for the next 18 months the puts and takes in the various sports contracts I am trying to get out? Thanks.

Bedi Singh

Well, I think in terms of those sports contracts, I think we shared this at the Investor Day. Most of the contracts are kind of tight up for the next three to four years. So, we don’t have too many of those renewals that are 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 come into Q3 so that sort of cost profile that we expect in the coming quarters.

Craig Huber – Huber Research

Thank you.

Michael Florin

Thanks Craig. Operator we will take our next question please.

Operator

Thank you. At this time we will move Alexia Quadrani with JPMorgan.

Alexia Quadrani - JPMorgan

Hi. Thank you. 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 are seeing any sort of grounding in the market there any signs you have bottomed out and things might be getting a bit better and any early color on what you have been seeing in the March quarter?

Robert Thomson

Well under the new leadership of Julian Clarke who is certainly an inspiring character, there has been improvement in the atmosphere as crucially in the outreach to advertisers. And Julian is very much focused on as you 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 a slightly better month. Certainly in the U.S. its – The Wall Street Journal February is looking to be a reasonably good month.

Going forward obviously you 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 newspaper and developing frankly a more coherent digital strategy that reflects the local strength of mastheads and making a greater connection between the masthead and the local population and developing that affinity. And then using that affinity is part of a new outreach to advertisers in the states where we have papers is Julian’s priority. And from what we can see he is doing an excellent job.

Michael Florin

Thanks Alexia. Operator we will take our next question please.

Operator

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

Eric Katz - Wells Fargo

Hi 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 from 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 Singh

I don’t think we have given out that sort of analysis. 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 have got 61 down.

Eric Katz - Wells Fargo

6%.

Bedi Singh

6%.

Robert Thomson

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

Michael Florin

Thanks Eric. Let’s take our next question please.

Operator

Thank you. We will move to Adam Alexander with Goldman Sachs.

Adam Alexander - Goldman Sachs

Thanks guys. 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 ebook penetration and whether or not this sort of margin level is what we can expect going forward or having some improvement in ebook penetration increases?

Robert Thomson

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

Michael Florin

Thank you. We’ll take our next question please.

Operator

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

Alice Bennett - CBA

Yes, hello, I have a question on Fox Sports Australia, just wondering if you can give us a sense of the digital subscriber growth you talk about where that’s coming from, is it mainly through the Telstra T-Boxes and if the ARPU you receive on those digital subscribers the same as you would for a cable and satellite sub. And just got a follow-up from several previous questions around the cost base for Fox Sport, just trying to get a sense as we’re move into the next few quarters, the NRL I guess is already in the base so is in the last in the PCP. Is there any benefit from the cricket coming into the next quarter or is that all received in the second quarter? And are there anything – is there anything coming up in future quarters like Fox Sports involved with the World Cup Cricket next year, but anything lumpy that we need to be aware of given these cost base does seem to move around so much quarter-to-quarter.

Robert Thomson

So I think you had three questions overall. So I think I’ll answer all of them. The starting would be question with respect to growth of digital subscribers, you have both of that is from the T-box rollout and I think that’s continuing and also a steady phase. In terms of what we get, it’s about the same of we would get through television subscriber, but I think that’s the level of penetration through the T-box universe might be a little less and what you would have in our – on the TV residential subscribers if we get paid the same amount. In terms of I think the cricket live so, we have a question the benefit will continue to flow through in Q3, I don’t think I can comment on things like we may be looking at of course you must have seen that we did get the V8 Motorsports. So, some of those costs when they come through that will call some lumpiness in comparisons with prior years and we didn’t have that event. So, that’s a little while away, but I don’t think really there’s anything else specific I would share with you at this stage.

Michael Florin

Thanks, Alice. Operator, we’ll take our next question please.

Operator

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

Alan Gould – Evercore

Thank you. With Foxtel, switching or moving into the triple play bundle, what kind of opportunities that bring to you, how much do you think that could expand the EBITDA Foxtel and would there be certain costs involved upfront before they are able to execute on that.

Bedi Singh

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

Robert Thomson

Just to supplement and as Bedi said, it’s a little early to tell at this stage, may well be some marketing cost associated with the new offering, but obviously we’ll see the benefits to be much more substantial.

Michael Florin

Thanks, Alan. Operator we will take our next question please.

Operator

The next question will be from Tim Nollen, Macquarie. Please go ahead.

Tim Nollen – Macquarie

Hi, thanks. 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 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 its became a quite a political issue. I’m just wondering if you could comment on that please.

Robert Thomson

To be honest, education has always been somewhat political issue, but we are well advancing in creation of the core curriculum, it’s a competitive market, but if you had a pleasure of seeing how team work, you would have the confidence that we do that will be more than competitive come the time for the tenders.

Michael Florin

Thank you, we’ll take our next question please.

Operator

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

Lance Vitanza - CRT Capital Group

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

Bedi Singh

So, in terms of the Wall Street Journal subscription pricing, we took pricing increase I believed in November last year. I think there was a magnitude of a dollar 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, I think even at the last call, we believe there are pricing opportunities for us, pricing we have to be judicious in how we take them, because we also want to make sure that we are delivering fantastic value to the readers. And I think it will be appropriate time, we probably will take modest pricing.

Robert Thomson

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 genuinely believe that what we are offering readers not only in English in the U.S., but in language around the world is by some way the best possible business briefing and analysis available.

Michael Florin - Senior Vice President and Head, Investor Relations

Okay. Operator, with that, thank you very much for participating. 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.

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