Steve Lacy – Chairman and Chief Executive Officer
Tom Harty – President, National Media Group
Liz Schimel – Chief Digital Officer, National Media Group
Martin Reidy – President
Paul Karpowicz – President, Meredith Local Media Group
Joe Ceryanec – Chief Financial Officer
Meredith Corporation (MDP) Analyst Meeting Call February 14, 2012 9:00 AM ET
Steve Lacy – Chairman and Chief Executive Officer
Well, good morning everyone. I guess the light's dim and it gets very quiet like church, so we appreciate all of you being here with us this morning. We are very, very flattered that you would join us. For any of you that I didn’t have the opportunity to say hello to, I am Steve Lacy, the Chairman and CEO of Meredith and we are very, very pleased to have the opportunity to share our growth strategies with you this morning and have the opportunity to interact a bit. And I certainly want to thank our friends at Bank of America for making this venue available to us today.
We are going to have of course conversations that include some forward-looking statements. Then this next slide is simply a reminder of the various factors that could impact our business as we go forward.
I think one of the great advantages of a meeting like this is really the opportunity that you have to hear from a deeper set of executives than in the normal investor conferences and various calls that we make on you across the country. It also of course gives us the opportunity to provide more context around the growth strategies and the initiative that we had in play to not only continue to grow our very, very strong connection with the individual consumer, but of course, monetize that connection by growing revenue profit and cash flow as we look to the future.
So, by way of an agenda, I am going to start with an overview or really look to the future of the company over kind of a three-year planning horizon between now and the end of our fiscal 20015 and then turn the discussion over to Tom Hardy, who a number of you know, Tom runs our National Media business. He will be followed by Liz Schimel, who is the Chief Digital Officer for our National Media activity and of course the number of the initiatives that were about and various investments that we have made recently are about growing our digital platforms. Liz will be followed by Martin Reidy, who is the President of Meredith Xcelerated Marketing and then Paul Karpowicz who a lot of you know who runs our local media business and then Joe Ceryanec, our CFO will provide a financial update and really talk in more detail about our total shareholder return strategy that we launched right at the end of October.
We are planning to take a break after Liz speaks and is anybody along the way would like to help yourself to coffee or some of the continental breakfast on each side of the room, also right outside the door, right across the hall is the women's restroom and for any of the men you have to go through a little bit of security, but our friend from Bank of America have a young man right out in the hallway who will help direct you around, so please feel free as we work our way through the morning to make yourselves comfortable.
For those of you, who might not be as familiar with our business, let me start with a very brief overview of the company. On the left hand side of the slide, you see our National Media brands depicted and they generated about $900 million in revenue in our fiscal year 2011 and that's the period that ended June 30 of last year.
With the addition of Allrecipes.com and we anticipate closing right about the 1 of March on that transaction that you will hear more about this morning. We will reach $100 million unduplicated women each and every month through our National Media business across platform. We are clearly the leading media and marketing company serving U.S. women today and the portfolio of brands that we have strategically assembled over time is unmatched in the media industry.
Our Local Media business, which is in the center of the slide, generated about $320 million in our fiscal 2011 and reaches about 10% of the U.S. household. We are leading the broadcast industry and gains in nonpolitical advertising revenue and we have done so now for a number of quarters.
Our Marketing Services business generated about $180 million in fiscal 2011 and we are a leading business-to-business marketer offering clients such as Kraft, Nestlè, Chrysler, Lowe’s expertise that really bridges a number of digital platforms including social, mobile, database marketing here in the United States and abroad.
Our connection to the end-consumer is very strong and continues to grow. Our National Media Brand attracts 115 million readers each in every month lead by our flagship brand Better Homes and Gardens. Over time we have developed a leadership position in food, in parenthood and of course in the home categories and we have leveraged our powerhouse Better Homes and Gardens brand to develop a very profitable licensing business at retail and that includes a major program with over 3,000 SKUs at every Wal-Mart store in the United States and in Canada.
Online our brands attract more than 40 million unique visitors each and every month and we are accelerating our digital presence with the recently announced acquisition of Allrecipes.com and aggressively extending into tablet and mobile as well and you will hear a lot more about that this morning as we progress through our conservation. We own a really great mix of network-affiliated television stations in fast growing markets and we are expanding the amount of local programming we create and aggressively growing our daily Better syndicated television show that Paul will tell you about in just a few minutes.
Today the better show has coverage about 80% of the country. Meredith Xcelerated Marketing is now a full service digital agency with all the acquisitions that we have made in recent years and with the investment in Iris, it gives us global capabilities as well. So, we really successfully extended our brands across a host of media platforms giving our consumer the important flexibility to access our content, where and when she wants to reach it and a much stronger consumer engagement across those platforms. In addition, we have built meaningful scale cross these media platforms giving our advertising and marketing partners the opportunity to reach the broad audiences and generate for Meredith of course more revenue and stronger cash flow.
Many of you who have followed us over a period of time, know that we have pursued a serious of strategies over the last decade that has added not only scale to the company, but significant operating efficiency, leading of course to higher revenue profit and free cash flow, while also helping diversify our revenue stream.
In National Media, we have expanded our content and diversified advertising away from the home and direct response categories to faster growing categories such as food and beauty, and Tom will provide more color around that this morning. We have also over this period of time doubled our share of magazine advertising revenue through the acquisition of a serious of properties from American Baby to Parents to Fitness and Family Circle, while also expanding our digital and again are very high margin brand licensing activity.
Our television station business under the leadership of Paul Karpowicz, will speak just a little bit later this morning as very successfully turned around to be a leader in the industry. Paul has focused the stations on growing the amount of programming our local news that we create and establishing a much stronger local brand presence.
In Meredith Xcelerated Marketing, we more from a what primarily a custom publishing activity to more of a strategic partner providing growing digital and CRM services to a whole host of corporate client. As we look ahead again over kind of a three-year planning horizon into our fiscal 2015. We see continued growth and market leadership.
Our National Media Group will build on its lead at creating and also distributing branded content for women across media platforms. We'll also continue to aggressively execute our digital strategy that you will hear about this morning in significant detail including our goal of generating over half of our consumer marketing transactions in a digital or online environment. We will also have expanded our brand licensing beyond Better Homes and Gardens during this time period.
Our Local Media Group will continue to be a news leader rated as the number one or number two station in each market where we operate possessing not only online, but also mobile platforms of scale and growing non-traditional sources of revenue from not only retransmission fees, but also from our Meredith Video Studios activity.
And in our marketing services business, we'll be more of a recognized leader in providing digital marketing solutions and we'll leverage our recently announced international capabilities and reach through the Meredith-Iris Worldwide Network adding those capabilities to our fast growing discipline.
I think so far in our fiscal 2012 and we are just a little past the halfway mark, we have had very strong execution against these growth initiatives. We have successfully grown our leadership in creating branded multi-platform content, particularly in the food and the parenthood space, through the acquisitions of the popular Every Day with Rachael Ray, EatingWell, and the Family Fun brands. Several people asked me this morning if Rachael Ray was going to be with us, we were really afraid to have her here, because we thought she steal the whole show, but she is a lot of fun to work with and we are having a good time with that new business.
We're also growing the number of subscriptions that we sell online and Liz will tell you more about that and extending and expanding our very successful program with Wal-Mart, which Tom recently extended out for a five-year period through 2016. In the Local Media business, the November ratings book was probably the strongest we've had in a decade and our station websites are better serving our viewers and our advertisers and we've nearly now doubled the number of markets, where the better show is available to the consumer.
As many of you know, we've recently rebranded Meredith Xcelerated Marketing and also announced the Meredith-Iris Global Network and we did at the ANA Conference earlier last call. To help us generate more revenues abroad and also bring some of Iris's clients abroad to the United States. We will also hear from Martin this morning about opportunities we see in health and in search engine optimization. And finally, we launched in late October, our new total shareholder return strategy and that has been very well received in the financial marketplace.
The key elements include a 50% increase in our annual dividend to a $1.53 a share and net yield is about a 5% yield at this point in time in the market; a new $100 million share repurchase authorization, and a series of ongoing strategic investments to drive incremental growth in revenue profit, and of course, free cash flow.
So, I thought I end this morning with kind of a quick snapshot of the current business environment as we enter early calendar 2012, because most of our conversation this morning will be around major growth initiatives that we'll be executing as we look to the future. The good news is we are seeing modest improvement in our National Media Group advertising aided we believe by our recently announced Meredith Engagement Dividend.
Our Local Media Group of non-political advertising revenues continues to show strength and lead the industry pacing up in kind of the mid single-digit range right now in the first calendar quarter of 2012. Our brand licensing business continues to be strong, but we are experiencing some headwinds in Meredith Xcelerated Marketing from certain of our major corporate clients who in calendar '12 have scaled back their programs again due to very high commodity prices that they are experiencing. And this is a lot like what we were dealing with in our advertising business back in calendar '11. As we mentioned on our conference call earlier, when we announced earnings, we feel confident about our future growth and Joe will fill you in on those projections and we continue to exercise very disciplined cost control and remain quite focused on our financial strategy maximizing free cash flow in a sustainable way as we look to the future.
So, while early calendar 2012 magazine advertising is starting slower than we had hoped, the experts are predicting as you can see here on the slide flat performance for the full year calendar 2012. But I think as you will hear from Tom this morning, he has the troops rallied to beat that projection as we look forward for the full year. The good news is in early calendar '12 our non-political television advertising and our digital revenue really across the entire enterprise are facing stronger than these full year projections that you see on slide '11.
Looking beyond the current year though, I really wanted to address a common concern that we have when we are in the marketplace talking to advertisers. And that’s really the question that has phrased a lot of different ways, but somehow around how is advertising spend changing by platform and how will those trends impact Meredith as we look to the future. And I think this slide tells a very, very interesting story. Five years ago, newspapers controlled a quarter of all advertising dollars that were spent in the media marketplace. Today, that's down to about 15% and it’s projected to be 10% by the year 2015.
As you can also see on the slide, the big gainers have been cable television and digital media. As you can also see in the middle of the slide, television stations and consumer magazines, especially consumer magazines that have never really been the driving force in the media marketplace are pretty much holding their own and expected to do so as we look to the future. So, what does this really mean for Meredith and how do we think about it as the senior management team? We believe that our core business will remain fairly stable as we look to the future. And as operating leaders and as you are going to hear were at the same time aggressively expanding to really position ourselves for growth as we look to the future.
So, while we are very confident about our core businesses looking ahead, we certainly don’t have our heads buried in the sand. We are very cognizant of the trends that we see in the marketplace and again putting ourselves in the best position to capitalize on the opportunities that we see looking forward. From a consumer standpoint, the fastest growing demographics are upscale Baby Boomers, our traditional audience and the younger generation just beginning to move into our real house in terms of family formation.
We will, of course, continue to serve the baby boom women as we look to the future and as we have for many, many years. But as part of our very broad strategy including digital expansion, we are very focused on aggressively pursuing the younger adults and younger families and in (my vernacular), the daughters of the Baby Boom women that we HAVE served for such a long time. And that includes developing the distribution platforms to reach them including online on the tablet, on mobile, and by creating much more video content than we have historically.
From a capability standpoint, we believe that it’s very, very important to continue investing in our non-advertising based businesses such as Meredith Xcelerated Marketing, because it gives us access to new and growing budgets and allows us to serve our clients in a global way. And given the current economic uncertainty, our ongoing priority is very disciplined cost and cash management, and at the same time, maintaining our longer view and looking for investments and alliances that build out our portfolio. So, our focus is on driving growth in revenue profit and cash flow as we look forward were aggressively pursuing what I think are clearly defined strategic growth initiatives. Strengthening our core businesses and expanding in faster growing ad categories and you will hear a lot about that this morning.
Aggressively scaling our digital and our video capabilities to make sure that our brands are relevant to the next generation of consumers as they come into the marketplace, expanding our sources of revenue that are not dependent on what tends to be a cyclical advertising cycle and of course executing tuck-in acquisitions and investments that help drive our operating group performance. We have tremendous confidence in the strength of our brands, the robust business model that we have developed over time, and the sustainability of our free cash flow that is the fundamental underpinning of our total shareholder return strategy. We have a very long history of returning cash to our shareholders and we continue to increase that cash and deliver those returns as we look to the future.
So, let me close this morning before turning it over to Tom with what I believe is a very compelling investment pieces. We have powerful media and marketing brands and trusted brands nationally and locally with an unrivalled female reach. We operate a great group of television stations in growth markets. In Meredith Xcelerated Marketing, we have built a leading full-service digital marketing agency and we have a plan in place to produce solid growth in earnings and free cash flow. We paid a dividend for 65 years and increased it for the last 19 with a current yield of around 5%.
Our management team is strong and proven and very focused on the long-haul and we are going to use the rest of the morning to detail of the strategies that we are executing for growth in revenue profit and free cash flow that we believe will result in total shareholder return in the range of 10% to 15% over the upcoming three-year planning period. And I don’t think that I mentioned earlier in my remarks that as we finished this morning we saved plenty of time after you hear from Paul Karpowicz for what I think will be a very robust question-and-answer period.
So, let me now introduce Tom Harty, who is the President of our National Media Group. Tom joined us in 2004 and at that time ran what we call our magazine activity. During his tenure, he has played a very, very important role in developing Meredith 360, the way we go to market in a multi-platform way and also developing a very robust corporate sales activity and he led the development of our Meredith engagement dividend that you'll hear about this morning along with expansion in food, mobile and tablets. So, Tom, take it away.
Tom Harty – President, National Media Group
Thank you, Steve and good morning everyone. It's a pleasure to be here today. In my section, I'll cover the way we are looking at building our brands with our consumers and the way that we use those brands will help our advertisers deliver relevant messages. We also delved into how we are continuing to drive efficiencies in our core business over time, but also extending to new high margin businesses. We clearly understand that the threats exist if we stay static.
As you heard from Steve, there have been over the last decade and most recently in 2012, I think what sets Meredith apart is the thoughtful, strategic, and very disciplined approach we have taken to creating the business we have today. Hopefully, my time this morning will leave you with a better understanding of how you are evolving into the next generation model for a moderate media and marketing company.
Clearly, Meredith is recognized for its legacy as a magazine company. Since 1902, we built enormously successful brands and creating meaningful scale across multiple media platforms. We have 25 subscription magazines and approximately 100 newsstands. Among big publishers in the United States, our portfolio is mostly focused on adult women. We have very strategically and deliberately expanded our audience over time by adding content and brands at the end – both ends of a woman's adult life, first, at the beginning, early stages of family formation and then during the period of her life when her children are grown and she is reinventing herself. Our singular focus on women kept us relevant to her and helped us and our brands remained vibrant with our consumers. This combined with the fact that we've published evergreen content, which isn’t time-sensitive has led to steady growing leadership for our magazines over the last decade as outlined in this chart. Our growth trend is key market trends for other areas of print media that do create time-sensitive content, including many newspapers and weekly magazines.
Why do we focus on women? Women are the driving force behind most decision-making as it relates to making purchases for their family, their homes, their health, and their personal well-being. Women already control 70% of household spending in the U.S., which amounts to $4 trillion. They are increasingly earning their own money and more, which means their ability to spend is only likely to rise in the future. When it comes to media, women are receptive to all of our core platforms from magazines to digital. They are great and well customers and they consume lots of magazines. They spend more time on the internet and then and they are also very active in social media. All this makes women extremely attractive audience for our advertisers and it's very important strategically for Meredith.
When it comes to our share of advertising marketplace, our execution combined with our portfolio additions have made us a faster grower than our peers over time. Over the last decade, we've more than doubled our market share in the U.S. magazine advertising market. This has given us a lot of operating efficiencies in areas such as consumer marketing, printing, and paper purchasing. It also has given us a leadership position serving American women, which makes us very relevant to advertisers and it has given us a powerful portfolio brands that are added into our overall free cash flow.
To drive future growth in revenues and operating profit, we are very focused on the initiatives you see on this slide. Growing magazine advertising, leveraging, and strengthening our brands beyond advertising including brand licensing activities continuing to operate efficiencies wherever possible, and finally, we are focused on growing our scale in the digital space, which we have done on a major way to our recent acquisition of Allrecipes.com.
I'll begin with our initiatives to grow advertising revenues. Food is a great advertising category. Yes, it had a difficult year in calendar 2011 due to the higher prices for commodities that our clients have been facing, which resulted in a pullback in food-related advertising and marketing spend. However, it's a space for advertising category. The important insight is that more and more American consumers are cooking meals at home. Additionally, the very good competitive nature of CPG companies reached the increased marketing spending to attract new customers, and more importantly, protect market share.
In fact, advertisers in the food category have grown their spend at a compound annual growth rate of 4% over the last 5 years making it one of the strongest performers among all ad categories. This is during the period when the total U.S. ad spending contracted at a compounded annual rate of 3%. So, we are deliberately and strategically increasing our scale in food.
In fiscal 2012, we have acquired the EatingWell and Every Day with Rachel Ray brands, which together have added approximately 10% to our annual advertising page total. We have introduced six new newsstand-only food titles bringing our total to 40 annually. Today, we control more than 20% of the monthly magazine's food advertising pages making us a clear number one. With Allrecipes.com, the world's largest digital food side, we are well-positioned to capitalize on the digital opportunity as it continues to evolve.
The Parenthood category is equally attractive. It's a very large audience. There are approximately 4 million births annually in the United States and new parents are in intensive period of experimentation with new brands and purchases. These are the consumers that advertisers are passionate to reach. We expanded into the Parenthood category 10 years ago with the acquisition of American Baby. It was our first step towards diversification away from the home advertising category, which at the time represented 25% of our advertising for its categories which would produce better future opportunistic growth.
It was also our first step in positioning Meredith for the early stages of family formation. It lowered our median age and set us up perfectly to transition our customers through our portfolio as their family grew. We acquired Parents, the number one brand, in the Parenthood arena three years later and that great properties cemented our leadership position in this key category. So far this year, we acquired Family Fun brand from Disney and enhanced our existing brands to refreshing both our print and our digital redesigns. Today, we command more than 40% of the Parenthood magazine advertising marketplace.
Our initiatives have meaningfully changed our advertising category concentration over time. In the left hand column of this chart, you can see our ad category concentration that existed 10 years ago in 2001. Home was our biggest category then accounting for nearly a quarter of all of our advertising revenues. Adding the direct response category in meant that more than 40% of our ad revenues were tied to these two categories which we thought will be challenging to grow at an acceptable rate over time. We didn’t know about the housing prices back then, but the good thing we diversify towards food, pharmaceuticals, and beauty.
By 2011 shown in the middle column nearly doubled our revenue share in these three key categories. On the right hand side of the chart, you can see how each category has performed over time from an industry perspective. Clearly, we were wise to expand into expand into high growth categories and reduce our exposure to low growth categories. We tend to pursue a similar strategy into the future and we believe we are well-positioned to drive growth as we move forward.
Looking at historical growth rates, we know from and also from conversations with our clients, we believe that in addition to food, beauty, retail, financial and auto will be key categories for growth in the future. To grow our exposure we intend to use our editorial assets to create an attractive environment for each of these types of categories. We also bring other assets to there. This includes digital video and other media platforms such as social, research, consumer insights, and our recently announced Meredith Engagement Dividend.
We are still confident in our brands and the results that they deliver that we created the Meredith Engagement Dividend this past summer to prove that magazine advertising works. We are backing it with a guaranteed return for marketers, which has never been done before in our industry. It works by taking data from the research company, Nielsen in their Homescan program, which is well understood and respected by marketing and advertising community and breaking that universe into two distinct groups.
One group subscribes to Meredith magazines and a second control group does not. We then compare the retail purchase activity between the two groups to see if the Meredith’s subscribers display a different purchasing decision than non-subscribers. We tested our methodology for a full year with 14 different client brands before taking the engagement dividend for client base. On average, the brands still have 10% lift in sales and average return on investment of $6.61 for every dollar invested on our magazine titles versus the control group.
To participate in the Meredith Engagement Dividend moving forward, we have asked our commitments from our advertisers to significantly increase their advertising spend in 2012. We’re pleased with the participation so far. Clients were asking for measurability and accountability and we delivered it.
With that review of our advertising growth strategies, I’ll turn to the key strategies we’re pursuing to leverage and strengthen our brands. Beyond advertising, revenue diversification is a top priority from Meredith. Over the past few years, we've successfully grown revenues from sources not dependent on advertising and we strengthened our brands in the process. And we are accelerating these initiatives.
Our brand licensing revenues have more than doubled over the last five years and reached more than $40 million last year. This has been led by the Better Homes and Gardens branded products at Wal-Mart. This is a very high margin business with operating margins above 80%. We recently extended our program with Wal-Mart to five more years to 2016 and our new agreement includes an expansion of the product line. Today, we are selling 3000 SKUs of Wal-Mart – at Wal-Mart stores across the US and Canada.
While Wal-Mart is our most important brand licensing expansion, it’s not our only program. We have 30 licensing relationships programs in 15 countries. We share editorial content and advertising leads with our foreign partners in return for percentage of revenue derived from the brand activity in their market. Closer to home, the Better Homes and Gardens real estate franchise has attracted 7,000 agents in 24 states as well as Canada. We earned a percentage royalty on homes that are sold under the Better Homes and Gardens franchise.
Better Homes and Gardens has proven to be a remarkable brand as consumers have accepted and embraced our efforts to extend it to new platforms and new product lines. However, it's not our only brand with that potential. One of our key initiatives is still in the Parents and American Baby brand to the next mega brand for Meredith. We believe these brands have the potential to be much more than they are today.
Now, I'll turn to the ways we are focusing on cost and finding efficiencies. We had a major focus on our cost structures. We continue to aggressively target efficiencies wherever possible. Over the last three years, we drove annual expense declines of 6%. It accomplished us by renegotiating all of our major contracts, including those for printing, paper, and fulfillment. Additionally, we have rationalized our magazine portfolio and reduced our headcount. We have also created efficiencies at our newsstand. While we are operating in a very uncertain revenue environment, we continue to be diligent on our expense base, how we look at it in the future. One of the big opportunities we see is migrating our consumer marketing transactions online.
Here is a look at the progress we have made so far moving our consumers online to subscribe to our titles rather than to traditional direct mail sources. Across our brands, we bring in approximately 12 million direct orders annually. We intend to grow our online sub-orders from $2 million or 17% of that total in fiscal 2012 to $5 million or 40% of all orders by 2015. This is a tremendous cost-saving initiative. We realized approximately $5 in incremental profit per order that we get online. In addition, online subscribers are 8 to 10 years younger than those we acquired to direct mail and their household income is between $10,000 to $20,000 higher. We have more opportunities to up-sell these customers in a digital checkout and acquiring subscribers online mitigates pressures on our traditional sources.
To reach online subscription goals, we are focused on five key strategies. First, we will increase the conversation rate through our Meredith websites. We'll do this through promotion on the websites and benchmarking for best practices. Second, we will deliver direct marketing respondents to transact online using targeting modeling segmentation are going to play key roles in this area. Third, we will optimize our e-marketing. We currently have approximately 18 million internet registrants that are mobile optimized. 30% of them are actually reading our marketing message on smartphones rather than in computers. Fourth, we will implement auto renewal and e-bill renewals. The ROI on this initiative alone is expected to be between $7 million to $10 million over the next five years. And finally, we will use emerging channels such as social to look for new ways to generate subscriptions.
To conclude my portion today, we are focused on integrating our new food-related assets and maximizing the resulting profit and cash flow generation. We are working to grow our important Parenthood assets and continue to increase our revenue in the fastest growing advertising categories. We have a strong brand licensing program and a portfolio of brands beyond Better Homes and Gardens and a potential of having licensing programs of their own. We'll continue our efficiency initiatives including our circulation strategies to move our subscriptions transactions online.
Our last initiative our digital strategy is my segue to Liz Schimel, who is the Chief Digital Officer for the National Media Group. Liz joined Meredith more than a year ago from Nokia, where she led global mobile services in Music and Connected Entertainment. She has also held senior digital leadership roles at Comcast, at AT&T Wireless. She has got a broad range of responsibilities at Meredith including overseeing all consumer relationship management and digital media with overseeing the development of our tablet, our mobile efforts. She is expanding our CRM, our e-commerce capabilities, and she is heavily involved in migrating all of our consumer activity online. Liz?
Liz Schimel – Chief Digital Officer, National Media Group
Thank you, Tom. It's my pleasure to be here today and discuss our digital growth strategy. For Meredith, we use the word digital to refer to a fully cross-platform digital vision, web, mobile web, mobile apps, digital video, tablet, and e-commerce.
Let's begin with a shot of our web presence in the National Media Group. One of the most important aspects that digital has brought to the company, which works as a monthly magazine publisher is the ability to communicate a lot more frequently with our consumers and to gather a lot more immediate data on their activities and their engagements. That's a great thing, but demand has different set of tools and capabilities.
Our magazines are perfectly positioned to provide inspiration and entertainments as they have for decades. Today, we are using digitals as a means to help her in for day-to-day life, whether that’s using our parent app to book a playday for her children or using our recipe tools to plan a meal and create a shopping list. My call to this portion of the presentation is to help you understand our areas of focus as it relates to digitals and the strategies that we are pursuing.
Our growth strategies began this expansion of our digital audience. They include accelerating our tablet developments, scaling our mobile and video activities and maximizing our ability to generate advertising revenues. Finally, we see a meaningful opportunity to expand an e-commerce by connecting our high purchase intent audience with the business services that they want and need.
Our goal for web traffic is to reach to 60 million monthly unique visitors as measured by comScore in fiscal 2015. The Allrecipes.com acquisition has had huge impact on our ability to reach that full. In fiscal 2011, we were at 14 million comScore uniques and we are seeing significant growth in our own digital properties this year, bringing the Meredith plus Allrecipes.com total to 40 million uniques in fiscal 2012.
We are relying on four key growth strategies to reach our audience target. The first is search engine optimization. Page from our SEO efforts are up 25% year-over-year, but we know that this methodology drives results. This is an area that Allrecipes.com were significantly accelerates. We are building our social media capabilities, as we know that women are huge drivers of social activity on the web.
We currently have about 2 million Facebook fans and about 650,000 Twitter followers. Both platforms drive people to our site, increase engagement and we will continue to do everything that we can to add friends, fans and followers to our brands. We are also focusing on other emerging social media sites such as Pinterest there we are seeing terrific engagement and referral traffic.
We know that our e-mail newsletters drive audience and we are an e-mail marketing powerhouse. Page views originating from newsletters are up over 60% this year. And finally, we are focused on integrating Allrecipes and maximizing the opportunities we have with this business.
I know many of you would like to know more about Allrecipes.com and our thinking and strategy behind the transaction. At its most basic level, Allrecipes.com is a major digital scale play for us. Allrecipes is a social content company that leverages user-generated content, food recipes to create a highly interacted and engaged community of approximately 25 million unique monthly visitors.
To give you a sense of this site to reach, this is the most visited food site in the US and the world. It’s the number one food recipe channel on YouTube and its recipe app is the most downloaded app in the space on both Android and Apple operating systems. Allrecipes have achieved impressive historical growth. Since 2008, revenues have grown at a 20% rate and operating profit a better than 30%. Though you can see, we have acquired a very high growth business with high margin potentials. With Allrecipes we now also dominate the top three media platforms consumers turn to for cooking information.
We already had a leading position in food focus magazine and in books. These are the number two and three platforms that consumers turn to. Tom told you about our food magazines, but you would also be aware about our best selling book cooks, the Better Homes red plaid cook book.
What really set Allrecipes apart is how well position they are at the nexus of food portals, food publishers, PPG advertisers and food SEL plays. For Meredith, it brings a vibrant global brand, unique expertise, digital dominance in user-generated content creation and proprietary search engine optimization capability, which will be very important towards going forward.
I think this next slide truly illustrates the power of the combination of Meredith and Allrecipes.com. This combination moves us immediately to the number one position in food and the number two slot in the women's lifestyle category. You'll see that this puts us comfortably ahead of some very well-known brands on the list. And if you look at it from the perspective of sites, which are based on proprietary content versus the network site like plan, it really puts us in that top slot. This is a huge boost to our advertising sales effort, where these metrics are the critical components in determining advertising spend.
We also believe there is a meaningful potential to continue to grow this business over time and we are pursuing a number of initiatives to do so. First and foremost, we are focused on growing advertising revenues. Advertising sales is where Meredith excels and Allrecipes is currently under-levered. We believe there is a significant opportunity to increase top-line revenue growth from consumer transactions. We plan to add more video, which is compelling to consumers and more valuable to advertisers allowing us to increase overall CPM. We also plan to invest in mobilizing the brands.
As big as it is, Allrecipes.com does not currently have a mobile-optimized site and we believe that creating a optimized mobile site will significantly increase consumer satisfaction. Allrecipes.com is by nature a social media engine. All of the recipes here generated, for example. We can leverage that community to create even more social media connection, but I would also say that it's extremely excited to both companies is that we find that the cultures of our two companies match extremely well and we are already having very, very productive initial integration planning meeting, where we have achieved a truly common vision of how to go to market and everybody is energized by the number of calls that we have been getting from advertisers who are extremely excited about these two fantastic companies coming together.
With that, I'd like to move to another topic of great interest, which is tablet. We have made huge strides in extending our brands across multiple tablet formats. This slide shows our current tablet presence. We began last spring with three of our brands on tablets, Better Homes and Garden, Parents, and Fitness. Today, 15 of our brands as well as many special interest titles are available in tablets across one or more platforms including iPad, NOOK Color, NOOK Tablet, Kindle Fire, and select Android tablets such as the Samsung Galaxy. And we have been a key launch partner for Apple, Amazon, and Barnes & Noble newsstand and work closely with them on driving innovations and roadmaps in our area of expertise.
We saw strong sales in single-copy and subscriptions of digital tablet additions during the holiday season and anticipate continued strong growth as the tablet installed base expands and prices continues to decrease. We have a goal to move at least 10% of our circulation to tablets by fiscal 2015. This initiative is twofold. First, we can migrate our existing print subscribers to tablet. Second, we can pursue a new universe of potential tablet readers. To do this, we have really recalibrated our consumer marketing based on data-driven insight to maximize effectiveness for this emerging platform and this new audience that are engaging with our brands. We have excellent examples to follow. For example, Barnes & Noble, Amazon and Apple have done a tremendous job at both promoting their products as well as our brands on them. And Amazon, for example, has used our brands in two of their high rotation television to promote the Kindle Fire.
Importantly, this tablet initiative allows us to reset expectations on consumer pricing. We know, for example, that approximately 40% of our digital subscribers on the iPad had no prior relationship with Meredith. That presents a tremendous opportunity to reach that pricing expectation.
Mobile is also growing in importance as more of our consumers are using smartphones. Today, about 8% of the traffic we received to our sites is coming from mobile devices. To better serve this audience, we have introduced mobile-specific site and approximately 10 mobile apps that have resulted in over 3 million downloads so far this fiscal year.
Our recent and very popular, Must-Have Recipes comes with over 200 recipes how-to videos, shopping list tools, timers, recipe boxes and more. Users can buy new recipe chapters at $0.99 each or download sponsor recipes for free. This app has done nearly 1 million downloads since launching shortly after Thanksgiving, which is terrific download rate by any standard in the app store. Other popular apps are baby name flashcard, a pumpkin-carving tool from our Parent brand, which also did exceptionally well at Halloween.
Along with tablet and mobile, video is a key initiative for us. Our audiences are heavy consumers of video and content with video earns higher CPM, so we are adding video extensively to our size. We have taken meaningful steps to create video that’s inspired by our national brands, and today, we have more than 10,000 videos in our library. We've dealt with state-of-the-art production studio in our New York offices and we now have more than the 1,000 episodes of The Better Show and we're selected by YouTube to be one of their key partners in launching digital video channel. This is a really good start, but we need to create more and to do so more aggressively.
Our plan to create more video is based on what's fast for each of our major brands. For Parents, our videos will be short form how-to type videos most useful for moms. For Better Homes, we'll cover food, home, and holiday along with aspirational type content for her. For Ladies' Home Journal and more, our plans include producing 200 videos aimed at beauty and style along with entertainment-focused content such as TV reviews and celebrity news.
At Allrecipes.com, we are planning on producing original web shows around food topic, along with additional how-to and step-by-step recipe videos covering the top 1000 recipes on the side. All of these initiatives add up to an significantly expanded advertising revenue opportunity. Our growth in the food category, for example, will be an important part of reaching our digital ad sales goal. To increase our sellout, we are optimizing media planning, pricing, and remnant inventory. We also know that video social and mobile are high growth areas in the digital advertising world and carry higher CPMs. So, we are expanding those areas to improve our performance.
Building data and analytical products and ROI-driven tools will also fuel our digital growth. And of course, our acquisition of Allrecipes.com will be instrumental in scaling our reach and improving our monetization strategy. We plan to scale our core display advertising business first and foremost through our growth in the food category. Allrecipes.com puts us on great footing. Another important site recipe.com is already tracking ahead of our fiscal '12 goals and we are just about halfway through the fiscal year. Our other sites are – food sites are experiencing strong growth. And overall in digital advertising revenue, we are off to a really great start in calendar 2012.
Our EatingWell and Rachael Ray acquisition are creating buzz in the industry and they provide more assets that we can offer to advertisers. Put together all this activity creates a strong business environment that will be very helpful in driving food advertising to our core display business. Our position as the number two network in women's lifestyle also enables us to significantly expand our reach and relevance to a variety of adjacent advertising categories.
The last subject I want to touch on today is e-commerce. We have launched 7 new commerce programs in the last few months and we have expanded our capabilities across several brands. We have also developed relationships with many new partners which should continue to bear fruit. To make e-commerce really work, we are making the ability to shop from our content sites very seamless. We are allowing editors to easily create and integrate content for commerce opportunities. We are extending our reader plus visitors' experience into commerce-enabled programs and we are capturing very critical purchase data about our consumers and their shopping habits.
To close, we are rapidly increasing our digital audience. Allrecipes.com doubles our scale in the digital space and we've set very aggressive targets for further growth. Mobile is becoming an increasingly important component of our digital business as well development of the tablet platform. We are very focused on monetizing the growth of our online mobile and tablet audiences and populating our sites with significantly more video. We are also positioning ourselves to create a meaningful opportunity in the e-commerce business.
With that, I believe we are taking a break now. Please help yourself to refreshments and we'll plan to begin again in 15 minutes sharp with Martin Reidy and our initiatives to grow Meredith Xcelerated Marketing. Thank you very much.
Steve Lacy – Chairman and Chief Executive Officer
So, I hope that video gave you a bit of sense of what has been really an exciting transformation for Meredith Xcelerated Marketing from what was primarily an income paper, custom publishing activity to really a full-service digital agency that helps our corporate clients extend their brands across platform very much like you heard from Tom and from Liz and what we do with the brands that we own and operate here at Meredith.
So, I’d like to introduce Martin Reidy, who is the President of Meredith Xcelerated Marketing. He joined us about two years ago now from Publicis Modem, R/GA Interactive when where he was President and his carrier started at Wayne. So, he is good on the efficiency and the cost side as well. So, Martin?
Martin Reidy – President
Well, thank you Steve and hello everyone. I’d like to begin the Meredith Xcelerated Marketing story actually to a time of before I was even here. If you look back to 2005, the business was really custom publishing. We had very limited digital capabilities. And unfortunately, this is at a time when marketers were moving both their priorities and especially their budgets to the digital world.
Now, as custom publishing was starting to lower – go lower in priorities we were facing some severe margin pressures, but the Meredith team had a real vision of where they wanted to take this business. They wanted to move it from just being a custom publisher into the world of relationship marketing. And they really started going down a path to make that happen.
The strategy really was to do it through acquisitions and to buy the best-in-class agencies that were out there and key capabilities that existed within the digital world. And that first started in 2006 with the acquisition of the digital agency, O’Grady Meyers. And this is an agency that we already had quite a lot of knowledge about primarily to our relationship with Nestle. And after that, it was followed by a serious of tuck-in acquisitions, again in the digital space and following that best-in-class strategy that we had laid out.
If you look up on the slide over time, we've built up a pretty impressive array of capabilities really covering the full gamete of what we can offer clients. That includes website architecture, application development, social media, database analytics, healthcare, and mobile marketing. And most recently, we’ve announced the investment in the global marketing from Iris Worldwide, where we now we can offer on an international platform work for all of our clients.
Now, during the time, we've really significantly increased the presence of the agency rising up to the top 10 levels in terms of revenue in the United States. We've also been awarded a number of awards across the industry including getting added to the ad agents' hottest agency list. We've re-branded our business, it's now called Meredith Xcelerated Marketing and that gives us an umbrella brands to go to the marketplace. We're able to go into either so on a specific capability level or across many capabilities depending on what the clients are looking for.
Now during this time period, we really have transformed the company, especially from a financial standpoint. If you look at our business, we've more than doubled in revenues and more than half of our business now is coming from the digital space. During this time, we've won and retained relationships and that's very key in the agency world from some of the top known brands and companies in the world. Now, we either work with them again on a specific capability or one single agency or across agencies. And that's really the way we operate. We go in and we really get our foot in the door with one capability and then expand through larger relationships after that.
Our idea really is to cross-sell as many capabilities as possible. I think if you look at the slide, it kind of illustrates exactly how we've done that with some key clients and we are going to take you through an example of that in a second. And one of the things, I did want to know, you may notice that there are number of clients that we have or brands that we have that are shared with some Tom Hardy's publishing group. And a lot of that has occurred because of the relationship that the magazines have had with clients and it's so strong with the Meredith Publishing Group, they've actually asked us to come into pitch business, which is a very unique position.
Now, we've delivered more than 15% annual growth rate going back to 2005 again that was before I was here. But we've done that through the acquisitions. But especially done that through organic growth and we want to and will continue to grow on that same trajectory following strategies that we have outlined as you can see in the slides there. The first is growing business with our current clients and I'll take you through exactly how we do that winning new large clients or I like to refer to them as wheels and taking the advantage of these investments that we have made in Iris and being able to offer clients and international platform. And I will take some time to focus on these last two bullets that are up there. We think there is real opportunity in the healthcare sector, where we already have a position as well as launching the search engine optimization business.
Now, I want you to take you through this exactly how we go about expanding our relationship with the client. The first is when we get in with the client we'll start with one project and then expand from there. I'd like to start first with lows, which started the relationship about 18 months ago and it really was about redesigning a specific website. We will show them how we work, but I think more important, they were able to see just how skilled we were in the content development area. I think that's a particular skill that shines with clients that led into other work in the digital space with e-mail campaigns and also brought us back into the traditional world where they had a custom published magazine, where we then took all of that over.
That then moved into more rich media area such as video and then we grew into the social space both in building out their own communities, but also establishing them on social channels like Facebook and Twitter, and finally, now we are the lead agency in the mobile world for them in terms of both strategy and development. So, I hope this kind of gives you an idea of how we go about that and this is pretty much our typical model of how we work with clients.
Now, I'd like to talk about how we want to grow through the investment that we have made in Iris. This kind of a background on who Iris is and why we found it attractive? Iris is a very critically acclaimed agency. They have very impressive digital capabilities. They've had 10 years of solid revenue growth, was about 600 employees, and they are located in the U.K, but they have offices all over Europe and Asia and also have the presence in United States and have a very, very strong management team. And finally, they have their own rights at a point which surprisingly didn't overlap with our clients, but you can see I think appear on the slide.
Now, why we wanted to make that investment? For a number of reasons, first is just to go on the OpEx, this is something this is a new revenue stream that we could offer to clients. We now had again this global platform that we could work with. In the past that was very limited. We are pretty much North America based. The other thing is we knew we had quite a defense up and basically a competitive block. We are dealing again with some very large international agencies. We wanted to prevent them from going after our clients.
And finally, they also have some capabilities that we don’t have in similar we have some capabilities that they don’t have. In particularly we have a strong history in retail marketing, a shop marketing, a very hot area for us and very important for some of our packaged goods clients. They also have outdoor display experience. You are all here in New York you probably seen on Texas Avenue at Christmas time that’s the whole exhibition that goes on there that was created by Iris. We also have capabilities that they don’t have specifically social and mobile and we can take that now and have that brought to their clients oversees.
Now, I would like just talk about some of the new capabilities that we want to focus on. The first one digital healthcare marketing, this is really, it’s pretty established business already. Just in the United States its estimate about $1.5 billion is spent on digital marketing and that’s expect about foster continue to grow at about 19% that could be $3 billion business by 2014.
We have already created Meredith health really to sharpen our focus really in this area and we have been able to get a jumpstart on this. First because of Meredith 360, which Tom talked about, but also our investment in Big Communications, so we have already made inroads in this category. This is something we want to really develop over the next 12 to 18 months. We have a full scale digital health company.
Another opportunity we have is in search engine optimization. Liz talked about this with Allrecipes and that’s a particular area that’s a cheese for them. We recommend this is really valuable scale and this is something the clients really do want. In fact if you look at the projections and (foster) they are expecting the SEO part not just the search engine marketing part to continue growing at 15% through 2014.
So, I think Liz probably talked you about exactly what I’m talking about the search engine marketing, our search engine optimization works really building out websites in a way that the search engine pick them up and put them very high in search results. Our goal is really get that started in 2012. We have already beginning to make traction. I just mentioned Lowe’s already doing work in search engine optimization for them and underway in terms of pitching, pitching business for that. We have already identified and hired SEO lead here and this is something I think will really begin to accelerate through the year.
So, in summary, what I would like to just talk about what we have done over the last few years that more important one, where we are going. We have transformed a one-time customer publisher into a operated service digital agency, growing that business at 15% compounded annual growth rate for the last seven years and we are focus on keeping that momentum growing. Growing the business with our current clients and I think you see the model there, winning new large clients and building out our international platform and also developing new capabilities specifically in healthcare and search engine optimization.
With that, I would like to hand it back to you Steve.
Steve Lacy –President and Chief Executive Officer
Thank you, Martin, and now I would like to ask Paul Karpowicz to join us to talk about our Local Media business. Paul joined us in 2005 really at a time that our Local Media business was struggling and he has done an amazing job of putting the right talent in place to work consistently now, we lead the industry in terms of our revenue generation and I think one of the most exciting things for me was to see our November rating book, which was probably the best ratings that we had achieved as a local broadcasting company in the last decade.
Paul joined us from LIN Television, where he was a Senior Executive for many years and he plays a lot of senior leadership roles across the industry. So, and we are in a very exciting time encountered for all it relates to broadcasting. So, thanks take it away Paul.
Paul Karpowicz – President, Meredith Local Media Group
Ironically I started on Valentine's Day in 2005 so today is actually my seventh anniversary. So I am very happy to be here with you today to talk about the broadcast group and all the different things we have got going on. On this slide, you will see our portfolio of television stations. We have 6 CBS and 3 FOX stations. Now most of our large stations are located in the fastest growing parts of the country. So, you can see in the west is plus 14%, the south is plus 14% as well. That’s where the bulk of our stations reside.
Additionally, we do operate the WPCH station, the Turner station in Atlanta as well. So, we actually have two stations in the Atlanta market. We feel pretty good about our ongoing strength based on this map the fact that we do have under a large number of stations in the west and in south. Now, when comes to strategy is that we are developing to grow revenues.
Operating profit and free cash flow, it really all begins with advertising, both non-political and political. Beyond advertising, we’re always focused on operating efficiencies and protecting and growing the revenues we’re delivering from retransmission consent. And we’re also focused on the new opportunities related to the digital and mobile platforms as well as our own production business, Meredith Video Studios.
Now certainly growing rating is the key to increasing non-political advertising. As ratings go up, unit prices go up as well. In a crowded marketplace, it’s always the guy with the highest ratings that wins the revenue battle. We’ll continue to put major emphasis on our two largest markets, Atlanta and Phoenix, moving rating points just a little bit in those markets means significant dollars. We’ll also continue expand our morning news across the group. I’m sure you all remember a time when morning news started like 6 A.M. or 7 A.M. In most of our markets, we now start our morning news at 4.30. I can't imagine getting up at 4.30 to watch the news, but clearly people are doing it, because we’ve got a lot of ratings there and we are generating a lot of revenue in that day part.
We’ll also continue to focus on our non-traditional revenues such as selling major programs to local businesses, who are new to television advertisers. A very good example of that is the, I promise not to text while driving program that we initiated in our Hartford market. We set that up actually with the Hartford Life Insurance Company. Another great example is the gifts and guitar showroom that we built that our station in Las Vegas.
Now finally we are in the midst of a new major sales training program. I think it’s imperative that our sales managers and sales people are experts, not only selling traditional over the year advertising, but the multiplatform digital opportunities that we offer in each of our local market. Now, we pursued in a growth of strategy of adding hours of locally produced news programming and evolving to our 24-hour news culture capable of delivering across multiple platforms. This strategy serves several purposes. It strengthens our local brands. It increases viewership and at twice advertising revenues.
The other benefit of this, it decreases our reliance on and the cost for syndicated programming. We’ve also used this strategy when we created The Better Show, which now is evolved and it's syndicated across our station group first and is currently hearing in 80% of U.S. households including nine of the top 10 markets.
Now, let's move on to political advertising, something we’re excited about. We’re doing very well and we continue to do well with our CBS and NBC affiliates. But the real opportunity for us, the area with the upside potential is with our FOX stations. Now based on our audience shares in these FOX market, we probably deserve 20% of the political dollars. Unfortunately that doesn’t happen, now this is in unique problem to Meredith, it happens in a lot of FOX stations across United States, but we are determined to change that and get our for your share.
Now we’re stepping up our face-to-face contacts with the campaigns and we send our sales managers to D.C. to meet not only with the campaign staff, but with the agencies as well.
Handling political is a very delegate progress. You have to control your inventory during those very, very busy political weeks. You try to do that and still protect your key local advertisers. The real trick is the graciously displays your traditional advertisers when that flood of political advertising comes in. And then when the flood of political advertising is over to reinsert your traditional advertisers back into the mix.
Now what I like about this chart, it demonstrates our ability to increase not only our revenues during mid-term election cycles, but during presidential election cycles as well. Now right now which we look ahead to fiscal 2013, we think it looks pretty good. We think that a – we think it’s going to be a very close presidential raise and as a result, could be very healthy for our stations in Michigan, Missouri, Nevada, and South Carolina. Now we’re also looking forward to some pretty strong Senate races in Arizona, Massachusetts, Michigan, Missouri, and Nevada. And certainly one our good friend, Joe Lieberman retires in Connecticut. We think that’s going to be a very exciting raise as well. This is an example there. Our station in Hartford WFSB is an incredibly strong station.
And during the last Senate race, we did about $10 million just in that station alone. So, we’re looking for big things coming out of Hartford this year. Two other things going on in the political arena that make me optimistic, number one, is the anti-incumbent sentiment that seems to exist across pretty much every office, every candidate, every rates. We think that means virtually every candidate has been have to get out there and spend lot of money, nobody is safe. And secondly the introduction of series super PAC money. We start in the primary and we think that money is going to play a big role and certainly our future as we go into the next election cycle.
As we turn back to expense control, we created hubs in Atlanta and Phoenix that handle lot of the back office functions involved in distributing video, including traffic and master control functions. Now, certainly this saves on operating expenses, it eliminates capital expenditures down the road, but it also positions Meredith and our local TV station group very, very well. So, we can integrate future acquisitions into our system and realize half synergies almost immediately.
Now our efforts to create more local programming along with the changes that we've instituted in buying syndicated product all leading the significant expense savings. Over the last three years, we've reduced our external programming cost by 50%. Now I have to admit honestly lot of that is over, when hope went away that took a huge width of our program expenses. It's quietly we're developing multimedia journalist. We're capable of being reporters, photographers, and editors, all in one. Just five years ago, those functions were handled by three different people. Today, they are handled by one individual who scaled in and trained in all those disciplines. I think many of you note – many of you noticed that we delivered a 3% decline in operating expenses in the most recent quarter. That's directly tied to the elements on this chart.
Let's talk about retransmission consent, something that near and dear to our heart. You can see since 2008, we have more than tripled the fees that we received from the subscription television services, that includes cable, satellite and the phone providers. While fees have changed since 2008 and the networks would very much like to participate in those fees. However, we think that this is an opportunity and that could actually turn this into a potential growth situation for our company. Going 2013 fiscal 2013 will be engaged in two set of negotiations. The first is we will be able to negotiate for higher retransmission payments is part of our retransmission agreements with the pay-TV services.
We think our retransmission revenues today on a per sale basis are lot lower than the value that we actually delivered to the MSOs. We expect to do significantly better in that area. Second, we absolutely do expect to share some of our retransmission revenues with the networks and we are in that process of renegotiating affiliation agreements with the networks, which we do expect would include some sharing of that retransmission mind.
Based on the recent deals that we've done with the small to midsize cable operators, we are cautiously optimistic. But at the very worst, we would remain net neutral on the retransmission dollars and potentially increased the net contribution of retransmission revenue overtime.
Now turning to digital and mobile, similar to what we described earlier, our first goal is to increase our audience. This slide details the solid progress we've made in the huge gains that we're seeing in the development of our mobile audience. We expect page views for mobile and web to be equal by fiscal 2015.
Our growth in mobile is viewed by the steps we have taken previously to expand our mobile presence. At the station level, every station has their own anchor mobile site. We've added a number of different apps that vary for market-to-market, as you could imagine most of those at revolver on local news, local weather, and local traffic.
Now looking ahead, we've been working with several industry groups to advance the mobile technology specifically live over the year television to your mobile device. We were charter members of the Open Mobile Video Coalition, which helps that the mobile technology standards and works with manufactures' to develop devices. We're also members of the Mobile Content Venture, which is working to develop a large national footprint to launch a mobile network.
Last month at the CES convention that venture reached the partnership with Metro PCS to bring live TV to Samsung smartphones in calendar 2012. Upholds out with a look at Meredith Video Studios, we continue to increase our consumer connection by extending the reach of The Better Show. Better was actually developed at our station in Portland over five years ago. We first extended across to the 10 Meredith markets, which are represented by the blue pins. We then steadily expanded its reach to about 75 non-Meredith markets represented by the large fence. And just a few months ago, we struck a deal with the CW100 Plus network to hear The Better Show nationally nearly doubling its markets to approximately 150. As I said earlier The Better Show now here is in 80% of the country and the 9 of the top 10 market.
Right now, we're in the process of renewing The Better Show. We're out there in the marketplace and we're very pleased with the reception that we're actually getting. In addition to expanding our reach, we're focusing on improving the quality of the stations we're on and the time periods where we located. We also think there is an opportunity to add a cable network to add the show on the second run basis. Now that we cover more than 80% of the country, we know that we can sell to a higher caliber advertiser and increase rates.
We're excited about our recent agreement with YouTube to create digital programming. We'll be launching a new YouTube channel called Digs in early 2012. Digs will launch with seven original series with each episode being four to five minutes in length. The content will be original home and garden programming with an attitude. And finally, we will reconfigure now our operations within Meredith Video Studios, few delivered more expense efficiencies and higher profitability.
So importantly we are very focused on continuing deliver gains in non-political advertising, which we've done for nine straight quarters. We're also working very hard on maximizing the opportunity we have with this upcoming political action and beyond advertising, we're always very focused on continue to manage our expenses very efficiently or protecting and growing the revenues that we receive from retransmission consent. We are also focused on the newer opportunities from digital and mobile platforms as well as our Meredith Video Studios our in-house production business.
With that, let me turn it back to Steve.
Steve Lacy – Chairman and Chief Executive Officer
Thank you very much, Paul. And it's my pleasure to introduce Joe Ceryanec, CFO. Our financial speaker this morning before we turn to our Q&A. Joe is really the author of our total shareholder return strategy that as I said in my introductions and so well received in the marketplace. So, we're anxious to get into that with all of you in a bit more detail and then I'll be back up to the closing and we'll go to the Q&A. So, thank you, Joe.
Joe Ceryanec – Chief Financial Officer
Thanks Steve. Good morning. So, we spent a lot of time over the last few months talking about total shareholder return. And just to remind everybody, our goal over the next three years is to deliver above median to top quartile TSR. The slide here you're looking at – looks at what current investors' expectations are for the near future. Basically median TSR to the S&P is expected to be 7% to 8% range. The top quartile companies delivering 13% to 14% TSR annually. And this is actually a few percentage points below what the market averages have been for the last 50 years due in large part for the recent recession.
And while companies delivered TSR in different ways really over the last several years, most of that TSR has been delivered capital gains. But if you look over the longer term again over this 50-year horizon that TSR is really been delivered more on a balanced approach between capital gains and dividends and we believe over the longer term and it's become very popular recently. The increases in the dividends played very well into our Meredith TSR strategy. So our view of providing TSR really breaks into three components.
The first component relates to earnings growth and I'm going to walk you through and really summarize some of the – you believe in earnings implications of what you heard from our department hedge this morning. The second component really relates to cash flow – generating cash flows and returning that cash flow to our shareholders, the dividends, and share repurchases and finally I'll close by putting means these elements together and really sharing our view of TSR over the near-term.
So, to quantify the expected earnings growth, I’m going to summarize some of the strategies that Tom and Liz and Martin and Paul shared with you as part of their discussion this morning. So first in our Local and our National Media Group, Tom and Liz presented was that we are executing and expanding our food and our parenthood strategies progressively growing our digital and brand licensing activities and we are moving our customer transactions online.
In Martin’s group, we talked about maximizing our existing client relationship, leveraging our recent investment in Iris worldwide and launching new capabilities in the health and in the SEO space. And finally in Paul’s group, we focused on growing revenues related to advertising and retransmission revenues as well as expanding in their digital and mobile platforms.
We are also as you heard several times today very focused on maintaining our cost structure continuing to drive efficient fees in the business, both in the business units as well as at our corporate level. So now to put some context on the strategies you heard this morning. In the revenue generation standpoint, we believe that the strategies that Tom and Liz presented related to our National Media Group excluding MXM can deliver between a $110 million and a $170 million in revenue growth from our fiscal 2011 year end to fiscal 2015.
We believe that our Xcelerated Marketing initiatives can deliver another $20 million to $40 million in top line growth through 2015 and we believe that the Local Media Group, Paul’s business and also add between $20 million to $40 million in revenue from 2011 to 2015. When you summarize these activities and taken together this would be total revenue growth of a $150 million to a $250 million, again over that 2011 and 2015 period, which would represent about a 2% to 4% CAGR over that period.
Now, to put the same strategies into an operating process standpoint, we believe that the National Media Group again excluding MXM in ad between $25 million and $55 million of incremental operating process by 2015. We believe the MXM strategies will deliver another $5 million to $10 million of operating profits and we believe that our Local Media Group initiatives can add $10 million to $20 million an operating profit over time. So again to summarize these activities, we believe that these activities can grow our operating profits to between $40 million and $85 million through 2015, which would represent 4% to 8% compounded annual growth and operating profit.
Now the second category of TSR is a free cash flow yield and as you have heard Meredith has a long history of strong free cash flow growth and returning a meaningful portion of the cash flow shareholders. The business model we built generates very strong cash flow as you can see even in difficult times in 2009 our record was still quite impressive.
During the recent recession, we felt that the most responsible use of our cash was paying down our debt while maintaining our track record of dividend increases. And this was driven by one very difficult and uncertain economy, the two the desire to give us the flexibility to add to our portfolio on those strategic opportunities arise.
Today, we are in much stronger position. From 2008, we paid down $250 million in debt and along the way, we’ve executed strategic acquisitions in the case of Allrecipes are in the process of executing strategic acquisition along the way.
Now, if you look at our cash flow over the last decade, it generated over $2 billion in cash from operations in equity assurance. And if you look at the right side, you can see excluding the reduction in net debt. We've returned about half of that cash for shareholders to dividends and share buybacks and we’ve invested the other half of that cash in growing our business through acquisitions capital expenditures. And if I was standing here 10 years from today, hopefully I’ll be able to show you the chart very similar, which is on half of our cash returned to our shareholders and on half of our cash we're reinvesting in order to grow our business. Now when it acquisitions, we look for opportunities that strengthen our existing portfolio at attractive prices and our National Media business that means businesses that provide access to new audiences and advertisers and also looking to enhance a video content and distribution of our national brands. And in Paul's business on the local side, we would look to add stations in fast growing markets, strong stations that would add network diversity as well as geographic diversity and as we reflected in our recent Allrecipes acquisition.
We're always looking for digital platforms to increase our scale as well as small what we call tuck-in acquisitions, which add to our portfolio of brands and also in Martin's group add to our marketing capabilities. When it comes to looking at acquisitions, this is some of the criteria that we look at and first and forecast is what is the strategic benefit and how is this fit into the strategic plan as Steve laid out earlier. Obviously, there are return questions such as to submit our IRR hurdle rate or the revenue synergies or the cost synergies and how quickly we'll target the TSR accretive.
Management and culture are also important and I think as Liz pointed out, we feel very good about our efforts so far with the Allrecipes team. And as many of you know, we maintain a very active development department at everyday is looking at opportunities and are well-positioned and very experienced in evaluating potential deals.
Now, getting back to return in cash. So, when it comes to dividends, as Steve mentioned, we paid dividends for 65 straight years and we have increased dividends for the past 19 and even in the depth of the recession, we increased our dividend during the economic downturn. I think it's fair to say there is not many media companies that have that track record.
So, this past fall, we took a hard look at our capital structure and our operating results and we concluded that we can significantly increase our dividend back to 50% increase in the dividend and still have the flexibility to invest in our business. And as Steve mentioned, our current dividend yield is a little under 5%. Now, another conclusion of the process we went through this fall was that we could significantly ramp our share repurchase program. This chart shows you what our accumulative share repurchase history has been for the last decade.
You can see again in 2009, 2010, we slow this activity a bit has remained debt repayment of priority with the acquisition of Allrecipes, we expect we'll end the year with debt of about 375 million, that's about 1.5 times our EBITDA. So, we still believe that's a very conservative level of debt and we'll support some level of share repurchase activity going forward.
This chart takes our 2011 free cash flow and basically there is a pro forma for the incremental dividend as well as the impact of the Allrecipes acquisition. You can see on the far right even after the increased dividend in Allrecipes, we would have over $50 million of cash available for either further acquisitions, share repurchases, or further de-levering activities and this also gives us the flexibility to pursue a lot of the initiatives you heard about today, which are food and parenthood strategies as well as diversifying our categories further transforming our MXM business continuing to expand our tablet and mobile activities as well as the ongoing development of the brand licensing activities as Tom talked about.
Then I am going to put this altogether and walk you through how we expect to deliver TSR here over the next three years. As I showed you earlier, we believe there is an opportunity to grow revenue based on initiatives we talked about today in the 2% to 4% range annually. And even with modest leverage on our margins, we should be able to deliver 4% to 8% growth, compound annual growth through earnings.
Again the second bucket, our free cash yield as I mentioned today our dividend is yielding close to 5% and we believe that our buyback program can deliver another call it 2% of TSR. And so assuming no change in our debt structure, our free cash flow yield would be in that 6% to 7% range, so when you add earnings growth plus free cash flow yield, we believe that we should be able to deliver annual TSR growth in the 10% to 15% range between now and 2015.
Additionally when we look at other accretive acquisitions we look at managing our portfolio businesses. We believe that these factors taken together clearly should be able to put us in that top cortile of where the S&P companies are delivering. So now a lot of what we talked about today is a longer term thinking just to ground everybody back to today. In January when we did our earnings call, we – that our expected earnings per share for the third quarter would be $0.65 to $0.70 and that our expected earnings for the year would be 255 and 275.
Basically today, we are just reiterating that that would be our guidance. Now I do want to point out at this times excludes the impact of Allrecipes, we have not closed the deal yet. As Steve mentioned we would expect to close it about March 1st, so once we closed the deal, we will be updating our guidance for an impact – expected impact of Allrecipes.
So with that, I’ll turn it back to Steve.
Steve Lacy – Chairman and Chief Executive Officer
So thank you very much Joe, I’m just going to wrap up and then we’ll turn to the Q&A. As a senior management team and as we look forward over this three-year planning horizon again tied to between now and June 30 of 2015. It really is a very, very exciting time to be at Meredith. As you heard across the discussions this morning, our consumer connection is very strong and is really growing across platform.
Our core advertising businesses are improving and ahead in that three-year time period our two political cycles as well. We have a series of acquisitions that integrate that we will have add incremental revenue, profits, and free cash flow and we’re executing really across the organization a very aggressive digital strategy lasting laser focus on expenses and cash flow management. And as Joe just went through in significant detail, we are very committed to a top tier TSR strategy.
I’m going to conclude as I started with what we believe is a very compelling investment thesis. We own and operate a series of powerful media and marketing brands at both the national and the local level with an unrivaled female reach. In Meredith Xcelerated Marketing, we built a full service digital marketing agency and we have a place, a plan in place to produce solid growth in revenue profits and free cash flow.
Our management team as you heard this morning is very committed to the total shareholder return strategy that we announced at the end of October. We have returned significant cash to our shareholders overtime including paying a dividend for 65 years and increasing it the last 19. So we are in it for the long haul and very excited now to hear from all of you about any questions that you might have for me or for other members of the management team in terms of what we talked about this morning. So John?
Yes John. By the way we’re going to try this high-tech room that we are in there is a button on your chair if you would push it, it will help the people on the webcast hear your question. You see that somewhere let’s give that a try.
So, the question is on chart 26, where we have the 10-year industry compound annual growth rate. That is I believe that is magazine and not digital, strictly magazine. It’s hard actually to get industry numbers that actually combines the two and give you growth rates.
Liz, why don’t you restate the question and then answer Jennifer’s question?
Yes Jennifer’s question was to describe in a little bit more detail of the nature of our e-commerce activities and specifically, whether that is an editor recommending it’s third and launching to a different e-commerce platform to consummate that transaction is that accurate?
Yes. So, we have actually been in the test and learn mode with commerce. So, some of our activities are exactly as you described integrating contextual commerce coming from third parties, where an editor recommends a particular items or aggregates a set of items for example in the parenting category and that she recommends as great items for a new mom then link over to a commerce partner.
We have also in the case, BHG done a small holiday store, which was our own and did some very specialized products that were heavily recommended by our editors that link to our own commerce implementation. So, we’re working with a number of partners on both affiliate and direct commerce revenue and we are closely monitoring the conversion rates and interest of our consumers and you’ll see us rollout this most successful models very broadly across all our properties.
I just would like to say in this model, we do not take any inventory or have any inventory risk. So, this is just rev share backed us to a third party?
Alright Jason, let me try at this way. I’m going to give you the microphone and then we will answer. How about that?
So, I have two questions. The first is on that, I guess the 2015 objective got 10% of your magazines sold via tablets. But pacing much slower than the level of pace of migration it’s going on in the book business. So, can you just talk about sort of your, in another words, it seems like there is real consumer interest in migrating to the tablet. And so why is Meredith, why your objectives so much more muted relative to sort of the underlying demand in the marketplace.
And my second question is in terms of a total returned strategy, the dividend makes sense, the buyback sort of makes sense, the topline growth aspect is that sort of in line with inflation if you look the heavy lifting on your management team quite after come from the margin expansion. And I was just struck calculating the sort of marginal EBIT contribution by division. It is actually quite low at the old Meredith integrated marketing and quite high both on the National side and the Local side. So, can you just elaborate a little bit on what are the major cost cutting initiatives that are going to drive the margin expansion in both National and Local?
So, we’ve got two conversations, one, about migration of the consumer basically we have about 30 million subscribers today right, yeah more or less. And what portion of those will over a period of time be willing to take a tablet-only version of our product and lets the print version go.
And I am just going to speak to the economic benefit of that and then I will ask Liz to speak to our thinking of how that happens over time. So, obviously, the creative activity stays in place, but the most important activity from a cost and a margin perspective is against the physical production costs of making those magazines, which today including paper, printing and postage is about $300 million. So, you can do the math on a 10% migration remembering that the vast majority of our existing customer base today is a Baby Boom generation consumer. So, Liz want to talk about the things we're doing to help her test and how we think she might be willing to let the print version go over time.
Sure. We are working across all the major digital ecosystems around offering subscriptions, offering free months, offering free content for people to test and learn. Our traditional consumer is not a first mover in the technology space, right. So, well Wired Magazine is going to go much, much faster to all digital than a Better Homes and Garden. Also I think in the comparison to the book industry, it's important to remember how visual our magazines are and how much she actually loves the print copy of our magazine in her home. So, we may be conservative. We could be significantly about 10%, but we think that’s a solid estimate for that migration. And also there are so many dynamics right now in the tablet marketplace, that don’t need to shake out around platform, pricing, etcetera. That we are monitoring really closely, but we are exercising all of our digital marketing expertise to migrate that consumer. As well as I said that we are pretty much in daily conservation with Amazon, Nook, Apple, Google etcetera around all kinds of techniques to excite subscribers to migrate.
I think Jason that that ties in really well to the margin leverage that you were talking about. And why do we see so much more leverage in our two traditional core businesses than we might see in Meredith Xcelerated Marketing. And I just think it's always important to remember what these businesses are. So, in pulse Local Media Business, that is a very high fixed cost business with tremendous leverage on the incremental dollar of advertising. That’s why when we have a time like a political season like the fourth calendar quarter that we will have of 2012, you will see that inventory tightened dramatically and you'll see the margins skyrocket. If you go back and look at what happened in calendar '09 and in calendar '10 when automotive was dark and revenue was down 30%, you'll see the reverse of that margin opportunity.
So, as we go forward, and we have built out all of the platforms to have our bubs, we've done the vast majority of our technology investment. We're seeing two political cycles at a pretty strong non-political cycle. That results in very strong leverage in that business. In Tom's business where we also had in the National Media Business you saw that really strong leverage it's really around a couple or three very, very important initiatives. We talked about moving 50% of our consumer marketing transactions to a digital interface with the consumer that gets us out of direct mail, our of sending a bill, a renewal notice and all that sort of thing, and again, there is tremendous leverage around what is our existing customer base that we are already serving who is getting more and more comfortable with executing a transaction online and not that scared to give you her credit cards for $24 for 12 issues of Better Homes and Gardens.
So, we're aggressively moving in that direction, it's worth 5 bucks an order, for each one we moved from mail to digital and then we just talked about earlier the opportunity to move some percent of our audience to a digital-only version of our brand and any of you who have accessed to the Kindle Fire, I would really ask you to download Better Homes and Gardens on the Kindle Fire. I think it is a tremendous consumer experience. I think it might even be better than the inspiration we have provided. But the bottom-line on that is there is a great opportunity to bring a younger consumer, a more upscale consumer, and at the same time we got a big cost offset depending how successful we are. So, Jason, I hope you are right. I hope 10% is the wrong number. If it's 20%, it's against the same $300 million in printing, hostage, and paper. Okay, yes sir, please.
I just know the reasoning behind such a large increase in the dividend this year, market usually responds well to consistent through consistent dividend growth, you push the dividend of as high as you did this year again at a hard time raising it anything like that raised in the next few years and that doesn't go as well.
Well, again, as we said we took a really, really strong look at our free cash flow and we thought we had the opportunity as part of this TSR strategy to boost the dividend to a yield that would get a lot of attention in the marketplace. And if we go back and look at what our share price was on October 25 and what it is today and we have gotten a good reason. We are not saying and we never said along the way that we're going to increase the dividend 50% every year going forward. But we do believe we can continue to increase the dividend as we have. But we just sort of reset it at a level that really provided in my mind the guaranteed return to our shareholders not only many of you who have been with us for a longtime, but also has the opportunity to bring some new shareholders into the mix, which we have in fact done. So, we are really pleased with that result. I saw in another hand, yeah Bill.
Thanks, Steve. I was wondering on your 2015 goals what does that include for acquired revenues, first question I've got.
Once you give me all….
Okay, alright. And the second I heard you correctly upfront you said something about the March quarter National Media Group starting a little slower than expected, wanted to just clarity watch your men around that. And then let's see on tablets, what does kind of the early experience tell you about your ability to get ad pricing?
So, on what Joe said about the numbers, although we were saying is that it's been about a month or so since we released earnings ever just basically saying that what we think about the current quarter is what we thought before and what we said at that point in time was that in National Media business, the total advertising would be flat up a little, but if you do sort of on a same store basis right now, we think it's going to be kind of down in the mid single-digit range and that compares to a calendar '11 when I think the full year was down 10% or 11%. So, better but not where we had hoped it would be and again we showed that those who think they know more about the marketplace then I do are projecting that the full year will be flat and we think that we're going to do better than that and other part of that is that our digital revenue – advertising revenue whether it would be and Paul's business locally or Tom's business nationally is phasing up quite a bit ahead of what the – what the projections are for full calendar '12 and Liz, do you want to talk a little bit about the tablet piece of that and how we are…
Yeah, so, we've had a lot of success bringing major advertisers into our tablets and more of the sponsorship model where a lot of what they are looking for is to actually understand consumer behavior on the tablet and experiment with new ad types. The sort of standardization of advertising metrics and buying patterns for the tablet is really in flops at the moment and there is a lot of work going on between agencies, the MTA etcetera to create a more standardized view. So, I think it's very early days we're excited to see lots of brands working with us in the advertising space and experimenting with what we believe are going to be the real dividend to advertisers of the tablet, very rich media advertising at Kimberly-Clark ad, where you can color the entire ad by touching different parts of the things that can be shared between parent and child for example. So, lots of exciting opportunities, but Launch and Learn stays right now in a sponsorship advertising model.
Unidentified Company Speaker
So, to Bill's other question about, I think on the slide that shows our revenue growth CAGR, in Tom’s business on the National Media side on the low end that number is 110 and that is in large part due to when you think about what we have done just this past year Rachael Ray, Family Fun and it would include the Allrecipes acquisition that would be the lions' share. What I would say it was kind of the bottom end of that range. And I think actually going back to Jason’s question on being able to leverage those acquisitions, a lot of the growth in the National Media business, the operating profit line comes out of the fact that we believe we can take cost out and better leverage those acquired businesses and they were being run under the former owner. So, why that top line is coming from the acquisitions this year and the operating profit really is coming from our ability to leverage the cost structure and grow the revenues of those businesses as part of our portfolio.
Thank you. Good morning. Two questions for Paul, please on the local side, Paul on the broadcasting, can you give us your sense of what you think -- what perhaps Meredith is looking to do with its digital spectrum over the next several years as the SEC book of business industry starts pushing back. I appreciate your thoughts on that I know you've been in the fee business for long-term. And then second as it relates to retransmission dollars is it fair to assume that the break growth we have seen over the last several years is coming to an end for some independent groups such as Meredith, because the network themselves are becoming more aggressive on the reverse side. Thanks.
Okay. First on the use of digital and the use for spectrum, the strategy that we have employed and we have done a few sub-channels, isolated cases, we have done some weather channels, we have affiliated with that new network in couple of markets, but primarily, we are and waiting to see where this mobile content ventures project goes. When they talked about Metro PCS releasing, the Samsung devices to go out in 2012, two of the 10 markets that Dave announced are our markets. So, Las Vegas and Atlanta are two of the 10 markets, where they said, we would like to do this. So, we feel very good about using our spectrum for that certainly under any auction scenario, we would have no intention of turning back any spectrum or auctioning anything off. We fully believe that it’s got value going forward and we will continue to follow that track.
The other question relative to retransmission, I would actually say the contrary. I think we are kind of on the edge or actually really maximizing our retransmission opportunity in to a certain extend because we have to, because the network have taken an aggressive stand and said, this is our expectation for you guys, therefore you have to go out and get this. And I think the MSOs are starting to get an understanding that the television stations really don’t have much choice that if they are getting pressured from the networks, they are going to have to come back very aggressively to the MSO and as you relate what we get relative to an ESPN or Disney channel or some of the other things that are out there, we are still undervalued. So, I think we are at a point in time, where our retransmission dollars are going to up exponentially.
Just hope you could maybe comment on P&G and Unilever, recently we have been talking about sort of flattish spending year-over-year with traditional instead of making up the difference in terms of returns with digital. And I’m just curious how that has potentially impact your business it had a net positive on Xcelerated Marketing business, maybe a negative on the National side.
Can you just maybe talk about how that maybe impacting your business in general and then specific on Xcelerated Marketing and you talked a little bit about that the continued sort of leg there and as it relates to commodity prices. It seems like we are kind of popping against those challenges in the first part of last year. And I’m kind of curious so why your advertisers are talking about a weakness there now as opposed to you obviously earlier saw that in the year with on the magazine side.
Let me take that second question first because it is the easier one and then I’m going to ask Tom to comment on what do you hear from those two specific advertisers? So, the good news about Meredith Xcelerated Marketing is that kind of once a year, we set the volume if you will of activity with each of these major accounts that we’ve talked about. And you could see who our clients were up there and who is the major ones are and so what we were doing for them in calendar 2011 was presubscribed and contracted and promised to the consumer really before this tremendous acceleration that they experienced in commodity prices.
So instead of a different way there is no changing those deals in midstream. So then you have the opportunity again as you look to a new calendar year to reset the size of those programs that we didn’t lose any program, they have just made them smaller as we go into calendar ‘12 then of course we just had about a three of our meeting yesterday with one of our largest clients in that space in terms of other things that we can do to try to build some of that back and then again as we go towards calendar ‘13 we’ll re-pitch and hopefully some of those marketing budgets will be restored. But it sort of an annual dealing its kind of step function so it’s very different than what Paul does or what Tom does, which is kind of selling in months to months. We have a longer horizon in terms of our visibility in Meredith Xcelerated Marketing. So if it’s at this kind of a level it pretty much stays there for the year. And in this particular year, we’ve got really kind of three pretty big household names that have basically scaled back to size of the program.
But Tom, you want to talk a bit about that advertising question?
Sure. So, two of our largest advertisers Procter & Gamble being our largest advertiser, there has been some press recently about them switching more money to digital because it’s a little bit more efficient for them. So, I think there is actually with those two accounts there is a huge opportunity for us because what our go-to-market strategy has been over the last five years as we go to market from a multi platform perspective.
So, in the short-term Procter & Gamble, we were actually, we are out there last week, our team and we see an opportunity to significantly grow our digital revenue with them and also digital video. So, we’re actually excited to see them take an approach for the first time, where they actually will approach us and actually look to do a deal that combines the revenue across platform. The traditionally Procter & Gamble has only negotiated with us from a single platform perspective and it’s only been a print contract. So, we’re really excited about that.
On the other side of the coin, Unilever there is real opportunity for growth with us with Unilever because two years ago, we’ve got into a little bit dispute overpricing Unilever, which was under a lot of pressure wanted significant rollbacks in pricing over 20% and we wouldn’t do that. So, we actually went totally dark with Unilever. We didn’t have any Unilever activity for almost a year and now we’re back in the good races. If Unilever, we didn’t give them a pricing they wanted, but they came around to see what we have to offer from a multiplatform, from an audience perspective and they were in our offices less than three weeks ago and we had a high level meeting and we’re doing a lot of business with them.
So, again you see us scaling our digital, our digital audiences, you see the opportunities we have in video with Paul’s business also digital video and what we’re going to do is, we’re going to continue to go-to- market and sell from a multiplatform perspective and then you see the opportunity, what we have to reinforce in the marketplace is the great opportunity that you have in print drive sales and we proved that with the engagement dividend for the first time. So, we see a real opportunity.
Come back to you David, I think we’re just going to take a couple more questions. Michael I’m going to give it you and then we’ll come back to David and then we’ll get everybody on your way.
Thanks Steve. Three questions for you. Joe one clarification so the 2% to 4% revenue CAGR, what percent of that is organic?
Give us all your questions and then will I.
That was the easy one.
The TV Group Paul has done a great job, the past few years. Would you say today versus five years ago, is TV a better fit with Meredith or should we – you get questions over and over and over again, over time about the fit in the portfolio. Can you just refresh us on your thinking there? And then Paul, the (hatch up) and then to Liz, you made a point I don’t know what slide number was about tablets improving the potential of improved pricing model. Can you talk about that and just kind of dump it down for us, what is the average price of the subscribers – were you talking subscription versus newsstand and what's the average print subscription and what's the early – I am just surprised that you don’t think it hurts pricing over time? Just generally how you think about that?
Okay. So, we've got three questions that will knock out here, because I think they are pretty straightforward. The first one was about how much of the growth we see is organic as we look to the future and I think remember that organic now for us also includes everything that is part of the portfolio.
So, looking at 94, Michael, we said $150 million to $250 million from 11 to 15. And I would say kind of as I answered the question earlier on the low end so called 150, we would see that coming from acquisitions should be the Rachael Ray, the Family Fun, the EatingWell as well as Allrecipes, that is included in that number. So, say half to slightly better than half would be because of acquisitions with the other piece being organic growth.
And then from the view of our television business, I would say, of course, because it's now a top performing assets. It’s a lot more valuable than it was when Paul came here. And I think we've been really clear in the market that if we had some very, very strategic transactions and we needed money we could in fact monetize one or some of that business it separates better than our other businesses, but in my mind, its probably more strategic than it was a number of years ago, because of our very aggressive focus on cash flow and returning cash flow to all of you as our shareholders. And it is our highest margin activity and again as we look over this relative near term kind of this three-year period going forward with two political cycles, I think it will be a very, very high margin performing business and it generates an awful lot of cash for things that we want to do going forward.
And then on let me just give you a little bit on sort of this subscription play and then I am going to ask Liz to talk about why we think it will improve our portfolio. We have an awful lot of text out there in the marketplace and the objective is of course to get the consumer to test and then with each renewal we significantly increased the price to were – on balance we’d be looking at something kind of in the mid-teens. But aside from just the absolute numbers I think there are some others things that make us really optimistic about this tablet place. So, I miss you talk about how that might change with going forward.
Sure. On the tablet one of those really important metrics that we follow is how many consumers we are bringing in who are new to Meredith, new to the brand and what the demographics of those consumers are. So, we are seeing, younger more affluent consumers coming in through the tablet channel. Our pricing newsstand is roughly equal, but on the subside we are going out with very standard, we are not tipping low and moving up, we are just going out as sort of the optimal price point that we look to be at and we are not seeing resistance at that price point at this time. Consumers subscribe an enormous amount of value to the creative product as well as the convenience of being able to have it on their portable device. So, it's an opportunity to kind of reintroduce the pricing paradigm both to our existing audiences, but very importantly to a lot of new consumers who are coming to us through these channels.
On the whole balance to the portfolio, they are all over the place. Traditional home is very high and some are less than that, but that's probably a good number across the portfolio. Alright we're about to wrap, David?
I have couple acquisition-related questions. The first is Isis, do you own Isis in its entirety, is it a joint venture or a partnership and this 500 odd employees, it looks like a fairly large organization. How autonomous is it and how do you split the acquisition or cultivation of new customer relationship between yourselves and Iris. And then secondly, the acquisitions you are doing these days generally are a little less transparent than something like Gruner & Jahr, where the economics were quite clear and compelling upfront. You are counting on some growth in the future for one thing and specifically with regard to Allrecipes if you are looking for a 15% IRR, the rough math would suggest that you need to make $20 million odd before taxes there before you reach that level and how soon would you anticipate being at the level, where you crossover into that 15% return threshold?
Those are both very, very question. So, let me quickly explain what we did with Iris is the name. You kind of threw me for a minute I thought we have done a deal that I had missed. So, that’s good. And so we start to have this kind of date before you get Meredith philosophy on these digital marketing services agency. So, we bought a 20% investment in Iris and if you look at Iris’s income statement it’s roughly the same size as Meredith Xcelerated Marketing is today more or less, about the same top line revenue.
They do not enjoy the sort of margins that we enjoy, which we think results in some opportunity there. So, we have a structured arrangement, where we could buy some more or we could buy all of it over a period of time, but we think that this is a good opportunity again just sort of date before we get married and this was Martin’s very strong recommendation haven’t gone all over the world and opened up different places to serve specific clients and he told me you are always in the wrong city with the wrong client once you open an office. So, that was really the reason we made this investment. Martin why don’t you talk a bit about how we are together going to market, but basically if we ended up doing the deals, which is not in any of the numbers Joe shared Xcelerated Marketing will be twice as biggest it is today basically.
The Iris acquisition it was one of the most unique setups I have seen in terms of how it fit in to our needs are and its interesting the connection is almost like if you lined up the continents and they came together because of the geographic distinction between the two companies. We have almost no overlap in geography. So, that’s a really big thing about we can divide up, when we go in. It’s really coming together. So, there is no kind of conflict between any of that in terms of Europe and Asia.
The only the presence that they have in America is relatively small and it’s a New York and its interesting because where their expertise’s in particularly the website development area, where our agency in that area is really on the West Coast. So, even in North America there is a nice match up there and we have already gone to market and one of the things that helped us is, we timed the re-branding of MXM with the investment in Iris. So, when we go to clients it is as MXM and we say that Iris is part of our international network and we get over right away. So, there is not this long discussion of here is Iris have, here is how we work.
Our existing clients get right away and our new clients it hasn’t been any issue at all. They simply want to know, are you able to cover it, you have the best capabilities and it’s very seamless. We spent a lot of time upfront getting to know these guys over there and that’s the culture is very, very good with our culture as well and the thesis we are kind of have in this period, where we can kind of date and this worked very well for us in the Hyperfactory deal at the same type of thing we made them a investment about 20% got to know them and by the time we completed the deal everybody thought we already owned it. So, it’s worked that very well.
Steve Lacy – Chairman and Chief Executive Officer
Well, I know we could go for quite a period of time, but we so appreciate having all of you for basically our morning, which we think is really a treat for us and to have the opportunity and a little bit more of a granular way to talk about how we see the horizon going forward and to give you a lock away document that includes all of that data that I hope will be helpful.
We will be around to appear for a while. If we didn’t get to your specific question and of course anybody, who would like to reach out to us, if all of you know Mike Lovell, who runs our Investor Relations area right here. And please feel free to reach him at any time and we will come and see you or take a telephone call or anything that we can do to help you. So, we thank you for your support. We thank our lending group that is here who is helping us, put together the financing for Allrecipes that Joe mentioned we hope to close about the 1st of March and we are really excited about the opportunity that we see to grow the business and increase shareholder value going forward.
So, thank you very much for being with us this morning and we look forward to some follow-up conservation. Thank you.
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