Meredith Corporation
Q1 2014 Earnings Call Transcript

Published: 24 Oct 2013

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Meredith Corporation Fiscal 2014 First Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host Mr. Michael Lovell. Please go ahead.

[Michael Lovell:]

Hi, good morning, everyone, and thanks for joining us. We'll start the call this morning with comments from Chairman and Chief Executive Officer, Steve Lacy, then we'll turn the call over to questions. Also on the line with us this morning are Chief Financial Officer, Joe Ceryanec; National Media Group President, Tom Harty; and Local Media Group President, Paul Karpowicz. An archive of today's discussion will be available later this afternoon on our investor website and a transcript will follow that. Our remarks today include forward-looking statements and actual results may differ from forecasts. Some of the reasons why are described at the end of our news release that we issued earlier today and in some of our SEC filings. With that, Steve will begin.

[Stephen M. Lacy:]

Thank you very much, Mike, and good morning, everyone. I hope you've seen our news release issued earlier today, detailing our fiscal 2014 first quarter results. I'm pleased to report a strong start to our fiscal 2014. Here are a few of our first quarter highlights. First of all, we delivered total company earnings per share of $0.53. We're very pleased with this performance considering it's just $0.02 less than the prior-year quarter, which included $12 million or $0.16 per share of high-margin political advertising revenues. We delivered revenue growth broadly across our media business portfolio with total company revenues growing by 1%. National Media Group advertising, circulation and brand licensing revenues all grew compared to the prior-year period. Our Local Media Group delivered record revenue for a fiscal first quarter, spurred by growth in nonpolitical advertising, retransmission fees and Meredith Video Studios. Company-wide, digital advertising revenues increased 12% to a record high for a fiscal first quarter. Stepping back for a moment to look at the current media and marketing environment, we see several encouraging trends. First of all, National Media Group advertising revenues continued to strengthen. They increased 1% in the quarter, a significant improvement over prior-year period results. Second, nonpolitical advertising at our television stations continued to grow. Revenues increased 3% in the quarter, and that's on top of a 5% growth in the year-ago period. Local television continues to prove its unique ability to drive consumers into retail establishments. We're also seeing strengthening demand heading into the upcoming holiday shopping season. Third, consumer engagement with both our national and our local media brands is stronger than ever. Our magazine audience stands at a very impressive 115 million, and our direct mail and online subscription solicitations are generating strong response. Our television stations, which reach about 10% of U.S. TV households, are also experiencing ratings growth. Our license product at retail continue to post strong sales, and our syndicated television programming recently secured a national cable distribution. Fourth, metrics related to our digital activities are at record levels. Our online audience climbed to an all-time high of more than 55 million monthly unique visitors in the quarter, bolstered by continued growth in our tablet audience, as well as strong engagement across social media and mobile apps. We also posted record digital advertising for a fiscal first quarter. Digital advertising revenues now account for 11% of total company advertising revenues and 15% of ad revenues in our National Media Group. Finally, our diverse and multi-platform business model continues to generate strong and sustainable cash flow, resulting in increased shareholder value. We generated more than $170 million of cash flow from operations during the trailing 12-month period. Over that time, we've returned approximately half of that cash to our shareholders in the form of dividends and share buybacks, in line with our very successful Total Shareholder Return strategy. Now let's review our progress in more detail, starting with our National Media Group. Fiscal 2014 first quarter results were characterized by revenue growth across most business activities in the National Media Group. Beginning with an update on advertising, food, our largest category, grew in the mid-single-digit range. Prescription and nonprescription drugs, which together account for our second largest category, were up strongly over the prior year, reversing recent declines. The direct response and financial services categories were stronger as well. Our share of total magazine industry advertising revenues grew to 11% according to the most recent data available from Publishers Information Bureau. Looking ahead, we're excited about next month's launch of the Allrecipes Magazine, the media industry's first major print extension of a digital brand. It will begin with a rate base of 500,000 and a frequency of 6x a year. Advertiser interest has been brisk with companies including Procter & Gamble, Hershey's and General Motors among the first to commit. Additionally, we're pleased with increased marketer response to our innovative Meredith Sales Guarantee. As you may recall, this program uses independent Nielsen Homescan data to prove that advertising in Meredith magazines increases retail sales for our advertising clients. We've doubled the number of brands in the program over the prior-year period to 26, attracted by the average 10% sales lift and the 8-to-1 return on investment experienced by the year 1 participants. Turning now to digital advertising, as I mentioned, revenues grew 10% in the National Media Group, the seventh straight quarter of strong year-over-year growth. Our performance is being driven by 3 major factors. First, of course, we're growing our digital audience. This results in more page views and more advertising inventory to monetize. Traffic to our National Media Group websites averaged nearly 50 million monthly unique visitors in our fiscal first quarter. Today, the Meredith Women's Network is #3 ranked in the important comp score data in the Women's Lifestyle category. Second, our increased scale is opening opportunities to non-endemic advertising categories, including areas such as financial services and technology. And third, our video and mobile initiatives are resonating with consumers and advertisers alike. We're now delivering approximately 14 million video views each month, and traffic for mobile devices is up sharply as well. Turning to circulation, revenues were slightly higher in the first quarter of fiscal 2014, due primarily to growth in subscription revenue, particularly at our parenthood brands, Parents, FamilyFun and Family Circle, partially offset by lower newsstand revenue. We recently increased the rate base of Eating Well magazine to 750,000, more than double its circulation compared to when we acquired the brand 2 years ago. We're particularly pleased that Eating Well's success earned it a place among Advertising Age's A-List, which was announced earlier this week. Ad Age cited Eating Well's 50% growth in advertising pages this calendar year, record newsstand sales and Eating Well's fast-growing licensing activities. Additionally, in fiscal 2014, we will extend our Hispanic media footprint, increasing the rate base of Espera, our Spanish-language title for expecting moms, by 25% to 500,000. Additionally, we continued to execute our successful transition of magazine subscription sales from direct mail to online. We generated 1.2 million digital orders for print magazine subscriptions in the first quarter of fiscal 2014, up 7% over the year-ago period. We're now receiving about a 1/3 of our net orders from digital sources. We realize an estimated $5 in incremental operating profit for each digital order over the average life of the subscription, because it lowers not only our subscription acquisition costs, but also increases our ability to upsell and cross-sell other products at digital checkout. As I've mentioned on prior calls, Meredith Xcelerated Marketing experienced reductions in certain of its major programs in calendar 2012. We're beginning to lapse that performance and performance is stronger in calendar '13, driven by renewals of all major clients, program expansions and new business wins. We expect Meredith Xcelerated Marketing to deliver profit growth in calendar 2013 compared with calendar '12 results. I'll close the National Media Group discussion this morning with an update on our brand licensing activities, where revenues increased more than 10% compared to the prior-year period. Results are being driven by 3 primary factors. First of all, strong sales of our Better Homes and Gardens branded products at Wal-Mart stores across the country. The line of Better Homes and Gardens licensed product continues to be very well received by the retail consumer, particularly products in the home decor and bed and bath categories. Second, we're experiencing nice growth from the Better Homes and Gardens real estate program with Realogy. The network of franchise brokers is now represented in 26 states with more than 8,000 individual agents. We're, of course, also benefiting from a stronger national housing marketplace. Third, we're seeing growth in our international footprint. We recently launched a localized version of Allrecipes.com in Italy, as well as the Better Homes and Gardens, Parents, More and Fitness brands in Turkey. Localized editions of our brands are now available at 25 countries around the globe. Our licensing business was recently ranked fourth in the world by Global Licensing, along well known brands such as Disney and Hasbro. Global licensing is currently working on a major story on our industry-leading licensing business for an upcoming issue. Turning now to our Local Media Group. We delivered record revenue performance for any fiscal first quarter, with total revenues up 3% and nonpolitical ad revenues up 3% as well. Advertising growth was driven by the automotive category, our largest, as well as the telecommunications and food categories. Automotive advertising has now increased in 14 of the last 15 quarters. We continue to believe that there's pent-up consumer demand for new vehicles as the average age of a U.S. car or light truck on the road is currently at a record high of 11.4 years according to recent data from R.L. Polk & Associates. Looking at local station ratings, we continue to strengthen our connection with viewers with our stations in Hartford, Portland and Saginaw, reaffirming their significant market leadership in the July ratings period. Hartford and Portland were also #1 in sign off -- sign on to sign off in their respective markets. Turning to our digital initiatives, advertising revenues from our local media websites rose 25%, driven by efforts to grow and better monetize our audience. We continue to prioritize mobile initiatives due to strong growth in user demand, particularly when it comes to weather and top news stories. We're monetizing that traffic by shifting more of our advertising focus to mobile from the desktop and selling that inventory at premium rates, completing the rollout of our station-specific apps across the group and working with our industry peers to develop standards to support the rollout of mobile over-the-air television. The Better Show, our daily, nationally syndicated lifestyle television program, began airing in 90 million incremental households via the Hallmark Channel in September. We're excited about our new agreement with the Crown Media Family because it gives The Better Show a national cable distribution platform. And while it's still early, we're receiving great viewer and advertiser response to the show on the Hallmark Channel. Additionally, The Better Show, now in its seventh season of syndication, is available in 160 local markets, and renewals continue to be robust and enthusiastic. We'll launch an Allrecipes-branded cooking segment on the show next month, where we will aggressively promote our new Allrecipes magazine over the television audience. In addition, Meredith Video Studios continues to grow its branded entertainment, custom video creation business for large retail clients. As an example, it will soon launch a new program for Kmart for the upcoming holiday retail season. Additionally, it has secured a major expansion of its content creation and product promotion business with Mohawk Carpets. I'll close the Local Media Group discussion with a look at retransmission revenues, which grew significantly in the first quarter of fiscal 2012. We renewed most of our agreements with cable and satellite television providers back in fiscal 2013 and also have long-term affiliation agreements in place with CBS and FOX. Retransmission revenues are certainly becoming a predictable and growing revenue stream, helping to offset the absence of political revenues in off-election cycles such as our fiscal 2014. So in conclusion, as we head into the all-important holiday-selling season, we're encouraged by an improving advertising environment, continued strong performance in our digital activities across the company, which should also benefit from increased traffic and advertising revenues that typically occur during the holiday season, continued strong growth in our brand licensing activities, significant increases in net retransmission revenues helping partially offset the absence of political advertising and improved calendar 2013 performance from Meredith Xcelerated Marketing. Turning now to our outlook. Looking at the second quarter of fiscal 2014 compared to the prior-year period, National Media Group total advertising revenues are expected to be flat to down slightly. Local Media Group nonpolitical advertising revenues are expected to be up in the mid- to high-single-digit range. We will be cycling against $26 million or $0.35 per share in net political advertising revenues recorded in the prior-year second fiscal quarter. We currently expect fiscal 2014 second quarter earnings per share to range from $0.65 to $0.70 per share. Looking now at full year fiscal 2014 compared to the prior-year period. A number of uncertainties obviously remain that may affect our outlook, most notably, the limited visibility into our customer's calendar 2014 advertising and marketing budgets. Additionally, as a reminder, the Local Media Group, on a full fiscal year basis, will be cycling against a record $39 million or $0.54 per share in net political advertising revenues that we recorded in fiscal 2013, partially offset by increased net retransmission fees. We continue to expect full year fiscal 2014 earnings per share to range from $2.60 to $2.95 per share. We'd now be happy to answer any questions that you might have. So we're ready for the Q&A period please.

[Operator:]

[Operator Instructions] And our first question comes from Mr. Craig Huber from Huber Research Partners.

[Craig Huber:]

I have some TV-related questions first, please. What was the TV auto performance in the quarter? And if could you quantify that for us?

[Stephen M. Lacy:]

Joe, do you have TV auto compared to the prior quarter at your fingertips?

[Joseph H. Ceryanec:]

I do. Just hang on one second, Steve.

[Stephen M. Lacy:]

Hang on, Craig, for a minute, while we get to the right place in the book.

[Joseph H. Ceryanec:]

Q1 this year versus last year, auto was up 6%.

[Craig Huber:]

Okay. Is there any other categories than TV that was stronger than that? Or is that the best one?

[Joseph H. Ceryanec:]

Telecommunications, which was a smaller category on a percent, was up more, Craig. And then food, food products, which include CPG-type items, was up as well.

[Craig Huber:]

Okay. Then I'm curious, what is your guys' current thought on the TV station acquisition market out there, the prices being paid out there? Just curious of your thoughts there.

[Stephen M. Lacy:]

Let me start on that, Craig, and then we'll ask Paul Karpowicz to join in. First of all, Craig, you have followed us for a very long time, and I think you know that we view any of these opportunities as a long-term owner operator. So we're not an aggregator who then flips to the next highest bidder. So we have a very detailed and also a very disciplined approach to make sure that, should we invest incremental shareholder money in any acquisition, television or otherwise, that we're really quite confident that we can deliver on the promise. We look for opportunities that would create a duopoly, and you know there are certain markets where we can and can't do that. We also look for larger markets rather than smaller, and we look to make sure that the station is already operating at a fairly decent level we can approve on, but not trying to be massive turnaround artists. We also try to be involved in situations that are not full-blown auctions because oftentimes in full-blown auctions, the situation can get a little beyond our disciplined approach. And so that's sort of a corporate philosophy. Paul, you might speak to particular areas that you think makes sense from your standpoint as well?

[Paul A. Karpowicz:]

Sure. First of all, we have a great portfolio of stations in terms of not only market sizes but geographically in some very attractive parts of the country. So I think that has given us the luxury to be selective relative to the stations that have been available and the auctions that we've participated in. We have been quite selective and perhaps that's why we haven't been all that successful. As Steve said, I think we'll ultimately find more success really staying out of the auction business and just addressing individual companies market by market, trying to do deals that way. I do think the -- it continues to be a very active market out there. We've seen a lot of transactions over the past couple years. And I would expect that over the next 18 months, we'll continue to see that. So we will continue to be very involved. We continue to talk to a lot of people. And hopefully, we'll be able to put some wins in or some stations in the win column for us in the near term.

[Craig Huber:]

I have a couple of housekeeping questions, please. Your retrans, what was the percent change of that revenue year-over-year, please? And also, can you comment on how reverse comp did versus a year ago as well?

[Stephen M. Lacy:]

Joe, can you please help Craig with those 2 questions, related questions.

[Joseph H. Ceryanec:]

Yes. Craig, when you look at the -- when you at our earnings release, the Local Media other revenue change year-over-year, almost all of that is incremental retrans revenue. At least 95% of that category is lift. On the expense side, we were up about a little over $4 million from where we were last year on the network payments.

[Craig Huber:]

And then just lastly, if I could just ask, can you just comment how much MXM was down? I think you guys said was down in the quarter. Why was it down?

[Stephen M. Lacy:]

From -- it was almost flat. From a profitability standpoint, it was down a little. It was down about 10% on the top line from a revenue perspective. And obviously, at the end of this calendar year, we'll be lapsing those program losses. And let me give a few thoughts, Craig, on MXM since you brought it up. It's interesting, and Tom Harty is here and I'll ask him to comment as well. This is an agency business, and so it is step function, meaning you win a big client and you move to a whole different level. But those clients come up for renewal. There's changes in Chief Marketing Officers, and the programs come and they go over a period of time. But what's most interesting about it is that it allows Meredith to have a different conversation with clients than we would be able to have if we were entirely or singularly selling media. I was, Monday of this week, with the CEO of a major, major client of ours. Really focused on not only the media sales for calendar '14, but also focused on an umbrella program that they might be considering very similar to the program that we execute for Kraft, the Food & Family umbrella brand. And those kind of conversations and those sort of meetings wouldn't happen with a straight media sale. And, Tom, without giving any names out, you might talk about another very large combined MXM and media opportunity that we're into right now that if it comes to pass could be very beneficial for calendar '14 results.

[Thomas H. Harty:]

Sure. Yes, one of our top 5 largest consumer package with clients on the media side of the business is also a client of MXM. And we're looking for the first time to kind of join the deals together to be able to offer more value to the client overall by bringing both parties' businesses together. So we've got a lot of progress going, and we're optimistic that, as Steve mentioned in calendar '14, that we can announce a much bigger deal. And I think to Steve's point, the exciting that you're hearing in the industry on the marketing side is that more and more clients now are looking to get involved with content marketing. And really that is our sweet spot as a company. In the history of Meredith, we create great content. And now as more and more clients are trying to do that for themselves, be it through their own development of websites or content for that websites, MXM is very well positioned to deliver on that promise.

[Operator:]

And our next question comes from John Crowther with Piper Jaffray.

[John D. Crowther:]

Just a quick follow-up on the MXM side. So I think in the past, you guys have talked about that business as potentially being something that could approach sort of double-digit top line growth longer term in a combination of organic growth and acquisitions. Obviously, it seems like the focus more on profit here near-term. Is there sort of a change in sort of the outlook of that top line of that business? And is there any sort of impact that we're seeing as more and more people sort of shift from retainer-type relationships to more project-type relationships on that side of the business?

[Stephen M. Lacy:]

Okay, well, that -- let me start with that, John. And it is interesting because we do have a number of our clients that are on a project basis. But at this point still, the vast majority of what we call our enterprise deals, those are really the clients where we use all the services that MXM has to offer. In that case, we're really kind of functioning as an outsourced marketing department. And those clients want a dedicated staff that does not work on any other client. And in that case, the retainer, if you will, is more or less the salary, costs and benefits of that dedicated staff. And some of those staff can be as much as 75 people for certain of these large accounts. Then in addition to that, you have a series of executions, and they get bigger and they get smaller depending on the media mix. But I don't believe we have changed our focus. It is like -- like any business, it's not easy. And you have to have more wins than you have losses coming along, and I think we had, unfortunately, a period of time, really calendar '12, early calendar '13, where we probably didn't have enough at bat in the pipeline. I feel now that we have enough at bat. And that, as Tom said, Tom is doing I think a better job of bringing the MXM people in to help do bigger media sales. But I think the business is stable, but we really need to get the business to grow. And that's really the opportunity and the challenge as we look forward. But a couple of these deals that we have at least had the opportunity to talk about in the recent past are much, much larger than anything we've experienced to date. So I think about all I can say is that we got a lot of work to do. But I think we remain cautiously optimistic about, as Tom said a minute ago, the content needs of our clients because they're doing owned media now, but they don't have editors to do it and our ability to help them monetize that and that helps our advertising. It's just a little different model maybe than 5 years ago. Did that help at all, John?

[John D. Crowther:]

Yes. No, definitely. I appreciate the insight there. Moving onto the magazines business. Just wondering if you could share sort of any initial reactions or findings from sort of the consolidation of the parenthood category that you guys have now that it's really just 1 brand out there versus the 2 brands that we've seen over the last several years?

[Stephen M. Lacy:]

Yes. Tom, why don't you help John with that question?

[Thomas H. Harty:]

Yes, we're very happy with the acquisition of the Bonnier assets. As we've talked about in the past, we're continuing Parenting and the visual aspects moving forward, but we've consolidated the magazine. And I think what you're seeing in our first fiscal quarter, the performance of the advertising lines for Parents and FamilyFun, American Baby, where we're seeing significant growth, double-digit growth in advertising, is really all related to the Bonnier acquisition. So we are exceeding our initial plans. Again, it's early days. We're only a quarter in, but we're very, very optimistic about this moving forward, and we're very, very happy about the acquisition.

[John D. Crowther:]

Okay. Great. And then just you talked a little bit about your sort of your efforts on mobile and video in terms of digital advertising in the National Media Group. I'm wondering if you could maybe shed a little bit more light on the contributions that maybe video and mobile are having in terms of sort of the revenue growth in that category?

[Thomas H. Harty:]

Yes, I think we're excited -- the interesting thing on the mobile, the mobile traffic, obviously, has significantly increased. We'll be approaching 50% of our digital traffic is going to be on -- from a mobile area. And obviously, you're seeing this across the whole spectrum of the business. I think in the last few years, the advertising dollars on mobile haven't flowed as freely to that area. The budgets weren't -- advertisers and agencies were trying to figure out how to adapt their creative to the mobile devices. More and more of that's happening, so we're starting to see more advertising dollars flow into that area. We're really excited about video. I think that we do have a competitive advantage in digital video because we are in the broadcast business for a long period of time, and we have studios and cameras so we can produce video around our brands very efficiently and quickly. This year, in the past 12 months, we probably produced about 3,000 new videos for our brands, and we're approaching 11,000 to 12,000 in total. And I think we're really going to see a ramp up. We're expecting in the next few months, in the holiday season, in the video area. So as Steve mentioned, we're about 14 million video views now on average, and we'll probably be -- I see that actually doubling probably in the next 3 to 6 months.

[Stephen M. Lacy:]

And there are, interestingly enough, at least at the moment, because it's a shiny new hubcap, much stronger CPMs against that video inventory because it is sort of television-like, if you will, against our print brands.

[John D. Crowther:]

Great. That's very good -- great insight there on the video side. Just one last quick question. In terms of stock repurchases, it looks like a little bit more accelerated activity in this quarter. Just wondering if that was more due to potential offsetting dilution from compensation or if that represents sort of a different sort of focus longer term on that channel to return capital to shareholders.

[Stephen M. Lacy:]

No, it was really dilution offset more than anything because actually, Joe, the net is -- it's actually up a little bit right or about flat?

[Joseph H. Ceryanec:]

Yes, I mean, with the stock price being strong, we saw quite a bit activity in option exercises, restricted share vesting and -- so what we were trying to do, we're taking those shares from hitting the market. So, John, when you look at the cash flow statement, you'll see there's going to be both cash -- a positive cash impact from the equity, as well as then what we spent to take those shares off the market. But net, it was about $5 million of cash usage, which is pretty consistent with where we've been over the last 2 years.

[Operator:]

And our next question comes from Matt Chesler with Deutsche Bank.

[Matthew Chesler:]

I have 2 TV questions and then 2 magazine questions, if you wouldn't mind.

[Stephen M. Lacy:]

Okay. Let's do the TV first. I want to make sure Paul is still with us.

[Matthew Chesler:]

So the -- I guess, for those on the line that are contemplating various M&A scenarios in their head involving Meredith and TV, it would seem to me that there are a couple of considerations and metrics. 2 important ones would be the extent to which, in a potential transaction, Meredith would be willing to use the balance sheet and the other one might be family control. Can you talk at all to what level you think the board could be comfortable kind of taking the balance sheet, too, on a short-term basis with the idea to leverage quickly in such a transaction? And I'm not sure if you're comfortable talking about the family, but I think that's pretty interesting, too.

[Stephen M. Lacy:]

Well, let me take the family issue off the table, and then I'll ask Joe to talk about leverage. We've been very a public about leverage, and I think it's even posted on our website. There isn't anything that I would be aware of that would require anything that would have to do with the family. I obviously don't speak for the family, but you know they've taken a very, very long-term view in an appropriate way. So I don't think there's anything that we would need to discuss related to that. And, Joe, you should speak to how we've been public about our leverage and that kind of thing.

[Joseph H. Ceryanec:]

Sure. And, Matt, we've talked about this. Our view has not changed. We're levered at 1.4 right now. We've said that we would go to 3x, maybe even a little above 3x for a strategic acquisition, and as you said, one that we saw that we could delever relatively quickly. And with TV, with 2014 being a political year, that's always a strong cash flow. So a little above 3x out of the gate but with a path to get below 3.

[Matthew Chesler:]

No, I think that's really helpful for people. The second TV question would be thinking about your view on net retrans for 2014 relative to 2013 fiscally, if there's any thoughts or help you can provide on that?

[Stephen M. Lacy:]

Joe, you probably don't have that calendarized, I'm guessing, right?

[Matthew Chesler:]

I'm thinking about it on a fiscal basis.

[Stephen M. Lacy:]

Oh, you're thinking about fiscal? Are you thinking fiscal, Matt? Okay.

[Matthew Chesler:]

Yes, I'm lining up with your results.

[Stephen M. Lacy:]

Can you help at all with that, Joe, fiscal '14 over '13?

[Joseph H. Ceryanec:]

Yes, and what we have said publicly is that for both our fiscal '12 and our fiscal '13, our net operating profit from retrans was in the high-20s, around $28 million for the last 2 years, and that, that would grow because of the renewed deals. That number on a net basis should grow $15 million to $18 million for the year. Matt, you can probably do the math. And then my response to Craig's question to figure out what our lift was in the first quarter on a net basis, it was almost $7 million. So if you analyze that, you get pretty close to what the lift in contribution will be for the year.

[Matthew Chesler:]

Okay. It sounds like you gave me all the pieces. So shifting to the consumer to the magazine side, if you would. Recently, there was an industry event where there was an interesting discussion of the various consumer models that are being adopted and tested by the various publishers across the industry, and it ranged from 1 end of the spectrum from a standalone digital to what was termed print-free with digital additions. I'd be curious to hear your thoughts on what makes the most sense for Meredith given your brand and your audience, and why?

[Stephen M. Lacy:]

Yes, well, interestingly enough, we actually presented our circulation initiatives at another industry event just yesterday. But I'll ask Tom to speak to what's going on because I think you'll recall, Matt, that we did a lot of work on this in fiscal '13, and now we're into the test and execute phase in '14. So, Tom?

[Thomas H. Harty:]

Yes, I think, fundamentally, we still believe that we're going to create the fundamentals of our business about creating great content for women in the country. And no matter how much they want to consume that media content, we have to be there. And still today, we talk a lot about digital, but the form factor that she's choosing is actually print. And we always have to reinforce this. We were at a meeting yesterday that when you look at the numbers, we are firm believers in the tablets and digital editions. We're making big investments over the last few years there, but it's a slow transition, and, again, to the point of changing consumer habits and the kind of form factors at what we have. And we're different, women's magazines, than content that is in the news area, time-sensitive content. So we're in the 2% range in the tablet editions. Growing that, we think, over 5 years to about 10% of our rate basis. And that's kind of what we're seeing. But to Steve's point, when we look at the opportunity we have, we have 115 million people on a database where we know a lot about what they want to do. We have 28 million subscribers that we have a relationship with, a transactional relationship with, where we have their credit card. So we see the opportunity for growth in the consumer area. We talk about CRT, it's our consumer revenue transformation. So what other goods and services, what other pricing opportunities do we have to price up, offer other products, where we can get more dollars from the consumers that we have. And I think this is when we see the fragmenting of the advertising marketplace, this is a direction that we've been spending a lot of time on in the last year. And the initial view is that we see it as a growth driver for the future.

[Stephen M. Lacy:]

So I think, to try to quantify this a little bit, Matt, when we are getting into the spring of calendar '14 towards the end of this fiscal year, we will have a lot of tests in place. We've taken parts of the file and raised prices. We bundled different products together. We've created opportunities to upcharge and you can have the tablet edition. A lot of different models, and I think we'll be able to start to quantify what we think the benefit of that will be with some actual results. The good news is, and Tom was very vocal about this from the podium yesterday, that we're doing all this from a position of significant strength because our circulation activities are at sort of an all-time high already. So that allows us to be adding to rather than replacing. It's a little more challenging in parts of the industry where it is either time-sensitive content or heavily newsstand dependent because in those places, you're busy kind of filling the bucket in, where the newsstand sales have gone down. And for us, that's only about 2% of what we do. So I think that this is probably going to be a really strong way to stabilize and provide some growth to National Media bottom line going forward.

[Matthew Chesler:]

There was a lot there, and I'm sure that there'll be a lot more to talk about. I just wanted to sneak in a quick question just to get an update if you want, you're comfortable talking about the...

[Stephen M. Lacy:]

Sure.

[Matthew Chesler:]

Remember you're doing the rate base bifurcation study with -- was it Oliver Wyman? Is there any -- anything that's going on?

[Stephen M. Lacy:]

That's exactly what this -- that's what resulted in this whole program Tom was talking about. So that was the work we did in 2013 to come up with these different models that we would test. And now we've got it all kind of in the big machine right now. We got to figure out which of these things really works.

[Thomas H. Harty:]

So instead of calling it Oliver Wyman project, we're calling CRT. We couldn't call it the consultants forever.

[Matthew Chesler:]

CRT?

[Thomas H. Harty:]

Consumer revenue transformation.

[Stephen M. Lacy:]

Which means get more money from the consumer.

[Operator:]

And our next question comes from Jason Bazinet with Citi.

[Jason B. Bazinet:]

I just had a question on the TV station and retrans market broadly. The market seems to be quite enthusiastic about retrans. We've seen sort of the public multiples move up quite a lot and a lot of deal activity in the private market. And if you could just step back for a second and maybe compare and contrast what you thought of the TV station business maybe 2 years ago relative to now? Has there been a change in the fundamentals in terms of how you were thinking about it versus what you're seeing now on the ground that would be -- that's sort of consistent with what we're seeing in terms of asset valuations either in the public or private market? Or do you feel like not that much has changed over the 2 years?

[Stephen M. Lacy:]

Well, let me start and then I'll ask Paul to add to it. And I guess I would, Jason, say 2 things. When we, as local broadcasters, sort of woke up about 3 ago and realized that for 25 years, we've been passing our signal through to the cable and satellite providers for free even though we were paying for syndicated program and had hundreds and hundreds of people on the street gathering news, I'm not sure we, at least I, anticipated the net upside that could come from that going forward. I'm going back now sort of early recession. I think also, at that time, remember that our very largest category, the 25% of the revenue called automotive, was completely dark. So that was a bit of a moment. And it's that business. We have just spent the last 10 minutes talking about the consumer revenue we get in our magazine business. That business is one revenue stream. But I think the other interesting thing that has happened that probably I didn't also factor into play was I believe the weakness of the local newspaper business has helped strengthen our business. Because I believe that we are now the most effective mechanism and have really taken a lot of what were classified dollars to get the consumer out of their house and into retail on Saturday morning. And that's really what matters in the local marketplace, all tied to our news programming. So I think that the business came back stronger than we would have anticipated. And now the net impact of retrans and the strength of the nonpolitical advertising is probably better than, at least, I would have anticipated. And, Paul, I don't know what you would add to that from your more day-to-day activities in the industry.

[Paul A. Karpowicz:]

Well, I think, certainly just in the past couple of years, the benefit that we've had or the one difference would be there is a higher degree of clarity, I think, between the relationship with the television stations and the networks in terms of what the expectations might be relative to programming fees. And then there's again more of an understanding or a better understanding of where the retransmission rates can be with the MSOs and the levels that you will aspire to. So I think with that degree of clarity, it gives people comfort as they're buying stations and making investments.

[Operator:]

And our next question comes from Barry Lucas from Gabelli & Co.

[Barry L. Lucas:]

I'd like to stick with TV, if we could, Steve and Paul. A couple of items. One, just kind of nuts and bolts. What's left in terms of renewals with the video providers, either for 2013 or as we look out in '14 or '15? What portion of the subbase might you be turning over?

[Stephen M. Lacy:]

Paul, can you help -- can you handle that one?

[Paul A. Karpowicz:]

Yes, the biggest one we've got is Comcast that triggers in 2000 -- end of '15. So that represents somewhere around 25% of our subbase. So that's the next big deal that we've got. So it's not until the end of '15.

[Barry L. Lucas:]

Okay. So what you're saying is that we really should not expect any major step functions as the ones that we've seen in the recent years?

[Paul A. Karpowicz:]

Well, other than the fact that there are steps built into each year in the deals that we've already done.

[Barry L. Lucas:]

Right. Escalators, but not a big stair step?

[Paul A. Karpowicz:]

Not dramatic.

[Joseph H. Ceryanec:]

Barry, as Steve said in his remarks, during our fiscal '13, we renewed almost all of the agreements with the MSOs and the satellites. So if you think that these are typically 3-year deals, you go out into 3 years, '15 and '16 will be when these renew again. But to Paul's point, yes, there are escalators that we'll see over the next couple of years.

[Barry L. Lucas:]

Okay. Maybe bigger picture. I want to come back to the M&A issue again, as now presuming that the Tribune and Sinclair and Gannett deals do go through. Your 10% reach, while you have a terrific station portfolio, starts to look a little bit smaller in the bigger picture. So your thoughts about scale and the potential risk to those relationships when Les Moonves comes knocking again?

[Stephen M. Lacy:]

Paul, would you like to speak to that?

[Paul A. Karpowicz:]

Sure. I think there are 2 ways to look at it. And as -- we look at it as an industry relative to ownership caps and so forth. I think you have to look at it both nationally and locally. And I think to the extent that, for example, you referenced CBS, the fact that we run a large number of really good CBS affiliates speaks well to our relationship with CBS and our ongoing relationship with CBS. So that -- I don't worry about the networks as much simply because they are very concerned, obviously, about our performance market-by-market. I do think, as you look at the syndication marketplace, that could have an impact going forward when again we only have X number of markets, and somebody may have 100x X number of markets. But again, it's critically important that you maintain and operate the best stations you can in each of your markets. And I think a lot of those issues take care of themselves. But there's no question that there is a move to increase scale. And I think you see a lot of people working in that direction as we are as well.

[Barry L. Lucas:]

Okay. Last area maybe, again, on the bigger picture side, and that's more the risk profile we see the benefits of retrans, but as you think -- or can provide some color or opinion on either something like Aereo or over the top alternatives and how that threatens the relationship that you were just -- the good relationship that you were just talking about with CBS?

[Paul A. Karpowicz:]

Well if you look at, again, just scale -- and I discount Aereo. I have to say, if you look at the -- their technical capability and their ability to reach a large number of people and again, that becomes a household thing. Although they've talked about being able to move Aereo to Android. I just don't think they can get to a scale that is meaningful or problematic. I think you then say, okay, what about over-the-top and particularly younger viewers and what their lifestyle changes will mean to us. And I think that's why it's critically important that we continue our development on our mobile devices and the distribution of our content simply over the air. Because once people start figuring out what their streaming charges are going to be, if we can provide them with a 0 cost alternative to receive live television programming, I think they may find that very attractive. So I think there's no question that, particularly with younger demographics, there is kind of a shift away from sitting at home and watching must-see TV on Thursday night. But again if people have a choice of the big screen at home or a mobile device, they would choose the big screen. But I do think we have to be in all places. We have to be on every device. We have to be available everywhere people want to get us.

[Stephen M. Lacy:]

We've had you all tied up almost an hour. So we'll take one more question, if there is one, and then we'll wrap it up.

[Operator:]

Okay. And our last question comes from Edward Atorino with Benchmark.

[Edward J. Atorino:]

I had a following on the broadcast side. Could you talk a little bit about mobile? Theoretically, it's suppose to be another revenue stream developing. I think, 2 or 3 years ago in Washington, the TV people talked about it, but nobody seems to be getting any money out of mobile. Is this going to be a real next revenue stream? And thirdly, there's a lot of talk here and there about spectrum. Could you talk about your views on spectrum, whether you would keep it all and try to use it some other way? Or if the government wants to sell it, you'll sell it?

[Stephen M. Lacy:]

Paul, do you want to take mobile first and then our view on spectrum?

[Paul A. Karpowicz:]

Yes, sure. And again, there are really -- you have to differentiate. There are really 2 different types of mobile. One is a mobile streaming product that we are very actively participating in, and we do receive money there, and I think that's only going to grow as we put more content and create more apps for our mobile streaming. The other mobile is the one that we've been in the different consortiums with the other broadcast groups. And that is developing the standard where we can broadcast mobile using our current facilities, where there is no streaming cost, and it becomes really just a replay of your existing signal and you can change your commercial base if you choose. That's the one that I think still needs to really be tapped. We have mobile streaming or we have mobile delivery, digital delivery in probably 8 of our 12 markets currently, and we'll be rolling out the rest of the markets throughout the rest of this year. So in that regard, we have -- we've invested a lot, but we do have expectations that in both ways, in both streaming and in an over-the-air mobile format, that we want to be there. And as I said before, I think we have to be sensitive to younger audiences and the way that they consume media, and that's why we want to be there when they need us.

[Edward J. Atorino:]

So there are dollars there maybe?

[Paul A. Karpowicz:]

Yes, and I think a lot of it, if you look at how, again, our web numbers are shifting from desktop to mobile, pretty dramatically. So as we look at that, we hopefully will be shifting the dollars from our traditional desktop apps to mobile apps and actually be able to grow off of that.

[Edward J. Atorino:]

Onto spectrum?

[Paul A. Karpowicz:]

And onto spectrum, primarily, we have used our spectrum for our digital delivery. And we do have some cases in markets where we have a second station where, conceivably, we would have spectrum available for sale or auction. I think it just remains to be seen what the pricing levels might be and how that might play out. But we do not anticipate being major players in an auction scenario. We have a couple situations where we might have some spectrum available, but we don't have any wholesale markets, where we would just be able to take out 15 megabits or something that significant. So we have a little bit there. And again, up to this point, we are broadcasters by nature, and our first choice would be to use our spectrum to broadcast a mobile signal.

[Edward J. Atorino:]

One follow-up. I got on the call late, I apologize. Some numbers were given about $15 million to $18 million from retrans. Was that fiscal 2014, fiscal 2015?

[Stephen M. Lacy:]

All right. Joe, would you clarify the information you gave regarding retransmission in fiscal '14 compared to fiscal '13, please?

[Joseph H. Ceryanec:]

Yes, and there were a couple of questions. I'll try and bring it all back together. So as it relates to our first quarter, when you look at our earnings release and you look at the National -- or, I'm sorry, the Local Media other line, which is where retrans is, it's up about $12 million. And what I said earlier is the vast majority of that is actually 94% of that category is the retrans lift. On a net operating -- and that's the revenue side. On an operating profit basis, it's up about $7 million for the first quarter. What we've said in the past because of our renewals last year, our first 2 quarters, we're going to see a stronger lift at the operating profit level. But as we renewed those kind of in the second half of our fiscal '13, that delta will be reduced. So over the course of the year, we would expect that the net contribution from retrans is going to be kind of in the high teens to $20 million range on a net profit basis.

[Edward J. Atorino:]

That's FY 2013?

[Stephen M. Lacy:]

'14.

[Joseph H. Ceryanec:]

'14 over '13.

[Stephen M. Lacy:]

Thank you all for participating today, and we appreciate all the questions. Have a good afternoon.

[Operator:]

Ladies and gentlemen, this conference will be available for replay today at 12