Meredith Corporation
Q2 2014 Earnings Call Transcript

Published: 29 Jan 2014

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Meredith Corporation Fiscal 2014 Second Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference is being recorded. I'd now like to turn the conference over to Mike Lovell of Investor Relations. Please go ahead, sir.

[Michael Lovell:]

Good morning, and thank you, everyone, for joining us. Our call this morning will begin with comments from Chairman and Chief Executive Officer, Steve Lacy; and Chief Financial Officer, Joe Ceryanec. And then, we'll turn the call over to questions. Also on the line this morning, as usual, is National Media Group President, Tom Harty; Local Media Group President, Paul Karpowicz. An archive of today's discussion will be available later this afternoon on our Investor Relations website and a transcript will follow that. Our remarks today will include certain 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 this morning and in some of our SEC filings. And with that, Steve will begin.

[Stephen M. Lacy:]

Thank you, Mike, and good morning, everyone. And again, thank you very much for joining us. I hope you've had the opportunity to see our news release issued earlier today detailing our results. I'm pleased to report a strong second quarter and first half of our fiscal 2014. Here are a few highlights from our second quarter. Our Local Media Group delivered over 20% growth in nonpolitical revenues. Nonpolitical advertising revenues grew 10%, driven by strong performance from our stations in Phoenix, Kansas City and Las Vegas. Retransmission revenues were up significantly as well. During the quarter, we announced agreements to acquire the broadcast assets of television stations in Phoenix and St. Louis. These are high-performing stations in growth markets and in states with significant political advertising. We're confident they will be quality additions to our group. In the first full year post closing, these stations are expected to generate combined revenues of $105 million to $115 million, and be accretive to run rate earnings per share by $0.16 to $0.18. In the National Media Group, quarterly revenues grew and operating profit was up 1%, excluding special items that were recorded in the year-ago period. Our parenthood and food brands continue to perform very well. Meredith Xcelerated Marketing grew revenues, and importantly, delivered more than a 35% increase in quarterly operating profit. Results were driven by new and expanded programs, including those with Kia Motors, Mercer, Chrysler and Maserati. Our brand licensing revenues increased an impressive 30%. Our line of 3,000 Better Homes and Gardens branded products continued to resonate with consumers at over 4,000 Walmart stores nationwide. And finally, we continue to successfully execute our total return strategy. We grew our annual dividend by 7% in calendar 2013, the 20th consecutive year that we've increased the dividend. Additionally, we repurchased nearly 2 million shares, and for calendar '13, our total shareholder return was 56%. Turning now to the advertising environment. Calendar 2013 advertising performance was much stronger than calendar 2012, both for Meredith and for the industry in total. However, early calendar 2014 advertising appears to be off to a slow start. That said, industry experts are predicting full year calendar 2014 magazine and digital advertising performance to resemble that experienced in calendar 2013, the year just finished. And the television industry, of course, will benefit from another round of political advertising. We manage our business to produce sustained long-term growth. And as you're aware, we have a long-term proven track record of outperforming our industries. Additionally, our ongoing commitment to develop new revenue sources is delivering results. We continue to be very pleased with the enthusiastic consumer response to our branded products at retail, delivering double-digit revenue and profit growth for our brand licensing business. And we see revenue and profit growth from retransmission and Meredith Xcelerated Marketing going forward as well. Finally, our brands continue to demonstrate their vibrancy with the consumer, which is the bedrock of our advertising and marketing activity. Ensuring our brands are relevant to the consumer is a top priority as we look to the future. As we stated in our news release issued earlier this morning, we continue to expect fiscal 2014 full year earnings per share to range from $2.60 to $2.95, excluding both operating results and transaction expenses related to our recently announced television station acquisitions. This is the same range we have maintained since the beginning of fiscal 2014. With that overview, let's take a closer look at our 2 major business operations, beginning with our National Media Group. Fiscal 2014 first half results for our National Media Group were characterized by strong growth in brand licensing and digital, along with improved performance in advertising and from Meredith Xcelerated Marketing, beginning with an update on first half fiscal 2014 advertising. We saw improvement in our performance with advertising revenues off 2% compared to a 9% decline experienced in the first half of the prior year fiscal 2013. Digital revenues grew 6%, and that's on top of a 15% growth we delivered in the year-ago period. From a category standpoint, household supplies, nonprescription drugs and the direct response categories were the strongest. Our share of total magazine industry advertising revenues held firm at 11% according to the most recent data available from Publishers Information Bureau. Importantly, our share of our competitive set advertising grew 1 full share point to 39%. Our innovative Meredith Sales Guarantee program continues to generate enthusiasm from advertising clients who are attracted by the average 10% sales lift, an 8-to-1 return on investment delivered in the first year -- to the first year participants. We now have 30 brands participating more than double the number a year ago at this time. This program uses independent Nielsen home scan data to prove that advertising in Meredith magazine increases retail sales for our advertising clients. Turning now to circulation. Revenues were slightly higher in the first half of fiscal 2014, due primarily to growth in subscription revenues, particularly at our parenthood brand, Parents, Family Circle and FamilyFun. Additionally, in fiscal 2014, we've increased the rate base of Eating Well to 750,000 compared to 350,000 when we first acquired the brand. Recently, Eating Well was named to Advertising Age's A list of the top 10 magazines in the industry during calendar 2013. We continue to execute our successful migration of magazine subscription sales from digital, direct mail -- I'm sorry, from direct mail to digital. We generated 2.5 million digital orders for print magazine subscription in the first half of fiscal 2014, that's up 15% from a year ago. We're now receiving 1/3 of our net orders from digital sources. We realized an estimated $5 in incremental operating profit for each digital order over the average life of a subscription because it lowers our acquisition cost and increases our opportunity to upsell and cross-sell other products at digital checkout. We continue to develop our brands across media platforms to strengthen advertising, deepen our consumer connection and generate higher revenues. Allrecipes, the world's largest digital food brand, is a great example of our multi-platform approach to brand-building. First, we're very excited about the early reception Allrecipes Magazine is receiving from consumers and advertisers alike. Blue chip advertisers participating include Procter & Gamble, Hershey's and ConAgra. We've also attracted non-endemic advertisers in categories including automotive, financial services, home decor and entertainment. We're extending Allrecipes to video format with short-form how-to videos available online and weekly segments on The Better Show. Finally, we're growing Allrecipes' mobile presence as more and more women use their mobile phone or tablet in the grocery aisle. The Allrecipes Dinner Spinner app has been downloaded 15 million times, making it the world’s most popular app in the category. While Allrecipes is the latest example of our brand extension expertise, the best illustration is our successful long-term expansion of the Better Homes and Gardens brand. Most recently, Better Homes and Gardens has attracted a very large and passionate social media audience. It has over 1.6 million Facebook followers, and on Pinterest, BHandG pins were among the most popular in 2013. This performance further spotlights how Better Homes and Gardens' vibrant, stylish and relevant content resonates with women of all ages across emergent media categories. As I've indicated on prior calls, performance is strengthening at Meredith Xcelerated Marketing, driven by renewals of major clients, new business wins and program expansion, including work with Met Life, Hallmark and the Health Alliance Plan, among others. MXM delivered revenue growth and increased profits more than 10% in the first half of fiscal 2014. I'll close the National Media Group's discussion this morning with an update on our brand licensing activities, where revenues increased more than 20% in the first half of fiscal 2014 compared to the prior-year period. Our brand licensing business is currently ranked #1 -- I'm sorry, #4 in the world by global licensing, alongside such well-known names as Disney and Hasbro. Results are being driven by several factors. First, we successfully broadened our line of Better Homes and Gardens branded merchandise with new products at Walmart stores across the country. The line continues to be well-received by the retail consumer, particularly products in home decor, and bed and bath. Second, we're experiencing strong growth from our Better Homes and Gardens real estate program with Realogy. We're benefiting from the stronger national housing market and Realogy is aggressively adding new brokers and agents. The network is now represented in 26 states and by more than 8,000 individual agents. With that National Media Group update, I'll turn the program over to Joe Ceryanec for an update on the Local Media Group and our outlook.

[Joseph H. Ceryanec:]

Thanks, Stephen. Good morning, everybody. Our Local Media Group delivered record revenue and profit performance for a nonpolitical fiscal first half. Total revenues were down just 2% despite the record $38 million of political-related advertising we generated in last year's fiscal first half. We achieved this in part through strong growth in nonpolitical advertising, which was up 7% in the first half, and as Steve mentioned earlier, up 10% in the second quarter. Performance was driven by the automotive, professional services and retail categories. Retransmission revenues also grew significantly in the first half of fiscal '14, as a result of having renewed most of our agreements with the subscription television providers during fiscal '13. Retransmission revenues are growing revenue stream partially offsetting the absence of political revenues in fiscal '14. Looking at ratings, we continue to strengthen our connection with our viewers. Our stations in Hartford, Las Vegas and Portland led their markets in news in the November ratings period, and Hartford, Kansas City and Saginaw were #1 in sign on to sign off. In addition, Meredith Video Studios continues to grow its branded entertainment, custom video creation business for large retail clients such as Mondelez, in which well-known New York City restaurants created original dishes using Ritz Crackers, and this program tied into New York being the host city for this year's Super Bowl. Turning to the digital initiatives, ad revenue from our local media websites were up 12%, driven by efforts to grow our digital footprint through audience growth via desktop, mobile and video platforms. And to better monetize that traffic, we are combining our desktop impressions with our mobile impressions, and offering clients access to our combined social media footprint. We're also working with our industry peers to develop standards to support the rollout of mobile over the air television. As Steve mentioned, we're excited about the pending acquisitions of the broadcast assets of KTVK and KASW in Phoenix, the nation's 12th largest television market, and KMOV in St. Louis, the nation's 21st largest television market, and integrating them into our television broadcast portfolio. As you may recall, we own KPHO, the CVS affiliate in Phoenix. And in KTVK, we will add 1 of the most successful independent stations in the country. KTVK broadcast over 50 hours of local news each week, more than any other broadcaster in the state of Arizona, and also features an impressive lineup of syndicated programming. KASW is 1 of the leading CW stations in the country and appeals to a younger and more diverse demographic. Turning to St. Louis, we're pleased to add another top 25 market to our portfolio. As the operator of 6 CBS stations in markets including Atlanta, Phoenix, Hartford and Kansas city, we're very familiar with the impact of strong CBS prime time and sports lineup, what that can make in a market. We expect these stations will be strong additions to our group. These markets are growing and they're located in states with significant political advertising. We continue to expect these television transactions will close in the second half of our fiscal 2014, subject to regulatory approvals and other customary closing conditions. As we noted in our press release, we recorded $1.6 million of transaction expenses in our second quarter related to this transaction. We will continue to incur expenses while we work on closing these broadcast acquisitions and expect for our fiscal 2014 that these expenses will total between $4 million and $5 million. Now turning to our outlook. As we look at the remainder of fiscal 2014 with limited visibility and the customers' calendar 2014 advertising and marketing budgets, we continue to expect our fiscal 2014 full year earnings per share to range from $2.60 to $2.95, and that excludes any operating results or the transaction expenses related to the acquisitions of the television stations in Phoenix and St. Louis. As we look more closely at the third quarter of fiscal 2014 compared to the year-ago period, with significant month-to-month volatility, and again, excluding the operating results and transaction expenses related to the television station acquisitions, we expect total company revenues to be flat to down slightly. Total local media group revenues we expect to be up mid to high single-digits, and total National Media Group revenues we expect to be down in the low single-digits. We expect that our fiscal 2014 third quarter earnings per share will range from $0.63 to $0.68. And again, that excludes any deal expenses or the operating results from the stations if we were happen to close one of the acquisitions during our third quarter.

[Stephen M. Lacy:]

Well, thank you very much, Joe. And before we go to the Q&A, in conclusion, as we begin a new calendar year, 2014, we're aggressively pursuing 4 parallel paths. First and foremost, we're working to grow and expand our existing businesses and brands organically. Second, we'll focus on closing our recently announced television station acquisitions and successfully integrating them into our broadcasting group. Third, we continue to pursue consolidation in magazine and related media. And finally, we're actively pursuing opportunities to grow our television footprint, adding scale to what is a very profitable and a strong cash flow business. With those remarks, we'd be happy to answer any questions that you might have.

[Operator:]

[Operator Instructions] And our first question comes from the line of Bill Bird.

[William G. Bird:]

Steve, I was wondering if you could talk a bit about the TV business. Your outlook seems to imply slower growth in nonpolitical ads. Maybe you could just talk about what you're seeing kind of month-to-month in the market and is the Olympics throwing money away or is it other factors?

[Stephen M. Lacy:]

Yes, that's a really, really great question. And I'll give you some kind of highlights and then I'll ask Paul to provide some color. There is quite a bit of market-to-market volatility and also category volatility. But there is, in this quarter, without sounding like whiners, some impact of the different games moving around from network to network. And Paul, why don't you give Bill a little color in terms of how that's playing out right now.

[Paul A. Karpowicz:]

Sure. Absolutely. And really, what we're seeing is that February, to a certain extent, is the perfect storm because we are so heavy with our CBS footprint that ads the Super Bowl moves off of CBS, and moved to Fox, we lost a lot of revenue. And when we lost the Super Bowl out of Atlanta, Phoenix, Kansas City, Hartford, larger markets, obviously, we took a hit there. We are picking up Super Bowl money in our Fox market, so we're seeing our pacing well ahead in Greenville, Portland and Las Vegas. In Nashville, where we do have our 1 NBC, we're performing very, very well and we've exceeded our Olympic budget quite significantly. So it's simply a question--we sort of knew this was going to happen with the Super Bowl moving over to Fox, and then also in an Olympic year, it was going to create a certain softness for the CBS station. And that's what we're experiencing now. As we move into March, the outlook changes and we feel a lot better about our opportunities in March, where these major special events don't exist.

[Stephen M. Lacy:]

Does that help, Bill?

[William G. Bird:]

Very helpful. So for March, I don't know if you can quantify what the pacing looks like.

[Paul A. Karpowicz:]

Well, since we are positive for March, and at this point, again, it is moving very quickly everyday but it is positive today and our expectation is, and we're cautiously optimistic, that it will continue to grow and it will be positive through the end of March.

[William G. Bird:]

Great. And just one housekeeping question on retrans, I was wondering if you could approximate the revenue number in the quarter?

[Stephen M. Lacy:]

I think, Joe can help us with that, Bill. So just hold a minute while he gets to the right place in his material.

[Joseph H. Ceryanec:]

Yes, Bill, as I look at that other category, retrans, obviously, is the lion's share of that, I think, our number for the quarter was a little over $21 million of revenue. Which is kind of the -- as we talked about, we renewed all our agreements with the MSOs last year so that's kind of our new run rate as we move through the rest of fiscal '13 -- I'm sorry, fiscal '14.

[Operator:]

And the next question comes from the line of Craig Huber.

[Craig Huber:]

First question, if I could, just on retrans. As you guys look out to fiscal 2015, can you just update us on the large contracts again coming up for renewal. And I guess, over the next couple of years, just how does that lay out, please?

[Joseph H. Ceryanec:]

We really don't, Craig. We just, as I mentioned, renewed every large cable contract, DirecTV, Dish, the telecom, triple play companies, really, during our fiscal '13, kind of throughout the year. And so most of those contracts are on a 3-year cycle, so we will not see those up for renewal until kind of fiscal '16 into calendar '17.

[Stephen M. Lacy:]

Joe, the biggest one would be at the end of '15, where we would see Comcast up, but that would be all the way through calendar '15, to the back end of the year, Craig. So it would have an impact on calendar '16, but not '15.

[Craig Huber:]

Okay. And also, if we could switch over to magazines. Can you just talk about some of the weakness you've seen in recent months, particularly your flagship magazines, year-over-year basis, what's gotten materially worse, Family Circle, Better Homes & Gardens on a year-over-year basis versus how it's trending more in the middle of the calendar year last year and earlier, too, just what's changed, please?

[Stephen M. Lacy:]

Tom, do you want to take that, it's really a category issue.

[Thomas H. Harty:]

Sure. I think, as we've talked before, we feel -- we've seen some weakness in the drug category where there's been many patents that have come off. I think, there's something in the press today about Pfizer. So we've had some headwinds in the second half of the calendar year '13 or the beginning of our fiscal year in the pharma category. Also in the toiletries and cosmetics area, basically, the packaged goods companies have seen some headwinds and have pulled back in the second half of '13.

[Craig Huber:]

If there's nothing up -- there's only 2 explanations in why it's gotten materially worse than versus the, say, the first 9 months of last calendar year.

[Stephen M. Lacy:]

Those are the 2 biggest category issues. Not a share issue.

[Thomas H. Harty:]

When you look at our share, I think, Steve, what Steve talked about, when we look at our share, we measure against the 30 competitive books that we compete against, the women service titles, like Good Housekeeping and Women's Day, and the lifestyle titles like Real Simple and Martha Stewart. When we finish calendar year '13 with the most available data, our share is at an all-time high against those titles. So it's something that the industry is facing and there's some key categories that we talked about that we're seeing some tough comps against.

[Craig Huber:]

Can you also talk about, if you would, pricing on a like-for-like basis for advertising your magazines for the ad pages, how that's trending versus a year ago?

[Thomas H. Harty:]

Sure. When you look at the -- again, I'll jump around calendar year, fiscal year. But when you look at the calendar year '13, the last 12 months that we basically closed, our actual pricing has actually been up roughly 2%. When you look at the whole portfolio, we used a weighted CPM average across the whole portfolio because we obviously have different magazines with different scale, but when we look at it, it's up 2% for that period of time.

[Craig Huber:]

And what about -- that's been a thing for some higher-priced categories you've got more volume and I assume you're seeing, right. But also on year-over-year basis for the same category versus a year, how is that pricing looking?.

[Thomas H. Harty:]

The pricing in the magazine business has been very, very stable for us during the last period of time. It's really been a volume issue that we've been facing.

[Stephen M. Lacy:]

We've had a whole series of years, Craig. Every year, every calendar year except 2009, where our pricing has gone up in that kind of low single-digit range, the biggest issue is really page volume and change in mix because there are different categories that have higher page rates just because of industry competitiveness. So the mix does move around and changes. But when you net it out on a calendar basis, it's increased every year since 2009. I know that because we just prepared a slide for our next board meeting that I saw this morning, so.

[Craig Huber:]

My last quick question please. How did auto advertising for TV do year-over-year, please?

[Stephen M. Lacy:]

Hold on just a minute. We got it here up, but I'll tell you how much in a second. You're talking about like the first half of our fiscal, right?

[Craig Huber:]

Just the latest quarter and maybe your outlook as for auto for this current quarter.

[Stephen M. Lacy:]

Yes, we don't have pacings by category. It was up 6% in the latest quarter.

[Joseph H. Ceryanec:]

So fiscal Q2, we were up 6%. Right now, as we look at Q3, there's a lot of movement but auto is flat.

[Operator:]

And the next question comes from the line of John Crowther.

[John D. Crowther:]

So first question is relating to the digital performance in the first half, which, I think, you guys call out as up 6% year-over-year. Just wondering, December is obviously sort of the seasonally high quarter for Allrecipes. I'm just wondering maybe what the performance was like in this last quarter and any sort of trends there that suggests why it's maybe low single-digits after, I think, a couple of quarters of organic being more in the double-digit range?

[Joseph H. Ceryanec:]

Yes, I think, John, you're absolutely right. Allrecipes is very seasonal in the calendar fourth quarter and that was up double-digits, both for the month of December, strong double-digits in December, and strong double-digits for the quarter. With that seasonality coming out of the mix, we expect to look more like the other digital properties, which would be more kind of mid single-digits.

[Stephen M. Lacy:]

Did that answer your question, John?

[John D. Crowther:]

Yes, that's helpful. I was sort of wondering how that performed in the quarter. Just on the magazine side, obviously, we saw the U.S. Postal Service institute a price increase here in the last month or so. So just wondering, was that price increase sort of factored into your full year guidance? And if it wasn't, what's sort of the impact there? And are there opportunities for you to take cost out in other places to sort of maybe make up for that?

[Joseph H. Ceryanec:]

Yes, John. So we did -- when we did our original guidance at the beginning of the year, obviously, there's a lot of variables that go into the range. And the postal rate increase was something that we had factored in. It will -- the increase is, I think, somewhere around 5%, 6%. So yes, it will have an impact on our cost. And as we always do, we look to offset those increases in other categories. The good news is, right now, we're enjoying very soft paper prices. In fact, we're in a, I don't if I'd say all-time low, but kind of a 5-year low. So that is helping offset some of the political -- or I'm sorry, the postal increase.

[Stephen M. Lacy:]

Yes, we built it into our budget. We obviously were in hopes and strongly believe that this was a wrong decision by the Postal Service to try to push through a rate higher than CPI because it always has a very negative impact on their volume and that will come out in the litigation on the rate increase. But to be conservative and make sure that the range was something we could live with, we had a sense to what it might be and we built it in at the beginning of the year, for like the second half, so to speak. Okay?

[John D. Crowther:]

Great. Yes. And just one last quick question on circulation. I know you guys have done a lot of work here in terms of the ability, sort of the elasticity of demand in terms of pricing. I'm just wondering if you have any sort of updates on your thoughts about what you could potentially do there over the next couple of quarters in terms of potentially taking some price in the circulation channel?

[Stephen M. Lacy:]

Yes, there's really 3 big parts of that work stream and I'll just sort of take it at a high level, and then, Tom may certainly want to play into that. Really, the most important one ties to your recent question regarding postal and it's getting out of direct mail to support our circulation activities. And that one is really well in line and performing very, very well. So that's selling subscriptions to the print product on our digital properties as opposed to through direct mail. And I spoke to that in my remarks earlier. The second part of that really is over a period of time converting those very same customers to what is an auto renewal program using a credit card, so they tell us when to stop rather than us reaching out to them every 1, 2, or 3-year period of time. And we're just now in calendar '14 starting to renew some of those people who gave us their credit cards a year ago. So 6 months from now for sure, and a year from now, we'll have much better metrics in terms of what that can mean for our persistency and profitability. And that is, in fact, the second most important lever in what we're doing. And the third part is more of, I would say, a trial activity that we're into. And that's based on better knowledge through our consumer database of the consumers' interest in all sorts of interesting bundles of products. And it might be a bundle that would include a retail coupon, it might be a bundle that would include print and digital, but we haven't had a very good digital checkout capability until now that would allow us to do that. But that is probably the most sophisticated part that our marketers are in love with, but we don't have very much data that I can prove much to you. But I think the most important thing always to remember through all of the issues that we've been through since 2009, the most consistent revenue and profit stream has been circulation for our magazines. So regardless of what advertisers might be doing with their spend by platform, our consumer is very loyal and has been willing to pay for the content, which that makes the magazine business unique from every other media platform. So we think we've got a lot of upside. It amounts to in the current year kind of mid single-digits in terms of revenue profitability impact, and we think it's kind of double that as we go into fiscal '15. So we'll continue to update you on that. And we're pretty optimistic about it going forward.

[Operator:]

The next question comes from the line of Jason Bazinet.

[Jason B. Bazinet:]

I just had a quick question. In the -- while you reiterated the full year earnings outlook that you had, in the release, you talked a little bit about limited visibility into your customers adding marketing budgets for the year. And I was just wondering, is that different? Would you say the visibility is more limited now than it normally is?

[Stephen M. Lacy:]

I would say, Jason, that this particular release is the hardest one that we have every year because our fiscal year kind of bifurcates the ad cycle. So this is really the calendar year is the beginning of the ad cycle. And in a lot of cases, although we have really pretty good intelligence around like a full calendar year spend, and I think there's a lot of industry thoughts around the full calendar year spend, how that begins in a particular year doesn't oftentimes determine how it will end. And in -- as you know, the way this plays out, like on the magazine side, we've closed 2 months. We're working on the third, and my gut tells me, of the 3 months, 2 of them are going to look kind of like what we experienced in the fourth quarter, and 1 of them is going to be really a tough month. And then, you go to the TV side, and as Paul said, you mix in all of these different activities and we've got, again, kind of 1 month that looks really rough and 2 other months that would be probably in line with our expectations. But as we get a little further into the year and we get a few more data points, I think, then, we begin to agree with the industry experts or begin to say we think that they are wrong, high or low. And so this early calendar year piece is always the toughest place for us.

[Jason B. Bazinet:]

All right. So it's really just a function of where we are in the calendar, nothing about...

[Stephen M. Lacy:]

It's really where we in the calendar year.

[Operator:]

[Operator Instructions] The next question comes from the line of Barry Lucas.

[Barry L. Lucas:]

I have a couple. One is a follow-up to the comment that -- or the response you had on credit card renewal. What would be the percentage of your subscribers that have opted into automatic renewal and how does that vary by title, if at all?

[Stephen M. Lacy:]

Yes, it's -- remember that of the 30 million guaranteed rate base, 7.5 million of that is Better Homes and Gardens right off the bat. That continues to really be the mother ship. But at this point in time, we've only had that like in sort of the second 6 months of calendar '13 that we're beginning to renew now again. And so you're going to be a really low single-digits sort of a percent that -- we have the opportunity to renew. It grows each month as we go forward because we're a lot more successful now. And I think, the consumer, more importantly, is more comfortable providing a credit card to execute a transaction like that. But it's a pretty small part of our overall guaranteed rate base at the moment. But it skews -- it just sort of follows in line with the scale of the title.

[Barry L. Lucas:]

Okay. Helpful. And just -- and to go back on your comments on magazine advertising in 1Q. Is the thought now, with 2 books closed, that magazine advertising is down mid single-digit in the first quarter?

[Stephen M. Lacy:]

I think, it's going to be down a little bit more than that when all is said and done, and of course, that's partially offset by digital. But like always, we're sort of guessing because we don't have April closed at this point.

[Barry L. Lucas:]

Okay. Last item, maybe a little bit bigger picture on television. It certainly sounds like your appetite was not necessarily sated by the stations in Phoenix and St. Louis. So how do you think about the threats to the industry, and I'm thinking particularly of area if there was something in the pipeline now, what does that do to questions about valuations and that sort of thing. I guess, what I'm saying is would you really buy a station now in advance of, let's say, a Supreme Court decision coming down late spring?

[Stephen M. Lacy:]

Well, I would say, first of all, the answer to that is yes, we would. And again, in every business I've ever been associated with, there are always things that can potentially keep you awake at night. But Paul is very, very involved in the industry activities around this. And Paul, you might give your point of view, not a legal review, but your point of view as a businessperson of this as we think about it downstream.

[Paul A. Karpowicz:]

I think, you have to look at Aereo and not look at it as much as a technical problem or consideration because quite frankly, the Aereo product, as we saw it move into Atlanta, has had negligible impact at all. So Aereo in and of itself is not something that we particularly worry about. I think, what's important is we framed the issue as it goes before the Supreme Court as copyright protection, and that's really what the issue is all about, is our ability and the network's ability to protect our content and to make sure that just because someone has invented some kind of a funky device, that they would circumvent what have been the copyright protection rights that we've held for years and years. And traditionally, the courts have upheld that. And certainly, through the NAB and all the other industry organizations, the feeling is very positive. And certainly, we're happy that this is going to the Supreme Court because the thought would be that once and for all, we can answer these questions, they can answer these questions relative to copyright protection and kind of put that to bed. So the threat is not necessarily Aereo, the threat is the assault or the attack on the principle of copyright protection. And I think, everybody in the industry feels pretty confident that, that's something that we will maintain. And secondarily, I know that if in fact the Supreme Court were not to rule in favor of the broadcasters, certainly, this would be an issue that would be taken to Congress and clarify there to make sure that these copyright protections are still intact.

[Stephen M. Lacy:]

Does that help, Barry?

[Barry L. Lucas:]

Yes, it does.

[Operator:]

And again, in the questions, we do have Craig Huber.

[Craig Huber:]

Steve or Joe, just talk a little bit further about your outlook here for costs for the upcoming couple of quarters on a year-over-year basis obviously taking into account this postage rate hike. I noticed last 2 quarters was basically flat year-over-year, your magazine cost. What is your -- do you think you could be up a little bit more than that though when we get into these next 2 quarters?

[Stephen M. Lacy:]

Craig, we don't have that level of data right here with us, but I know we'll be speaking with you later this afternoon, why don't we dig into that then?

[Craig Huber:]

Okay. Fair enough.

[Stephen M. Lacy:]

Well, thank you, all, for participating this morning. I thought this was a great round of questions and we appreciate the opportunity to update you and we'll be anxious to announce the closing and integration of our new broadcast properties as we move through the balance of fiscal 2014, and then head into another political cycle as we go into the fall. So thank you very much.

[Operator:]

And that does conclude the conference for today. And today's conference is available for digital replay after 1