Meredith Corporation
Q4 2013 Earnings Call Transcript

Published: 25 Jul 2013

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Meredith Corporation Fiscal 2013 Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our host, Director of Investor Relations, Mr. Mike Lovell. Please go ahead.

[Michael Lovell:]

Hi, good morning, and thanks, everyone, for joining us today. We'll begin the call 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 are Tom Harty, who's President of our National Media Group; and Paul Karpowicz, who's President of our Local Media Group. An archive of today's discussion will be available later this afternoon on our IR website and a transcript will follow that. Our remarks today do include forward-looking statements and actual results may differ from our forecasts. Some of the reasons why are described at the end of our news release 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. Thank you for joining us. I'm pleased to report that we delivered strong growth in revenue, profit and cash flow during our fiscal 2013. Financial highlights included earnings per share growth of more than 15% on 7% growth in revenue. Our Local Media Group delivered all-time highs in revenue and profit, fueled by a record $39 million in political advertising revenue. Our National Media Group grew revenues 3%, as our recent acquisitions boosted both advertising and circulation revenue. Our brand licensing business delivered strong results as well. Company wide, digital advertising revenues increased 50% to a record high. Finally, we increased cash flow from operation to nearly $190 million and grew the amount of cash returned to our shareholders by nearly 40% through increased dividends and share repurchases. Stepping back to look at full year fiscal 2013 in a bit more detail, we continue to execute a series of well-defined strategic growth initiative to position Meredith for the future while accelerating revenue, profit and cash flow growth. First, we increased our already powerful consumer connection. We completed creative enhancements to both our popular national and local media brand. Meredith's national magazine audience currently stands at an impressive 115 million. Our stations, which reached about 10% of the U.S. TV households, delivered strong ratings performance in the November, May and February sweeps. Meredith's online audience climbed to nearly 55 million monthly unique visitors. Second, we strengthened our core magazine and television brands. Advertising rates grew in both our businesses over the prior year period. We completed a number of reengineering initiatives to increase efficiencies, reduce costs and improve operating profit margins. Third, we continue to grow revenue from nonadvertising-related activity. Performance strengthened as Meredith accelerated marketing as the year progressed. All of MXM's major clients renewed their programs for calendar 2013 and the new business pipeline is robust. Our brand licensing business delivered stronger performance led by an enhanced selection of Better Homes and Gardens branded products at Wal-Mart stores across the country. And on the television side, we renewed retransmission agreements with cable and satellite providers at significantly higher rates. Fourth, we continue to make investments to scale our business portfolio. We strengthened Meredith's leadership position in the parenthood category by acquiring and integrating the Parenting and BabyTalk brands from Bonnier. In the food category, we recently announced plans to launch a magazine based on the Allrecipes digital brand this coming fall. Fifth, we expanded our digital, mobile, video and social platforms. We now have 20 of our brands available as digital editions with an audience of approximately 600,000 or about 2% of our guaranteed rate base engaged with the tablet platform. Our 22 mobile apps have generated 25 million downloads. We also secured national cable distribution for The Better Show, our daily syndicated television program. Many of our brands, led by Better Homes and Gardens and Parents, are extending their reach to younger audiences as top-ranking magazine brands on social media sites, such as Pinterest and Facebook. Finally, we continue to successfully execute on our Total Shareholder Return strategy. Meredith's stock price increased 49% in fiscal 2013 and our dividend yielded approximately 4%. This equates to a total shareholder return of 53% for fiscal 2013. As I pointed out on earlier calls, we're aggressively executing on these initiatives to grow shareholder value over time. These strategies extend across all of our businesses, possess significant digital components and capitalize on the broad content creation and marketing capability we possess. Now let's review our progress in more detail starting with our National Media Group. Fiscal 2013 was characterized by strengthening performance across all major business activities in the National Media Group with year-over-year results in the second half of the year, stronger than the first half. I'll begin with the discussion looking at magazine and digital advertising performance in fiscal 2013. Advertising revenues grew 5%, driven by our acquisition of EveryDay with Rachael Ray, FamilyFun and the Allrecipes brand, along with growth from our existing digital properties. On a comparable basis, advertising revenues declined 6%. However, advertising revenues improved noticeably in the second half of fiscal 2013 compared to the first half. Looking at advertising categories more closely, performance was mixed. The food category, our largest, was up strongly in fiscal 2013 as were apparel and media and entertainment. The home category improved as well, posting strong growth in the second half of fiscal 2013. Performance of the prescription drug category improved considerably in fiscal 2013 as well. You may recall that this category was responsible for most of our weakness in the prior year fiscal 2013. Finally, direct response and household supplies were down as well. Our weighted average net revenue per magazine page grew 2% in the fiscal year, and National Media Group digital advertising grew over 60%, led by the addition of Allrecipes. On a comparable basis, digital advertising revenues in the National Media Group increased 12%. Even with the improving trends we're experiencing in calendar 2013, we continue to face a tough magazine advertising environment. To further strengthen advertising performance, we're pursuing the following strategies

[Joseph H. Ceryanec:]

Thanks, Steve, and good morning. You may recall that when we announced our Total Shareholder Return strategy almost 2 years ago, our belief was, and continues to be, that our strong cash flow would allow us to, one, increase our dividend; two, fund new share buyback authorizations; and third, to reinvest in our business by pursuing strategic acquisitions that would increase our income and cash flow over the longer term. Since our launch in the fall of 2011, we've raised our dividend 60% to $1.63 from $1.02, including a 7% increase this past February. We've repurchased approximately 2.1 million shares of our stock at an average cost of about $35 a share and have about $32 million remaining on our $100 million share repurchase authorization. And finally, we've completed almost $300 million in strategic investments. We're currently levered at 1.3x debt to EBITDA and continue to pursue strategic acquisitions. So far, we've delivered on our goal to consistently deliver above median to top quartile total shareholder return. We believe our assets and our strategic initiatives provide us with a great runway to deliver strong returns in fiscal 2014 and beyond. Now as we look at our outlook, we currently expect fiscal 2014 earnings per share to range from $2.60 to $2.95. The Local Media Group will be cycling against a record $39 million political that we recorded in fiscal 2013, which will be partially offset by increased retransmission fees. As we look at the first quarter of our fiscal 2014 compared to the prior year period, we expect that our National Media Group ad revenue will be up slightly. Our Local Media Group total revenues, we expect to be up slightly, with political or nonpolitical ad revenues up in the low single-digit range. We also will be cycling against $12 million in net political ad revenues, which we recorded in the prior year period. We currently expect fiscal 2014 first quarter earnings to range from $0.48 to $0.53. So with that, we'd now like to open up the call to questions.

[Operator:]

[Operator Instructions] First question comes from the line of William Bird with Lazard.

[Thomas Le:]

Hi, it's actually Thomas Le in for Bill. So a couple of questions. Maybe we can start with Joe. Joe, what's the, I guess, the expected financial impact for Allrecipes on fiscal '14? And then also maybe talk about the development on the sales and guarantee programs impact on fiscal '14?

[Stephen M. Lacy:]

So, Tom, why don't you give everybody an update on the product development and the sales and marketing plans related to the launch, and then I'll ask Joe to give the numbers related to the new Allrecipes magazine.

[Thomas H. Harty:]

Sure. As Steve kicked off in his summary, we announced last month that we're going to launch Allrecipes magazine, which is obviously what we believe very exciting and for the first time, we're going to reengineer and actually take a leading web brand and actually reverse engineer it and actually launch it in print. And Steve mentioned the great response that we saw from our initial testing. So we're going to have the first issue in our December issue with a rate base of 500,000, growing into fiscal '15. The plan is to grow that to 1 million and grow that to a 1.7 million in year 3. We're very excited about the synergies that we'll be able to accomplish, and we think this brand has a lot of runway.

[Joseph H. Ceryanec:]

So as we look at the magazine launch in fiscal '14, we expect revenue may be about $5 million to $6 million, about 1/3 of that ad revenue and 2/3 of that from circ that we will, since we're investing in the rate base, we do expect that we'll be slightly dilutive from the magazine launch in fiscal '14. Couple of cents.

[Thomas Le:]

Okay. And could you discuss how you plan to evolve this circulation pricing strategy?

[Stephen M. Lacy:]

Tom, you want to take that?

[Thomas H. Harty:]

Sure.

[Stephen M. Lacy:]

In terms of how you think it will play out going forward especially focused on the very large digital audience we have to sell the product to.

[Thomas H. Harty:]

We think that this has -- we have an opportunity to actually price Allrecipes magazine at a premium, so we're going to come out with an initial rate of $12 for 6 issues on a frequency basis. And as Steve mentioned, we think there's a great opportunity to generate a lot of subscriptions through our digital outlet and the brand online. So we believe when we look at this launch compared to our core business, that we'll have a greater percentage of revenues being generated from the subscription side of the business compared to our core business. If you look at our core business over the history, it's usually like a 60/40 split between advertising and circulation. And we believe that this might be inverted going forward because of the great opportunity with the brand online.

[Operator:]

[Operator Instructions] Our next question comes from the line of Craig Huber with Huber Research Partners.

[Craig Huber:]

My first question, on the TV side. How did auto ad revenue do in the quarter? And how do you think it's pacing in this upcoming quarter, please?

[Stephen M. Lacy:]

All right, we're digging a little bit here, Craig, so hang on just a second.

[Joseph H. Ceryanec:]

So for Q4 '13, we were up about 12%, and while we're still early into Q1 '14, pacing up kind of low single digits, 3% to 4%.

[Craig Huber:]

What's your -- why do you think it slowed so much there? Do you have a sense? Was it tough comparison for you?

[Joseph H. Ceryanec:]

I think, Craig, part of it is if you think a year ago, which was a heavy political quarter, we saw nonpolitical coming in earlier in the quarter. So we still expect that we may see improvement as we move through this fiscal quarter.

[Craig Huber:]

Okay. And then just staying on this television side, what was the retrans revenue in the quarter, please? And how much did you guys end up paying in reversed comp in the quarter?

[Joseph H. Ceryanec:]

Well, if you look at the other Local Media Group revenues for the fourth quarter, I think it was about $22 million, and the retrans was about 75% plus, 76% of that category. And what was the second part of your question, Craig?

[Craig Huber:]

The reverse compensation or network compensation?

[Joseph H. Ceryanec:]

It runs about half of the revenue. And that's our expectation as we move into next year as well.

[Craig Huber:]

Okay. And then another detailed question, if I could. In the quarter, what is the percent change for your brand licensing revenue and also for your Xcelerated marketing on a year-over-year basis, please?

[Joseph H. Ceryanec:]

Xcelerated Marketing on the revenue side was just up slightly, which, actually, was good news. As you know, we've been down in that business for the past year. The licensing business continues to improve and for the fourth quarter, it was actually up almost 20%. Now that other national media was actually down slightly. MXM was up, licensing was up. But there's a lot of other small business in there, print advantage business, our book business, and those were all down a little bit, which took that category down.

[Craig Huber:]

Was it the pure brand licensing up about almost 20%, you said?

[Stephen M. Lacy:]

Craig, it's performing very, very well. We've got a broader SKU count and some of the newer products that have come to bear are performing really well. And now, of course, after 5 pretty difficult years, that we're all kind of painfully aware of in the home category, we see residential real estate sales starting to firm, and that's now giving us some nice legs around our real estate program. And I'm pretty excited about it going forward as well. So they're both in -- they're both there.

[Craig Huber:]

And my final question, please. What is your current appetite for TV station acquisition?

[Stephen M. Lacy:]

Well, obviously, we are very interested, as we've talked about on previous calls and from the podium, in expanding our portfolio, both on the national and the local side. And we have been involved in several of the transactions that have come down in the marketplace recently and continue to be very interested in adding to that television portfolio. You know us pretty well, Craig, over a long period of time and we established some pretty definitive parameters when we consider a property and it's a pretty sloppy market out there right now. So we would like to add to the stations but we're an owner/operator. And so we have to make sure that it can pay off with shareholder value over time.

[Operator:]

And our next question will come from the line of Jason Bazinet from Citi.

[Jason B. Bazinet:]

I just had a question about the Meredith Sales Guarantee. I think you all said for the full year that the weighted average pricing per page was down 2% or 3% and the overall ad revenues on the national side were down 6%, which implies ad -- our page volume was sort of down in the 8% to 9% range. And my question is given how well the sales guarantee seems to be going in terms of how many brands are there and how much you're expanding it, is there any color you can give us on what the change in spending is among the 26 brands that are participating? In other words, if this expands over the next few years, do you think we'll see a moderation in the decline of the number of ad pages?

[Stephen M. Lacy:]

So, Jason, this is Steve. Thanks for your question. First of all, let me do one data point correction. Magazine advertising revenue per page was up 2%, not down, okay? So I wanted to make sure you got that point, because that's obviously very, very important in the mix and in the profitability. And, Tom, why don't you give some color around how you guys are pushing the sales guarantee out? You might even mention a very aggressive contest you have going on with all your sellers and maybe give a data point or 2 on how it has helped us solidify or gain share or grow volume, if you could?

[Thomas H. Harty:]

Sure. We -- every measurement that we have, we talked about 26 different brands. What we're up against is that there's a little bit of a lag time from a measurement standpoint. So we ask advertisers to commit to a specific schedule for a year and then we actually measure. So it takes -- we're now -- we're in like year 2.5 of this program, so it takes a little bit of time to get momentum because it takes such a late long period of time to actually measure as you accumulate audience and then go back and measure in the Nielsen data. But all 26, every single measurement that we've done so far in the last 1.5 years or 2, we've actually had every single one delivered a sales lift and a positive ROI. And as clients measure ROI, a data point would be, on average, the ROI for a campaign that ran in the Meredith title has delivered $7.81 of ROI. So for every dollar that they invested in Meredith, they got $7.81 in return. The interesting data point that we have is that Nielsen has been in this business for the last 5-plus years doing digital measurement for leading digital portals like Yahoo! and AOL. And they have run about 1,000 different studies, and the average return on a digital ROI is in the low $2, $2.25, $2.30. So the amazing thing is we're seeing clients are noticing that the print ROI is almost 3x what they're seeing in digital. So for these great results, we're asking advertisers to spend more money with us to commit more money to Meredith because it does cost us a little money to measure. So we're very excited. And what we are really pushing, to Steve's point right now, is just to get broader awareness out about the program. We've done some, actually, measurements and surveys, and a lot of clients rate ROI as the highest capability that they're looking for from media companies. But they don't always think of Meredith as the ROI company. So we actually just launched in the last 45 days, a major push for the entire company sales group to go out and be able to push the idea that Meredith is the ROI company. And we think it's a leading position for us to take, and we're very, very optimistic as we move into the future with it.

[Jason B. Bazinet:]

Are there any anecdotes of brands that sort of participated in the guarantee early, say, in year 1 of program that have come back and actually spent more with you or do you doubt that there are?

[Thomas H. Harty:]

Yes. So we, again, between -- we do, do some share, so we can't always dictate what's happening with clients' budgets depending on the broader macro things that are going on. So we actually -- in some cases, we've asked for increase in their share of their print budgets. But we have numbers in $25 million to $30 million range that we can account that have been generated from this program during the period of time.

[Operator:]

And our next question will come from the line of Matt Chesler from Deutsche Bank.

[Matthew Chesler:]

So I wanted to visit the retrans discussion again. My understanding was that you had one last MSO that you had to negotiate with at the end of fiscal '13, was that correct? And has that been...

[Stephen M. Lacy:]

Paul, why don't you give an update on where we are in those conversations? Because we did have a couple that are more recent conversations, correct?

[Paul A. Karpowicz:]

Yes, that one is in the final stages. Literally, it is at the contract stage, and there are just a few words that need to be agreed upon, but we are fundamentally pretty much completed with all of our retrans deals.

[Matthew Chesler:]

And then, when will the next significant one come up for renewal for you guys?

[Paul A. Karpowicz:]

It will be...

[Stephen M. Lacy:]

Into '14.

[Paul A. Karpowicz:]

Yes, it will be into next year.

[Matthew Chesler:]

End of fiscal '14 or calendar?

[Stephen M. Lacy:]

Calendar.

[Paul A. Karpowicz:]

Yes, end of calendar 2014, like December '14.

[Matthew Chesler:]

Okay. Okay, great. And just for the year that you just closed, how did retrans -- how did net retrans contribution shake out and where do you expect that going to for fiscal '14?

[Stephen M. Lacy:]

Joe has those numbers, Paul.

[Paul A. Karpowicz:]

Okay.

[Joseph H. Ceryanec:]

So, Matt, as we've talked about several times, last year, we did about $28 million of retrans revenue and didn't have any costs. I'm going back to fiscal '12. And what we've been saying is for fiscal '13, we expected that, that revenue number would go to about $50 million, but we'd have about $22 million of cost against it. So on an operating profit basis, we'd be about the same from '12 to '13. As we look at next year, we would expect that revenue number to go up about 50% from where we're at this year due to the timing of when we reached agreements with the MSOs, and we would expect our costs to go up, as I said to Craig, to about 50% of the revenue number, maybe a little bit less, which is generally what you're seeing in the industry where there's a 50/50 sharing with the networks.

[Matthew Chesler:]

Okay. And do you expect it to remain that way given -- in light of the deals that are being hand right now?

[Thomas H. Harty:]

Yes. I mean, we've got -- as Paul said, we're pretty much done on the revenue side. We've got one station that's an NBC station in Nashville and that agreement is up at the end of this calendar year, at the end of '13. And what we're seeing is a 50/50 sharing in these NBC agreements.

[Stephen M. Lacy:]

That's the only network affiliation deal we have until you get out into 2016 to renew.

[Matthew Chesler:]

Okay. Terrific. And then I just wanted to switch gears to the, in fact, to the magazine side a bit. So thanks for the details around Allrecipes. Can you help provide some similar color around BabyTalk and Parenting? I saw the spike in the -- or I saw the acquisition spend in the fourth quarter. I presume that was related to that transaction, but correct me if I'm wrong. If you could just help us understand sort of the P&L impact.

[Stephen M. Lacy:]

That's -- I believe that's correct that, that was related to that particular acquisition. And, Tom, why don't you talk about how those businesses are being integrated and what we're seeing in the marketplace. Although, it's really early in the selling cycle because we only took that over a few weeks ago. But go ahead, Tom.

[Thomas H. Harty:]

Yes. So we are very excited about the opportunity. We're going to take the best content from Parenting and BabyTalk and kind of incorporate that to our existing brands in Parents and American Baby. So those brands will still live on, will be a Parenting website and we're taking the best of what the content had to offer. The great opportunity longer term is to look at the subscription model where we will have -- just we'll be the leading, which we have been, but Parenting magazine will no longer exist. So we think longer term, we can optimize the circ model and see some great returns there as there's only going to be one choice for young moms to choose. And then in the short term, we see an advertising opportunity from a share perspective and to gain and put that advertising into our existing brands of Parents and American Baby. And we're very, very early but all signs are very, very strong that the marketplace is reacting very positive and we see opportunities to grow advertising for our parenthood brands for this fiscal year.

[Matthew Chesler:]

I presume you inherited these subscriber files for those titles? Should we presume that you are able to layer on to the extent that you can retain and there's not overlap, you can layer those, that subscriber file onto your complimentary brands to grow those audiences?

[Thomas H. Harty:]

Yes. We don't have any plans right now to increase the rate base of our existing titles. But we did take on the circulation liability at acquisitions. So if they had an existing subscriber that was subscribing to Parenting, they're going to be receiving Parents magazine. But longer-term, we feel there's room to optimize. So when you looked at it, both the rate basis were about the same of $2.2 million, and we thought that it would be best to maintain that $2.2 million, try to raise our margins and price better over time but not to grow the Parents rate base in the short term.

[Joseph H. Ceryanec:]

And, Matt, on the financial results, it's going to be tough to track because you had advertisers in both that we would expect will get some lift in Parents. You may have advertisers and parenting that weren't in Parents but we would expect we'll get some demand dollars, too. But to give you a feel, when we did our acquisition model, we expect that we'll get a cash-on-cash payback somewhere between year 2 and 3.

[Matthew Chesler:]

And then the interim, is the P&L dilutive?

[Thomas H. Harty:]

Oh, no.

[Joseph H. Ceryanec:]

No, no, no.

[Stephen M. Lacy:]

Positively not. No, it's positive from day 1.

[Matthew Chesler:]

Okay, for the year.

[Operator:]

And our next question will come from the line of John Crowther from Piper Jaffray.

[John D. Crowther:]

I think I would like to start off just on, maybe, Joe, you can you shed some light on the guidance range of 260 to 295. Maybe some of the variables that gets you towards the top end and bottom ends that we should be paying attention to this year.

[Joseph H. Ceryanec:]

Yes, thanks, John. And you may have noticed our guidance range this year happen to be our guidance range last year. And it's the usual suspects, sitting here in July, it's a little bit tough to determine what our magazine advertising picture is going to look like. So that's the biggest variable as you would expect. Broadcast, nonpolitical, both are up as we -- both the magazine and broadcast in the first quarter, but it's tough to predict where those are going to be over the next 12 months. We got a pretty good handle on retrans. We've talked about we got a pretty good handle on costs. So it's really the ad side of the business with -- the market we're in is really tough to predict.

[John D. Crowther:]

Okay. And then on -- I just wanted to clarify one thing on the Allrecipes, when you said that it would be slightly dilutive by a couple of pennies. Is that heavily front half loaded or is that sort of spaced throughout the year?

[Joseph H. Ceryanec:]

Well, when I said slightly dilutive, I was talking just about the magazine launch. When we look at Allrecipes in total, including the digital properties, it will be accretive.

[John D. Crowther:]

Yes. Yes, I guess, I was referring specifically to the magazine, if that is more of just a ramping of...

[Joseph H. Ceryanec:]

Yes. In -- so on the magazine side, it will be more dilutive early on as we're investing in the brand.

[Stephen M. Lacy:]

So ramping up the circulation, creating the content, but the actual advertising where you can recognize the revenue happens with the December issue for the first time. We'll be selling into it, obviously, but we don't recognize the revenue until the product is served.

[Thomas H. Harty:]

And we'll have 3 issues of Allrecipes magazines in fiscal '14. One, as Steve mentioned, in the second quarter, the December issue; and then, two, in the second half of the fiscal.

[John D. Crowther:]

Okay, great. And just one other question. Obviously, you guys have talked a lot about sort of your appetite for strategic acquisitions on both the TV and magazine side. I was just wondering if maybe you could kind of, again, go over sort of what your comfort levels in terms of your leverage are? And what your sort of outlook is as you're looking -- what you're sort of looking for, maybe in particular on the magazine side that is of interest right now?

[Stephen M. Lacy:]

So I'll start a little bit with what we're interested in and then I'll ask Joe to cover the -- our leverage parameters. We kind of bucket these opportunities in 2 ways. We've obviously been on the magazine side successful in a series of what we think of as tuck-in acquisitions going all the way back to Eating Well, followed by Rachael Ray, FamilyFun, and then most recently, these Parenting and BabyTalk titles, wherein we sort of add the volume to the existing big machine, if you will. And they tend to be positive financial results from day 1. When we have great consumer response to an opportunity like Allrecipes, and we said from the very beginning that we would never run any brand we owned on just one platform. So moving it from digital to print, especially when you get 400,000 orders with cash from a test, gives us a lot of confidence. So there are some other tuck-ins like that around in different portfolios. And each of the companies knows our interest and it's always a matter of coming up with the deals that satisfies the seller's financial requirements and is a good financial deal for us. Then there are some larger scale opportunities that may present themselves downstream. We obviously have the public company vehicle that works in certain cases. And we have a very efficient operating model. And we've got 2 or 3 of those that might make sense. And it's really the same on TV. There's 4 or 5 places where we think there are some tuck-in possibilities. And of course, there's been some very high visibility group sales. But in a big auction environment, you have a lot of different types of buyers. So the auction environment is always, I think, a little bit tougher to be successful in. But I -- we always think of them as what would be a nice clean tuck-in and what might be a larger scale play that, in fact, would sort of change the picture or the profile of the business. And, Joe, why don't you give a sense of what we think about from a leverage perspective?

[Joseph H. Ceryanec:]

Yes. And, John, we've been very public on this, we wouldn't run the business at over 2.5x. What we've said, though, for a strategic acquisition on either side of the business, we would go to 3 or slightly north of 3, as long as we could see a pretty clear path to bringing that back to 2.5x fairly quickly.

[Operator:]

And our next question will come from the line of Wescott Rochette from S&P Capital.

[Westcott Rochette:]

Can you talk about how you view circulation pricing between, say, tablets and some of your print? Because it seems like the media world is going to an agnostic, platform agnostic, except really kind of in magazines where you're running those separately. Can you talk about how you view that and how you view the industry evolving kind of going forward?

[Stephen M. Lacy:]

So let me start on that a little bit and then, Tom, add any color that you want to. Just from a philosophical perspective, we are aggressively trying to transition our print consumer to a digital platform for obvious financial reasons. Today, we spend maybe a touch over $300 million on paper printing and postage with the postal service being quite frightening at the moment. I just spent the whole day in Washington, D.C. on that issue yesterday. But the trick is that the consumer, our customer, tends to more look at the digital or the tablet as a convenience if she's traveling and tends to continue to want the print magazine as well. So there's an industry wide, about 2% audience has been connected to tablets but in most of those cases, she's still getting the print version. And so there's an opportunity to upcharge a little bit, and the consumer seems well-positioned. If you go downstream a little further and you get to the opportunity for the Gen Y consumer, there might be a better conversion rate to tablet. But even the best tablet with the best backlighting tends to be an 8-inch screen, and that's not the same as spread lush photography. So it's just a different consumer experience. Where there's been a lot of great success would be a product like the Economist, but it's very text heavy. It doesn't have photography. It's more like newspaper publication. And also in brands that are much more time sensitive, meaning, by the time you get the print version, the information is outdated. So if you receive that on the tablet, that's more timely. We tend to be around lifestage and seasonal, and it's not particularly time sensitive unless you miss the holidays for holiday cookies, so to speak. So that's sort of broadly where we see it right now. We're pushing very hard, including financial incentives for our creative and our circulation people. But the consumer kind of likes our print magazine today. Anything you'd add to that, Tom?

[Thomas H. Harty:]

No. I think that we're doing -- to Steve's point, we're doing a lot of testing in the last year and we continue to test. If you look at some of the things we're doing right now, we're charging a premium for the digital edition on tablet versus what you can get in print. And we're going to do a lot of testing around bundling. So tiered bundling, kind of the cable model where you get Internet and your phone service and TV. You'll start to see some of that in the marketplace as we begin our test where you would get a print version. And then a premium version would be print press tablet access. And we think, as Steve pointed, there's an opportunity to get a premium from people. The early results show that.

[Westcott Rochette:]

Okay, that make sense. And just one clarification. Something like the Next Media that you guys are participating in, how do you account for that? Is it by views, by magazine? How does that work on the accounting side of it?

[Stephen M. Lacy:]

Well, today, that is a separate stand-alone, legal entity, and we own the roughly a little -- around 20% of it, something like that. So the way we account for it is under the equity method. And we pick up our share of the investment. But that is an all-you-can-eat model. And it's an interesting test but it's pretty small today compared to the total circulation of all the magazine brands that are available in the marketplace. But it's an interesting model, and again, maybe a model that fits a little better when you look at the next generation of consumers downstream.

[Operator:]

[Operator Instructions]

[Stephen M. Lacy:]

Okay, well, thank you, all, for participating today and for your continued support. It was a really exciting, great year for us in fiscal '13, and we're hard at work on fiscal '14. So thanks for participating.

[Operator:]

And, ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference service. And this conference will be available for replay after 12