Fox Corporation - Class A (FOXA) — Q2 2015 Earnings Call Transcript

Thank you very much, operator. Hello everyone, and welcome to our second quarter fiscal 2015 earnings conference call. On the call today are Chase Carey, President and Chief Operating Officer; James Murdoch, Co-Chief Operating Officer; and John Nallen, our Chief Financial Officer. First, we will give some prepared remarks on the most recent quarter, then we'll be happy to take questions from the investment community. This call may include certain forward-looking information with respect to Twenty-First Century Fox's business and strategy. Actual results could differ materially from what is said. The company's Form 10-Q for the three months ended September 30, 2014, identifies risks and uncertainties that could cause actual results to differ, and these statements are qualified by the cautionary statements contained in such filings. Additionally, this call will include certain non-GAAP financial measurements. The definition of and a reconciliation of such measures can be found in our earnings release and our 10-Q filings. Finally, please note that certain financial measures used in this call, such as segment operating income before depreciation and amortization, often referred to as EBITDA, and adjusted earnings per share are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of these non-GAAP measures is included in our earnings release. And with that, I'm pleased to turn it over to John.

Alright, thanks Reed. As you have seen in today's earnings release, we’ve reported another quarter of financial results led by double-digit revenue and EBITDA growth at our Cable Networks. Note that due to the sale in November of our DBS to Sky, our reported financial results include the consolidation of these businesses this year for our partial quarter of ownership as compared to a full quarter consolidation a year ago. So to provide a more meaningful comparative analysis, we’re providing total adjusted revenue and adjusted EBITDA that excludes the DBS business in all periods. Most of the comments that follow will be on a suggested basis and their press release providing the reconciliations between the reported results in the suggested basis. So second quarter adjusted total company revenues were $7.4 billion, up 10% compared to the second quarter a year ago, reflecting double digit increases in our Cable Network and Film segments. Adjusted total segment EBITDA for the second quarter was $1.7 billion, up 12% over the $1.51 billion from a year ago. This increase reflects strong results of the Cable Network segment, improvements led by costs at the Television segment and similar film contributions to the year ago. Note that unfavorable foreign currency movement reduced our overall total EBITDA growth rate in the quarter by 6 percentage points. From a bottom line perspective, we’ve reported income from continuing operations attributable to stockholders of $6.2 billion as compared to the $982 million we’ve reported in the second quarter a year ago. This year's results include $5 billion of gains reported in other net, which was principally from the company’s sale of the DBS businesses to Sky. Also included in this year’s equity earnings of affiliate results is net after-tax income of approximately $100 million related to Sky’s gains on the sales of certain of its investments, partially offset by their purchase price amortization and expenses related to their acquisition of Sky Italia and Sky Deutschland. Excluding net income effect of these net equity gains and last year’s gain from participating in the Sky share repurchase program, as well as the amounts reflected in other net, second quarter adjusted earnings per share was $0.53 this year versus $0.33 in the prior year. This quarter’s adjusted earnings per share includes a recognition of various tax benefits of approximately $250 million or $0.12 per share. For the remainder of the fiscal year, we expect our tax rate to approximate 31%. Also note that the net income and EPS contributions of the DBS segment in each were not significant. Now let me provide some additional context that the performance - on a performance of few of our businesses and let’s start with the Cable Network segment. The overall total segment revenues increased 14% from last year, highlighted by a 16% increase in affiliate revenues and 8% advertising revenue growth. With respect to affiliate revenues, domestic affiliate fees increased 19% primarily from higher average rates led by the RSNs, FX and FOX News, as well as increases from the conversion of our new channels FS1 and FXX. The inclusion of the YES Network this year also contributed to our growth and excluding the contribution from YES, we had a low double-digit domestic affiliate fee increase. Our reported international affiliate fees were up 7%, reflecting strong underlying local currency growth of about 20%. The second quarter Cable segment advertising revenue growth of 8% reflects domestic advertising increases of 11% led by the FX Networks, FS1 and FXX. Reported international advertising grew 5% but we had 10% growth on a local currency basis driven by strong year-over-year increases at STAR. Total Cable segment EBITDA in the second quarter of $1.16 billion was up 12% over the prior year reflecting the strong revenue growth which was partially offset by a planned 16% increase in expenses, primarily related to higher sports rights and entertainment programming costs. The negative impact from the strengthening U.S. dollar impacted the segment growth rate by 6%. EBITDA at our domestic channels increased 13% from higher contributions at our established networks as well as the impact of consolidating the US Network this year. EBITDA at FOX Sports 1 was below last year, reflecting the planned increase in programming costs associated with the inaugural broadcast of the Major League Baseball playoffs. Reported international channel contributions increased 8%, with strong double-digit local currency growth at both FIC and the STAT Entertainment channels, which was partially offset by the continued investment we’re making in STAR Sports and the negative impact from foreign exchange rates. At our Television segment, second quarter EBITDA was $290 million, an increase of $72 as compared to the prior year result. This higher contribution is primarily due to lower programming costs reflecting the absence of X Factor this year, moving up Glee into the March quarter and the shift of the Baseball League Championship Series to Fox Sports 1. Total segment revenues were consistent with the year-ago quarter a strong retransmission consent revenue growth was offset by a 3% decline in advertising revenues. As advertising revenue decline is primarily due to lower general entertainment ratings at the broadcast network and stations, offset in part by higher local political ad revenues related to the mid-term elections. Turning to our Film segment, we’ve reported second quarter EBITDA of $336 million, a similar result to that of a year ago. As higher film studio contributions were offset by fewer television series deliveries. Total segment revenues in the quarter increased $276 million or 11% driven by several successful theatrical releases including Gone Girl and the Maze Runner. The majority of these higher theatrical revenues were offset by increased releasing costs for both these films as well as Exodus and Night at the Museum 3. Now before I turn to guidance, I want to make a couple of capital-related comments. We ended the quarter with $10.1 billion in cash and $19.1 billion in gross debts, and the cash position reflects the net proceeds from the sale of Sky Italia and Sky Deutschland during the quarter. Regarding the stock buyback, we’ve repurchased approximately $2.9 billion of FOXA from July 1st through today, and we’re on plan to complete the $6 billion buyback within the 12-month timeframe we previously announced. And today, the company increased its dividend and declared a semiannual dividend of $0.15, which translates to a $0.30 dividend on an annual basis, a 20% increase over the previous dividend payout. Now let me address our guidance update for fiscal 2015. As a reminder for guidance purposes, we are excluding the DBS businesses for the entirety of all periods resulting in a base EBITDA for fiscal 2014 of $6.29 billion. On last quarter’s earnings call, we mentioned that we had seen some puts and takes as against our original expectations for fiscal 2015 with negative variances at that time primarily relating to the strengthening dollar and underperformance at the broadcast network as against our original expectations. Since that update, these trends have continued at levels about what we expected. Over the last three months, the U.S. dollar has appreciated significantly further reducing the translated U.S. dollar earnings from our international businesses, most notably from the Fox International Channels. Assuming exchange rates stay where they are today, the strengthened dollar has now further reduced our fiscal 2015 EBITDA expectations by an additional $100 million, resulting in a total full-year effect across the company of around $250 million versus last year. At our television broadcast business, the network and the stations, we now know that market and rating challenges were more significant than we expected. On the entertainment side, Empire and American Idol are doing well competitively, but our ratings overall have underperformed and our expectation that the national and local added markets would gain momentum going into calendar 2015 has not occurred. On the sports side, our biggest college football games in the quarter were all up-sided wins with an average score of 52 to 10, thereby impacting the viewership. At our Film segment, we continue to anticipate that the full-year contribution will exceed our original expectation, but now by a lesser amount than thought three months ago, primarily reflecting lower than anticipated Box Office results from our holiday releases as well as closing on the transfer of our Shine business to the Endemol joint venture earlier than we expected. This will result in the elimination of Shine’s EBITDA contributions for the rest of the year as it moves to our equity affiliate line. Despite our change and expectation around currencies, broadcast TV and our Film segment, our domestic cable network businesses continue to perform right in line with our expectations. So considering these factors and based on all the assumptions inherent in our current projections, we now expect that our total segment EBITDA percentage growth rate for fiscal 2015 will be toward the lower end of the mid-single-digit range above the $6.29 billion total segment EBITDA base level fiscal 2014. With that, let me turn it over to Chase.

Let me start by elaborating on John's comments regarding our guidance for fiscal 2015. The fact is that most of our businesses and key initiatives are progressing well, and our competitive position is stronger than ever in almost every area. However, two challenges, foreign currency fluctuations and a shortfall in broadcast advertising, have become too significant to offset. I will first address these challenges and then discuss the broader perspective. There isn't much more to add to what John said about the currency situation. We are practical and implementing hedging strategies to manage the risk, but hedging will only help mitigate future fluctuations, not the impact of currency today. On the broadcast side, the primary issue was entertainment rating shortfalls at our network, exacerbated by negative industry trends in linear network ratings and television advertising markets, which have resulted in our anticipated advertising revenues falling well below expectations. Looking ahead to 2016, we anticipate these same challenges will persist. While the majority of our business remains strong, any currency movements this year will negatively affect 2016 profits by approximately $200 million, in addition to the roughly $250 million loss due to currency shifts last year. This adds up to a total impact of about $450 million on our original 2016 projection from August 2013. We also foresee the next 21 months as a period dedicated to investing in new programming for our broadcast network. Furthermore, we expect that the industry trends affecting advertising will be slightly more significant than we had previously anticipated, as both advertising and viewership continue to shift toward digital platforms. Initially, we targeted profits of $9 billion for 2016; however, after adjusting for the deconsolidation of Sky and Shine, that figure is now expected to be around $8 billion. At this point, our broadcast business isn't meeting our expectations, and external market factors, such as currency challenges, have been less favorable than anticipated. Although we still expect to achieve solid double-digit overall growth next year due to the strength of most of our businesses, the difficulties in currency and broadcasting now lead us to forecast a 2016 profit in the mid-$7 billion range. Currency fluctuations have influenced our targets significantly. We take this target seriously. Our focus remains not on achieving a short-term profit goal but on building long-lasting shareholder value through the overall momentum and competitive strength of our businesses, positioning us to grow and thrive in light of broader economic, technological, and global trends. If our objective were solely to hit a short-term profit target, we might consider actions like cutting marketing and programming, which could undermine future profits. We refuse to pursue this path because we believe that shareholder value is best created through long-term growth. In terms of our broader objectives, our excitement for the future is unwavering. As previously mentioned, most of our businesses and key initiatives are on track, and our competitive position is stronger than ever. The revenues from affiliates and retransmission fees, which are critical to our future, are exceeding our plans. Among our key initiatives, we have begun to reset the FOX News rate to reflect its market importance, establishing new agreements with four MVPDs that represent over a quarter of the market, and Fox Sports 1 now has affiliation agreements in place with all major MVPDs showcasing a new FS1 rate. Our domestic and international cable channels contribute about 70% of our profits and are progressing well in local currency terms due to new channel initiatives launched in recent years. Our news, sports, and entertainment channels continue to reinforce their leadership positions with unique and focused brands worldwide. For instance, FX stands out among basic cable networks with programming that rivals premium networks, while FXX has introduced an exciting new element as the fastest-growing network in cable. Our Film and Television businesses are gaining momentum and consistently prove to be leaders in the industry. Our Film division concluded calendar 2014 with record-breaking worldwide box office success. We secured key sports content globally for the rest of this decade, ensuring access to important content and providing cost stability. Even in the areas we previously highlighted as challenging, we remain optimistic about the future. In our broadcast business, our challenges have stemmed from execution, not structural issues. The groundwork is established with retransmission revenues outpacing expectations, along with considerable room for growth, and our major sports rights are secured under long-term contracts. Our challenge has been with network entertainment programming. After several difficult years, we believe we have turned the corner with a new network management team addressing our current broadcast issues, injecting fresh momentum and energy into the business. This enables us to anticipate exciting new hits like Empire and Backstrom, as well as a dynamic lineup of new event programming. Our competitive list has already highlighted a couple of significant hits, but it will take time to elevate the broadcast business to the profitability levels we desire. The upcoming year will be an investment period focused on building successful shows rather than maximizing profits; we believe profits will follow. We maintain confidence in the strategic and financial future of our broadcast business, which is as promising as ever. The value of successful programming continues to grow exponentially, and our broadcast network plays a unique role in launching defining events such as Empire. Regarding broader industry challenges, the transition to digital continues to be a mixed bag for us. The shift of advertising dollars and changes in consumer viewing habits are clearly ongoing, and I would say that the pace of this trend has recently accelerated beyond many expectations. These challenges will exert short-term pressure on our business but also present exciting growth opportunities for the long term. This transition will enable us to offer more efficient and effective capabilities to advertisers, monetize viewership on digital platforms, and create new offerings for consumers on these platforms. Our content brands remain the first choice for consumers and advertisers, and we are committed to enhancing our capabilities to meet that demand. Recent initiatives, including restructuring our ad sales organization and the acquisition of true[X], are aligned with that goal. In conclusion, I want to address the capital return strategy concerning our balance sheet. We recognize that the recent completion of the Sky transaction has left our balance sheet in a strong liquidity position once again. We will proceed with our planned $6 billion buyback, but we will still retain excess liquidity. As we approach the fiscal year-end, our board will carefully consider the next steps. Our priorities for capital investment remain unchanged: setting our core businesses on a path to long-term growth, maintaining opportunistic flexibility, and returning capital to shareholders. We are committed to achieving an efficient balance sheet and will pursue this goal thoughtfully. In short, our aim continues to be building shareholder value by growing our business while returning capital, and we believe we are on course to achieve that aim.

Thank you, Chase. And now Chase, James and John will be happy to take your questions. Operator?

Thank you. I guess my question deals with the investment in the business and James you could talk about STAR in India in particular and help us think about the profit potential of that business, I think a while ago you guys had laid out a plan for EBITDA growth there but the currencies have moved against you. Help us think about the opportunity there, particularly in light of some of the non-rupee costs you have on the sports side? And similar question maybe to Chase on FOX Network, it sounds like your plan is to sort of double down on a phrase, but invest more in prime-time entertainment and push the programming. Can you give us some color on sort of how you want to go about this and what we should be thinking about in terms of programming cost growth at FOX in the couple of years? Thanks.

Thanks Ben. I think the last time when we talked about the sort of profits that are pathway for the Indian business, actually since then the currency has been reasonably stable over the last sort of I guess nine months now. So I don’t think that had an additional impact going forward from what we saw then. But essentially, you know the STAR Entertainment business, the local language and the regional language there is very profitable today, a very attractive business and really where we’re investing a lot of those profits to build the sports business alongside that which we think will have a truly transformational effect on the business. Since the acquisition of the half interest of ESPN STAR Sports that we didn’t own previously, and I think what we’re seeing now is right the peak year of investment in fact these coming quarters with the Cricket World Cup and a series of events really making that heavy investment right now. But we have pretty good certainty on what those rights costs look like for the STAR Sports business. We're launching two new sports channels, two HD channels actually just in the next month to continue to grow the portfolio. And we think over a five-year basis, this business STAR India is a very, very profitable business. We think we can get north of - I’ve said in the past that we can achieve north of $500 million in profit and do it with some pace and some velocity. I think investing in programming and investing on-screen for our customers is what you will see everywhere around the business. We really think that’s the business that we are in and something that you know it’s super important for us and it’s going to deliver a lot of long-term growth domestically here as well as around the world.

I think I should clarify on the FOX Network side on broadcasting, I mean it’s not about simply doubling down, I think in many ways what I’m trying to communicate is what’s our priority. I think our priority is really building hits first and foremost. I guess I made the comment you know if we wanted to just improve profits, we could squeeze programming and squeeze marketing and we could get there right now. So I don’t like to view it that way. I think we’re really trying to ensure that we’ve got a bench of programming as we try and develop these hit shows moving forward. I think this year we felt we were a little thin in terms of having available options. I think we always know that not every show is going to work, but we have to make sure we have appropriate flexibility to build. But I think what we’re really talking about is stabilizing the broadcast business and providing a platform to grow, but I think that real growth comes over the couple of years, not in the next 12 months. So I think the next year will be a period more for stabilizing, stabilizing that business and putting it on our path to grow. There will be some investment, but it’s probably not a significant increase in cost. I would say that we might have a little more flexibility and a bit more programming to launch next year that could enable us to have a few more shots at creating hits that will become the foundation for future growth. Obviously, Empire and its success can give us some exciting building blocks to grow off. We’re just trying to make sure that the broadcast business is positioned effectively.

Thank you.

Thanks Ben. Next question please, operator.

Thanks. Let me ask Chase and James. First, I wanted to know in regards to digital offerings, what’s your view of participating in a product like that which may not carry all your channels especially RSNs? And then on the FOX side given that Gary and Dana's leadership, how does FOX Studio plan in that need to have maybe shift more and more hours at the network?

Yeah, I guess I’ll start with the first. You know look, I think these digital platforms are obviously a very important part of the future. We’re spending a lot of time sort of trying to engage with third parties to determine what makes sense for us in terms of developing them. I am not going to comment on any one particular opportunity, we don’t have any announcements today, but we working on a lot of things. I think we want to see can we bring things that are additive to our business. So at the start, we have to ensure whatever we do in this space, as we do in other places, it’s additive to our business but brings new opportunities and interesting experiences to consumers, and whether that’s through a richer experience, a better interface, and more choice. Again, I think what we offer consumers today in many ways to provide a pretty attractive proposition. But clearly in some segments we’re not reaching in the right way and there are opportunities for us to expand and grow that and we’re going to be active there, but we’re going to be thoughtful about it as well and make sure it’s done in a way that is additive to our business as a whole as we go forward.

And on TCFTV, I guess an important part and one of the core strategic reasons we put them together is increasingly - I think it’s - we’re not allowed in this. A lot of the upside of what our network represents in terms of launching programming is realized on the products, on the context side of it. So the real win-win for us is to launch content as we own. It doesn’t mean we're not going to have third-party content on the network; we will, because realistically, we want to have the best content available. But clearly that sweet spot, the network should be capable of creating assets that we own. And I think by putting them together under one roof, we believe we have made those opportunities more available to us and certainly streamlined decision-making makes the ability to identify needs and ensure we are doing everything possible to maximize the opportunities for launching hit shows to be more cohesive. That is one of the core benefits we achieve in putting the studio in the network under Gary and Dana’s leadership.

Thank you, Michael. Okay, next question please.

Thanks so much. Chase and James, you've had a lot of focus in the path of fiscal ’16 given the select from all. I am wondering by fiscal ’16 how much of the growth like will be complete for FOX. You’ve already talked broadcast in STAR, so maybe just thinking about, you mentioned Fox Sports 1 and Fox Sports 2 and RSNs. Where are we sort of as you look forward beyond fiscal ’16? How much of the growth has been captured and how much is left? And just quickly for John, if you could break down the local currency international affiliate fee revenue growth of 20% for us - what were the drivers? That would be helpful, thank you.

I think we honestly have more growth ahead of us. I mean in all - and that obviously we’ve certainly applied some of the newer initiatives like FS1 and our sports internationally, but I think it is a very solid business. When we talk FOX News, which is they are getting stronger and we are resetting that business, past business I think we are just starting to move to now. I mean really our channels both the established ones and the newer ones, I think the international marketplace literally if you look at around the world has got - is certainly somewhere mid-stream in terms of reaching its full potential varies by region, but there's a lot of growth left. We talked before about India where that is in terms of what we think that business will be more thorough this decade. You and ultimately I really mean what I say when I talked about additional platforms and taking events both direct and through other parties. I think for those who have, we really believe must-have content, it’s sweet spot in a digital world, people - it’s the content people want to watch, the RSNs, the reality shows, and however things change, the future is still bright.

And Doug, addressing your question on local currency affiliate revenue international, it was led by FIC STAR, which had nice growth, but FIC led it. The business breakdown inside of that is that in our sports channels it was primarily distribution gains, whereas in our entertainment channels it was blended between both distribution gains as well as rate increases.

Thanks John, thank you very much, very helpful.

Thanks Doug. Operator, next question please.

Thank you very much. I have one question for James and one for Chase. James, over the past year or so, other media companies have made strategic investments internationally in order to achieve more global scale, perhaps sales that FOX already had. So for example, Channel 5, Euro Sport and Chellomedia. As you look to sustain your growth in markets outside the U.S., can you just give us a sense for how you are balancing organic investment versus M&A? And then for Chase, you noted the strong ad growth domestically from the FX Networks in the quarters; it does seem like ratings at FX have picked up nicely, but FX ratings themselves seemed to get soft. So I know you guys have moved some content from FX to FXX, but just wondering if there is any concern on those networks and can they establish their own distinct identities from each other? Thanks.

Thanks, Anthony, it’s James. I guess, first of all, our bias generally, particularly given the position that we have in markets outside the U.S. today, is to invest in ourselves and to continue to execute and operate these businesses where we have a reasonable position. I think it’s fair to say that we’re pretty happy with the mix that we have around the place. We’ve completed a number of transactions over the last number of years, from the acquisition of the Asianet business local regional languages in India which really gave us a new dimension to that business to the acquisition of partner stakes in ESPN and STAR Sports and Fox Pan-American Sports. I think we’ll continue to look at acquisitions where we can simplify our business and really add a dimension and really add velocity and pace to the business. But we’re not looking to fill a whole bunch of gaps if you will. I think we have a good position internationally. And Chase’s point before about long-term growth really is one of the drivers of our long-term growth. When we look at our emerging market position, particularly in India, in part of Asia and other parts of Asia and Latin America, we feel very, very strong about the position. That’s not to say that we rule real things out; we look opportunistically at a variety of things, as you would expect. But we generally at this point I think would have a bias towards investing in ourselves rather than making large international acquisitions.

At FX, you know first I think it’s pretty much where we expected. I mean I think we expected for a couple of years, because we’re trying to build FXX side by side with FX, we’re going to stretch it a bit. And so I don’t think that’s a surprise to us. The ramp-up of programming has stretched these two channels, and obviously going from one to two does put some strain on it. But I think that’s nothing to worry about. I think we feel good about it. I mean FX programming continues to distinguish itself from its basic cable competitors more and more. I love what’s coming out this year, I think they’re great. So I think it’s and I feel very good, I think we feel right about it. I mean I think we’ll address some of the pressures, and competitively I think we’re doing well.

Thanks a lot.

Thanks, Anthony. Operator, next question please.

Thanks. I have two questions. First, could you discuss how you optimize the true[X] business to enhance FOX’s advertising efforts? Secondly, regarding the impact of currency, does the strength of the dollar influence your strategy for making acquisitions outside the U.S.? Also, considering the adjustments to the fiscal '16 guidance, does it affect your approach to buybacks? Would a change in stock price prompt you to act more quickly? I'm interested in your thoughts on how currency factors into your decision-making.

It may be a bit early to discuss true[X], but over the next few weeks and months, we expect to see more developments regarding the completion of the true[X] transaction and the integration of that segment into our business. We are very enthusiastic about this initiative, as it represents an investment in our ad innovation capabilities that will benefit both our company and our clients across the industry. Additionally, we need to expedite the introduction of new technologies and advertising products that are leading the way in monetizing digital viewership, including time-shifted viewing. As the share of streaming time-shifted viewing increases compared to DVRs, it’s important to keep in mind that we are just beginning to monetize this viewership, which represents a significantly larger portion than our live plus 3 or live plus 7 figures. Ultimately, our focus is on monetizing the streaming environment and enhancing our ad offerings for both ourselves and other broadcasters, with more details to come. At its core, this is about enhancing capabilities within our networks group, and we believe this can be achieved over time.

And I think on this, it’s John. I don’t think currency change overall changes our view on how we look at the buyback. We are, as Chase indicated, we are scheduled to complete the current buyback again at the end of the year. I don’t think current markets where we are going to change our velocity around buyback for the remainder of the year. And we’ll continue to look to invest in ourselves as Chase referred to and so be opportunistic around opportunities that come up.

With respect to your question about whether currency would change or views on M&A or strong dollar, I mean at the end of the day I think we’re always going to be looking at opportunities around the quality of the business and how they’re really performing. The currency overlay is largely secondary. In terms of M&A in terms of currency, I mean when you look at the health of the region in the market, we’re probably not currently looking at acquisitions. When you look at Europe, you obviously have to have some degree of concerns about how Europe navigates the short term. I think certainly there are a lot of international markets we feel great about; I mean India is a case in point. We still have a lot of development in the market broadly and are very excited about it, but we clearly have the issues we’ve encountered in some markets that are a reflection of broader economic issues.

Okay.

Operator, next question please.

Hi thanks for taking the question. So just off kind of just a housekeeping question. You know looking at the solidness of your subscriber revenue streams that sort itself in the first half. When you look at the back half of the year, given the reduction in full year guidance, can you just give us a sense like, you talked about the currency, but what type of domestic ad market are you looking at for broadcast network stations and cable? Could you just give us some color or just it sounds like those numbers obviously pretty down pretty substantially at least for the broadcast stations and networks, but just some sense of order of magnitude, and will cable also feel that affect versus the strength you have this quarter? And then just kind of a big picture question, I don’t know for all you. When you looked at the rationale for the Time Warner acquisition attempt over the summer, it seemed to us that direct-to-consumer business with all the content the combined companies would have had versus selling your content in Netflix was a huge potential benefit. As you look at kind of what’s going on in advertising and you look at the kind of the strength in Netflix keeps growing, does it make it that much important to revisit that transaction or work out some form of relationship with them? I’m wondering just because both of you could use that in this ad market and the change in consumer; you both could use each other more than ever before?

I guess a little color on the first part - I’d like to get a little more color on the second half of that. I mean there is a common average across the ad markets I guess. Because inside of that, the ad markets, as we look at them today, are okay, probably not where we might have hoped they would be. I think we came into this quarter hoping that they’d be up probably a bit more with renewed budgets and the like. But the fourth quarter, like the December quarter, maybe shine to give you a little bit of hope. The national is still a premium discount pricing as part of the upfront probably so it’s okay; I would say the local market is probably softer than the national markets, I think the local markets from a market perspective as we look at what our expectations are for this year, I think the local markets took a bigger hit. I guess what I’m saying is, we look at what’s driving the adjusted guidance, I mean really there are probably three buckets in aggregate that are changes in expectations from when we last looked at. I mean it’s currency, it’s the broadcast business, and the content as John touches on. They probably all have about equal weight, better part of 100 million bucks in each. So I think we’ve discussed currency being 100, broadcast and again the content, which is a combination of shine being a clearly significant event, and then to a lesser extent releases that didn’t pan out as we had hoped. In the broadcast piece, I think our ratings are not what we expected, and we’re already seeing that it was short. When we look at the first quarter, we knew it was short. To a large degree, our content upside offset the ratings shortfalls and our ratings are a little bit worse than our expectation in the quarter. But we’ll evaluate that holistically, addressing each item in the assessment, and the school really makes remarkable returns. So, to the broader question of acquisitions, we are not - I won’t give my moved on feel, but we’ve moved on. We looked at Time Warner, they did not represent a necessity for us, and the issues we’re facing today can be managed. I mean we have the quality and breadth of content enabling us to navigate the space, and that along with a focus on strong partnerships is where we’ll leverage our strengths.

Thanks Rich. Next question please. To go to the line of David Bank with RBC Capital Markets. Please go ahead.

Okay, thanks very much. I just had a quick follow-up on your last answer Chase. Would the buckets being sort of equal contributions from content FX and broadcasting, would the relationship sort of be the same for fiscal ’16 as well as fiscal ’15 like kind of equal contribution to the head and original guidance? Second question is do you guys watch the interesting new initiatives with some partners for local ratings kind of being in the Dallas market, I think it’s the new coin rating service. Can you talk about that – that effort, why you launched it, and what your ambitions for it are? Thanks very much.

Yeah. I mean I think on - let me guess on ’16 I say that I think we talked about currency number next being another approximately 200 million hit. Clearly the broadcast business moving forward of a base that we - that we’ll - 2015 we’ll provide a base to go forward, so in many ways that carries through and probably we’re a little behind. We’re behind that, we’re few years behind the curve we expected to be on. I think we believe the values we talked about, the broadcast business will be there, but we’re not in the growth point that we expect it to be on. As we said, we’re probably investing a bit more in sort of focusing on stabilizing the business next year as opposed to prioritizing growing profit. So yeah, that is - so certainly the broadcast business will carry through. The one that I say in the film - film issues were really one time, I mean shine. We expected shine to be out; a year ago we didn’t. But certainly when we talked about this year, we expected shine to be out in ‘16 and the films are always - they’re one time events, so there’s nothing recurrent about the content piece.

And on the new ratings, look, it’s all about measurement. I’m not going to make measurement issues a scapegoat for all the issues. I think there’s a valid issue, and I don’t think we’re happy with the measurement tools that exist out there that strictly capture all this viewership as it goes to various platforms. We’re going to do everything we can to ensure we have a more accurate and effective way of measuring viewership outside of the current framework.

Thank you.

Thanks, David. Next question please.

Thank you. I think my question is for James. James, occasionally we hear this argument from investors that there is an oversupply of content out there because of both scripted entertainment and sports as a result of networks producing more VOD services and so on. So clearly as a company you don’t believe that, so I wonder if you can tell us what you think is the flaw in this oversupply argument and if you think it’s ever possible for it to happen in one of the categories?

Thanks very much for the question. I think there’s no question that there’s such an absolutely enormous amount of original production going on right now. I think it’s less driven by the SVOD services is driven by cable network programmers getting into dramatic series production by and large and increasing volumes, and the numbers are still going up. But I think it’s really important to remember that one hour scripted television is very, very different from another hour of scripted television. So the total volume isn’t really the question; the right question is what are you making, how do you make it great, how do you stand out and can you be a place that can attract the great show runners, the great writers, the great talent to come and do incredible work? And I think we’re very, very confident that creatively, the teams across the 20th Century Fox companies can continue to execute. They’ve been executing very well, but it’s not really a question of volume here; it’s a question of how do you make stuff that’s genuinely distinctive in that environment where you have so much consumer choice. And I think the thing that exacerbates the competitive dynamic around it is that with the availability of streaming platforms and the availability of vast libraries of scripted programming, you're really competing with not just what’s on in the same hour, but you're competing with everything that’s come before. And that’s something that is a great creative challenge but one that we feel is our core business to try to navigate and to try to get great people to do that.

Yeah, I mean I guess simplistically is that there's not an oversupply of hit programming. It’s about what is out there and what stands out. Realistically, there is an oversupply of media generally, but it’s evolved. I think the real question is who is positioned and there’s a ton of product out there so it’s competition, who’s positioned to be able to create the hit programming tomorrow? I think there will be winners and losers. The business you see today will not be what the business looks like in a few years and I do think there will be winners and losers. There’s a question of who will be the winners and who are those positioned to have the best opportunity and the best position to create the hits of tomorrow; we believe we’re in a great place, so yeah, I - that’s our goal.

Thank you.

Thanks, Vasily. Next question please, operator.

Alright, thanks. At this point, let me try and keep it very short and sweet. Could you just tell us for your fully distributed U.S. domestic cable networks, would you say that total subscribers, year-over-year, are flat, up or down? And in your long-range plans, what is your anticipation or expectation for the basic trend of that, basic total full-line multichannel pay-TV subscribers? That’s it, thanks.

I said they’re down a touch; I mean, and they’re not even 51%, but it’s sort of the downcuts, and that’s pretty much in line with our expectations. I mean I’ve used the phrase numerous times, I use it again; I think the fundamentals of the business remain fairly strong, and we maintain overall expectations in terms of economic pressures at the margins that we’ve expected. Right now, what we’re seeing is pretty much in line with our expectations.

Thanks, Todd. Next question please.

Different questions, first of all, how would you characterize the relationship between the broadcast network and the stations at this point just in general? And then second, any interest or conversation with the SEC with regards to the incentive action that we still don’t know if it will go off in ‘16 but what it does. Thank you.

When you say broadcast network station, did you mean our third-party affiliates or do you mean everyone else?

No, it’s third-party affiliates.

Okay, it’s a good relationship. We’re obviously navigating new times and certainly we’re committed to working with them. We value the relationship with the affiliates, we value the business model with them. There’s no question in a world of - in a dual revenue world where we believe our programming drives the subscription side of it, we’re navigating new arenas to create the terms of commerce for us between them. Not surprisingly, some of those conversations can be contentious, but we’ve had a good and healthy relationship, and I think our goal is to - which we’ve been able to do, I mean really most of our affiliates are continuing to find ways to work together. Our goal is to ensure that we find ways to work with them. We think our programming is valuable. We believe it deserves to be compensated accordingly – we deserve compensation for that programming and that’s our goal to better work that out with them. What was the second question?

SEC.

The SEC is one; the incentive auctions look that is fairly something we’re taking seriously. We’re engaged in and it gives some of the numbers to get through out around, certainly pretty interesting. If you look at the auction it has just concluded, and it’s certainly probably adds to that. We don’t know enough; there’s still stuff to be flushed out, but certainly we’re fully engaged. We’ve got a big station group and in reality two big station groups if you include MyNet as a group. So we’ve got a lot of stations and a lot of spectrum, so we certainly fully want to understand more of the opportunity there. There are certainly a number of signs that could be interesting.

Thank you.

Next question please.

Thanks. Just one please. Chase, I think the growth at the domestic cable networks is noteworthy in the backdrop of the broader - you guys discussed around the ad market. And let me look into your next call, the markets are going to be talking about the upfront. So with the viewing of content moving to multiple platforms and the revenue impact related to the measurement issues, do you have a view on the potential to de-emphasize the upfront process or maybe information given the backdrop the market is also changing?

No, I don’t think so; I mean, certainly, as I’m sitting here, I cannot project what the upfront looks like when you’re four months away but I don’t - I don’t think you’re going to have a dramatically different approach than we have currently taken on how we’re approaching the ad market. I mean it’s like we touched on, we have restructured our entire ad sales organization, and a lot of the primary reason for doing that was to position us to deal with the world that we expect to be in. The upfront is part of that process. But certainly the way we’re approaching that in the overall ad market is in a state of transition. I will add that one thought. A lot more money is clear, and from what I see desire among advertisers, I think one thing we’re hoping to do, and I think our value proposition is so important — is to ensure advertisers derive value out of the digital marketplace, in many ways, where they’re getting sufficient value for that spending. You can see only clearly in many places where they’re getting value from that investment, and so trying to establish those measures of success and how best we define that for their ad dollars will play a significant role.

Thanks John. Next question please.

Thank you for taking the question. I wanted to ask about the dividend in the context of your comment earlier that you are over-capitalized position. You know it’s bright and encouraging to see the 20% hike in the recurring dividend. I was wondering if you could talk about what drove the analysis that got you there, and as you look at your capitalized position, what are your feelings about maybe using more of that for dividends either recurring or special?

I mean it’s like I said. We - it is a topic the board is engaged broadly. You know it’s buyback, dividends, and I don’t want to get too involved in the board in terms of plans or initiatives. I think what I want to emphasize is that generally, we have been clear; we think reaching capital to shareholders is an important part of our overall philosophy. The dividend - we look at our business, we’ve had confidence in our business and we think it’s appropriate and we certainly thought this move is appropriate. We’ll discuss further what the balance should be between buybacks and dividends and the overall speed of that - with which we return the capital through those various vehicles; but I think it is something we’re committed to, and again we will certainly have board meetings next week, and we’ll consider where we should be and it’s a process we take seriously.

Okay, fine, thank you.

Operator, it’s certainly one minute, so we have time for one more question.

Thank you. Just a question on the broadcast network and in your earlier comments that you are reinvesting and helping to stabilize the broadcast business. I guess if you can give us some color on how constrained you are in terms of inventory perspective would make us take advantage of maybe some improvement in demand down the road. How far out it is but there is - make a - even not - the inventory how much flexibility do you have in them?

Actually in the broadcast business, we don’t really have any make any issue in terms of structuring things. I guess from a makeup perspective we don’t really have anything that would be out of the ordinary course for us - to make good. We have opportunity as the year goes along through various vehicles and events at times that drives, obviously we’re short on ratings, so they’re not what we expected. We have to deal with that but we’re pretty good in dealing with that on an ongoing basis, not letting it stockpile, and that’s certainly true to date where we are.

Thank you, very much.

Thank you, everyone, for joining us today. If you have any further questions, please call me.