News Corp (NWS) 2016 Q2 法說會逐字稿

Good day, and welcome to the News Corp 2Q FY16 earnings conference call.

(Operator Instructions)

At this time, I would like to turn the conference over to Mr. Mike Florin, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Thank you very much, Noah. Hello, everyone, and welcome to News Corp's fiscal second-quarter 2016 earnings call. We issued our earnings press release about 30 minutes ago, and it's now posted on our website at NewsCorp.com.

On the call today are Robert Thomson, Chief Executive; and Bedi Singh, Chief Financial Officer. We'll open with some prepared remarks, and then we'll be happy to take questions from the investment community.

This call may include certain forward-looking information with respect to News Corp's business and strategy, actual results could differ materially from what is said. News Corp's Form 10-Q for the three months ended December 31, 2015 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 filing. Finally, please note that certain financial measures used in this call, such as segment EBITDA, adjusted segment EBITDA, and adjusted EPS are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of these non-GAAP measures is included in our earnings release.

With that, I'll pass it over to Robert Thomson for some opening comments.

Thank you, Mike. News Corp is evolving rapidly into a more digital and increasingly global Company, with a diverse revenue mix that we resolutely believe will drive long-term growth in revenue, profits, and shareholder returns. The quarter presented challenges, with a still uncertain macroeconomic environment and foreign exchange volatility, but we believe in the enduring value of our prestigious brands, and the sound logic of our digital strategy.

Revenues fell 4% to $2.2 billion, and reported total segment EBITDA declined 20% to $280 million. EBITDA for the quarter includes legal and transaction costs, which Bedi will momentarily explain in detail. However, excluding the effects of ForEx fluctuations, revenues would actually have grown 2% versus the prior year, as the successful integration of Realtor.com and growth of REA contributed materially to our performance.

It is thus appropriate, in examining the individual segments, that we begin with digital real estate services, in which, by most measures, we have become the world's largest player over the past 12 months. The position will be further enhanced by the imminent closing of REA's acquisition of iProperty, the preeminent digital property company in Southeast Asia. We are particularly pleased by the early returns of Move, which we acquired just over a year ago, and whose Realtor.com network has become the fastest-growing player in the still-emerging US digital real estate market.

For the quarter, average monthly unique users increased by 37% year-over-year, driven by a 57% surge in mobile users. For the month of January, we recorded 50 million monthly uniques, compared to 30 million in the month before we acquired Realtor, in late 2014.

We are significantly ahead of schedule in revenue growth, and in the trajectory of EBITDA for Move. Even with the investment required to enhance the site, we firmly expect positive EBITDA for this fiscal year. That result will not come at the expense of investment in the product or the brand, and should be the harbinger of increasing EBITDA in coming years.

For the most recent quarter alone, revenues at Move, the parent of Realtor.com, expanded 35% year-over-year on a stand-alone basis while user engagement continued to grow briskly, with page views 34% higher at 1.1 billion views, and minutes spent on the site increasing 47% year-over-year.

In December, we launched a renovated Realtor.com site, which is more user and mobile-friendly, and we expect to unveil several new products for realtors in coming months, including enhanced listings and extra focus on delivering our cherished clients more and better quality buyer leads. We also fashioned a partnership with CoStar that will add many thousands of rental listings, and provide a new pipeline of customers who ideally will ultimately graduate to being home buyers.

Meanwhile, in Australia, REA Group continues to thrive, with revenues expanding by more than 20%, excluding the impact of foreign currency, thanks to the broader penetration of premium products. The REA audience in Australia is over twice the size of its nearest competitor, in a market that is clearly at a different phase of growth to that of the US. Importantly, we are now in a position to share learnings, mobile software, and display modules across our global digital property platforms, to ensure that we optimize the experience for users and the revenue for our Company.

Elsewhere in Australia, Fox Sports was affected materially by currency movements, which masked a strong underlying performance. The nature of the business is that the large audiences generated by showcase events, such as the Rugby World Cup, in which Australia's performance exceeded modest expectations, are accompanied by increased acquisition and production costs. However, advertising during the quarter rose almost 30% in local currency, far exceeding the level of most Australian broadcasts.

Meanwhile, Foxtel, where there has been significant investment in marketing and product, reported a moderating of the rate of EBITDA decline, and improving revenue growth in local currency. Our stated aim is clear. To drive subscriber growth and to highlight to potential customers the superior value of the product selection compared to other SVOD competitors in Australia, like Netflix, which has a markedly inferior offering to that of Foxtel.

It's worth noting that churn hit a near record low level at Foxtel this quarter, at just over 10%. Sport is patently a crucial offering, particularly in Australia. And in the most recent quarter, Foxtel and Fox Sports extended their rights to the National Rugby League, which along with Aussie Rules, are the dominant sports in the country.

Fox Sports will have specialist channels for both sports, as we have now secured rights until 2022. We see these long-term rights as a robust foundation to the expansion of Foxtel and Fox Sports over the coming decade.

Foxtel also completed the acquisition of an approximate 14% equity stake in the Ten Network during the quarter. Ten's ad sales are being integrated into the MCN ad sales venture, creating a unified ad sales network across both free to air and subscription TV that is already gaining real traction. Ad agencies in Australia have strongly endorsed the MCN Ten model, and Foxtel sees an ongoing opportunity to drive incremental advertising growth across these powerful platforms.

In our news and information services segment, Australian advertising remained challenged, but we are seeing encouraging signs in subscriptions and a more balanced revenue mix. Circulation revenues are up against the quarter, excluding currency, due in part to higher digital subs across our mastheads nearly offsetting print volume decline. We are actively focused on costs, and this past quarter we implemented a cost reduction program across most of the businesses, which will begin to show benefits this quarter. News.com.au maintained its lead as the number-one news portal in Australia, and has become a valuable platform to drive revenues, delivering around 52 million extra visits to our sites last year.

In the UK, we are also assiduously reducing costs at our mastheads, while renewing direct relationships with advertisers to maximize revenue. We are delighted with the integration of Unruly, the social and viral ad platform we recently acquired. It is working with our businesses around the world, and particularly with our UK mastheads to deliver high quality advertising to our properties, and to reduce our reliance on third parties. Unruly's cutting edge metrics and contemporary culture are infusing energy and creativity into the broader business.

Digital transformation is well underway at The Sun, where we recently removed the paywall, and are relaunching the site in March, optimized for video and mobile, which is self evidently growing in potency as a platform. We are also diversifying our revenue base, and monetizing the valuable Sun brand.

This past quarter, News UK signed two licensing deals. With Playtech for Sun Bingo, and with Tabcorp for Sun Bets, to which higher margin revenue streams will begin flowing in May, just ahead of the European Soccer Championships in June, and in good time for the next English soccer season.

The Times of London may have been founded in 1785, but it continues to prosper in 2016, gaining in market share and expanding its circulation revenues, thanks to the continuing success of its digital offering, which we will be able to expand internationally at little incremental cost. That extended elite, as we have discovered with the Wall Street Journal is an extremely desirable demographic that is difficult to reach on social media, and has strong affinity for the Times and the Sunday Times.

At the Wall Street Journal, advertising year on year was softer, but the early signs for the current quarter are more positive. It's worth pointing out that the real estate category showed significant ad strength this quarter, primarily driven in digital by the recent launch of Mansion Global, and in print by the Mansion residential section, highlighting the value that News Corp brings to realtors, and the efficacy of the relationship with Realtor.com. We believe these complimentary platforms are clearly worth more than the sum of their parts.

Overall, digital now accounts for nearly 50% of revenues at Dow Jones, with strong growth in the risk and compliance segment of our professional information business, and healthy progress in the pursuit of 3 million subscriptions at WSJ and Barron's within three years. Specifically at The Journal, there was an 18% year-on-year growth in digital-only subscriptions for the most recent reported quarter, reaching 819,000 subscribers. As well, ARPU is on the rise, so these are not deeply discounted inevitably promiscuous subscribers.

I would also point out that the Dow Jones financial site, MarketWatch, set a new traffic record in January, with more than 23.3 million unique visitors. MarketWatch also had 1.2 million video starts for the month, which is a more than 460% jump year-over-year. While total visits to the site were a record 60.1 million.

In other business, News America Marketing showed healthy domestic in-store and digital revenue growth, while experiencing declines in revenues due to challenges in the very competitive FSI business. Sluggish economic growth and the squeeze felt by many families around the country mean that there is a strong appetite for discounts, which explains our optimism for the prospects of Checkout 51, our recently acquired digital coupon company. We began a fresh round of marketing for Checkout 51 in January, and downloads of the app have risen sharply.

The weekly rate of new memberships in the US and Canada has tripled in the past month to 70,000, giving Checkout 51 more than 5 million members to date. We are using our powerful platforms, including Realtor.com, to drive adoption of the app. That larger audience will give us the scale to surface better offers from consumer goods companies, which in turn will make the app stickier and more attractive for potential users, who literally can upload their receipts and receive cash back.

At HarperCollins, the integration of Harlequin continues apace, providing us with a global publishing platform. Including bestselling authors Karin Slaughter and Daniel Silva, we have successfully published almost 200 HarperCollins titles today in foreign languages across more than 18 countries.

Comparisons with last year were naturally made more difficult because of the blockbuster success of the Divergent Trilogy, which was also a powerful performer as an e-book, given the genre. Teen fiction over indexes digitally. Print sales actually rose during the period, but not enough to offset the decline in digital, a softness that other publishers have also reported, and is an industry-wide issue.

In conclusion, while macroeconomic conditions and currency trends were inauspicious this quarter, we believe our core strategy, to become a more deeply digital company with a particular emphasis on mobile, is certainly on track. Our acquisitions are enhancing that capability, whether it be Storyful with mobile video, or Unruly, with its social sensibility, or the imminent acquisition of iProperty with its digital property prowess in east Asia.

We are particularly pleased that Realtor.com has been transformed, and through its success, is transforming the character of News Corp. We have significant toil ahead, but we see a clearly-defined pathway to a more digital future and increased profitability, which will be to the benefit of all investors.

With that, I would turn the floor and the rest of the room to our CFO, Bedi Singh, to explicate the numbers.

Thanks, Robert. First, I would like to share some high-level financial highlights for the second quarter, and then we'll go through each segment in further detail.

We reported FY16 second-quarter total revenues of $2.2 billion, down 4% from the prior-year period. As Robert noted, we were again impacted by currency headwinds, primarily the weaker Australian dollar, which negatively impacted Q2 total revenue by $141 million, or 6%. Excluding the impact of foreign currency, acquisitions and divestitures, adjusted revenues declined only 1%, compared to the prior year.

We reported total segment EBITDA of $280 million, compared to the prior-year period of $352 million, excluding the impact of digital education segment in both periods. Currency fluctuations impacted total reported segment EBITDA by $25 million, or 7%. Reported segment EBITDA this quarter includes $7 million of legal costs related to the UK newspaper matters net of indemnification, as well as $5 million of one-time transaction costs related to the Unruly acquisition, which closed on September 30 and is reflected in the news and information services segment.

For the quarter, adjusted EPS from continuing operations were $0.20 versus $0.30 in the prior year. Reported EPS from continuing operations were $0.15, compared to $0.27 in the prior year.

Now, let's turn to the individual operating segments. In news and information services, revenues for the quarter declined $123 million, down 8% versus the prior-year period. More than 70% of that decline was related to the impact of foreign currency.

Adjusted segment revenues declined 4%. Within segment revenues, advertising declined around 12%, or about 6% in local currency, due to weakness in print, partially offset by strong digital ad growth across each business unit. Circulation and subscription revenues declined 5%, but were actually up 1% in local currency, due to higher consumer circulation revenues in the US and Australia, combined with improvements at Dow Jones professional information business. We saw a slight decline in the UK, due to the removal of the Sun paywall in November.

Looking at performance across the key units, at Dow Jones, domestic advertising at the Wall Street Journal declined 5% versus the prior-year quarter, due in part to tougher year-ago comparisons from the financial category. Declines in print advertising were partially offset by solid growth in digital, with strength in display, mobile, and video.

Digital accounted for approximately one-third of ad revenues this quarter, and overall advertising trends at The Wall Street Journal are relatively stable. Wall Street Journal circulation revenues grew mid single digits this quarter, due to higher subscription pricing, higher digital subscribers, and relatively stable print volume.

At professional information business, we saw positive net installs and year-over-year revenue growth, absent currency for the second consecutive quarter. We also saw strong growth in risk and compliance, and continued stability at Factiva.

At News Corp Australia, advertising revenues for the quarter declined 26%, or 11% in local currency, consistent with the last quarter, as the marketplace remained challenging across most categories. Print advertising declines were partially offset by strong growth in digital at both the Metro mastheads and at News.com.au.

Circulation revenues saw a double-digit decline versus the prior year, but in local currency, revenues rose low single digits due to cover price increases and higher digital subs. Importantly, revenues from digital paid subscribers nearly offset print volume declines. Digital paid subscribers grew over 30% year-over-year to 268,000 for newspapers and other publications, as of the quarter end.

Digital continues to increase its proportion of weekday circulation volume for all Metro titles and for The Australian. And digital now comprises over 40% of subscribers, compared to the same period in the prior year.

As we noted last quarter, we are actively addressing the cost structure at News Australia. The benefits of the initiative implemented in the latter part of fiscal second quarter will begin to flow through from the beginning of the second half of this fiscal year, and continue through FY17, to deliver a 5% annualized fixed cost reduction across most areas of the business.

At News UK, overall advertising revenue declined 12%, or 8% in local currency, driven by weakness in print advertising, particularly at The Sun, led by the grocers and telecom providers. The key management focus at News UK is on improving the performance at The Sun, particularly its digital proposition. The Sun changed its digital strategy and removed its paywall on November 30.

Based on internal metrics, Sun's December unique users were over 14 million, relatively similar to pre-paywall levels. We expect with the site relaunch, as Robert referenced, to see higher audience levels and improved revenues in the coming quarters.

In Q2, The Times and Sunday Times continued to gain market share, with growth in circulation revenues and stable volume, including 172,000 digital-only subscribers as of the quarter end, representing more than 40% of total paid subscribers. News UK also continues to look very closely at its cost base, focusing on corporate overhead cost, and streamlining of their business processes.

At News America Marketing, revenue declined 3% versus the prior-year quarter, although a sequential improvement from Q1. FSI remains weak, but was largely offset by growth in domestic in-store and in digital advertising.

News America Marketing is focused on integrating Checkout 51, its recently-acquired digital and mobile coupon company, and expanding its user base. Checkout 51 is a data-rich platform of transactions, which have a potential to be leveraged across News Corp's portfolio of companies. Outlook for the fiscal third quarter for the FSI business remains particularly challenging, and we are also planning additional investments in Checkout 51 to drive membership.

For the quarter, news and information services segment EBITDA declined 27% as compared to the prior-year period, and adjusted segment EBITDA was down 22%. We experienced higher marketing and retail promotion expenses at News UK of around $17 million, primarily related to competitive cover pricing pressure, but we expect that that should moderate materially next quarter. Reported segment EBITDA also includes $5 million for transaction costs related to the acquisition of Unruly, as I noted earlier, and $5 million of legal expenses at News America Marketing for ongoing litigations.

Turning to the book publishing segment, revenues decreased 5%, and segment EBITDA declined 26% versus the prior year. Declines were due to lower e-book volume across the marketplace, similar to the first quarter, and tougher year-ago Divergent comps, and some FX headwinds. Titles to call out this quarter included Ree Drummond's The Pioneer Woman Cooks and Sarah Young's Jesus Calling.

Total digital revenues for the quarter were 16% of consumer revenues, down from 19% the prior year, partially due to the Divergent series, which sold around 600,000 units this quarter, versus approximately 1.5 million units in Q2 last year. It's also worth noting that for our fiscal third quarter, we will continue to have tough comps against higher Divergent sales in the prior year of 2.3 million units, and additionally around 2.7 million units of American Sniper.

In digital real estate services, total segment revenues increased $54 million, or 35% to $208 million. Segment EBITDA was $73 million, up 28% compared to the prior-year period, as improving operating results at REA Group were partially offset by foreign currency fluctuations. Excluding foreign currency and reflecting the inclusion of half a quarter's results of Move, adjusted revenue and adjusted EBITDA grew 22% and 19% respectively. REA's revenues grew 20% in local currency, and EBITDA increased at a notably higher rate in local currency, due to higher listing depth product penetration.

The acquisition of the remaining shares of iProperty REA doesn't already own for approximately AUD480 million, or $340 million, should close in mid-February. REA expects to incur roughly $5 million in transaction costs in the second half, related to this acquisition. iProperty Group will be consolidated into REA commencing this quarter, and is expected to have no material impact on News Corp's EPS for the current fiscal year. REA will be reporting its half-year results shortly after this call.

Reported segment results include $87 million in revenues from Move. Move generated mid single-digit EBITDA, excluding stock-based compensation in the quarter. Results for Move also included around $4 million of legal expenses for our litigation against Zillow, and we remain on track with our expectations to be EBITDA-positive for this fiscal year.

On a stand-alone basis, Move's revenues would have grown 35% versus the prior-year quarter, the highest rate of growth since the acquisition last November, and 2.5 Times the rate of growth seen in Q2 of last fiscal year. The improvement was led again by the Connections for Co-Brokerage product and near doubling of non-listing ad revenues, benefiting from the successful integration into the Dow Jones Programmatic Exchange, higher audience levels, and higher CPMs. We are also continuing to see healthy increases in our agent and broker customer numbers.

Unique user growth remains strong, up 37% to 39 million average for fiscal second quarter, a bit lower than the prior quarter due to seasonality, and this has increased to 50 million in January, which has been a record month. Page views and minutes both accelerated versus the prior quarter. We also saw year-over-year and sequential improvement in Move's software and services business, led by an increase in subscribers to its Top Producer CRM product.

In cable network programming, revenues decreased by $6 million or 5% compared to the prior year quarter, but on a currency-adjusted basis, revenues increased 10%. Subscription revenues were down 7%, as higher affiliate fees and subscriber gains were more than offset by FX headwinds. Excluding currency, subscriber revenues grew around 7%, helped by mid single-digit subscriber growth.

Advertising revenue grew 7%, benefiting from the Rugby World Cup and the Motorsport properties, combined with higher underlying market share. In local currency terms, advertising revenues grew 29%. Segment EBITDA in the quarter fell 28% due to negative impact from foreign currency fluctuations, and the expected higher programming rights costs related to the Rugby World Cup of around $11 million.

In December last year, News Corp Australia in conjunction with Fox Sports Australia announced it had secured a new five-year deal with the National Rugby League for the 2018 through 2022 seasons. Fox Sports Australia also announced the extension of Rugby Union through 2020. These new contracts, combined with the recent extension of the AFL, means that Fox Sports and Foxtel have long-term visibility and security for the most important sports rights in Australia.

On the NRL, beginning with the 2016 season, Fox Sports will broadcast all games live, including three matches per week that will be simulcast with Nine network. This is costing incremental approximately $10 million in the second half of this fiscal year. This additional cost, though, will be completely offset by cost savings from the lapping of the Asian Cup and the Cricket World Cup from last year.

With respect to earnings from affiliates, Foxtel entered the quarter with approximately 2.9 million total subscribers, with cable and satellite subscribers increasing over 7%, compared to the prior-year period, and higher Presto subs, despite increasing competition from SVOD players. In the quarter, cable and satellite churn improved to 10.3% from 11.8% in the prior year. ARPU has remained relatively steady since the new pricing initiative, but as expected, is down mid single digits compared to the prior year.

Foxtel revenues for the quarter in local currency were up 5%, an improvement from the prior quarter, and EBITDA declined at a sequentially lower rate of 7%, mainly due to planned higher programming costs, primarily sports rights and fees, and an expected increase in costs associated with higher sales volume, and the launch of triple play, and continued marketing investment in Presto.

Turning to loss from discontinued operations, this quarter we incurred a net loss of $24 million, which includes $17 million in severance and lease termination costs, as part of the sale of the Insight and Learning businesses. We expect very minimal costs going forward to maintain support for the tablet business, and expect these to conclude by the end of FY16.

In summary, whilst we faced challenges this quarter, notably at the news and information services segment and in book publishing, compounded by continued currency headwinds, we continued to invest in digital products, including the integration of Unruly and Checkout 51, as Robert mentioned. We are driving higher digital subs and audience across our key mastheads, and building our digital revenue streams. We are actively addressing our cost base, particularly focused in Australia and the UK, and we expect to see these benefits flow through from the second half onward.

We continue to aggressively focus on digital real estate, and we believe that Move and REA Group will be core pillars of profitability for the future. We have extended our real estate reach and expertise through small investments in India and through REA's investment in Southeast Asia, magnified by its planned acquisition of iProperty. And we have also solidified our content portfolio at Fox Sports Australia and Foxtel, and have long-term visibility with the most valuable domestic sports.

We believe that the steps we've been taking continue to position News Corp to drive long-term value per share. We are pivoting the Company into faster growth segments, and will continue to reinvest, and be balanced with capital returns.

And with that, let me hand it over to the operator for Q&A.

Thank you.

(Operator Instructions)

We'll take our first question from John Janedis with Jefferies.

You talked about the macro headwinds, and you've been focused on acquisitions over the last couple of years. With the mix picture, do you think this creates more opportunities to buy assets, and in the past, you talked about a consistent return of capital program. Is this an opportunity to be more aggressive on the buyback front? Thank you.

John, I would understand that you wouldn't expect me to reveal any details about any particular acquisitions we may or may not have in mind. You have your own prescience on that. The truth is that we're very happy with the mix of the portfolio we have now.

You can see how complimentary the assets are that we have acquired. These haven't been random investments by any means, and so any investment we would ever contemplate has to fit that picture, where we genuinely believe it becomes more than the sum of the parts. The way we've been able to use Realtor, for example, to increase the usage and the downloading of the app for Checkout 51, the way we've been able to use MarketWatch to boost traffic for Realtor and vice versa, has been an important part of the strategy. So that strategic imperative, which we articulated at the time of the spin, remains constant at the moment.

As for the use of capital, we want to be consistent in our messaging, and consistent in our returns of capital. We have, as you know, instituted a semi-annual dividend and we want to be consistent about that, and we've had a modest buyback program. We want to be consistent about that as well. And so the principle of a certain amount of return is one that we've established, and we will abide by that principle. But on the other hand, should there be a strategic opportunity for investment, we remain attuned to that possibility.

Thanks, John. Noah, we'll take our next question, please?

We'll take our next question from Entcho Raykovski with Deutsche Bank.

Hi Robert, hi Bedi. My question is around the Australian publishing operations. And obviously, we've seen pretty severe declines in the market overall. How are you thinking about those operations going forward? Are they contingent on consolidation taking place? And I guess as part of that question, would any consolidation in the market, in your view, be contingent on medias reform, which has been speculated? Thank you.

Entcho, there has been speculation about media reform I'm not going to speculate about the possible outcome other than to say that, one, it should be holistic, and two, that it should reflect the reality of the contemporary digital age. For our Australian mastheads, clearly, as both Bedi and I have articulated, it was a difficult quarter in advertising, and to that extent, we've clearly embarked on a cost-cutting program at the mastheads.

Now, of course, a consequence is that cost cutting has a cost, a short-term cost, and a long-term benefit. But we're not being defeatist about the power of those platforms. They are very powerful platforms. And so we will continue to invest in the digital development, and we continue to believe that print has a future as a powerful platform.

For example, you look at all the angst over ad blockers. You know what? Ad blockers don't work on newspapers, and you have 100% viewability. So the relative power of print as a platform, as part of our portfolio, remains constant.

And I think we're in a period of advertising experimentation, and some advertisers would be, I think, slightly surprised to find the sites that they find themselves associated with, they're not premium sites. They range from the ordinary to the tawdry. Our sites are premium sites. And that value is an enduring value.

Thanks, Entcho. Noah, we'll take our next question.

We'll take our next question from Alexia Quadrani with JPMorgan.

Thank you. My one question is related to the first one, which is on capital allocation. I guess with the heavy cash balance, I guess, would it be fair to assume that when FX headwinds subside or the business gets a bit more stable, that the Board may be likely to revisit being more aggressive on either the size of the dividend, or the pace of the buyback? Or is it more likely that you'll keep a lot of dry powder, because acquisitions will always remain a higher priority?

Alexia, I think Robert already very eloquently answered that question. I think we've said in the past that when you look at cap returns, you have to think of those in the context of our operating cash flows, and the cash flows available to shareholders. And pretty much the balance of cash that we have is there to help us with investments, both internal and external. So I think we remain consistent with what we've said before.

And dare I say when opportunities arrive that are appropriate, we will be opportunistic.

Thank you.

Thanks, Alexia. Noah, we'll take our next question.

Our next question comes from Eric Katz with Wells Fargo.

We saw a New York Times report a strong pickup in digital subs today, and you mentioned some positive stats earlier for certain newspapers. Can you highlight in some more detail the gains you're making at some of your key newspapers, what's working, and what you learned from The Sun?

Well, certainly it varies by geography and demography. But at The Wall Street Journal, we're seeing strong growth digitally, not alone in numbers, but also in the circulation revenues, so the ARPU is strong. At The Sun, as both Bedi and I explained, we will be relaunching the site in March, and that, combined with the fact that it's [free] obviously a changing of that model, we're confident in the power of that platform, and one, in the services it can provide for readers, but also in the functionality for advertisers.

The Times of London is doing extremely well behind a strict paywall. It is, I think by most measures, the most successful newspaper in the UK at the moment. It's gaining in market share. It's gaining in revenue. We have explained in the past that it has reached profitability, which it's fair to say it wasn't the case when I was the editor a few years ago.

Thank you.

Noah, we'll take our next question.

Our next question comes from Michael Morris with Guggenheim.

My question is really around the technology investment, and something of a transformation I think you are making toward the more digital future you've referenced. It seems like you've bought -- you've invested in interesting technologies that have been complimentary, but my question is, are you getting to a point where you have a critical mass of technology expertise, where you can really start identifying and developing your own solutions, and maybe even selling those outside the Company?

And what does it take to get there? Is it hiring more within the structures that you built, or do you think you have to acquire more technological expertise going forward? Thanks.

I think we have, it's fair to say, a brilliant tech team, and we're very happy with the pace of development internally. We're not arrogant about that, because it's a challenging environment, and this is a tech team that's up for the challenge. In part, you have to ensure that when you acquire a wonderfully creative company like Storyful or Unruly, that you're able to integrate them in a meaningful way. They can't become orphans. And so that's as much a cultural challenge as a technological challenge.

So we've been very careful to introduce the leaders of those companies and the tech engineers of those companies right across the News Corp network. And as -- because you want them to be beacons of creativity and ingenuity, institutionally. So they are performing that role that's difficult to define in a pure metric sense, but it's absolutely material to the future of the Company.

Thanks, Mike. Noah, we'll take our next question.

We'll take our next question from Craig Huber with Huber Research Partners.

Just wanted to further understand the cost savings plan going forward, please, in book publishing, but also the newspaper area. It looked like in the last quarter if you adjust for currency your news and information costs were flat to maybe slightly down. I mean, just talk a little bit further about your game plan to take out more costs there, please? Thank you.

I think I referenced the cost savings that we have more on the newspaper side. I think on the book publishing side, they are obviously taking costs out after the Harlequin acquisition. And I think for Harlequin, we had said they would be around $20 million of synergy savings. I think we are pretty much on track to get the majority of those into this FY, and obviously some of that flowed into the first half.

With respect to the newspaper in Australia, we have indicated that we are looking at like a 5% run rate cost savings into the future. I think in terms of dollars, that's around, in the first half, it was around $40 million to $50 million. I think on an annualized basis, we expect it to be in the $60 million to $70 million range of savings.

News UK is aggressively looking at its cost structure. We haven't given specific numbers out on that, but again, as I said in Q2, we reported costs are down 5%. The head count, it's mainly through head count, and most of that through Australia.

We've also renegotiated newsprint and ink deals, and that's had a significant impact. We've closed printing facilities. We've got rid of some of our loss-making activities. So I think generally all of those things are continuing, and we would expect to see the benefits flowing through into the future.

Thanks, Craig. Noah, we'll take our next question.

We'll take our next question from Doug Arthur with Huber Research.

Bedi, just a point of clarification on your targets that move on the bottom line. The positive EBITDA by year end, is that with or without stock comp?

With or without?

Yes, will you be --

Stock comp. Yes, we will be EBITDA-positive on both, with and without stock comp.

Okay. Thank you.

Clearly without stock comp, the EBITDA number's are a lot bigger. And of course just to remember, our competitors when they report, they report all their numbers before stock compensation expense. News Corp has traditionally included stock compensation expense in the numbers we report. That's why I try and give both of those metrics, so as you have a helpful comparison.

Thanks, Doug. Noah, we'll take our next question.

We'll take our next question from Tim Nollen with Macquarie.

My question is on e-books. I don't know if I've ever heard a publisher before say that their print business was up and their digital was down. I appreciate that there were some comp issues in the quarter that affected the digital sales.

I just wonder if you could explain a little bit more what's happening with e-books in general. It seems like a few years ago we would have thought it would have been a larger percentage of total book sales, now 16%, as a percentage of total sales, seemed a bit small to me. I know there's some differences between fiction versus nonfiction titles, and print versus e-book.

But anything you could say on pricing between the two, profitability between the two, and if you might even have to dial back some of the investments in digital and go back to print. I know it sounds perhaps extreme, but anything you could say on that, please.

Look, it's a fascinating question. And clearly what it shows is that purchasers make a discerning decision based on price. They are valuing print book versus an e-book, and so you're quite right. It's not just the mix, although clearly a, for example, a teen fiction book skews heavily digital, and a coffee table book is a coffee table book.

But longer term, I think it's fair to presume that the digital ratio will increase, and exactly what that ratio will be is a matter for the soothsayers, but you can see that as the people are getting devices, they aren't necessarily downloading as many digital books as they did previously. There is more competition on devices for the digital experience. But our very, very astute team at HarperCollins is learning these lessons as we go.

They are intelligent. They are creative. They are [understanding also] how people read digitally a little differently, to say two years ago, when early adopters had one pattern and mature adopters had another. We certainly see book publishing as an area of opportunity, both in print and in digital.

Thanks, Tim. Noah, we'll take our next question.

(Operator Instructions)

And we'll take our next question from Sasha Karim with CLSA.

I just have got a question in relation to Foxtel and Fox Sports. I think you had previously guided toward EBITDA growth for the full year for Foxtel. Are we still on track for that outcome? And what assumptions does that depend on, in terms of subs growth?

Then in relation to Fox Sports, Bedi, you mentioned the incremental costs for NRL in the second half of 2016. To what extent can we see that being offset in FY17? You mentioned offsets in second-half 2016, are there any in FY17? Thanks.

So I think with respect to Foxtel, we expect strong growth in Q3 and Q4, and I think we believe that we are in line for EBITDA growth, as we've said before, for the full year. EBITDA improvement assumes cyber revenue, as I said, going up, as well as there will be some additional cost savings business-wide in programming, sales and marketing, as the comps ease to what the level of costs were in Q2. So I think we're on track with Foxtel.

Clearly, there's a lot of competition in the market at the moment, when you look at, for example, Netflix and others. But what I think you need to understand is that Netflix in the US is very different to Netflix in Australia. The Australian operation has quantitatively and qualitatively [have] filed a lesser offering and you might puckishly call it not NetFlix, but Notflix, and we believe that as people look closely at the offerings, the value that Foxtel can bring will become increasingly apparent.

And is there a question on Fox Sports? Sasha, did you have a question on Fox Sports?

Yes, I was just wondering, Bedi, you mentioned that you'd be able to offset the incremental cost in the NRL in the second half of 2016, given the cycling of the World Cup costs and also soccer costs. Just wondering, is there any offset in FY17, either at the cost line or via subscription cost increases?

I think clearly we expect EPL will be a factor, and we will see continued revenue growth from subscriber build into FY17.

Thanks, Sasha. Noah, we'll take our next question.

And with no further questions in the queue, I'll actually turn it back to Mike Florin for any additional or closing remarks.

Great. Thank you, Noah. Thank you all for participating. And have a great rest of the day.

And that does conclude today's conference. Thank you for your participation.