Fox Corporation (FOXA) Q2 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Twenty-First Century Fox Second Quarter 2015 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Reed Nolte, Senior Vice President, Investor Relations. Please go ahead.

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 on 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’ve 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 reflect strong results of the Cable Network segment, improvements led by costs at the Television segment and similar film contributions to 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 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 recognitions 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 a 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 increase 13% from higher contribution at our establish 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 programming costs associated with the inaugural broadcast of the Major League Baseball playoffs. Reported international channel contributions increased 8%, a strong double digit local currency growth at both FIC and the STAT Entertainment channels 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 ad revenue decline is primarily due to lower general entertainment ratings at the broadcast network and stations offset impart 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 cost for both these films as well as Exodus and Night at the Museum 3. Now before I turn to guidance what we 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. With regard to 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, this translates to a $0.30 dividend on an annual basis the 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 period 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 and 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 rate stay where they are today the strengthen dollar has now further reduced our fiscal 2015 EBITDA expectations by an additional $100 million plus resulting in a total full year effect across the company of around $250 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 expectation. So considering these factors and based on all the assumption inherent in our current projections, we now expect that our total segment EBITDA percentage grow 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 begin by expanding on John’s comments on fiscal 2015 guidance. Reality is that the majority of our businesses and key initiatives are on track and our competitive position is strong as ever in most every area. However, two issues, foreign currency and broadcast advertising shortfall simply became too large to offset. Let me address these issues first and talk about the larger picture. There isn’t a lot to add what John said about the currency issues. We’re practical, we’re addressing hedging strategies to help manage the risk, but hedging will only mitigate further fluctuations not the currency impact today. On the broadcast side network and stations, the issue was primarily entertainment rating shortfalls at our network exacerbated by adverse industry trend in linier network ratings and the television advertising markets, which combined leave our expected ad revenues well short of plan. Looking forward to 2016, [indiscernible]. Let me just start. I’ll start again that on the web, whether any of that came on. Let me begin by expanding on John’s comments on fiscal 2015 guidance. Reality is that the majority of our businesses and key initiatives are on track and our competitive position is strong as ever in most every area. However, two issues, foreign currency and broadcast advertising shortfall simply became too large to offset. Let me address these issues first and talk about the larger picture. There isn’t a lot to add what John said about the currency issues. We’re practical, we’re addressing hedging strategies to help manage the risk, but hedging will only mitigate further fluctuations not the currency impact today. On the broadcast side network and stations, the issue was primarily entertainment rating shortfalls at our network exacerbated by adverse industry trend in linier network ratings and the television advertising markets, which combined leave our expected ad revenues well short of plan. Looking forward to 2016, we expect these same themes to continue. The majority of our business is strong and on track. Whenever currency moves this year, will adversely impact 2016 profits by about $200 million, which is on top of the approximately $250 hit to expected 2016 profits by currency shits last year. A total hit of about $450 million to our original 2016 projection in August 2013. We also expect the next 21 months to be a period of investment in new programming at our broadcast network. In addition, we anticipate the industry trends impacting advertising will be slightly larger than previously expected as both advertising and viewership continues to migrate the digital platforms. Our original target for 2016 profits was $9 billion which adjusted for the deconsolidation of the Sky and Shine will be about $8 billion. Currently our broadcast business is not what we expected it to be at this time an external market forces like currency have been more unfavorable than expected. While we still expect solid double digit overall next year due to strength of most of our businesses, the challenges in currency and broadcasting now lead to an expected 2016 profit in the mid $7 billion range. Currency disappointed the function of our targets for this and text. We take this target seriously. While our overall goal is not the hit a short terms profit target but to build shareholder value so it’s permanent by the overall momentum in competitive strength of our businesses and have the position the grow and succeed in light of broader economic, technological and global trends. If our goals to hit a short term profit target, we pursue efforts like cutting marketing and programming at the expensive future profits. We’ll not do that because we believe shareholder value is built to long term growth. In term so an overall goal, we could not be more excite about the future. First as noted earlier, most of our businesses and key initiatives are on target and competitively is strong as ever. Affiliate revenues and retransmission fees which are the foundation of our future are on are ahead of our plans. Among key initiative, we’ve began like ones again reset the FOX News rate reflect its importance in the market with new agreements now in place with four MVPDs represent over a quarter of the market and Fox Sports 1 now has affiliation agreements in place with all major MVPDs reflect a new FS1 rate. Our domestic and international cable channels group to represent about 70% of our profit on track on a local currency basis as of new channel initiatives launched in the last few years. Our news, sports and entertainment channels continue to build in a leadership position with truly unique and focus brands around the world. For example, FX is really less competing basic cable networks behind with programming that makes is appear the premium networks, while FXX is that an exciting new dimension of the group is the fastest growing network in cable. Our Film and Television businesses have great momentum and continue to distinguish themselves as industry leaders. Our Film business finished calendar 2014 with record breaking world-wide Box Office. We locked up key sports content around the world through the rest of its decade to assurance access to this critical content and provide cost stability. Even the earlier noted areas, we face challenges, we are excited about the future. At our broadcast business, our issues have been ones of exaction not structure. The foundation is in place with retransmission revenues ahead of plan with significant room to grow and our major sports rights are in place under long term contracts. Our challenge has been the networks entertainment programming. After a few tough years, we believe we turn the corner with a new network management team to inherent our current broadcast issues that has brought fresh momentum and energy to the business, which allows the top business to predict but we are excited about new hits like Empire and Backstrom as well as a dynamic slate of new event programming. Our competitive lists have already shown different of couple of hits to make. That will take us times to get the broadcast business to where it should be in terms of profitability. The next year plus will be a period of investment with a priority focused on building hit shows not maximizing profits, the profits will follow. We still believe our broadcast business has a strategic and financial future and its promising is ever. The time and the value of hit programming continues to grow exponentially, our broadcast network plays a unique role in launching defining events like Empire. Turning to the broader industry issues, the digital transition continues to be a glass awful [ph] story for us. The moment of advertising dollars and shit of our consumer viewing is clearly going to continue as I think it’s fair to say that its trend recently has been in a bit faster than many expected. These issues will put short term pressure on our business but represent longer term exciting growth opportunities, it will able to deliver more efficient and effective capabilities to advertisers that will monetize viewership on digital platforms and create new offer for consumers on these platforms. Our content brands that consumers and advertisers want to access first and foremost and are committed to building the capabilities to meet that demand. Recent initiatives like the restructuring our bad sales organization and the acquisition of the true[X] are focused on that goal. In closing, let me touch on return of capital on our balance sheet. We are well aware that the recent completion of the Sky transaction ones again have their balance sheet that are in liquid position. We will complete our $6 million buyback as planned but that will still leave us with excess liquidity. Now in fiscal year end, our board will continue to consider next steps. Our priorities for capital remain the same. And that set our core businesses to grow long term value, opportunistic flexibility and return of capital to shareholders. We continue to pursue our goal and achieving an efficient balance sheet will do so in a deliberate manner. Like simply, our goal continues to be building shareholder value by growing our business while returning capital to shareholders and we believe we’re on track to achieve that goal. Thank you. I will turn it back to Reed.

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

Thank you. [Operator Instructions] We will go to the line of Ben Swinburne with Morgan Stanley. Please go ahead. You line is open.

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 thing about the opportunity there particular in line of some of the non-rupee that cost you have on the sport side? And similar question maybe chased on FOX Network, it sounds like your plan is to sort of double down on a phrase but investment more in prime-time entertainment and push the programming. Can you give us some color on sort of how do you want to go and what we should be thinking about in terms of programming cost growth at FOX in couple of years? Thanks.

Sure. James you want to.

Thanks Ben. I think the last time when we talked about the sort of the profits that are pathway for the Indian business and 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, very attractive business and really where we’re investing a lot of those profits to build the sport business alongside that which we think we really have a 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 quarter with the Cricket World Cup and series of events really making that heavy investment right now. But we that churning vis-à-vis quickly, I mean we have pretty good certainly on what those rights costs up 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 five year basis, this business STAR India is the very, very profitable business, we think we get to north of - I’ve said in the past that a north of 500 million of profit and do it with some pace and some velocity. And I think investing in programming and investing on screen for our customers is it been you’ll 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 terms growth domestically here as well as around the world.

I think I should say on the FOX on the network side on broadcasting I mean it’s not feeling doubling I think I mean in many ways what I am trying to communicate is what’s our priory and I think our priority is really building hits first of all most. And I guess I made the comment you know if we want to. Fine, just improve profits, we squeeze programming and squeeze marketing and we get the right move. So I don’t like it’s to be many ways you know it is making sure we’ve got a bench of programming as we try and develop these. I think this year we felt we were a little thin in terms of having available. I think we always know not every show is going to work then we got to make sure we have appropriate flexibility to build. But I think what we’re really talking about is stabilizing the broadcast and providing a platform to grow but I think that real growth comes in the couple of years not in next 12 months. So I think the next year will be period more stabilizing, stabilizing that business and putting it on our path to grow. But - and if I think I am talking more priorities and I think to the degree it’s spending. In reality some of our more expensive programming and like something like Glee is ending its run. So that is obviously there are some cost that will go away, will not recur as we invested new shows. But I think if you say what the investment, it’s probably you have a bit more flexibility and a bit more programming to launch next year to enable us to have a few more shorts that creating the hits that are the foundations for future. Obviously Empire and Dad can give us some exciting building blocks to grow off it. But it’s not a significant increase in cost. Again speaking more to what we think is the priority for the coming year.

Thank you.

Thanks Ben. Next question please, operator.

We will go to the line of Michael Nathanson with MoffettNathanson. Please go ahead.

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

Yeah I guess we talk - I’ll start with the first. You know look I think these digital platforms are obviously very important part of a future. We’re spending a lot of time sort of trying to engage with third parties to hang on own and now this is what makes sense for us in terms of developing them. I am not going to comment on any one particular offer and we don’t - so we don’t have announcements today, we are working on a lot of things. I think well now something when potentially work, we’re ready to do it. I expect this to be an area where we are busy and do move forward but we’re not kind of well-structured to make press releases. You know I think what’s important then I am sure I assume the date is they offers its all resonate with the consumer, I think a lot of - a lot of what’s been out there so far seems to be whether it’s driven by transactions or deals or something or other consideration. I think we want to see can we bring things that are additive to our business and I think at the start we have to make sure what we do in this space as we do another place, 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 pretty attractive proposition. But clearly their segments were 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 reason putting them together. It 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 are not going to have third party content on a network we will because realistically we want to have the best content possible when it does. We don’t sell content to third party networks we will do that as well. But clearly that sweet spot you know is there a network to be able to create assets that we own. And I think by putting them together under roof, we think we certainly create, meet those opportunities more available to us and certainly stream and decision making make the ability to identify needs and sure we are doing everything possible to maximize the opportunities to launch a hit show is done by having that studio and the network work together. But it is one of the core benefits that we love to in putting that studio in the network under Gary and Dana’s leadership.

Thank you, Michael. Okay, next question please.

Thank you. From the line of Douglas Mitchelson with UBS. Please go ahead. The line is open.

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 always complete for FOX, you’ve already talked broadcast in STAR, so maybe just thinking about, you mentioned Fox Sports 1 and Fox Sports 2 has all fields done, there is always concerns with the RSN for scheme packages whether traditional online and. Where are we sort of as you look forward beyond fiscal ’16 you know how of the growth has been captured, how much is left? And just quickly for John, if you could breakdown the local currency international affiliate fee revenue growth of 20% for us, what were the drivers? That be helpful, thank you.

I think we honestly our best growth to have us. I mean in all - and that obviously we’ve certainly applied some of the newer initiatives like FS1 or sports internationally but excited I think talked FOX News which is they get stronger and we are ones again resetting that business, past business I think we are just really moving to now to really full distribute, full competitive distribution. So when I look at our portfolio channels both the establish ones and the newer ones, I think a lot of I think international marketplace literally if you look at round the world has got - is certainly somewhere mid-stream in terms of reaching its full potential varies by region but there as enormous amount of growth. We talked before about India where that is in terms of what we think that business as we more thorough this decade. You and ultimately I really mean what I say when I talked about additional platforms and taking event 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 that want to watch, the RSNs, the reality and to so being sports cost but there are also the product that’s most in demand. And I think hit product is going to grow exponentially in value and importance and I think those that have the - have a breath of hit unique content will be ideally position to take advantage of all these platforms and create new offers and new propositions for consumers and opportunities to engage more directly with consumer in terms of developing those offers, monetizing the viewership, developing databases and the like. So I think in many ways - I think that will obviously put short term pressure because the pressure short terms will not - will take time to build the vehicles that we apply the short term pressers. But as we go forward, I think it’s an area of tremendous growth for us. I mean I think those who have and gain get unique content brand, that scale have really in the sweet spot to take advantage of these things. So I think are core businesses have a lot of growth left here and overseas in their traditional models not that some of those models are maturing but our business is clearly when we look at what we are doing with FOX News, look at where we are with retransmission rates and potential there. We think value of our content holds up. Yes, you’ll - as we said I think that the cable bundle really is pretty much in line with our expectation as I said before probably spring but I think it’s got real legs to it and still it’s going to be a cornerstone for a long time. But as we go forward, these digital platforms really open up a whole new dimensioning growth on top of the opportunities we have in the traditional model.

And Doug, dealing with your question on local currency affiliate revenue international, it was led by FIC STAR had growth nice growth but FIC led it and business breakdown inside of that is in our sports channels it was primarily distribution gains where as 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.

From the line of Anthony DiClemente with Nomura Securities. Please go ahead.

Thank you very much. I have one question for James and one for Chase. James, over the past year or so other media commenced and made strategic investments internationally in order to achieve more global scale, perhaps sale that FOX already had, so for example Channel 5, Euro Sport and Chellomedia, as you look to sustain you 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 had seemed to get soft. So I know you guys have moved some content from FX to FXX, but just wondering is there any concern on those networks and can they establish their own distinct identities from each other? Thanks.

Thanks Anthony, it’s James. I guess and first of all I would you know our buyers generally is to and particularly given the position that we have in markets outside the U.S. today is generally to invest in ourselves and to continue to execute and operate these business where we have - where we have reasonable position. I think it’s fair to say that we’re pretty happy with the mix that we have around the place, it’s a - 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 that partner stakes and ESPN and STAR Sports and Fox Pan-American Sports and so. And I think we’ll continue to look at acquisitions where we can simplify our business where we can really add a dimension and really add velocity and pace to the business. But we’re not looking fill whole bunch of gaps if you will. I think we have a good position internationally. And the Chase’s point before about long term growth, I guess really is one of the drivers of our long terms growth, when we look at our emerging market’s position particularly in India, in part of Asia and other parts of Asia and I Latin America we feel very, very strong about the position. That’s not to say that we know real things out, we look opportunistically the verity of things as you would expect. But we generally at this point I think would have a buyers towards investing in our self-other than have built on kind of technical things that can help us accelerate.

And I think at FX you know first I think it’s pretty much where we expected. I mean I think we expected for a couple of year 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 and ramp up program this allow two channels then obviously going from one to two, it does put some strength on it. As we feel right with the whole thing is I mean - I guess when I look at FX I probably at it first competitively now an absolute sense and there is a question whole cable industry and this is what reported is dealing with the issue of traditional rating declines. I think FX has held real one when I think actually it’s programming continues to if anything distinguish itself from its basic cable competitors more and more and I love it some of the shows that coming this year, I think they are great. So I think it’s - and I feel very good, I think we feel right about it, I mean really I feel very good. I mean I think we do this, there is going to be some pressures and competitively I think it’s very strong and we’re dealing with the same pressure on ratings that the broader industry is and I think competitively sort of doing well.

Thanks a lot.

Thanks you Antony. Operator, next question please.

From the line of Jessica Reif Cohen with Bank of America, Merrill Lynch. Please go ahead.

Thanks. So my two question, two different ones. First one true[X], can you talk a little bit about how you best utilize that business to drive FOX’s advertising [indiscernible]? And the second question, can we go back to the currency impact, I mean I know you’ve just asked the question on acquisitions but given the strength of the dollar does it change at all your thinking about making acquisitions outside so does it change the way you might think about the buyback give the reset on fiscal ’16 guidance if there is - impact on stock price, would it make you accelerate, I mean how you are thinking about opportunistically the impact of currency.

So on - thanks Jessica, it’s James. true[X] okay it’s probably a little early you will see over the coming weeks and months some further kind of developments in terms of the closing of the true[X] transaction and how that and that is in the business. So we are excited about it and really for us it’s about investing and the capability around ad innovation that we can service in the company as it does service multiple clients in the industry but also I mean we have hopefully accelerate the rollout of new technology and some new ad products that we think. Really at the forefront of thinking around how you monetize digital viewership, how you monetize time shift to viewership. And as we see the steaming share of time shifted viewing continue to grow vis-à-vis DVRs, really you have to remember that we’re really just in the very, very foot hills in monetizing that viewership and that viewership is very, very larger to material percentage above what our life plus 3 or life plus 7 viewing is. So it’s really about monetizing the streaming environment and being able to accelerate with new ad product for other broadcasters as well as for our self, but there will be more on that going forward. Fundamentally it’s about the acquisition of capability within networks group and we think - we really think it can done overtime.

And I think on the Jessica, it’s John. I don’t think currency change that all changes our view on how we look at the buyback, we are as Chase indicated, we are scheduled the complete the current buyback again at the end of the year. I don’t think current markets where we are going to change our - add on our velocity is a buyback for the remainder of the year. And we’ll continue to look to invest in ourselves as change refer to and so be opportunistic around opportunities that come up but it’s - there is current plan to change the pace velocity or size of the current authorization.

Okay.

With respect to your question whether are not currency would change or view on M&A or strong dollar, I mean some of that - so at the end of the day I think we’re always going to be looking at opportunities around the quality of the business and there you know and how they really performing. And the currency overlay about is largely secondary.

Yeah, I think M&A in terms of currency I mean look at the health of the region in the market, I mean probably not currently look at. When you look at Europe, you obviously got up sort of have some degree of concerns about how Europe navigates the short term. I think certainly there is lot of international markets, we feel great about it, I mean Indian the case in point we still lot - I mean the development market broadly very excited about but clearly you got the what’s going on in countries and certainly we’ve encourage the issues we’ve had in this [indiscernible] a reflection of sort of broader economic issues. So I think we’d always take broader economic issues. Longer term broader economic issues into account in terms of evaluation where we were going to invest. Again though I think most of our investment so on repeated would be in the form of building business is not making large international acquisitions.

Thank you.

Operator, next question please.

It will come from the line of Richard Greenfield with BTIG. Please go ahead.

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 give the reduction full year guidance, can you just give us 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 number obviously pretty down pretty substantially at least for the broadcasts 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 of kind of a big picture question, I don’t know for all you. When you looked at the rational for the Time Warner acquisition attempt over the summer, it seem to us that direct-to-consumer business with all the content the combine 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 is make it that much important kid of revisit that transaction workout some form of relationship with, I am wondering just because both of you could both 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 and so I get the little more color on the second half of that. I mean there is averages common on the ad markets I guess that because inside of that. What is say sort of the ad markets is we look at him today. Nationally I guess they are they are okay, probably not you where we might hope, I think we came into this quarter hoping that be up probably a bit more renewed budgets in the like probably that quarter, feel the - probably like the fourth quarter, like the December quarter, maybe Shine, raise a light to give you a little hope. The national to be a little better but I guess it’s not as robust as we would have hoped in terms of a rebound but it’s okay. The upfront pricing is still a premium to describe. I mean discounted pricing is bring in to the upfront probably - so it’s okay, I would say the local market are 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 up. The market factors had a bigger hit. I guess what I - I guess as you look at sort of what to try a little more visibility to sort of the adjusted guidance I mean really there is sort of probably three buckets in aggregate that are sort changes from when we last look at it then it’s currency, it’s the broadcast business and the content as John touch on and they probably and about equal I mean sort of probably the better part of all these round numbers, better part of 100 million bucks in each. So I think we’ve talked about currency begin 100, I think broadcast and again the content which is a combination of Shine being clearly significant event and then to a lesser extent that releases that didn’t pay now. In the broadcast piece it’s sort of it’s a prior biggest rating it was, we already talked. In the first quarter, we know already it was short and to a large degree, our content upside offset the ratings shortfalls. Probably ratings are little bit worse but than our expectation in the quarter but that sort of 100 is probably a better rating. Sports as John touched on with a little soft I mean, our two big Conference Championship games will blowout the next the two biggest regular season games I mean John gave the - more clear all the knock panel, the panel was a touch behind and a big four clock games in the last quarter. So that - the 100 is up is a little bit and clearly is up station market and we’re expecting sort of it, and I think we talked about going into the year a lower single - we already expecting much we are sort of expecting a low single digit 1% to 2% market growth and probably looks like now a low to mid decline - no, low to mid decline percentage. You know we do a billion dollars in six months in that business, so if we get 5% swing 50 million bucks. So if you add the broadcast pieces up and say it’s 50 million bucks in a stations and 25 to 25 in the sports is the biggest begin collage - the collage games. And another piece of ratings on top of what really was largely we anticipated in the September quarter. You know there is sort of I will give you the pieces and the offset we’ve had in content went the other way what Shine being pulled and a couple of spectrum is not being what we thought to be. Oh Time Warner, we are not - I won’t give my moved on feel but we moved on. We - Time Warner was not a necessity for us and the issue we are facing today we feel excited about. I mean I think we have the what we a breath of a content that enables us to navigate the space, you talked about Netflix, I think from the get go, our approach to the SVOD space Netflix in particular and specifically the SVOD space in general has been to disciplined about it to make sure we participate in that business by hearing to sort of rules that first and foremost defend the value enable us continue to grow our core businesses which is the networks and make sure we are large our overall time and not cannibalizing our core business in an adverse way for the spend to the extent of short terms dollars. So we have been disciplined in terms of what we do. In reality, our recent SVOD have been actually with the Amazon and Google Plus, so I think that’s a positive that you got more competitive marketplace than you’ve had. But we will and will continue to ensure that we are not going to take actions that in a prioritize short term profits from a sale at the expense of the health of our long terms deficits. You know and I think we’ve been true to that up to date in these things and we will continue to ensure that we grow our overall business and that’s certainly the overall principle will stay true to as we develop the opportunities in the digital platforms. We think their real opportunities to develop you know ways to offer our product and know what exciting ways and we have to figure out what are the right models, you know for those, we are doing a lot of work on that we are obviously engaging with some third parties, we did announce, we concluded with [indiscernible] we are taking to others. But in all these cases, we’re going to ensure we things that enable us to grow our overall business not cannibalize it and we think we have the - as the franchises and the content that puts us in a leadership position to be must have content with essentially not everybody made somebody can grade a package that doesn’t have content in but I think our content at its core is content that really is central to the video business and we are confident in our ability to navigate that and to a short an exciting future for us.

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

Okay, thanks very much. I just had quick follow-up on your last answer Chase. Would the buckets being sort of equal contribution 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 readings 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 first on ’16 I say that I think we talked about currency number next being another approximately 200 million hit. Clearly the broadcast business goes 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 bit - look I think in the broadcast business where we are is 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 broadcasted business will be there but we’re not - we’re not in the growth, in the point the growth where we expect 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 onetime events, so there’s nothing - there’s nothing recurring about the content piece. And on the new ratings, look it’s all yeah we think - I’m going to make that measurement issue a scapegoat for all the issues. So I think there’s a valid issue, I don’t think - I don’t think we’re happy with the measurement tools that exist out there that strictly gets all this viewership can use to move in different places and we’re going to do everything we can to try and get a more accurate and - accurate and improved way, I mean ability to measure viewership and so we’re going to continue that pursuit, any opportunity to present us the ability to do it and there is well with Neilson and certainly we’ll continue to work with them but clearly we think there are issues in terms of the accuracy measurement. And the ability of our current measurement tool to keep up with really where the viewership’s going. I mean it is quarterly moving to places that really aren’t being, aren’t being captured and adequately measured today, so I think we have to be proactive without trying to find solutions.

Thank you.

Thanks David. Next question please.

That comes from the line of Vasily Karasyov with Sterne Agee. Please go ahead.

Thank you. I think my question is for James. James, now and then we hear this argument from investor that there is an oversupply of content out there because of both for scripted, entertainment and sports as a result of networks producing more COD 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 flow is in this over supply argument and if you think it’s even ever possible for it to be - to happen in one of the categories? Thank you.

Thanks very much for and then I’ll let Chase to take one of the answer as well but it’s - yeah, look 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’re 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 riders, the great talent to come and do incredible work and I think we’re very, very confident that creatively the teams across 20% Trifox companies can continue to execute. They’ve been executing very well but it’s not really a question of a 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 kind of 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 ride through and to try to get great people to do that.

Yeah, I mean guess and I think all I guess simplistically is what that’s not certainly an oversupply of its hit programming and that’s - that’s what it’s all about, it may be all is right but. Realistically there is an oversupply media for programming but it’s evolved and I think the real question is who is positioned and there’s a ton of product out there so it’s kind of competition, who’s positioned to the best position to create the hit programming tomorrow and who has the access and the breadth and the relationships and the scale. I think there’ll be winners and losers, I think the business you see today will not be what the business looks like in a few years and I do think there’ll be winners and losers and I think it’s a question of who’re going to be the winners, who’re those that were positioned to have the best opportunity and the best position to create the hits of tomorrow and we think we’re in a great place, so yeah I - and that’s our goal.

Thank you.

Thanks Vasily. Next question please, operator.

That comes from the line of Todd Juenger with Sanford Bernstein. Please go ahead.

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, basically 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% its but it’s sort of - the down cuts and that pretty much is, it’s pretty much in line with our expectations. I mean I’ve used the phrase franks, I use it again and we think whether it’s a combination of winding also the economic pressures at the margins that we’ve expected it and I think right now what we’re saying is pretty much in line with our expectations.

Thanks, Todd. Next question please.

That comes from the line of Marci Ryvicker with Wells Fargo. Please go ahead.

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 like 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 is what drives the subscription side of it. We’re navigating new arenas to create the terms of commerce for us between them. And so I think not surprisingly there’s - some of those get to be - conversations with some friction in them, 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 they’ve continued to find out - to work with and continue to and our goal is to - they need to find ways to work with them. So I think we’re - anytime you’re sort of navigating new business models and that’s been really in many ways what we’re doing with them. I think there’ll be some corrections as you work through it but our goal is to find something, our goal is to find a fair solution. We think our programming is valuable, we think it deserves to be - we deserve compensation for that programming and I recognized farers in the eyes of the holder but that’s what we’re looking and expecting to get. It’s fair compensation for our programming and that’s our goal is to better work that out with them. What was the second question?

SEC

The SEC is one - the incentive auctions, look I mean I think it’s fairly something we’re taking seriously we’re engaged in and give them some of the numbers to get to - some of the numbers to get through out around certainly pretty interesting. If you look at the auction it is just concluded and it’s certainly probably adds to that and so we don’t know enough, there’s stuff to 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 lot of spectrum, so I think we certainly fully, want to understand more with the opportunity there. There is certainly a number of signs, it could be interesting.

Thank you.

The next question please.

That come from the line of That come from the line of John Janedis - Jefferies LLC. Please go ahead.

Thanks. Just one please. Chase I think the growth at the domestic cable networks is not worthy in the backdrop of the broaden, you guys discussed around the ad market. And let me look into your next call, the markets going to be taking 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-emphasis the upfront process or maybe information given the backdrop the market is also changing?

No, I don’t think I mean, certainly I am sitting here , I cannot projects about the upfront but I don’t think sort of four months away from now you’ve been - you are going to have dramatically different approach that we have but we are currently taking how we are approaching the ad market, I mean it’s like touched on, we have restructures our entire ad sales organization at a many ways. The primary reason for doing that was to position us to deal with the world forward. I mean the Western calls that came out but the objective that’s the secondary consideration through those were just deficiency most. Our objective in reorganizing or restructuring the ad sales organization was to position us to deal with the world - the world we expect we can be in which again as viewership moving up license and advertisers not surprisingly what is the - wanting a lot of attribute of efficiency and effectiveness like come with additional platforms. We have to make sure we are positioned to take to manage, that’s all I think that’s a priority and I not sure in terms of what we doing it starting today not even the upfront, so the upfront is part of that process, but certainly the way we are approaching that impress the entire ad market is in a state of transition. I will say an additional well a lot of money is clear and life desire, I think one thing we hope to do and I think our concept because it’s so important it can help is it’s still unclear to what degree our advertise getting value out of the digital marketplace, in many ways they maybe what is R&D spending which probably has a logic to it. But you can see clearly in many place are they getting value for that’s better they chasing they are sort of goals in terms of attributes so that knowing whether they are getting the value for it. So I think only hope we add a dimension that sort of enables them to ensure about having content that really I think it’s a sweet spot that we are able to really deliver on the value that gets associate with those digital platforms.

Thanks John. Next question please operator.

Comes from [indiscernible] with FBR Capital Market. Please go ahead.

Thank you for taking the question. I wanted to ask about the dividend in the context of your comment earlier that you are over capitalize position, you 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 capitalize position, what are you feelings about maybe using more that for dividend 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 I don’t want to get too apart of the board in terms talking about plans or initiatives. I think what I really faced is just generally we have been clear we think reach on a capital to shareholder is an important part of our overall philosophy and 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 and I think we’ll discuss further what’s the balance between buy backs and dividends and 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 meeting next week and certainly we’ll continue to discuss 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.

And that will come from the line of Alexia Quadrani with JP Morgan. Please go ahead.

Thank you. Just a question on the broadcast network and in you earlier commented that reinvesting and helping to stabilize the broadcast business. I guess if you can give us some color of 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 you have in them?

Actually in the broadcast business we don’t really have make any issue in it. Again we probably don’t have - probably what affects is we don’t quite have the - the inventory we might have this for the scatter market, we are in the scatter market but from a makeup perspective we don’t really have anything that would be out of the ordinary course for us - want to make good. We have opportunity as the years goes along through various vehicles and events at times that drives, obviously we’re short in our ratings, so they’re not we expected, so we have to deal with that but we’re pretty good in dealing with that on an ongoing basis not letting it stock file and that’s certainly true to date where we are.

Thank you, very much.

Thank you, Alexia. At this time we like to conclude our call. Thank you everybody for joining us today. If you have any further questions, please call me. Thank you.

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