Question-and-Answer Session
Operator
Thank you. (Operator Instructions) We will take our first question from Michael Savner - Banc of America.
Michael Savner - Banc of America
Hi, good morning. Thanks. A couple of questions. First, Christie on the domestic TV, a few questions on pricing and margins. First, just to confirm that the huge drop in direct and satellite households in second quarter -- that all represents the loss of the two channels on DirecTV, correct? That should be mostly a one-time issue, or could we expect to see that continuing?
Second, there seems to be some significant pricing pressures implied in forward guidance on domestic TV. Your comments just now were mostly focused on lower buy rates on VOD. Can you talk about the difference between what you're seeing there? Are you also going to be expecting a decline in your economics, and that’s why margins aren’t improving and that’s why revenue is declining more dramatically year-over-year? Or is that simply a function of buy rates? I’m sorry that’s all one big question.
The second question is, really unfortunately the same question we asked you last quarter, and that’s about the transparency of your business in the way you're approaching your guidance. Because aside from your guidance last quarter, you had made some comments in late June, that you were comfortable with the business drivers that were in place for the second half of the year. You had that opportunity two weeks ago when you disclosed the details about the cost-cutting initiatives to address guidance then; which had been for 50% earnings growth in the second half of the year. Now you are talking about a 70% decline. This 70% cut to your guidance.
How much of that could have been foreseen, and why does there seem to be such a huge gap in the transparency in what's being communicated to the shareholders? Thanks.
Christie Hefner
Thank you, Mike. Starting with your first quarter, yes, the decline is solely attributable to the loss of exclusivity on DirecTV, so that will be the base going forward.
On your second question, in terms of margins, yes, there has been some squeezing on margins in the negotiations with distributors which is an ongoing challenge for all programmers, but the biggest issue in terms of margins is that there is no real offsetting cost savings when revenues are off. Therefore, the overall margin of the business suffers greatly with the loss of revenues from the DirecTV platform and the lower revenues on cable.
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