Q3 2019 Earnings Call
Good morning, and welcome to the New York Times Company's third quarter 2019 earnings Conference call.
All participants will be in listen only mode.
Should you need assistance. Please to know conference specialist start pressing the star K followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you know press Star then one under telephone keypad.
Try your question. Please press Star then true.
Please note this event is being recorded.
Oh now I turn the conference over to Harlan Toplitzky, Vice President Investor Relations. Please go ahead.
Thank you and welcome to the New York Times, Companys third quarter 2019 earnings conference call on the call today, we have Mark Thompson, President and Chief Executive Officer role in computer Executive Vice President and Chief Financial Officer, and Meredith Kopit, Levien Executive Vice President and Chief operating Officer.
But again I would like to remind you that management will make forward looking statements. During the course of this call and our actual results could differ materially.
The risks and uncertainties that could impact our business are included in our 2018 10-K.
In addition, our presentation will include non-GAAP financial measures and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors and White T. C. O M Dot com with that I will turn the call over to Mark Thompson. Thanks, Harlan I get good morning, everyone.
Well Q3, 29 team with all but at the third quarter up a new digital new subscriptions ended the fourth quarter in the history of all pay model.
Encouraging caught with the company's a hole.
We now have more than 3 million subscriptions to our digital news product.
Well, maybe in total digital subscriptions I'm, just under 5 million total subscriptions.
Also saw a number of other significant positive developments in the business, which I'll turn shortly.
We did slightly better than expected and digital advertising.
As we want you know law school people is gonna be challenging too.
Overall company revenue grew by 3%.
The 7% decline in mobile advertising revenue.
Yeah, we're talking to climb combined in content and digital product development investments meant that adjusted operating profit decreased from $54 million in 20 $18 million to $44 million.
Let me begin with the digital subscription story.
Overall, including MIT cooking and Crosswords, we added 273000 net new digital subscriptions in the quarter of which 209000, what's subscriptions to our core news for.
About 209000 was 46% more than the equivalent net adds in Q3, 2018, which were themselves more <unk> than the ads in Q3 27 C.
So, we're clearly seeing acceleration and all digital new subscription model.
What accounts for it.
Well first one of the lovely skews environments in he was can remember.
After a clock stops quarter, there was a dramatic pickup in the new cycle in the second half of August and September .
The volume and intend to these continues to present calls that I look set to persist into 2020 , which is itself of course an election year.
The weight and complexity of the stories impeachment Brexit Boeing and so on a play to the strength of Times' journalism and all growing capabilities and then for Grafix called costing video and now TV.
But as far most of the times the news and Coleman.
The 16, 19 project alignment reflection on political social and cultural impact of slavery on America.
If you haven't yet you should read it I listen to the boat cost.
[noise] outstanding Jones was doing more more paying customers to the New York times.
There's another factor at work as well, we're making major advances in our understanding oh and ability to optimize the use a journey towards subscription.
In recent calls is going to expertise or use of data.
The cooperation between all journalists and all digital product teams and a better testing platform given all subscription model fresh momentum and you've seen that you know subscription growth.
But in Q3, we also made a significant change to our pay model.
Most of them on the Hughes does not have to register on long into the New York Times, if they want to read more than a very limited number of stories.
It's much easier for us to encourage these logged in users to engage more deeply with all content and consider subscribing.
We certainly saw opposed to the spectrum is changing all net subscription adds during the quarter I.
And encouragingly changes not so far led to any appreciable loss of overall unique uses in other words, we've not seen an adverse impact on the top of Alpharma [noise].
A second promising development concerns the retention that those customers who joined on the but over a week introductory offer we launched in 2018.
It's still pretty early days just on 8000 dollar a week subscribes to reach that second bidding cycle after promotion exploration.
So far there retaining above our expectations, indeed, only fractionally less well then those cobalt who become I subscriptions on $2 a week office.
As a result overall churn was in line with recent courses another factor contributing to the high number of net adds in the quarter.
We successfully migrating is substantial portion or at least over a week subscribers directly to full price, while moving most of the others to intermediate price and keeping a small minority <unk> dollar a week.
We will continue to adjust these proportions as we learn more and get back that assessing payment and retention propensity subscriber by subscriber, but we're very satisfied with these early results.
It's also worth noting that we were able to achieve a record number of net new subscriptions, while holding marketing spend roughly flat with the second quarter.
In other words per subscription acquisition cost, so I'm, a lifetime value to subscription acquisition cost ratio improved in the quarter.
The organic strengths of our mobile journalistic quality product experience pricing and cost them. A journey did more of the work of subscription conversion and we needed relatively less paid marketing to deliver the overall results.
We also had another strong quarter of net adds for all too small a subscription products and Mikey cooking and cross woods.
As a result of that and the strength in the cool total digital only subscription revenue rose by a healthy 14, and Oh sense.
Not talked in recent earnings calls about a potential price rise for all core new subscription.
The success of our price rise test.
And all growing confidence in our ability to deliver discrete messages to different segments of our subscriber base.
That's convinced us that we can execute a price rise for 10 years subscribers with minimal risk of reducing new subscriber growth momentum.
I'm going to debut this morning, but what comedy firming up plans for such a price rise in 2020 .
Our increasing run rate to new subscriptions makes our goal of hitting the 10 million total subscription milestone by all before 2025 look well within reach.
Since we've announced the objective in February we won't be now how many of these subscriptions, we expect to come from outside the U.S. and I want to answer. This question. This morning.
Next we will be the seventh anniversary of my arrival of the times as CEO .
By the end of that those Coursa Q4, 2012, we had 51000 international digital subscribers to the times.
By Q3 hundred 19 that number has grown to 525000.
A tenfold increase.
We're finding growing demand for high quality serious journalism around the world.
We believe we can access this international market largely through the strength of our core news report and all growing capability and engagement AI assisted personalization and improving pricing and marketing strategies, rather than buying just taking a large scale buildout of local call centers around the world.
So we set ourselves the goal of quadrupling the number of subscribers outside of the U.S. to a total of 2 million or more by 2025.
We therefore expect 20% also about overall milestones stone of 10 million subscriptions to come from international customers.
Before I turn to advertising, let me mention another recent positive development with the times, namely the agreement we've reached some weeks ago State policy in Facebook news.
Facebook news is a new initiative within the broader Facebook experience that is intended to offer uses a curated selection of news from quality sources.
Under the agreement the new all time, who make its content available in the form of headlines very short summaries and links.
A small number of stories on the 1% to the whole will be unlocks a Facebook users can lead them in their entirety.
To do so just as with the other stories.
Not to move from Facebook to all digital assets.
Facebook new should bring new users to the times.
Consumption of the overwhelming majority of stores will incrementally pay me to.
Total subscription model.
But we chose to participate in the mobile only after we reached a multiyear agreement for a license fee, which is a step change compared to previous content deals.
The more important than the immediate financial benefits if the agreement is its strategic significance.
Although we previously received small payments for participation in various experiments and innovations launched by the digital different digital platforms. This is the first time, but instead of combating major has recognized the value of times' journalism to its platform with a substantial multiyear sea.
I will turn to advertising now.
Digital advertising fell by 5% year over year in Q Q3, as I said, a little less than we predicted I'm print advertising like 8%.
Main reasons for the decline on the digital side, where a tough comp with Q3 2018 and fewer large deals we achieved in that quarter.
We talked about this variability or lumpiness in the large scale deals before.
As you'll hear when rather than gives you the guidance. We expect this patent to continue into Q4.
We face need more daunting comp digital advertising grew in Q4 last year by 32% on a like for like basis.
With several individual common shifts, including one that brought to nearly $10 million not repeating.
We decided to consolidate influence the capabilities into phase Labar, a quad advertising agency and to close Hellosociety as a standalone business.
This will have some revenue impact in Q4.
Finally in an effort to protect our uses data we're controlling the usage of trucking pixels by appetizers agencies more stringently.
Over time, we believe this will be beneficial to our business as well as the times readers, but it too we'll have some impacting the quarter.
But we remain confident in our strategy in our ability to grow digital advertising revenue in future quarters.
Indeed in recent weeks, we read some of the largest commercial agreements on history, including a multiyear deal with Verizon to offer free access to the New York times to over 7 million students and teachers entitle one high schools across America.
This deal is in addition to our agreement with Verizon to support investment in Fiveg innovation in our newsroom.
We also believe that we have a big opportunity around first party data.
On your digital access model means that we're going to spend far more about millions of almost engaged users and we'll be able to tailor advertising messages to the more effectively in ways that rely on this first party data.
I mean have lots of running room in 40 of the daily is amongst the hit with an astonishing really valuable audiences and it just continues to grow.
We're also advancing our plans to expand on crazy capabilities audiences and inventory and this promising category.
At the same time to the possibly as we've described the cells as a subscription first company.
And where there was a trade off to be maybe has been engaged user experience on a media advertising revenue, we will increasingly favor the subscription side.
Let's take mobile apps on iOS and Android apps on the digital services that drive of the hot dry the highest well use the consumption about journalism.
We've just started at the beginning January 20 to 20.
Effort to improve low time, and the overall user experience, we will no longer present open market programmatic advertising within these apps that will result in the loss of digital advertising revenue in the single digit millions, but we believe this will be more than made up by gains in engagement at a high propensity by app users, but to subscribe and retail.
Right.
Taking the quarter as a whole Q3 29 team suggested not just at all strategic thesis is working but it is scalable far beyond the traditional expectations of news industry.
We pulled a big new grossly LIBOR. This summer with all registration model, but believe we have many further leave is still to pool.
And on mountain that let me hand, you over to Roland who is more of the details behind the drivers of the quarter.
Mark and good morning, everyone as Mark said, we remain pleased with the progress we are making as we continue to execute against our strategy.
Adjusted diluted earnings per share was 12 cents in the quarter three cents lower than the prior year.
Reported adjusted operating profit of approximately $44 million in the third quarter, which is lower compared with the same period in 2018 by approximately $10 million.
Total subscription revenues increased approximately 4% in the quarter with digital only subscription revenue growing 14% to $116 million on the print subscription side revenues were down 3.3% due to declines in the number of home delivery subscriptions continued shift subscribers moving through west free.
And therefore less expensive delivery packages as well as a decline in single copy sales.
This decrease in print subscription revenues was partially offset by a home delivery price increase that was implemented early in the year.
Total daily circulation declined 9.1% in the quarter compared to prior year on Sunday circulation declined 7.9%.
At the end of August the Starbucks retail chain just continue the distribution of all newspapers, including the New York Times at its corporate owned locations. This had a meaningful impact on copies accounted for approximately one percentage point of the declines subscription revenue was immaterial impacted by the loss of this distribution channel.
Quarterly digital news subscription ARPU declined approximately 11% compared to the prior year and approximately 3% compared to the prior quarter as the impact from the large number of newly acquired subscribers, mostly on the dollar we promotion was significantly larger than the benefit from existing subscribers who is promotional offer.
Ended and graduated to higher prices during the period.
This quarter also included the conclusion of the 52 week promotional period for the first dollar per week cohort, who subscriptions began late August and September of 2018, as Mark said, we're very happy with their attention. We're seeing from the first cohort has now passed their second post promotion billing cycle. While many of these subscribers were stepped up to.
Full price a portion of this cohort were stepped up to an intermediate price, providing a somewhat smaller benefit on ARPU than would otherwise have been realized.
The proportion of subscribers on promotion relative to the total subscriber base continues to grow given the success, we're experiencing in retaining new subscribers beyond their their initial promotional period either at full price for an intermediate step up price. We plan to continue to use the low introductory price to acquire long retaining.
Profitable subscribers.
As such we expect downward pressure on ARPU to continue into 2020 weeks, we expect both year over year end to sequential declines in our come to moderate somewhat a subsequent cohorts of new subscribers graduate from the dollar per week introductory offer to higher prices.
Total advertising revenue declined approximately 7% compared with the prior year with digital advertising declining, 5% and print declined by 8%.
The decrease in digital advertising revenue was largely driven by decline in our core direct sold platforms, partially offset by continued growth in podcast.
The print advertising result was mainly due to declines in the financial services home furnishings and luxury categories, partially offset by growth in the advocacy category.
Other revenues grew 26% compared with the prior year to $48 million, principally driven by revenue associated with our television series the weekly which aired eight new episodes in the quarter.
When we laid out our goal is at least 10 million subscribers by subscriptions by 2025, we noted that achievement of this milestone we require investment specifically in three areas journalism product and marketing the growth in GAAP operating costs and adjusted operating costs, which each increased approximately 5.5% in the core.
There was directly related to accelerating the rate of subscription growth towards that goal specifically costs grew as a result that increased content costs, reflecting both higher staffing the newsroom as well as production costs related to the weekly growth.
Growth in a number of employees working in digital product development also drove costs higher.
We're particularly pleased that we were able to incur a slightly lower marketing spend in the quarter at the same time that subscription subscription net additions were so strong.
Can you invested in content and product should allow us to moderate marketing spending over time, while continuing to grow digital subscriptions unabated.
While the cost guidance, we provided in our earnings release. This morning States that we expect cost growth to slow considerably in the fourth quarter no. We expect to return to higher levels investment in subsequent quarters.
We recorded two special items in the quarter, a $4 million charge related to our restructuring and a 2 million dollar gain from a multi employer pension plan liability adjustment.
Our effective tax rate for the third quarter was 27% on a going forward basis, we expect our tax rate to be approximately 26% on every dollar of marginal income we record with some variability around the quarterly effective rate.
Due in large part your tax benefit we received in first quarter of 2019, we expect the effective tax rate for full year 2019 to beat in the high teens.
Moving to the balance sheet, our cash and marketable securities balance increased during the quarter ending at $878 million.
Total debt, which is now entirely related to the sale leaseback of our headquarters building and which we intend to repay in December 2019, with approximately $246 million.
In the quarter, we entered into a $250 million revolving credit facility, our strong balance sheet and an accommodating credit market provided an opportunity to lock in favorable terms now for source of liquidity should the knees or need arises in the future.
Let me conclude with our outlook for the fourth quarter of 2019.
Total subscription revenues are expected to increased in the low to mid single digits compared with the fourth quarter of 2018 with digital only subscription revenue expected to increase in the mid teens.
Overall advertising revenues and digital advertising revenues are expected to decrease in the mid teens compared with the fourth quarter of 2018.
Other revenues are expected to increase approximately 25% to 30% largely due to our television series the weekly and licensing revenue from the recently announced Facebook News agreement.
Operating costs and adjusted operating costs are expected to increase in the low single digits compared with the fourth quarter of 2018, but as I mentioned earlier are expected to return to higher levels in 2020, as we continue to invest in the drivers of digital subscription growth.
And with that we'd be happy to open it up to questions.
Yes. Thank you well then I'll begin the question and answer session.
To ask a question you had press Star then one under Touchtone phone.
You are using speakerphone, please pick up your handset before passing the keys to try your question. Please press Star then to this time, we'll pause momentarily to assemble the roster.
And the first question comes from Alexia Quadrani with JP Morgan.
Hi, Thank you very much just a couple of questions.
Mark Thanks for all the color on on the subscription growth in your comments and the drivers behind that is very helpful.
You mentioned, the you know that that new cycle has been elevate and as a consumer appeal Cafe appears to me that elevated news cycle has continued into the fourth quarter. I'm curious if you would agree with that statement in terms of thinking broadly about you know date drivers of growth in the in the fourth quarter.
And then and Roland you talked about the national moderation in ARPU going forward not drivers behind that I'm. Just wondering if we can begin to see some evidence about leveling off in the fourth quarter.
Good morning, good morning Alexia.
Well I mean, the well well I think about the new side because it does is supposed to be if you look back over over recent quarters.
We've seen different levels of Oh, Oh open use right now.
We're seeing a lot or both.
Very significant running domestic stores the impeachment process the runners and Rod is.
Democrat side in terms of presidential candidates.
So on and some pretty big international stores as well.
But.
I want to say the over the last let's say.
Two three years, we've seen.
Really very strong numbers coming out of our multiple and a background ticking up of of the numbers of of of menu subscribes, we've been able to add to our news product, which is kind of pressed on.
In a sense to different levels and Didnt intensities of you. So although I think we are heading it would appear you comps heading it would appear into a very very busy news.
Period, and as I said in my remarks.
My sense.
Before John noted to myself is this is going to blur into the election, yet we're not that far away from Iowa currently starts the primaries process and so forth.
I don't think all model by any means and the growth we're seeing entirely relies on news I think we've demonstrated.
Great broad appeal for the times.
National appeal for the times and I think the underlying celleration, he's not solely dependent on when you cycle.
So regarding the ARPU I think these two questions are linked and we expect to continue to acquire large numbers of new subscribers in the future.
And again.
As I mentioned, we plan to continue the dollar we promotional offer it because we believe it is working really well for the company and so as that happens the number of subscribers. We bring on is expected to be much higher than the number of folks that are transitioning to higher prices in the and mathematical result of that.
That is is pressure on ARPU.
However, as I mentioned before we believe that that decline will begin to moderate as more and more folks step up from that dollar week to higher prices and also as Mark mentioned, we are planning rollout of.
Price increase to tenured on.
Subscriber sometime in 2020 and that will also take some pressure off ARPU.
And then just a follow up a clarification. Thank Robin you said higher levels of investment in subsequent quarters.
Cost you know is that versus Q4, where switch more moderate or versus full year 2019, I am assuming it means it's going to be costs increased the lower in Q4, but then kind of get back to elevated levels. In 2020, yes. So it's still it's the latter that the comment was relative to Q4, which is going to be a low.
Every loan growth.
Yes, if I can just add.
And you should have lean is from from what rather than I said.
Our views with building a.
A machine both journalist journalistic machine and digital products machine.
Which is scalable.
We do take.
Significant comfort from the.
While we were able in Q3 to drive the numbers of of new subscribers without increasing.
Marketing costs from Q2, so you can begin to see that.
At least one part of the improving operating leverage, which we think our mobile will give us what wed.
Obviously very focused on building.
Hey products in the set of capabilities, which enables us to continue to significantly scale, a number of subscribers, but would be.
Over time the growth of.
Costs beginning to.
Kind of the gap between the costs and they on the revenue progressively widening for mobile as a mobile styles.
Thank you very much.
Thank you and the next question comes from Wassa cause job with Cannonball research.
Good morning, congratulations on a good quarter.
One that asking this question early in the Yeah, you were talking and about a increased focus on driving subscriber starts with a product organically rather than paid starts. So I was wondering if you could give us an update how would that progress than in Q3, and how you use that for.
Different for different cohorts of subscribers and the second part of the question Roland can you help us understand and what detail the impact on the P. and now have paid starts the rest that's organic is it just as simple as moving between marketing expense on production costs. So I'll, let maris start.
Then I'll follow yeah, good morning, and the <unk> the simple answer to the first part of your question and is yes, I think what we've just seen in Q3.
And our thesis and the product to self dealing more work to get people to make a high that with US and then ultimately pay and today, it's working any marketing role than just alluded to the fact that.
Our incentive.
Thanks.
All that we.
At a higher percentage it starts coming just from the organic engine. So I think thats really beginning to work I'll say there there were.
Okay, three major changes that we've been working on for some time that began to land in the first quarter on the first one.
Was let mark described that.
And the pay model change, where we now have the majority of people coming to us.
Encouraged to register and log in and get treated more than a small number story.
There one is for beginning to feel the effects.
Restructure in our digital product segmentation that we get a year ago. I think is just bearing fruit now this is just allowing us to.
Frankly to advance our digital products after more effectively.
More testing more experimentation and then last thing or is.
The product experience.
The way.
People follow stories engagements.
I understand you know what is bring what is a brand new story what is an exclusive story, we're getting much better at how how we gave at between products News and I think we're just beginning.
So regarding how that shows up in the P. and now I want to point out because this probably two dimensions to this.
One is kind of the simple dimension, which is as we scale back on marketing cost and we continue to invest in our newsroom and we increased our investment in digital product development, you'll see some switch.
From costs that currently show up in ESG today to be much more heavily weighted to production.
But the real difference.
That really is going to affect our pan out for years is that marketing direct marketing expense and to drive starts in the in the period that you spend the money.
Investment in product and and journalism.
Dr. starts for multiple periods as we make the journalism better there's more journalism as we have a better digital manifestation of that journalism as we have better business rolls on access model around that journalism. We believe that will that will drive starts for many periods to come and so if you think about the three areas, we repeatedly talked about investing in.
Which is the journalism digital product in the marketing we've also talked about.
The gearing of how we would grow those areas changing over time, and we believe we're starting to cycle out of a high growth period of time for marketing and ramping into a higher growth period of time for our product a digital product development with a continual investment in our and our journalism.
Thank you.
Thank you and your next question comes from Craig Huber with Huber Research partners.
Yes. Good morning, Mark you mentioned early in your prepared remarks that the new cycle was significantly higher I guess, the second half will focus and into September did you see a commensurate pickup in your digital.
Subscription growth.
Great versus say the first half the quarter when does.
Sure and perhaps going through it was worth saying first of all the the idea that you have a relatively quiet kind of early summer.
With that kind of back to school intensification of news.
As you as you head cost of Midlevel was that's I would say business, there's some seasonality about it.
Which which is.
Those two is particularly shop this year and I want to say the was a pickup.
We won't disclose numbers, but it wasn't something of a pickup over the course that I also want to say that we.
We talked about this change in the access model lot kicked in.
Pretty much of the beginning of July .
Hi, Hi to some weeks before it's kind of get up and inspects became really really a parent and eight so we haven't done the detailed analysis to try and separate and two factors there was a second.
We think with that change.
Also built real momentum in the model as we went through the quarter. So there's two factors states I'd say.
It's worth saying on the second one.
Getting people to register and log in return is a long term engagement strategy. So we are building a population of people too.
It will convert.
I'm curious.
Which is.
Happy to see happening so it's not just sat at the point in friction my thereafter to register in log in that they can burn. It is all said that they begin to engage we are more effective engaging them when they register in London and return and then they convert.
Period of time, so there's an assumption that gets better effort.
It is worth adding the another benefit is that we can track between devices.
Because I logging on to different devices weekend, we can see cross device use.
And we were quite Kathy tracking how these cohorts who arrived on this is tracking I want to say was still saying.
Positive effects from the cohorts who.
Registered low don't back at the beginning of July was still say Mount months later.
Bassett coefficients as it were in terms of that virtues behaviors.
The subscribe sample for those cohorts.
Many many weeks later so the older. This stuff is encouraging from on.
Next question about the pay wall is it still five free articles.
I will throw in the U.S., both international and how do you sort of thinking that going forward.
It's actually dynamic now that were essentially experimentation in training model.
To get at what is for right cocktail and.
And engagement for to get somebody to ultimately pains day.
And so depending on what your journey in how you come to US like your your prior behavior with US was you'll you'll see a different number of articles, but it's basically now varying between side.
But depending my journey take.
You may see different number.
And maybe also just decline we just talked about so your outlook for marketing spend you've talked in the past about it's getting more and more efficient Mike are you sort of reaching a ceiling here in terms how much you could spend where it's not helping you as much if you add another say five or $10 million to it.
I think Roland basically answer this question and I'll just say.
We're very pleased in this quarter to see improvement and the organic engine.
Ability to try to start I think and I think over the long haul.
As mechanisms refining operating leverage but.
We don't roll out that there will be period, where we'll want to spend more and I don't just tell you. We've now seen this as one of them, but when we see opportunities to spend kind of into demand that that has positive effect on the model. So I wouldn't say, yes, I wouldn't call it a trend yet, but I think.
For the long haul like you've been hearing that say repeatedly is that plan is to get the product itself, which is you asked on the journalism to do Mark to Mark It's also worth saying that.
As you look at that Nick spend in marketing wanted the things that really pleasing is.
We were making on where we're still making our way funnel and Roland said earlier, yes, sorry investment in digital products work in journalism.
Our work and pays off.
In big ways, there for a long period of time I would say theme of brand work. So it's a more that we can shift spend that we have.
Middle and upper funnel work on work I think engage brand work getting people to think or feel in particular way not the times that is an investment in the long term health business and we're talking on lifetime value subscriber acquisition cost ratios very very closely.
Yes, we're getting better.
Projecting lifetime value on the reasons. We're so pleased about the early news on retention of the dollar week customers is that not so solidifies our view about lifetime value as most says what we think we can economically sensibly span the the the variable direct marketing.
Cost to get as far as we will do we're encouraged that we we see some weeks not where we've been able to get great numbers without having to go up as much money it.
Hey, guys as it is at five to 10 free articles across all devices, because like you obviously moving towards full asking people to register before the access to content such as in five to 10 free articles across all devices out there as opposed to per browser per device like has been historically.
So just just to clarify or when I said five to 10, we're talking about how many stories you get after you Register so not a may differ if you're not enough you basically after one story now you have to register and login to get more and then what we're doing is training a model to understand based on your.
Your particular journey, what's the right number of articles after you Register in log energy that gets you to engagement and ultimately to page.
And my final question, if I could.
Sure the size of the newsroom the.
The safety ended this year or right now versus where it started the year out obviously you guys when.
Increased that outside the U.S., you've talked about Australia, and Canada, but maybe just flush that level does thank you. Yes. So let me go go first Mezz may want to add to this as well I mean, the beat the the the question of how big a new too.
You need there are many many factors the planes that this is ultimately a board.
Publish on board decision.
And you know at one of the main things. We look at is what does it take to cover a really complex whoa better than anyone else and deliver the best journalism in the world.
And so this is not purely as you weren't a near term economic question.
What I want to size, we do not believe we're going to have scale newsroom costs for as you work endlessly two to continue to feed subscriber growth we think that.
For example, the international target, we we talked about I said earlier, we have to quadruple the number of.
International subscribers by the mid 22 inch twentys from half a million to 2 million or more.
We don't believe that we're going to have two as well populate into will win.
We already have.
Over 30 annual Tom's bureaus around the world. We do not believe we're going to have to massively scale that kind of on the ground journalism to achieve those numbers were going to do it.
Super area.
Uh Huh personalization and focus on on subscribers net propensity to subscribe and by improving pricing in marketing tactics in China. So I'd say, it's indices no. It's rather unlike for example, the.
Touching stream as you do.
Tend to find they need significant local scripted content to two to drive subscriptions and then give market. So so this is another area, where we think as it will weaken we can achieve if you think of the newsprint costs relative to the to revenue. So we can achieve over time, improving operating leverage I want to say, though.
Times wants to remain the best news provided in the world and where we need to put more boots on the ground anywhere on any area to choose that we we you know our model basically as you invest in great journalism and from that great journalism, the rest of the of.
Yes, the entire kind of business strategy of the company in the appeal to subscribers flows from the quality of the journalism I think thats right and I would just say I think we've gotten to where we all her because the continued investment in journalism. Nevertheless, yet very long long period of time said when we talk about the pro.
Product itself, becoming.
The primary Amgen and improving Amgen of getting people to make a daily habit with us and ultimately become subscribers and stay subscribers. We assume continued investment in our journey.
And continued investment in additional product experience and that's where we're focusing that investment I think if you look at across the portfolio.
We've made a sizable investment in our journalism in audio and now that's really paid off and I think.
Yes.
That's invest across the breadth of topics.
New product.
I'm, sorry, I appreciate that where does that put the total newsroom size, though.
Thank you.
We found Jim.
Guidance on on that I mean were currently around.
Around the 1700 Mark.
Andrew.
Calmly adds up his remarks.
Okay. Thank you.
Thank you and then, especially I guess on John button with Evercore.
Thanks, Ive two questions first on Facebook is can you just talk a little bit more about the decision to participate in that product and maybe compare and contrast that decision with the one ultimately not to participate in Apple news plus and on Fist partners as well you mentioned, a multiyear license fee here, where the agreement of any impact on opposite.
Just going forward my second questions for Roland.
On the balance sheet.
Any update on plans on what to do with the maturation of the sale leaseback agreement.
And how do you think about the optimal capital structure going forward. Thank you.
Oh, Okay. The first one John .
We decided to participate because we saw this as.
As mark alluded to in his remarks.
Hey, David.
Substantial increase in what we've seen from a platform.
Right.
To use New York times content, though I think that the amount of money Facebook was willing to commit to.
Represented a step change in what we've seen from platform before.
That makes sense and then I would say second lien, it's really important status.
It was consistent with our business model and driving subscriptions via direct relationship. So what Facebook is ultimately getting from US is largely link and short summaries that some people back to Iraq and operating platforms that we think that's ultimately good for our top and the funnel.
Helps drive business model that we have asked a cost which I think as but your second question is about the answer is no.
Got it so John a as you know when we.
In essence buyback that.
Our condo in interest in the building.
We'll be debt free at that point.
In essence on the revolving credit facility on one way to look at it is is replacing the liquidity that we lose with the completion of that transaction. However, none of that really changes.
Our outlook, our current outlook, which is that.
I'm, having a conservative balance sheet has served us very well in an industry that's in transition.
In a company that's entrant in transition and.
Really focusing on having maximum flexibility to invest when we want and how we want independent of the vagaries of the industry, where the vagaries in the marketplace. We believe is important to the long term share value for all shareholders because were still in a period, where we believe this.
Tony of opportunity as we continue to invest in the drivers of growth and the drivers of our growth strategy.
So you know being lower repetitive here, but we still think there's plenty of room to to invest organically. We continue to look for potential small to mid sized acquisitions, all which would be in service of our growth strategy.
So for now really not a change.
Okay.
Understood. Thank you.
Thank you and the next question comes from Doug Arthur US Huber Research partners.
Yeah. Thanks couple of questions.
Meredith can you just update us on your.
Progress in the podcasting product and also in terms of the weekly do you feel that you're getting some leverage off the weekly in terms of new subscribers to digital.
And second question, Yeah, I'll start on a weekly I'm just say, we have always envisioned it should be.
Very good marketing tool for the times in addition, everything else though.
One big story at a time.
Certainly and it's bringing times' journalism, and very deep reporting into hands that would probably burning before being part of our choice with FX and live in combination. So I would say broadly yeah spring, it's bringing new audiences.
New York Times on audio the.
Maybe you can back in and ask the question again, I think you're asking sort of where do we see running Ram and I would say and it everywhere and Mark Mark kind of this in his remarks daily audience continues to grow we didn't see that moderating anyway. So as.
The audience growth is.
As the audience CREZ the AD business grows and now that's happening in a really nice correct.
The daily is also serving as a great distribution mechanism for new programs. So.
Only with basically the parent 16 19.
Which I think for hi.
Into maybe sticks at this point 16 19.
Huge had launched into the speed of the daily I think it immediately when has launched into feed to the daily because it was so good.
Immediately went to the top end charts as far as as I listen to Cod cast so.
It's yard Tritton audio strategy, having the daily as an and blood tests and other things out World is really working and I would say and I alluded to this before we're continuing to invest pretty aggressively into our audience through and we have an expectation that we will put more product into the.
World as we do have been 16 19.
With that I'd, a nice ran I think you in the near term very good for our AD business Theres a lot of beyond for high quality audio and I think in the short medium and long term I think that will stimulate or something.
In in direct and indirect way.
Okay, great. Thank you and then Roland I'm wondering in terms of your cost guidance, obviously, it's very preliminary.
For 2020, I mean, you you sort of alluded to the flexibility to step up marketing costs, if theres an opportunity obviously, you're going to continue to invest in content. I mean is it and the the reference to 2020 costs is made off for the fourth quarter.
God. So can we sort of think at this point of sort of mid single digit costs growth across the board or is that is it too early to say that.
Well I mean, we are in our tradition is not to guide pass the quarter.
But but not not not to directly give guidance, but back on that on the marketing question. Most of this was about discussing the.
Lower.
Cost guidance for Q4 than we than we've had previous in previous quarters, and we don't think that's going to continue.
Typically on the marketing on the direct side, we believe the efficiency of of our machine here is getting better and that will require less marketing dollars to bring in the same amount of subs. However, Meredith touched on this the brand aspect of marketing I mean, we will we will keep the option open that when there are when there are.
Opportunities that we believe that an injection of brand spend will be beneficial to the to the top of funnel and therefore, the long term growth for the company, where we're going to do that.
But all said back to back to the three areas of investment what we see as a bit of a pivot from investing in marketing to a much more of a heavy up on our investment in.
Digital product development. So you can triangulate among amongst those numbers and see where we'll continue to spend and investing in in the growth.
In 2020.
Okay, Great and there's just a follow up on the other <unk> on the audio can it are there any sort of.
Subscriber numbers or do you any numbers you can you can give us in terms of any new benchmarks you've hit their Oh say, Oh phase three things about it.
I don't remember, but we crossed 1 billion down.
We feel publicly about I think regularly now more than 2 million.
Yes.
Villages of Guy and I think now something like 12, and a half million.
So over a month and and and you'll know Craig that the women's is interesting and exciting about the Davies the demographics Recourses. This audience is 40 years old or younger 40, 45%.
Although younger so.
In terms of as wonderful to health of all about Brian and I know funnel.
Bringing in a large number of of millennials, who are typically completing the show which means 2020 minutes.
At the moment.
Often on I tunes, all Spotify, but on a smartphone so engagement of 20 minutes will move by millennials on a small into a serious journalistic product is.
Anyone in the World is doing that yes, and it's a really exciting.
The only other thing I'll add I shouldn't say, France from our marketing effort. Thanks.
We really like the audio ads that we're running on for end products essentially to drive.
Inside the daily so they're generally our journalists talking about how they do their work and those are having a very positive.
And you can expect it yes get more of them.
Super Thank you.
Thank you and that's what's kind of Kannan venkateshwar with Barclays.
Thank you.
First I just wanted to get a clarification on the international numbers that you guys provided the 500000 subs.
But if I'm not wrong last quarter, you had mentioned 16% of your total subs that international.
Which would imply you definitely about 570, and I know promotions rolled off internationally as well. So just wanted to make sure you're looking at apples to apples when I look at the 16% of <unk> of total some number last quarter was that the 500.
That you guys quoted this quarter.
And then I have a couple others yeah Hello.
I, Yeah, I, it's fixed it I think extended 16% news substandard forget we've got cooking crossword your numbers as well.
Okay. So the answer is interest.
So I guess you know from a credit perspective is it fair to say that you guys are growing despite the promotions rolling off internationally. That's the clarification I just wanted to get yes, yes, okay.
Okay, and then second Guy.
As you go that those point, which is when talking about hoplamazian of around 333, 3 million, which is I mean, my mental maps said, that's about 16% as opposed to the high number which is includes crosswords and cooking.
Sure sure yet.
Thanks for that and you know secondly from guidance perspective for the next quarter.
What I wanted to understand was obviously you know there's this promotional roll off coming and you guys are expecting it and obviously you have a plan to deal with it so.
In terms of.
Assumptions for revenue growth next quarter as well as you know how you guys are thinking about sub growth.
If you would just help us think through the variables and whether you know you expect numbers in Q4, two replicated the strengths that we saw in Q3.
And related to that I guess is when you look at this door little weak promotion. Obviously, it's you know it's been a vote closely you days with left theater. So.
How is the yield on that send it over time as that promotion has matured you attracting the same number of subs that you did initially or.
Has that you still funny, but as it matured.
I think I'll take a stab at the first one enrolling and May add Simon and take the second one just on the drivers of that there's not much of that but I think you're asking about how how should we think.
About future orders and particularly in the next quarter I think it goes back to something Thats best Mark and I said, which as you know we're beginning to.
Built a flywheel here, which is essentially and can we continued to had a large anonymous audience and I think there's new cycle and not I think theres also or inability to stimulate things like like search and social promotions.
We got that audience.
Through the application of friction or in some cases, the ease of friction sound, we get them to become a registered user of the New York times. Once we've done that can reject them to log in return and log in and until we can work. So I think that answers. The question of how should we think about.
The numbers going that were not the model yep.
Thanks by as much it's module submissions from even firstly if positive. Your question can resolve we are we as it were seeing off of fatigue.
In other was an initial an offer was initially attractiveness is.
Is beginning to wane in its attractiveness. The entre is absolutely no. There's no. There's no evidence a tool on the contrary I think there's some evidence.
Discovering about it and we're getting you you subscribers because of the off the other thing the Mexican space. There is some complexity that because obviously, what we've now done as we changed part of that you almost have to pay model I'm not interacting with the numbers as well as the simple office. So we continued our as we'd have to have them now.
For some some years had parts of the in the month when we all want a higher price unpopular month, where we're on a lower price and typically the low prices that total week off that's continued but we also now go to a much much larger and rapidly growing cohort are registered logged in users who were able to interact with.
More effectively and get hot conversion from so there's a lot going in the model, but but.
The and asked for yield what I want to say is the the we've said.
Does the dollar we summarize what through that first year retained I'm very much in line with previous cohorts is no different than that retention clearly really important question has been how well would they retain when you.
I get to a point, where that being asked to pay a higher price and I don't want to do the remarks, we made in a in bone and and mice.
Scripts at the beginning of is cool, but to say the initial signs are very encouraging I mean, we'll know more is.
As as we go through some more months and see more of these guys going going through but I would say in terms of what the ultimate yield from from these subscribers is going to tend to be which is a mixture of obviously.
Price and retention.
I would say the signs of are encouraging.
Yes.
The only thing I would well I'd add is where this all comes together between the number of folks we have signing up their retention rates, how they ultimately step up and all the other moving parts of the percentage of international if you go back to our guidance for the fourth quarter, we're saying we believe we can grow that digital subscription revenue in the.
Mid teens once again off a bigger base so when that all comes together.
We're still growing the revenue and we're growing yet without it without that percentage increase reducing.
Got it and one last question, which is.
Under the New York Subs I mean, how are you guys thinking about what 10 yards have actually is what percentage of your base is that and.
How you're thinking about that process of stepping up as a gradual is that is there some kind of a product change in order to implement that if you could just help us think through yeah.
We we want to say much about that but I was just pay time engagements that I've been with US long time, the that's predictor and someone's retention is how long they've been a subscriber have they been with its long time how gauge.
Okay, but any sense you can give us on what how big that basis.
I didn't think we want to do that Ken I mean, I want to say our assumptions.
A pretty commonsensical, we're talking about people who've been subscribes, but.
A long time, and we call arguably nearly 170 years of experience with a certain parts of the subscriber we know that beyond the beyond a certain point.
Subscribers retain very very well.
Okay.
Thank you.
Thank you and this concludes our question answer session I'd like to turn the conference back over to himself Husky for any closing comments.
Thank you dropped for joining us. This morning, we look forward to talking to again next quarter.
Thank you. The conference has now concluded. Thank unfortunately in today's presentation not a centralized.