The New York Times Company (NYT) Earnings Call Transcript & Summary

I think we'll get started. It's Alexia Quadrani, the media analyst here at JPMorgan, and we're -- I want to welcome everybody to JPMorgan's TMT conference. We are thrilled to have Mark Thompson here with us today, the President and CEO of New York Times. Mark has directed the company's strategy, presiding over an expansion of its digital and global operations. Under his leadership, digital subscriptions have grown from 500,000 to more than 5 million. And the company's set a goal to reach 10 million total subscribers by 2025. The Times has successfully expanded into other digital products like Cooking and Crosswords, has launched one of the world's most successful podcasts and recently promoted The Weekly, a new TV news program with FX and Hulu. Thank you so much, Mark, for joining us today.

Hi, Alexia. Hi.

Why we don't start off on what everybody is mostly focused on, which is the impressive amount of new subscribers, digital subscribers that we have seen in the recent quarter in this heightened news environment really, really frankly for the last few years? I guess any sense if they are new readers of New York Times? Or were they folks that were reading it on a casual basis that just were compelled to sort of convert more recently given the heightened news cycle?

So I think the answer is there's going to be quite a lot of both. I mean this is one of those periods where -- I mean, despite the fact that this is an absolutely horrible disease, it's a terrible event in many ways, as quite often happens with very big news stories, there's a very big, very big audience reaction. And we look at these packs of information about the audience, I mean 50, 60 pages, that isn't a bad number there sort of thing. But at every level, we're expanding our audience. We reached more than 1 in 2 U.S. adults, 163 million uniques according to ComScore in the U.S., and 240 million, our own modeling suggests, globally in the month of March. These are by far the biggest audiences in the history of the company, 170-year history of the company. And some anonymous users, some of the lighter users became subscribers. And I'm sure some of those people are people who pretty much never came to The Times before. But I'm sure that many, many people who became subscribers were people who knew us a bit, but who decided to get more engaged and who could have read because we made the coronavirus coverage, we put that essentially outside the pay model. And they could have looked at that coverage for nothing and not become subscribers, but they also -- it turned out in many, many cases, either decided to subscribe anyway or they wanted to read something which was outside coronavirus. And then they came across the pay gate and decided to pay. It's a mixture.

I think at least during your tenure as CEO, I think you -- for most of the time, you have benefited from somewhat of a heightened news cycle, at least the last few years in one way or the other. But also, I think you put tremendous amount of investment and time into really the technology and the analysis of what converts a casual reader to a pay subscriber. And I'm curious in this process, a couple of things. One, how far are you along in that in terms of where you can get to, to really get your technology, whatever it is, to where it needs to be? And then a bigger question, I'm sorry for giving you both at once, is do you think this crisis in that vein has expanded the potential user base? I mean I think you -- at one point, you said that there were -- I think Meredith might have said there was maybe 100 million potential -- or casual viewers and maybe tens of million of potential subscribers. I'm curious if that definition -- or that pool has changed.

Well, let me perhaps go with the second question first. I think it has. I think it has. I think when I came to The Times, I think a global number for the kind of global uniques was maybe 60 million or 70 million. I said 240 million. That's kind of maybe a 3x, 4x increase in the crudest level. The top of the funnel is much bigger than it was. More importantly, the change we made last summer to our customer journey, essentially requiring people on most services who wanted to look at more than one story to register and then subsequently log on to get that allocation of free stories. That change has led to many, many millions, many millions of new registered nonsubscribers. This group are very important because they're far more likely to come back to us. They're far more likely straightforwardly to subscribe to The New York Times. This group is very important, and they've grown far, far faster and far bigger than we thought at this stage. And what's great about this group, as long as they keep on coming back, every time they come back is an opportunity potentially to engage them more deeply. And of course, we can also -- because we know their e-mail addresses, we can reach them with briefings and e-mails and marketing messages and all the rest of it. So my view is that the ambitions, the audience scale ambitions we had 2 or 3 years ago, we should reset and have become larger. And you can feel that The New York Times more broadly has become more influential. And on this point, I particularly want to say, it's very easy in the kind of Trump era for this to all to get very typecast around polarized U.S. politics. We're becoming a global news provider. But even in the United States, many people are coming to us for information. This is a health and science and medical story and a practical story about what food did you eat, how do you go about helping your children get remote education at home. And we're very trusted for those things. And I think the breadth of The Times, the fact that we can be a wire cutter, help you when you're doing online shopping, which is the only kind of shopping there is, pretty much, other than groceries. We help you with that. We've got the recipes for you. We've got lots of health advice for you. And so I think the breadth of the offer, combined with this scaling, the fact that The Times is simply, I said it on the earnings call, we've gone up a shoe size, it's -- we've become a bigger, more -- less elite, no less high quality, but less kind of recherche news provider. I think that's significant. In terms of optimization, we were the -- the biggest single thing we did actually was to invest in our newsroom and invest in our journalism. And I still think the reason that we've had more luck than many other news organizations just because we've invested in journalism rather than firing journalists, to be honest. But it's true that we've done, as well as that, we worked very hard on digital product, on data science and on engineering and tried to learn through essentially experimentation how to get more effective at each stage in the customer journey. Well, I think we are closer to the frontier of best practice. I think about 4 years ago, 3 to 4 years ago, we became I think the best in our industry, at least as far as I could see. We were doing more and getting -- having more success with our optimization than anyone in news publishing. But news publishing was not and as an industry isn't anywhere near the frontier. We're getting closer to the frontier of what players like Netflix and Spotify are doing. And -- there's more to do. And I would say as of today, here we are in early 2020, I see as many levers of growth, at least as many potential levers of growth we've yet to pull than we did 5 years ago. I mean I think what's exciting about our model is so often with subscription models after a few years, you begin to feel the sensation of a plateau. A plateau is arriving where the economics are beginning to look more marginal and you seem to be running out of good customers. We have no sense of that at all. In many ways, I feel as if there's more customers to go for now than was true 5 years ago. And I think you can see that in our numbers as well.

I guess that sort of leads me to the question and in a way sort of answers it is one of the biggest questions we get from investors is what gives you the confidence that this growth can continue. But it sounds like you still have just from what you see internally, you have many levers to pull.

And I think the idea that there are so many engaged, apt -- and very apt kind of nonsubscribers that we know of, that's one thing. The other thing, which I think I can't relate quite so directly to the subscription model, but which I think is incredibly encouraging, is we are beginning to attract younger audiences. And in particular I would point to The Daily, which is a phenomenon in itself. It's arguably the most successful news podcast on the planet. What's so exciting about The Daily though is how young its audience is. It's essentially a millennial audience. 3/4 are under the age of 40, or 40 and under. Nearly 1/2 are 30 and under. And this is a very engaged, much younger audience for Times Journalism. It's Times Journalism in a way, done in a different medium, but it's full of our values. It's The New York Times. And this is a great way of introducing the brand to an audience who a few years ago wouldn't have dreamt of becoming a subscriber to a news product like The Times.

Yes, I think you mentioned on your earnings call that there was a sort of a -- not necessarily an outsized, but definitely a large percentage of the new subscribers have come from outside the United States. And I'm curious if you think that's where you have maybe a bigger opportunity?

Well, I think in some way it is a surprise. When I arrived at The Times in 2012, I assumed that The Times might well have to kind of move quite quickly and aggressively into international, that domestic would -- the domestic opportunity would be small. I think the really big surprise is how big the domestic opportunities turned out to be. And to be honest, I still feel The Times is really underpenetrated in its home market in the United States. But I mean -- I want to say at the moment, when I arrived, I think about 8% of our digital -- the subscription model at that point was about 18 months old. At that point, I think 8%, maybe 9% of the subscriptions were from subscribers outside the U.S. Today, the number is over 18%. And when you look at the run rate, so how -- what percentage of the new subscribers, the net new subscribers in the first quarter of 2020 were outside the U.S., we don't disclose the exact number, but I can tell you, it was between 20% and 30%. And typically amongst our uniques, international is about 30%. So we've got some room for further growth there. And we're experimenting, including with more aggressive at lower introductory offers in different markets to try and grow more quickly internationally. And that's simply because we're often -- we're active in markets where there is no established local tradition or market in digital subscriptions and where overall, as where disposable income may be much, much lower, and print periodicals cost far, far less than they do in the United States. So we're trying to begin to fit pricing to market. And although it's fairly early days, we started that experimentation 4 or 5 months ago, early results of that are very encouraging.

But the plan is to still stay as far as you can see to the English language market?

Yes. I think that the market for -- as were aspirational global audiences, in most cases, probably college-educated audiences with a good command of English and a fascination of what's going on in the wider world. This is a gigantic market already, and we think it's going to -- under all scenarios, it's going to grow enormously. And in particular in, for example, in the broader sense in Asia, high economic growth, high aspiration, increasing education aspiration, increasing globalization and global markets and global -- and geopolitics as focuses for this group of people, we think there's immense opportunities there for us.

In a previous session today, another advertising company that was a -- it was an outdoor company, so it's not a print company. But they mentioned where they saw one of the greatest opportunities was really that this -- really the demise of local metro papers, not The New York Times. They're talking about the small market papers. And it got me thinking, they -- the CEO actually suggested this, unfortunately, it might be the nail in their coffin in this crisis, and they may not come out the other end. I'm wondering with regards to New York Times, is that an incremental opportunity for you? Or is that really not the audience? Because it doesn't sound like that's necessarily the audience who you may be picking up share from as a reader of a community paper?

Well, I mean in a way, I've said we've reached more than half of the adults in the U.S. So the people who reach us now are -- include many, many audiences, including I'm sure people who are into the news and have always loved having their local or their metro newspaper. So what I want to say is this. Insofar as many metro newspapers used to offer their readers a comprehensive national and international service of news as well as local news, I remember years ago when I was a journalist working for the BBC bumping into the, for example, in Moscow to the Moscow correspondent of the Philadelphia Inquirer. You bump into the Moscow correspondent for a great American metro. That's long gone. But insofar as these newspapers and news services used to offer national and international news, clearly, we can provide that. And I would say for example in California, we clearly benefited from and California is actually our best digital market. And that's partly to do with the trajectory of local media. But we're not going to compete local to local. We're not -- we have a great Sydney Bureau. We have a number of journalists in Australia. But we cover stories in Australia, which we think are of interest to New York Times stories readers everywhere, not Australian stories for Australians. So we're never going to be as good as the Melbourne newspapers on what's going on in Melbourne. That's not our model. I want to say we really worry about the broader ecosystem and about local and regional news. And we're actively in A. G. Sulzberger, the publisher of The New York Times, is itself leading active thinking, what could The Times do to help that. But that's going to be done more on a kind of pro bono, kind of good neighbor approach rather than because we see a competitive advantage.

Okay. I want to touch on the price increases. The price increase for the promotional, the $1 a week subscribers, began to roll off several months ago. And I'm curious about how you're managing the process. I think the initial change was that about roughly half of them went to full price, which I think has now bumped up to $17. And half of them, sort of 50% there. I'm curious to thinking of how that group is split, what makes you go, when 1/2 -- who gets what lumped in? And does that process sort of refine itself as time goes on?

Yes. No, it's interesting. And the one thing I think we didn't actually -- it was a very, very busy earnings call. I'm not sure we covered this point as well as we might. We're very pleased with this progress. I mean the step-up pricing didn't get much mention in the call. It's going very well as is something which is separate, which is the overall price rise, the kind of headline price rise for tenured customers, maybe we will come to that. But with the step-up pricing, essentially, this was a kind of new thing for us. And we held a small percentage back and left them on the introductory pricing. The rest, and plus or minus think of 90%, we divided it into 2 randomly. And we gave half of them the step-up all the way to the full price, then $15. As you say now, that's going to $17. The other half is we put it to a higher price, a step-up price, not all the way to full price. We did that randomly. We're essentially still taking that approach, and we are continuing to do that significantly on a random basis. But we've got a machine learning algorithm, which has been learning and which is kind of competing with random and is currently doing single-digit percentages better than random. We probably get it to a point where it's doing 10% to 20%. Random turns out that in terms of that, it wasn't that bad actually. It gave us a pretty good result. We think we can optimize to do better than that. But I think the key thing -- and by the way, it's quite -- a further quite important point, which we're going to cycle into this coming September, which is what happens on the second anniversary to those who took to the step-up price. Can you move -- how many of those can you successfully graduate to full price after a second year? Now this is September, which is the immediate run-up to a U.S. presidential election, which will give us a little bit of a follow-on window to that thought. But again, we'll learn. I mean what we're trying to do is we're trying to learn what's the most effective way of building a strong subscriber base where you retain people, but also you demonstrate your ability to move them to higher prices. And this whole thing, in a way, is a series of experiments. The good thing about everything we've done so far is it's either meeting or beating our modeling. So in other words, the stuff we did before we implemented it, we did our estimates, we modeled it out. Reality so far is at least meeting, and in many cases, is actually beating that model.

So the churn has stayed, it sounds like, at a very low level, what you had...

Yes. I mean what -- what we -- between roughly late '14, early '15, let's say, and 2018, we more or less half churned through better tactics and more expertise. Our challenge now is really holding churn down as we massively expand the base. And I would say so far, that's going well. Yes, it is going well.

And what about the migration, which I know you began early March of the tenured subscribers from I think $15 to $17? Has the churn -- has that gone successfully where you had expected the churn to go?

Yes, again, I would say quickly on expectations so far. We've now had, I think, 690,000 of these guys have now had their first bill at the highest level. Again, we're in the middle of the coronavirus, which is a sort of a naturally kind of retentive news story. Nonetheless, we're feeling very good about it. We also, to be honest, and you will hear this from what I'm saying, we're feeling pretty good about our modeling and our capabilities, our predictive capability of being able to kind of figure out to a reasonable level in advance what's likely to happen. Nothing has happened that makes us doubt the basic belief we've had or the basic conjecture we've had, which is at times digital subscribers would be very like print subscribers in their willingness to continue to subscribe despite higher bills. The value of the product was sufficiently visible to them, and they felt its value and it's part in their lives sufficiently that we could take them through price rises. And I think in the long term, that bodes really well for the model.

So when you think about ARPU, which I do believe, Roland at some point suggested that while it could stay negative for a bit, the rate of decline will lessen, and I think we saw that in Q4, at least. Can that, with this massive amount of new subscribers coming on at the promotional rate and the potential, which I think you mentioned on the earnings call of maybe putting a little bit of a pause on the tenured price increase going forward until we get out of this crisis, can you think we can still see maybe lessening of the declines in ARPU going forward?

Yes. So I want to make a few points. The pause, by the way, just so I can spell out. So having done this first substantial cohort of tenured subscribers and giving them this kind of increase in the, if you like, sticker price subscription, we've taken a pause. That's not for fear of churn or it's not a worry about the next cohort at all. It's really just, to be honest, the sensitivity to the moment. This is a moment where we're taking down our paywall. We're letting people look at our coronavirus coverage. It doesn't feel totally right and quite the right moment to be pressing price rises through. So yes, I would have thought as things as it will stabilize, we'll simply get back to that agenda. And -- but let me deal with the ARPU question more broadly. And what I want to say is this, there's a lot going on in ARPU at the moment. And we'll look at ways of whether we can break some of this out, so analysts and the market understand it better. But essentially, we've got -- so price rises are going through successfully, but we've now got enormous numbers of new subscribers coming in as you say. At introductory offers in some markets like India, we have got them in very, very low prices. So there's a lot of dilutive effects going into ARPU as well. But what I've said before, and I'll just repeat it, if I may, is the thing I look at, we're not like an established subscription business where you're fighting for market share in a mature subscription market and ARPU is everything in the economics. At the moment, this model is growing rapidly. I look at the revenue we get from digital subscriptions, and in particular, the delta, so how quickly is digital subscription revenue growing at the time. And so just to give you a sense, in Q1 2019, so the year before the one we've just given the results for, Q1 2019, digital subscription revenue grew at, I think, 15.1%. Pretty healthy, that. I mean this is year -- that was year 8 into the model, 15%. It grew at 18.3% in Q1 2020, and we've guided to high 20s in Q2. So this is way over exponential growth where despite the enormous mathematical expansion and the fact there's so many more people, we are -- and therefore these percentages on -- particularly all these dilutive things, the percentages should make it much -- the increased numbers should make it much harder for us to hold these percentages. We're actually delivering percentage year-over-year increases in percentage. And that's real money. I mean in the end, that's, if you like, to me, that's the bottom of all of this is how much money is this model growing and how rapidly is the money -- is that money growing. And it's growing with acceleration. And I would say in particular, because the impact of the step-up prices and the new price rise is really going to kick in. In Q2, you're going to see really very striking percentage year-over-year growth in that number. When we to -- if I can just finish this, when we need to focus on ARPU, there may well be a moment in the future where ARPU becomes everything. I think we're demonstrating already, certainly to our own satisfaction, and I know the market can't see all of this, we have these levers. We can implement price rise and we're getting experts at doing that. We can step people up to higher prices, so we feel very confident when we need to and we need to really focus on ARPU, we'll have the tools to do that.

On Crossword and Cooking, I want to touch on that really quickly before we move on to advertising. The -- that -- that's also grown phenomenally well. It -- do you -- is it just as profitable as the -- or may be more profitable than the news business?

Well, the news thing -- because we don't split out like central newsroom costs and G&A between -- as with the news product and the print product, you can debate what kind of profitability you're looking at. It's only one of the simplicities about both MIT Cooking and Crossword is we can see the costs and the revenue. Crossword is a very attractive high-margin business, which we think, by the way, has got great growth potential itself as we roll out new games. Spelling Bee, as you know, has been a great success, other games like Tiles after that and so on. Cooking is becoming profitable and ultimately will be very highly profitable because of the evergreen quality of the basic content, and the fact that over time, that the product costs very significantly reduce. And we're looking at other new products. And by the way, I think one of the encouraging things is our new satellite products have -- and in some ways, you can think of Wirecutter certainly, arguably also our podcasting product, these are, as it were in their different ways, revenue drivers in their own right. But also again, we really are excited about what we can do with bundling and combinations. As we think about that medium- and long-term story about ARPU, having multiple things that we can put together in different packages ultimately could really help us get really good value out of those subscribers who want more from us. We -- I think always some subscribers who basically want the news product and nothing more, but for those subscribers who want lifestyle products and more, there's going to -- I think there's opportunities for higher pricing there as well.

And just quickly on the print side. This -- I know you've said previously, it's a very profitable business. You're not in any way trying to accelerate the decline of print. At one point, you'll assess that when it gets small enough. But do you think this crisis maybe has accelerated it? It sounds like the home delivery really hasn't been, correct me if I'm wrong, hasn't been impacted too much, right? But it's a single copy, and I think it's only roughly 5%. So do you think this is a step function down, or no?

Single copy has been very, very badly hit, but it's a very small percentage of the total. Home delivery's looking very strong. We actually got quite a few new home delivery customers, which -- and we were able, by the way, the mechanics, I mean heroic job by our guys and by all of our brilliant partners in the broader U.S. news ecosystem across the country, delivering this -- making and delivering the physical New York Times before 7:00 in the morning despite everything, to an amazingly high level. Look, we said on the call, I think Roland said on the call, in the past, I mean in particular thinking of 2008, '09, some of the print advertising never came back, and some of it came back as digital advertising. And I think this probably does accelerate at least or pull forward some of the decline of print advertising. Our digital product, we're in a kind of class maybe of one, I don't know. Certainly a small club. Our print product is a profitable product with no advertising. We don't need advertising for profitability. And our plan is to run our print platform for as long as it's cash positive. For as long as it's producing a positive contribution margin and cash for business, we'll run it. I still believe that will be many years. It's possible that the coronavirus will have pulled forward the end date a little bit, I don't know. I still think we've got more than a decade of cash to be got out of our print product. To be honest, our digital revenue stream and our digital subscription business is growing much faster than I thought it would. I mean I think we've done better than we thought. I think that's going to be ready to take the full strength of the business sooner than we thought. And a point we haven't touched on yet, our very strong balance sheet and the amount of cash we have in the bank means we've got a lot of confidence about navigating this difficult period with real confidence that once we do, we can be one of the -- not just one of the survivors, but one of the real winners in a post-COVID-19 world.

I do want to -- I'm going to jump into advertising real quick. But I do want to tell the participants if they do have questions because I know we're running out of time shortly, please go ahead and type them in the chat, and I can try to get to them. But I want to talk -- ask you about advertising in the meanwhile. The -- on the digital side, it has been a little bit -- clearly, we've seen softening, not as much of the softening we've seen on the print side. So I guess there are 2 questions there. First, on the print, any signs of life? Any signs that it's going to get less bad than what we're seeing? And then on the -- and on the digital side, do you see it all cyclical -- I guess, do you see any permanent impacts on what's happened with the pullback?

I think it's fair to say print in -- certainly in Q2 in the U.S., it's quite hard. You have to look quite closely to see positive signs. I mean our guidance of minus 50% to 55% down compared to the previous years, those numbers don't imply much good news. However, we are absolutely beginning to see signs of life, international digital, in terms of international print in Asia, we begin to see luxury and other cash fees coming back in Asia. And I think, quite -- some real liveliness there. So I think the only -- I mean people having talked confidently about a V-shaped recovery and then getting to a very glum sort of L-shaped mood. Let's see. I mean, we don't know what Q3 and Q4 are going to look like. Digital, we have a lot of confidence in. There's no question digital is taking a pretty considerable hit. We're broadly based. We're slightly different from some of our competitors. And we certainly think that our hope in 2020 of getting, in a few quarters, back to absolute growth, that's on hold for the moment. But 2020 for me in digital advertising is a year to really develop a product we talked about in our last earnings call, those first-party database products, safe data ad products to continue to develop these very big partnerships we're doing. We've got this very successful partnership with Verizon, for example. We actually deepened that a few weeks ago, where we -- Verizon and we worked together to make the whole of The New York Times, not just coronavirus, but the whole Times available to pretty much every high school student in America until July. We have -- there's many other parts to that one relationship. So very big relationships with some of the world's biggest brands to develop our categories like tech and financial services, both of which we think are likely to be fairly early recoverers from the effects of the virus. And to develop platforms like podcasting, which we think we bought that little audio company, Audm, I think which is going to help us more broadly. That's a subscription product. But we're also looking for whether we can both make and also potentially acquire other leading titles in podcasting to help us come back with a really a podcasting digital advertising opportunity of some scale.

I'm getting all these warnings that I need to end this because we've run out of time, so we'll end it here. But I wanted to thank you, Mark, so much for doing this with us. I feel like I could ask you questions forever, but I think we're -- we'll end it there. I really appreciate, and I appreciate all you guys for listening. Thank you.

Yes. Thank you very much, everyone. Thank you for coming. Keep safe.