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

Welcome, everybody, to Day 2 of the Morgan Stanley TMT Conference. My name is Thomas Yeh, I'm Morgan Stanley media analyst. Quick note on important disclosures, please see Morgan Stanley research disclosure and website at the www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'd like to welcome Meredith Kopit Levien, who assumed the position of President and CEO at New York Times back in September. And prior to that, was the Chief Operating Officer since June 2017, where she oversaw all major commercial operations, including growing the digital subscription business. Meredith, thank you so much for joining us.

Thanks for having me, Thomas. It's nice to be here this morning.

So just starting us off at a high level, it's been about half a year since you officially took on the role of CEO. Can you talk about how your new role has changed your perspective, if at all, about the right strategy and the right organizational structure needed to drive continued success for the company? And how has your outlook evolved around the opportunity that you see ahead?

Yes. Very happy to talk about that. I'll say, first, that from a strategy standpoint, what we're doing today is very broadly consistent with what we've been doing for the last decade, and I'd say that has been proving out a strategy of journalism worth paying for through direct-to-consumer digital subscription. The last decade has really been about scaling that strategy. And I think we've -- I'm sorry, the last decade has been about proving out that strategy. And I think we crossed over the point where we bring in more revenue from digital than print. And digital subscriptions are now, not just our fastest-growing revenue stream, but also our largest. So last decade proving it out. This next decade, the one we've just begun is really about scaling that strategy. And I'd say, in terms of emphasis, there are things we're talking about more than maybe we were a year or 2 ago. We continue to be incredibly focused on the journalism, on leading on the largest and most important stories of our time. But you'll hear us talk more now about meeting more newsfeeds than we have in the past. So that's a very big area of focus. We're also focused increasingly on our products adjacent to news. So we've got rising ambitions for our cooking product, our puzzles, for other roles we can play in people's lives. We are also more focused now than we've been in the past in making our technology and our data a propellant of our growth at the time. So a big part of scaling the strategy is having the right underlying tech that allows us to have not just a news product, but a portfolio of products that we can mean more in more people's lives. And I'll add one more thing that I'd say is relatively new area of focus, and one that I'm spending a lot of time on, which is just elevating the culture of the New York Times to make sure that beyond journalism, New York Times has always been a place where you go at the top of your career in journalism and where you can do your best work. How do we make sure that we're that for every part of the company and every discipline that matters -- matters to The Times? And the way I talk about that internally is, we've always been a great mission. We're in a increasingly strong business. I think we've got real opportunity to be as great a culture as we are. The other 2 things, I think there's an enormous amount of value to unlock from our people as we do that.

Yes. That's great. I want to dig into all of that. Just a high level. 2020 was certainly an eventful year, which is an understatement to say the least. Looking back on it, what would you say were some key takeaways about running the business, either from a customer acquisition standpoint or operationally that you believe can be implemented into the future, even as we move past the pandemic, hopefully sooner rather than later?

Yes. I think one of the biggest takeaways from 2020 was just how big a role The Times can play in society from an audience standpoint. So there are 2 things that I think about a lot in terms of audience. The first one is that at the sort of height of the early months of COVID, March and April, almost a year ago, something like 1 in 2 American adults were coming to the New York Times. So I think just the opportunity size for audience, particularly in very big moments on very big new stories is bigger, bigger than we previously thought it was. And when we look back at the year overall, the number of people we were able to get to come to The Times on a weekly basis was nearly twice what it was the year before on average. So I just think from an audience standpoint, we've got a much bigger opportunity than we previously assumed. And even beyond news, there's something like 10 million people, close to 10 million people who come to The Times every week now for recipes, for puzzles, for shopping advice. So I think you hear us talk more ambitiously than we have about audience, and that's a function of what we were able to see and drive last year. I'd also say, last year, we were -- we had been running our model of asking users to register and log in for about a year, just as COVID was beginning to become the very big news story. And what we know after many months of that news cycle is that the registration model itself helps give us a sort of longer tail of when we can actually ask somebody to subscribe. So in a very big news moment, we can get you to register and log in with us. We have a long opportunity to then get you to form a habit and pay and stay. So I think our sort of belief in the registration model and then just the very active getting people to register and log in has been strengthened. And then I'd say, in the news product itself, last year was a year where we began to -- in a much bigger way than we previously had, give people value beyond the sort of standard currency of the newspaper, which is an 800-word article. So we really proved out that the, The Times can be a place even more than it was in a breaking news situation or a developing news situation. So before an article is written, when something happens, you can go to The Times and sort of follow along as that's happening with many more tools than you could before. And I would say, we also began to see The Times as a complete digital news experience that could be your sort of first experience or your only experience in a big news moment. And this was most evident during the elections, where an election week in November. We had something like 260 million, 270 million people using The Times that week, which is a historic number for us. That's -- in many cases, an audience, larger than television. And that's because there are so many tools there for you to go and sort of see the results as they were unfolding, see our maps, see stories that the experience that's had kind of above the level of story was in and of itself quite complete. And I think that gives us a lot of ambition around what we can do on any big topic as news is unfolded.

Great. Great. I mean you talked about shifting into the scaling mode of the digital transition, and you also recently on the last earnings call provided outlook for operating profits to grow modestly this year which...

Yes.

I think suggests an acceleration in spending levels based on how digital subscription revenue growth has been trending. Can you talk about your main investment priorities this year? I mean how do you think about the path of long-term margin potential relative to the near-term investments that you're putting in the business? And where do we see that being put to work the most? You've highlighted some of those in your remarks, but I'd love color on the emphasis and where, in 2021, we should be expecting the investments to ramp?

Yes. Let me give some more specifics on where we're intending to invest, either to continue to invest or new areas of investment. But I'll answer the second part of your question first, which is, we do expect over time The Times to be -- to have margin expansion, to be a larger business with improving margins. In terms of investment, I've already highlighted some of the major areas I can give a little more detail. We're going to continue to invest in our journalism to make sure we can lead in covering the biggest stories of our time. I'll say there, we've been investing the whole way through our transformation into our journalism. I'd say that's the single biggest reason we've gotten to where we are. But it's worth noting that as we invest more into the newsroom in our journalism, it doesn't have to scale with the sort of -- with the subscription expectations with the audience ambitions. A relatively modest amount of investment goes a very, very long way. And we're investing into the thing I described a minute ago, which is the digital product experience, allowing us to meet more news feeds. So investing into a live journalism, audio, visual journalism, and just having an experience that gets you to come back within a day's time or multiple days of a week. So we'll continue to invest significantly into news there. We'll also invest more than we previously had in our products adjacent to news. And I talked a little bit about this on the call a few weeks ago. But we have really big ambitions now for our cooking product. We have big ambitions for games. Games is a market that's exciting for us to be in, and we arguably sort of underinvested there, under-executed in many ways. And we're continuing to build out the portfolio of adjacent products. So we announced a few weeks ago that we began to test pay model for Wirecutter. So we'll make some investment there. And we've got really big ambitions. We've talked about this a fair amount in audio. And you can expect to see us continue to invest there, both in the idea of audio as a destination product. We acquired an audio app called acquired an audio app called Audm, which does read-aloud audio from The Times and from other publishers. We'll invest in that destination, and we'll also invest in, in having The Times to be a home to more and more great podcasts. And one other place that we've talked about more, I'd say, in the last 6 months, which is just investing in making sure our underlying tech does help us get to scale faster. And there, our focus is on, do we have the right underlying architecture? Can we bring more great technology and data talent to The Times? And does tech sort of have the right role within our culture to allow us to scale faster?

That's great. I'd like to dig into that tech side a little bit more actually.

Sure.

The New York Times has certainly grown more sophisticated in developing it's digital customer journey. And you mentioned user registrations. There was in paywall implementation, pricing promotions. At what part of the customer journey do you see there are more work to be done in 2021 and beyond that really triggers that opportunity set for driving that customer funnel?

Yes. The first thing to say is that I think in every part of the funnel, for The New York Times, there's still more work to be done. And one of the great lessons I've had working directly on our subscription business for the last 5 or 6 years is there's sort of always more optimization to be done. So I think there's still work to do. I described earlier that our audience ambitions have grown. I think we still have work to do to bring more audience to The New York Times, particularly in big news moments. We still have real running room to compel people to register and to make, to establish a direct relationship with us. We always have running room on conversion itself, particularly when do you ask a subscriber to pay, at what point have they engaged enough that they're likely to pay when you ask. So plenty of work to do there and then plenty of work to do on getting people who have paid, who have established a subscription with us to really form a habit and stay. And I would say this year, in particular, our teams are laser-focused on getting registered users to come back more often, and we do that by helping them connect to storylines or to sign up for news alerts or newsletters. And then making sure that in the subscribed state, we can get you to come back more days of the week. A registered user who experiences a broad range of Times content is much more likely to ultimately buy a subscription. So we're focused on doing that. And a subscriber who comes back to The Times more days of the week is much more likely to stay. So we're very focused on doing that. I'll say one other thing, which is we are more focused this year than we've been in the past on how do we get subscribers to one product interested in another product. And how do we begin to use the funnels for our core news product, cooking and games, to drive subscriptions for each of the other products as well.

Okay. Well, you often talk about the $100 million plus addressable market for subscription journalism. And it sounds like you're more confident than ever that, that's a large TAM that is available to you. Does tackling that opportunity set differ in the U.S. and abroad? How should we think about the international subscriber growth strategy differing from the U.S. one? How does it or should it differ?

At the highest level, I would say, we've got -- we're running the same playbook to pursue an international audience to become subscribers as we are in domestic audience. There are a few things that are a little bit different. We've talked about $100 million total addressable market, half of whom are outside the United States. Of that 50 million people, I would say we are particularly focused on the portion of that audience who will likely buy more than 1 digital subscription to news. And we assume outside the U.S., we'll be the second read, not the primary read. So that makes us think about how we market, how we price, how we approach the customer, a little bit differently. We're also playing a very long game, internationally. And what you've seen, if you've watched closely over the last couple of years as we've begun to price in a differential way by market, particularly outside the core markets where we've tended to be very strong. So our strength for the last few years has been in English-speaking markets. So markets with -- where English is the predominant language, Canada, the U.K., Australia. As we go out beyond those markets and move into places like India and Latin America, what you'll see is a differentiated approach to price, lower prices, lower introductory offers, and that is really helping us convert people sort of far beyond where we've been. And we see ourselves playing a very, very long game there.

Okay. On the last earnings call, you also did provide guidance for 2021 subscriber growth to exceed 2019 levels, following a huge record year in 2020. You also did highlight quarterly volatility and engagement trends. I know my news consumption hasn't really declined in the last few months. But can you talk about any specific signals that you're seeing that kind of supports that view over the '21 time frame that gives you the confidence to provide that level of visibility?

Yes. I'll say 2 things about that. And they may sound like they're in tangent with each other, but they really sort of characterize how we've defined our work this year. One is, what you mentioned. I think what we can say for sure is that the news cycle will change. It always does. And as it changes, it could cause some volatility in audience, and that could cause some volatility in results quarter-to-quarter. So we've assumed that we -- it's hard to predict the news cycle. I keep saying to people, it would have been hard to imagine a global pandemic would be the dominant story that it became more than a year ago. So the news cycle will change, and that will have an effect. Even as that happens though, we are getting quarter-over-quarter, year-over-year more control over the levers of the pay model. And you asked about this before, but I'll say, we understand our funnel better. We have more audience signal than we've ever had to stimulate the things we know will get people to register and log in and subscribe. And so as more of that comes into our control, that has a somewhat stabilizing effect to -- in a moment where a news cycle will evolve and change, and you don't quite know what's going to happen next. And the registration model itself gives us a little bit more predictability because we now have a very large group of registered users who are not just valuable to us the moment they come and register and log in. Over a long time horizon, we have a lot of opportunity to get those people to ideally form a habit of The Times, and then pay and stay. The -- a couple other things I'll say. Even as the news cycle changes, I talk about investing in our journalism so that we continue to lead on whatever the biggest stories are. And I'm confident that whatever they are, The Times journalism around the biggest topics will be a very big driver of audience and a very big driver of interest to subscribe. I also think we have a real opportunity to expose people to much more of the breadth of content that we have in our core news report. So that The Times is great in journalism on a very broad range of topics. And when 1 big story or 2 big stories are dominating, it's very hard for people to see or be exposed on a phone to all of the rest of that journalism. So we're incredibly focused now on how do we get people to see and experience more breadth in the core news report and also across the array of our products. And we're confident that, that will help us continue to grow and to reach within the range that we've described, which is more than 2019 less than 2020.

And speaking of the kind of pay and stay model, we are approaching the 1-year anniversary of the initial kind of spike in gross adds that came from elevated news attention around COVID. How should we think about the execution strategy that you put in place to retain these subscribers as they lap their promotional period? And how might you be thinking of handling this cohort of graduating subscribers, the same or differently than past ones that you've managed through?

The answer to how do you get a cohort of people who come in around a big news event to stay and be a healthy subscriber for years to come is always about engaging them and ideally engaging them early in the product. So once they become a subscriber, getting them to download the app, getting them to opt-in to get alerts across a range of topics that are of interest to them. Getting them to sign up for newsletters. I'm very confident that we'll be able to continue to do that. And as I've suggested, we get better as we go with every passing quarter doing that. I'll just step back and say, too, we've seen these moments of kind of huge news need or 1 particular story dominating the news cycle. And then we've seen the news cycle change. And that cohort of people tends to stay, in some cases, depending on the news moment, stay and be even slightly more engaged than previous cohorts. So for example, after the election of 2016, we had a giant -- that was our first moment of a giant cohort of people coming on to the pile of subscribers for the first time. And those subscribers who came initially tended to be some of our best retaining subscribers we've seen. And again, we get better as we go at getting people to engage. So we feel really comfortable that we know how to do this now.

You've also mentioned that -- I think because of some of the signals you've been seeing, there's more of a -- towards a higher percentage of promotional subs that are graduating to a full price instead of stepping to an intermediate one over time. Is that really based on the engagement trends as well? And what other kind of signals are you looking for that kind of determines the price sensitivity of a consumer that's moving past the promotional period?

Yes. Well, there are 2 things that we've been doing now for a while on price, one longer than the other. The one you're describing is bringing people in on promotional prices, which we've been doing now since, I want to say, the summer of 2018. And then at the 1-year mark, stepping them up either to full price, or if we need to, in interim price. Since we began bringing people from a promotional price -- a large number of people from a promotional price to full price, we've been training a model to help us understand engagement signals to determine who should go to a full price and who do we have to give an interim price to. Those models were now a year plus into that, and those models are getting better and better. So the number of people going to an interim price is smaller. And over time, the revenue retention gets better and better on that. The other thing that we're now probably a year into on price, which I think you're also potentially poking at is, we have a very large number of tenured subscribers. So people have been with us a long time. And we just a year ago, executed at the beginning of our first price increase on tenured subscribers, and we're close to a year into that now. And that has gone very well and we have another cohort of people who will step-up in price this year. And I think in both instances, what we've been able to prove out is that promotional prices work to bring a wider group of people into the base. And The Times has real pricing power. And once we can engage people, we can exercise that pricing power.

Makes sense. We only have 5 minutes left. So I wanted to make sure that I hit on some of the big news that's been coming out recently around recent regulation in Australia, which has put a big spotlight on the relationship between news and big tech platforms. You have an existing deal with Facebook News, but I don't believe you have one with Google. Is there anything you can tell us about how you're thinking through the implications for The New York Times based on some of the news that's been coming out over the last few weeks?

Sure. Let me answer that question broadly first, which is to say that Google itself, you asked me about Google, Google plays a really important role in the funnel for news. I guess generally, certainly, in the New York Times funnel, we've taken approach to all of the digital platforms that is sort of focused on how do we work with the platforms in a way that supports our subscription strategy, that supports our ability to drive direct relationships with users and that supports the idea that the best place to experience New York Times journalism is on the destination of The New York Times. So we really approach the platforms with that idea in mind. We -- and as you mentioned, we have a partnership with Facebook that sort of fits that model. So we continue to be very interested in the idea of the big tech companies, big platforms compensating publishers for the -- our journalism on their platforms. But our focus is on relationships, partnerships that support the 2 things that I've just mentioned, so driving people to our destination and helping us build and scale direct relationships. So I don't have any new news to report. I'll tell you, we don't rule out more partnerships than we have today, and we certainly don't rule out a partnership with Google. But we're incredibly focused in the present moment on the 2 things that I've just mentioned to you.

It's been some time now since the company has decided to pivot away from competing against some of the large-scale platforms on the digital display advertising side and focusing more on partnerships and first-party data solutions. Can you share any updates on some of those initiatives and how that kind of plays in?

Yes. There are three things we're really excited about in our ad business at the moment. You mentioned 2 of them. One is we're probably 1.5 years, maybe almost 2 years into developing a suite of our own first-party data products for the media part of our ad business, which is the majority of it. And those products are really beginning to work. So much so that we will likely be in a position to wean ourselves off of all third-party products in advertising. And when I say they work, they're helping us sell more effectively and they also are performing for the marketers who are buying them. So we're incredibly excited about that. We have a giant engaged audience, not anywhere near the scale of platforms, but giant for a publisher audience. And we have a lot of signal about what interests our users and we can use that signal in privacy forward ways that really work for marketers who are trying to target particular context or particular demographic segments or individuals and audience. So we're very excited about that. We're also optimistic and excited about big partnerships. We did 2 very big ones in the last year, 1 with Verizon, 1 with Facebook. In both instances, those big partnerships were about bringing new forms of journalism to the world, so that works very well. And I'll say, in advertising, we're also optimistic and excited about audio advertising. And as we build out a real portfolio of strong audio products in The Daily and now a number of other shows from Ezra Klein Show to Kara Swisher Show. And beyond, we're optimistic that audio for a time to come will continue to be a big -- and a big part of our ad proposition and a fast-growing business.

Is there a potential for that to kind of expand into subscription-based monetization on the audio side? And how should we think about the dynamics associated with kind of supply and demand? Is it really coming from increased podcast content that's driving that advertising opportunity over time? Maybe we can wrap up on that.

Sure. I would say, we have big ambitions for audio as part of The Times portfolio of value that it can offer to consumers, and that's why, The Daily is a giant product. It's reaching something like 4 million listeners a day. It has a huge audience, and it has a wonderful -- it is a wonderful opportunity to launch new podcasts into the world in the feed of The Daily. So that's working very, very well. I would say the use case for audio journalism, the use case for audio in general, from a consumer standpoint, is very big. And to answer your question directly, we're very interested in what role it could play, either indirectly or directly in our subscription funnel today. It does that indirectly. The Daily absolutely as a journalistic platform drops people into our funnel to get more on the story you heard that morning, the ads in the daily are a great tool for us to sell our own subscriptions. And then we believe very strongly in -- you mentioned supply and demand, we believe very strong that The Times can be a home for some of the best stuff out there in audio and particularly in audio journalism. And we think that, that can play a significant role in subscriptions over time, again, directly or indirectly. I'll end by saying the place to watch us right now is, as we build out a destination audio experience with Audm, which is the read-aloud audio app we acquired last year, which is our journalism read-aloud and also the journalism of other media brands read-aloud. As we build out that experience, you can imagine what -- that is a subscription business, and you can imagine that are growing sort of subscription business in audio from The Times could begin to look like.

Great. Thank you, Meredith. I think we're all out of time, but I really appreciate you joining us. And thank you so much.

It's a pleasure to be here. Thanks so much for having me.

Thank you.