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

Good morning, and welcome back to JPMorgan's TMC Conference. I'm Alexia Quadrani, the Media Analyst here. And we're thrilled to have Meredith Kopit Levien, President and CEO of New York Times at JPMorgan's conference. Prior to assuming her role as CEO in September of 2020, Meredith served as COO [indiscernible] Total Digital Subscriptions of the company, grew to nearly $7 million. Thank you so much, Meredith, for joining us today.

You're welcome. It's a pleasure to be here. Thanks for having me.

You added a tremendous amount of new subscribers in 2020 due to a heightened news environment, but subscriber growth, not surprisingly, has slowed down a bit in February and March. I guess, how do you think the company is positioned to continue subscriber growth? And has anything changed in your view?

Yes. Let me start with the latter part of your question, has anything changed in my view. The short answer is no. We continue to believe very strongly in our long-term opportunity to scale digital subscriptions, and we continue to be really confident in that we have the right strategy to do that. I'll say a few things about where growth comes from here in and how we're positioned together that first, while we certainly don't know which storylines will drive the next big news cycle. Our continued investment in our newsroom, in meeting more news leads and in meeting more needs adjacent to news in our standalone product, which means that we really see ourselves as able to meet demand wherever it comes next. We'll also say that the underlying drivers of our business still look really strong. While audience and subscriber engagement and things like registered users on site don't match last year's historic period for news, they're all stronger than they were in 2019, which we see as really encouraging. And I'll say, we have a few things now that we didn't have in 2019. We announced on our last earnings call that we now have 100 million registered users of The New York Times. So something like 100 million people who said, I will give you my e-mail address and make a direct relationship with you. We've got about 15 million people who are now read -- opening and reading an e-mail newsletter from The New York Times every week, the vast majority of whom are not already subscribers. You've got a much more robust offering around live and developing news, which brings new people and more people into the top of our funnel and back sort of intraday and intraweek. And we've got the very beginnings of a more strategic approach to how we think about pricing and merchandising that, the bundle for The New York Times. So all of those things give us real confidence that we can continue to grow from here. I'll say one more thing. Just as I think about the context of the last 5 years of our growth. It's not like we haven't seen a pattern before of the new cycle changing or the tide going out on one big story or another. And even as it does, you have to imagine, we're sort of optimizing and improving the underlying model the whole way through. So we sort of keep changing the access model, and that really does help us unlock new demand as the new cycle changes.

So I guess put a different way, would you say your reliance on the news cycle, which is always important, is maybe a little bit less so every year because what you've advanced since you've made in product development are that much more sophisticated?

That's a good question. There is no doubt that the new cycle in the last 5 years has played a big role in our growth and certainly accelerated the demand for Times journalism and our subscription growth. But to your point, kind of quarter-over-quarter, year-over-year, we are getting better at being able to move the levers to get people to form a habit and pay and stay. And I mentioned 100 million registered users, our ability to get to people and to get them to come back to site through product enhancements by getting the right e-mails to them through, any number of things does improve. So the idea is that even as the new cycle fluctuates, our product enhancements and our direct relationships with more people should have -- we believe, it should have some stabilizing effect to the new cycle.

And then when you look at the moderation of growth that this -- earlier this year, what do you attribute it to? Is it really a pull forward? Is it the new cycle? Is there anything else here that might be contributing to it?

Yes. I think you're referring to what we talked about in the first quarter. So let me just go back and describe what we saw. We had a really strong January. So the new cycle was still quite brisk in January. And then I'd say it slowed considerably in February and March for a number of reasons, and I would say, taken sort of individually, none of those reasons surprised us. The fact that they all happen like right at the same moment met a bit more pressure than we expected on the business coming a bit faster. So the -- obviously, the administration changed in the political story. Political news cycle changed its character a bit, not to say that we're not still getting plenty of engagement for political news, we are. I'd say that the character changes a bit and arguably, it seems that the new story is a bit less emotionally evocative than the prior one. You saw the vaccine rollout in a very welcome way, begin to happen much at a more rapid pace in February and March. And that coincided with some waning of interest in the pandemic story. I've said for a few months now, I think everybody sort of underestimated how big the pandemic story has been in terms of demand. You also saw and you've heard other companies talk about this, just like restoration of alternative activities to doing things on screens. And as funny as it may sound, you saw the beginning of spring. And certainly in the latter part of the quarter, good weather. And just all of that sort of happening at once. We sort of looked at that and said, "This is all happening, and we're heading into what has traditionally been, if you take out last year's historic year, are a slower quarter for demand." The second quarter tends to be a slower quarter of demand. We said we expect that pattern could continue into the second quarter. So that's what we've seen. But as I said, the underlying drivers, total audience on site, the engagement of registered users on site and just basic subscriber engagement, not as strong as last year, as you'd expect, but stronger than 2019, which is really encouraging.

And when you look at the back half of this year and understanding the second quarter is seasonally a slow quarter, so that makes a lot of sense. Is there something specific to that you moved to that should maybe drive more normalized or healthier subscriber growth or is it maybe just the absence of some of the negative factors that might be influencing those more moderation in the first half?

Yes. I think that's a good question. I think it will probably be a combination of both of those things. So we -- I've described this pool of people now who are just more in reach to us, whose use we can stimulate better because 100 million people registered on the site. We've only got -- we've got between 7 million and 8 million total subscriptions. So that is a much larger group of people who are kind of primed to subscribe. Many of whom now do have a daily or a weekly habit with The Time. So those 15 million people who are opening and reading an e-mail newsletter from us every week, these are very engaged in Times content. So we see that as a really fertile ground to -- from which to drive the next cohort of subscribers in indirect ways and potentially over time in some direct ways. The other thing I'd point to, talked about this a little bit on the earnings call a few weeks ago, we've been selling our products, I think, very effectively individually. So news, Cooking, Games, We are just, for the first time. We've said we were going to do this, and we're finally beginning to do it, to think about selling our bundle in a more sort of strategic and rational way, the bundled pricing up until this point has not been super rational. So it's actually -- you can buy the individual products for less, in some instances, than you can buy the bundle. So we've begun to test a bundle price that's more compelling, and I think you can -- depending on how those tests go, you can assume we're going to be doing that more aggressively into the back half of the year. So we've got plenty of ways to continue to iterate on and optimize both the customer journey and the access model to drive growth in the back half of the year.

Okay. Great. Can you elaborate on the subscriber base, I guess, how big is international? How fast is that growing? I'm trying to get a better sense of what it looks like.

Sure. Sure. So in terms of the base, we have now, I think international subscriptions are about 18% of the total subscriber base. Their international readers are a larger percentage than that of the total audience. So we think the opportunity is big. I'll say, I'm not sure if this is what you're getting at, but I'll say we -- when we talk about our total addressable market, we talk about 100 million people who we believe will pay for digital subscription news in the English language. We assume that roughly half of those 100 million people are outside the United States. So we do think we've got a big opportunity internationally. We think the character of that opportunity is a little bit different. So we -- number one, we think that part of the strategy and the approach outside the United States is that we need to be the leading news organization inside the United States, and we're obviously very focused on doing that. Outside of the United States, we assume that the subscriber is buying us as a second read that they also are probably subscribing to a publication in their home market. And so that means, we assume of those 50 million people who we expect will pay, only a portion of them, we think will buy subscriptions to multiple publications. That's the market we're going after, and we think we can get high penetration in that market. We're also a little more aggressive because we believe it's a second read with pricing in the international markets. So in the last couple of years, we've begun to roll out differential pricing sort of in outer ring markets where we kind of match price to what we think the market will bear, based on GDP and how other things, other comparable products are priced in those markets. And that's -- we're just at the beginning of that, but I would say it's really starting to work.

And just to clarify, that enormous TAM or potential opportunity is all English language, right? You have no plans to never moving release in the foreseeable future, moving outside the English language?

Yes. I won't say we have no plans, but yes, in the foreseeable future, we're focused on the English language opportunity. And we've talked now probably since 2018, about the 100 million number is an expected TAM of people who will pay for digital news in English. I think our confidence that, that TAM is there sort of grows with every passing year. And I think now, I mean it's -- now the fact that we have 100 million people registered with The New York Times just gives us more confidence that, that TAM is there.

And I think you referenced it being at a lower price point, the international subscribers. I don't know if you've disclosed this, but I don't believe it's dramatically lower. Is that fair?

It's not dramatically lower. It's -- and you can sort of look at our experiments, but no, not dramatically. I don't rule out. You asked the question before about translation, there could be a point where technology makes translation much easier. And you imagine you're getting to a much wider audience and the price could look more different than it does today, but it's been up -- today, it's kind of a careful matching to what I described before. Second read, so you'd assume somebody is going to be buying at least 2 subscriptions. And then as you get out beyond our core English-speaking markets, Canada, U.K., Australia, we think the character of demand is a little bit different. The price that the market will bear is a little different. So that we sort of price along those lines.

You've had -- you've seen great success graduating promotional subscribers to higher price points. Can you talk about managing that process? I guess, how well is your retention and kind of what percentage gets migrated to full price or sort of halfway in between?

Yes. So we are, I think, 3 years into graduating people. I think we launched -- so graduating people stepping them up to higher prices. I think we launched our dollar week promotional price, which many of our subscribers now due to news come in on that price. I think we launched that in 2018. So we've got some real experience under our belts now in stepping people up either to full price or to an interim price. And just to remind you how we run that process, we began at the first, I guess, in -- I think it was late summer 2019, we began the process of saying we're going to send roughly half the people to full price, and we're going to send half to an interim price and see what happens in terms of retention generally and then revenue retention. And as we do that, we're going to train models to understand -- train algorithms to understand the engagement signals so that over time, we can send more people to the higher price. And I'd say, in general, that has gone well, and the models are now in a striking way, outperforming just the kind of randomized sending half the people to one, to an interim price versus a higher price. So we're able to send more people to the higher price. I'd say I don't rule out that this changes over time. But so far, we're really encouraged by the fact that we can bring a wide group of people in at a promotional price. We can engage them in that first year of subscription. We can add value to sort of what they're getting and step them up to higher prices and do so in a fairly targeted and sophisticated way based on their engagement signals. We like what we're seeing.

Can you elaborate on the new price point? I think it was referenced in the last earnings call, maybe 3 quarters of a price from between promotional and full price. I guess your thought process behind that and what it might accomplish?

Yes. I mean the short answer there is just we thought we had missed an opportunity. So we were -- you were either getting stepped up halfway to full price or going all the way to full price, and we thought there was an opportunity to step people up 3 quarters of the way to full price. So I think some people may have regarded that in the other direction based on how we described it in the call. But it's a -- can we actually get a little bit more, still not full price, but a little bit more than stepping them up halfway. And in general, like quarter-over-quarter, year-over-year, we just get better. The algorithms get smarter, our own ability to turn the underlying cranks of the model get better. So we get able -- more able to do things in a fine or great way, and that's generally good for revenue retention.

And then what about the tenured subs being migrated to a slightly higher price, 15 to 17? Any notable changes in turn there? I guess what parameters for subscribers to be considered tenured?

Yes. So we -- I don't think we've disclosed what we consider tenured. But what I will say is that we like what we see. So for the first, gosh, 7.5, 8 years of the model, we had one price. We never just price or we didn't take price up. We had not done a price increase. So I think we're now 18 months into having asked our tenured subscribers to go to a higher price, and you really like what we see. It's going well. So we are continuing to take tenured cohorts and migrating them to a higher price. And again, I don't rule out that this could change. But so far, we really like what we see. And I think we're seeing a version of what we've seen in our print product. If we get a user to really engage with the product and to stay with us, the longer tenured you are, the less price-sensitive you become generally. That's our belief, and it seems to be proving out and particularly because we get better and better at engaging you as a subscriber, and we're investing in and adding value to the product the whole way through. So in general, I'd say, so far, don't rule out, but this can change going forward. But so far, everything we've done about price, from the introductory price to rolling people through a series of step-ups to the tenured price increase, has gone well and bodes well for the underlying unit economics of the model and the strategy.

Well, that brings me to ARPU. It's nice to see ARPU improvement at some point maybe even in Q2, but why it gets more pronounced in the back half of the year? I guess, how should we think about ARPU going forward? And where do you ultimately see it going, if you can?

Yes. Yes. I think we've said that we expect ARPU to begin to inflect in the second quarter. And I'd say there are kind of 2 competing forces on ARPU. One is the number of people you're bringing in a promotional price, if there is a lot of those people in that number exceeds, the number of people who are stepping up in price or taking a tenured sub price increase, you're going to see downward pressure on ARPU. So you're beginning to see that inflection on where we expect you'd begin to see that inflection in the second quarter because you don't have that. On the other side of ARPU, you have to assume that we're going to get better over time. It is our assumption that we get better over time and selling a bundle of products. So at giving people something that is increasingly valuable. The news product itself, by the way, gets more valuable year-over-year. We invest more in it. There are more formats, there are more ways to access the journalism at just product, the value of which just keeps growing. But you imagine we're doing that, and that's why we think we've got some pricing power and then we also have new things to add into the bundle, you would see -- that's sort of the opposite effect on ARPU. So you have both of those things going on. And depending on what the growth trajectory looks like, we can sort of track ARPU assumptions to that. The only other thing I'll say, and I'm -- Mark used to say this all the time, and it's true. We still regard ARPU more as an output than an input. We think we're in relatively early days of a very big opportunity when habits are up for grabs. And so we're going to do what we can to grow the base of subscribers, and that the very act of getting someone to subscribe is actually why the dollar a week promotion works so well. They're very active getting somebody to subscribe begins to look like an engagement behavior because then we have another ways to reach them, and get them to express their interest, and build a product experience for them that's increasingly valuable.

Looking at your other digital subscriptions, Games and Cooking, how do you view the growth of those businesses, I guess, versus news is, one? Does one deliver more profit dollars than another?

Yes. I don't think we've talked publicly about how we sort of see them as individual profit contributors. And the truth is we see it much more as the whole, what's the whole story of the underlying unit economics and how do we give and get value across the constellation of products from The New York Times. But I'll say generally, we've got big ambitions for Cooking and Games over a long time horizon. We've introduced the idea this year that we are investing in both products pretty significantly in terms of the content, the digital product experience and marketing. And we're excited about the long-term opportunities for both of them. And to the extent you're asking me about sort of growth in those products versus growth in news, I'll say over a long time horizon, I don't envision a moment where news won't still be kind of the main idea and the biggest product and certainly the biggest driver of audience and engagement. But you can imagine us increasingly treating the products like a family, like a bundle where we can be very compelling to a wider group of people. I'll just say one more thing, which is the products beyond news, Cooking, Games, potentially wire cutter, which we've said we're going to test a subscription product for potentially our autumn product. They are -- certainly, this is true for Cooking and Games, they are very successful in their own right as standalone products. They bring new people in to The Times and to having a relationship with The Times. And then for people who already have a relationship with The Times, they are great engagement vehicles. And we have some sense that people who subscribe to more than one product from The New York Times are more likely to retain. So all of those things taken together, say, the more we can need more people, the better the business, the better the underlying unit economics.

I guess to that point of unit economics, looking at the digital model, do you think we're at a point where you sort of unlock scale, and we'll begin to see margin expansion and maybe you can add on that point?

Yes. I mean, we've generally said that we aim to deliver modest profit improvement, AOP improvement, this year and over time to be in a position to deliver more of that. And certainly, our thesis -- our strategic thesis implies underlying unit economics that do that. We've also said that we could see more fluctuations in the news cycle. It's hard to say. And to the extent that we do and that, that drives that, that comes with any kind of economic pressure, you can assume we are going to continue to invest into the long-term opportunities. So my short answer is yes. Ultimately, over time, we think we're building to a larger and more profitable business. In the near term, we are incredibly focused on how do we realize this big opportunity in a way where when habits are up for grabs, we are getting folks to become New York Times subscribers.

But understandably, I mean, I think you guys have said this before, there's tremendous leverage built into model rated at some point because you don't have to invest in...

That's right.

So I think at some point, when the balance has been hit, right, you'll see good margin?

That's absolutely right. And let me make sure I'm being really clear. That's right, particularly in the news product that this is the case for all of our products. You don't have to invest at the same rate that you're scaling subscription. So that is absolutely true. In the near term, we still have plenty that we are investing in to get to that. So we talked about continuing to invest in the news report and in meeting more new leads to need the demand wherever it goes. I just described new investment into our stand-alone products because we have really big ambitions for those products, and we're still investing in our underlying tech. Ultimately, when all that is working, yes, there should be significantly more leverage in the model.

Okay. Looking at print, stay-at-home orders has hit single copy sales but actually benefited home delivery, I believe. I guess, how are you thinking about the longer-term profile of brands?

Yes. Last year was definitely, in relative terms, a good year for print subscription. I want to say it was remarkable the way that, that paper still showed up every day for people through the pandemic. I think our team did a particularly good job in really, really difficult circumstances. And we're proud of them. Listen, the broad answer on print is we've still got a highly differentiated product every day, particularly Sunday, but a highly differentiated products that still has a really loyal audience. And so we don't think we're near the point where you see something really different in terms of the underlying economics of print. And I'll distinguish, I think, to the degree you're asking me about that, I'll say, sort of a single-digit decline in print subs every year. We've been able to manage that decline with pricing power, right? So we're still getting a really valuable product to people, and they want it, and we're able to exercise some pricing power. As we do that, there are certainly 2 different things going on in print. Print advertising, last year was a really difficult year in print advertising. Some of that will likely. We believe some of that will come back, not all of it will. Some of it was structural. We saw that in the last recession. And some of the declines just -- those businesses did not come back. On the subs side, I think it looks quite, quite different. We don't expect there to be sort of a [ deliver ] a tripwire and suddenly, there are many fewer subscribers and even just the underlying dynamics of how we print and distribute the paper to people. We think as long as there's density of demand in market centers for some time, that will continue to be a good and strong business for us. That's our belief.

I want to really -- we have a few minutes left, and then we're getting some questions from the audience as well. But I want to jump into advertising click. I don't want to -- I know you're a subscription first company, but the advertising is still important.

Yes.

The -- I guess on -- why I jump to digital? On digital advertising, it's been much more resilient in this downturn. I guess, how do you think about digital advertising longer term? And is The Daily a big contributor to that?

Sure. So I'll say the best thing, we have a really difficult year in print and digital advertising last year. I think everybody in the ad business. Nearly everybody had a difficult year last year, but our team did a really good job sort of harnessing the challenge of last year to accelerate a bunch of changes that we would have done over a 2- or 3-year time horizon. And the biggest one of those was to accelerate having the core value proposition of our digital ad business fee, our direct relationships with users and our proprietary data that we're now able to use, with all those registered users in privacy forward ways that are really effective for marketers. So that's -- we got a lot done on that last year sort of faster and better than we expected to. We also exited some of the parts of our ad business that were less favorable from a margin perspective. So the services business, as a business in its own right, was not a great margin business. And so now, we've sort of -- we exited those specific businesses there and kind of reshaped the approach to make sure we've got amazing ideas at the center of a really powerful media business that trades on and draws its value from a subscription-first broader business. And I would say that is really working, and you've now not the ad business and the subscription business kind of running on the same high-octane gas, which is direct relationships with subscribers whose data we can use in privacy board ways to engage them and target them and deliver a better journalistic experience, a better standalone product experience and a better ad experience.

And we try to pick from the audience. I'm going to try to pick a couple that came in early. One is, "Should we expect the net adds for news subscriptions, digital subscriptions in the back half of 2021 to the second half of '21, to be in line, better or worse than sort of the back half of 2019? And I guess what factors could influence that growth?"

I'll just go to what I've said publicly so far, which is at this point, of course, obviously, this can all change. But at this time, we expect our annual performance to be in the range of our 2019 performance from a net additions standpoint. So that's how I'll answer the first part of the question. Give me the second part of the question again?

Any factors that would influence the growth in the -- of the subs in the back half?

Sure. I mean, as I've said before, the news cycle always plays a role. We never quite know how much. But I think you can regard the things I said earlier in the conversation about where we see our growth drivers, so 100 million registered users, many, many people who are now in direct, highly engaged e-mail communication with through our news product. I mentioned the idea of a more strategic approach to selling our bundle, merchandising our bundle, the multiproduct bundle, the All Access bundle. And so you can expect us to continue to drive growth in all of those ways.

And another question is, "How you're thinking about M&A? If there were a larger deal, would you consider using stock?"

On the M&A question, I'll say, we've got a strong balance sheet, and we have said and continued to believe that using that balance sheet to drive our growth organically or inorganically is would be welcome. And you saw us do that a bit with Serial Productions, which we acquired with Autumn, which is the read-aloud audio app we acquired. So all the time, we're looking at what's out there, what might we do for the broader proposition of The Times' meaning more to more people.

And I'll squeeze in one more. "if you can talk about the licensing agreement with Facebook, where do you see that going? Do you think Google will come to the table at some point?"

I'm happy to talk about that. So in general, we have -- we definitely believe that the platforms and the big tech companies that drive value and user engagement through quality original independent journalism, should pay for that value. And I -- we have a partnership with Facebook for their News tab that we have been happy with so far. We evaluate all relationships with platforms and the tech companies through the same lens, which is to say, does this help us drive direct relationships with users? Does this help us get people to experience Times' journalism on our destination, where we think it's best experienced in its context, and surrounded by more times journalism. And are we being fairly compensated for it? And I would say in the case of Facebook, we checked yes, yes and yes, so far for their news tab product. You saw us make a different decision when we opted not to continue participation at that time in Apple News. And so I'd say I don't rule out other licensing agreements to come, I think, in general, I don't have anything to report there, but I would say, in general, it feels like the winds are moving in the direction of original journalism being valued in that way through commercial licensing arrangements.

All right. I know we're out of time. This has been fantastic. Thank you so much, Meredith, for giving us your time and your insights today. We really appreciate it.

It's a pleasure to be here. Thank you, Alexia. So you all soon leave soon.

See you soon.

Bye-bye.