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

All right. Let's get started. Just a quick note on research disclosures. For important disclosures, please see the Morgan Stanley research disclosure website. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, I'd like to welcome Meredith Kopit Levien, President and CEO at the New York Times. Thank you so much for joining us.

Thanks for having me, Thomas. It's good to be here.

Yes. So this time last year, the company had just acquired The Athletic and Wordle, and we were up here talking about your integration priorities. Since then, you've refined and launched an all-access bundle, which has crossed over 1 million subscribers in relatively short order. As you look ahead, how should we think about any further evolution of this product set and the go-to-market strategy from here?

Yes. Well, it's good to be here. And a year after all that happened. I'll just start by saying we feel really confident about our essential subscription strategy and really good about the progress we made last year. And to your point, yes, we have more than 1 million people now who are subscribed to the broader New York Times bundle and actually more than 2.5 million who are subscribed either to the bundle or more than one product from us. And in terms of what we're focused on from here, I would say it's continuing to deliver on our vision of becoming the essential subscription for every curious English-speaking person who wants to understand and engage with the world. There are 3 pillars to that, advancing our lead in news, building leadership and lifestyle products that help people engage with their lives and passions and putting those 2 things together in a bundle that makes the Times kind of indispensable, whatever the news cycle, and I'll say within that. So that's what we were doing last year. That's what we're doing this year. There are sort of 2 really big areas of focus this year. One is widening the pool of engaged prospects. You mentioned Wordle, you mentioned The Athletic, I would say, for every product within the Times portfolio, we're very focused on increasing the number of engaged prospects, and we are also very focused right now on exercising our pricing power and monetizing our subscribers in all the ways we can do that. And this is worth saying, we are doing everything I just described against a backdrop of a lot of market uncertainty and headwinds that we're feeling pretty acutely. But even still, even if our growth isn't linear, we are deeply confident just to go back where I started that we're on the right path and have the right strategy to build a larger and more profitable New York Times company.

That's great. Well, you led with news, and there seems to be a greater emphasis these days on bundles as the selling approach. But I think news still sits at the center of the value proposition of that bundle. So I guess, first, what's the right assumption there in terms of the core news remaining the key driver of the growth opportunity ahead? And how does the bundle strategy alter the path of that core news adoption?

Yes. Let me tackle each of those. The first thing to say about news is we believe it is certainly subject to kind of market cycles, but over the long arc demand for the kind of work we do, we believe is only going to go up. The demand for quality, independent journalism in a world that is only getting more interconnected, more complex. So we're feeling all kinds of market headwinds now. We have talked about some of these on earnings calls, the big tech platforms are sending less traffic to news, the news cycle itself has really changed. So we went from like a half dozen years of having these 1 or 2 giant stories that dominated like nothing before. First, the politics story, then even more the COVID story. We're now in a more varied news cycle. And we're also looking at a year this year where I'd say there's not a known kind of expected tentpole news event. But even still, we think demand for news kind of only increases and that news will remain at the center of the audience engine and the value proposition for the Times. But I think what you're pushing on is the degree to which the bundle is really a catalyst with news in it for driving both starts and retention. We certainly saw that last year. It's -- we're thinking last year felt like a tough year everywhere in subs and Times overall, had its second best year ever for net subscriber additions. And I would say that's the bundle strategy in action. Our non-news product funnels definitely played a role in that, games in particular, but that's kind of the strategy at work. And we think we've got a really big market to penetrate of something like 135 million people who speak English and are willing to pay for a digital subscription at news, games or recipes or shopping advice or sports information. And we're sort of just at the beginning of the journey of penetrating that audience, and we believe the bundle is going to help us do that really, really well. We also think the bundle sort of helps us well into the funnel because we know that up to this point, folks who've subscribed to the New York Times bundle, they gauge more, and that has sustained even as we've grown the number of bundled subscribers. And because they engage more, they're more likely to retain better and pay more over time. So it sort of works across the whole of the funnel. And the last thing I'll say is we're going to lean even more into the bundle this year, but we are also still really interested in our stand-alone product funnel for the games, funnel Athletic and so forth, being able to drive people into the New York Times portfolio, even if they're not ready to buy news of the bundle.

Do you see evidence that from a growth starts or new joint perspective that the bundle is reducing the volatility of the ebbs and flows of the news cycle, which historically has been a source of volatility on a quarterly basis for how the subs come in?

I mean the short answer is yes. And I go to my point that we had such a good year in net additions in a moment where the news cycle is changing and where lots of other -- felt like a hard time in subs in the market generally.

Great. Yes. I mean I think drilling down on kind of the positioning of that bundle relative to those stand-alone assets, I think a portion of the bundled subscriber growth that we've seen in recent quarters has been coming from the migration of existing new subscribers into an upgraded larger product. As you kind of look to grow your overall subscriber base, do you see the bundle increasingly as the primary source of new joins? Or do you see that as maybe a part of a deeper part of the funnel for existing single product subscribers to maybe kind of like migrate into over…

Yes. I think the bundle is well-positioned to do both of those things. So if you think about what I just said about, it's a big market. We think there's well over a 100 million people who will pay for digital subscription in English to the things that the Times is now doing within its portfolio. We know our own research tells us that half that audience is open to the New York Times for at least 1 product and something like a 1/3 of the audience is open to the New York Times for 2 or more products. And so to us, the bundle is a way to get at many of those people, even if they're not kind of ready or willing to pay for news yet. And then it also works deeper in the funnel because people who buy the bundle so far, at least engage more, retain better, pay more.

Makes sense. I mean, on the last earnings call, you did speak about kind of some early experimentation for pricing on the stand-alone products relative to the bundle.

Yes.

What's kind of the philosophy more broadly on managing the relative pricing and the value proposition that the bundle has relative to the stand-alone assets?

Yes. So broadly, I would say, since the end of last year, we talked about testing our pricing power on individual subscriptions or news, cooking games for tenured subscribers. And just to remind folks who paid attention for a while in 2020, we kind of methodically have tested in 2019 and into 2020, a tenured price increase on news, and we rolled that out and it went very, very well. So we've taken a similar approach to testing, can you raise price for news, for cooking, for games. And we like what we see so far so much so that at this point we can say that we will raise list price for tenured subscribers for at least news in the first half of this year. And what does that mean sort of relative to the bundle and everything else we're doing, if you assume price rise on news, it is an even more rational choice to buy the bundle. So we think that has 2 effects. It allows us to exercise the pricing power for the tenured individual subscriber and/or it tips them into taking the bundle instead.

The question I get asked a lot these days is Wordle ever going to move into a paid version where it…

The answer I give is I hope you're still playing it because everyone else is.

It definitely is.

Everyone else is.

It's just getting better.

Wordle has been like this unbelievable megaphone for everything else the Times does. And it's been awesome for games. I said earlier that our non-news product funnel played a big role. Last year, Wordle bringing people into our games product and then showing them, "Hey, there's a game here called Spelling Bee, and you have to subscribe to play it." That had a great effect. So we think that there's real power in free Wordle to introduce people to everything else we're doing, and I'll just say it is just as likely for someone to start on Wordle and then become interested or engaged in news as the other way around. So that's like the model working. That's the strategy in action. You come for one thing, but we get you interested in something else and you're more likely to pay, stay, pay more.

Makes sense. Just on the pricing strategy, I think historically, you've talked about an approach of migrating promotional subscribers either into full pricing or some various intermediate stages that you've been experimenting. As we think about the new all-access bundle joiners who are, I think, lapping their 1-year anniversary over the course of this year since you kind of launched that product last year. Does higher engagement that you spoke about on the bundle suggests maybe a different playbook, maybe a greater opportunity for like a greater mix of full price?

Yes. So to answer your question directly, our expectation at this point is that the pattern that we followed for years now with new subscribers, bringing the vast majority of them in at promotional prices and then stepping them up, in some cases in one go, in other cases over time to fuller prices. That pattern is what we're expecting kind of broadly speaking with the bundle. And as you say, we're kind of just at the beginning of that first year of renewals. So time will tell. Two things there. One, our algorithm got a lot of signal or algorithms kind of get better and better. So we get more sophisticated in our approach to doing that; and two, the bundle in its full price is a higher-priced product. So it remains to be seen how well that works. But that's the plan, and we've got a lot of confidence about having done this for years now very, very successfully in news. If I may, can I just talk about the pricing strategy a little more broadly because I think for any of the individual products, and the bundle is sort of broadly the same. The idea is we want to be able to get at everybody under the demand curve, and we think our pricing strategy of bringing people in a promotional prices and stepping them up allows us to do that really well. It certainly has so far. So the majority of subscribers come in on a promotional price and we're able to drive them at the 1-year mark full price. We've done that news. We're going to intend to do that for the bundle. There are some group of people who we think our algorithms tell us we need to engage even more and we bring them up through interim prices in either 1 or 2 goes. And then it's just worth saying there is some number of people who're probably never going to get up to a more full price. And the model is such that the unit economics are so strong for the times. We don't pay to drive most of our starts. And even for those folks, it is -- everything I just described is kind of revenue maximizing. It is both revenue and profit maximizing to keep them even on that lower price. But that's sort of the underlying idea. We've applied that to news. The assumption is now we apply that to the bundle.

Got it. I wanted to touch back on the macro headwinds that you mentioned. We've seen it in the advertising. You did mention subscribers as well, just more broadly from an ecosystem perspective. Has that been a source of pressure on just broader consumer willingness to pay or the conversion opportunity is slower at this moment because of the broader macro situation?

I think there's a lot going on in the market right now, and we've sort of talked about this. So broadly, you've got some amount of macro pressure just on everybody's pocket book. It remains to be seen the degree to which that plays out. I've just described to you that we're incredibly focused on widening our prospect pools and also driving monetization. So asking people to pay more, we'll see how that goes. We think it is, over the long term, absolutely the right approach. Beyond that, and I would say probably more profoundly, the platforms are just sending less traffic to news. That's been our experience so far, and that continues to be the case. What do I mean by that? Facebook said very kind of loudly last year. We're less news in the feed, they stopped the news tab and I'd say that's a signal broadly of what we're seeing from the big platforms kind of with large, and they seem to be emphasizing video, so favoring directing traffic to things that are more video. I would also say kind of beyond platforms and macro economy, there's just -- and I've mentioned this before, but it's worth underscoring changing news cycle and different moments, you're going to have a new cycle that is very, very strong and drives lots of conversion and in other moments you won't. Our model is built for that. Our strategy is built for that. And the point of having this multiproduct portfolio is we can get you to convert for any number of things now.

Right. Well, the changing relationship with large tech platforms is clear in Facebook news, the deal that you had has ended, but there has been also an announcement of a recent new dream approval that's an expansion. Can you talk a little bit about that the opportunity there? Like, what are you expecting to really be able to drive from a content distribution perspective?

Yes. I'd say it's -- the commercial agreements that we have made with Google is just that. It is in the category of something that Times has been talking about for a long time, which is a belief that to the extent we provide value to the platforms and our content that we should be compensated for that. So I'd put it in that bucket. And it is not entirely related or terribly related to the idea that I've just described about the de-emphasis on news or some downshifting to news from the platforms. I'd say those are 2 different things. We're happy -- very happy to have done it. I'm excited about it. If you follow us closely, you'll sort of find that deal generally in the other revenue bucket, and it will begin in earnest this year.

It makes sense. Yes, I wanted to shift quickly also into an area of key focus amongst investors, which is your outlook on delivering margin expansion while also investing behind the business.

Yes.

And you've communicated a pretty meaningful step down in marketing and media spend, which you expect to sustain just given the fact that you're relying increasingly on your kind of organic audience engine. Is that reduction should we think about it as coming from both the brand and the performance-based channels? And how do you think about the right channels to deploy the remainder of what you're seeing in the marketing.

Yes. That's a good question. The first thing to remind everybody is that the vast majority of our starts come organically. So they don't come from paid marketing. It's a minority that are coming from paid direct marketing, and we've now been a brand advertiser for a good number of years, which is about driving sort of perception and sentiment around the time. And yes, as you described, in 2022, we began to see a slowdown in cost growth and actual costs there. And I just -- I want to say that has been part of the plan all along. We've -- and it's tied up in the idea that the vast majority of subscription starts come organically. The idea is we invested into the journalism, into the digital product development and the marketing with the plan that ultimately the journalism in the digital product development in combination, provide such an effective organic audience engine that you can begin to pull back on the marketing. So that's what you're seeing playing out. You asked about brand and direct, I'd say they've kind of come down at roughly the same rate. Those are important. One of the things we've been very careful about is to have kind of a mix of those 2 things in the market. We expect where we are today to be kind of broadly sustainable. I don't rule out that there will be reasons and sort of market cycles where scaling up again and one or the other makes sense.

Yes. Yes, I mean I would love to share more about that organic audience engine, especially in terms of how it's evolved over the last few years. What kind of areas of sophistication in picking up behavior signal kind of lead you down a path where the paid subscriber conversion or the opportunity to drive greater action on paid conversion really is seeing some of the benefits of that.

Yes. So just to step back and give everyone kind of the full picture, somewhere between 50 million and 100 million people every week come to the New York Times and to the whole portfolio of products. And our ability to sort of combine the human created, expertly made journalism, other kinds of content with very sophisticated and getting better and better machine learning and data science is kind of the magic of making that organic engine better. We do that in any number of ways. The first one I've talked about a bit, which is data science helps us know when do we ask you to pay? Like have you had enough engagement such that we asked you to pay or having this conversation earlier today. We used to have this like [indiscernible] where you've got 20 stories, and then we asked you to pay and then it was 10, and then it was 5. Now that is all algorithmically determined. And how we ask you to pay more is algorithmically determined. So that's on the commercial front. We also are getting better and better at knowing what's the next most important thing to show you so that you stay engaged. So on the app or the web home screen or even an e-mail kind of knowing what you should see versus someone else. The best example I can give is when the new jobs data comes out in the United States or an inflation report, that's at the top of the home page in the U.S. The war in Ukraine might be on the top of the homepage outside of the U.S., and there are lots and lots of examples like that. And then we've gotten much more sophisticated with behavioral targeting. The great thing about what we do for living is people want us to show up in their inbox, whether that's news or recipes or shopping advice or any number of things. And they sign up to be alerted from us when things happen. So we are getting better and better using those levers to bring people back. And I'll just say they're kind of endless. At least so far, it feels like they're kind of endless.

Does that mean there are incremental investment opportunities on the tech and the product development side that you still see as bearing fruit and that you want to lean into?

I would say we've had this strategy, invest in the journalism, invest in the product development, invest in the marketing and marketing ultimately comes down. We're going to continue to invest thoughtfully into the product development doing what I just described and also just making the digital product experiences much richer and more unique. But the growth there of sort of the cost growth will slow. It is slowing, and you asked me about leverage -- that digital product development investment creates leverage in the other 2 places. That's how we've gotten to leverage in the marketing investment. And even with the journalism, we are able to sort of match the thing, obviously, lots of human judgment goes into what you see on the homepage of the New York Times, but in many cases, as I described before, we're also now able to use our tech to show you that next most interesting thing that you should see based on what we know about it.

I see. Well, speaking about the newsroom, I think the scale of your newsroom has only kind of grown even as some of the other media and new companies, you hear about undergoing restructuring and layoffs. Even as kind of the spending flows there, do you see opportunities to keep widening that competitive moat from a content perspective? Like what areas of coverage do you see more opportunities to maybe expand and go deeper on?

My short answer is yes, so it's kind of modest platform investment. 2 things in news. One, just continuing to cover the world in all of its breadth is incredibly important to us. And we're relatively well-placed for doing that now, but we're now 13 months into a war in Continental Europe, and that obviously requires continuous investment to be able to cover as well as we are. But generally, I would say that investment is well-placed and we invest more kind of thoughtfully year-on-year. Broadening the formats, audio has been a big area of investment that can -- hopefully, you're all listening to the Daily and Hard Fork and The Ezra Klein show, and we are investing in making sure that we get you to understanding our journalism across data journalism, visual journalism, multimedia, often all of those things together. So I'd say that's where the investment is going there. And the rest of the portfolio, sports, huge opportunity. We bought The Athletic to be a global leader in sports journalism, not just to add 1 million subscribers. Games, we keep investing and we just added Sudoku puzzles to the app, and we made 1,000 recipes last year. So that's where that investment goes.

Okay. Yes, it makes sense. Just wanted to touch on the advertising before we ran out of time. The recent performance has shown some pretty strong resilience despite the broader macro uncertainty. How would you characterize kind of where we are in the current environment? And maybe speak to some of the impact you're seeing from some of the first-party data initiatives around -- you mentioned podcasting and audio. How is that playing into kind of the core strength? And what are things you see there?

Look, current environment is hard. We're feeling the pressure acutely, I imagine, alongside everybody else. If I step back, what I would say is we feel really good about kind of the underlying digital advertising business at the New York Times. We've now got a really rich trove of first-party data from the enormous signal we have from a huge registered user base and also is a giant amount of pages they turn in content, they see billions of page views every month. So the first-party data is really working relative to other premium publishers. We've got high-performing ads that really works. You pen that to premium ad canvases, the Times environment doesn't have too many ads. It's got -- the ads work, and then we've got this growing suite of audio that continues to be very enticing to marketers to be associated with. So difficult current environment. We feel good in the big picture and expect digital advertising to be a medium and long-term growth driver. That's what we're aiming for.

Okay. Great. You're also 6 months into launching advertising on The Athletic.

Yes.

So any key differences there in the playbook in terms of building that ad opportunity relative to kind of the core New York Times website?

Yes, let's -- the same is we're going to build premium canvases first-party data really grow the engaged audience for The Athletic, which will help us grow the ad business. And it's fun, and we're really optimistic about having a business in sports. There's a lot of marketer interest there, particularly in the sort of premium way we're going about it. We have already seen an ability to attract new advertisers, beer, other kinds of beverages that we weren't getting on the Times. I think we're just at the beginning of that. And we are attracting more money from different campaigns from the wide base of advertisers the Times already have. So we're optimistic. It's going to take time to build the engaged audience on The Athletic, but we feel quite excited about the advertising upgrade.

Great. Maybe just squeeze one last one in. You did recently raise your guidance on returning capital to shareholders. What's your outlook on just any potential areas of opportunistic M&A, especially as you still kind of build your cash balance with the remainder of that free cash flow?

Yes. A couple of things. We take a balanced approach to how we think about capital and capital return and you've kind of seen us exercise in all the ways we've taken the dividend up the last couple of years, we've authorized to buy back stock now twice, and we bought The Athletic. And I would say we do not rule out that there's more M&A to come. It is not our current focus. We are extremely focused now on this very wide, very rich portfolio of products that we think has a lot of running room within it. And our present focus is on executing really well across that product portfolio with many levers still to pull.

Great. Thank you so much. I think we ran out of time.

Great. Okay.

Thank you so much for being here.

Nice to be here. Thank you.