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

All right. I think we'll go ahead and get started.

Sounds good. Nice to see you.

Nice to see you. Quick important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. With that, I'm Thomas Yeh, a Morgan Stanley media and entertainment analyst, and we are really excited to welcome back to the conference Meredith Kopit Levien, President and CEO of The New York Times. Thank you so much.

Very happy to be here, Thomas. It's nice to see all of you.

Well, thanks for coming back. I wanted to kick off with a long-term view question about the growth drivers of the company. We're now almost 2 years relative to the Investor Day that you had where you unveiled the strategy for an all-inclusive New York Times bundle. You set key financial milestones for subscribers and for adjusted operating income as well. The world has changed a lot since then. Like, what has and what hasn't played out? And what are the growth engines that you still see as your vision for how to grow the company?

Yes. Well, I'm really happy to be here, and I'm really happy to start there. And probably the most important thing I can say is that our vision for the essential subscription strategy, which I'll describe in a moment, is very much still intact, and we are as confident in it, 2 years in, as we've ever been. And I'll say the strategy was designed to build resilience in what we thought to be a rapidly changing market and information ecosystem. And I think it's done that. So we feel really good about where we are. I'll just remind everybody what it is we're aiming for here. We want The Times to be, and believe The Times can be, the essential subscription for every curious person who wants to understand and engage with the world. And we see ourselves as getting there in three ways: first, by being the world's best news destination; second, by having market-leading lifestyle products that help people make the most of their lives and passions; and third, by putting those two things together in an interconnected product experience or bundle that makes us relevant in the everyday lives of tens of millions of people. And I would say 2 years in, the sort of scoreboard would suggest it's going pretty well. Last year, we became the most engaged news source in America digitally, so by digital time spent, that's a big milestone. We crossed 10 million subscribers, as you know, just over 40% of our subscribers now are to the bundle or to more than one product, which is really important. We actually finished the year with the highest level of subscriber engagement we've had in 3 years, which is important. We proved out. You asked about growth levers. We began to prove out that our non-news products could be important growth levers for the whole of the enterprise and for the bundle. And I would say we also actively manage our cost in a very visible way last year. And all of that, taken together, translated into very strong financial results. As you know, Thomas, we grew adjusted operating profit 12%. We grew margins on a consolidated basis by 100 basis points. We strongly grew EPS and free cash flow. And we expect to grow AOP again this year. We expect that to be weighted more to the back half of the year because of the seasonality of our business. But we think we're well on our way to the midterm targets that you're referring to that we laid out in 2022. So it feels good, on track.

Yes, on track. That's great to hear. I wanted to dig into that comment you made about the essential subscription for the curious minded. You previously identified an addressable market of, I believe, 135 million adults who generally have an appetite to sign up for a subscription for news or gaming or cooking. And I was curious as to your view on that broader TAM and how that's evolved over the last 2 years. And what keeps you confident that you're still in the early stage of that penetration opportunity?

Yes. So listen, we think the audience of curious people in the TAM is at least 135 million people. And by the way, we use the word curious to mean educated, open-minded, living an active life. We think that kind of in the world, there are only going to be more of those people as more people get educated, more people get online, get the means to pay for a subscription, the willingness to pay for subscription. So we see the TAM as having a lot of potential to keep growing. That's the first thing to say. Second thing to say is as we've widened the portfolio of The New York Times and really widened the product set, we are playing in really spaces that have a lot of audience. Games has a lot of audience. Sports, generally, in the world, has a lot of audience. So we see real potential there. And then I would say -- you asked about what signals do we have that the TAM is there and that we can further penetrate lots of them. We've got, at this point, somewhere in the neighborhood of 150 million registered users of The Times. So that is a larger number than our stated TAM. Every week, we have somewhere between, we've talked about this for a while, 15 million, 100 million people who come to The Times. We have a very large number of people who come to us every single day and come directly, meaning they type in newyorktimes.com or they go to our apps, the homepages of our apps, where they get the morning or they listen to the daily, many of those people are already subscribers. And I would just say as a sort of nod to the power of the non-news products, we've got these other funnels now, these growing audience funnels, in places like games where we've got all these people who we haven't even really pushed yet to subscribe. If you think about the tens of millions of people who play Wordle every day. Or even, we announced on earnings, the number is bigger now, it's still growing, that Connections has 15 million people play in every week. We've got huge audiences of people we haven't even asked to subscribe yet. So we think the TAM is big. We think our ability to penetrate the TAM is only growing, and we think we've got a lot of growth levers in the model.

That 150 million registered users number, I believe it was 130-ish million, in that zone, during the Investor Day. So it's safe to say, it's growing.

Think about all the people playing our games. Think about all the people who we've woken up to know you can get sports now in an even more robust way because of The Athletic for The Times, those are all sources of new registered users. Even Wirecutter is a great source of new registered users.

Okay. That's helpful context. Yes. I mean I think, especially given what we're kind of seeing now around the polarization of news and opinions affecting the consumer demand for journalism, is that something that you consider when you think about the audience opportunity? Are you targeting a subset of the broader TAM? Or do you think that you can reach all of them across the breadth of your journalism?

Those are good questions. Let me say a couple of things about it. One, what we do in the world, kind of first and most importantly, is high-quality independent journalism. I think the demand for that only goes up over time. And I actually think polarization makes the world need that even more. And ultimately, products grow, and there is real need for them. So I just can't say that enough. Certainly, in our assessment of the TAM and where we can penetrate, we understand there are some number of people who may not be open to The New York Times, and we have accounted for that in our assumptions about TAM, rate of penetration, where we can go. I'll remind you, we see 15 million subscribers as the next milestone and not an end point in any way. And I would say we also, and just to reiterate something I was getting at before, have these other big products in big spaces with a lot of opportunity to add value to people's lives, in games and sports and recipes and shopping advice where we're pretty early in the journey to doing that and have lots of growth levers. And the last thing I'll say is news itself is not a monolithic thing. The news report of The New York Times is really broad. It doesn't just cover sort of politics and word. It also covers wellness and how to live a good life and culture and many other things. And I think within all of that, there's a lot of room to grow the audience and actually penetrate for subscription.

Great. You spoke also, I think, more recently about an interesting divergence where the engagement of a casual user has declined, but the engaged subscriber appears more engaged than ever since the pandemic. Is that casual user being lost to changes in traffic flow, I think, as you mentioned before? Or is there something else, maybe about apathy relative to passion, in terms of like the split between those two cohorts? And can you reengage the more casual ones over time?

Yes. There's, I think, sort of two questions in there. Let me just say, on the casual user, there are two things happening there. The big one is there's just been like a lot of change in the ecosystem about how publishers form audience. And we talked about that here last year. We've talked about that for a long time. We have long had a strategy that's meant to sort of be resilient to that. And it's based on two things, one, building and scaling direct relationships and giving people plenty of reasons to come and engage with us at our destinations. We have been working on that, I think, in very productive ways for years. And I think the fact that we were able to grow by a strong headline number of subscribers last year in this market, where the casual news audience to every publisher was under some pressure, is a testament to that. And I'll sort of go a little deeper on something I was saying before, we are still growing registered users. We grow them in news. We have an opportunity to grow them strongly from games, from sports, even from cooking and shopping advice. And we are also still getting -- we have lots of running room. By the way, growing registered users means in part getting them to sign up, to get e-mails from different parts of The Times. All of that gives us more ways to be in contact with them where we are less reliant on the broader ecosystem. We also have the opportunity to get people to download our apps. Once they download our apps -- we have 4 app destinations, news, sports, games, cooking -- we can be in touch with them through that in any number of ways. So the model itself is really about building products so good and so valuable in people's daily lives that we're going to get people to them no matter what happens in the ecosystem. The last thing I'll say is we have an opportunity now, a really big opportunity, to just cross-promote. And as each product gets bigger, there is more opportunity to promote the other products. And we are really beginning to benefit from that.

Got it. Makes sense. That changing macro and big tech relationship is something that you've spoken about before. You're in a very public open litigation with OpenAI about the use of your content. I just wanted to get your broader thoughts on how you assess the pros and cons of your next relationship and how that evolves over time with some of these larger players. What are the must-haves and the clear nonstarters in terms of the negotiations and how you think about your value that you provide them?

Let me say something about AI broadly, and then I'll talk about how we think about the relationships with kind of big tech companies and shapers, to a large degree, of the ecosystem. Very broadly, on generative AI, we think in a world where there is a lot of synthetic content, the thing we do for a living, which is human-made journalism, sports information, recipes, games, shopping advice at scale and across kind of breadth of the full range of human experience, is only going to become more valuable. So that's probably the most important thing I can say in this room. And the second thing is that we think generative AI, when used responsibly, in ways that sort of honor our rights, can help make all of those things I just mentioned far more accessible to people. So we are really excited about what we can do with generative AI used responsibly. And we also, like everybody else, think it can make our business, a lot of our business practices, more efficient. As it relates to working with big tech companies, we've got a track record now of doing that. And I would say the broad playbook still applies which is we want to work with the companies and we'll work with the companies that respect the rights that go with our intellectual property that can actually distinguish, in the context of their products, high-quality news and information from other stuff, so distinguish, differentiate, recognize. And we will work with companies where there is fair value exchange and where our business model can be supported. And I think we've got the track record of doing that.

Yes. In that vein, you signed a recent deal with Apple News in regards to The Athletic and the Wirecutter, but not core news. And I wanted to get your sense on what you think the kind of controls you have to be able to put in place -- to limit potential cannibalization of the core direct subscription opportunity, which ultimately, I think, in your words, it is probably ultimately the big, most valuable opportunity to build your relationship with the subscriber and the consumer.

Yes. Broadly, absolutely growing subscriptions is the most important commercial thing, commercial endeavor, we can do. Let me say a couple of things about the Apple News deal. First, we're super excited about it. I would say The Athletic and Wirecutter are both relatively early in their journeys to be household names in the spaces that they play in. That is particularly the case for The Athletic in sports where we have really big ambitions and where, when we acquired it, it was not widely known beyond the passionate subscriber base of about 1 million people who already bought it. So we saw a relationship with Apple News+ actually as a great way to help us build awareness among people who like to engage in news and care about sports. With The Athletic, we saw an opportunity to just get the journalism around many more people. We've talked now for 2 years about how important that is in the journey The Athletic is on. And we think this is a great way to do that. I'll say we're also excited about the deal because we think Apple understands the sort of unique value of both The Athletic and Wirecutter. Again, I'll say, particularly for The Athletic, I think they get that it is rare to have the kind of breadth of sports journalism that we have and the depth of sports journalism that we have. And that's what made them want to work with us. You said right at the very beginning, you're doing it for The Athletic and Wirecutter, you are not -- and I'll say to the audience in case they didn't catch that, we are not in Apple News+ for the core New York Times because we don't feel we need to be, for all the reasons I just said about The Athletic. We feel like we have strong brand recognition already. People know what we do. They have lots and lots of ways to run into our product. On your very specific question, how do we make sure we're not cannibalizing and we're still advancing our strategy, which is to get people to come to our destinations and to build direct relationships, one of the things we'll be able to do -- we've got lots of sort of things in place that will help us do the things I've just described like build the brand and grow audience. One of the things we're excited about is we can grow newsletter subscriptions for The Athletic and Wirecutter with Apple News. And I'll just say on The Times, that is a really fruitful way to get somebody to start a relationship with you. The Athletic has some great newsletters that many more people who are sports fans should be reading. And that's a great way to do that. As far as cannibalization, generally, I'm not worried about it at this point. I mean I think if you want the full experience of The Athletic and the sports news today, you're going to go to the app to get that. That experience is not replicated on Apple News+. And if you want the full experience, The New York Times bundle with The Athletic in it, that's a very different experience.

Got it. Makes sense. All right. Let's talk subscribers. The bundles become a primary way to sign up for The Times. And I think you've made some changes recently to both the entry point price, it's now $1 a week from a promotional perspective, as well as the duration of that promo, I think, has shortened from 1 year to 6 months. Can you help us think through how you plan to operationally execute on graduating the bundle subscribers past the promo phase? And as the opportunity starts to build over the course of the year from all the people who have joined the bundle to date, how do you see executing on that as the main opportunity for ARPU improvement?

Yes. There's a lot going on under the surface here. So let me make a few broad comments. First, I just want to say, there are some people in a 6-month promo. There are plenty of people in a 12-month promo. So it's all different. It's not sort of monolithic at this point. The overarching thing we're trying to accomplish here with all of our pricing is to -- everything we do in pricing, and I'll describe it, is to grow aggregate lifetime value. And what we are doing here, what you're getting at, Thomas, is we now have a strategy that we've honed for many years, starting in news, and we've now been doing it with the bundle, where we bring people in at promotional prices, aggressive promotional prices, typically, $1 a week. There's just something that feels pretty magical about that $1 price point. We get them to engage. We do a lot of work to get them to engage in the products over time. As they do, as they hit a 10-year milestone, we actually step them up in price. We use very sophisticated data science to decide how much do we step them up in price. So there are interim and full prices. We look at their engagement and we say, "How much do we step you up in price?" And then as they become tenured subscribers, we can again increase their price over time as they realize more value. So the whole idea here is bring them in, get them to sample, get them to use the products, get them to really find value in it, get them to pay more over time. And I would say that has gone really well so far, really well in news. It's early, but so far, it's going well on the bundle. This year, the things to pay attention to, it's an important year for sort of what I just described as a lever to revenue growth, we have a larger number of people who are going to come through transitioning to full price on the bundle. By the way, the reason we like them on the bundle and not news only or an individual product is bundled subscribers generally engage more, they stay longer and over time, they monetize better. We have a larger number of people who bought the bundle last year. We've got more and more aggressive promoting the bundle last year. So a larger number of people are going to come in, which should be an important driver of revenue growth and should also be a tailwind to ARPU in 2024.

Beyond engagement, what's the data science model you're using for signals to try to figure out when and how much you should be pushing some of these graduating subscribers?

Yes. That's a good question. What I'll say is engagement is not one thing, it is many, many things. Think about it, we've got multiple products, there are multiple ways to engage with those products in different venues, right? Some people get e-mails. Some people come to the app. Some people go to the website. There's lots and lots of things going on under the surface that constitutes engagement, and we are looking at a lot of different things. So that's primarily how we decide, do we ask you to go to an interim price, do we ask you to go to full price, when do we ask you to do that. I would say we also look at the subscription history.

I mean in the past, I think of your subscriber opportunity as really benefiting in certain moments in time, during heavy news cycles where you've seen a greater opportunity to kind of capture the demand. Does that premise still hold true? Like, does the emphasis on the bundle and this broader value proposition add more stability to the cadence of the opportunity for growth starts over the course of the year? And how should we think about the election, as an example, as a big event that might be an opportunity for you?

Listen, the pattern has been when there is a strong news cycle or anything that drives more engagement, subscriber engagement or broad audience engagement that has generally been good for the model, I will say the whole essential subscription strategy -- and everything I've been describing is really about putting The Times in a position to harness demand wherever it comes from. And there are now lots and lots of different places to harness demand. If you think in a year's time -- we actually had this one slide at Investor Day in 2022 that I still love. It just kind of shows all the things that happen in a year, just to the known things in news, in sports, in shopping and cooking, and so forth. Or even in games, you launch a new game and you have more demand there. Everything we're building is to make it so wherever that demand comes in, whether it's a strong news cycle or something else, we are in a position to harness it. That's essentially what we're building. And I would say, at the same time, the model is also meant to be resilient, so we are not overly reliant on any one news story, or lack thereof, for our growth. We've got a lot of levers to growth in there.

Are you seeing the ability to harness each and every individual moment as getting better over time?

Yes. I mean a great example -- the short answer is yes. And a great example of that is we put up a strong headline net adds number in the fourth quarter of 2023. People said where did that come from, and I was like a little bit of everything. So it's high season for cooking, so cooking was a good driver to sell cooking subscriptions and also bundled subscriptions. We did a bunch of underlying work all year to make our gifting program better. That's work that continues to pay off. We had launched Connections. And the Connections audience in games was really growing. And obviously, the last quarter of the year was a brisk period for news. So that was a quarter where I would say you saw a lot of things working and you saw lots of harnessing of demand across a number of different places. That's the idea, that we get better and better at doing that over time.

Got it. I mean I feel like 2023 was also a particularly notable year for ARPU as an inflection point and it included the benefit of price increases on some of the stand-alone products.

Yes.

Even so, do you feel like the subscribers you identify for full price increase still represented a minority of the overall base? And I was just wondering if you had lessons or maybe your view on the philosophy of additional pricing opportunity on a particular subset of products.

Yes. My very short answer is I think we have kind of learned time and again now that we have pricing power, particularly because every single one of our products is getting more valuable over time. And we are deliberate about the investments we make so that, that is the case. And we think we do have pricing power. I'll say we've now done, in my time, two price increases for tenured news subscribers, both when at least as well, if not better, than we expected. And we also did a tenured price increase on games and cooking last year that went well. And I think those have gone well because the value proposition in each place is increasing. Even in news, I mean we added a subscriber-only audio app to your news subscription or your bundled subscription last year. In games, one of my favorite things we brought online, I feel like we didn't talk about this enough because it suggests more value to come from other places, there are a lot of people who played Spelling Bee. And you could only play the day's Spelling Bee. And toward the end of last year, I forget exactly when, we launched Spelling Bee past puzzles as a subscriber benefit. Like, you now get more, you have more games to play just in Spelling Bee. So I think we have lots of opportunity to take price when we feel like we should as a growth lever. I will say tenured price increases also have the character on individual products, of making it a more rational choice to buy the bundle. So they strategically tip people into buying the bundle which monetizes better, as I've described. So all to say we think we have pricing power, and we'll use it on the path to growing aggregate lifetime value.

What happens to the news-only product over time as a part of just the broader product bit strategy? I mean if the bundle becomes a primary starting point for news subscriptions, should we expect these ultimately increasingly represents a cohort of tenured subscribers who can stick around and have an opportunity for graduating?

Yes. I think you answered your own question on that one, which is we now don't actively market the news subscription because the bundle includes the news subscription. We think it's the best way to get people to experience The Times and to monetize well over time. So as we're growing subscribers, the percentage that are news-only subscribers is getting smaller and they're getting more tenured. So you do have an opportunity over time, as the product gets more valuable, which it is, to either get them to come up in price or to tip into bundle.

Got it. Okay. Makes sense. On advertising, there's been a lot of choppiness in the ad market in recent quarters, I think, both to the upside and then, more recently, in results to the downside. What would you attribute as kind of the primary driver of the low visibility, I think, that you mentioned over the last few quarters? Does that improve with better macro?

Yes. Let me tell you what we see as like the real path of improvement in advertising, and then I'll do choppiness and low visibility specifically. The core of the digital ad business at The New York Times, which we've been building for a while now, is premium ad canvases, so big beautiful ads, relatively a small number of them on each page with first-party data that we've been building and making more performant for years now. That business is growing. That business is growing even before you get to The Athletic. So even before you add The Athletic, the core of the business, the main strategy for New York Times' digital advertising, is growing and it has been growing for a while now. And that's really important because it's where the running room is. We're going to extend those products. We're already beginning to do it, but lots of running room ahead to The Athletic, to games, to the rest of the portfolio. That's what gives us a lot of confidence that the ad business should be a growth driver for The Times, the digital ad business. Choppiness, I'd say, and the low visibility similar, comes from three places. One, we do have a portion of the business, and we've talked about this for a while, that is kind of in partnership or big deals-oriented. The folks who follow us closely would be able to name some of those partnerships. When the economy started to become more uncertain in the second half of 2022, that engine slowed and it just takes a while to ramp back up. It takes a while to sort of see the fruits of that ramping back up. So that's one thing that I would say made the business feel choppier last year. Second thing is some amount of marketer news avoidance with the fact that we had not kind of like gotten as far as we will get in extending ad products well beyond hard news topics and across the rest of the portfolio. So there's a lot of news supply that will come online for advertising that isn't there yet or wasn't there in a moment where we had lots of marketers wanting to work with The Times and not necessarily the place to put them. And I'll just say on that marketer news avoidance, we think that's a temporary thing. I've been in the business a long time, and news is a very culturally important thing, and marketers want to be around culturally important things. And visibility of print, really, really tough, and books of late.

So do you see some of that visibility having already improved? Or is that still kind of a wait-and-see?

I think print is hard. I think we've guided to Q1, but I think I've just described to you a number of things that are happening in the background, including the extending of ads in places that they don't exist yet. So I'll give two kind of vivid examples. We do not have the ad formats I just described in the games as of yet. We've got a lot of people playing our games. So there's real upside potential there. And in The Athletic, where we are really growing audience, you grow audience, you grow inventory, we are doing underlying work to enable first-party data, which is not there yet. So lots of upside potential in advertising, we believe.

So just on the polarized consumer and the impact to marketer news avoidance, you don't see that as a structural issue and this is very...

I've been around a long time. I see it as something that's temporary. And I think we have an answer to when marketers want to work with The Times, which they do, there are plenty of other things we can do with them.

Got it. I mean you've spoken about the changing traffic flow from news aggregators as something you're navigating from a subscription and acquisition opportunity. But I was thinking, what about the advertising component? How should we think about the ad opportunity from an engaged subscriber relative to a total audience perspective given the relative size of those two opportunities? And I think in that vein, there's been, I think, more increased focus on cookie deprecation and the potential impact it might have on the digital advertising opportunity. What are you seeing, anything on that front?

Yes. I'll say a couple of things. More engaged subscribers is like more high-octane gas in the subscription and advertising tank. The more engaged subscribers we have, the more signal we have to build first-party data. So one of the reasons we say when subscriber engagement is going so well is we have more signal and we have more inventory from subscribers from whom we have a lot of signal. That is very good for ad performance. So that's check, good. On cookie deprecation, I would say we have been building for a while now an ad business that should be able to thrive without third-party data. I forget the year, I think in 2021, we stopped using third-party data in our direct ad business. So the sort of cookie deprecation is really limited to the programmatic part of our ad business, which is a minority of the business. And I would say Chrome as a browser -- we've already felt the equivalent of cookie deprecation in other places, Chrome as a browser is a minority aspect of what of our traffic. The last thing to say there is marketers are looking, we're marketers, too, so we know this, marketers are looking for other places to put their money. And we've got lots of great places that do not involve third-party data where they can.

Got it. I think just following up on that non-news opportunity as it relates to ad monetization across cooking and The Athletic and games, how should we think about the relative size of those compared to core news? Do you think over time that could be as large, if not larger, than what you offer as an ad opportunity for advertisers?

I would say it's early. These are very big spaces where a lot of people spend a lot of time. There are spaces that are very marketer-friendly kind of all the time. We've been very happy with the ad performance on The Athletic and the kind of level of interest in The Athletic. And I wouldn't count out cooking and maybe even Wirecutter as a place where we have more ad opportunities. So we're excited about them. I'm going to say it one more time, I think the New York Times core news product is a wide product. News is many topics, and I think the ad opportunity there will be resilient as well, for the reasons I described before.

Got it. Okay. That's helpful. All right. With the last few minutes, I did want to touch on the investment opportunity and costs. We've heard from both you and Will over the last year or so that there's an increased cost discipline. You've said it in your initial remarks just now. As you think about the investment opportunities, where do you expect to see the most opportunity to still gain leverage from here, especially as the digital business keeps growing?

Yes. There's sort of a few questions in there. I think we have real running room for investment to drive revenue in all the spaces that we're playing in. You've heard me talk about sports and games as very big spaces, and I think there's real running room there to do things that are going to bring more people into The Times and be revenue drivers. I think there is still room to invest in a way that is ultimately accretive in formats and making the news report more accessible. We've been doing that for years, and that has gone very, very well. We don't talk about that enough. We have a very high bar for investment. And when we make it, as you say, you're already starting to sort of see leverage in the model, and that's kind of long been planned and it's playing out as you expected. There are many number of variants. I don't know if you're asking about this, but because time is short, I will say one of the places we've been experimenting is with how generative AI, we're very early in this, can make The Times more accessible to more people, which could be a real business unlock. So we've got an early experiment going on in translation, very early, but we're very excited about that. You can imagine the implications. And we are soon to release an early experiment in being able to listen to a lot more of The Times with synthetic voice.

Where do you see the most opportunities to widen your content competitive moat? You spoke about news formats. Is there genres or specific areas at the desk that you think need...

I would say we do not rule out kind of spaces we're not already in within news and beyond news. But I would say we're already in some pretty big spaces. You're asking about news specifically, you can look at the things we're doing in wellness and weather and even just live journalism as all places where we've made investments. And those investments are paying off in terms of a lot of engaged use. And I would say there's running room in all directions there.

Great. Thanks so much. With that, I think that's all the time we have. Thank you.

Okay. Thanks so much.