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

Welcome, everyone. We're super excited to have Will Bardeen, CFO of The New York Times, with us this morning. Will, thank you so much for coming.

Thanks, Jason. Great to be here.

So I want to kick off, I really like your origin story, maybe I have this wrong, but I think you -- before you became the CFO, you were, sort of, integral in designing, sort of, the firm's digital strategy. Is that fair?

Yes. I think that is fair. I've been in the CFO seat for 3 years, but had begun as the head of strategy all the way back in 2010.

In 2010. And I think your story is interesting just because not -- I can't think of many companies that have been as successful in this digital pivot as you have been. So I give a lot of credit for being the, sort of, architect of this. But my question is, as you've watched this strategy unspool over -- what are we now, do you say, 2010?

Yes. So I mean part of the leadership team over the last, say, 15 years, that has -- I mean, I think, at this stage, fair to say, The Times has transformed into a digitally native company that's innovating rapidly.

Right. So what lessons have you learned? Like if I went back and broke into your offices and rifled through your files to see like what you said then, what you're doing now, what things have changed? What's exactly the same?

Yes, that's a great question. So I might highlight a few things that were really effective over this period for The Times. And the first one, I would say, use the word differentiation. And what I mean by that is in the digital ecosystem, sort of, awash in all sorts of content. Really a relentless focus on differentiation is critical. And what that has meant for the New York Times is continuous investment into original, independent, boots-on-the-ground journalism, actual reporters reporting last year from 150 countries around the world. And we've continued to invest in that at a time when honestly, most organizations have been doing the opposite. And so to, sort of, put some numbers on that, 10 years ago, we had about 1,000 people working in our newsrooms. And right now, it's about 3,000. So continued investment. The second thing I would really highlight, maybe a little bit more from the digital product standpoint, is habit and the recognition of designing products around essential habits in people's daily lives and recognizing that there are multiple habits that The Times can do better than anyone else. So we can focus, sort of, on surrounding curious audiences and a bunch of essential habits. So what are those? Obviously, what should you know in the news every day, but also for sports fans following your team, for home cooks, what are you cooking for dinner every night, and then for everyone now, young and old, how do you spend a little time having fun every day in a way that's actually healthy for your brain, so our puzzle games, which are going so well. So that habit is really critical. And then the last dynamic, which I don't think we say, sort of, a digitally native company now, but in a transformation period, just the importance of technology and building a scaled digital technology platform, and that means lots of engineers and data scientists and not just to ship products, but really embedded cross-functionally in everything we do. So everything from content recommendation to pay flow optimization to pricing. And so that really being a digital company now. And those are, sort of, 3 things I'd highlight. That's brought us today to our -- what we call our essential subscription strategy, be the best news destination in the world surrounded with leading lifestyle products and then interconnect all those things into a really compelling bundle. And it's been working as designed. I mean, over the last few years, I think our annual average adjusted operating profit growth in the mid-teens. So working great. And then you, sort of, asked like what are you surprised by or what's sort of different. I have to honestly say that if I roll back, I've been doing this for a long time, but if I roll back even 5 years ago, I never would have expected that the size of the opportunity we see in front of us just keeps getting bigger. And I think the specific thing I'd highlight there is video. And I would not have said, we're saying it now, that we absolutely believe we're on the path to being the preferred brand for watching, not just reading and listening, and watching not just news but around sports and cooking and shopping. And that's a huge new market for us. So very exciting. And we're doing all this. I think we were chatting about this before from a position of real financial strength. So generating a lot of free cash flow, a healthy balance sheet. And what that means is we have the financial flexibility. We're very disciplined financial flexibility to be both nimble and ambitious as we pursue that opportunity.

That's great. I've noticed, to your point around daily habit, that Spotify has begun to talk about the best predictor of low churn is not the quantum of engagement, but it's more the -- your propensity to engage with their app every day. Is that ...

So we've always talked about it. We've used the word frequency, and we have essentially active days in a week. So very similar context. I mean breadth and depth is also important, and we -- but it's really that habit. It's the frequency of those things. And our strategy, to your point, has been very deliberate in recognizing all the different places we can build that in people's lives where The Times can and does, we believe, do that better than anyone else.

Yes. It's got to be so interesting. I mean I just can imagine in the old paper analog world of The Times, you'd sort of print a newspaper, you ship it out and there was just -- there wasn't any, sort of, tactile feedback in terms of what are consumers engaging with, how often, what periodicity. And so it must be great to have all of this digital data to be able to...

Yes, that's right. And that's where the technology really comes into play, the facility to understand that and kind of use it to optimize.

So there is this, sort of, meme that's running out there that I know is not new, but it just, sort of, gets a little bit louder, I would say, every quarter, which is publishing companies, sort of lamenting that the referral traffic is, sort of, coming under pressure. And some of it is just the algorithmic changes that Google might be making. And I think it's, sort of, become a little bit louder for investors because of AI overviews where people feel like Google just wants to keep you inside their ecosystem as all these AI models want to keep you on the ecosystem. You said that you're not immune to that, but when I look at your digital ad revenues, you've beaten guidance in 5 of the last 6 quarters. So it's this weird situation where investors are inking about lower referral traffic. You've acknowledged maybe it's a bit of a headwind, but you keep beating more quarters than not. So what is driving your ad strength?

Yes. No, that's a good juxtaposition. So yes, I mean, certainly not new for us. Over the last few years, we've been talking about how the ecosystem is changing. We're navigating it. We're putting up strong results even with all that. And these tech companies are making moves that are, sort of, shaping that. I think the important thing for The Times to recognize within all that is how much throughout this whole period we've been relentlessly focused on direct relationships with -- and subscriber engagement. And what that means is having people -- getting people to seek us out directly because of the brands and the high-quality products that we have in the market, and really developing, as I said, these lifelong habitual relationships. And so when we talk about, sort of, what we're seeing in advertising now, and I wouldn't have said this 5 years ago, the reason why it's working so well is for the same reasons the subscription and consumer business is working. One, we're in huge spaces of cultural interest, these multiple spaces, news, sports, cooking, games, shopping. We have differentiated products and coverage that continue to get better. We're generating scaled levels of engagement across that whole portfolio. And then in the case of advertising, our ad products, we have proprietary ad products that really work. And so essentially, what we're seeing is across this portfolio, more advertisers than we've ever had before and because the ad products work, increasing shares of wallet from the advertisers who are running and we're not even -- it's important to say because I talked about the importance of video. We're still very much in the early innings, very little of this ad growth right now has anything to do with video. So that is something that is, sort of, a benefit out in the future for us. And all of this is making us quite optimistic about growth in advertising.

So when you say ad product, I sort of maybe naively think of just other's ad impressions. I don't really think of it as a product. So when you say ad product, what do you mean by that?

Yes. So briefly, I'll give the, sort of, main ad product we have is a beautiful, sort of, proprietary rich canvas called Flex Frame. It's our own product. And it's a great place visually for advertisers to be, both on the web and in our apps. So that's an example. And then beneath that, we have huge amounts of first-party data as well as one of the first things we did with AI is create one of the first AI products that enabled us to much more, sort of, thoroughly target audiences on behalf of our advertisers across our portfolio using AI, we call it BrandMatch, and that's been really effective. So when you combine great proprietary units with data generated from our subscribers extended through AI technology. It's just been a very effective differentiator in the ad market.

Okay. So ad numbers have been good. You said it's not really a function of video. We're still in early stages. When I go back and look at how you guys have articulated your video strategy at, sort of, as these 3 phases, sort of ramp up production then drive engagement and then from that engagement, monetize. I'm sure there's some overlap in terms of those that aren't discrete, but can you just give us a little bit of color on where we are on each one of those relative to today and where they might be.

Sure, happy to do that. Yes. I mean, I -- make no mistake, I said this before, our ambitions in video are very large. So the way to think about this is over multiple years, the phases we've mentioned, production ramping up production, generating engagement around the content and monetization. We are always -- we're thinking about all 3. I mean a successful strategy requires from the very beginning, conceptualizing all three, but because of the nature of the ambition we have, there is a bit of a phasing in terms of the way we approach this. And we're very much, I would say, squarely in the production phase. And so what do we -- let me say a little bit about more of that. This year has been a year of really ramping up the amount and nature of video. And I put those in probably a few categories. One is, sort of, short-form news clips. The second category being video investigation, sort of, native journalism in video. And then the third are our shows. So really compelling long-form shows in politics and sports in -- basically across the portfolio. And what's important to recognize about this content production, we're not recreating a global news gathering effort in order to do this. So we have, through these 3,000 journalists around the world, we have an infrastructure to actually generate the hardest part of this. And then we're layering on top essentially video production capability. And so in terms of being able to leverage, sort of, an existing cost base, if you will, and just already a differentiation, it's really attractive. So that then obviously, it doesn't help if you're creating all this content and people aren't watching it. So engagement is very important. So how are we thinking about that? Well, first of all, I think anyone who's seen our flagship app has seen how we're continuing to expose this video in more ways. So we now have a Watch tab for short-form Watching. And then we just introduced recently a Shows tab to be able to see our shows, which many of them starting out as podcasts, now video shows. And that is definitely increasing engagement within the app. And then we also recognize there is a huge opportunity, particularly in video form given the scaled video platforms to take both our long form and our short form and selectively offer that off-platform, long form on YouTube, Amazon, short form, Reels, TikTok, et cetera. And this is just a real opportunity to expose many more people to The Times journalism and ultimately get the brand out there as The Times is the place to watch. Over time, we found we can bring people back and get more and more people engaged on platform as well.

Is there any content that you produce that you're, sort of, not, sort of, pushing out in a promotional way off platform?

I would say we're always making trade-offs about exactly what to put on and what to put off. And we're very thoughtful about that and always have been. It's not an either/or for us. We've always seen this as a way of making sure we're enabling sampling, getting new audiences, new and -- new formats, whether it's audio in Spotify, for example, The Daily really took off as a, sort of, off-platform and has become a part of essentially the full value proposition of The Times. And then that brings me to monetization because the theory of monetization here and the practice of monetization is not too complicated, given the way that we are, sort of, experience with this. The 2 obvious things I'd say are when you get scaled engagement in video, we're absolutely confident in the premium advertising opportunity. But also just as you're increasing the value of the product experience, it will, we believe, absolutely continue to fuel the subscription business both by bringing more people in new audiences as well as increasing engagement for our existing subscribers. We believe that this is mostly additive. It's not replacement time. These are new experiences and new content. And that helps with retention and ultimately, subscriber monetization. So we're very excited about it. And we're doing -- imagining all these things, 3 things at the same time, but making sure we're building for the long term.

So can I share with you one of the things that surprises me in, sort of, the digital transition. I'm still dumbfounded by this, to be honest with you, and it has to do with book publishers, which is here we are, 1/4 of a century plus into the internet, everything is digital now. And I go look at the book publishers, not enough. 75% of their revenue still comes from the physical paper book, only 25% from all their digital products. And I just think like, okay, there's something about the readers, whoever is a book reader that just doesn't really want to go down this digital path. Is there anything like in your New York Times users that resist video or anything that you're seeing where it's just not where you get, sort of, a counterintuitive reaction where I would think, well, video is great. Everyone likes video. No one reads anymore. That would be my knee-jerk reaction.

I mean short answer is no. This isn't a -- first of all, it's really important to recognize this is not -- we're not moving people away from text reading and audio listening into video. It's -- and it's augmented. And we've always seen this with the media generally, but the time, specifically, that as we add new things, we just have more reasons for more people to engage with us more frequently. And that's everything we are seeing about video, everything about what we're building in video. We expect that to be the case here, too.

Okay. I'm going to shift to expenses now. So I was looking at your expense guidance. Third quarter '25, 5% to 6% growth, a quarter later, 6% to 7% growth and then more recently, 8% to 9% growth. So for investors that are looking at this, they're like, what is going on, like the expenses are accelerating. What's causing the acceleration? That's my most basic question. What is it that you're investing in that's causing a step-up in cost growth?

Yes. As the CFO, I very much appreciate this question, obviously. But look, I mean, at the core of this, what you're seeing in our expense growth rates is the continued, sort of, disciplined investing into the strategy. And in our case, into the journalism and digital product experiences that we think will be continuing to drive a great return, healthy long-term revenue growth. And video is the one that probably the most notable example that you're seeing in the numbers. But that's the core of it. It's our strategy, kind of, as we've laid it out, investing into journalism and digital products.

So one of the -- one of the observations I have, I think this is true is that in the last 2 quarters, your expense growth has been higher than your guidance. So I appreciate, sort of, the deliberate investment that you're making, but it feels like something else is going on in addition to that, that's, sort of, causing expenses to come in higher than whatever you thought they would do 90 days before. So what's driving that?

Yes, that's -- it's pretty simple. I'd say this is a good problem to have, which is simply that we've outperformed our revenue expectations. And so on a, sort of, marginal basis, haven't predicted the revenue outperformance and then when that comes in, particularly with things like incentive comp, on the margin -- in the quarter, you see a little bit higher than forecast expenses. So that's been the reason in those couple of quarters that's happened. I mean I think what I would want to do is step back and say, even with this, overall, we've seen very healthy revenue growth and very healthy adjusted operating profit growth. So in the context of our strategy, this is it working as designed. And nothing about what we've seen here and what we're demonstrating changes our overall framework for how we and we would want our investors to think about our financial framework, which is continuing to grow revenue in a healthy way and AOP in a healthy way. And so therefore, sort of, being disciplined on our cost growth and making the investments that we believe will continue to drive that, both healthy revenue growth and healthy AOP growth into the future.

So is it fair to say you would be surprised if we entered a period where the expense growth was faster than the revenue growth?