New York Times Co (NYT) 2021 Q2 法說會逐字稿

Good morning, and welcome to The New York Times Second Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Harlan Toplitzky, Executive Director of Investor Relations and Financial Planning & Analysis. Please go ahead.

Thank you, and welcome to The New York Times Company's Second Quarter 2021 Earnings Conference Call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer; and Roland Caputo, Executive Vice President and Chief Financial Officer.

Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call. These statements are based on our current expectations and assumptions, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2020 10-K and subsequent SEC filings. Given the impact of the COVID-19 pandemic had on our business in 2020, we will also present certain comparisons of our operating results in 2021 to 2019, which we believe, in many cases, provides useful context for our current year results. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliation to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com.

With that, I will turn the call over to Meredith Kopit Levien.

Thanks, Harlan, and good morning, everyone. (technical difficulty) on our path to scaling direct, paying subscriber relationships. We now have more than 8 million paid subscriptions across our digital and print products, a testament to the success of our strategy, the strength of the market for paid digital journalism and our unique opportunity to meet that demand. That milestone follows the second quarter with strong revenue and profit growth, modest net subscription additions and progress on our -- advancing our underlying model.

Total subscription revenue grew 16% in the quarter, the largest year-on-year subscription revenue gain in more than a decade. Advertising revenues surged compared with the same period last year. The combined strength in these 2 revenue streams more than offset cost growth, and as a result, we recorded $93 million in adjusted operating profit, a 78% improvement compared to the same quarter in 2020. We saw moderated growth in net subscription additions in the second quarter, which we expected given that Q2 is traditionally our softest of the year, and we were comparing against last year's historic results at the beginning of the COVID crisis.

We added 142,000 net digital subscriptions with roughly half in News and the balance in Cooking and Games. We continue to expect that our total annual net subscription additions will be in the range of 2019, although that remains difficult to predict with precision. Our advertising performance was better than expected, with total revenue up 66% year-on-year. As with subscriptions, the biggest factor in the gain in advertising (technical difficulty) up nearly 80% year-on-year and more than 22% over the same period in 2019.

It was also another strong quarter for demonstrating the breadth, reach and impact of our journalism with unparalleled coverage of the devastating events in South Florida, the political crisis in Haiti and the still surging pandemic. Pulitzer prizes were announced in June and The Times was the only news organization to win more than 1 this year. Pulitzer writer Wesley Morris won the Pulitzer for commentary for his urgent and moving essays exploring the intersection of race and culture. And for the seventh time in our history, The Times won the Pulitzer Prize for Public Service, journalism's highest honor, for our coronavirus beverage.

This body of work is the quintessential example of the expansive journalism The Times can uniquely deliver. More than 1,000 journalists contributed to our coronavirus reporting, as did many others across the company, including engineers, data scientists, product designers and product managers. The work of our data journalism team, in particular, is worth noting. The Times launched an around-the-clock effort to track every known coronavirus case in the U.S. and made that data publicly available.

That coverage continues to fill a vacuum that has helped local governments, health care workers, businesses and individuals better prepare through each stage of the pandemic and has also brought us new audiences who rely on and return to our products repeatedly. Demonstrating the strength of our journalism across platforms and subject matters, in mid-July, The Times was nominated for the Primetime Emmy Award for Best Documentary for our film, Framing Britney Spears. The film ignited intense scrutiny of court-ordered conservatorships and continues to resonate with audiences globally. We produced it as part of our New York Times Presents series, a partnership with FX that was recently extended.

I'll turn now to our underlying revenue drivers in the quarter and share some specifics about the work ahead. As we've said in prior calls, we expect to feel the effects of comparing our results against last year's heightened news cycle for the remainder of the year. And we believe that while the news cycle will continue to have significant effects on our subscription growth, we are increasing our control over the levers of the model. Our audience in the second quarter was below the historic highs of 2020, driven largely by declining engagement with the COVID story domestically. But as we saw last quarter, our average weekly audience was larger than in the same period in 2019 and every prior period.

For the second quarter in a row, we were also pleased to see readers engage across a broader range of storylines than they did last year. We view this as a positive leading indicator of future net subscription additions as we have seen that experiencing the breadth of our report correlates with paying and staying. We're leaning into that breadth both within our core news experience and across our adjacent products like Cooking, Games and Wirecutter, by experimenting more aggressively with programming to expose more of our audience to the full value of The Times.

With sustained strength relative to 2019 and prior years in overall audience and with more than 100 million registered users, we are also experimenting more aggressively and we believe more successfully on our customer journey and access model. And as our pace of new registrations continues to be healthy, we have now begun to focus even more on getting registered users to subscribe and to engage more deeply once they do. That experimentation with our access model has given us increasing insight into when our readers are ready to subscribe, which in turn is leading to higher conversion rates. As a result, our digital monthly net subscription additions have grown each month since lows in March. We believe we have additional room to optimize conversion as we strengthen engagement in key areas like newsletters and our growing body of live experiences.

Last quarter, we noted that the newest cohort of news subscriptions appear to be retaining slightly less well than in the past, which contributed to a small increase in overall churn. Q2 domestic news churn was unchanged from the first quarter and remains at a comfortable level. While we experienced an uptick internationally in noncore markets, we believe our churn overall is generally at a healthy level. We also believe that our increased focus on subscriber engagement and on making the subscriber experience clearly superior to registered and anonymous experiences will help maintain healthy churn levels. And we remain confident in our overarching approach to graduating subscribers from promotional prices to step up and full prices.

We continued in the last quarter to lay the groundwork for a more strategic bundled subscription offering that has the potential to be more widely appealing and uniquely valuable to millions of people in their daily lives. Throughout the quarter, we ran tests on our all digital access bundle, which combines News, Cooking and Games. These tests demonstrated that there is meaningful demand for the bundle and that those who choose it are better at retaining than those who subscribe to only 1 product. Building on these promising results, we plan to do more testing around pricing, positioning and marketing of the all digital access bundle in the second half of the year. And this fall, we plan to launch our paid subscription product for Wirecutter and experiment further with Audm, both of which over time have the potential to widen the appeal and value of a Times bundle.

Given the opportunity we see, an addressable market of at least 100 million people who are expected to pay for English language journalism and a unique moment in which daily habits are up for grabs, we are continuing to invest in the value of our individual products and the broader bundle. That includes investing thoughtfully into our news operations to cover the most important stories of our time and to meet more news needs. It means investing into our adjacent products to meet a broader array of life needs as we have done with Cooking and Games, each of which is now closing in on 1 million subscriptions. And it means investing to build the underlying tech product experience and company culture required for us to scale. We believe these investments will enable us to grow our market share and also to build a larger and more profitable company over time.

I'll turn briefly now to the drivers of advertising growth. Our ad business is no doubt benefiting from an advertising market recovery, but we also believe we're seeing the effect of the groundwork we laid to build competitive advantages. Those advantages include our robust first-party data targeting capabilities, our large and growing suite of hit podcasts and our ability to create unique multi-platform collaborations that help marketers launch new ideas and products into the world.

Now before I turn things over to Roland, let me share an update on the company's ongoing emphasis on an investment in building out a world-class digital product development team. As we focus on scaling our strategy of journalism worth paying for, our ability to attract, develop and retain top talent in areas well beyond journalism is paramount. This is especially the case in engineering, which is now one of our largest business side functions. I'm happy to say that later this month, we'll officially welcome a new Chief Technology Officer, Jason Sobel, who joins us after 5 years at Airbnb and half a dozen years at Facebook during its early days of growth. Jason joins our other highly talented Times leaders who is steering our digital product development work to its next phase of growth.

And with that, I'll turn it over to Roland.

Thank you, Meredith, and good morning. While subscription unit growth was modest in the quarter, substantial growth in both subscription and advertising revenues, which were a result of fundamental strength in the underlying business, delivered strong financial results, especially when compared with the muted results from the second quarter of 2020. Adjusted diluted earnings per share was $0.36 in the quarter, $0.18 higher than the prior year. We reported adjusted operating profit of approximately $93 million, higher than the same period in 2020 by $41 million and higher than 2019 by $37 million which is an important comparison point given the impact that the pandemic had on our 2020 results.

We added 77,000 net new subscriptions to our core digital news product and 65,000 net new subscriptions to our stand-alone digital products for a total of 142,000 net new digital-only subscriptions. As of the end of the quarter, we had approximately 930,000 Games subscriptions and approximately 830,000 Cooking subscriptions. The international share of total new subscriptions remained at 18% as of the end of the quarter. Total subscription revenues increased 15.7% in the quarter. As Meredith said, this is the highest rate of subscription revenue growth in well over a decade, with digital-only subscription revenue growing more than 30% to $190 million.

Digital-only subscription revenue grew as a result of the large number of new subscriptions we have added in the past year, continued strength and retention of the $1 per week promotional subscriptions who graduated to higher prices, and finally, the positive impact from our digital subscription price increase, which began late in the first quarter of 2020. Digital news subscription ARPU for the quarter increased approximately 1 percentage point compared to the prior year and nearly 5 percentage points compared to the prior quarter, which marks the first quarter with a positive year-over-year result since 2013.

This improvement was primarily a result of subscriptions graduating from their introductory price to either a full price or an intermediate step up price in the quarter as well as the continued benefit from price increases on our more tenured full price subscriptions. ARPU related solely to domestic news subscriptions increased approximately 1.5 percentage points versus the prior year and nearly 5 percentage points versus the prior quarter. We continue to expect to demonstrate pricing power throughout 2021 as the impact from subscriptions graduating from discounted promotions and the price increase on tenured digital subscription continues to provide a tailwind to digital news ARPU throughout the year.

Print subscription revenues increased more than 1% as home delivery revenues benefited from the first quarter price increase, which more than offset declines in subscription volume. Total daily circulation declined 4.5% in the quarter compared with prior year, while Sunday circulation declined approximately 1%, which represents a significant improvement in the recent trend following the steep declines experienced as a result of the widespread business closures and a decrease in commuting of travel as a result of the pandemic.

As compared with 2019, print subscription revenues declined 5.5%, as single-copy and international bulk sale copy declined, while revenue from domestic home delivery subscriptions was flat. Total advertising revenues increased more than 66% in the quarter as digital advertising grew nearly 80%, while print advertising increased by 48%, largely as a result of the impact of the comparison to weak advertising revenues in the second quarter of 2020 caused by reduced advertising spending during the COVID-19 pandemic.

Digital advertising was also growing by our proprietary first-party targeted ad products and expanded audio product portfolio. Versus 2019, digital advertising grew 22% as a result of higher direct sold advertising, including traditional display and audio. Second quarter digital advertising revenue exceeded the guidance we gave in early May, largely as a result of better-than-expected performance from larger technology and financial services advertisers spending heavily on our targeted and audio products. Meanwhile, print advertising increased 48% as compared with 2020, primarily driven by growth in the luxury, media, technology and entertainment categories. Despite this impressive level of year-on-year growth, print advertising revenue lagged 2019 by 33%.

Other revenues increased nearly 9% compared with the prior year to $47 million, primarily as a result of an increase in Wirecutter affiliate referral revenue. It's worth noting that midway through the second quarter, we began printing The Wall Street Journal, Barron's and The New York Post out of our College Point production facility significantly increasing utilization of the company's wholly owned printing plant. Adjusted operating costs were higher in the quarter by approximately 15% as compared with 2020 and 6.5% higher than 2019. Cost of revenue increased approximately 9% as a result of growth in the number of newsrooms, games, cooking and audio employees, other costs associated with audio content, a higher incentive compensation accrual and higher subscriber servicing and digital content delivery costs. This was partially offset by lower print production and distribution expenses.

Sales and marketing costs increased approximately 35%, driven primarily by higher media expenses, which has been reduced dramatically last year in light of the historically strong organic subscription demand experienced in the early months of the COVID-19 pandemic. When compared to 2019, sales and marketing costs decreased 14% as a result of lower advertising sales costs, partially attributable to a workforce reduction that we enacted in the second quarter of 2020, as well as lower media expenses. Media expenses in 2021 was 14% lower than in 2019. It's worth noting that third quarter 2020 media expenses were also significantly favorable compared to 2019, which will make for another difficult comparison in the third quarter of 2021.

Product development costs increased by approximately 28%, largely due to growth in the number of engineers employed and a higher incentive compensation accrual than we had recorded in the second quarter of 2020. I'll again reiterate that we plan to continue adding to head count in this area over the foreseeable future, as we expect to continue leaning into investments in product development as well as on our core news and stand-alone products to drive growth. General and administrative costs increased by 6%. And when you control for severance and multiemployer pension withdrawal obligation costs, G&A costs would have increased by 19%, largely due to increased head count in support of employee growth in other areas, higher outside services and a higher incentive compensation accrual.

Our second quarter cost growth came in at the low end of the guidance we issued on our first quarter call in early May, largely as a result of slower-than-expected hiring for our growth initiatives in a tight labor market. We had 1 special item in the quarter and nearly $4 million charge resulting from the early termination of one of our tenant's leases in our headquarters building, as we add space to accommodate growing head count to support our growth initiatives.

Our effective tax rate for the second quarter was approximately 25%. As we've said previously, we expect our tax rate to be approximately 27% on every dollar of marginal income we record with significant variability around the quarterly effective rate. Moving to the balance sheet, our cash and marketable securities balance ended the quarter at $947 million, an increase of $56 million compared to the first quarter of 2021. Company remains debt-free with a $250 million revolving line of credit available.

Now let me conclude with our outlook for the third quarter of 2021. Total subscription revenues are expected to increase approximately 13% to 15% compared with the third quarter of 2020 with digital-only subscription revenue expected to increase approximately 25% to 30%. Overall advertising revenues are expected to increase approximately 30% to 35% compared with the third quarter of 2020 and digital advertising revenues are expected to increase approximately 40% to 45%. Other revenues are expected to increase approximately 5%. Both operating costs and adjusted operating costs are expected to increase approximately 18% to 20% compared with the third quarter of 2020 as we continue investment into the drivers of digital subscription growth and comp against another quarter of low spending last year as a result of actions taken during the first year of the pandemic.

And with that, we'd be happy to open it up to questions.

(Operator Instructions) Our first question comes from Vasily Karasyov from Cannonball Research.

Meredith, I wanted to ask you this. Compared to how you felt about your net add guidance for the full year on the last quarter call, are you feeling more confident or less confident? And if so, why? And if you -- if it's unchanged of the level of your confidence, what would change that?

Thanks for that, Vasily. I would say it's unchanged. So I'll reiterate what I said in the prepared remarks, which is our outlook at this point, is that we continue to believe we'll finish in terms of net additions broadly in the range of 2019. And I shared in the prepared remarks that we did see -- have seen improvement since March in terms of net additions. So that gives us confidence. I'd say we believe we are continuing to improve our control of the levers of the model, even while the new cycle continues to have effects.

So there is plenty of runway that we believe can help us keep optimizing for conversion. Our ability to use our meter in more sophisticated ways, in more dynamic ways is getting better. We've got lots of engagement around live experiences and newsletters that's superior to 2019. And we think there's opportunity there to apply our customer journey and access model a little bit more deliberately. And as I said in the prepared remarks, we have been testing our bundle and those tests are quite promising. And so all of that gives us the confidence that we're on track for what we've suggested so far. But it remains hard to predict precisely.

The next question comes from Craig Huber from Huber Research Partners.

Meredith, can you talk a little bit about the use of the $1 a week promotion for 52 weeks? It seems like you guys have been more aggressive with that week in, week out here versus maybe what you were doing a year or 2 years ago. Can you talk about that? And also I'd be curious also to hear a little further about churn. How are you feeling about that? And versus 2 years ago, you mentioned a little bit, but just talk about that.

Yes. Happy to answer both of those, and Roland should weigh in with anything I miss. On $1 a week, we are continuing to use it aggressively as a way to bring subscribers in. And you can regard our use of it as real confidence in being able to step people up to interim and full prices at the 1-year mark. So the fact that we continue to use it is a signal that it's really working. And we're 2.5, 3 years into now having sort of tested it and gone through a couple of full cycles now of stepping people up. So we use it because it works. And I think you can assume we're going to continue to use that. We like what we see there.

On churn, I'll address it in 2 ways, and I'll repeat some of what I said in the prepared remarks. As far as using step up pricing and bringing people up at the 1-year mark to interim and full prices, we like what we see there. So from a churn perspective, you can regard the fact that we're continuing to use that strategy as comfort with what we're seeing. More broadly on churn, I'd say we think our churn is healthy. We're comfortable with where it is. We talked in the last quarter about the fact that we've seen a bit of an uptick in churn because the size of the new group that we brought in, they were retaining slightly less well than prior cohorts.

This quarter, we're stable to that domestic churn, which we feel good about and think is healthy. We saw international pick up a bit this quarter, and I'd say that is a -- from what we can tell, that's based on our strategy of more aggressive promotional pricing in noncore markets. But I'd say it's all sort of taken together in a range of comfortable, healthy, sort of in line with our expectations. And I mentioned this in the prepared remarks. I'll say it again. We are putting a lot of work and energy now and more to come into subscriber engagement and really better delineating sort of value in the subscribed state and -- versus the registered state or the anonymous state. We think all of that has the potential to help us on the retention side.

My follow-up, Meredith, if I could. How many people are you expecting to raise prices on with digital subscriptions this calendar year, please?

Roland, I may ask you to quantify that. You may have a better...

Yes. So over the course of the whole year, we expect about a little more than 1.5 million subs transitioning to higher prices from the $1 a week and then about 500,000 on the tenured subs receiving a price increase, some of which have already received that price increase in Q1 and Q2, obviously.

The next question comes from Kannan Venkateshwar from Barclays.

I guess, firstly, on the operating leverage side. I think 2020 and so far in 2021, you have seen a reasonable amount of operating leverage. And I don't think we've seen that before 2020. And part of it is just the cadence of costs. I think it's been pushed out a little more than what you guys may have anticipated. So I just wanted to understand that trend a little bit better. Why are costs coming in lower than what you guys have been guiding to for the past few quarters? Is it just a timing issue? Is it conservativeness? And should we expect this operating leverage to continue?

And then in terms of mix of subscribers, I think, Meredith, correct me if I'm wrong, if I'm reading this commentary correctly. Your churn commentary seems to indicate that domestic churn is stable versus first quarter, but sequentially, international churn is higher. And if I remember correctly, more than 50% of your subs come from outside the U.S., I mean, gross additions, more than 50% comes from outside the U.S. So if you could just talk about that mix and how that shifted over the last couple of quarters or even during the COVID period and how you expect that to evolve, that will probably give us a better sense for what to expect on the subscriber front. I have one follow-up later.

Yes. I'm happy to start with the churn question, and then, Roland, I may ask you to take the operating leverage question. But on churn, it is not half of our starts or new net additions coming from international. It's a lower number than that. And you -- but you did get the first part of what you were asking right, that domestic churn is stable. And as I said in the prepared remarks, it ticked up a bit internationally. And we believe that's a result of the more aggressive promotional pricing we're using in noncore markets, which is still, I'd say, experimental for us. And I think we've got a lot of room to improve there. Roland, I don't know if you'd add anything to that.

No, I think that's exactly right. I'll take the operating leverage question at this point then. So Kannan, overall, like really nothing has changed in our outlook in terms of operating leverage from when we last spoke. So looking longer term, we said we'd get some this year, and we'd expect that to drop some more profit over time. So we do not really have a different outlook on that. But as far as this year, I think there's 2 things going on. One is -- it's a very tight labor market, and we've not been able to hire at the pace we assumed we could.

So that's what's driving some of our costs coming in below our guidance and our expectations, and therefore, that's dropping to the short-term bottom line. The other factor is advertising revenue, which is performing better than we expected this year. That's a complete short-term benefit, not necessarily a longer-term benefit. So those 2 things have come together, I think, to provide a little more bottom line than we expected this year. So it came a little faster. But I wouldn't read into that, that it is really changing our longer-term trajectory from anything else we've discussed in the past.

Got it. And one follow-up for Meredith maybe. Meredith, we've seen some of these headlines around your interest in the athletics. There's a lot of cash sitting on the balance sheet. I mean it is close to $1 billion sitting on the balance sheet right now. If you could just maybe talk a bit more about your strategic goals with respect to use of that cash and how you think about M&A to add on to your capabilities?

Yes. I'm happy to do that. I would say, in general, our preference is to use the strong balance sheet that we have to invest into our strategy and to maximize the value of our product, and we are always open to how we might do that. And we've got somewhat of a track record of doing it, albeit with relatively modest in size acquisitions. But we acquired Wirecutter 5 years ago, and we've now talked in a few of these calls about beginning to experiment with Wirecutter in the bundle. And this fall, we'll do that. We acquired Audm, so a relatively small scale, but important audio -- subscription audio app, which gives us a place to experiment with subscription audio. Last year, we acquired Serial Productions, which we continue to be very, very excited about. That added to the value we provide on the audio storytelling side. So we are absolutely open to using the balance sheet and, frankly, prefer to use the balance sheet to accelerate our strategy. And we will continually evaluate opportunities to do that.

The next question comes from Thomas Yeh from Morgan Stanley.

Realizing it's a little bit early, can you share your views on how you're thinking about 2022 relative to 2021? Given your comments on the new cohort churn that you're working through this year, is it right to assume that dynamic might turn more favorable or more normalized next year as you move through some of the lower quality new joins that happened last year? And then more on the bundling opportunity that you spoke about. Can you give us some color on what to expect on that rollout? Is the expectation that, that expands the subscriber base? Or do you think that it comes through in higher ARPU? Any help sizing that would be helpful.

Yes. Both good questions. I'll start and Roland can add as he sees fit. I'll just say on 2022, we are certainly not in a position to give any kind of a projection. But what I will say is we have been -- we've got a strategy. That strategy is working. We are deeply confident in it. And you can assume that we're going to continue to build on that strategy. This has been a year where we are comparing against a sort of once in a lifetime thus far new cycle from the prior year, and a lot of our work has been to really build resilience in our engagement and in the model, even recognizing that there are going to be continued fluctuations in the news cycle. And what you're hearing us talk about today, what you've heard us talk about in the last quarter, is how we're doing that.

And bit by bit, month-over-month, quarter-over-quarter, we get more confident in how we do that. So that's the work. And I think you can take that as much as we can say about the next year more broadly. And it relates to the bundle. We just really believe that we've got a big market opportunity. We expect there will be something in the order of at least 100 million people who will pay for English language journalism through digital subscription. We penetrated that market now. We've got 8 million -- we just crossed 8 million subscriptions. So that's a relatively modest percentage of that market, and we really believe that we can meaningfully increase that percentage over time.

And I'll say -- I've said this in prior calls. We'll do that on the strength of our individual products, and we're going to keep investing into our individual products. Obviously, our news product is and will continue to be the main driver of audience and engagement, at least we expect it will, and, certainly, that has been the pattern thus far. But to your broader question, we do think and our tests are showing that the bundle presents an opportunity to widen the circle of interest in The Times. So more -- to bring more people into a relationship with The New York Times. Our tests have shown and also our track record have (technical difficulty).

It seems we've -- Meredith's having some technical issues. Jason, do you want to move on to the next question?

Our next question comes from Doug Arthur from Huber Research. .

Harlan, can you hear me?

Yes. You're coming in good.

Okay. I don't know if Meredith is back or not. I kind of -- I think she mentioned better engagement trends toward the end of the second quarter. So I'm kind of interested in how that's carried into the third quarter. Obviously, you've got the Delta variant story of concern that 6 months ago wasn't as big a concern. And I'm still interested as to whether the traffic numbers to the site and engagement have accelerated in the third quarter. And does that have implications for net adds? That's sort of the first question.

So I mean, what I can say, while Meredith is getting her tech straightened out, I mean we wouldn't comment exactly on a short-term trend, but we do see the news is getting more interesting as I think you've witnessed. And what we're seeing though is that the engagement, while below 2020, still remains ahead of 2019. And 2019 was our best year for engagement, so it's better than anything we've seen prior to that. We will see how this news cycle plays out. We just know it does change over time. It seems that from a consumer reader perspective that it is getting a little hotter. But that's -- it's just to see how that will play out.

Okay. And then just 1 follow-up. I mean you talked -- you threw out some numbers on subscriptions for Cooking and Audm and Games, et cetera. I mean that group was up over 40% in the year-over-year in the second quarter. What's the pricing power potential in the non-news subscription area?

Yes. I mean we -- Meredith, are you back? Okay. I'll let Meredith take....

I'm back. So sorry. So tired of doing this from a home office. Carry on.

Did you hear the question?

I did not hear the question, unfortunately.

Pricing power for our Cooking and Games products.

Yes, good question. I'd say broadly as each of those products close in on -- they're both getting close to 1 million subscriptions, I think we've got very big ambitions for both of them, and I don't rule out pricing power as part of that. I would say we are still in early days with both products. They have both proven product market fit. But I think the number of people for whom they can be relevant and the value they provide in people's daily lives is still our focus. So I would say, sure, I don't rule out pricing power over time. But at this point, we are focused on scaling daily habitual use for both of those products, scaling subscriptions and the role they can play in a bundle. And I'm assuming my Wi-Fi is okay and you can hear me.

The next question comes from Alexia Quadrani from JPMorgan.

Just a clarification question, and then a follow-up. On -- when you mentioned that the sub growth was improving each month, month-to-month, I think from the lows of March -- from where you were in March, does that -- is that inclusive through July, or is that just through the second quarter? And then my second question really is on digital advertising. Roland, I think you mentioned that you're seeing better-than-expected growth in digital advertising, but it was short -- the short-term phenomenon for what you can see, if I understood you correctly. And I'm just curious what would give you the confidence in seeing sort of maybe having better visibility or better confidence in longer-term digital advertising growth. I mean it sounds like you're gaining some share of wallet. It sounds like you've seen bounce back from financial services. It just doesn't sound like it's just easy comps here.

Yes. I'm happy to -- Roland, do you want to start?

I can start on the ad question.

Yes.

So I mean, right now, we're real happy with the results. And a lot of it is the market coming back. But, as I mentioned, I think the advent of the first-party targeted products, like that's a real breakthrough for us, and that is selling briskly. We think that's a competitive advantage within the publisher set. So we do think we're grabbing a little bit more market share there. And the same thing with expanding our portfolio of audio products.

So given those 2 things, as long as the market is good, we think we'll continue to have some good digital ad results. We don't kid ourselves that we still know that the platforms is taking most of the dollars and most of the growth. So when I said short term, I'm not -- I don't really mean a quarter. I just mean kind of as far as the eye can see and not to think about it as a big driver for years to come. But as long as the market's healthy, we should be able to grab a good part -- portion of that.

Yes, I'll just -- I'll add a beat, and I think we said this in the last call. We did a lot of work on our ad business over the last couple of years and particularly last year to improve the profile of it so that it -- as it does grow, it's better growth than I do think that last -- to Roland's point. We also understand the limitations and the fact that, that we're playing in a market that is largely made by very, very large digital platform. So it is certainly a better business and we expect it will continue to be a better business, but one for which our expectations are tempered. On your first question, Alexia, I was pointing specifically in my prepared remarks to the quarter that we've just completed. But if you consider the fact that we told you we've just crossed another mile marker with 8 million subscriptions, that gives you some signal as to how we're feeling now.

The next question comes from John Janedis from Wolfe Research.

Meredith, can you compare the domestic and international subs? Meaning do they engage on similar stories? And specific to international -- with the lower ARPU, what does subscriber acquisition cost and lifetime value of the sub look like compared to the U.S.? And longer term, do they tick into the 20%-plus range as a percent of the total?

Yes, good questions generally. I would say on international, you can regard our work there as a sort of very long-term strategy. It's why we are comfortable with the more aggressive promotional pricing, particularly in markets that have not -- have not been core, so markets that go beyond Canada, U.K., Australia. So as we sort of reach out and promote more aggressively beyond the core markets, we see ourselves as playing a really long game here. And I would say domestic is generally ahead of international and particularly when you get to noncore markets internationally in terms of all the ways we would sort of measure the health of the base because we've been doing it longer. But we're very comfortable with sort of where we are internationally and where it fits into our strategy.

On your question about subscriber acquisition cost, I would just point to across the board, so domestically and internationally, we still bring in the lion's share of our starts organically. That is true domestically. It is also true internationally. And so if you should process that for the whole, it's possible that -- I'm not even sure I could give an accurate answer except to say that most of our starts do still come from the product engine and not through paid marketing.

Maybe I'm rounding here. I think in the past, you've talked about in that kind of 50-ish percent plus range. Has that moved around much over time?

What are you referring to, sorry?

The starts organically versus paid.

Oh, it's higher than that. It's higher than that. Majority of our starts across the board come in organically.

Okay. And maybe so from a retention...

Just to characterize, the overwhelming majority come in organically.

Okay. And then from a retention perspective, good to hear on the churn side. For the subs graduating from the promotional pricing, is the proportion of subs increasing to interim compared to full pricing, what you expected? Or are you finding more of a skew to the lower end to retain the subs?

Roland, I'll let you take that one.

Yes, sure. No, we've got a model that does the predicting for 80% of it. And actually, it skews slightly towards going to full price from going to the step up, slightly more than 50%. And that's been pretty stable the last couple of quarters.

Okay. Maybe I'll sneak in one more then. Can you talk more about your ARPU expectations going forward? It sounds like you expect it to accelerate from here, and I know there are puts and takes, but are there any kind of guardrails on magnitude?

Well, some of that depends on how many starts come in on the $1 a week. So the more starts that come in on the $1 a week, that will have a muted effect on the ARPU. But our expectation is that you'll see positive year-over-year ARPU for the next couple of quarters. It would take a very, very, very large influx of $1 a week -- new $1 a week promotion subs to make that not come true. I wouldn't expect the sequential to be improving, but the year-over-year.

This concludes our question-and-answer session. I'd like to turn the conference back over to Harlan Toplitzky for any closing remarks.

Thanks, Jason. Before I sign off, I want to note that in a few limited instances, Meredith's remarks may not have been audible. As is our practice, we've posted her prepared remarks -- our total prepared remarks on our website at investors.nytco.com. And thank you for joining us this morning. We look forward to talking to you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.