New York Times Co (NYT) 2020 Q4 法說會逐字稿

Good morning, and welcome to The New York Times Company's Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I'd now like to turn the conference over to Harlan Toplitzky, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to The New York Times Company's Fourth Quarter and Full Year 2020 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, and our actual results could differ materially. Some of the risks and uncertainties that could impact our business are included in our 2019 10-K as updated in subsequent quarterly reports on Form 10-Q. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliations 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. 2020 was a year none of us could have imagined. The pandemic, its devastating human toll and its many economic reverberations, a national reckoning over race and social justice, a bitterly contested U.S. presidential election and an unending hunger for relief from it all. The need for quality independent journalism was as acute as ever, and my colleagues across The Times rose to meet that need. They did so with energy and rigor commensurate with our mission. Their work, which was consumed at historic levels, led to a year of strong business results.

At the end of 2020, The Times now has 7.5 million total subscriptions across our digital and print products and, notably, news crossed the 5 million digital subscriptions mark. Thanks to acceleration of growth in our digital subscription business and, to a lesser degree, disciplined cost management and despite the loss of $138 million in high-margin advertising revenue last year, we recorded a slight increase in annual adjusted operating profit. That increase was driven by 2.3 million net new digital subscriptions and a 30% increase in total digital subscription revenue, a 15 percentage point acceleration compared to last year.

All 3 of our products; news, Cooking and Games, broke all previous records for annual net adds. And we saw continued success with our 2 strategic pricing initiatives in news, stepping up promotional subscriptions to higher prices at the 1-year mark and nearly a full year of our first-ever price increase on tenured subscription. The strong news cycle has continued to mean record audiences, albeit with real fluctuations. During election week, 273 million global readers came to The Times, nearly doubling our previous weekly record and reader tools like our expansive coronavirus database and COVID-19 vaccine information, still among the most comprehensive of their kind, continue to drive elevated traffic.

Now I can't tell you which story lines will drive outsized audience growth in the future, just like few could have predicted a devastating global pandemic or a violent assault at our nation's capital. Indeed, the news cycle will change and audience will fluctuate, which could mean considerable variability in net subscription additions in any given quarter. And as I said in the last earnings call, we regard 2020 as an outlier year for net subscription additions. But whatever the news cycle, I believe we are well positioned to deliver continuous growth, and in 2021, more growth than we drove in 2019. We're more than a year into our registration-based customer journey, and we're encouraged to see that while many readers convert immediately in moments of high news need, there are plenty of others who do so over time as they begin to understand and experience The Times' breadth and value. And with each passing quarter, our understanding of audience signals and our ability to act on them grows, making it easier to drive conversion.

Advertising also performed better than expected in the fourth quarter. The pandemic substantially impacted our ad business all year, and we experienced a hastening of declines in our traditional print categories, at least some of which are unlikely to return, but we also saw some stabilization in our digital ad business by midyear. In fact, if you control for the closure of our services businesses, HelloSociety and Fake Love and for our removal of open market programmatic advertising from our apps at the beginning of the year, full year digital advertising revenues would have declined much more modestly instead of the 12% we're reporting today. We credit that stabilization to the increasing potency of our ad products and to our ad teams' continued ability to rapidly transform our value proposition.

In advertising, first-party data-targeted media and audio remain our biggest growth drivers. In the second half of 2020, we introduced more unique first-party audience products, which are performing well. We also recorded $36 million in podcast advertising revenue in 2020, up $7 million from the prior year, powered by our expanding portfolio of audio programs. We expect podcast revenue growth to be strong into 2021 as we continue to see steady demand for the daily and our other shows and as we benefit from our acquisition of Serial and the rights to sell advertising against This American Life.

Now let me set all of these results into a broader strategic context as we gain what feels like more than just another new year. Last year, we achieved 2 key milestones: digital revenue overtook print; and digital subscription revenue, which has long been our fastest-growing revenue stream from this point forward will also be our largest. Those 2 milestones and our best year on record for subscription, marked the end of the first decade of The Times' strategic transformation to a digital-first subscription-first company. They also mark the beginning of a new decade. The Times sold its first digital subscription 10 years ago this quarter. Reflecting back, these last 10 years have been all about proving out our strategy of journalism worth paying for through direct-to-consumer digital subscription. The next decade will be all about scaling that idea. A close look at the investments we made last year gives you a picture of our emerging plans in 3 areas: news, product work and standalone products. I'll start with news.

Success going forward will continue to rely, first and most on the quality, breadth and differentiated value of our news report. So in the coming year, we'll continue to invest thoughtfully in our 1,700-strong newsroom, particularly around covering the biggest stories of our time. One of our core convictions about our growth in the next decade is that we are just at the beginning of unlocking all the digital moves can be and do in people's lives. To tap that potential, we'll also continue adding digital product talent, engineers, product designers, data scientists and product managers, whose work will make our journalism more accessible, engaging and impactful. Our investment in product work is already helping The Times begin to meet more news needs. In 2020, we improved our experience for up-to-the-minute coverage, expanded our use of visual and data journalism, created new story formats and began to personalize aspects of our customer journey, all of which are beginning to drive increased engagement.

While our product progress is increasingly evident to consumers, we still have plenty of work to do and investment to make to ensure that our underlying tech architecture, our strategy and our culture match our growing ambitions. Some of our focus on improving those platforms lies in our growing ambitions around news-adjacent products. As I've alluded to in the past, we see even bigger market opportunities for both Games and Cooking. And given their growth potential, we expect to invest more in content, product development and marketing in these products than we have in previous years. We're also thinking hard about expanding our subscription product portfolio.

This year, we'll test the possibility of a subscription product for Wirecutter and experiment more aggressively with Audm, the read-aloud audio subscription service we acquired in mid-2020. We see all of those products as a way for The Times to mean even more in people's lives and also to make relationship with New York Times brand more valuable.

And speaking of more valuable, 10 years after we launched the pay model with 6.7 million digital subscriptions and nearly $600 million in annual digital subscription revenue, the opportunity has proven far bigger than we imagined. There are 1 billion people reading digital news and an expected 100 million willing to pay for it in English. So it's not hard to imagine The Times having a subscriber base that is substantially larger than where we are today. External factors will continue to influence our subscription growth, most notably, as I mentioned, fluctuations in the news cycle that could drive variability in net adds from quarter-to-quarter. But with every passing quarter, there is also more in our control, from an improving understanding of consumers to pricing power to more disciplined management of cost in our legacy business. And as our command of levers improves, so too should our profitability. As we continue to make progress in these areas, we aim to see modest profitability improvement in 2021, with more improvement to come in the years that follow.

That said, we will continue to invest in our long-term growth even if that variability impacts our profitability in the near term. Before I turn things over to Roland, let me say a few words about our people and the culture we're working to build as we continue to evolve and grow. Our team has always been a key differentiator, New York Times. Most of the people who come to work here, whatever their role, do so because of an extraordinary level of commitment and a passion for our mission. As we grow and scale our operations, we're hard at work on being the kind of company that attracts, develops and drives impact from best-in-class talent in all of our major disciplines. To help me and the rest of our leadership team in this critical work, I was very happy to welcome our new Chief Human Resources Officer, Jacqui Welch, to The Times last month.

I'll close with a heartfelt thank you to our team of almost 5,000 around the world who did amazing work in a year that presented historic challenges. They're at the center of all we do, and we couldn't fulfill our mission without them.

And with that, I'll hand things over to Roland.

Thank you, Meredith, and good morning. As Meredith said, it's been an incredible year, and our business results give us even more confidence in our ability to continue scaling the business.

Adjusted diluted earnings per share was $0.40 in the quarter, $0.03 lower than the prior year. We reported adjusted operating profit of approximately $100 million, which is slightly higher than the same period in 2019. We added 425,000 net new subscriptions to our core digital news product and 202,000 net new subscriptions to our standalone digital products for a total of 627,000 net new digital-only subscriptions. This quarter was the second best ever for net subscription additions, with only the second quarter of 2020 outperforming this quarter. As of the end of the quarter, we had nearly 850,000 Games subscriptions and 725,000 Cooking subscriptions. And while international and domestic subs both grew strongly, the international growth rate returned to outpacing domestic. The international share stands at 18% of total new subscriptions. Total subscription revenues increased nearly 15% in the quarter, with digital-only subscription revenues growing almost 37% to $167 million. The continued acceleration in the rate of year-over-year digital subscription revenue growth, which was 18% in the first quarter; 30% in the second; 34% in the third quarter; and now, 37% in the fourth quarter is largely a result of 3 factors: first, the large number of new subscriptions we have added in the past year; second, ongoing strength and retention of the $1 per week promotional subscriptions who have graduated to higher prices; and finally, the positive impact from our first-ever digital subscription price increase, which began late in the first quarter.

Digital news subscription ARPU for the quarter declined approximately 10% compared to the prior year and approximately 1% compared to the prior quarter, a 2 percentage point improvement in the quarter-over-quarter trend. The newly acquired subscriptions, mostly on the $1 per week promotion domestically and a deeper promotional rates in many areas outside of the U.S., continue to more than offset the benefits from both subscriptions graduating from their introductory promotion as well as from price increases on our more tenured full price subscriptions.

ARPU-related selling to domestic new subscriptions declined approximately 7% versus the prior year and 1% versus the prior quarter. We expect our digital pricing strategy to continue to provide a tailwind to digital news ARPU throughout 2021 as a result of the following factors: one, the impact from subscriptions graduating from discounted promotions; and two, the price increase on tenured digital subscriptions. Given the large number of subscription additions in 2020, we expect approximately 1.6 million subscriptions will graduate to higher prices in 2021. In 2020, we also increased price on approximately 900,000 digital subscriptions and expect another $500,000 over the course of 2021.

On the print subscription side, revenues were down nearly 3%, largely due to a decline in single copy and international bulk sales. Revenue from domestic home delivery print subscriptions grew 2.2% in the quarter as the home delivery price increase implemented early in the year more than offset year-over-year subscription declines. It's also worth noting that print home delivery net subscription losses were the lowest we've seen in the last 3 years, driven by people working from home, the strong news environment and internal efforts. Total daily circulation declined 14% in the quarter compared with prior year, while Sunday circulation declined 3.2%. The widespread business closures, vast decrease in commuting and reductions in travel as a result of the pandemic, contributed approximately 5 percentage points to the daily copy decline and 1 percentage point to Sunday.

Total advertising revenues declined approximately 20% in the quarter as print continued to be severely impacted by lower marketer demand during the pandemic. Digital advertising declined approximately 2% in the quarter compared with the prior year, with growth in podcast and open market programmatic, partially offsetting declines in our creative services businesses. As a reminder, in the early part of 2020, we closed our HelloSociety and Fake Love agencies and turned off open market programmatic advertising within our apps. These together were responsible for approximately $8 million in revenue in the fourth quarter of 2019 and $28 million for a full year of 2019. It's also worth noting that our fourth quarter digital advertising revenue is better than the guidance we gave in early December, largely as a result of better-than-expected rates earned on open market programmatic advertising.

Our first-party data offerings delivered more than 20% of our core digital advertising revenue in the fourth quarter compared with less than 7% in the same period last year. Meanwhile, print advertising declined approximately 38% with entertainment, media and luxury categories hit hardest.

Other revenues declined approximately 12% compared with the prior year to $54 million, primarily as a result of fewer television episodes as well as lower revenues from live events and commercial printing. These declines were partially offset by an increase in Wirecutter affiliate referral revenue. Adjusted operating costs were slightly lower in the quarter. Cost of revenue decreased approximately 3.5% as lower print production, distribution and advertising servicing costs more than offset higher digital content delivery, subscriber servicing and journalism costs.

Sales and marketing costs decreased approximately 9%, largely driven by lower advertising sales costs. Product development costs increased by approximately 23%, largely due to the growth in the number of engineers employed. We plan to continue adding to headcount in this area over the next 12 to 18 months as we expect to continue leaning into our investments in product development and in our core news and standalone journalism to drive further growth.

General and administrative costs increased by approximately 11%, largely due to increased headcount, appreciation of the company's stock price on stock-based awards and higher consulting costs. We recorded 2 special items in the fourth quarter: a $5 million gain, reflecting the company's share of a distribution from the ongoing liquidation of Madison Paper Industries' assets; and an $81 million noncash pension settlement charge, which is the result of a transfer of pension benefit obligations to an insurer, allowing the company to reduce its overall qualified pension plan obligation by $235 million. We had an income tax benefit in the quarter, primarily attributable to the pension settlement charge. However, 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. Our qualified pension plans ended the year 102% funded with an approximate $36 million surplus. This is an improvement from the 94% funded status we reported on our May 2020 earnings call during the early weeks of the COVID-19 pandemic. Over the long term, we intend to continue working to increase the funded status of these plans.

Moving to the balance sheet. Our cash and marketable securities balance ended the quarter at $882 million, an increase of $82 million compared with the third quarter. The company remains debt-free with a $250 million revolving line of credit available. Given the continued strong results over the past several years, the company's Board of Directors has approved a $0.01 per share increase to the dividend to $0.07 per quarter, the third increase in the last 3 years. Management and our Board will continue to keep the balance sheet and our plans for capital allocation under close review. But as I previously stated, we have a strong presence for maintaining the flexibility to invest when and in the manner we want in order to fuel further growth in our digital business, independent of the vagaries of the market and will, therefore, continue to take a relatively conservative approach to the management of the balance sheet.

Let me conclude with our outlook for the first quarter of 2021, which is based on our current knowledge and assumptions and could be impacted by the evolving effects of the pandemic. Total subscription revenues are expected to increase approximately 15% compared with the first quarter of 2020, with digital-only subscription revenue expected to increase approximately 35% to 40%. Overall advertising revenues are expected to decrease in the high teens compared to the first quarter of 2020, and digital advertising revenues are expected to increase in the low to mid-single digits. Other revenues are expected to decrease approximately 10% to 15% as a result of fewer television episodes. Both operating costs and adjusted operating costs are expected to increase in the mid-single digits compared with the first quarter of 2020 as we increase investment into the drivers of digital subscription growth.

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

(Operator Instructions) The first question is from Alexia Quadrani from JPMorgan.

Understanding you don't give guidance on subs going forward, I guess, but maybe just some more color on how we should think about that. So when you look at this quarter or the first half of the year, the coming months, I guess, how would you characterize what you're seeing so far in engagement, I guess, compared to the record year last year or even what you saw in terms of engagement in the fourth quarter? And then my second question is just more focused on the Crossword and Cooking and the outperformance you were seeing there. I guess any more color on what's driving this? How sustainable do you think it is? And how much of it do you think in 2020 came from the impact of the pandemic?

Yes. Great. I'm happy to start and Roland, you should jump in as you see fit. On your first question, I'll just broadly, what do we expect to see. I'll reiterate what I said in the prepared remarks, which is in the year, less than we thought in 2020, more than we saw in 2019. And a lot of that is because of the sort of growing strength of the underlying model. So we do think audience will fluctuate with the news cycle. But even as that happens, we still have a lot of room to bring in new registration to convert people who do register, and we're feeling really good about being able to sort of broadly hold churn despite the base growing very, very rapidly. So I'd say we're broadly optimistic. And I think even as audience fluctuates and the new cycle changes, our ability to use what we know about engagement to get people to return either intraday or intraweek is improving.

On Cooking and Games, I would say, it's a little bit of both, if I heard your question correctly. Certainly, the pandemic played a role, lots and lots of people home and cooking and we saw that. You saw that profoundly in the second quarter, but it was also an opportunity to have more audience, more signal due to more effective product development, and I'll reiterate what I said in the prepared remarks. We think in both of those products we're playing in markets that we like, and we think we've got really big opportunities, and you're going to see us invest more into those products this year and beyond because we think there's real growth potential in both of them. I think I said this in the prior call, we've just brought in a new leader to Games, who comes out of the games industry. And we've got big hopes for that business. But on both, I would say, we think there's a lot of running room ahead of us.

I guess Meredith, maybe if I ask a different way because I probably asked it wrong. I guess just on the engagement in the fourth quarter specifically, I mean, you've always said that it's not all about Trump, and you guys have so many contributors to what drives people to read The New York Times. And I'm curious, post the election, we sort of assume there'll be a drop-off. And clearly, the fourth quarter numbers were fantastic. So I'm just wondering how much engagement sort of remain elevated even post the election, given all the other news that was very heightened in the quarter? Or is it still...

Yes. I'd say broadly, it's still pretty high. There's still plenty going on. We do see -- and I said this in the prepared remarks, we do see variability month-to-month, quarter-to-quarter. But in general, I would say, we are still in a period, and we feel this now of a very strong news cycle with multiple interrelated stories that are still playing out. So we're -- and to the extent that the new cycle will shift and change, we're getting better at getting return, which is a big part of engagement and a big part of the model to driving subscription.

The next question is from John Janedis from Wolfe Research.

Maybe one related question to Alexia's and then one separate. Meredith, you talked about the investment in Games and Cooking, I think there are about, call it, 1/4 of the digital subs. Over the long term, how does that scale relative to news? And with the lower ARPU, is the profitability profile much different from, call it, a new sub? And then separately, maybe a little more, if you can unpack on what you're seeing in terms of subscriber retention for both the promotional and 10-year subs following the price increase?

Yes. I think there are 3 questions in that. If I miss one, Roland will jump in. Let me just say affirmatively. We still think there is real room in our news product. And as I said in the prepared remarks, I think we're just at the beginning of kind of what the digital news can be and do in people's lives, and we are at the beginning of real work to meet more [news meetings than that is not]. And I'll give you an example of that. The Times in last year has gotten -- had put up much more work into lives and developing news. So we're much more likely to be a place today than we were previously when something is unfolding in real-time for people to come. And I think we're just at the beginning of that. I think we're also just at the beginning of having many more varied formats from text at the time. And if you think about what we were able to do from a format perspective with the COVID case tracker, which has just been a huge generator of return audience. And now the information on how the vaccine rollout is happening and how to get a vaccine, you can imagine us applying those tools to any number of other subjects. So I want to be clear, we still think there's just a huge opportunity ahead for us in news. And we're optimistic about news in particular. And I think the sort of premise is that we continue to lead and have a really big, engaged audience that is growing and a really big, engaged subscriber base that is growing in news. I think that the other products, to some degree, depends on that and the model depends on that. And I -- so that's the answer to your first question.

That said, I do -- as I said, we've got big ambitions for the news-adjacent products, and I mentioned in my prepared remarks, beginning to experiment with others as well, Audm, which we acquired last year and beginning to test the possibility of Wirecutter playing ou a role in our subscription. I think your other question was about price, and I'm going to have you repeat it just so I -- I think you're asking about retention on $1 a week subs, is that right?

Yes. That piece and then back to the Games and other products. Is the profitability profile, what's different, say, from news based on relative price? Or do you not break it out that way in terms of thinking about it internally?

Roland, I'll let you answer, but I'll say in general, we're focused on the overall unit economics, which get better over time. And particularly when you think about us having a portfolio of products, I think that all looks better over time. The retention question, I'd say we're still feeling really good about using $1 a week to bring large numbers of people in, particularly during big news events and feeling very good about our ability to step them up to higher prices, either at full price or an intermediate price. I think we said in the last call that we've been essentially training algorithms and using data science, which ultimately should be better than randomly choosing which groups go into a step-up price versus all the way up, and that data science is actually beginning to work. And so we continue to be optimistic that the sort of promotional price with a step-up moment at a year or going to full price at a year and then a higher price at a certain point of tenure is working very well for us. Roland, I don't know if you have anything to add at this point.

Yes. I'll add a little bit of color to both. On the step-up pricing and the retention question, yes, we've got a model that's choosing -- chooses 80% of the subs that go to either step-up or full price and that's max because we like to have a 20% hold up because we constantly want to test the efficacy of the model versus a random sample. And the model is beating the random sample by a statistically significant amount. Also, we've inched up the number going straight to full price. So that's more than 50%. Now a bit more than 50% has to go straight to full price. And the kind of the real proof of the model's efficacy is that we actually now see the retention on those has to go to full price slightly ahead of those who don't, which say the model is very good at picking those who have a lower elasticity to price. So we're quite happy with that. And overall, the retention rate on those subs as a group is similar to what we had on all our previous offers. So couldn't be happier with the way that's all going.

On the profitability question for Cooking versus core news, as Meredith said, we're really interested in the whole, but if you can think about it on the price side. So core news is a $17 a month product and Cooking is a $5 a month product. However, we discount the news product to $1 a week for the first 52 weeks, and we don't do the same with Cooking. So that's kind of a $5 product out of the gate. So over time, you can see that the profitability of those kind of come together. But again, we don't really focus too much on that. They're both highly profitable and the total unit economics for the digital side of the company are very good.

The next question is from John Belton from Evercore ISI.

I have one on bundling and one on profitability. So first, on bundling, adding to the first 2 questions here. So within Cooking and the Games products, which -- what percentage of those subscriptions are now coming from your new subscriber base? And if you look at revenue per subscriber, which includes all product types, how would that trend line look relative to this digital ARPU trend line that Roland described earlier as kind of being down year-over-year but improving?

And then the second one is for Meredith on profitability. I think you said in your prepared remarks, you're expecting modest profitability improvement in 2021. So just specifically, are you talking there about adjusted operating income dollars, adjusted operating income margin? Or any more comment there would be appreciated.

I'm happy to go first on your -- I'll go first on your second question, and then Roland, you can take the first question. I was referring to modest improvement this year as our aim in adjusted operating profit. Though, as I said, to the degree we see fluctuation, we won't underinvest in our future. We're incredibly excited about. Roland, why don't you take the other question?

Yes. And I'll just put a finer point on the first one, John. So that's in terms of dollars. We expect adjusted operating profit in dollars to modestly increase this year and then accelerate in years going forward. On the bundling question, most of our sales are not in a bundle at this point. So the vast majority are bought independent. We do have some subscribers who buy all 3 products independently or a combination of 2. I mean I think the way to think about the profitability on that is just to look at our overall digital revenue growth trend which, as I mentioned in my prepared remarks, has been accelerating throughout 2020.

Okay. So you don't think about it. You don't try to kind of square customers that are buying the products separately and looking at revenue per customer? And I guess, just ...

We do look at that and we'll be headed in that direction in a more stronger way in the near future. And you can see -- you'll see some more thought on bundling from us coming sometime this year, all in service of maximizing the profitability.

The next question is from Doug Arthur from Huber Research Partners.

Meredith, you talked about sort of the next phase of focus for the company being scaling operations. Can you sort of talk about what does that imply for your previous 10 million sub goal, I think, by 2025? What does it imply for the 1,700 journalists? How large could that grow? And what does it imply for the $800 million, almost $900 million of cash on the balance sheet in terms of building out these standalone products? And I have a follow-up.

Yes. Let me try and take each of those. On the first one, I think what you're hearing from us, and we -- you heard this in our -- in the last quarter as well. I think we're just increasingly ambitious about the opportunity. And in an addressable market that we expect to be 100 million people willing to pay for English language digital news, we see no reason why The Times can't have a subscription base that is substantially larger than we have today. We're at -- if you take to our expectation of the TAM at $100 million, today, we have 7.5% of that. No reason we can't have 2, 3, 4 times that over time, maybe even more. So you're hearing us be more ambitious.

On 1,700 journalists, we're going to keep doing what we've done in the newsroom, which is steady investment. And I'd say, relatively modest in the context of the opportunity. We're going to keep hiring journalists. We're going to keep making sure we can be excellent and really expansive on the biggest stories. And as I said in my prepared remarks and actually an answer to Alexia's question, we're also going to keep focusing on how we meet more news needs, but that investment does not grow sort of proportionate to our expectation of sub growth or to the opportunity. And I think you've seen that over the last few years. So investing but in a moderate way. And then I think you're asking about our balance sheet. We -- I'd say, given the opportunity we have ahead of us, we like to have the option to invest into the opportunities on the balance sheet. And I think we've managed our capital with that in mind. Roland, I don't know if you want to add anything to that.

Yes, sure. So just a little bit more on the cash part of the business. So we expect to continue to generate cash despite increased investments in the areas we talked about, really based on the fact that the natural leverage in the digital part of the business is really kicking in as we step people up in price, and the print part of the business is getting smaller. And so those 2 things are going to make sure that we generate cash. And then just as far as our use of that cash, we really would like to put that cash to use to further the growth. So we are continually looking at in the acquisition space for things that would further our subscription business. And we believe that, that would be the best use of that cash for all shareholders because we believe that will generate more growth, more growth and more profitability over the long term. And I'll just reiterate what we've both said, which is being conservative in our management of the balance sheet has really served us well, and we'll continue to do that.

Okay. And just as a follow-up, Roland, media expense was down 5% in the fourth quarter. What's a good expectation for that specific cost category in 2021?

So I think the way I would think about it is we're going to restore that spend after the pandemic cutback. And you saw some of that being in Q4. So the sort of that, that's 1 layer. And then another layer is to think about the fact that we believe we've underinvested in Games and Cooking products in support of those, so kind of layered on top of getting back to a normal spend. We're going to layer a little bit on there because we think that there'll be a really good payback to up our marketing support of Games and Cooking.

The next question is from Vasily Karasyov from Cannonball Research.

Meredith, I wanted to ask you to talk maybe about the competition. First of all, if you look back at the year, that 2020 was what did you see from the standpoint of competitive response to the situation? And in your estimation, did you end up having a better competitive position or sort of came out net-net neutral after the year? And also what are specific challenges from the competition that you're seeing? And how are you planning to respond to those? So I would really appreciate your thoughts on that.

Yes. Those are great questions. I'll say two things about that. The first one is just broadly we liked our competitive position coming into the year, highly, highly eventful, unusual year. And we like our competitive position coming out of the year and starting a new one and sort of starting what I describe as the next decade of our growth. So we -- I think sort of how we see our competitors has changed. If you go back to when I joined The Times, I think we were competing really steadily with other publishers. One of the things that's really interesting, if you look at last year, if you look at our audience trends, we've like jumped up a category in terms of average weekly audience and the level of engagement of that audience, and we used to track ourselves, number of page view,s, pretty unique. All the stuff that you can see in comScore, we used to be sort of in the center or towards the top of the pack of publishers. We've literally moved up a category then now, competing with companies that are television native. And I think that's exciting in terms of our opportunity. I think we've said this in prior calls. During peak COVID moments, something like 1 in 2 adult Americans were coming to The Times. And I think that just means we're competing at a different level, and we like that. We think really hard about how do you compete with companies that were born as video or visual television companies, we think really hard about how do you compete. On a global footprint, we've invested a lot, I'd say, in 2 things: the breadth of our newsroom. So it's sort of The Times has a huge, huge journalistic base all over the world, and we're really able to attack the biggest story, tell the biggest stories in an expansive way from all over the world. And then you see us pushing into meeting more news needs like the need for kind of the live news on a developing story. And this past year was a year where we put a lot more resource into that. We built new workflows in the newsroom, we built new technological tools. And you could imagine us scaling those tools to issues that go well beyond COVID and politics.

And the last thing I'll say from a competitive standpoint is there is a period where we were very focused on the platforms, and we're always paying close attention to what the platforms or the tech companies that have news products to do. We are increasingly convinced that The Times sort of the differentiated whole experience is unique and particularly unique from what a tech company or platform news product might do. So I said in my prepared remarks that during election week, we had $273 million. People using The Times, but for us, that's a big number and new kind of number, most of them were there for this differentiated experience on our home screens and a lot of it in our app. And that's just something very, very different than say a list of story, and you're going to see us continue to push into that as our competitive differentiation.

So all a long-winded way of making the point I made at the top, which is we like our competitive position. One other thing to say, though, we're still making a market for paid digital news. And so one company learned doesn't make a market, and we're comfortable that other companies emerging can help make that market for paid digital news.

The next question is from Kannan Venkateshwar from Barclays.

Roland, I guess just one clarification on some of the comments you made earlier in terms of the number of subscribers stepping up in price next year. So I think you mentioned 1.6 million.

Yes.

And when I compare that to essentially the net additions this year, a lot of that was, of course, promotional. And on top of that, you're also taking price increases on some of your legacy base. So that number, I would have expected it to be a little bit bigger. So I just wanted to understand the framework to get to that 1.6 million. If you can talk about that.

Yes. Yes. The 1.6 million is solely those folks who are still on a promotional price today, who will be stepping up in 2021. There was another, let's call it, 0.5 million tenured subscribers who will be receiving a price increase this year because they've kind of skewed through the gate of all the attributes that led us -- signal to us that it's time to give them a price increase. So if I add the 2 together, it's more like 2 million, 2.1 million subscriptions that will pay more in 2021 than they did in 2020.

Got it. So I guess a follow-up there is, when I look at the total number of subscribers who are stepping up in price, it's more than 1/3 essentially of your base that will step-up in price next year. And so when I look at -- when I just do some back-of-the-envelope math on that, it seems like the ARPU declines next year -- I mean, over the course of 2021 should essentially be de minimis. And if I -- and maybe I'm just reading this comment wrong, but last quarter, if I recall, one of the comments you made I thought the implication was about a mid- single-digit kind of a decline path for ARPU over the course of '21. So I was just hoping you could help us think through what ARPU does over the course of the year, just beyond the scale of the step up.

Yes, certainly. So if all goes as expected, we expect that, that year-over-year decrease in ARPU is going to slow considerably through the first half of the year, and we expect that ARPU year-over-year will actually turn positive in the back half of the year, third and fourth quarter. And if we are speaking sequentially, we actually expect that turn to happen slightly earlier if you understand the math, that makes perfect sense. So yes, we think we'll be in a net positive ARPU position year-over-year delta come second half of next year.

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

I appreciate the comments right there on the ARPU. My other question I do have, I want to ask about Wirecutter. You piqued my interest there. It's my understanding that something like consumer reports as something like upwards of 7 million paying subs for the digital product paying, I think, roughly $30 on average a year. If you just sort of dream and think about Wirecutter on the subscription side of things, how big do you think this maybe could be going down the road here? I mean can you get it to roughly 10%, 20% of what consumer reports has? I realize they have a bigger brand name out there, but it sounds like you put a lot of effort behind this all.

I'll say 2 things, Craig. I like your dream. And we -- when we acquired the Wirecutter, we thought that it could -- it ultimately was something that could fit really nicely into a broader portfolio of subscription products from The New York Times, and we think it works in the brand. We think there are so many things about it that work really well. We're just at the beginning of testing. So I won't say much more than that other than what you're pointing to is where our eyes are on the horizon for Wirecutter in terms of there's a really a potentially big opportunity here, but we are in the earliest days of testing that. I'll also say, I'd be remiss if I didn't say, it's a great business even without that. Ultimately, our strategy as journalism was paying for. So the more of our business, those economics are realized through subscription and ultimately a subscription bundle. The better, but we really like the Wirecutter business. It's performed very, very well, particularly in the last year as we go.

Meredith, a lot of your investors out there think that you guys got a huge Trump bump here in the last 4-plus years and stuff with him not in office right now. Can you maybe just elaborate on that? I mean I know it's early here only a couple of weeks after the inauguration. Can you talk about what engagement is done, talk about the breadth of your product and just in terms of the effect? You don't think it sounds like it's going to hurt you not in office here in terms of engagement, etc.

I'll repeat a few things I've said just in prior discussions, I think The Times as long as it's been around, has kind of always been bigger than any 1 story. And I think our -- if you look under the hood at how are subscribers engage and what drives people in the path to purchase and then ultimately stay and be a healthy subscriber, it's the experience of the breadth of our journalism. We are far better at converting and holding on to people who engage with us across a range of topics than those who come on any single topic. So in the long run, we're quite optimistic that whatever the big story is, our job is to be excellent and expansive and deep and create a differentiated experience that helps people get to understanding on the biggest stories of their time, whatever they are. And I'm confident that we'll be able to do it.

As I said in my prepared remarks, I can't promise you there won't be some variability quarter-to-quarter as the audience fluctuates and as the new cycle changes. But we -- and this is one coming from the seat I was in my last job. With every passing quarter, our sort of hold on the levers of the business, and particularly our ability to get insight about our audience and turn that insight into action to get them to engage with us whatever the story gets better and better, and I'm really confident in that.

My final question, if I could. You guys made a big hire back in September, hiring Jonathan Knight on the Games side of the year, I think putting a lot of dollars behind that. So can you just talk about what the strategy might be here going forward in terms of trying to build out your Games operation from, I guess, a digital subscription standpoint?

Yes. I don't have a whole lot more to say in terms of detail than what I've already said. He is a big hire. We're so glad he is here. He won't be the only hire. He's already begun to hire in that space. We think it's a big market. We think there's a really unique place for The Times to play on puzzles. If I were to say, like what was the thing that gave us our wow, we could do so much more here with the success of Spelling Bee and the level of engagement for Spelling Bee just shows at running room and puzzles that our serious audience wants to play. And I'll say to you, I think that's been a nice business. I think we could be executing at a much higher level in that business. And we'll have more to say, I expect in the back half of this year, about what that actually means. But I would say the shortest version I can give you is crosswords or awesome. There's running room there. And I think we also have a big opportunity to be a place for other puzzles that our kind of audience plays. And if you just scroll down on any given day now and at the bottom of our app, not just the mini there. You've got a host of games you can play, and we're really excited about that.

The next question is from Thomas Yeh from Morgan Stanley.

Going off the last question on Wirecutter, I'm curious about the opportunity you've seen subscription-based monetization of audio. Can you talk a bit about what you're going to do through Audm? How should we think about kind of the incremental value you'd be introducing to the subscriber there over time? And what goes into your thoughts on pricing there? And then on the expense base, maybe on the print side, we saw some rationalization of that cost structure last year with the circulation declining around COVID. Is this an area where we might see some more restructuring this year? Or are some expenses kind of coming back as things would stabilize a bit more?

Yes. I'm going to let Roland take the second part of your question, but I'll say broadly, our print operation, people who need it always meet. It is the part of the operation where we are best at doing sort of ongoing cost management and ongoing transformation in really fast-changing conditions. And I think for the foreseeable future, I think we're going to be able to continue to do that because they are really good at it. On audio, I'll point back to what I said in the prepared remarks. We bought Audm, which is read-aloud subscription business for audio. So you can then hear our journalism and you can hear journalism, actually a little mini bundled journalism from The Atlantic, from The New Yorker or from other brands as well read-aloud. What that gives us is an amazing petri dish for experimentation or what is really going to engage people in audio. I think you can regard many, if not most of the moves we make in product development at The New York Times. As pushing toward a subscription that with The New York Times and our family -- our news product and our family of adjacent products that more and more valuable to the people we already have and brings more people into the fold. So I would say we're -- what's the shortest way I can say it. We're further ahead on beginning to really experiment with that in many ways with Wirecutter, but you can read my prepared remarks about Audm beginning to get more aggressive about experimenting what we can do in audio as well, that could be a direct driver in the portfolio of subscription. I don't -- I can't -- I don't -- it's way too early for me to give you any kind of sort of economic assumptions about what that might look like.

To your print question, Thomas, there's a couple of forces at work here. So one is we expect to be printing and inserting and distributing The Wall Street Journal in New York Post and Barron's beginning in the third quarter. So that will have an effect on our print costs. It will push them up. That will be more than offset by the revenue that we received from Dow Jones. Another force is just the consolidation of printing and distribution infrastructure in the industry. And as you know, outside of New York, we're 100% outsourced. And so as that occurs, like to date, we've been able to make that either cost-neutral or a benefit to us, that probably gets harder as consolidation keeps happening. But at the same time, the team focuses on managing expenses every day, every week, every month, every year. So I suspect you'll see some -- other than the bump from commercial printing, we'll probably be able to reduce costs somewhat further. And then there's the newsprint aspect. And I think post pandemic, we'll see some of our single copy come back. I don't know how much. I don't think all of it will come back. So that will be some more copies and some more newsprint expense. And I believe right now, in terms of newsprint pricing, we're kind of coming off the bottom. Prices have been dropping on a monthly basis for probably a year or more and will probably come off the bottom there. So we've gotten some benefit this year from newsprint prices decreasing. As a matter of fact, of our decrease in newsprint costs, half have been price and half have been volume. So there'll be a little bit of a bump there. But if I was going to handicap the whole thing, we'll continue to try to manage those expenses down as best we can.

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

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.