New York Times Co (NYT) 2020 Q2 法說會逐字稿

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

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

Thank you, and welcome to The New York Times Company's Second Quarter 2020 Earnings Conference Call. On the call today, we have Mark Thompson, President and Chief Executive Officer; Meredith Kopit Levien, Executive Vice President and Chief Operating 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 Mark Thompson.

Thanks, Harlan, and good morning, everyone. Good morning and goodbye because as everyone must know by now, this is not just my 35th quarterly earnings call as Chief Executive of The Times, but also my last. Meredith takes the helm in just a few weeks' time, which is great news for the company and its shareholders. She's a unique talent and will be a bold and brilliant CEO. But one of the changes it's going to bring is to the language Times executives use on these calls.

Let's take the word lumpiness, a rather fine, expressive word, useful in so many contexts, but never more so than when applied to advertising. Now I've tried, God knows I've tried, to coach Meredith in the use of the word, lumpiness. But frankly, it's hopeless. It turns out that unless you've spent decades steeped in true Nali and above all British lumpiness, you just can't pronounce it with any conviction. Roland, needless to say, is a lost cause. So no more lumpiness. Indeed, no more Queen's English at all. From now on, it's all going to be in American. To paraphrase George III in Hamilton, good luck with that.

But I do want to thank all of you and particularly our analysts for your engagement and courtesy to me over the past 8 years. Your testing of the company's strategy and performance has helped us improve both. And as someone new to the public markets when I arrived in 2012, I've learned a lot from you. I also hope you will forgive me before I hand over to Meredith and Roland to tell the story of the quarter. If I say that it's a source of some pride to me that my last full quarter as CEO of The Times was not only our best ever for new digital subscriptions, but the quarter in which total digital revenue exceeded print for the first time.

Now this has taken its time coming, not because we've been slower than others to execute our digital strategy, quite the contrary. But because our great print platform has remained so resilient. But it's clearly a watershed moment in the transformation of The Times. In revenue now, as in everything else, we are a digital-first company and won't look back from here. The story of The New York Times over this period is partly a complex saga of new digital tactics, new skills, new structures and processes. But it's also a very simple story of a shared belief across the organization in the value and power of great journalism.

The packaging and selling is important, of course, and we've made great strides in both, but the secret source is the journalism itself. It's the critical element in the virtuous circle of audience engagement, subscription and long-term loyal retention. And it's also the point of The New York Times. That's why we've invested in it so consistently in recent years. Nothing gratifies me more about my years at the company than the fact that in such a difficult moment to journalism as a whole, our newsroom is so strong. And at the time when the public needs great journalism more than ever, they can rely on The New York times.

But let me hand over now to Meredith, who's played such a major part in all these successes, and who I will believe will take this company to even greater heights to take you through the quarter. Meredith?

Thank you, Mark. Well, you have indeed been ineffectual at working your particular use of English into lexicon at The Times. You have thoroughly succeeded in leaving the company far better than you found it. So on behalf of all of your colleagues, let me say that we are immensely grateful to you for your inspired and steady leadership over the past 8 years. You led us over the major chasm of transformation to become a global digital-first subscription-first company. And in doing so, you raised the ambition, not just for this place, but for the business of journalism everywhere.

Having total digital revenue overtake print in your last quarter is a perfect punctuation to your incredible run. Journalist Ken Doctor had it just right last week when he said that you've had one of the most transformative runs of any publishing executives in modern times. And I personally could not be more grateful for the 7 years of strong partnership and getting to work with you and learn from you for much of it. Now I'll have more to say in the coming quarters, but you can largely expect that we will forge ahead and execute on the strategy that has guided us over the past 5 years. That means continuing to invest in our newsroom, our products and our brands. It also means continuing to increase our focus and emphasis on our product itself.

Both the journalism and the way that people find and usually experience it as the central engine of our business, with plenty of work still ahead to build the world-class product and tech operations to enable that. And it means investing in our people, doing all that it takes to attract and retain top talent in all of our major disciplines and ensuring that The Times is a place where talented people can do their best work. That includes thinking and acting ambitiously about diversity, equity and inclusion to ensure that The Times folks reflects the world we report on and is a workplace that feels inclusive and rewarding to all of our colleagues.

Now let me talk about the quarter. This has been an extraordinary period in our world, protest against police violence, racial injustice, tens of millions unemployed, political divisions that only seem to deepen as election day nears and a pandemic that continues to ravage the country. Through it all, Times journalists had helped readers and subscribers make sense of it. Our ongoing investment in our newsroom has enabled our national desk to dispatch reporters across the nation to chronical events on the ground as new pandemic have emerged. They've used visual and investigative journalism to tell the story of how the virus spun out of control. And our reporting is movingly underscored the staggering human toll, racial disparities and the tragic impact, particularly on health care and essential workers.

The Times has a long history of journalism that explores race in America, from [club fitness] pioneering work on the civil rights movement in the 1960s to last year's total surprise winning 1619 Project, which was downloaded an additional 4 million times in the weeks since protests began in the U.S. after the death of George Floyd. The way we've reported on these protests showcase the full arsenal of modern Times Journalism involving everything from visual investigation to audio, photography and, of course, the written word. It's this exceptional journalism that has continued to yield big audiences.

In the second quarter, we saw an average of 130 million U.S. readers monthly according to comScore. While the audience gains moderated somewhat from the first quarter surge, they still represented a 32% increase over the same period last year. The gains in audience and our improved ability to engage readers and turn them into subscribers led to a second consecutive quarter of historic numbers of total net digital subscription additions. Q2 was our best quarter ever with 493,000 net additions to our core news product and 176,000 to our other digital products for a total of 669,000 net new digital subscriptions.

Readers are responding to both the breadth and the depth of our offerings. The second quarter represented our largest number of subscription additions we've seen to our Cooking and Crossword products as well as to core news. The end of the quarter marked the first full year of our registration-based customer journey and our core news product. The new journey has been effective in its own right in driving growth, and it's been an important foundation for ongoing engagement and conversion optimization.

We also continue to experiment more aggressively and successfully with new product innovations that deepen engagement, including further expansion of our live news offerings. These initiatives are positively impacting profitability. In the quarter, digital subscription revenue grew by 30%, driven by the rapid growth in subscription addition, promotional subscriptions graduating to higher prices and the benefit we saw from our digital price increase. At the end of Q2, The Times had 5.7 million total digital-only subscriptions and 6.5 million total subscriptions, well on the path to 10 million.

We're making steady progress on the levers and drivers of subscription, though the unusual market conditions are clearly amplifying their effect. We do not give forward guidance on subscription because the numbers are generally difficult to predict. That's particularly true at this moment. As we said on the last call, we don't expect the exceptional piece of audience we saw in the early month of the coronavirus story to last forever, but we also know we're about to enter the crucial last month of a presidential election.

It's also worth noting that while it's been our strategy and our plan to increase the percentage of start from organic measures versus paid marketing over time, the more pronounced increases in organic of the last 2 quarters were in part a reflection of these unusual market conditions. You can, therefore, expect that we'll return to more paid marketing in the back half of the year as we find efficient opportunities to do so. Our results in advertising, while substantially off prior years, were somewhat better than expected.

We're continuing to evolve our ad organization to reflect an acceleration of underlying trends and lead even further into our strategy of driving competitive strength and value from our brand audience and direct relationship. While in the second quarter that had the consequence of reducing the overall size of our ad team and closing our stand-alone marketing services business, we did so entirely with our future ad business in mind. That future will be increasingly driven by differentiated digital ad products, including fewer ads but in larger format; substantially better targeting of our audience using first-party data in privacy-forward ways; insights for marketers on what audiences are interested in; and audio.

We expect that our large print and traditional display advertising business will continue to be under pressure. While the ad business will go on be very important to the company's economics and profitability, it is unlikely to be a significant growth driver in the near term. We discontinued providing Times content to Apple News at the end of the second quarter. The decision is consistent with the core principles we've adopted in how we engage with platforms that quality news publications must be named and differentiated from other sources, that the end customer relationship and data should belong to publishers and that the original creator of content must be sufficiently compensated for its work. There are other important ways we'll continue to partner with Apple through a variety of their products beyond Apple News.

Last month, we acquired Serial Productions, the company that produces the groundbreaking Serial podcast. We've also entered into an ongoing creative and strategic alliance with This American Life, a radio program that transformed the genre. Among other things, we'll sell This American Life's podcast advertisings beginning next year. As we have said in previous calls, we are big believers in the power that audio can have in building deeper connections with our audience, and we're committed to bringing listeners the best audio journalism in the world.

We launched The Daily in 2017, and it has quickly become the most listened-to news podcasts in the country. Our goal is to continue to expand our audio offering and to chart an ambitious course for high-quality immersive audio journalism. We also accelerated our progress of bringing The Times to new audiences through film and TV this past quarter. In the last month alone, we premiered Father Solider Son, our first feature documentary on Netflix, directed by Times reporters, Leslye Davis and Catrin Einhorn. And The Weekly has been replaced by The New York Times Presents on FX and Hulu, a new monthly documentary series.

We also announced a 1619 Project partnership with Lionsgate, Oprah Winfrey and Nikole Hannah-Jones, which will be adapted into a limited series for Amazon Studios. I'll close by thanking Times employees around the world for their extraordinary work in exceedingly trying time. And once again, thank you, Mark, for all that you've done for The New York Times Company.

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

Thank you, Meredith, and good morning. I'd also like to take a moment to acknowledge Mark's upcoming departure and to thank him for his partnership over the past 8 years. While I will surely miss working with Mark, I am equally excited by the prospect of continuing to work closely with Meredith in her new role.

As I said last quarter, although we expect short-term results to be negatively affected by a decline in advertising, our subscription business, which represented nearly 3/4 of our revenue in the second quarter, provides a source of strength and resilience through a recurring revenue stream that we expect to grow further as we continue to excel at our core mission. Adjusted diluted earnings per share was $0.18 in the quarter, $0.01 higher than the prior year. We reported adjusted operating profit of approximately $52 million in the second quarter, which is approximately $3 million lower than the same period in 2019.

Total subscription revenues increased approximately 8.5% in the quarter, with digital-only subscription revenue growing nearly 30% to $146 million. This represents a further acceleration in the sequential rate of quarterly growth, largely as a result of the large number of new subscriptions we have added in the past year, strength in retention of the $1 per week promotional subscriptions who have passed the year-long promotional period and have graduated to higher prices, and the impact from our first-ever digital subscription price increase, which began late in the first quarter.

Quarterly digital news subscription ARPU declined approximately 11% compared to the prior year and approximately 3% compared to the prior quarter, consistent with the rates of decline we reported for the first quarter of 2020. For both sequential and year-over-year ARPU trends, the historically large number of newly acquired subscriptions, mostly on the $1 per week promotion domestically and a deeper promotional rates in many areas outside of the U.S. more than offset the benefit from subscriptions graduating from the introductory promotion to either step-up or full-price as well as the benefit from price increases on our more tenured full-price subscriptions.

ARPU related solely to domestic news subscriptions declined 8.5% in the quarter versus prior year and 1.4% versus the prior quarter. We continue to expect strong subscription additions, largely at the $1 per week promotion, as well as growth in international subscriptions, which monetize at a lower rate than our domestic ones to continue to weigh on ARPU in the third quarter. International subscriptions continued to make up approximately 18% of our digital-only news subscriptions at quarter end.

On the print subscription side, revenues were down 6.7%, largely due to a decline in single copy and international bulk sales as many sales outlets were closed throughout much of the quarter. Revenue from domestic home delivery print subscriptions was flat in the quarter as our home delivery price increase implemented early in the year offset year-over-year subscription declines.

Total daily circulation declined nearly 20% in the quarter compared with prior year, while Sunday circulation declined 9.7%. The closure of hotels, universities and other outlets as a result of stay-at-home orders across the country contributed approximately 7 percentage points to the daily decline and 3 percentage points to Sunday, while the loss of Starbucks as a distribution outlet in August of 2019 contributed approximately 2 percentage points to the decline.

Total advertising revenues declined approximately 44% in the quarter as both digital and print were severely impacted by lower marketer demand during the pandemic. Digital advertising declined approximately 32% in the quarter compared with the prior year, somewhat better than the guidance we gave on our first quarter earnings call, largely as a result of higher levels of spending from the technology category.

Print advertising declined approximately 55% across most categories with entertainment and luxury hit hardest. Other revenues declined approximately 5% compared with the prior year to $43 million, primarily as a result of the conclusion of the first season of The Weekly television series as well as lower revenues from live events and commercial printing. These declines were partially offset by licensing revenue related to Facebook News and an increase in affiliate referral revenue from Wirecutter.

Adjusted operating cost decreased 8% in the quarter, significantly lower than the guidance we had originally issued as we attempted to partially offset lower expected advertising and other revenues as a result of the pandemic. Cost of revenue decreased approximately 6% as lower print production and distribution costs and advertiser servicing costs more than offset higher digital content delivery and journalism costs.

Sales and marketing costs decreased approximately 36%, largely driven by lower media spend, which we reduced during the initial months of the coronavirus pandemic. The extremely strong news environment and the continued improvement of our digital products proved to be a strong combination and demonstrates that we have become less reliant on acquisition spend as a means to drive subscription growth. However, we do not view Q2 marketing spend as representative of future spend given the special circumstances under which we were operating in the second quarter.

Continuing with the second quarter results, product development costs increased by approximately 22%, largely due to growth in the number of employees engaged in digital subscription strategic initiatives. We recorded a $6 million severance expense in the quarter, largely as a result of workforce reductions primarily affecting our advertising department. Our effective tax rate for the second quarter was 19.6%. On a going-forward basis, we continue to expect our tax rate to be approximately 25% on every dollar of marginal income we record with some variability around the quarterly effective rate.

Moving to the balance sheet. Our cash and marketable securities balance ended the quarter at $757 million, an increase of $70 million compared with the first quarter. The company remains debt-free with a $250 million revolving line of credit available. As I said last quarter, the consistently conservative approach we have taken in managing our balance sheet in tandem with the continued strong results produced by our subscription-first business has provided us the financial flexibility and confidence to continue pursuing our growth strategy, even as we manage through the economic fallout of the COVID-19 crisis. As Meredith noted, we announced the acquisition of Serial Productions, which closed last week, and included an approximately $25 million cash payment at closing.

Let me conclude with our outlook for the third quarter of 2020, 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 10% compared with the third quarter of 2019, with digital-only subscription revenue expected to increase approximately 30%. Overall advertising revenues are expected to decrease between 35% and 40% compared with the third quarter of 2019, and digital advertising revenues are expected to decrease approximately 20%. As a reminder, September typically plays an outsized role in third quarter advertising revenue, which, when combined with uncertainty arising from the COVID-19 pandemic, makes this year's third quarter especially difficult to predict.

Other revenues are expected to decrease approximately 10% as licensing revenue from Facebook News is expected to be more than offset by lower revenues from our television series and as a result of the pandemic's impact on both commercial printing and our live events business. Both operating costs and adjusted operating costs are expected to be flat or to decrease in the low single digits compared with the third quarter of 2019 as we pull back on nonessential spending while continuing to invest in the drivers of digital subscription growth.

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

(Operator Instructions) First question comes from Alexia Quadrani of JPMorgan.

Mark, we will miss you and your accent, so best of luck ahead.

Thanks, Alexia. Thank you.

Just a couple of questions, pretty straightforward. Can you provide a bit more color on the digital sub growth in the quarter? I guess, any sense of how it trended as we sort of progress. Usually, I know you usually don't comment month-to-month, but curious, given all the volatility in all the news, if it would heighten in certain months versus others. And I guess, just on that same point. I guess, any color you can give us in terms of engagement on the quarter with -- are people still just very engaged with COVID news? Or is it really broadened out?

Sure. I mean -- Meredith, just -- I'll let Meredith answer all of this. Just to say, we don't disclose very much in this area. One or completely obvious point is that major new stories, and it has been a very busy period for news, obviously, drawing audiences, both at the unique user level and also in terms of engagement. But Meredith, can you help Alexia at all on this?

Yes. I mean what Mark has said is obviously right that we won't comment on quarter-to-quarter, but it is probably worth saying. We do see some audience fluctuation based on what's going on the news, and we see that within a quarter. And sort of force in the opposite direction is work on the new registration-based customer journey and our work on engagement had kind of a sort of underlying stabilizing effect to that. So while audience plays a big role, it's a key driver in the model, it's not the only one. And more we are focused on registration and conversion and engagement of registered users that has sort of a moving out effect.

And then any thoughts when you may resume the tenured price increases? I know you put a pause on it during the crisis here.

I'm getting a signal that my sound could be better. So I picked up my phone. My colleagues will let me know if that's not working. We -- I'm getting a thumbs-up from Harlan. So we paused. We did a big chunk of the price increase and then we paused when COVID hit just because we felt like, given what was going on, it was the right thing to do. And we will resume on that price increase this fall to a smaller, but still substantial cohort of people.

And then just, lastly, a quick question on your investments in sort of the TV side as well as in the audio, sort of, the podcasting. Any really comments you can give in terms of what the returns are like in maybe the TV video versus the audio? I mean does it make sense to put more of an incremental dollar in 1 versus the other?

I would say we've got -- as I said in my remarks, we've got really big ambitions for audio journalism and for what The Times can do in audio, particularly now that we've got sort of triple threat of The Daily and Serial Productions and a new partnership with This American Life. Those aren't the only things we just moved. Kara Swisher's main interview podcast here as well. So I think you can expect to see us continue to invest in audio for a number of reasons. And I would say in contrast on TV and film, we're really pleased with what we're doing there, but I would say it's less an economic driver and more about how we get Times Journalism to more audiences and how we get more people to connect with our brand.

The next question comes from Kannan Venkateshwar of Barclays.

Mark, obviously, congratulations on a fantastic tenure. And I guess it begs the question. Now the company is doing phenomenally well. And as you highlighted, it's -- the trends over the last 4 quarters have accelerated significantly. So I guess it begs the question of why now from a timing perspective?

Yes. Fair question, Kannan. I mean, I told the Board when I arrived in 2012, I thought that between 5 and -- if all went well, between 5 and 8 years was about right as a run from my point of view. I like to -- as we have a big fresh strategic puzzle to work on and to work through it. And I think -- I mean, one of the really important things to this company, it's a long transition, it's got many years to go, is fantastic momentum. And I think the idea that from time to time, you bring leaders with fresh ideas and new kind of energy to apply to the puzzle intrinsically makes sense. And I think you've probably seen a bit like a relay race. We've been trying to make sure that the next runner is up to speed and running at full pelt by the time the baton passes. Meredith, although -- obviously, Meredith has done a lot of solo. She's going to bring fresh imputes, fresh ideas. I mean I've had 8 years to play out all my ideas. And I think broadly I'm satisfied with the way things have gone. But I'm a believer that you maintain momentum by -- in most of the key jobs changes from time to time. And by the same token personally, it means that potentially, I don't know what it's going to be yet, but I can also apply myself to a big new juicy strategic problem or a series of problems in other places. So to me, this is one of the healthy ways of keeping the momentum of a given company going, especially when you're in the middle of such a gigantic transition.

Thank you, Mike, and all the best. And Meredith, from your perspective, in terms of strategic priorities, obviously, there are a lot of areas that have still growth opportunities. You highlighted podcasting and video as potential areas for expansion. But when you think about this, I guess, there are 2 strategic questions that you'll probably be working through in the near term. One is the distribution strategy. You have the choice of using services like Spotify or Hulu or the legacy TV networks for distribution. Or given the brand of New York Times, you yourself can be an aggregator. And aggregators, in general, have seen a lot more value creation over the last few years when it comes to digital business models. So it would be great to get your thoughts on how you think your newer businesses from a distribution strategy perspective could evolve, right? And in terms of the content cost itself, I mean, podcast, you've made some investments, but on the video side, you've relied more on partnerships in order for -- in order to defray the production costs. Is there a cell phoned model for content going forward where you could essentially use some more investment dollars?

I'm probably going to have to have you clarify the last bit of the question, but let me try the first 2. I would say, in general, you can -- as I said in my remarks, you can expect us to continue at least broadly with the strategic themes we've been at for 5 years now. One of those big themes is, we really believe in the power of Times being a destination and being something that people come to directly and has asked for by name. And at the same time, we are very conscious of the fact that we operate in a broader ecosystem. And in many cases, habits are formed based on some of the biggest players in that ecosystem. And I think a lot of that in, let's say, audio or in film and TV kind of remains to be seen, what distribution will look like. But you can expect we'll take the learnings that we've had so far, which has been a really powerful aspect of our business that we've been focused on our own destination. And I'll say in the audio space, it's not clear yet what a destination is, in many cases,

The Daily, which is a program is a destination. It's in and of itself something that people ask for by name, that they come to every day. And it's a distribution channel for us to launch other great work into the world. And you could imagine the same of Serial Productions or any of the other podcasts that we're doing as they amass very large audiences. So long-winded way to say, we've learned a lot about what it means to be and build a destination. I think we're going to continue to be very focused on doing that on being something that people come to directly and ask for by name, but we also operate with a healthy sense of reality that there are very big players in the ecosystem who are very important to driving our funnel. Google, Facebook, others in the case of our news business, Apple, Spotify and others in the case of audio. And you've seen, based on what we've done in television, that there are places where we assume that the best way to build an audience for Times Journalism, Times content is with other distribution outlets. And that's why we had our first major foray into regular television with FX and Hulu as the distribution partners. And I think we've learned a lot from them. We'll continue in that partnership with new production. I'm not sure I understood the last bit of the question. You may have to ask it again.

Yes. It's mainly around the investment strategy for content. Is it going to be more on your balance sheet versus maybe a shared model like you've done with video?

I would say you've seen us now apply a mix of organic development, so using our capital to build things. I think we've done that quite successfully in the gaming space and in the lifestyle space with our Cooking product. And we've also used our capital for -- in inorganic ways. And I'll point. We haven't talked a lot about the Audm acquisition, but I'll point to that as an important experiment in 2 ways. Audm is a destination in and of itself. So I'm just going back to the point I made earlier about the importance of destination and subscription, but it is also an aggregator of other audio. So it's spoken-word audio from now The Times, but when we acquired it, it was spoken-word audio, long-form journalism from The Atlantic and The New Yorker magazine and it continues to be that. So among other things, the Audm acquisition gives us a great experiment in aggregation about the content.

Got it. Can I ask 1 question on subscriptions? If you could just help us think through the channel shifts in terms of originations and also the mix shifts. New cycle is obviously important to generate more subs as we've seen over the last couple of quarters, but I'm sure there is different consumer behavior when it comes to churn across different cohorts. So if you could just help us think through how this has evolved over the last maybe 3 or 4 years as subscription growth has accelerated in terms of growth contribution from the top of the funnel versus the bottom of the funnel, that would be very helpful.

I'll take a crack at it and tell me if I'm actually getting at your question, and Roland may want to come in here as well. I would say -- I mean, I said a version of this in my remarks, but audience continues to be a really important aspect of how we think about our funnel. And as audience grows, that's -- the audience story of the last 2 quarters has been a very important part of the story. And I think we said in the last call that as we see sort of a step function change in audience, I think, we see the opportunity to grow and change. But behind that, where our new customer journey that we launched a year ago, which is registration-based, opens up, I think, sort of new stabilizing function. We bring people in. They register. We're much -- we're more effective at getting them to come back and reengage and to stimulate further use, and that's a really important part of the puzzle. So I think the broad answer to your question is our own organic means of engaging people become more important in a regi model. So can we get you to come back and engage through a newsletter? Can we message you in a more commercial way and get you to come back and engage? Or can we get you to download the app? If you do that, you're more likely to subscribe. So I would say our own organic channels in a regi model become that much more important. But Roland, you may want to add to the answer.

Kannan, did you have a retention question inside that question? I can address that, if you'd like.

Yes. So the question was, if you look at the churn across different cohorts, as you reprice as people have rolled off of promos, I'm sure that behavior has changed. So if you could just help us think.

So we're now 22 months into the first offerings of the $1 a week, so nearly 2 years. That retention curve for the folks on $1 a week you could almost sit it right on top of the retention curve at 22 months for the prior offers. And at each point of that curve, it's almost identical. The slope, the little dips in it, et cetera, are almost identical. When we peel that back a little bit further, the folks who we've stepped up to an intermediate price, they retain a little bit better than the folks we step up to full price. And then if we look at more recent cohorts, if we look at the COVID cohort. So back in Q1, you have a massive number of people subscribing and you're curious to how they'll retain. And while it's still early, you could sit that curve on top also. So we are seeing a retention that makes us quite happy no matter how we split these cohorts. And we -- as we've been growing and growing and growing the base, our overall churn numbers have been within 0.1% or 0.2% either way the entire time for many, many, many quarters. So the retention story is very good for new cohorts, it's very good for folks who came in on a discount and getting stepped up, and it's also very good for the tenured folks who got a price increase -- a base price increase last quarter.

The next question comes from Vasily Karasyov of Cannonball Research.

I was wondering if you would like to comment on the 10 million subscriber goal that you put forward several -- some time ago and given how strong the sub base is growing. Maybe the time line for it or the order of magnitude, anything would be very interested to hear what you have to say.

So I'll go at that, but -- so I think Meredith again should address it. Well, I mean I announced that goal, I think, in the earnings call for Q4 '18, so in February 2019, with a milestone of 10 million by 2025. At the time quite a few people, other executives on the call, let alone the wider world, thought it was a slightly crazy number. 18 months later, I mean, the company is clearly close to 2/3 the way they're already with more than 5 years still to run. So it looks now, I think -- like assuming the strategy continues to deliver strong gains, it looks probably like an underestimate. I do want to say about the 10 million. It was always a milestone. It was not kind of like a terminal target or a prediction of when the model would plateau. We don't know when it's going to plateau. My own view is that the opportunity the company has is immense, given both the ecosystem, the falling away of a lot of competition, but also the attractiveness of the product and the kind of virtuous circle that we've got going in terms of great journalism and audience engagement. So the answer is, I think what felt as recently as 18 months ago like a really stretching milestone for the company now feels -- I don't want to say it's in our grasp because, obviously, there are several million more subscribers to get, but feels imminently achievable and achievable well within the timetable I set. But Meredith, you should -- because you -- literally, as we pass the baton to you on this call pretty much, you should talk about this as well.

Yes. I don't have a whole lot to add. I think you got most of it, Mark. I'll just say, we see the market for subscription journalism to be large. We think it's at least 100 million people, half in the U.S., half globally. And we think the opportunity is big for us and others to participate in that market.

The next question comes from John Belton of Evercore.

First, Mark, I'm going to miss you. Good luck, and congrats to Meredith. So I have a couple on pricing. So first, Roland, given all the comments you just made about retention across all these different subscriber price cohorts, have you changed the strategy in terms of the number of $1 per week customers you're stepping up to full-price versus intermediate at the 1-year anniversary? On a related note, I think you said in the prepared remarks (technical difficulty) down 8.5% in the quarter. Should we expect that to continue to improve sequentially on a year-over-year basis moving forward? And then what does that imply for international ARPU in the quarter? And just any update on international pricing strategy. Sorry for all the questions.

Okay. I'll see if I can retain all of them. So in terms of the strategy on the step-up pricing, meaning, presumably, the percent that we're asking to move to a step-up price, intermediate price and those we are stepping up to full price, we're still targeting approximately 50-50 on that. Where we're making progress on AI is the amount -- the percentage that the model is picking. But at this point, we don't have evidence that we should come off the 50-50. So that's still in place. Right, I did reveal, for the first time, the domestic ARPU change versus the international and, obviously, intentionally to expose the fact that we are discounting pretty heavily internationally. We think that's the right pricing strategy in a lot of countries. It's not 1 price in all countries. So countries with lower GDP or where a basket of similar goods is priced low, we want to price to sell in those markets. On the domestic side, so yes, the ARPU is down 8.5%. But John, the key here is, depending on how many new subs we bring on, and we're going to continue to use the $1 week promotion. It's been very successful, both in bringing on new subscribers and we've been able to step the prices up. We've proved that also in the last few cycles. So as long as we're bringing on these very large amounts of new subscribers, I don't expect ARPU to stabilize quite yet.

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

Mark, I want to say you did a heck of a job the last 8 years. We're going to miss you. And congratulations, Meredith, on the new position.

Thanks, Craig. Thank you.

Thank you.

My questions. Mark, where was the number of journalists at the number you have when you first started the company 8 years ago? Where is it right now? And maybe if Meredith could just speak about maybe on a go-forward basis, I assume you guys want to continue to invest in that area, the content side?

Sure. Yes, of course, Craig. So I haven't got the exact number in front of me, but I want to say that we're at about 1,750 at the moment in -- across newsroom in my opinion. So 1,750, and that's probably 250 or slightly more than 250 more than when I walked into The Times. So we've been able -- and we had -- in the first couple of years, we had some buyouts and layoffs. And we've had some since, which have been around organizational change and shifts which newsroom leadership themselves have wanted to make to pivot to their new strategy. But obviously, it's encouraging that we've been able to build our strength at a time when -- and this is nothing to be pleased about, so many other newsrooms are obviously being depleted. But Meredith will tell you about what her view about what's going to happen from now on.

Yes. I'll say a few things. But the first 1 to say is that I think the single most important driver of what the company has been able to do in its business strategy, particularly its subscription strategy in the last 8, 9 years has been the continued investment in the newsroom, in journalism and the expansion of formats and just been putting more reporters, more journalists, more editors in more places. So you can assume that we are going to continue to invest heartily in the newsroom and in our journalism, very broadly. I'll say 2 more things about that. I think I talk a lot about the product itself as the primary engine of the business. And by that, I mean, the ability of the journalism to be sufficiently different from free alternatives and of a quality that people will pay for it. And I also -- the ability to help people find an experience more of it.

And I would say, on the second, we still have a lot of distance to travel to be really effective at surfacing all that we already make to people, so that they get in a digital environment, and particularly in a mobile environment, so they get to the stuff that's going to be most relevant for them. So I think there's always going to be an important corpus of Times Journalism that everyone who comes to The Times should be, but there's still a lot of room for us to get better at surfacing particular stories, particular kinds of journalism to match people's interest. And that brings me to my third point, which is you can assume we'll continue to invest heartily in the journalism, particularly continue to expand in new formats, as we've talked extensively about on this call, in audio and to some degree in film and TV. But it's worth saying, and I think we've said a version of this on prior calls, that, that investment doesn't have to scale with subscriptions. And that's in part because of the second thing I said. I think there's still a lot of room for us to get better at surfacing the stuff. We already make the great journalism. We already make to the very, very large audience we have and a lot of the work of driving more subscriptions lies in our ability to do that really effectively.

Appreciate that, Meredith. I want to also ask you about The Daily. Maybe if you could just update us on the number of listeners each week, if you would, every metric you want to give me now versus, say, a year ago? And then a longer-term strategic question, I guess, on The Daily podcast. I'm just curious. How much thought have you given maybe as you think out over the next roughly 18 months about starting to charge for The Daily podcast? And I ask that whether you charge for it on an annual basis, but also perhaps maybe include it in the news only digital product and it gives you another reason to raise prices down the road on that product but also help drive the digital subscribers sign up for the news only product to be included in there down the road? So I mean, is there a transition you think you can make down the road here, start to charge? This product has obviously been very well received out in the marketplace.

Yes. Well, let me just start on the audience for The Daily. My -- the thing I can't help but say is the audience is now vastly larger than the audience for the paper, Daily or Sunday, at even at its peak. And most of the listeners to The Daily were people who probably never read the newspaper. So it's really done an incredible job of widening the audience for The Times and bringing new people to the brand. I think now we're somewhere above 3.5 million average daily listenership for The Daily, which is almost twice where we were a year ago. One of the things that's been particularly remarkable in this period is the resilience of The Daily even during quarantine, during sort of stay-at-home orders. I'm not sure that's been the case for listenership to audio in general, particularly because people lose drive time. So we've been very, very pleased to see that.

And then just turning to the other part of your question. I think The Daily has been very, very powerful in a number of ways for the company. I have to say it's a really strong and particularly resilient ad business, as is audio generally at The Times. And so we continue to be optimistic about that. But as we've said in prior calls, we believe and we've some evidence that The Daily plays a real role in bringing people into our subscription funnel. One of the great things about it is it's essentially a single story every day. So often, we leave people wanting more on that particular story or other stories. And so then they come to The Times to get more. And we know that people who listen to The Daily feel real affinity for our brand. If you listen you'll hear that we often use one of the ads in The Daily as a direct subscription, and I would put that in sort of top/middle funnel work where we're talking about the brand and how to go about the work, but also essentially asking people to subscribe if they like The Daily. And those ads are really, really powerful.

And then as I said in answer to another question, The Daily itself is a really important distribution mechanism for other audio journalism. Meaning, we use it as an envelope to send other new podcast into the world, and that's been quite effective. We've been able to launch a number of other important shows as a result of having The Daily. And we can do that directly if we need or we can do it by using The Daily as promotional space. And I think all of that is useful to us. And I'll say very broadly, we have a subscription-first strategy and a strategy of direct relationship with users, and that has served us very, very well, even against the backdrop of many, many free alternatives to The Times. And so I'd say we don't rule out that at some point in the future it could be directly a part of our subscription business. But what I will say is if you look at the -- I think we're 9 years into the pay model now. If you look at our history, we have always had, and even today, have a very wide free layer for our content, which is hugely important. I said a version of this in my answer to Vasily's question. But hugely, important to driving the business and to our ability to make direct relationships, and it's hard to imagine a scenario where The Daily in some capacity doesn't play that role for a while.

Best of luck to you, Mark, going forward.

Thanks so much.

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.