New York Times Co (NYT) 2020 Q1 法說會逐字稿

Good morning. And welcome to The New York Times Company's First 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 First 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. 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. I'll start with a few high-level observations about the corona pandemic. I'll then ask my colleagues, Meredith and Roland, to go through the quarter in detail.

Today, you're going to hear a broadly encouraging story about how the time is performing so far during the pandemic, with record-breaking audiences and subscriptions and a firm belief that we can and should continue to roll out our ambitious growth strategy for the company. But we haven't and never will lose sight of the scale of a human tragedy and economic disruption and hardship that the coronavirus is bringing to America and the world. Some of our reported colleagues are chronicling this tragedy on the ground every day.

And though we're doing everything we can to keep them safe, they're running some of the same risks as frontline health care professionals. Our thoughts are never far from them or from the patients and health workers they're covering. We're incredibly grateful to them and, indeed, to all of our colleagues who are working around the clock and overcoming any number of obstacles to keep this great newspaper strong and able to serve its readers everywhere at the time when those readers need it most.

Our business model with its increasing emphasis on subscription revenue and reducing reliance on ad revenue and our fortress balance sheet puts us in a far better position than most media organizations, not just to successfully ride out the storm, but to thrive in a post coronavirus world. But we should also have a humility to acknowledge that there is much we still don't know and can't predict about this pandemic and its economic impact. Patience, responsiveness, flexibility and resilience will all be key over the coming quarters.

Our response to the crisis has so far been effective. We track the impact of the virus from the moment our reporters arrived on the ground and was hard to cover the first outbreak. We moved to homeworking in the initial wave of U.S. companies in the first half of March. Our previous homeworking drills and overall business continuity planning helped ensure that the transition went smoothly and without interruption to either newsroom or business operations. And as a result, we're currently operating at a very high level of productivity despite the limitations of remote working and the inability to travel for all, but essential journalistic reasons. We're delivering what we believe is the most trustworthy news and most useful guidance about the coronavirus as well as offering a full suite of non-virus news, opinions and features to inform and divert our readers through the crisis.

Our digital teams are leading aggressively into our growth strategy, while our print teams are doing a magnificent job getting our newspaper printed and distributed to readers everywhere despite the immense challenges involved. Now like everyone else, we'd love to return to something approaching normality as soon as possible, but we're also being realistic. Yesterday, we told colleagues that we don't expect the majority of them to return to the office until the 8th of September, at the earliest. Their health and safety will always be paramount to us. Given the current effectiveness of our remote working, we do not believe that this decision will have any significant impact on business results.

Our digital transformation has succeeded so far because we've maintained the momentum of change year-in and year-out over many years now. We're determined not to allow the present disruption to reduce this momentum. As you'll hear, lower ad revenue will put pressure on profitability for some time. To mitigate that, we'll cut costs where we can, but only in ways we believe will not slow down the execution of our strategy. These cost reductions will likely lead to some job losses in the coming months, though we expect a comparatively small number of these. We expect no such job reductions in journalism and none that would impact our core growth strategy.

We will continue to invest in that strategy and to hire, both in journalism and in engineering data and the other digital product functions. We expect the company's net headcount to increase rather than decrease by year's end. This is clearly a strange unsettling time for everyone. But this week, we do have some things to celebrate at The Times. Once again, the work of our brilliant journalists has been celebrated with a clutch of Pulitzers. Meredith will give you the details of those in a moment.

And thanks to the amazing surge of new subscribers, The New York Times has passed some significant new milestones. By the end of April 2020, in other words, including the first month of the present quarter, we have more than 4 million subscribers to our digital news product, more than 5 million digital-only subscriptions in all and more than 6 million total subscriptions across digital and print, all historic highs, both for this company and for the entire American news business.

But now let me hand over to Meredith for a full review of Q1 and our assessments of our prospects going forward.

Thanks, Mark. And good morning, everyone. For over a decade, we've made the most ambitious investment in original journalism in the company's history. The importance of that investment and its centrality to our business strategy has never been more evident. So let me start by thanking the extraordinary staff of The New York Times, our colleagues in the newsroom and every person in the organization, who supports their work.

As Mark said, the Pulitzer Prizes were awarded earlier this week, and The Times was honored with 3 for international reporting, for investigative reporting and for commentary. That brings the total number of Pulitzers awarded to this institution to 130, far more than any other news organization. What's so inspiring about this year's awards as our executive editor who deemed the case, said on Monday, is that they involved many desks and many journalists, and they're a testament to a modern news organization, honoring not just narrative storytelling, but also work from our visual investigations, video, television and audio teams.

Our mission is to seek the truth and help people understand the world. And at this incredibly difficult time, our newsroom of more than 1,700 people is working tirelessly to arm our readers with the trusted information that they need to understand and to navigate the pandemic.

When no U.S. government or public health agency was publicly tracking all county-by-county domestic cases of coronavirus, Times journalists left into action in late January and began building a comprehensive data set. We made that data set publicly available, so that other journalists, researchers, scientists and government officials could study and better understand the spread of the virus.

Having a deep bench of expertise has been especially helpful in this moment, you see it in the work of reporters like Donald McNeil, who has covered pandemics around the globe for more than 30 years, or Dr. Sheri Fink and columnist, Nick Kristof, who, along with their photographers and videographers, have reported from hospitals to tell the story of health care workers who are risking their lives to save others and countless people on our news and business desks who are working around the clock to deliver live "up to the minute" briefings on the spread of the virus and its implications for businesses, markets and economies.

Our investment in original journalism has also meant that we can innovate and adapt to changing reader needs. Over the last 6 weeks, we've expanded our lifestyle coverage in our service journalism to help people deal with quarantine. Our new At Home section includes recommendations on movies to watch, recipes to try, games to play, tulips to plant and even instruction on how to give yourself a buzz cut. All of this has meant record audiences and engagement.

In March, well over half of all American adults came to The New York Times, and readers viewed 2.5 billion pages, almost double what we typically see in a month. We had around 240 million global unique users based on our internal data, by far the highest number ever. The new customer journey that we launched almost a year ago, which requires registration and log-in in most places to see more than one story meant we also saw millions more readers register and then return and log in each week. That, combined with the surge in audience, gave us a historic number of total net digital-only subscription additions in the first quarter at 587,000, including 468,000 for news and 119,000 for stand-alone products. To put that in context, 587,000 total digital-only additions is 2/3 more net adds than we brought in, in the first quarter of 2017 at the peak of the so-called Trump Bump.

Given the extraordinary circumstances, we made the decision in early March to open up access to the vast majority of our virus coverage. That meant readers did not see a paywall on the vast majority at The Times stories that they view. While fewer readers converted to subscription because they ran into a paywall, anonymous readers and those who registered still subscribed in record numbers. While we don't expect the striking surge in traffic from the first quarter to continue indefinitely, indeed we've already seen anonymous traffic begin to come down, we've been encouraged by the behavior of registered readers whose return rates are improving week over week. That's in part because of the unique nature of the news cycle, but it's also because of deliberate work on stimulating return by helping people follow storylines, get continuous live updates and explore a broader range of their interest. While the news environment will change, as it always does, we expect that the larger number of registered readers and our growing effectiveness in getting them to return and form a habit will mean an improvement in the underlying rate of net additions versus the period prior to the crisis.

Another encouraging sign is the continued diversification of our subscriber base. Our newest subscribers are more likely to be younger and more diverse, both geographically and also in terms of race and ethnicity. Subscriptions to our Cooking and Crossword products have been especially strong as has affiliate revenue from Wirecutter. Crosswords had its highest quarterly net adds on record in the first quarter, and Cooking had its second highest. It should surprise no one that Melissa Clark's advice on how to stock your pantry has gotten more than 2.5 million page views and counting.

We continue to be excited about our early foray into TV with The Weekly and proud of the work that our team has made with our partners at FX and Hulu. In fact, The Weekly episode shared 1 of the 3 Pulitzer Prizes, I mentioned earlier, for its investigation into How Reckless Loans Devastated a Generation of New York City Taxi Drivers. We expect to continue to work with FX and Hulu when TV production resumes, likely in the form of a smaller number of longer specials, but we don't expect this change to have a material impact on our bottom line.

Now we've talked in prior calls about the importance of audio in enabling The Times to reach new audiences and play new roles in people's lives. The Dailies' audience has surged to almost 3 million downloads every day despite the change in the morning routine for many listeners. We're also continuing to add to our audio talent [rings] and to our programming. We announced last week that opinion contributor, Kara Swisher, will launch a new interview show with us this fall. And last month, we launched a new slate of shows and series that we're referring to as the quarantine season. We also made a small acquisition in the quarter of an audio subscription app and business called Audm, which provides read-aloud audio versions of magazine stories, including our own and those of The Atlantic, New Yorker and New York Magazine, among others. All to say that even with the profound difficulties caused by the crisis, it's been a period of growth, innovation and strategy acceleration in our journalism across our platforms and in our subscription business.

The story on advertising is quite different, though here too, we see an opportunity for strategy acceleration. First quarter advertising revenue declined 15% overall, with the economic slowdown beginning to play a role in March where the declines were much steeper. As Mark suggested, there is macroeconomic uncertainties or visibility is limited, but we are expecting a pronounced downturn in advertising for at least the next quarter and likely beyond. The declines will likely be steeper in print than digital, but significant in both places. That said, we continue to have real confidence in our ability to run a sustainable and highly profitable ad business in a post pandemic world, one that is both downstream of and draws its unique strengths from our large and growing subscription business.

We've been on a multiyear journey to transform our ad business, and the current circumstances mean we'll hasten that transformation as the key trends we've been talking about for some time play out faster in a recession. One of those trends is a greater concentration of our ad business in a smaller number of growing categories like tech, telecom and financial services, where we're able to build larger multi-platform collaborations like the ones we've talked about with Google and Verizon. Another trend is significant growth in demand for advertising products that bring brands closer to the deeply engaged audiences of The Times. As we've talked about in prior quarters, we're increasing our investment in and focus on ad products that get their value from first-party data collected from our readers and privacy for in ways and also consumer insights about what drives and engages those readers. Our ad business will also benefit from our increasing investments in audio. Podcast ad revenue grew 30% in the first quarter, as The Daily became an even larger and more sought after platform for our advertisers. We do expect some softening of demand for both data-driven display and audio during the recession, but less so than in our legacy products.

So let me pull all of what I've just said together. Notwithstanding pressure from advertising, the fundamentals of our subscription-first business model give us real confidence in the long-term prospects for the company. And I'll end where Mark began. We're living through a surreal and harrowing period for our city, our country and the world. We so appreciate the essential workers, first responders and medical professionals everywhere who are saving lives and keeping so many of us safe. And we are deeply grateful to all of our Times people in New York and around the world, who are helping our audience understand and navigate this unprecedented crisis. They have our profound thanks.

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

Thank you, Meredith, and good morning, everyone. Although we do expect short-term results to be negatively affected by a decline in advertising, our subscription business, which represents approximately 2/3 of our revenue, provides a source of strength and resilience through a recurring revenue stream that is expected to grow further as we continue to excel at our core mission.

Adjusted diluted earnings per share was $0.17 in the quarter, $0.03 lower than the prior year. We reported adjusted operating profit of approximately $44 million in the first quarter, which is $8 million lower than the same period in 2019. Total subscription revenues increased approximately 5.5% in the quarter, with digital-only subscription revenue growing 18% to $130 million. This represents a continuation in the sequential increase in the rate of quarterly growth, largely as a result of the large number of new subscriptions we have added in the past year as well as strength in retention of the $1 per week promotional subscriptions, who have passed the year-long promotional period and have graduated to higher prices. Quarterly digital news subscription ARPU declined approximately 10% compared to the prior year and approximately 3% compared to the prior quarter, consistent with the rates of decline we reported for the fourth quarter of 2019. For both sequential and year-over-year ARPU trends, the large number of newly acquired subscriptions, mostly on the $1 per week promotion domestically and at deeper promotional rates in many areas outside of the U.S. more than offset the benefit from subscriptions graduating from their introductory promotion to either step up or full price as well as a 1-month benefit from price increases on 500,000 of our more tenured full price subscriptions.

We expect that the digital news subscription price increase, which went into effect in March will begin to more significantly benefit ARPU in the second quarter, but will be more than offset by the impact of continued strength in subscription additions, largely at the $1 per week promotion as well as from continued outsized growth in international subscriptions, which monetize at a lower rate than our domestic ones. International subscriptions made up approximately 18% of our digital-only news subscriptions at quarter end. On the print subscription side, revenues were down 3.4%, largely due to a decline in single copy sales as many sales outlets were closed beginning in the latter half of March and to a lesser extent, declines in the number of home delivery subscriptions. This decrease in print subscription revenues was partially offset by a home delivery price increase that was implemented early in the year.

Total daily circulation declined 11.9% in the quarter compared with prior year, while Sunday circulation declined 8.6%. While the rate of decline in home delivery copies was in line with recent historic trends, the increase in the rate of overall copy decline was driven by reduced newsstand and other single copy sales. The closure of hotels, universities and other outlets as a result of stay-at-home orders across the country contributed approximately 1 percentage point to the copy decline. While the loss of Starbucks as a distribution outlet in August of 2019 contributed approximately 2 percentage points to the decline.

Production and distribution of our print products, both in the New York area and across the United States, continue to operate like clockwork, albeit with new safety measures in place. While we expect that the continued closure of newsstands will be more dilutive to revenue in the second quarter than in the first quarter, I am happy to report that our home delivery business has been much less impacted, and we are receiving and fulfilling many new orders for home delivery subscriptions, both locally and across the nation.

Total advertising revenues declined approximately 15% in the quarter. As you would expect, results for the month of March were significantly below those of January and February. Digital advertising declined approximately 8% in the quarter compared with the prior year, largely as a result of strong comparisons in the prior year in direct-sold advertising as well as lower demand related to the pandemic. Higher traffic on the site resulted in an increase in open market programmatic advertising, which only partially offset lower direct-sold demand. Print advertising, which declined approximately 21%, was more directly impacted by the pandemic, especially in the luxury, media, entertainment and financial categories.

Other revenues grew 21% compared with the prior year to $52 million, principally driven by revenue associated with our television series, The Weekly, which aired 7 new episodes in the quarter as well as from licensing revenue related to Facebook News.

As a frame to the discussion of our costs for the quarter, I want to call attention to a change we have made in the presentation of our operating costs. These changes were made in order to better reflect how we manage the business and to provide readers with more clarity into the investments the company is making to further its subscription-first strategy. As a reminder, we have repeatedly said that these investments are expected to come in 3 main areas: one, journalism to fulfill our mission and create compelling content; two, product to enhance the digital products due to which our journalism is consumed; and three, marketing, which we expect will become increasingly efficient, as we continue to invest into the first 2 areas. Most costs previously labeled production are now included in cost of revenue and reflects all costs related to our newsroom, print production and distribution, digital content delivery and subscriber and advertiser servicing.

The selling, general and administrative costs have been split into 3 categories: sales and marketing, product development, and general and administrative. Please see the earnings release we published this morning for a more detailed description and reconciliation of first quarter 2019's results in the new presentation as well as 2 years of quarterly history under this presentation. We have also posted 2 years of quarterly history under the new presentation on our Investor Relations website.

GAAP operating costs and adjusted operating costs each increased approximately 3% in the quarter. Cost of revenue increased slightly, largely due to higher journalism costs, including growth in the number of newsroom employees and costs related to The Weekly, which was partially offset by lower print and distribution costs. Sales and marketing costs decreased approximately 1.5%, as lower advertising sales costs were partially offset by higher marketing costs.

Media expenses, a component of sales and marketing costs, increased only slightly in the quarter, demonstrating that we have become less reliant on increased acquisition spend to drive subscription growth. Product development costs increased by approximately 30%, largely due to growth in the number of employees engaged in digital subscription strategic initiatives.

Our effective tax rate for the first quarter was 15.5%, which was lower than the statutory tax rate, largely due to a benefit from stock price appreciation on stock-based awards that settled in the quarter. 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 $687 million, which was flat compared with the fourth quarter. The company remains debt-free with a $250 million revolving line of credit available. On our last earnings call, I reported that our qualified pension liability was 99% funded. While we typically only update the status of these plans annually, given the recent market volatility, I will make an exception to that practice and report that as of yesterday, we estimate the funded ratio to be approximately 94%. And we continue to believe that performance of the plan's assets alone should be sufficient to fully close the funded status over Times without any material need for company cash.

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.

Let me conclude with our outlook for the second quarter of 2020, which is based on our current knowledge and assumptions and could be impacted by the evolving pandemic. Total subscription revenues are expected to increase in the mid- to high single digits compared with the second quarter of 2019, with digital-only subscription revenue expected to increase in the high 20s.

Overall, advertising revenues are expected to decrease approximately 50% to 55% compared with the second quarter of 2019, and digital advertising revenues are expected to decrease approximately 40% to 45%.

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, The Weekly, and lower revenue from our live events business as a result of the COVID-19 pandemic.

Both operating costs and adjusted operating costs are expected to be flat or to decline in the low single digits compared with the second quarter of 2019, as we pulled 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) The first question comes from John Belton of Evercore.

I just wanted to talk a little bit more about the subscriber trends you're seeing. So I think, Meredith, you talked about expecting a higher net addition trajectory after the crisis winds down relative to what you were seeing before the crisis. How is that impacting the way you think about the 10 million subscriber target longer term?

And then I just wanted to double check one thing. I think you said you now have over 4 million digital-only new subscribers as of the end of April. So that implies something north of 100,000 net additions for that product alone in April.

I'll go ahead and answer that. I'll say a version of what I said earlier, which is what drives our optimism in our continued ability to drive a step function increase in net adds is the idea that we're getting many more registered users in this period, and we're getting better at stimulating them to come back, and to get them to form a habit. So even as overall audience begins to come down, we're confident that we'll see some lift in the model. And I think your second question is where does that leave us on the path to 10 million? I think we've said all the way through that we see that more as a gate or a milestone than a goal in its own rate.

And if I can just perhaps add, John. Part of also what we're looking at is the period of the 2016 election, where we hit a peak, as we said, in the first quarter 2017, not as big a peak as we've just hit now. And then after a couple of quarters, our audiences fell back, but a lot of people have come to The Times because of that, and they stayed. And we -- after the Trump Bump effect diminished, we had a much higher run rate of subscribers then. And particularly given what Meredith says about the large number of registered lockdown users we're gaining, we've got real confidence that, although certainly, a lot of people are coming to us now for the coronavirus, that many of them will stay, and we hope, will become loyal, long-term users and subscribers of The Times.

The next question comes from Alexia Quadrani of JPMorgan.

I wanted to just ask you a couple of following questions on the heightened demand for subscriber growth. Can you walk through your thinking of maintaining your level of promotions, if you have? I know you do best like to sort of go back and forth from $1 a week to $2 a week at different times of the month, but I'm curious of your thinking of maintaining that sort of high level, given that you are seeing so much more demand? And then just sort of staying on that topic, I understand you don't have a crystal ball, but you clearly have more insight into readership trends than we do on the outside. How should we think about sort of churn in these vast pool of new subscribers when this crisis begins hopefully to eventually die down?

I don't know, I think I'll pass to Meredith for the first part of the question, she may want to talk about the second part. But just on churn, to say, manifestly with each new big event like this, we get new people in. As Meredith says, we're seeing some -- actually, I think very excitingly, for The New York Times Company, we're seeing some younger, more geographically and ethically diverse people coming to The Times, and we touched in March more than half of U.S. adults. It will be foolish to be too precise about future churn trends. I want to say the backdrop is of a company, which has got far more expert at understanding every stage of the subscriber kind of life cycle, including retention, and we are we think very good now at understanding churn. And even before the coronavirus struck, every senior of the organization was focused on trying to make the customer journey, but also the fundamental experience of Times journalism, so compelling and so, kind of, addictive in terms of features, which bring you back day-after-day, the usage will be high, the C value will be high, and therefore, churn will be low. But let me hand to Meredith now for the main part of the question.

Sure. Thank you, Mark. On the question of promotion, what I would say is, you can see this as a period where we're leaning into very strong demand. And we have been aggressive in our use of a $1 a week as a promotional offer, in part, because we think it takes us to the outer edges of our propensity circle. And the comments, I made earlier, about the widening of our subscriber base to include more young people, more geographic and racial and ethnic diversity, I think, is a testament to that. And I would say we're also getting, and I think, we've said this in prior calls, more confident about our ability to really work across the whole of the demand curve, bring people in at a promotional price and then manage them through a step-up moment. And then ultimately to being a tenured subscriber that will accept a price rise because they're getting so much value out of the product. And I think both Roland and I alluded to the fact that, that we're feeling real confident in our pricing power and our ability to bring people along that curve that I just described. So that's why you see us continuing to use the $1 a week because we think we can graduate, we've been successful at graduating people.

Let me say a couple of things on churn to come in behind Mark. One is that the very strong core news net adds number in the quarter was a function of both high starts and low stops. So churn did play a big role in that, good news on churn. And I think and Mark alluded to this, I think the most important thing on churn is not that we're sort of -- that we keep improving at the mechanic of it, although we do, but I think a lot of those gains have been realized. It's that we are getting better at getting people to just engage in the product. And I mentioned a couple of things that will underscore them. There was a ton of work done in advance of coronavirus, and then we really leaned into it during the pandemic and still are to be better at covering things in a live way and to give people a reason to keep coming back, and that's playing a big role in engagement as is just getting people to find other things they're interested in on The Times, and when users are registered and logged in, we're just much more effective at being able to do that.

And then just a quick follow-up on advertising, if I may, just really on digital advertising. How widespread was the weakness across your different advertisers? I was just curious if it was really isolated to several verticals that you really saw cuts across the board. And you mentioned some strong numbers at The Daily. I'm curious if you saw -- saw a pullback in advertising at The Daily?

Yes. Mark, I'm happy to take that one. I would say broadly, advertising -- the advertising trends are -- sort of follow what's going on macroeconomically. So we've seen pressure everywhere, as I said earlier, in general, in both print and digital. Particularly in digital, some of the categories like tech and financial services and telecom, where we tend to do bigger integrated collaborations have held up better and will likely continue to hold up better. One of the trends we've talked about for a while was just the idea that we will have a larger concentration of advertisers in a smaller number of categories. And I think it's fair to say, in both print and digital, we saw more pressure in our legacy categories. And I think we can assume that, that will continue through the crisis.

And your second question was about The Daily. We -- I'll try and answer, you tell me if I'm getting to your actual question. I already mentioned the surge in audience, and I would say marketer demand for The Daily continues to be strong, though demand for everything we do from an advertising perspective is softer than it was before the pandemic, but The Daily -- both because the audience gains are so significant and because demand is strong relative to other places, The Daily was still a very good story for us in the first quarter, and I think will continue to be all year.

And actually, Alexia, I'm going to add -- just add one final point coming to -- to come back once again to churn. Just to spell out, I'm not sure quite how clearly we said this in our written remarks. As you know, we're involved in a number of exercises of stepping up new subscribers, who were previously on $1 a week to higher prices. And we've also -- as you know, we mentioned, we've got a general price rise going through the system for tenured subscribers. Before the coronavirus hit, we were continuing to see, we think, very encouraging results on both of those at or better than our modeling beforehand. So the underlying story with all these changes to price was, I think, very encouraging for the long-term future of the model. And as you've heard, we think it's more likely that the coronavirus will be, as it was retentive and have a positive effect on retention. And we'll -- as it were, all things being equal, reduce propensities of churn on top of that. So this is -- the churn picture is actually looking very good, I'd say.

The next question comes from Vasily Karasyov of Cannonball Research.

I have a couple. One, I wanted to ask you if you could remind us how print subscription revenue usually behaves in an economic downturn, if we could isolate it from the COVID-19 impact, what normally happens in environments of economic recession?

And then a quick question for Roland. Roland, I think in your prepared remarks, you said that the revenue from The Weekly is down due to COVID-19. Can you explain maybe why that happens? Is it tied to advertising? That would make sense to me.

Thank you, Vasily. I think maybe you should -- Roland, you should address both of these questions.

Okay. Great. So home delivery and the revenue associated with it, the question is about how that reacts, I guess, in a recessionary period. So the answer is, actually, it holds up very, very well. If we -- if you look at how that worked out in '08, '09, we actually were able to raise prices during that period. And if we look at the reaction of consumers now during the pandemic, we actually have seen an increase in new starts, both locally and across the country. So we expect that to hold up very well. The single copy side of it is really where we will get hurt the most with the closure of all the outlets. And we see some of that demand is getting swept up in home delivery for folks, who had a single copy habit and now can't get a single copy, more and more of them are already home delivery. So that's very stable in a recession.

The question about The Weekly, I think it's in the guidance for Q2, and it's not about advertising revenue. It's about a lower number of episodes that we expect to air. And we book revenue when we air the episodes. And I think Meredith mentioned also for going forward with our agreement with FX and Hulu, we expect to make fewer episodes in the coming months, and we expect that to be longer form, so that the economics will change somewhat. But to just repeat what Meredith said, on the bottom line, we don't expect any significant impact from that.

The next question comes from Doug Arthur of Huber Research Partners.

Two questions. First, digital subscription revenue was up about 18.3% or so in Q1. You're saying high 20s in Q2, I believe. You sort of talked about some of the contours of that, but is that mostly because of higher volume? Is it the impact of the one -- of the price increase? So what's the driver of the delta between Q2 and Q1? Then I've got a follow-up on costs.

Okay. Meredith, do you want to answer that question?

Yes. I'm happy to. I think it's a combination of those things, probably driven more by volume, but as we've said on price, in particular, saw a very large number of people coming in on a promotional price, but we are 7, 8 months in now to stepping those folks up, and that is going very well. It's broadly in line with what we saw on the step-up sometime back for 50% of folks. And then we've also -- I think Roland mentioned this in his prepared remarks, we've also taken a large number of tenured subscribers through price increase and annual increase and that has also gone well. So I think it's a combination of all of those things.

And Doug, you had a question for Roland on cost as well.

Yes. Just looking at the reclassification, Roland, if I go back to Q1 of '19, it looks like about 30% of SG&A is being kind of re-bucketed into cost production -- or cost of goods. And I guess that is mostly in circulation, and -- I don't know you broke it down, but can you just describe a little bit the thinking behind the re-bucketing?

Sure. So the idea here is like more step back. Our previous presentation really was a vestige of how the business had been run for many, many decades. And so the idea is to create a presentation that's much more representative of how we're running the business today. So we have that cost of revenue category. And that is really content creation, what it costs to service our subscribers and our advertisers, all the print production and distribution, and also the digital content delivery. So the cloud cost associated with putting our content on the web, our cost to produce that content and then breaking out product development as a single line item, and that's really the cost to produce and enhance our apps and our web products and then isolating sales and marketing, so that there's a better illustration of what we're spending there. And really, G&A is kind of general management. It does include corporate enterprise tax, so -- the cost of the accounting system, right, that's going to be in G&A and our other unallocated costs. But we really wanted to isolate the areas where we're investing.

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

Maybe I could start my first question, Meredith or Mark. When you think about the opportunity set, long term, here in terms of the addressable market for your digital subscribers, can you just sort of update us on your thoughts on that? In the past, you sort of talked about it as far as people outside the U.S. call it educated, English-speaking and stuff. But how you want to talk about that, please? And I have some follow-ups.

Meredith, why don't you take this one?

Yes, I'm happy to. We have a few different ways of looking at it, but every way we look at it would essentially suggest that there's no fewer than 100 million people in the addressable target audience of English speaking, college educated, some demonstration of willingness to pay for news in some form. So -- and I think as time has gone on, we have been using that number of 100 million for probably a couple of years now, I think it's probably getting bigger, not smaller. And that's a number that's, 100 million people, roughly half in the United States and half outside the United States. And I would say, just based on what we've shared today in terms of the number of subscribers, we have now, I think we've still got a lot of running room on converting that addressable audience.

And one more thing that's worth saying, this was -- I don't think we've said quite enough about this. This was a very strong period domestically, but it was also a very strong period internationally. And we have launched, I think we talked about this a quarter ago, new approach internationally, where we are more aggressive in pricing, assuming that we're a second-read in most markets, in particularly markets beyond Canada and Australia, beyond the English-speaking world. So we've gotten more aggressive with pricing and also with how we apply the leader in markets, like Latin America and Southern Europe and parts of Asia and India. And we're just at the beginning of that, and I think that opens up. Everything we've seen so far would suggest that, that widely the addressable audience and also gives us a very good approach to getting at that audience.

And if I could just add quite briefly, the -- some of the numbers that Meredith mentioned in her remarks are really striking. I mean we got this columns going on round, 163 million uniques, in the U.S., and as Meredith said, our own modeling suggests 240 million people came to The Times in March. That's a far, far greater number than we would have seen 5 or 10 years ago. And I arrived at The Times in 2012, we were seeing unique -- numbers of uniques way under 100 million typically. And I think there's a real sense of The New York Times as a brand and its broad appeal, kind of, moving up a shoe size. I mean this is both becoming a genuinely global news provider, but also reaching into younger, more diverse, more geographically spread audiences, than was historically the case. And I think that sometimes the people who follow The Times closely -- very closely miss the fact that The Times is becoming a much broader appeal than some of those classic stereotypes would suggest. So I think -- and within that, of course, the kind of the fishing grounds for more engaged users, for people who could become subscribers, they also grow bigger. So I think very encouraging.

And my other question I want to ask, on the legacy part of the business, am I correct thinking that on your print volumes for circulation that roughly 15% is nonhome delivery. If that's the case, I assume the overwhelming majority of that is going away right now given this virus right now and stuff. When you take that in conjunction with you, I think you said the fall off of the -- acceleration maybe in home delivery has come down a little bit worse, but nothing overly significant, it sounds like. If I have that all right and your underlying number was down roughly 10% between Daily and Sunday in the first quarter, maybe it might be -- I'm thinking it might be down 25% or so, if not a little bit worse. In the second quarter, when you think about that in conjunction with advertising for print, you're down 50% plus right now. And I know you don't want to make this main focus of the call because long term, you guys have positioned your company here to eventually shut down the hard copy paper. Does this environment now and the numbers you're seeing on the print volume side, the print advertising side, in your mind, potentially accelerate the move to a digital-only product here -- long term here? And what sort of the points you look for there? Is it just -- when you get to a free cash flow negative, is that when you would cut off the print version, go to digital-only down the road here? I know it's not anytime real soon, but what you sort of thought there is accelerated is my main question.

I'm going to ask Roland to address this substantively. But let me just start off by saying, we believe that our print product has got many, many years of a successful and profitable life ahead of it. Our principal strategic focus, as you know, is building a big digital business, but we love our print product, so do its subscribers, as Roland said. Actually, we've seen a very, very encouraging signs in many ways in terms of fresh demand for print product during the coronavirus crisis. So we're very committed. I mean this is clearly a tough time for this product. Single copy sales, as you've suggested, have been massively hit, for completely obvious reasons. I think you -- Roland will confirm that they're much less than 15% of the total revenue from print. But if I can just say as Chief Executive, we are really still committed to the print product. And we see it as part of our portfolio for a long time to come. But Roland, why don't you take over?

Sure. First thing I want to say is there's not been an increase in the trend of home delivery decline. So 9 consecutive quarters, that volume has dropped between 6% and 7%, and we don't see that changing. And we've been able to pass-through -- because of the value of the product and the loyalty of the subscriber base, we've been able to pass-through price increases on an annual basis. So I don't see that trend changing at all. On the single copy side, it is somewhat less than 15% of our revenue. And the single copy side, that's been in slow decline for, I want to say, 25 years or something like that. But admittedly, I think the COVID crisis, if that changes the landscape of retail and outlets, that will change the landscape of single copy, yet to be determined how many folks have a very strong single copy habit and will then move to a home delivery subscription. So I don't see that being a giant change in our revenue profile there.

On the ad side, though, our experience has been that most dollars that leave from the print advertising product do not return. So I'd say there's probably an acceleration there. And I guess the last thing I want to say is to remind folks that the print newspaper is profitable without a dollar of advertising. And so as long as there's sufficient demand, we'll continue to have a print product, and it will continue to be cash generative.

Roland, I'll only add to that, that our launching of the new Home section in print is a testament to our belief that they're still a deeply engaged and very high value customer. And we think there's still lots of imagination and innovation to put into that product. So we still think there's more to come there in terms of delivering real value to our audience.

If I could just ask a quick question here. Your outlook for advertising for the second quarter, does it assume anything materially different in the month of June than what you saw in the month of April?

Roland may come in behind me and give a sharper answer, but I would say, as you think about our remarks on advertising, for -- I would take what you think about our business generally and the trends that you've generally applied and then -- and put them in the macroeconomic context I've described. And I think that's as much as we're ready to say.

The next question comes from Kannan Venkateshwar of Barclays.

This is [Calvin] on for Kannan, and I have 2 questions. The first one is on cost of print. Can you talk about how much costs you can take out in the print segment to offset revenue declines? You mentioned the advertising cuts earlier. But any other drivers of the cost flexibility there?

And the second is on pricing. Does the current economic environment change how you are approaching price step-ups on those promo subs that are rolling off? In other words, are you, say, proactively or reactively stepping up more subs to, say, $1 to $2 instead of $1 to full price?

Thank you, [Calvin]. Thanks, Calvin . Roland, why don't you take this?

Yes. So on the print costs, I'm not going to cite a figure, but we've found -- for many years, we've been on a path to driving more and more efficiency, been very successful at that. And I expect that to continue. There'll be some changes we make, either internally or with our partners as a result, so we would chase efficiencies. And I think we'll chase them a little bit more aggressively, given the ad dollars being less than we otherwise would have expected, not much more to say there. We'll continue to chase that.

On the pricing side, first, we have paused our price increase on digital subs. So we had the first tranche of tenured subs that were lined up to get a price increase that occurred in March. There were a few more, less than 200,000, that came a little later, were notified and haven't started paying higher prices yet. We would have hit another tranche in early fall. We've made a decision to pause that and wait and see, and we'll reinstate that when we believe is appropriate. Maybe Meredith wants to talk a little bit about the $1 a week promotion and how we're managing that?

Yes. I'm happy to, Roland. I think I've said this earlier, but I'll say again. We're 7 or 8 months into being in an annual renewal for people, the first group of folks who came in on $1 a week, and it's going at least as well as our expectations and it's going basically broadly in line with what we saw for the 50% of folks who moved up to full price prior to $1 a week being our primary promotion. So we're pleased with that. And I'll say we expect -- we're pleased with what we've seen so far, but we also expect to get continually better at it. We've said in prior calls that we're training algorithms to sort out what are the engagement signals we can use to determine, who we step up partially, how we go to full price. And I would say, bit by bit, we get a little bit better at executing on this. But in general, this has gone very well, and you should take as a signal of our continued use of the promotion, recognizing how important price is to the overall economics that we have real confidence in our ability to get people up in price.

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.