New York Times Co (NYT) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to The New York Times Company Third Quarter earnings conference call.

At this time, all participants are in a listen-only mode and the floor will be open for questions and comments following the presentation.

It is my pleasure to turn the floor over to your host, Vice President of Corporate Communications, Ms. Catherine Mathis.

Ma'am, you may begin.

Thank you.

Good morning, everyone.

Welcome to our Third Quarter conference call.

By now, all of you would have seen our press release on both earnings and on ad revenues, and today we have several members of our senior management team to discuss them with you, including Russ Lewis our President and Chief Executive Officer;

Len Forman, Senior Vice President and Chief Financial Officer;

Janet Robinson, Senior Vice President of Newspaper Operations and President and General Manager of The New York Times Newspaper;

Martin Nisenholtz the CEO of New York Times Digital;

Ellen Taus the CFO of New York Times Digital;

Jim Lessersohn our Vice President of Finance and Corporate Development;

Stu Stoller our corporate controller; and Tony Benton our treasurer.

Our discussion today will include forward-looking statements.

Our actual results may differ from those predicted, and some of the factors which may cause some to differ are include in our public documents, including our 2001 form 10-K.

We are undertaking no obligation to publicly update any forward-looking statements, either as a result of new information, future events, or otherwise.

The conference call is being webcast, and an archive will be available on our website, www.nytco.com, and beginning at noon today an audio replay will also be available.

The instructions for the audio replay are in the earnings press release.

A transcript of the conference call will also be posted on our website as well.

So with that, let me turn the call over to Russell Lewis, our President and CEO.

Thank you very much, Catherine.

Good morning, everyone.

Before we talk about the short-term, that is our quarterly results, I want to say just a few words about our long-term company strategy.

The two are closely related, as our solid third quarter performance is certainly the result of the successful execution of our long-term strategy.

As many of you know, our goal is to operate the leading news and advertising media in each of the markets we serve, both national and local.

With regard to the national element of our strategy, we're continuing to build our portfolio of multiple media properties aimed at capturing the lucrative knowledge audience served by the New York Times brand.

Our primary tactic is the successful transformation of The Times into a national newspaper with robust circulation growth and a growing share of the national advertising market.

To see how this played out in the quarter, I would highlight the fact that circulation, revenues at The Times grew 11%, with Times home delivery available in 228 markets across the country, up from 206 just a year ago and only 62 markets five years ago.

The national element of our long-term strategy also has a strong digital component in NYTimes.com, which has been number one newspaper site on the web, whether judged by the number of users or the amount of time spent per user.

It's relatively brief history, innovation has been a watchword at NYTimes.com.

This quarter, The Times website continued its innovative tradition with new advertising formats such as surround sessions, site sessions, and rich media advertisements that feature audio, video, and animation.

In addition to our print and digital businesses, The Times has also developing a strong television presence to help us reach the national knowledge audience.

Earlier this year we announced the joint venture with Discovery Communications, which provides for co-ownership of Discovery Civilization.

A digital channel which will be rebranded early next year.

We also reached a five-year agreement to sell a minimum of $40 million worth of New York Times-produced television programming to the full Discovery network of channels.

Just this past quarter, four New York Times-produced documentaries were nominated for Emmy awards.

And bioterror, a Times documentary for the PBS program Nova, won an Emmy award for outstanding background and analysis of a single current story.

This growing portfolio of multiple media businesses -- print, broadcast, and Internet -- is helping us to execute the first prong of our company strategy, which is to operate the leading news and advertising media, focused on the national knowledge audience.

Similarly, the second prong of our strategy is to operate the leading news and advertising media in each of the local markets we serve.

Boston represents a good example of how our long-term strategy plays out in our largest local market.

To the ownership of our Boston Globe we added the Worcester Telegram & Gazette in 2000, and the two papers have done more than $2 million in joint ad sales this year.

More recently, The Globe is expanded the number of locally zoned editions we offer our readers and advertisers.

By doing so, The Globe has developed more than 500 new advertisers, helping zoned advertising revenues jump by nearly 50% this year.

Like The Times, The Globe has a very strong digital companion, Boston.com, which is New England's leading regional website.

Together, The Globe and Boston.com reach nearly 2 out of 3 adults in greater Boston each week.

And earlier this year, we became a minority partner in the Boston Red Sox baseball franchise, which includes the extraordinarily popular New England Sports Network.

NESN is a basic cable channel that carries games to 3.7 million New England homes.

The Boston Globe Red Sox pre-game report involving Globe writers and columnists began airing on NESN in August.

And Friday, past, the Boston Globe Bruins pre-game show was launched.

Through this growing portfolio of print, Internet, and broadcast platforms we now operate the leading news and advertising media group in Boston and we mean to keep things that way.

We're taking this same approach in each of the local markets served by our regional newspaper and broadcast groups.

We believe that the two-pronged strategy I briefly outlined with national and local components will continue to provide significant growth opportunities for us in the years ahead, just as it has in the third quarter.

So to discuss those third quarter results, here's Leonard and then Janet.

Len.

Thank you, Russ.

Good morning, everyone.

Today we reported earnings per share of 38 cents, up nearly 9% over 35 cents in the year-ago quarter, adjusted for FASB 142 and excluding special items.

If you include special items, earns per share of 38 cents were up 15% from 33 cents in the year-ago quarter.

Last year's third quarter we had workforce reduction charges of 2 cents a share.

We were very pleased we came in at the high ends of earnings values.

Starting with the revenue side in the third quarter, we continued to see steady, sequential month-to-month improvement in advertising revenue growth which is what we've seen since the beginning of the year.

In July, we moved into a positive year-over-year comparison, with advertising growing a plus 7/10 of a percent.

In August, ad revenue growth was 3.8%, and in September it was 6.3%.

For the quarter, advertising revenues in the newspaper group were up nearly 2% and in September up nearly 4%.

Circulation revenues rose a robust 8.5% in the quarter, and for the full year we expect they will be up 7 to 8%, with the growth rate slowing in the fourth quarter as we cycle through the home delivery price increases, we instituted at The Times and The Globe.

In our broadcast group, revenues grew 17%, primarily as a result of strong political advertising and easier comparisons to last year, when commercials were preempted to provide coverage of the terrorist attacks.

As New York Times Digital we saw very strong revenue gains, up 27%, as a result of increased online advertising, especially in the technology, finance, and travel categories.

Looking at the fourth quarter, we expect to see NYTD turn in another outstanding performance.

Total costs in the quarter were up 2.9%, and we continue to benefit from lower newsprint expense, which declined about 21%, our cost per ton down about 20% and consumption down 1%.

Excluding special items and newsprint ,costs were up 5.9%.

Of that 5.9%, about 2 1/2% was due to bonus accruals linked to improved performance.

We accrued very little for bonuses in the third quarter last year.

Two other contributing factors were higher compensation and benefit costs, which were about 2 1/2% of the increase, and costs associated with two national print sites, including delivery costs that were added after the third quarter of last year and which amounted to about a half percentage point.

In the third quarter, there were also costs associated with remediation at our College Point printing plant, which were also about a half point.

For the full year, however, we still expect to see total expenses up in the 1 to 2% range, excluding special items and the effect of FASB 142.

As we've mentioned, cost controls are an important priority for us.

Our work on reducing newsprint consumption is one example of the ongoing reengineering work we're doing to systematically lower costs.

We focused on newsprint because it's our largest form of material and represents about 10% of our overall costs.

By lowering waste when we begin a production run, by reducing the number of page breaks, and by better managing the size of the print run, we anticipate we can save several million dollars.

Similarly, on the labor side we're working to find innovative ways to manage costs.

The at the Boston Globe we signed a cost-effective agreement with the drivers union which providers for wage increases of about 2% per year over the course of the next three years.

The Globe obtained key changes in the labor agreement that will enable us to realize substantial cost reduction over the next several years, including staffing requirements.

Earlier this year, we decreased the number of people in The Globe's composing room.

Five years ago we employed 200 people there, and now we're down to 66.

This year we'll reduce the number of paper handlers by over 40%.

These two changes are permanent and expected to yield total savings around $3 million per year.

At the same time, we focused on costs we've also enhanced the quality our papers for readers.

Last month, all New York Times subscribers, even Sunday only, received the Wednesday September 11th paper which included a special section A Nation Challenged.

To better serve its readers, The Globe wants the new section, called Ideas on September 15th, it will feature topical stories are the focus of the intellectual, academic, and literary world.

These offerings illustrate our commitment to providing our readers with high quality news while simultaneously working to reduce systemic costs.

Our earnings came in at the high end of the range, despite higher losses in our investments and joint ventures than we anticipated.

For the year we estimate that joint venture losses will total 12 to $15 million.

Primary reason for the increase in expected losses is the estimated amortization resulting from the allocation of the purchase prices of the two investments we made early this year: Discovery Civilization and New England sports ventures.

Since the amortization is a non-cash expense it doesn't affect our cash flow, and both these investments are meeting our cash flow and greater return expectations.

Next year, our expectations is that significantly higher fees in cable operating and increased paper prices will result in a stronger performance for our joint ventures.

Our capital spending in the quarter totaled $49.2 million, with $45.3 of that going for ongoing maintenance and investments in technology and $3.9 million for our new headquarters.

Year-to-date capital spending totaled $111.3 million, with $102.4 million going for ongoing projects and the balance of $8.9 million for our new headquarters.

For 2002 we believe Cap Ex will total 180 to $210 million.

In evaluating our capital projects we use a shareholder value approach to make sure our projects provide attractive return by allowing us to reap gains and or sell new products or market our existing ones more effectively.

One example is our new facility in Alabama, which just began printing the Tuscaloosa news at the end of September.

This new plant provides opportunities to expand the paper's commercial printing revenues, while replacing a facility that has served the paper since 1959.

It has a very attractive return.

The company made a $65 million contribution to its retirement plans in September, and an additional $76 million contribution is expected to be made before year end.

These contributions are fully tax deductible in the 2001 and 2002 tax years.

The company's 2001 pension expense is included in our guidance with cost increasing 1 to 2% in 2002.

However, the current stock market performance and lower current interest rates will likely to result in higher pension expense next year.

Similar funding and expense challenges are being faced by many other companies.

But pension expense in 2003 will be partially offset by the contributions we're making this year.

Looking ahead, we're reaffirming our 2002 full-year earnings guidance of $1.90 to $2.00.

Given the uncertainty in the economic outlook and the limited visibility on advertising revenues, we will refine that guidance later in the quarter.

Now let me turn the call over to Janet for more detailed look at our newspaper businesses.

Thank you, Len.

Good morning, everyone.

We are very pleased to report improving advertising revenue trends in the third quarter, newspaper group ad revenues up nearly 2%, the first time since the fourth quarter of 2000 that advertising rose on a year-over-year basis.

And we expect to continue to see these gains in the fourth quarter.

Across The Times brought in diverse advertising base we saw double-digit gains in the quarter and categories such as entertainment, up 12%; media, up 23%;

American fashion, up 20%; department stores, up 22%; fashion jewelry stores, up 17%; telecommunications, up 27%; and real estate up 10%.

Our August Fall Women's Fashions of The Times had the highest number of ad pages since 1986 with 144 pages of advertising and up 10% in revenues.

This issue has seen consecutive increases in ad pages for the past five years.

In September, our fall season preview of film, theatre, and art was up 9% in ad revenue, and entertainment advertising is expected to continue to be very strong going forward, with 11 more films scheduled for wide release between October and December, compared to last year.

They include "Gangs of New York", "Chicago", "Catch Me if You Can", "Harry Potter II", and the second installment of "Lord of the Rings".

Style and entertaining, a magazine part two that will appear in November will be up 21% or 350,000 in revenue, and sophisticated traveler also appearing in November will be up 61% or 600,000 in revenue.

At The Globe, this quarter we saw impressive gains in categories such as banks, up 67%; wireless communications, up 34%; department stores up, 11%; and movie studios, up 10%.

Softer categories for The Times included help wanted, technology products, and banking, which all remain in negative territory on a year-over-year basis.

Similarly, The Globe saw weakness in help wanted and technology.

But while help wanted revenues have been difficult this year, we saw strong, steady, sequential improvement in the third quarter, as we have all year.

At The Times help wanted was down 26% in July, 20% in August, and just 5% in September.

At the New England Newspaper Group, help wanted was down 35% in July, 33% in August, and 27% in September.

And this is not just because of easier comp.

Our combined and digital recruitment offerings, job market of The New York Times and Boston works at the Boston Globe have have been very successful in strengthening their brands and reaching new advertisers.

In October, The Times job market and the Community Connect, Incorporated launched diversity job market, an online tool that provides employers with the largest database of Asian-American, African-American, and Hispanic candidates.

Since September 2001, unique users grew by 184%, to 712 per month in September.

September page views are 9.8 million, a 70% gain over the 2001 average.

We now have well over 330 resumes in the database, and through our solid brick and click sales efforts, digital help wanted revenues have increased 38.5% year-to-date.

The Globe's Boston work brand is gaining share and usage. 58% of recent job changes in Boston used either the print or online versions of Boston works.

Usage among job seekers, users of the online component grew by 27%, while Monsters usage dropped 4%.

September page views for Boston works.com hit the 12 million mark, up 150 cents over last year and has more than 300,000 resumes in its database, triple the number since September 2001.

And again, through solid brick and click efforts, digital help wanted revenues have increased by 10% year-to-date.

In the third quarter, The Times continued to capture market share, mainly at the expense of the Wall Street Journal, Business Week, Fortune, and the Travel Magazine.

We are now number one in 19 of our advertising categories, and number one or number two in 27 of 35 categories compared to other print publications.

In greater Boston, the New England Newspaper Group goes to continue to increase its already strong share of local newspaper dollars, currently at 56%.

Because of the powerful audience The Times delivers to our advertisers and our gains in circulation, we increased the rate for non-contract advertisers effective October 1, 2002, by 10%, except for recruitment advertising, which increased 6.5%.

Rate increases for our contract advertisers are now being finalized for 2003.

On the circulation side, revenues grew 8.5% at the Newspaper Group in the quarter, with revenues up 10.6% at The Times and 7.4% at the New England Newspaper Group as we benefitted from home delivery price increases announced in late 2001 and early 2002.

On September 30th, we raised the cover price of The Daily Globe to 75 cents in the outer regions of the market, which is expected to increase revenues by $1 million on an annualized basis.

The Times continues to expand in the number of markets for home delivery.

We are now at 228 markets, up from 62 in '98, and in 55,000 vending and retail outlets.

And that's just the beginning.

Once we're in a market, we believe we have the ability to increase penetration through promotion and improved logistics.

An example is the Denver market, when we began Sunday home delivery in 1997.

Today we've added daily home delivery totaling 5,000 and more than doubled the number of Sunday copies sold.

As a result of strong copy gains such as these and higher prices, at both The Times and The Globe, we continue to believe our circulation revenues will grow 7 to 8% in 2002.

As Len mentioned, moving into the fourth quarter, the largest quarter of the year, visibility on advertising revenues remains limited.

But the direction is up.

And we're right on course for a continuation of a positive trend you've seen thus far in 2002.

Now let us open the call to answer any of your questions.

Thank you, ma'am.

The floor is open for questions.

If you do have a question or a comment, please press the numbers 1, followed by 4, on your touch tone phone.

If at any time your question has been answered, you may remove yourself from the cue by pressing the pound key.

Our first question is from Peter Effort of Goldman Sachs.

Please state your question or comment.

Hi, good morning.

Janet, just so I fully understand what you said on the price increase, that was a 10% increase for The New York Times specifically?

Yes.

On non-contract rates.

Okay.

Now, what I really want to know is how you think conceptually about ad pricing.

That's an extraordinary increase in the context of the current inflation environment.

How about do you come up with those numbers, and two, what kind of push-back you get from the advertisers?

As I said, this is not non-contract.

Most people are on contract rates.

Our frequency advertisers with The New York Times.

These are new advertisers really coming into The New York Times, and in regard to how we are looking at that, we look at it in regard to our circulation growth on -- as well as the value we're providing to those advertisers.

In many cases, people have accepted this quite easily.

And this is the point to try to push people into a contract basis primarily, then?

Yes, exactly.

Okay but you haven't announced the increase yet for the contract customers?

No.

That will happen in January of 2003.

Okay.

And you think about that the same way in terms of how you come up with the number.

Absolutely.

The value we're providing for the advertiser, the reader involvement story, and the circulation growth.

Got it.

And does the cost dynamic come into the equation?

Well, I think cost always comes into the equation, as we are looking at our rate structures on the circulation side and the advertizing side, but it's very clear we are providing through the knowledge audience that has been mentioned several times this morning a very involved readership that an advertiser is willing to pay a premium price for.

This that's how we look at it in a premium price value-based pricing perspective.

Would you think order of magnitude that for the contract advertisers the increase would be similar?

We're still evaluating what we're going to be doing in 2003, and we do that by category as well.

We look very, very carefully at each category: classified, retail, and, of course, the breakdown in regard to national.

And just one last question for Len, do you have a specific thought in terms of what the increase in the pension expense in '03 might be?

It's too early to call that, Peter.

We get our actuarial results back at the end of the year, and at that point we'll have a better sense of where we'll be next year.

But the funding contributions we made earlier this year and the contribution we're going to make before the end of year will certainly affect our expenses.

Okay.

Great, thank you.

Thank you.

Our next question comes from Barton Crockett of J.P. Morgan.

Please state your question.

Great.

I wanted to focus on the -- whats happening in the help wanted line.

That was a dramatic deceleration of the rate of decline at The New York Times.

I'm just wondering clearly the comparisons in help wanted are easiest in the fourth quarter, and as we sort of move through that, is there any prospect for growth in that line, first?

Then a couple follow-ups.

There is definitely prospect for growth, Barton.

As I noted in my remarks, with both job market and Boston works, both The Globe and The Times are seeing very nice improvement on the print and very strong growth on the digital side.

As you see -- as you've seen all year, you have seen sequential improvement each and every month, and that's primarily because we're doing a lot of telesales, we're doing a lot of growth in regard to the ads rates, the blended rate both at The Globe and The Times.

Online advertising, of course, is also available.

And there has been a very strong investment in regard to the sites themselves.

You can see that by the growth and page views.

We definitely see it turning, hopefully in the fourth quarter, in regard to positive territory.

We see that surely on -- in regard to The Times, and we expect to see that in the near future with The Globe as well.

Okay.

But also just looking at the current environment, there seems to be some more rounds of job cuts obviously working their way through Wall Street at this point.

Is there any sort of mitigating factor, in other words, you're raising rates and seen good trends, but is there any sign have you that perhaps volumes might weaken in the face of what is happening now?

I think because there is a soft job market, it does have an effect.

I think that probably has affected the -- has had an effect in regard to the fact we have not turned positive already.

But I think when you are looking at how we look at it, we're the growth sectors are as far as recruitment, which particularly is in the health care area, we are zeroing in on those areas to make sure we get full advantage of all of that marketplace that we possibly can.

Surely the technology sector is very weak, so we're not concentrating on that as much.

But we're making sure we're looking at -- after the diversity side of thing and the healthcare, which are the two greatest areas of improvement.

Talking about another category that is kind of the offset here, entertainment, with the extra movies this year versus last year in the fourth quarter, can you give us a sense of what might be the magnitude of growth in terms of entertainment advertising line there at The Times.

Right now it's already 21%, and we expect that.

We expect double-digit growth continuing in October, November, and December.

The fall preview, for example, Barton, which came out in early September was up 9%.

But the holiday film preview which you'll see in a couple weeks, early November, is also up about $400,000.

We are seeing not only because of the number of -- increase in the number of wide releases, we're also seeing a lot of people making sure they're advertising more in color, so the color percentages have grown, and larger states as well, primarily because there's a good collection of new films coming out this holiday season, which we think we can do very well with.

We are doing a lot of brick and click advertising.

We're doing the great deal with digital in regard to this area, and we're also assisting our folks at The Globe in regard to capturing a lot of this entertainment business as well.

Okay.

And final question, as we look into early next year, any sense that the ad trend, which have been improving through the course of this year, that that can continue into the early part of next year.

We have every reason to think that.

We've already got a strong contractual relationships multi-year with our department store advertisers and with many of our automotive advertisers, financial services, banking, and transportation.

So we expect that we will continue to see that growth.

Okay.

Great, thank you very much.

Thank you.

Our next question is from Lauren Fine of Merrill Lynch.

Please state your question.

Just a few questions.

I'll do them one at a time.

Wondering if could you talk about your outlook on newsprint in terms of price increase, and whether you think it will stick or not going into 2003.

And then I'll come back with my others.

This is Len.

One of the things that's very clear despite misleading stories that we've been reading lately is the market is pretty much in balance, and the fact is that, except for a few very small players in the marketplace, the price increase is really more like 45 than 50, has stuck on the desk as we can tell.

And whether or not there are further price increases next year is, in part, a function of how strong the ad market recovery is.

We don't anticipate a price increase, certainly in the first part of -- first half of next year.

Beyond that, it's really hard to call.

Okay.

And if you can quantify political contribution in the TV segment?

Sure.

We expect broadcasting political revenues to be up about $17 million this year.

It's a very strong quarter, and third and fourth quarter particularly.

Lots of political races going on in the markets that we're in, and it's very intense.

You can break that out by Q3 and Q4?

$5.8 million in Q3.

In Q4 it will probably be 7 to $8 million.

Okay.

And then I guess going back on The New York Times ad revenues, I heard all the positive numbers and a couple categories that were negative.

I'm wondering how negative they were, and I understand how one was clearly negative.

The overall increase is not as impressive as the gains some if you can flush out what the declines were in some of the negative categories, how big they are relative to the total.

And then in terms of the number of releases, on the movie side, don't you start getting more apple to apple comparisons in 2003, since clearly last year some of the 4th quarter releases were postponed?

We do.

This is Janet.

In regard to the entertainment, we will of course see apples to apples in early 2003 but we are seeing a very strong increase because of the effect of 9/11, with many more wide releases in the marketplace for the fourth quarter.

In regard to the softer categories, and yes they certainly are soft categories, with technology being down year-to-date 41%; transportation is still hurting, down 10%; financial services starting to show a little growth in the early September time frame with Merrill Lynch and Schwab coming back with large units, but that has softened again, so it's continuing to be down, down about 12%; and corporate is down about 20% as well.

People still taking a wait and see attitude in regard to those categories.

That said, those categories are not as large to the total as some of the others that are showing strength.

Entertainment, for example, is 14% of our base.

Financial is only 3% of our base.

Help wanted is now 9% of our base, where years ago it was a much larger percentage than what it is now.

Transportation is about 5% of our base.

So when you look at the mix, there are categories that are definitely still showing signs of weakness.

But there are other categories that, of course, are making up for that -- for that to a large point, such as entertainment, media, and banking.

And one last question, on circulation at The New York Times, it looked like for the quarter, despite going against difficult comparisons on Sunday, you still showed a gain.

What do you expect going into the fourth quarter, will your comparisons still remain very difficult?

We are continuing to focus on very strong acquisition techniques, Lauren.

We have done a very good job of making sure we're using customer relationship management more effectively than we ever have, not only in regards to telemarketing but also in regards direct mail efforts.

We are continuing to see as, I noted with the Denver example, once we get into a market, even though our promotion is limited, we are doing some promotion, and that indeed does help us penetrate into a number of zip codes in those markets.

The growth, particularly in the national market and home delivery and single copy, has been very strong, and we expect that will continue, particularly as we continue to add markets to the mix.

Okay.

Thank you.

Thank you.

Our next question is coming from Krista Silver of Thomas Wazel Partners.

Hi.

First question, I guess for Martin, focusing on The New York Times Digital.

Looks like the cash expenses are up 16% in the quarter, and I was wondering if you guys are planning to continue to reinvest in the business and not reap some of EBITDA gains there, and if you could also give a breakdown on what the mix was display versus e-mail versus DAD.

And then a follow-up.

Thanks.

Sure.

The expenses were up in part because last year the third quarter was an unusually depressed quarter in terms of promotion expenses, principally.

The reinvestment that you talked about or that you spoke to will continue, but it will continue at the rate that you've seen over the course of the year.

So I wouldn't suggest there would be any increases in that investment going forward.

With respect to the breakdown, the breakdown continues to be roughly what it has been.

The advertising -- display advertising lines continues to be about a third of the business.

The classified advertising line continues to be about aner another third of the business, about 30%.

The DAD line is about 30%.

And then the other revenue, e-mail principally, makes up for that 5%, then a limited amount of additional other revenues.

Okay.

Also to remind you we had a 27% increase in revenues in that quarter.

I guess also, do you find that's continuing, because it has been in the 15% rate.

Is there an acceleration in the online phase that you're seeing?

I think it's safe to say that we have seen an acceleration.

And we've been, I think, enjoying that disproportionate to the marketplace.

If you look at the total growth of online advertising in the marketplace, it's much, much more moderated than our growth rate, so we've been taking significant share from, I would suggest, many of the larger portals out there.

And I think what started to happen is, as Russ spoke about it his introduction, is some of the advertising innovations that we pioneered, like surround sessions, have come from a basically a standing star to a significant amount of our revenue.

Great.

Thank you.

And on the circulation side, do you guys plan to post ABC circulation growth?

Looks like you probably will be able to, but of course you had strong gains prior so there's a bit of a tough comp there.

Thanks.

You're going to seeing daily and Sunday showing positive ABC growth at The Times, we're going to be up 3,600 daily and 3,200 on Sunday.

You'll be seeing declines at The Globe, again primarily because of very tough comparisons against the 9/11 situation.

I don't have those in front of me.

I will look for them and get right back to you.

This is Russ.

I just want to add on the digital question that we certainly look forward to continuing margin improvement in the digital businesses.

These are not toys or ornaments.

They are increasingly robust parts of our business engine.

So while we'll continue to invest, you can certainly look forward to continuing margin improvement.

That's certainly our track record, and certainly our goal.

And one of the ways we're going to get there Martin will allude to right now and talk about our strength in the at-work marketplace.

Yeah, to Russ's point, one of the things that I think the industry has done a good job of this year is explaining how dominant the Internet is as an at-work medium.

The Internet has become the principal mechanism to reach people through their desktops at work, and what is just terrific news for us is that, Compor Mediametrics Today did a study and released it last week, of 60% of all at-work usage in the news and information category is dominated by five players in the marketplace, and NYTimes.com is one of those players.

It's the only newspaper website in the group, and so as the advertising community begins to compliment its -- as media plans integrate and the advertising community begins to compliment its investments in print and broadcast media with Internet, I think that increasingly you'll see that investment made again the at-work audience, and we're very, very strong in that audience.

So that is an important point.

Just to get back to you on The Globe, The Globe's raised home delivery prices twice since October 2000, now ranked second in circulation pricing behind The New York Times, again underscoring our commitment to premium pricing at The Globe.

Despite these price increases, The Globe has posted daily circulation gains in four out of the last five ABC periods.

Now, going up very -- against very difficult comps, against 9/11 of last year, dailys will be down 8,000 and Sunday will be down 1,007 for this ABC period.

Thank you.

Thank you.

Our next question is coming from Douglas Arthur of Morgan Stanley.

Please state your question or comment.

Two questions.

I just want to get clarity on the fourth quarter ad revenue outlook.

Obviously, the comps are very, very easy.

But you seem to be somewhat cautious on the outlook in the fourth quarter and I know there are a lot of moving parts and every week is a new one.

But can you just sort of perhaps quantify within a range what you're expecting, particularly at The Times and The Globe, in terms of ad revenue growth in the fourth quarter?

And then secondly, with non-newsprint up almost 6% or so in the third quarter, when newsprint comes back on a year-over-year basis in '03, total newspaper segment costs, could they be approaching 10 plus percent year-over-year in the first half next year, or is that too aggressive?

Doug, if that would have happened, I would shoot myself.

You'd have to lift me off the ground on Broadway.

We've had one time impacts and we'll cycle them through into the next year.

If you go down -- if you subtract out those four big items that I mentioned wich accounts for most of the increase of this quarter, you'd know that our other costs are flat, and so we would expect costs to be commensurate with our revenue growth next year.

We don't expect any unusual expenses.

This is Russ.

If I were still a lawyer, I would object to the characterization in your question.

By saying that the comps are easy, that overstates the situation.

They may be easier, but business is not easy.

And if we sound overly cautious, we don't mean to be.

If you connect the dots from the beginning of the year until September, the direction is up month after month after month.

And while we can't predict whether or not the North Koreans will attack the South Koreans, what we do know is how to control our business.

And that's why we sound optimistic.

But we thank you for your words of caution, which are always refreshing.

Janet, would you like to add.

Let me add more meat on the bones in regard to what we're saying for the fourth quarter.

At The Times we're already seeing strong commitments from the department stores above and beyond their contracts with us, Doug.

And we're also seeing an uptic in the luxury segment, fashion jewelry in particular.

On the national front, as I noted, the entertainment category is really doing very nicely for us, and is continuing in the fourth quarter.

But we're also seeing very strong gains in the media category, particularly from cable television advertising their new shows, and continuing to.

In the banking segment, we're getting very large schedules from Washington Mutual, Fleet, Citibank, UBS, Deutsche Bank, which I'm sure you saw that wonderful insert that appeared in the magazine a few weeks ago.

We're also seeing very strong commitments from hotels, predominantly because of our huge success with Escapes, which has brought in $6.2 million in new and incremental, and we're also starting to see an uptic in regard to transportation because of the shuttle wars that are going on now with Delta, American, and U.S. Air.

As far as the classifieds, you've seen steady improvement on the help want side, and, as I said, we are hoping that we will see some return to positive in the near months.

Very near months, in fact.

And in regard to real estate, we're also seeing a very strong market continuing, and really The Times being a very strong purchase for them, particularly in regard to our brick and click efforts.

Another thing in regard to The Times is that we are also adding new sections.

On October 27th, you'll see something called "On the Street", which is a new section this one time added to styles.

Styles Two, it's called, which is "On the Street with Bill Cunningham", which has brought in 500,000 in incremental dollars.

New sections like that you'll see all through the fall, which, of course, we think will bring in a very nice turnaround as far as ad revenue is concerned or nice addition to ad revenues.

At The Globe, you are seeing strong categories as I noted earlier, wireless and airlines, destination, automotive, real estate, but you're also seeing, because we increased the footprint, four Globe sections, Globe northwest, north, Globe south, and Globe west, really bringing in an unbelievable amount of advertising in that suburban sector.

Five hundred new advertiser have been secured by The Globe, and within the last year and a half, the advertising revenue has doubled, which we are very, very pleased to see that footprint expanding and reaping a great deal of benefit for us.

I hope that is helpful.

That sounds like double digit ad revenue growth.

From your mouth to God's ears.

Thank you, our next question from William Drury of Credit Suisse First Boston.

Please state you question or comment.

Two questions.

One is, just based on the union contracts that you have in place right now, over the next four to six quarters, what is the visibility on compensation costs growth, not including benefit and pension, but just core compensation costs and then, beyond that, as you cycle into next year against what would have been sizable uptics in benefit and pension costs, would you get some relief on that side from easier comparisons?

And a second question for Martin, just wondering how much inventory has increased on the websites over the last 12 months or so, inventory for advertising obviously.

And what does the market look like as far as CPMs, have they continued to compress broadly and what kind of pricing have you all been taking?

Thank you.

Bill, I didn't understand the second part of your question.

I'm come back to that.

On the labor side and cost side, we just concluded very favorable agreement at The Globe, and that is a pattern settlement for us in the 2% range.

That's pretty much what our union contracts are going up over the next several years, at The Times as well.

As far as overall salary compensation for non-union folks, we're looking at the market right now and seeing what the pattern is.

But it will probably be between 3 and 4% for the non-union folks.

I missed the point on pension, would you --

Just wondering, you've had pension and benefits cost uptic this year, does that make for an easier comparison next year or do you expect those to continue to ratchet up?

No, like everybody else, we're confronting -- on the health costs, for example -- we're confronting the same kind of increases everybody else is.

We're doing a number of things to try to bring those costs down.

For example, we've reduced a number of health programs we've had from 30 to a number under 10, which knocks down administrative costs by over a million dollars.

And there's a number of other programs in place to do that.

But what we do expect those costs to increase, despite everything we're trying to do to control it.

On the pension side, it really will be a function at the end of the year of where the market ultimately winds up in terms of the stock market valuation of our assets, and where interest rates are so that we'll have a better handle on that early next year when we get our actuarial assumptions back.

Okay and just one more on that, what is the split between union and non-union, for the labor force now?

About half and half.

Martin.

We couldn't be happier with the way that inventory has expanded this year.

It's expanded both in terms of total scope, the website in New York has doubled in size and in Boston up about 30%, but much more importantly, to my earlier point, as advertisers have begun to day part and target much more effectively, what we've seen is our inventory expanding dramatically during the daytime hours.

Our busiest hours are between roughly 9 and noon eastern standard time, again as an at-work audience.

With respect to CPMs, they have leveled off.

There was a dramatic decline in 2001 and continued decline in the first half of 2002.

But in the third quarter we've seen stability and even a little bit of uptick in the CPMs.

We've addressed this issue a couple different ways.

Number one, surround session CPMs are above $50.

So what we've done is tried to innovate and create positions for clients that have the value where they're willing to pay the price.

The second thing that we've done is we've tried to dramatically expand those parts of the site where CPMs are highest.

For example, we just launched a new travel section, the travel section is sold out.

The travel is a huge category in the web, as you probably know.

And so by introducing this new travel section, in one month we're going to double our inventory in that category.

In autos, the same thing.

We're launching a new automotive section.

Not only will we have increased capabilities in the whole area of classified advertising but as importantly, we'll increase again the branding potential or display potential in that category as well.

Finally, what we found is that advertisers want to target by behavior.

They basically want to take somebody who has an inclination toward travel or automotive purchase and follow them around.

And that's the whole nature of surround sessions.

That's what a surround session is for the people who don't know isto essentially target a user session so that you're not selling basically a page view anymore.

You're selling an individual session in the same way as you might target someone through a direct response solicitation.

And surround session is an exclusive -- exclusive access to an individual user during his or her entire period on the website.

So if a person looks at 10 pages, and we have the best time-spent metric, people spend a lot of time with us, that advertiser gets exclusive attention to that user for that entire time.

And that's why people are paying $50 plus CPMs because it's extremely effective.

We bundle each one of those programs in with a -- a dynamic logic study, which shows how the advertising is affecting perceptions of the brand, and track the advertising all the way through to sale with the client.

So we're really trying to do as much as possible on NYTimes.com to get those CPMs up.

And I think we're having a great deal of success going into the fourth quarter with that.

Excellent.

Thank you.

Thank you.

Our next question is coming from Kevin Grumeck of Bear Stearns.

Please state you question or you comment.

Yes, I was wondering could you isolate just for the publishing group what the non-news [INAUDIBLE] are up, and also I'm sorry if I missed this, Janet, did you provide for The Times what your contract to non-contract ad revenues were?

Could you?

I'm sorry, could you repeat the last part of your question?

Yeah, the breakdown of non-contract to contract ad revenues, year-to-date.

With regard to your first question, for the Newspaper Group, the non-cash expenses were up 5.7% in the third quarter.

And as far as contract-non-contract, a very large majority are on contract with The Times.

I don't have the exact number.

I'd say close to 60%.

Okay.

And if I could, Len, was the latest guidance on the equity line minus 5 million for the year, and if so, that gap up to 12 to 15 million, is that all the amortization adjustment?

Yes, it is.

Okay.

Thank you.

Thank you.

Our next question is coming from Steven Barlow of Prudential Securities.

Please state your question or comment

Good morning.

I wanted to touch on M&A activity, what you might be seeing.

Obviously you have the TV stations, selectively out there, eight of them.

Would you be interested in creating more clusters around the TV stations?

You've done a great job in Boston.

Took you 10 years to get to where you're going.

Where is the next place to expand geographically, if there is such an idea, or do you want to bail out of TV stations and do something more TV-related in terms of programming as Discovery, with some of your assets and cash flow?

Thanks.

Well, we haven't been in Boston quite 10 years, so we haven't been working on it that long.

It's a round number, Russ.

Yeah, well, in this current climate, we don't round up anymore.

But seriously, our strategy is, again to reiterate, to put as much oomph, if you will, into each of the markets that we choose to do business in.

And that doesn't mean that we have to stay in every market that we're now in, and it doesn't mean that we wouldn't move into a different market.

But once we're committed to a market for the foreseeable future, we want to develop the print, the Internet, and the broadcast components so that, again, we are the dominate leading news and advertising media in that market.

Obviously, the long-awaited FCC changes are still being long-awaited, and we expect those to be a catalyst, maybe not of huge import, but a catalyst that will give media companies including The Times more flexibility to, at least from our point, of view to strengthen our position in those local markets.

But again, those regulations or deregulation moves are down the road, so we are -- we are -- are not in any way looking for anything major in the M&A area, but when opportunities come along, we'll consider to pursue them, bearing in mind always the financial discipline that we have demonstrated I think pretty well over the last five or six years.

Sorry for rambling on.

Len.

I just would add that, like everybody else, we have the map on the wall, all the properties lined out, and all of us are chatting with each other about markets, where it might make sense to make some moves.

So if the rules change and when they do change, you will see, not just with us, but you will see some activity with -- more likely to be swaps rather than outright purchases given the financial discipline we have shown over the years.

Thank you.

Thank you.

Our next question is coming from Michael Zinsky of AG Edwards and Sons.

Please state your question or comment.

Thank you.

Can you talk about the weakness in linage of The Times in the national advertising segment in September?

I assume that the weakness is partly related to rates not only the difficult environment.

Were the rate increases in national more than retail?

And could you talk a little about the typical recovery in national category relative to the economy?

If it tends to lag the economic recovery, usually by how much?

And is the category on track with typical recoveries?

And I have one more follow-up.

In regard to the rate increases that we took in January of the -- of this year, in the national sector was between 6 and 8% depending on the category.

Retail is always a little less but not by much.

It was probably in the 4 to 6 range in regard to retail categories.

In regard to the categories that are behaving strongly, are performing strongly for us, it again includes entertainment and media and banking and hotels, the weaker ones technology, transportation, financial services and corporate.

As far as lagging behind, in reality I don't think that that really is the case.

Retail -- there were times of year retail performed very well, the fourth quarter being that.

I think a lot of advertisers on the national scene are doing a lot in regard to mass market advertising, particularly in television.

You see that with the performance of not only broadcast but cable as well.

And print comes right after that.

And we expect to see that in the months ahead.

I think many people though on the national scene are taking a wait and see attitude and are still tentative.

But we don't think there's a huge lag in place in regard to their commitments to print.

I think it's just a matter of time and a very short time.

Over time, we certainly are still absolutely convinced that there is this continuing secular movement towards national newspaper advertising, and that's going to hold us in very good stead as the economy perks up.

But obviously, from everything we've described today, you can certainly see we're not sitting around gathering dust, waiting for that to happen.

You also see our growth possibilities in national and regard to some of the sections we've added just as of late, with Escapes, which has done extremely well.

But you also must remember we have pushed dining in-dining out and house and home out nationally, and indeed that will provide us with a great deal more opportunities for national growth as well in those sectors.

When you also are looking at share of market, it's very important to note that national advertising, particularly as we compare ourselves to not only national newspapers but national publications, we are doing extremely well.

We have gained 4.2 percentage points against national newspapers, at the cost of the Wall Street Journal, and when you broaden the competitive set to include magazines, we've gained 3.3 share points, the closest person -- magazine to us is New York Magazine at .4.

I think from a share perspective it's a very, very strong national story in this tough economy.

In fact that was my follow-up question, you're doing a terrific job on revenues in a difficult market, and separating yourselves from the likes of the Wall Street Journal which seems to continue to struggle.

The recent attempts by the Wall Street Journal to expand their advertising categories by rolling out new sections seem not to have any effect on you.

Do you feel that maybe you're taking some share away from them in some traditionally strong categories like finance and technology?

I would suspect that we are.

In fact, I would probably state definitively that we are.

We are very actively pursuing those categories, even though they're weaker across the board.

But you have seen a very strong commitment in regard to our newsroom and regard to the business section and the technology sector.

That kind of editorial we are providing each day helps a great deal in attracting advertisers in our reader involvement stories, particularly with the business section is a very strong one that we are continuing to acquaint advertisers with.

When you look also at the comparison of the personal journal and our Escapes and also our pushing dining in-dining out and house and home nationally, there is a very strong commitment to The Times in regard to stealing share, capturing share I should say, from many of the advertisers that would traditionally have thought about going into the Wall Street Journal's personal journal.

I think we've done a very good job of being extremely pro-active in that ad sale.

Great.

Thank you.

Once again, if you have a question or a comment, please press numbers 1 followed by 4 on your phone at this time.

Our next question is coming from Brian Chipman of UBS Warburg.

Please state your question or comment.

Thank you.

Good morning.

Couple questions.

If you could elaborate or give us your outlook on real estate and auto within classified, you talked about help wanted.

Discuss the other two categories, and then also you have any early thoughts on the entertainment ad categories going into early '03?

You talked about movie release schedule in the fourth quarter.

And finally, Janet mentioned color is doing well at The Times.

Can you remind us what percentage of advertising color is now at The Times?

And is the premium rate still in that 40% range versus black and white ads?

Thanks.

In regards to color, we raised our rates about 20% this year in 2003 -- 2002 at The Times.

In the third quarter, there was an increase of 53% in revenue and color premiums and inches were up 21%.

Year-to-date color premiums constitute about 27.5 million.

This is a very strong -- excuse me, 37.7 million, which is a very strong increase over 2001.

It's now about 16% of all of our advertising base.

It was 12% in 2001; 13% in 2002; and, as I noted, 16% now.

It's close to about 22% of the black and white rate.

It's not 40% of the black and white rate.

I think that number you're confusing with what our rate increases have been.

It was 40%,in fact, in regard to 2001.

In regard to real estate and -- real estate advertising was up 12.7% in the third quarter and up 12.5% year-to-date through September.

Advertising is a major contributing factor to the revenue gain and strong residential real estate market is helping us in the availability of inventory as well.

We continue to see that going forward, not only in regard to ROP, we also see that in regard to the Escape section, which is drawing a lot of new national real estate advertisers, and you're also seeing that in regard to improvement of our homes book.

In regard to auto advertising, it's down about 5.5 in the third quarter and down about 3.4% year-to-date through September.

We are -- in the third quarter we had quite a bit less, about $3 million less, in promotional spending from Dodge and Chrysler, but we are starting to see an uptick in the fourth quarter, particularly as we're gaining on advertising from the zero percent financing.

At The Globe, we are seeing a strong real estate market as we noted earlier, and as far as automotive advertising is concerned, it's a very strong shelling for The Globe as well.

Martin, maybe you want to talk about the categories benefitting on the click and brick aspect of this, but I've just interjected obviously with that continuing strong color performance that certainly an area we would look at with great care, when we do our rate increases in a month or two.

Sure.

In New York, real estate has been a great story.

We now aggregate over 90% of the broker fees into a common database.

Essentially, we are the MLS for the New York marketplace.

And as a result of that, the -- you see a very good balance between the upsell revenues and the native Internet revenues in that category.

Total revenues for the quarter were up about a million and a half dollars, $1.46 million, and that's up 60% from last year.

In New York, we've just launched the automotive business, so the revenues to date are for the third quarter are fairly diminutive, but we're looking forward to a very strong showing in automotive classifieds going into next year.

We have a new product set, and we'd like to duplicate the success we've had in real estate in the automotive category.

The story is very different in Boston, however, in automotive.

Automotive revenue in classifieds at Boston.com is up a very nice 35% year-to-date, $523,000 automotive revenue. 93% of it is online revenue, aggregating the dealer feed.

So that's really where you'll see the high growth revenue in aggregating the dealer feeds into a common database.

That's what people do: they want to search for a car, we aggregate those feeds.

We've just started in Boston.

Obviously there's an MLS in the Boston marketplace so it's much more challenging.

But good start in Boston with about $474,000 in quarterly revenues in the real estate category there.

Just a fine point on The Globe print line, it's there up on the automotive side 12.4%, which is a very nice showing, and they are also doing a very nice job in competitive share against their newspaper competitors in that area.

And the regional automotive up 17% so they're doing quite well and real estate has been flat there.

The markets are I have different between Boston and New York and the regionals so you need to to look at these on separated basis.

That's very helpful.

Any early thoughts on entertainment advertising into early '03?

I think I'd noted this before that, The Times is in a very unique position in regard to entertainment advertising because in many of the contractual agreements, with the stars in the movies, they put into their agreements that the advertising must appear in The Times.

So we already have a wonderful head start with that.

That said, there are many more releases planned for next year.

Many of them are, of course, still being scheduled as far as whet release dates are.

We are in the process of getting those from our sales team in the L.A. area.

But from a perspective of growth, we still feel that there is very strong opportunity in regard to not only increase of size and units, but also increase of color next year in regard to the entertainment category as well.

And it's not just studio.

It's also very important to note that our live entertainment is a very large part of our business, and that has continued to show very strong signs of growth, particularly as we're going into the fourth quarter, and we think that will be the case in regard to next year as well, with many plays coming on Broadway next year that are in the planning stages right now.

Okay.

That's been very helpful.

Thank you.

Miss Mathis, back to to you for any closing remarks.

Thank you very much for joining us on our call.

If any of you have a question, please phone me this afternoon.

Bye now.

Thank you.

This concludes today's teleconference of you may disconnect your lines at this time and have a great day.