New York Times Co (NYT) 2003 Q2 法說會逐字稿

Good day, and welcome to The New York Times quarter 2, 2003 earnings conference call.

Today's call is being recorded.

A question and answer session will follow today's presentation.

If you'd like to ask a question, please press star 1 on your touch-tone telephone.

For opening remarks and introductions, I'd like to turn the conference over to Miss Catherine Mathis.

Please go ahead.

Thank you and good morning, everyone.

Welcome to our second quarter conference call.

By now, all of you have seen our press release, both on our earnings and on our ad revenues.

We have several members of our senior management team here today to talk with you about them.

These members include Russ Lewis, our President and CEO;

Len Forman, our Chief Financial Officer;

Janet Robinson, the 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;

Jim Lessersohn, our Vice President of Finance and Corporate Development;

Stu Stoller, our Corporate Controller.

Our discussion today will include forward-looking statements.

Our actual results may differ from those predicted, and some of the factors that may cause the results to differ are included in our publicly-filed documents, including our 2002 10K.

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

This conference call is being webcast and an archive of it will be available on our web site www.nytco.com.

And, beginning at 2:30 today, an audio replay will also be available.

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

And a transcript of the conference call will also be posted on our web site, as well.

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

Thank you very much, Catherine.

Good morning.

This morning we reported earnings of 47 cents per share for the second quarter.

This puts us at the high end of the guidance range we provided a month ago, but below last year's second quarter earnings of 51 cents per share.

Our second quarter financial results were dampened by the war-related ad weakness we experienced early on in the quarter.

Our ad results, however, improved considerably toward the end of the quarter, with our newspaper group experiencing a 4.6% year-over-year gain in June ad revenues.

And while we expect an improved ad environment in the back half of the year, we're not going to rely exclusively on it.

So, to better assure that our financial performance for the second half of the year returns to solid year-over-year gains, we're also taking strong action on the cost side of our business.

As Len will detail, this morning we've revised our full-year guidance to incorporate a lower level of expense spending and a significantly lower level of capital expenditures.

You know that in the past we've said that we would adjust the cost side of our enterprise to match the revenue picture.

The war and SARS took a substantial bite out of our second quarter ad revenues, and we are responding, as we said we would, by significantly reducing the cost side of our business.

This action is intended to better assure positive earnings growth in the second half of the year.

So, without further ado, let me turn it over to Len, and then Janet, for more information.

Len?

Thanks, Russ.

Good morning, everyone.

As Russ mentioned, the soft advertising environment significantly affected our second quarter performance.

To address this, we're realigning our costs with our revenues, reaffirming our commitment to strong financial discipline.

The month-to-month progression of advertising revenues since the beginning of the year tells an interesting story.

As many of you know, we assumed full ownership of the International Herald Tribune at the beginning of this year.

The numbers I'll quote will exclude it, so the comparisons are apples to apples.

In January and February, newspaper group ad revenues grew 5.5 and 4.7%, as we began to see more advertisers return to the pages of our papers.

But in March, the economy seemed to say, "We interrupt this recovery to bring you the war in Iraq."

March ad revenues declined 1.6% and for the first quarter were up 3%.

In April, they continued to decrease, although at a lower rate, 0.7 of a percent.

April is usually the second largest ad revenue month of the year, and normally makes up about 40% of the second quarter's ad revenues.

So, it had a disproportionate affect on the second quarter.

With the end of the war, May and June showed improved ad revenue growth, up 1.8% and 4.6%.

Newspaper group circulation revenues in the quarter, excluding the IHT, were about the same as last year.

However, they showed an improving trend in the quarter, down 6% in April, down 0.9 in May, and up 3.6% in June.

Going forward, we expect to see better growth as circulation volumes rebound from the price increases instituted in the last six months.

We continue to believe circulation revenue growth will be 3 to 5% for the year.

Janet will provide you with more detail on our advertising and circulation revenue initiatives in just a moment.

Revenue and operating profits at New York Times Digital, our digital business unit, reached record levels in the second quarter.

Ad revenues climbed 30%, and the division continued to expand its premium product offerings with the relaunch of newyorktimes.com's news tracker e-mail alert service as a paid service.

More than 18,000 readers have subscribed to the paid news tracker, and we're optimistic about the continued growth of our paid products.

In the broadcast group, revenues were down slightly, mainly because of less political advertising this year and operating profit decline, partly as a result of investments we made in revenue-enhancing measures at the company's manifestation.

As we begin to reap the benefit of this year's investment next year, and with strong political advertising also expected next year, we're confident that 2004 will show solid revenue and earnings improvement at the broadcast group.

Across the company, we continue to be disciplined about cost.

Excluding the IHT, total costs rose just 3.1% in the quarter.

Increased benefit and compensation expense accounted for 2.7 percentage points, while higher news print costs made up the balance.

In the first half, total costs excluding the IHT were up only 1.8%.

Given our strong first half performance, which we intend to continue in the second half, we've revised down with our cost guidance from an increase of 4.5 to 5.5%, to an increase of 3.5 to 4.5%.

Depreciation and amortization, excluding the IHT, decreased in the quarter to 35.4 million from 38.1 million in the same quarter last year, as our mailroom equipment at Edison became fully depreciated and NYTD retired old service.

For the year, we've lowered our D&A guidance by 2 million to 148 million to 153 million, because we plan to reduce the level of capital spending.

Capital spending in the quarter was 29.5 million, bringing the year-to-date total to 71.1 million.

For the year, we expect cap ex to be in the 160 to $190 million range, which is down significantly from our original estimate of 210 to 240 million.

The amount we expect to spend in the new headquarters building in 2003 remains the same, 75 to 80 million.

In light of the slower than expected ad recovery, we concluded that it would be financially prudent to defer projects until business conditions improve.

We expect, however, that the projects we have scheduled will result in increased revenues, lower costs, or improved efficiencies.

The Westwood project at The Globe illustrates what we plan to achieve.

It involves closing an inserting plant in Westwood, Massachusetts and consolidating the paper Sunday inserting operations in an expanded mailroom at the main Globe plant.

We plan to sell the Westwood plant and expand the main Globe plant and equip it with more productive and accurate machinery and software.

The state-of-the-art equipment will enable us to significantly reduce operating expenses, as well as enhance The Globe's preprint zone capabilities, facilitating continuing growth in The Globe's preprint advertising revenues.

This project, which is expected to be completed late next year, will generate a very attractive return on investment.

Joint ventures for the quarter had income of $600,000.

As we noted during the first quarter conference call, there is a seasonality to our joint venture line, since the New England Sports Ventures, which includes the Boston Red Sox, has higher revenues during baseball season, which falls in the second and third quarters.

The operating result at both New England Sports Ventures and Discovery Times are on, or ahead of plan.

As we move forward, we will remain focused on developing additional revenue streams and reducing costs across our businesses.

We continue to believe that we'll be able to achieve a full-year EPS growth rate in the low to mid-single digits this year.

Now, let me turn the call over to Janet for a discussion of our advertising and circulation performance.

Janet?

Thanks, Len.

Over the past three months, we continued to build upon the successful transformation of The Times into a national newspaper and to strengthen the position of The Globe and our other newspapers in their markets.

In the second quarter, we saw an ad revenue growth improve each month as the effect of the war and SARS began to subside.

Across our broad base of advertising, there were categories that performed extraordinarily well, while others continued to reflect soft segments of the economy.

Strong advertising categories at The Times included technology products, up 50%; telecommunications, up 81%; financial services, up 16%; cosmetics, up 54%; healthcare pharmaceutical, up 27%; and packaged goods, up 33%.

Similarly, at The Globe, we saw double-digit gains from technology, telecommunications, and packaged goods.

In addition, mass market stores, such as Filene's Basement, showed strong growth.

Real estate advertising continued its upward climb, increasing 9% at The Times, and 13% at The New England Newspaper Group.

Soft categories included help wanted.

At The Times, help wanted was down 28% in April, 25% in May, 20% in June, and 25% for the second quarter.

At The New England Newspaper Group, help wanted was down 30% in April, 20% in May, 19% in June, and 24% in the second quarter.

Overall for the newspaper group, help wanted was down 25% in April, 21% in May, and 17% in June, resulting in the second quarter help wanted being down 21%.

Travel advertising was hurt by SARS, resulting in hotel advertising being down 31% and transportation down 8% at The Times.

At The Globe, which combines hotels and transportation in one category, travel-related advertising was down 16%.

Recently, however, the airlines have increased their advertising spending in both The Times and The Globe, to encourage people to travel during the summer months.

Color continues to be a great success story at The Times.

Total color revenue rose 41%, and color advertising represented 24% of total advertising revenue in the quarter, up from 17% in the same period last year.

In January, The Globe introduced a new flat-rate program for color advertising that we expect will add $3 million to revenues in 2003.

In the first half of the year, total newspaper group advertising revenues increased 2.3%.

In July, we continue to see year-over-year growth in ad revenues, but it is still early in the month, and it is difficult to be more specific at this time.

We do believe that we will see continued improvement in the back half of the year.

Studio entertainment is expected show good growth as a result of the strong roster of movies scheduled for release in the fourth quarter, including Lord of the Rings, The Return of the King;

Matrix Revolutions;

Barber Shop 2;

Scary Movie 3; and Dr. Seuss's The Cat in the Hat.

Live entertainment is expected to benefit from new show openings in the Fall, including Wicked, The Boy From Oz, Taboo, Never Gonna Dance, and Little Shop of Horrors.

Growth in telecommunication advertising will be tempered in the third quarter, as we cycle against Cingular's 2002 launch spending, but fourth quarter revenue is expected to grow nicely, particularly after mobile phone number portability goes into effect in November.

Real estate, which remains robust, due to the continued low interest rates and an inventory of well-priced properties, is expected to remain strong for the balance of the year.

Our real estate advertising has benefited from the April 2002 launch of our Friday Escape section and our strong position with national real estate advertisers.

Gains in these categories will be partially offset by weaknesses in the other areas.

In particular, help wanted is expected to continue to be soft as businesses will be reluctant to increase staff until corporate earnings are stronger.

The overall improvement in advertising we expect to see, however, will not necessarily be a steady linear progression, but we are confident that as the economy improves, the ad market will as well, and The Times Company will benefit from the quality journalism we provide to readers and the outstanding value we represent to our advertisers.

On the circulation front, volumes declined, while revenues were flat to down slightly.

As you know, we've pushed hard on the circulation pricing at both The Times and The Globe over the course of the past two years.

Last December we increased the weekday newsstand price in the New York market from 75 cents to $1.

In March, The Times increased its Sunday newsstand prices across the country.

This is on top of the $65 million annual incremental revenue from price increases in the prior two years.

The Globe increased credit card home delivery prices in August of 2002 and single copy sales outside Boston in October of 2002.

Just last month, The Globe increased the newsstand price of its Sunday paper, which is expected to generate half a million dollars in incremental revenue this year.

Our strategy has been, and will continue to be, one of premium quality equals premium price.

Our goal is to grow our circulation, and we intend to do so through improved availability and smart marketing that focuses on retention.

During the quarter, we improved availability of The Times by increasing the number of retail outlets where it is sold by approximately 2,600, to a total of 58,000 nationwide.

We also continue to increase the number of subscriptions paid by credit card.

Today, 70% of our subscribers pay by credit card, up from 66% a year ago.

This is the highest percentage of any newspaper in the industry, and The Globe has the second highest at 46%, up from 39% a year ago.

By focusing on premium quality, we believe we will continue to have superior pricing power with advertisers and consumers alike.

And with our clearly defined national strategy and companion local market strategy, we believe our properties are well-positioned for the advertising recovery.

At this time, we'd be pleased to answer your questions.

Thank you.

The question and answer session will be conducted electronically.

If you have a question for our presenters, press star 1 on your touch-tone phone at this time.

If you're on a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment.

It is star 1 if you have a question.

Our first question is from Christa Sober with Thomas Weisel Partners.

Hi.

First, on the circulation volume, you spent a little time here today, but are you still on track to show growth in the September ABC report?

And if so, what strategies are you putting in place there?

And second, can you remind us what the top three categories are at The New York Times and what percentage of the total they make up?

And if travel is not in the top three, can you tell us what percentage of the total that is?

And finally, if any one of you could just comment a little bit about Bill Keller and the choice there, and what you expect him to bring to the organization going forward.

Thanks so much.

In regard to circulation for the September ABC period at The Times, we are going to be positive, both Sunday and daily.

We are doing a lot of work, as we always have, in regard to direct mail and some telemarketing, but from a perspective of going after appropriate acquisition targets, we have done a very, very good job with our CRM practices to really, not only find readers who become loyalists, we are also becoming very efficient in our acquisitions.

In addition, as far as additional expansion into zip codes, the availability issue is an important one to touch upon.

What we are doing, as I noted in my remarks, is expanding into new markets.

We're already in 247 markets, but we also have increased retail outlets, as well.

When we do get into those markets, we, of course, expand into zip codes, so, consequently, nonroutables that may exist right now, become available to us in regard to circulation growth.

We are also expanding our program with Starbucks, as well, in regard to the number of copies that are available at Starbucks nationwide.

In regard to the categories that are the largest of The Times.

Entertainment is 15%, technology, telecommunications, transportation. and live entertainment are all 5% each.

Department stores are 4%, real estate is 10%, help wanted is 7%, and automotive is 4%.

Just in terms of a comment on Bill Keller, obviously, it's more appropriate for us to confine our comments to the business side of things, and there, I point out that Bill was our managing editor for four years, as you probably know.

And in that position, Bill was really one of the major forces behind The Times' national expansion and its move into multiple media platforms, such as our move into the Internet and into television.

I can assure you Bill is -- and he will assure you, Bill is just as committed to the success of those efforts and initiatives today.

So, while Bill will be new in his position, the change in the newsroom doesn't alter our business strategy one iota.

Thanks.

Janet, did you want to add anything?

I have a lot of experience working with Bill, as he was the managing editor with Joe Lelaveld (phonetic) a few years back, as you all well know.

And he is a very active and passionate contributor to our strategic plan, not only in regard to the design of it, but certainly the execution, as we introduced color, multiple sections, and, certainly, the national expansion.

I know that he's going to be a great partner, primarily because I had lots of experience working with Bill.

Thank you.

We'll move next to Douglas Arthur with Morgan Stanley.

Yeah, just a clarification on nonnewsprint costs, I know you gave out a lot of figures there, with and without the IHT.

Can you go over the nonnewsprint cost trends without IHT?

And then, regarding IHT, you talk about an $80 million run rate last year, 50% amortizing, it looks like you're well below that pace this year.

What's going on there, is this sort of a -- showing the impact of losing The Journal participation, and, sort of, what's the outlook there?

Thanks.

Bill, this is Len.

We're running between 4 and 4.5% on nonnewsprint cash costs in the quarter.

And that number is trending down slightly.

If you exclude the IHT, it's about 3.5%.

And in terms of the IHT's position, we certainly haven't had any impact of the change in ownership.

We are, just as we told our board of directors, we are doing market research, and putting together a proposal for our board in November.

And any changes in the IHT that we make as a result of that plan would not happen until 2004.

Obviously, in terms of advertising impact this year, the real factor is SARS, particularly in the Asian edition, which has impacted travel advertising.

Janet, you want to add to that?

Also, the European economy, there is also softness in advertising in Europe, as well.

One of the things that we are seeing that is very positive is advertiser acceptance of the combination between The New York Times and the IHT.

We've already sold about $600,000 worth of advertising this year-to-date, and there are many proposals out there for the second half of the year that are being looked upon very favorably.

It's fair to say that $80 million -- you won't do $80 million this year, can you give any kind of guidance in terms of where you might end up?

No, we don't do that and it's way too early to speculate.

It's also not exactly an overwhelming part of the business mix at this point, at less than $100 million.

Got it --

The bottom line.

Catherine?

Doug, I'm sorry, did you say nonnewsprint costs in the quarter, or did you say nonnewsprint cash costs in the quarter?

Either one is fine, but 3.5% without the IHT is the nonnewsprint cash costs in the quarter?

No, that was just the nonnewsprint cost.

That's fine.

Okay.

Thank you.

Next, we'll take a question from Lauren Fine with Merrill Lynch.

Hi.

Thank you.

Just a couple of quick ones.

I'm curious on entertainment, you didn't tell us how that did at The Time, and given that it is the biggest category, I'm curious to know how it did.

And on the joint venture side, recognizing you commented on seasonality, it still seems like you're being conservative on the guidance there, given how well you've done.

And the third question, there is probably no answer to, you haven't changed your revenue forecast, you expect to do better on the cost side, yet you haven't changed your EPS outlook.

I'm wondering if that's just to give yourself some cushion, or is there something else going on there?

I will take the last question, Lauren, and that basically is, you know, the range is reasonably wide, and what we're looking to do is to be sure we smack-hit that range, and lowering our costs and doing the things that we need to do gives us some comfort that we will make that guidance.

Clearly, if we aim at the lower end of the expense range and hit it, and if we are fortunate enough to have the economy pop back and give us some help and we come towards the higher end of the revenue range, then we'll likely do much better.

But the reason we give a range is because we have to allow for the realistic possibility of results within the range.

So, there are a whole bunch of permutations that can occur.

But we are, as always, optimistic and truly believe that the advertising picture will pick up in the second half of the year, and that that, combined with renewed discipline in terms of the cost side, both expenses and cap ex will lead to solid earnings performance in the second half of the year.

You also had a question, I think, Lauren, on the joint venture line.

And you're asking whether or not we were giving ourselves a cushion.

We're reasonably conservative when we do our numbers and we're -- our guidance is a reasonable estimate, based on all the uncertainties, particularly in the newsprint market right now.

We're confident about the performance of our recent investments, but, as you know, with all the speculation on where newsprint prices might go, and since that impacts us both on the cost side and on the joint venture line, prudence, sort of, indicates to give us the range we've given ourselves.

Lauren, it's Russ, on the joint venture line.

I am predicting within the -- with all the caveats that Catherine gave you before about forward-projections, I am predicting the Red Sox to be, at least, in the wildcard seat, and, perhaps, in the division lead by the end of the year.

Okay.

And, Lauren, in regard to entertainment on a more serious note, entertainment through June is up 6.8%.

We're seeing a softer summer for most of the movies.

There are really no legs to what the movies are saying this year.

Many of them are opening and closing after two weeks.

But in reality, what we are seeing is also sequel advertising, which is usually much less than what they would be in new releases.

We're also seeing the equivalent number of wide releases, as we did last summer, which, of course, does not show more movie wide release growth.

One of the interesting things, though, going forward, is the fact that the Oscars are being moved up a month next year to February as opposed to March.

We do expect that the Oscar race will start a little bit earlier than traditionally is the case, which usually is in that January/February timeframe.

We would expect that the Oscar race should start sometime in the fourth quarter.

And, Janet, just the second quarter specifically on entertainment, then?

Hold on one minute.

It's down 1%.

Great.

Thank you.

Uh-huh.

Our next question will come from James Marsh with S.G. Cowen.

Hi.

Two quick questions.

First, just was hoping you'd give us some visibility on where your broadcast TV pacings are going?

And maybe some sense for where local and national is?

And then secondly, related to cap ex, I notice you're going to be trimming 50 million per your guidance, and I just want to get a sense for, specifically, where you're going to be targeting that reduction.

Is that just a timing difference or is that, potentially, a permanent difference?

This is Len.

On the cap ex, these are postponements.

We don't, you know, put projects on and spend frivolously.

All of these projects have high returns attached to them.

So, this is simply a question of being prudent in light of slower than anticipated revenue growth.

And when the economy improves, we will go back to a spend rate of that amount we talked about.

And the reason is, those are projects which impact us over the long-term, and we're mindful of balancing short and long-term, looking for both revenue growth and cost increases.

Obviously, you don't get the impact in the first year of any major investment, which is why we're making some postponements.

With regard to pacings in broadcast, we pretty much ended the recent week flat and we're pacing down.

We paced down in the second quarter, following a flat first quarter, and in July, pacing is down 3 to 4%.

Great.

Thanks.

We'll move next to John Janedis with Bank of America Securities.

Hi, good afternoon.

I think you're going to be anniversarying again some fairly significant ad rate increases at The Times, similar, to near the end of the third quarter.

Can you give us a sense of the timing and the magnitude of the next rate increase?

Thanks.

The Times increase took place in January of last year, and it was between the 6 and 7 -- in the 6 and 7% range.

So, there, you know, there isn't a comparable -- there was an open rate increase in October, but that was only for noncontractor advertisers.

The bulk of our increase really was in the 6 to 7%, which took place in January.

We have not looked at increases yet for next year, for 2004, we're in the process of doing that right now.

Okay, great.

And secondly, can you give us more color on the preprint business at The Times in June?

One of the things we're seeing is primarily the loss of The Whiz business.

Because The Whiz has gone out of business, they were heavy preprint users, that's the reason why you see some decline in the preprint advertising at The Times Times.

That said, we are seeing some very strong commitments still going forward in retail preprints and national preprints.

Thank you.

Our next question will come from Kevin Gruneich with Bear, Stearns.

Great.

Thanks.

A couple of questions on the ad side.

I know, understanding, one month does not a trend make, it really seems like the strength in June came from The New England Newspaper Group, where revenues were up high, high single digits.

And primarily from national, and I was wondering if there was some one-time items there and if you expect follow-through in that group?

And then secondly, it also seems like it's coming, primarily, from better yield.

Again, ad volume trends are actually worse at the regional group and at The New York Times in June than what we've seen in the year-to-date numbers.

What you're seeing is a national growth and a high rate lines, Kevin, in the Boston group.

They had a very good month.

The categories that showed, you know, unbelievable growth for them were entertainment, corporate, technology, telecoms, particularly the wireless business, packaged goods.

Mass market also did very well, and we also got quite a lift from travel, as I noted in my remarks.

The Times and The Globe did, because there is increased airline advertising.

We see that this is continuing, to some extent, in the July timeframe, but again, it's too early to predict what July will be.

Great, thanks.

And just a quick follow-on for Len, should we shift that 50 million in cap ex from '03 to '04?

I don't know that I would advise you to make any shifts.

We're going to look at our capital budget in light of what the economy looks like next year.

And as we indicated, what our normal run rate would be, it surely wouldn't be the normal run rate plus whatever we don't spend next year.

What you can expect, Kevin, is what we reiterated in our opening remarks, which is that we're going to continue to size the cost side of the business, both expenses and cap ex to the revenue picture.

And we're certainly not going to just automatically lop on 40 or $50 million of cap ex to next year's number.

No way.

All right, thank you.

Our next question will come from Frederick Searby with J.P. Morgan.

Yeah, a couple of quick questions.

One is, I wondered how the 'do not call' list post-October is going to alter your plans on the marketing side, where you're going to shift those dollars, or what you see that playing out?

And if that in any way impacts your circ strategy?

And then secondly, just wanted to know if you could just comment on the relationship with ADVO (phonetic) and how that's working out for you?

In regard to the 'do not call', it will have very little effect on us.

We have - it's important to note that 18 states have already adopted this, and we, a very long time ago, both at The Times and The Globe, and, really, at the regionals as well, really looked at other ways to look at circulation acquisition.

That certainly includes direct mail.

It certainly includes customer relationship marketing, so, there should be very little effect.

And what was the second question?

ADVO.

Oh, ADVO.

Our GSP, Globe Specialty Projects, with ADVO, has been a very successful part of our growth in Boston.

That relationship is, really, very unique in the industry, and what we are providing with GSP is a wonderful addition to the advertising package that we're giving to many of the advertisers that use The Globe on an ROP or a preprint basis.

That targeted zip code mailing with ADVO, really does provides us, I think, with a competitive advantage.

And just to reiterate something we've told you before on the customer acquisition, and that is, as it turns out, our Internet properties, our web sites both in New York and Boston, as well as at the regional newspapers, have provided large sources, or have become large sources, of voluntary orders for us, and that, of course, is very cost-effective.

So, given our bend toward targeted customer acquisition and our turn in that direction a couple of years ago, we're in good shape for the telephone 'do not call' list change, having anticipated it.

So, you don't see, just a follow-on, having to pick up your marketing spend to achieve the circle...

No, redirecting our marketing spending is what we're doing.

And driving toward more effectiveness, which we've really already done in the last four years since starting our CRM efforts.

Okay, thank you very much.

Mike Kupinski with A.G.

Edwards has our next question.

Thank you.

Janet, you mentioned the prospects for a strong entertainment, live entertainment categories in the second half of the year.

Does The Times benefit from the television network fall season and the likelihood that the networks will aggressively market their fall lineup, given the large number of new shows, the ratings guarantees and the strong network advertising upfront?

And then secondly, Russ, can you talk about the acquisition environment and the prospects of The New York Times looking at properties in this current environment?

We very much benefit by the TV fall season.

You will see that advertising, not only in our TV book, but you will also see it in the Arts and Leisure section, which is the fall preview, which is the second week in September.

It continues very evidently during the early part of September and into October as they are announcing their new shows.

We've been very aggressive in regard to going after all of those broadcast networks and all of the cable networks, and they have found that The Times can be a very effective use for the launch of their shows.

Do you include that in the entertainment group or is there a separate category?

No, that's in media.

That's in media?

Right.

Okay.

And just in terms of the acquisition environment, as we've said before, particularly with respect to the FCC changes, we think there will be opportunities for us to improve our local market strength in selected areas.

But we see those more in the vein of trades or swaps as opposed to outright acquisitions.

And in any event, we don't see any significant or material change in the portfolio as a result of, either the FCC changes, or the current acquisition environment.

Janet, just to follow-up on the media category, I just wondered, what percentage is media as total advertising for The Times?

Particularly in third quarter, because I suppose that's where you get the bulk of the network advertising?

Year-to-date, in fact, it's about 3%, and running year-to-date, it's up about 2% right now.

Okay, great.

Thank you very much.

Moving on to Steven Barlow with Prudential.

Thank you, a couple of quick ones.

On the cap ex side, Len, were there any, sort of, $10 million projects that you deferred?

Secondly, Len, any thoughts on changes in your dividend policy with the tax rate changes?

And then lastly, can you tell us what the political revenue was in the third quarter last year?

Thanks.

On TV.

Well, I'll start with the dividend policy.

We obviously are continuing to always look at those policies, but at the moment, we've made no decision to change our dividends.

As you know, we have been quite aggressive in raising our dividends every year, and we've had a consistent track record in doing so.

Irrespective of the state of the economy, and we will continue to do that going forward.

With regard to cap ex, we've got lots of things that have moved around, but I wouldn't, you know, isolate any specific item.

Nothing of size or scope that would be, I think, significant to the analyst community.

In terms of third quarter political spending, Catherine has the numbers right in front of her on broadcast.

It was about $1 million, Steve, in the second quarter, compared to about $2.6 million in last year's second quarter.

And I think he asked for the third quarter.

And third quarter last year was around $6 million.

As Len had pointed out earlier, last year was a record year for political spending.

It was around $23 million in total for 2002.

So, do you have the fourth quarter, then, so we don't have to do it next time?

13.3.

Thanks.

We'll take our next question from Peter Appert with Goldman Sachs.

Hi, good morning.

You gave some general comments on the cost-cutting initiatives that bring down the expected rate of cost growth by about a percent.

I was hoping you might drill into it a little more and give us some specifics on how you're achieving that.

And then, specifically, in that regard, should we be anticipating some staff reductions here in the second half?

Might there be some special charges associated with that?

And what are your assumptions about newsprint in the second half to get you there?

Peter, this is Len.

We don't have any assumptions about staff reductions or special charges associated with it.

As you know, we were very aggressive a couple of years ago with reductions in staff, and we're looking elsewhere to reduce costs.

And there isn't a single category that jumps out at you, we're just being mindful of looking at all of our discretionary spending and pulling back wherever we can.

Particularly those areas where you always find that you can do a little bit better, such as production efficiencies, our optimization councils get sent back to the front to harvest more changes.

Our IT spending is always a focus, because it's grown, as has everybody else's in recent years.

So, those are the kinds of things that we're looking at.

The only other comment I'd make on that is, as you know, we brought our staff down fairly dramatically in 2001, and we're being quite, quite aggressive about not adding to staff going forward, and I think you will see us in the year not very far from where we ended the year in 2001.

And I, you know, just for completeness sake, Len described earlier the Westwood capital expenditure and the expectation to drive production efficiency, and that does lower compensation costs.

It doesn't necessarily remove permanent situations, but it does lower, what we call FTEs because we're operating at a production facility in one spot.

The inserting facility.

And doing it more efficiently.

That means there's less need for casual, what we call casual or temporary assistance.

So, there are selected areas where we are continuing to use, either mechanical or systems technology to reduce our costs, whether in compensation or other areas.

Got it.

And how about the newsprint assumption for the second half?

As you know, there was an announced increase of $50 in March, which did not stick, it was somewhere between 30 and 35.

And there was another announced increase for August, and in light of the current environment, it's not likely that that will stick, as well.

We had a plan this year to see newsprint prices going up 9 to 10%.

It will, undoubtedly, be less than that.

Not by much, but certainly a little less than that for the year.

Is that a significant factor in the 1% reduction in the second half, then?

Not particularly.

Newsprint accounts for around 10%, between -- it varies between 9 and 11% of our costs.

So, it's not a huge factor for us.

And, of course, the lowered guidance we gave you, includes the newsprint assumption, so, we're going to hit that lowered number, irrespective of the movement of newsprint.

All right, thank you.

Brian Shipman with UBS has our next question.

Thanks.

Good afternoon, now.

Did you make a pension contribution in the second quarter, or do you plan to make one for the year, even in light of better market environment the last few months?

Thanks.

We haven't made any pension contributions, and we're really in the middle of the analysis right now to determine what the actual yearly assumptions will look like.

At that point, we will make a decision.

And that won't happen before -- probably before the fourth quarter.

Okay.

Thank you.

And I'd like to remind everyone that if you do have a question, please press star 1 on your touch-tone phone.

We will take our next question from William Drewry.

Hi.

A couple of questions.

One, on the circulation front, what would you expect for the September ABC on The Globe side?

You mentioned, Janet, The Times, but if you could update us on The Globe.

And then, just more broadly, subscriber acquisition costs have been trending in which direction over the, you know, near-term last 12 months?

And maybe if you could compare today's trend or today's actual costs at The Times to, maybe, three to five years ago?

Over the longer term, have acquisition cost per sub going up or down?

And also, revenue yield per sub, how is that trending, as well?

In regard to the Globe, because of their recent price increases, they just, of course, increased their Sunday at the very end of June, we're probably going to see a weaker ABC statement.

They'll probably be down both daily and Sunday.

In regard to acquisition costs, what we are seeing is trending down over the last five-year period.

Again, it goes back to the earlier question in regard to how we've really prepared for the 'do not call', the telemarketing changes that are taking place.

The investments that we've made in customer relationship marketing, the investments we've made in very effective direct mail, the investments, certainly, that we've made in our digital opportunities, as far as marketing the print product on our web site, have all paid off very nicely for us, because the acquisition costs per subscriber has gone down quite dramatically.

And in regard to revenue per subscriber, we're seeing, of course, an increase there, primarily because of what we have been charging in regard to the rate increases over the last four or five-year period, Bill.

And just to remind you, Bill, of course, we also implore you, whether at The Times or the Globe, to look at circulation revenue, as well, and we anticipate that the Globe's circ revenue will be positive for the full year.

And just to emphasize what Janet said, in terms of targeting your acquisition, even if in a particular area, such as direct mail, where it's historically been more in terms of the cost per order, if you do better and better and better targeting through your customer relationship marketing, you may be paying more for an individual order than if you had tried to go out and get that order with a telephone crew, okay?

But the acquisition rate becomes much better, because you're fine-tuning the audience you're going after so you're more likely to come up with a hit.

Simply wide-scale, scatter shot telephone marking was certainly being phased out at The New York Times longer -- from a position before we even considered this federal legislation.

And, of course, with that more targeted acquisition comes better and better retention.

Okay, and just one other follow-up, excuse me if somebody asked this before, did you say what July's advertising pacing is looking like?

Would it be better than the 4.6 that you did for June, given the current numbers you have on hand?

As was the case last year, Bill, the summer months, particularly July, is harder to predict because many advertisers tentatively spend during the summer months.

Many advertisers pushed their spending in larger increments to either right near Labor Day or post Labor Day.

I think, you know, that's pretty much historically what we've seen.

That said, you know, the categories I noted earlier, we expect to do fairly well continuing through the summer, but more importantly, I think, in the September through December timeframe, which would include the telecom, tech, financial, entertainment, real estate, cosmetics, automotive.

One bright spot in the summer that we are going to be announcing very soon is the fact that we're celebrating the 60th anniversary of women's fashions at The Times, which is right before Labor Day.

And already it's up, we're not closed completely, already it's up 10% in revenue.

So, we're pleased about that.

Great, thanks very much.

Yep.

There are no further questions in the queue.

I'd like to turn the conference back over to our speakers.

Thank you very much.

If you have other questions, give us a call later today.

Bye now.

That does conclude today's conference.

Thank you for your participation.

You may now disconnect.