New York Times Co (NYT) 2004 Q2 法說會逐字稿

Good day and welcome to The New York Times second quarter 2004 earnings results 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 the star key followed by the digit 1 on your touch-tone telephone.

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

Please go ahead ma'am.

Thank you very much and good morning everyone.

Welcome to our second quarter earnings conference call.

We have several members of our senior management team here today to discuss our results with you, and these include: Russ Lewis, our President and CEO;

Janet Robinson, our Chief Operating Officer;

Len Forman, our Chief Financial Officer;

Scott Heekin-Canedy, President and General Manager of The New York Times newspaper;

Martin Nisenholtz, CEO of New York Times Digital;

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

Stu Stoller, our Corporate ControlIer, 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 results to differ are listed in our publicly filed documents, including our 2003 10-K.

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 this webcast will be available on our website, which is www.nytco.com, and an audio replay as well as a transcript will also be on the website.

We will plan to end today by 12:00 noon so that you can get on with your day, and with that, let me turn the call over to Russ Lewis.

Thank you, Catherine.

Our second quarter earnings of 50 cents a share reflects a 6% increase over last year's results.

This increase is attributable to advertising revenue growth at each of our business segments, most notably in the recruitment category.

However, we did experience a slowdown the pace of advertising revenue growth throughout the second quarter, and that trend has continued into July.

While we responded to this second quarter slowdown in ad revenue growth by clamping down on costs, we are also pushing ahead with our longer term strategy and growth plans.

To successfully implement our strategy of operating the leading news and advertising media in each of the markets in which we compete, we must continue to invest sensibly in significant revenue-generating initiatives.

Along these, the Times is increasing its availability by opening more national contract printing sites.

The Times has also started to dramatically increase its color capacity to take advantage of the increased demand for high-rate color advertising.

The Boston Globe is increasing its production capacity to accommodate the requirements of its part run and preprint business.

We are also pursuing growth initiatives at NYTimes.com and our other web properties that are resulting in significantly increased profits.

And at our Broadcast Group, we're taking advantage of political and advocacy advertising related to the upcoming elections and the Olympics.

These are a few of the headlines for the morning, but now, for the rest of the story, here's Janet.

Thank you, Russ.

Overall, advertising trends improved in the second quarter compared to the same period last year.

National, retail, and classified advertising revenue all grew in the quarter, with trends varying across our three newspaper groups.

Both national and retail advertising revenue improved at the Times Newspaper Group in the second quarter, which Scott will discuss in a few minutes.

At our New England Newspaper Group, national advertising decreased, mainly as a result of less bank advertising resulting from the Bank of America/Fleet merger.

Retail advertising decreased at the New England Newspaper Group and a was flat at our regional group due to changes in department store ad spending in 2003, which we are currently cycling through.

Across all of our print properties, help wanted advertising was very strong, increasing 12% in the second quarter at the company's newspaper group.

In contrast, overall real estate advertising declined because of weakness at the Times, while both of the New England Newspaper Group and the regionals experienced increases.

The New York real estate market continues to be extraordinarily strong, resulting in a lack of inventory and a fast turnover of properties, which decreases the need for advertising.

Recently, we've seen some improvement, in part ,due to the relaunch of the Times real estate section in print and on-line.

Similarly, in late June, the Globe introduced Boston.com Apartments, a new real estate offering in print and on-line, and we are encouraged by the market's reaction.

Classified automotive advertising grew at each of our newspaper groups driven by higher volume.

In the second quarter, color debuted in the pages of the International Herald Tribune, and it announced six new columnists to report on politics, business and culture.

The IHT advertising increased significantly in the second quarter, helped by strong joint sales with the Times.

In the first half of this year, the IHT has received 2.4 million from the global ad sales effort, approximately 40% ahead of the total it received for all of last year.

Our regional newspaper group introduced four new magazines in the quarter, bringing its total number of magazines to nine with another scheduled to launch this fall.

These magazines have attractive margins and provide us with effective platforms for extending our reach in the markets we serve.

Overall, circulation revenue this quarter was on par with the second quarter of last year.

The Times and the regionals were down slightly, while the New England Newspaper Group increased as a result of copy gains and price increases instituted last year.

Contrary to industry trends, we expect to see gains at both the Times and the Globe in the September ABC report.

Our Broadcast Group showed strong results in the quarter with revenues up 11% and operating profits up 26%, mainly because of strong political, auto, and telecommunications advertising.

Pacings in July are currently up in the high single digits, and the third quarter pacings are up in the low to mid teens.

New York Times Digital turned in another strong performance with total revenues climbing 27%, advertising revenues increasing 36%, and operating profit more than doubling.

Increasingly, advertisers are recognizing the value of internet audiences and want to reach them.

NewYorkTimes.com and Boston.com are both extremely well-positioned to take advantage of this trend as our audiences and our brands are highly valued by readers and advertisers alike.

Overall, the pace of the recovery in the advertising market is still not as strong or as predictable as we would like to see in a reviving economy but we are forging ahead with revamping sections and accelerating the national printing and distribution capabilities of the Times, we are leveraging our portfolio of properties in New England, we are moving forward with the introduction of new magazines and weekly newspapers in our regional group, we continue to strengthen our digital unit, and we are, as Russ said, committed to diligently managing our costs.

In summary, we will balance our short-term financial obligations while pursuing our long-term strategic goals.

And now, here is Scott to provide you with more on the Times performance in the quarter.

Thank you, Janet.

Advertising at the Times has continued to show significant month-to-month fluctuations.

Strong categories in the quarter included: corporate, transportation, help wanted, display automotive, banking, and live entertainment, which is mainly Broadway show advertising.

Our largest category of advertising, studio entertainment, ended the quarter up 2.5%, after having been up 2.5% in April, down 12% in May, and then up 20% in June.

At this point, the number of scheduled film releases in the quarter is on a par with last year, while the fourth quarter has 40 wide screen releases scheduled, versus 32 in the same period last year.

The fall and holiday lineup looks strong, with movies such as Aviator, Oceans 12, Alexander, Polar Express, and Shark Tale expected to do well.

On the other hand, we saw weakness in technology, residential real estate, cosmetics, and financial services advertising.

But two categories dominated the field: technology and real estate.

If those two categories of advertising had been flat, we would have seen revenue growth closer to the mid-single digits overall.

On the circulation front, copies sold increased in the quarter for both Sunday and daily, but revenues were down slightly as a result of more copies going into schools, particularly universities and hotels, where the rate paid is less than that on the newsstand or for home delivery.

It is, however, part of our strategy to reach the next generation of readers.

For the year, we continue to believe that we will see overall copy gains and expect circulation revenues will improve in the second half.

In June, we announced that we plan to add eight new print sites at little to no net cost, further fueling our ability to expand and penetrate markets.

By little to no net cost, I mean that the incremental circulation revenue we expect to generate from these new print sites will offset the costs incurred to print and distribute the additional papers.

At the same time that we add these print sites, we plan to continue to improve our channel distribution, opening up outlets in new and existing territories.

Color continued to be a terrific story at the Times with second quarter revenues up 35%.

Color ad revenues made up 29% of the Times total advertising revenue in the second quarter, compared to 24% the same period a year ago.

Given the strong demand, we announced in June that we plan to increase the Times' color printing capacity by approximately 40% over the course of the next 18 months.

And as you may have read, the cable upfront did very well this year.

A recent article and adage pointed out, and I'll quote, Digital Networks, such as Discovery Times, a joint venture, documentary-oriented channel backed by Discovery Networks and the New York Times, is another channel that's gained some attraction, end of quote.

Discovery Times has doubled both its revenue and total advertiser base from a year ago and now has participation from every major agency buying group.

Turning to the outlook for advertising at the Times, so far in July we've seen softness, particularly in travel-related categories, insurance, mass market, and banking.

Because of that, we are redoubling our efforts at cost-control, but we're also investing in our journalism.

In the second quarter, we relaunched our Sunday business and real estate sections, and they have proven have proven very popular with readers and advertisers alike.

In the months ahead, we plan to redesign our book review, our culture and travel sections and our special Sunday magazine sections, which will now be branded together as "T," the New York Times Style Magazine.

Our first issue of "T" debuts in August, and is already enjoying considerable success with advertisers.

Experience as proven that investments in our products yield significant returns for us both in the short and long term.

And with that, let me turn the call over to Len.

Thanks, Scott.

As Russ mentioned, the second quarter was marked by tight cost controls.

Totals expenses increased just 3%, despite a 6% increase in newsprint expense and investments at both the Times and the IHT.

Our STE count remained flat with the second quarter of 2003, and we expect to end 2004 at about the same level as last year.

One piece of good news that was announced this week was that we've reached a tentative agreement with our guild employees at the Boston Globe.

The proposed contract runs from 2001 through the end of 2005.

Wage increases for the first four years total 7.5%, reflecting the pattern of the Globe's other unions over that time period.

Under the proposed terms, wages will increase slightly, more than 2%, in 2005.

The new agreement also provides significant new operating flexibility for The Globe.

Overall, we now expect costs will increase in the low- to mid-single digits in 2004, as we continue to focus on limiting expense growth particularly by using technology to decrease costs.

Capital spending in the quarter totaled 34 million, including approximately 13.5 million for our new headquarters.

Due to delays in our partner's financing, which was completed in June, the new building costs this year are expected to be lower than our earlier guidance of 110 to 120 million.

Overall, however, capital spending is still expected to be in the range of 220 to 250 million this year, as we move up the timing of other high-return projects.

During the quarter, the company's Board approved $400 million for share repurchases and raised the dividend 7%.

This was the tenth dividend increase in the past seven and a half years.

Our dividends have grown at an annualized rate of 10% since 1997, more than double that average growth rate of our peers.

During the quarter, we repurchased 1.2 million shares at a cost of approximately 55 million.

Looking at the rest of 2004, we have modified some of our guidance.

Because the pace of the ad recovery is slower than we had anticipated, we've revised downward our guidance for growth in total company ad revenues for 2004 from mid-single digits to low- to mid-single digits.

And as I mentioned, we're even being more stringent on costs and now expect that expense growth will be in the low- to mid-single digits.

In addition, we believe interest cost will be slightly lower than originally expected, approximately 42 to 46 million dollars.

Overall, however, we anticipate that our earnings per share growth rate in 2004 will still be up in the low- to mid-single digits, and while we expect a better advertising revenue environment to develop during the second half of the year, we will continue to assiduously control our expenses in order to achieve full year earnings growth.

And now we'd be happy to answer your questions.

Thank you, sir. [Operator instructions.] And we'll take our first question from John Janedis with Bank of America Securities.

Hi.

Good morning.

It's John Janedis.

Can you just speak, specifically, to some of your cost-containment measures for the second half of the year, and then also speak to whether or not they'll be pushed until '05 or if those permanent?

And then, can you just give us some color on what you're seeing in the Auto front in your outlook at the New York Times.

Thanks.

Sure.

We're looking at expense growth in every line, but there are some big areas of opportunity that we're looking at.

Promotion expenditures, for one, is an area which is clearly a variable, related expense, but it's across all categories and discretionary expenditures.

Some are postponed but we're looking for ways to permanently cut costs; we've got our optimization capitals working full steam and we've lowered our medical costs, our workers' comp costs, and those are permanent reductions in those cost structures.

We're also, as we indicated, I think, in the release, holding our FTE numbers flat, and while newsprint prices are going up, we're continuing to attack the consumption and buy better production quality and buy better order regulation in the single copy sales area.

So we're very encouraged by our overall expense performance in the first half of the year and believe we can do the same in the second half of the year.

Scott, did you want to talk about autos?

Sure.

We've done quite well in the automotive category, especially display, in the first half of the year.

We expect that trend to continue.

We're benefiting from consumer demand for luxury cars and SUVs; a significant part of the business came from Mercedes-Benz as well as Lincoln Mercury, which we've talked about in our previous call.

And we've just continued into the second quarter and will continue next year -- for the rest of the year.

Thank you.

We'll go next to Steven Barlow with Prudential Securities -- or excuse me, Prudential Equity.

Thank you.

Could you talk a little bit about ad volume, please, Scott?

Obviously, the numbers have been down.

You've been able to get positive ad revenue.

Did you expect ad volume to be up in the second half at the New York paper, and then Len, could you discuss the corporate expense line item for the second quarter and where you think it's going for the rest of the year.

Maybe, Len, why don't you start.

Sure.

We planned on corporate expenses, we were a little high in the second quarter, some of that is timing.

We expect to complete the year just slightly above a year ago.

Some of those expenses relate to increased costs of Sarbanes-Oxley, and that's an expense item that we're all suffering with at the moment.

But we don't expect, Steve, to be significantly above where we finished a year ago.

Steve, it's my understanding we don't forecast volume, but the outlook for the rest of the year we feel is quite good, and I would refer back to what I stated in my remarks, that we saw a special weakness in the first half in three of our key categories, studio entertainment, residential real estate, and technology.

And we expect the outlook to be quite different in the second half of the year.

Technology, we believe we're going to see the return of campaigns that have been absent in the first half of the year, and we're expecting to be very strong in this category the second half.

Residential real estate is starting to come back in agate.

We experienced significant double-digit declines through much of the first half, and those declines have softened quite considerably.

And as a result of our investment in the the real estate section, we're seeing renewed strength in display real estate.

Studio entertainment, we had a very strong June as a number of factors were in our favor.

There was strong advertising for pre-awareness.

You may have seen, for example, the Stepford Wives ads.

There were a number of exclusive films opening with full page ads and there were wide releases opening with full pages as and double trucks.

And then we've seen a very healthy holdover market, which was not the case in some of the prior months this year.

So for those reasons as well as the reasons I cited in my remarks, we're confident these three categories will come back in the second half and add to the growth that we saw from our overall portfolio of categories in the first half.

I might just reiterate that aside from residential real estate and technology, we saw a strong mid-single digit revenue increase overall in the first half.

Steve, it's Len again.

One item that I didn't mention on the corporate line is we've reallocated some benefits and corporate is picking a little bit of that up, but there's no net increase in overall benefit costs.

So it's just simply an accounting issue, so overall, the numbers are pretty much -- will come in where they were a year ago.

Okay.

Then Scott, based on what you said, is the second half I guess then is looking better than the first, but yet you still felt a need to lower the overall ad revenue growth for the company.

This may be an unfair question to ask, but regional seemed to be okay, so would Boston be the problem?

Because New York sounds pretty good for the second half.

It's Russ -- and I'll let Scott, Janet chime in -- but in general, we have felt all along that the second half of the year, or the year itself, would continue to build as the economic recovery took hold.

And unfortunately, reading the newspaper, you get a little bit whipsawed in terms of the recovery itself.

I think the headline in our business section a day or two ago was -- concerned people asking the question, "Has the recovery stalled?"

Or, "is this all there is?"

So while we still believe that there will be significant ad revenue growth in the second half of the year, given where we are and given the still cloudy, if you will, economic forecast, at least in some corners, we thought it prudent to bring down the ad revenue volume in our guidance.

But at the same time, just as we've promised all along, when we saw a reduction in revenue we would try to match it, and then some on the cost side, so we could protect the bottom line.

And you saw us do that successfully in the second quarter.

We feel confident that we can do it in the second half of the year but with some better news on the advertising front, which we do see in a lot of areas, we'll hit our guidance.

We also -- this is Janet, Steve.

We also see good trends in what we expect to see in the second half in Boston as well.

Some of the categories that have been weaker in the first half of the year, we expect to see an uptick in the second half.

So really at all of our properties we are looking at a better second half, but we certainly don't want to overpromise and underdelivery, but I think from what you're hearing from Scott and certainly what we know about the regionals, both the Boston Globe, Digital, and Broadcast, we're expecting to see a better performance in the second half.

Thanks.

We go next to Lauren Fine with Merrill Lynch.

Thank you.

Just a few questions, if I could.

I guess I'm wondering if you could discuss -- and I know there's a lot of different categories -- but in general, at the The New York Times newspaper, the ad rate realization that you're getting right now having raised your rates, I think mid-single digits at the beginning of year, what kind of realization are you getting?

And secondly on newsprint , I'm trying to understand a price increase that's probably half of what your some of your competitors are getting.

Are you changing grade, or doing different things like that, that are allowing you to mitigate the price increases that we're seeing out there?

And then I have a follow up.

Just quickly on the newsprint, we're not changing the grade of our newsprint; we're just being intelligent and successful newsprint purchasers in terms of the absolute price.

And again, as we indicated, we are working very hard to control the volume of news print that doesn't go into sole printed newspapers, again reducing waste through better automated color registration techniques, for example, better automation, and predictive models in our single copy sales, order regulation.

Those are important in terms of our newsprint expense.

In regard to yield, Lauren, it could be noted that we increased our rates by 5.8% across -- overall, in regards to beginning of the year, and in regard to our rate yield, we do very well in regard to retail; 10% yields, national is up 5.5, classified is down about 4, but our total, including FSI, is about 3%.

So from a standpoint of that information, I think it's clear that we have a stronger rate yield.

We also, from a standpoint of our color, which I think you're very well aware of from Scott's remarks, we're doing very well in regard to realization of that rate as well.

We are consistently going up quite dramatically in our rate structures on color advertising, which, of course, has a strong yield for us as well.

Also, I guess my follow up then on that is, first of all, I would like to understand classified's decline given that I think as help wanted is one of the higher rated categories and you're seeing strength there so I'm curious why that's down.

But I guess, overall, the revenues seem even more disappointing if you're getting that kind yield, and so any other color you can give is great.

But where I also wanted to go was you decision to increase color would suggest that you're running out of capacity.

Is that actually the case right now?

In regard to classified being down, it's due to a decrease in commercial real estate and also in general classified, those are the two areas that are weaker that are causing that decline.

And in regards to the color capacity, I'm going to to have Scott answer that for you.

There are days when we bump up against our capacity and we work with advertisers to move their ads to other days of the week when we have openings, but we want to avoid the situation where we actually run out of capacity.

So hence, the investment.

Okay.

And then just lastly, on the circulation revenues, at the New York Times itself, I heard the remark about where you're getting some of the increases in areas where you don't get full rate, but given the rate increase that you put through earlier this year, I'm trying to understand why you expect a reversal of being down a couple of percent to actually being up for the year.

I'm not quite sure I understand the thought process there.

Lauren, we didn't institute a circulation rate increase in 2004.

I thought there was one piece that was up, but I guess even absent that, if circulation is up --

It's basically because of copies.

Copies are up, total revenue is slightly decreased because of an increase in university copies.

Right.

Right.

But why would that have changed in the second half, I guess, is what I'm trying to get at?

Because we expect that we will see some additional copy gains in the second half of 2004.

Additional volume increase.

Yes.

At the normal rate as opposed to discounted?

Correct.

Didn't -- I thought you had raised Sunday's single copy?

In Boston.

No.

In Boston we raised it in 2003 in June and in September.

The last time we had raised increases was -- I believe it was March of 2003.

That was a Sunday single copy.

You may thinking of that other paper, "USA Today".

Probably not, but thanks.

Sorry.

Thank you.

And we'll go next to James Marsh with SG Cowen.

Hi.

Two quick questions.

One, Len, I was hoping you could flesh out the rationale between changing the interest rate guidance.

Is this just a different rate assumption that you're using or what's thought process behind that?

And then secondly, I was wondering if you could just drill down and give us a little sense of the newsprint cost broken down between consumption and price.

Thanks.

I'll do the interest.

It's basically just a lower rate, a slightly lower rate assumption because of slower than anticipated growth of interest rates.

We thought the rates would have risen more quickly at the beginning of the year when we gave the guidance.

With regard to the interest expense, James, interest expense rose 5.9% in the quarter. 7.2% of that came from higher prices; 1.3% came from a decrease from lower consumption.

All right.

Excellent.

Thank you very much.

You're welcome.

And we'll go next to Michael Kupinski with A.G. Edwards.

Thanks.

I just had a couple of questions.

On the share count, in the first quarter, was down by 1.56 million, and I think you said that you released -- in your release -- that you repurchased 1.2 million.

Is the difference just because of the options?

Frank, yes, that's the main difference.

We still anticipate completing the year roughly on target with where we were a year ago, and probably a little more aggressive in offsetting any option exercises.

And can you talk a little bit about the spike in retail advertising in June?

I was just wondering if -- that seems to be a little bit better than your newspaper peers and I was wondering if you can just talk a little bit about that?

We did particularly well in the department stores in June.

They came in in the 15 to 16% range, and they're up high single digits for the year-to-date.

I think it's also important to note that going forward, we expect to see department stores do quite well in the second half of the year, and also mass market.

We have two Home Depots opening here in Manhattan, and a Filing's Basement as well, so we feel those are going to be very good, strong advertisers during that period of time.

In addition, because we are also relaunching -- or launching, I should say -- Key Style, we expect very good support from the retail community in regard to that new magazine as well.

And also in Boston, because of their relaunch of their magazine in March, we've done very well in the jewelry and apparel category in the retail sector.

In fact, their advertising is up, overall, about 40% with that relaunch.

Mass market sales also did quite well in June, particularly from Target, Hallmark Cards, EB Games, and Bang and Olufsen.

Okay.

Terrific.

And one last question.

In term of the your cost-cutting initiatives, are there additional cost-cutting opportunities for you if revenues come in a little bit worse than expected?

Yes is the answer to that question.

There always are additional areas to go to, and part of it is the function of necessity, if you will.

While there's a tendency to think that perhaps you're finished in that area, the reality is that you never really finished and our needs of requirements change as well, so that allows us to shift expenses around and to change priorities, to change timings.

So we will continue to keep our foot on or off the expense pedal, as it were, with a direct correlation to how we're doing on the revenue side of our business.

Yeah, I think there's always opportunities to cut discretionary expenditures and we've always said we would size the business accordingly.

But I think it's important to point out that we continue to look for ways to take structural costs out of the system through technology and looking for ways to reduce medical costs and so forth.

So that effort will continue, irregardless of the revenue picture, which I think is the important point.

That we're continually looking to leverage the incremental revenues by reducing long-term structural costs out of the system.

Thank you.

And we'll go next to Doug Arthur with Morgan Stanley.

On non-newsprint costs, Len, can you just elaborate on what that was year-over-year in the second quarter?

Yeah.

It was about 2.7% on non-newsprint cost and it was about the same percentage increase on non-newsprint cash costs.

Great.

And then going back to newsprint prices, up 7.2% in the second quarter.

That's actually a lower rate of increase -- I think it was 8.2% in the first quarter -- is that just a year-over-year comparison or did you actually have lower realizations in Q2?

Part of that is inventories, part of it is year-over-year comparisons and --

-- and geographical.

-- and geographic; where we are using the consumption compared -- New York, maybe -- it may be different from the regionals and so forth, and California price is different.

So it's a mix of all those things, Doug.

Okay.

And then finally, on this switch of net auto manufacturers at the Times International versus classified, is that material?

It's not a huge amount, but what we did, Doug, is we posted the actuals on our website so you can go through and you can compare.

But what it does do is make it consistent across all of the properties that we have.

Okay.

Thank you.

and we'll go next to William Bird with Smith Barney.

Thanks.

Bigger picture, I was wondering if you have a theory on why your rate of recovery is at the lower end of the industry, and also given the 20% studio/entertainment ad growth in June, I was just wondering if there was something extraordinary depressing national ad growth.

Thanks.

Well, I wouldn't accept the proposition that our recovery strength is lagging the industry.

I think part of your observation may be reflective of the mix of our business; as you saw in the second quarter, our regional newspapers did quite well, the smaller newspapers, and that seems to be the case throughout the industry.

The larger metropolitan area newspapers are not bouncing back quite as quickly.

And in terms of our Broadcast Group, we are performing as well as any of the broadcast groups out there, particularly in garnering political advertising.

We've got three states in which we expect fairly hotly contested office races: Illinois, Iowa, and Pennsylvania.

On the digital front, I think our profitability is second to none, but there's no question that we would have liked to have to have seen more strength by this time in New York and in Boston, and part of that is a function of the economy in those -- and the recovery -- in those two areas.

So again, I wouldn't look at this as any pronounced or long-term difference.

The national newspaper category is coming back.

It will continue to grow in a cyclical -- in a secular -- fashion, and we'll take advantage of that.

Scott, you've some thoughts on this?

Yeah.

I'd second what you said about the secular return of the national category.

But Bill, at the start of my remarks I said we've continued to see month-to-month fluctuations.

In June, transportation was one of those fluctuations that offset the healthy return of our studio advertising in June.

And I think the explanations are somewhat anomalous.

Last year, the Sophisticated Traveler ran in June; we moved it because of the Iraq war, and this year we returned it to its normal place in the rotation back in April.

We also saw last year a Canadian campaign in response to the SARs problem they had.

That didn't return this year.

Those were two large contributors to that offset to the studio.

Which leads me back to the point that I made that aside from the three categories that affected our overall performance in the first half, studio entertainment, residential, and technology, we saw overall growth in mid-single digit range, reflecting the diversity and strength of our advertising base, and we think that's going to play to our favor as well in the second half.

And we're looking forward to improvement in the second half for all those reasons.

Just as a follow on, you mentioned your expectation and hope that tech will pick up later in the year.

I was just curious if that's based on any forward bookings you're seeing right now?

What was the last part of the question?

I didn't get it.

Forward booking.

We -- that outlook is based on commitments from our advertisers and the plans they've shared with us.

We feel there's going to be very significant growth in the third quarter, especially, but in the fourth quarter as well, and we're looking forward to a strong second half that's going to come from the BBC segment of tech as well as the [B to B], so we feel pretty confident about that outlook.

We're also seeing software commitments that are new to us as well, Bill, and some enterprise business, particularly from Dell and Epson and from the microprocessing area as well.

Those are areas that seem to be bubbling for us, that give us positive feelings about tech growth going forward.

Thanks a lot.

And we'll go next to William Drewry with Credit Suisse First Boston.

Hi.

Thanks.

Several questions.

Just on that last point though, to start off with, just wondering given your comments that July is soft, but you seem to indicate that the third quarter will be okay, do you have any idea month by month when you'll start to see a pick up?

In other words, if the August numbers that we see are soft as well, should we start to worry that maybe the recovery is getting pushed out a little further?

That's the first question.

In the third quarter, we've got two conventions, as you well know, one in the latter part of July, of course, and the latter part of the August.

You've also got a launch of Key Style in August, and you've also got a launch of Culture in the September time frame, September to early October time frame, still to be determined in regard to the date.

So there are many things that are in the hopper, Bill, in regard to what's being planned in the third quarter, and yes, going into the fourth as well.

But particularly in regard to some of the categories that are performing well for us, namely, entertainment, we think that will show some strong growth in the July-August time frame.

Again, primarily because better product is out there, there's stronger holdover, and we have seen very strong increase in color in regard to the entertainment category, particularly as of late in the June time frame.

And there are some unique situations that we're seeing, that are resulting in switch of -- sliding of campaigns from July to August.

So that, in part, explains the outlook for July versus the rest of the quarter.

But you'll keep your eye on those numbers, and you know that we will as well.

So again, the proof will be in the pudding and we're going to be pedaling very hard to get the numbers where they need to be.

Okay.

Second question, maybe for Len, on potential margins for the second half.

I mean, given the guidance of low- to mid-single digit on both revenue and cost, you can come up with various combinations on both sides of that that could getting you to rising margins, declining margin, or sort of flat.

Any guess on where the margins might fall out?

Or at this point it doesn't really matter, it's just trying to get the revenue growth and fit doesn't come through, you're just going to cut costs against that.

We're going to size the business accordingly, we obviously expect our margins to grow over the long term, we don't worry about them on a quarter-to-quarter basis.

We will match our expenses against our revenue growth, no matter where that revenue growth falls.

Okay.

And then just one on last question, back on the entertainment category, it's obviously wildly oscillating up and down, month to month.

You know, if you look at the studios, though, I don't think they are in any kind of secular growth mode; they're in somewhat of a mix shift, if you will, towards the video end of the distribution cycle.

And I'm just wondering, do you expect real growth for full year '04 over '03, and then longer term, '05 over '04 out of that category, and if so, how would you get that?

Is it price driven?

Because again, the studios don't seem to be expanding their slates and box office is not really growing either, but there are a lot of profitabilities moving into the back end of the cycle with video.

Can you get that video advertising or is that something that's moving away from you?

We are definitely getting video.

In fact, DVD has been a growth category for us for a number of years.

In addition, as I said earlier, our use of color and the quality of our color is very attractive to our entertainment advertisers.

And also, because of our culture relaunch that you will be seeing in the upcoming months, we are doing a very good job, I think, of making sure that our advertisers are very well aware of what they can expect with this new redesign.

In addition, from a standpoint of where we are as far as better products, when you look at the fall lineup, August, September, October, November, particularly, and then, of course, the holiday movies, they are very much in keeping with the kind of movies that the Times always does well with.

It's a very sophisticated lineup.

We think that we will have some very good opportunities to get very large units associated with this as well.

So I think -- and one more thing, there's a lot going on in regard to print digital.

There are large combination buys being put in place in regard to what we do with the vertical build outs in movies on this website and what we are doing in print.

Again, just what we did with real estate, when we are planning to really relaunch and repromote a section, we do it now with print and digital in mind, as we did with real estate.

The same holds true in regard to what we're doing with what you're seeing with -- you will see with culture the latter part of the third quarter, early fourth.

That's great.

Thank you very much.

And we'll go next to Alexia Quadrani with Bear Stearns.

Hi.

Good morning.

Could you quantity the tech and real estate declines in the New York Times, and then I have a follow up.

While we get a specific number, why don't you give us the follow up?

The follow up is on the impressive growth we saw in the preprint.

Is that a sustainable growth number going forward?

It looked like it picked on bit in June.

Just to answer your question with regard to the Times on real estate advertising, in the second quarter, real estate advertising was down 9%.

We saw that lessen throughout the quarter, as Scott indicated in his remarks.

Particularly in June with the relaunch of the real estate section, which happened both in print and online.

With regard to technology advertising, technology advertising was down 29% in the quarter.

So it was a very significant factor in how our advertising performed in the national category.

In terms of preprint, I just want to note, while Scott gives you a little information about New York, that we are -- one of the projects we mentioned upfront is a capital project to improve our preprint and zoned advertising production capabilities and volume capabilities, so we continue to take advantage of what we see as a growth area.

Our preprint revenue was up double digits in the first half of the year, and we don't expect it to continue at that pace in the second half but we expect it to be strong single digits.

One of the things that is happening in the preprint area, as far as the Times is concerned, that it's not just retail.

What is happening is that we're seeing man categories utilizing preprint more than they ever have before.

The technology category, the education category, media, real estate, home furnishings, even transportation.

Which we think is a very interesting phenomenon.

This is an area that we have concentrated on in regard to growth, and we're pleased to see it going across all of the categories outside of just retail.

Okay.

Thank you.

We'll go next to [Craig Huber] with Lehman Brothers.

Good morning, thank you.

A few questions.

For IHT, can you just tell us what the overall revenue percent change was in the quarter and also profits.

Craig, I'm sorry, we don't break that information out.

What happens is that now we have consolidated the International Herald Tribune and the Times newspaper into the New York Times Newspaper Group, and as you know, we don't break out profitability for any one part of the newspaper group.

What we can tell you that we are at least on and ahead of our plan with the IHT.

We are seeing very good advertising gains, which we could characterize, I think, in the double digits -- Janet will correct me if I'm wrong on that -- but we have been seeing good, solid, double-digit ad revenue growth.

Take that, of course, in the context of a much smaller newspaper.

What we are seeing, also, with the group buy, Craig, is commitments across all categories.

There was always -- I shouldn't say always -- but there was a strong interest in the fashion category but now we're seeing it in corporate, we're seeing it in real estate, we're seeing it in transportation, we're seeing it in technology as well.

In addition, the Euro reach, which is the pan-European buy that we put together with five European newspapers, native tongue newspapers, it did very well in the June time frame.

We've taken a hiatus, as expected, in the July-August time frame, but that indeed will be reintroduced in the September time frame, and we already have some very good commitments for that Euro reach buy in place.

And then also on your TV station group, as you look forward, do you have any plans to kind of beef up that station group?

I know you have eight medium-sized stations right now.

Just more discussions there or are you content with it only being roughly 5% of your revenues?

Well, consistent with what we've said in the past, we don't comment specifically on potential acquisitions or dispositions, but we are continuing to look for ways to fulfill our multiple-media platform approach in the markets we compete in.

So we would, of course, be very interested in adding, for example, a television station in a market in which we have a newspaper.

We were heartened to see on the one hand that the federal court of appeals said that an outright ban on cross ownership of newspapers and broadcasts -- that an outright ban of that cross ownership is unwarranted, unfortunately, the court left the criteria to narrow that down in a very muddled and unclear state.

So it's more likely than not that until that gets clarified, you won't so a whole heck of a lot from us, or perhaps in the rest of the industry, as well.

And finally, if I could, in response to a question earlier about costs, you mentioned that you were pulling back your promotional spending, variable costs quite a bit.

I was just wondering, is that sending the wrong signal, perhaps, to your advertisers, which is your life blood, your company's life blood here, the New York Times itself is cutting back it's own advertising of its products?

At the same time you're trying to get your advertisers to advertise more in your flagship --

Yeah.

When we talk about promotional spending, we're not talking about advertising; we're talking about circulation promotional efforts, which are direct mail efforts and things of that sort.

Okay.

Very good.

Thank you.

And we'll go next to Christa Sober with Thomas Weisel Partners.

Hi.

Couple questions.

First, I think there's been a lot of concern about the resurgence, I guess, on national advertising in the back half of the year, particularly technology.

I guess if I doesn't come back, are you guys willing to keep the same rates or will you be bumping those advertisers down to the other contract rates?

And then on the equity line, it was a little stronger this quarter and I was wondering if that was the Fox or was there something else?

And if you could just maybe highlight some the seasonality you expect as it relates to your full year guidance there.

Yeah.

Our full year guidance remains unchanged, and that's the more positive line in the second quarter was really a result of seasonality and primarily with [inaudible].

We are doing better with our newsprint properties; in fact, all of our equity investments are doing well, but we're continuing to see the same kind of result for the year that we put out in our guidance.

[Inaudible] being our New England sports adventure group, which includes the Red Sox.

And we did see on upswing last night where Manny Ramirez and David Ortiz both had home runs.

In terms of the rate, Scott?

Yeah.

If your question is would we resort to discounting, the answer is no.

We work with our advertisers to incent them to commit more dollars with us.

Great.

Thanks.

We have time for one last question.

We'll go Peter Appert from Goldman Sachs.

Scott, can you quantify the softness in July you spoke of?

Should we anticipate down revenues on a year-to-year basis for the paper?

No, I don't think I want want to quantify it.

What we're seeing is some of the fluctuation that we've experienced in the second quarter, but we spoke a few minutes ago about putting July in the context of the third quarter.

Right.

Okay.

Len --

Also Peter, I don't think we want to give up on the month quite this early.

Right.

Okay.

Len, do you have a time frame in terms of when you think you might complete the buy back of the remaining, I think it's 377 shares -- $377 million?

Probably in early part of '05.

Okay.

Thank you.

Thank you, everyone.

We appreciate your attendance today, and if there are any other questions, please given me a call.

That does conclude today's teleconference.

Again, thank you for your participation.

You may disconnect at this time.