New York Times Co (NYT) 2013 Q2 法說會逐字稿

Good day and welcome to The New York Times Company's second-quarter 2013 earnings conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to your host, Ms. Paula Schwartz.

You may begin.

Good morning and welcome to our second-quarter 2013 earnings conference call.

On the call today are Mark Thompson, President and Chief Executive Officer; Jim Follo, Executive Vice President and Chief Financial Officer; and Denise Warren, Executive Vice President, Digital Products & Services.

All comparisons on this conference call will be for the second quarter of 2013 to the second quarter of 2012 unless otherwise stated.

Our discussion will include forward-looking statements and our actual results may differ from those projected.

Some of the factors that may cause them to differ are included in our 2012 10-K.

Our presentation will also include non-GAAP financial measures and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our corporate website at www.NYTCO.com under Investor Relations.

Now I would like to turn the call over to Mark Thompson.

Thanks, Paula.

Hello and good morning, everyone.

In summary, our second-quarter results reflect significant progress, both in the immediate run rate of our business and in the rollout of our medium-term strategy for The New York Times Company.

The Company's operating profit before depreciation, amortization, and severance for Q2 2013 was $77.8 million; that compares to $68.8 million in the same period of 2012 and represents an increase of 13% year on year.

In the quarter we saw a continued increase in digital subscribers, a marked improvement in both print and digital advertising compared to Q1, and are on course to deliver key elements of the growth strategy I outlined in our last earnings call.

Let me begin with the Digital Subscription story.

Since digital consumer revenues are an important and growing part of our business, we have decided starting this quarter to provide some new financial information on this revenue stream.

In the second quarter revenues from digital-only subscriptions were approximately $38 million, an increase of about 44% from the same quarter in 2012.

For the first half of 2013 digital-only subscriptions totaled around $75 million, up nearly 52% compared to the same period last year.

The number of digital subscribers continue to grow and at quarter end paid digital subscriptions across the Company were approximately 738,000, an increase of nearly 40% year on year.

We did see some slowing in the number of net new adds to our digital subscriber base in the quarter.

We attribute this deceleration to a combination of seasonality, a relative lack of major news stories, and the law of large numbers as we enter the third year of our pay model.

As you know, we are currently working on a suite of new paid products and services.

That roadmap includes enhancements to the existing core digital product, which we believe will increase its attractiveness to potential subscribers.

In the meantime, we expect the net new digital adds in Q3 to be roughly in line with the Q2 numbers.

Advertising performance was significantly better in Q2 than Q1.

Although we continued to see substantial volatility month to month, especially on the print side, company-wide advertising declined by 6% versus the prior year compared to an 11% decline in the first quarter.

This relative improvement, combined with strong circulation revenue and further progress on cost reduction, accounts for the increase in operating profit in the quarter.

Jim will discuss the advertising and cost numbers in more detail in a few minutes.

Last quarter I laid out my initial thinking on a strategy to put The Times Company on a path to revenue and profitability growth.

We are making good progress and are on track with these strategic growth initiatives.

We will rebrand the International Herald Tribune as the International New York Times at the beginning of the fourth quarter.

The first edition of the International New York Times will be on October 15.

As I have already said, we are well underway on the development of a series of new paid digital products and services to attract a wider audience of subscribers.

At this early stage we are very pleased with how the product design and development work is progressing.

On the video front, we are looking to create significantly more high-quality content to meet the growing demand of users and advertisers.

Just last week we published our first Times-branded documentary and we have a number of innovative video projects we will be sharing with users over the next couple of months.

Our strategy also includes aggregating high-quality videos from other organizations.

A recent example of a success is our collaboration with Retro Report, a documentary news organization, to showcase its video series which re-examines major news stories of the past few decades.

The quality and subject matter of Retro Report is a perfect match for The Times.

To expand the awareness of our video presence and to grow our streams, we began offering free unlimited access to the Times online video section during the second quarter.

Earlier this week Meredith Kopit Levien joined the Company as the new Executive Vice President for Advertising.

Meredith comes to us with a proven track record as a highly-skilled executive know for success, energy, and creativity in all of the advertising arenas important to The Times -- namely print, digital, and live events.

She will oversee the generation of all advertising revenue across The Times' multiplatform products and services and will provide great leadership to our already excellent global ad sales team.

We have also been hiring new technology talent to support the building phase of our new initiatives.

And we've also made progress in our efforts to sell the New England Media Group, which Jim will touch on in a minute.

Lastly, we are aware of the capital allocation remains a key topic of interest to our shareholders.

While we have had a good quarter and have improved our financial position, the advertising market remains volatile and our growth initiatives are at an early stage of their gestation.

For the present, we believe it is in the best interest of the Company to maintain a conservative balance sheet, but we will keep this position and the question of capital return under close review as we go forward.

In conclusion then, this was a quarter in which we made progress on several fronts though we also know that much work lies ahead.

I look forward to updating you on future calls, but for now I would like to turn the call over to Jim Follo.

Thanks, Mark.

Good morning, everyone.

Our company's positive results in the second quarter were truly an organizational-wide effort with contributions from virtually every area of the business, enabling us to deliver operating profit before depreciation, amortization, and severance of $78 million, an increase of 13% compared to the second quarter 2012.

This progress was the result of continued growth in our digital subscription initiatives on the circulation side, moderation of losses on the advertising side that led to the best print trends in more than a year, and another strong showing on cost performance.

The continued growth of The New York Times digital subscription numbers, combined with the price increases at both The Times and the Boston Globe, together enabled circulation revenues to largely offset advertising losses resulting in total revenues down about 1% in the quarter.

Circulation revenues rose 5% for the Company and 7% for The Times Media Group in the second quarter with the monetization of our digital products as the largest contributor to the growth.

Advertising revenue trends improved in the second quarter relative to the first with print advertising down 7% and digital advertising revenues down 3%, leading to an aggregate advertising decline of 6% versus the prior year compared to an 11% total advertising decline in the first quarter.

Despite this sequential improvement, advertising revenue continues to be affected by secular trends, economic factors, and an increasingly complex digital marketplace that is facing a widespread shift towards programmatic buying channels as we have discussed here over the past quarters.

Rounding out our results for the quarter operating expenses before depreciation, amortization, and severance decreased about 3% and on a GAAP basis costs were also down 3%.

We reported an operating profit of $53 million, up 21% over the second quarter 2012.

Diluted earnings per share, excluding severance and a 2012 special item, was $0.14 in the second quarter compared to $0.11 in the second quarter of 2012.

Now let me provide some additional detail on our second-quarter results.

Total advertising revenues decreased 6% year over year and were down 2% in April, 12% in May, and 4% in June, a pattern that demonstrates the significant month-to-month volatility and short-term buying decisions we continue to see in the market.

Second-quarter print advertising revenues decreased in the national, retail, and classified categories with national and retail equally driving the decline.

Digital advertising revenues also decreased as growth in automotive and classified categories was offset by declines in national and retail and remaining classified categories.

Mobile advertising reversed course from last year and saw robust growth.

Turning to The Times Media Group, total revenues were up 1% in the quarter with circulation revenues up 7% and advertising down 5%.

Other revenues were down 7% as a result of our exit from our education business at the end of last year, part of our continued effort to focus on our core New York Times brand.

The overall advertising revenue decline was largely a result of print losses in all three major advertising categories -- national, retail, and classified -- with retail experiencing the largest year-over-year percentage decline.

While the national retail categories saw growth on the digital side, they are outweighed by losses in the real estate and recruitment classified categories.

Digital display advertising continued to experience challenges in the quarter from programmatic buying issues along with pricing pressures caused by the glut of available ad inventory across the market.

The Times Media Group aims to return to digital advertising revenue growth by focusing more heavily on opportunities in video, tablet, and unique custom advertising.

As our paid product strategy moves into the next phase, The Times' digital focus remains on growing its subscriber base while extending its brand across platforms.

As of the end of the quarter The Times Media Group, including subscribers to The Times and the IHT digital packages, had about 699,000 paid digital-only subscribers, an increase of 37% year over year.

Digital subscription acquisition growth moderated in the second quarter, but we are confident our new initiatives will enable us -- enable continued progress and assure that we remain industry leader on this front.

In the meantime, we expect net digital subscriber additions in the third quarter to be roughly in line with the second-quarter increase.

Moving to the New England Media Group, total revenues are down 7% in the second quarter with circulation revenues down 2% and advertising revenues down 10%.

Other revenues were down 14%, largely a result of lower revenues from commercial printing and distribution and direct mail advertising services.

In the second quarter the Globe began to cycle against higher commercial printing and distribution revenues and the associated costs in connection with the printing and delivery of their local competitor that began last year.

As of the end of the quarter BostonGlobe.com had about 39,000 paid digital-only subscribers, an increase of about 70% year over year.

And The Globe raised print home delivery prices in May.

We are deep in our efforts to sell the New England Media Group and we expect to have more to share on this topic before the end of the third quarter.

Now that we have a better sense of the structure the transaction might take on we can say pretty confidently that the pension obligations are unlikely to be included in the sale.

We expect that a sale will help the Company's overall operating EBITDA margins based upon past performance and absent any other factors that impact our margins.

There is not much more we can share now, but we hope to be revisiting this topic with you soon when we have something more concrete to say.

Moving on to costs.

The Company's performance on expense management was strong in the second quarter as we again found ways to trim across the broad spectrum of cost categories, resulting in a decline in operating costs of approximately $14 million.

Lower compensation and benefit costs, primarily lower pension expense and lower raw material expenses, were the largest contributor to the decline.

We will continue to be diligent in trimming expenses and managing legacy costs, but will also remain prepared to invest where necessary.

The costs associated with our new strategic initiatives will accelerate in the second half of the year and into 2014 as we begin to market these efforts domestically and internationally.

That said, we continue to expect that the contribution to operating profit connected with these initiatives will turn positive in late 2014 and that we will see full-year growth in 2015.

As we have previously stated, we estimate that operating profit will be negatively impacted by about $20 million to $25 million in 2013 as a result of these initiatives with a modest contribution to revenues while we make significant investments in these growth initiatives.

Raw materials declined 14% in the second quarter, mainly due to lower newsprint consumption and lower newsprint prices.

Moving to the balance sheet.

At the end of the second quarter our cash and marketable securities totaled approximately $918 million, exceeding total debt by approximately $224 million.

The increase in our cash balance was the result of cash flows from operations as we continue to generate meaningful cash.

In the quarter we also repurchased approximately $5 million principal amount of our 6 5/8% senior notes.

As discussed in the press release this morning, in the second quarter we recorded an adjustment of our prior-period pension benefit obligation related to an error in the actuarial valuation of accrued benefits.

The correction of these pension obligations reduces our GAAP underfunded status by approximately $50 million and reduces operating costs by approximately $3 million annually.

As of June 30, 2013, taking into account this adjustment as well as the recent developments in the interest rate environment, year-to-date asset performance, and the pension contributions we made earlier this year, we believe that our underfunded status for the qualified plans has improved from year-end and is now estimated to be approximately $150 million on a pretax basis.

As such, we do not plan to make any further contributions this year beyond the $7 million in mandatory requirements we are still committed to, which we expect to bring our full-year total to about $75 million.

Also on the pension front, as we get closer to fully-funded status we are shipping our asset portfolio increasingly towards fixed income investments which positions us well from a liability matching perspective going forward.

On the flipside that shift also means the potential impact of future rate changes on our overall funded status will be somewhat moderated.

Looking further at the balance sheet, we have seen substantial and growing interest in the value of our headquarters building in recent months.

While we are not in the commercial real estate business and therefore don't want to speculate on the potential value of the building, I would like to quickly review some of the details around our March 2009 sale-leaseback transaction.

The transaction and comp is 21 floors, or approximately 750,000 square feet.

We still own outright seven floors, or approximately 216,000 square feet, which were not included in the transaction; six of which we now lease to a third party and one that we still occupy but have the option of renting out.

And rental income we receive on the six floors we lease is recorded in other revenues.

The structure of the sale-leaseback transaction allows us to repurchase the 750,000 square feet in 2019 at $250 million.

Given that we believe the value of the underlying real estate far exceeds the $250 million liability associated with the repurchase option, it is almost certain that the option will be exercised at that time.

We believe that the value of the real estate we own, combined with a real estate subject to the repurchase option, significantly exceeds the liability we carry associated with the real estate on our balance sheet as of June 30.

Moving on to our outlook.

Third-quarter circulation revenues are expected to increase in the low to mid-single digits as we expect to see continued benefit from our digital subscription initiatives, as well as from the most recent price increases at The Times and at The Globe.

Third-quarter advertising is typically very difficult to forecast since advertising revenues tend to be so concentrated in September.

Trends in the third quarter continue to be affected by volatility compared to the first half of 2013.

In the third quarter our operating costs are expected to be in line with the same period last year.

With that we would be happy to open it up for questions.

(Operator Instructions) John Janedis, UBS.

Thank you.

Can you talk a little bit more about the digital subscriber base at The New York Times?

Meaning as the sub growth slows as you get larger, how have your subscriber acquisition costs changed and are your current promotional rates similar to the last year or two?

We will ask Denise to answer that perhaps.

Sure.

Thanks, John.

So in terms of the acquisition costs, I mean it does get slightly more expensive to acquire users as you get further and further into the model.

So there is a slight upward trend in the costs.

And I am sorry, you had another part of that question which I blanked on.

On the promotional side are you being more promotional today versus a year or two ago, or is that not necessary?

No.

We are very, very actively always testing and learning around promotions, but I would say that the promotions that we have pretty much started with tend to be the winners in terms of what works.

But we are constantly learning and testing around the fringes on that.

Thanks, Denise.

Maybe a related question, just on advertising more broadly.

Can you help me understand the ad outlook a little bit better?

Meaning the gap from the first quarter to the second quarter was pretty wide, and so does the third-quarter commentary mean that somewhere between the first and second quarter?

And maybe from a category perspective what are you seeing from categories like movies, retail, tech, and financial?

Okay, John, it is Mark.

I will answer that.

Yes, I think our guidance will be -- although, as Jim said in his remarks, visibility into September, which is by far the biggest factor in Q3, is limited.

Our guidance would be that we currently expect Q3, the outer year on year, to lie between Q1 and Q2.

In terms of categories, in Q2, first of all, there was strength in luxury, American fashion and international fashion, and transportation.

Some relative weakness in corporate advocacy, no election this year.

And you mentioned studios.

Studios were soft through Q2, though we are seeing some returning and better trends for studios in Q3.

The other factor in Q3 is the presence of the London Olympic Games in 2012 and there is some non-repeating business, notably on the digital side, in Q3.

So far in Q3 stronger categories have been telecoms, healthcare, again transportation.

Again, in the early part of Q3 studios -- entertainment, in other words -- somewhat weaker.

We are seeing slightly strengthening trends there and some weakness in media as well.

Thanks very much, Mark.

Craig Huber, Huber Research Partners.

Good morning.

A couple housekeeping questions first if I could.

On the newsprint side, what was the percent change for newsprint costs and also the average price percent change in consumption?

The first question.

Craig, so total raw material costs, as we broke out in our press release, was down about $4.7 million.

I would say about two-thirds of that was volume related and about one-third was rate related.

In general, on a year-over-year basis price per ton, which last year -- and these are RISI numbers.

We won't disclose our actual numbers, but it is a pretty good proxy.

The RISI number was 640 last year and they are off about 5% this year, so on the rate basis of about 5% lower prices.

What is your guys' outlook for newsprint prices for the remainder of the year?

It is hard to say.

Obviously demand continues to be an issue for manufacturers, but the supply issue some of the suppliers are continuing to manage aggressively output.

So I would say generally we think it is going to be somewhat benign.

The price decline from quarter one to quarter two went from like 3% to 5% down, but I think we would call for somewhat stable pricing off of the Q2 numbers for the remainder of the year.

Okay.

Then on the circulation side for print, what were the daily and Sunday performance there year over year for your flagship paper as well as The Globe?

Craig, it is Denise.

For The New York Times daily was down 6.3% and Sunday was down 1.7%.

And on The Globe daily and Sunday were down both in the neighborhood of 8%.

Okay.

Further -- given the $900 million-plus of cash on your balance sheet, Mark, can you just talk a little bit further about what you need to see here from your operations to make you more comfortable to put back in place a quarterly dividend, which obviously you guys got rid of back in early 2009?

What is holding you back here?

Because I get this question all the time from investors.

Particularly from analysts more than investors.

So the answer is you will recall in the last earnings call we said there were a number of factors we were looking at.

Volatility and we just -- Jim has just given you month-to-month numbers on Q2 which show the significant volatility as between Q1 and Q2 on advertising, which remains a very important revenue stream for us.

Volatility of performance in terms of ad revenue is a factor.

We have outlined -- I outlined in the last earnings call a growth strategy.

We are at work on that, but I would be the first person to say we are in the early stage in the development of the growth strategy.

Obviously more development there.

As the Company, as you know we are in the process of selling the New England Media Group and The Globe.

As we become a smaller company our obligations become larger, but clearly I am not stupid and I am aware of all the growing strength in the balance sheet.

And I have said today that we are going to keep this topic under very close scrutiny over the coming months.

My final question, if I could.

Denise, you guys mentioned about programmatic digital ad revenue being a large piece of your overall pie.

What is that percentage right now of your digital ad revenue versus, say, a year ago?

Craig, I am sorry, we have never said that programmatic is a large percentage of our business.

It is actually quite a small percentage of our business, just to clarify.

And we don't disclose the actual amount.

What we have said is that the broader pressures of programmatic as part of the broader supply and demand pressures are playing out and having an impact on our digital business.

But we -- there is one thing that is worth saying, however, is we have appointed during the quarter a new head of programmatic sales at The Times.

Certainly, both he and in particular our new Executive Vice President for Advertising, Meredith Levien, will definitely be focusing on how best to optimize the opportunities in the programmatic sphere as well as every other aspect of our advertising.

Great, thank you.

William Bird, Lazard Capital Markets.

Morning.

Was wondering if you could talk about what additional cost areas you are likely to attack next.

And how much of the $20 million to $25 million in operating losses in 2013 from new initiatives are still ahead of us?

Thank you.

The spending for 2013 is largely ahead of us.

We really haven't spent more than a couple million dollars against that.

A lot of that spending is around hiring; it just takes a while to ramp up.

But we think we are on track to -- we are on track on those projects and, therefore, I expect that money to be spent this year.

Obviously we will see meaningful pickup in spending and that is embedded in the guidance of kind of flat quarterly expense performance and this year we are down $14 million.

I'm not suggesting it is necessary $14 million, but it does grow significantly off of Q2 and then Q4 even accelerates beyond that.

But, look, we will see a lot of the same contributors.

Now some of the things we saw -- look, I think our core business likely -- on the cost side likely performs pretty consistent throughout the year.

Meaning a lot of things that have contributed to these costs will likely continue.

Some of the big numbers obviously; raw material that will continue.

Pensions was a pretty meaningful contributor in the quarter as well and that is a recurring issue we expect through the rest of the year.

Then once you get below that it has just been a long list of areas, everything from production efficiencies and distribution.

We will continue to focus on that.

And, quite frankly, part of the way we have reorganized where we have got kind of a dedicated head over print product and services, a big part of that job is to really wring out some real cost efficiencies out of the distribution manufacturing process.

So we think there is more to go there as well, but it is likely to continue to be a fairly long list.

The headcount side, our headcount was modestly down in the quarter.

We will continue to look at areas, but I think it is likely to continue to just be finding efficiencies wherever we can throughout the Company.

And that is consistent with what we have seen in the first half of this year.

And, Mark, you have alluded to a number of kind of strategic initiatives that will come later in the year.

Can you share with us what is on that punchlist to give us a sense of kind of upcoming events?

Sure.

So we have got four major themes.

Development of our advertising business in particular looking out and digital advertising really represents a fifth theme.

And Meredith Levien, who started on Monday, is going to be leading that work.

But our four growth themes are the development of new paid products and services.

Denise here is leading that work.

It is going well; it is an early stage.

We expect in the first half of next year to be rolling out a number of new subscription intended flavors, new flavors, new products in The New York Times as part of our efforts to exploit a broader part of the demand curve of proven and expressed demand for paid products from The New York Times.

As I mentioned in my remarks, the international strategy getting underway in earnest in the middle of October with the rebranding of the International Herald Tribune to the International New York Times.

And that is part of a broad attempt to solidify and unify our products and services internationally, both in print and in digital, on the web, apps, and indeed live conferences under single brand to find new audiences, new customers at The New York Times.

Special focus there on trying to -- just as with paid products, but this time internationally, to find new reservoirs of potential subscribers for The Times.

We are also working hard on video.

One of the stories in Q2 is of both a really striking increase, more than 100% increase year on year in video impressions for the Times, and also more effective monetization of those impressions.

But we are still in a position where advertising demand for opportunities for video advertising from The Times is outstripping supply.

Rebecca Howard, who we hired from AOL, our new General Manager of Video, again in Denise's division, is working hard on that strategic initiative.

I think making progress, but more on that I hope through the course of this year and into next year.

Finally, we are working on a series of brand extensions developing, we hope, a broader-based games business based on the franchise and indeed the consumer expectations associated with The New York Times crossword.

E-commerce opportunities and also as I mentioned trying to develop our conference business.

We have worked with this year having more conferences both at home and abroad than any previous year in The Times history, and we think there is a real opportunity to develop that as a business as well.

Thank you.

Alexia Quadrani, JPMorgan.

Thank you.

Just a couple of questions.

The first one following up on your commentary on the newspaper advertising trends there.

Can you give us some color of what you are seeing in July?

Does it look a bit more like June or the softness you saw in May?

When I talked about those trends saying that we were seeing strength in telecom, healthcare, and transportation, and more challenge in entertainment and American fashion, I didn't mention that is just in July a little minor variation there.

And media.

That has been the picture.

As I also said about July -- this is true on the digital side; I think there is some partly true on the print side as well -- is that there were some specifics around the Olympic Games, the London games last year which are non-repeating this year.

I would say that broadly, without going into too much detail, August is looking distinctly better than July on the print side.

And as I have said and the reason that we are being fairly limited in our guidance, we don't yet feel we have enough visibility into September to be able to offer reliable guidance at this stage about September.

And that is why we are limiting our guidance to the quarter to guidance, but we expect the out-term to be between Q1 and Q2.

Okay.

Then on the digital sub outlook, I understand your guidance for the upcoming quarter would be similar in terms of number of incremental subs.

But if you look longer term, should we be looking at sort of early 2014 or maybe even later in 2014 when you have these new initiatives in place as a reason for potentially seeing maybe a re-acceleration in the digital sub number?

Is that a fair statement?

Yes, Alexia; it's Denise.

I think that is exactly right.

The whole idea is that we are really launching this next phase of growth for our digital subscription plan and we do think that there is substantial growth to exploit along the demand curve.

But again, as you point out, we are going to start with rolling out those initiatives probably at the end of the first quarter of next year, maybe the beginning of the second quarter.

So you won't start to see the steady state of that until several quarters later, but we are excited about that and we think there is a lot of opportunity.

Then should we assume that incremental costs beside this $20 million to $25 million may be in 2014, or do think this initial investment really should be the bulk of it?

I think the costs go up because you are really -- most of it is concentrated in half a year, so you will have a full year of spending, and as I said just a few minutes ago, fourth quarter will be higher than third.

But we will start seeing revenue.

So I would say from a net loss perspective we begin to moderate pretty quickly and we see profitability in the latter part of 2014.

So we are at the high point of kind of net investment this year, but costs would be expected to grow off of this year.

There will be some ongoing costs associated with these products.

I mean obviously part of the idea of the products is as far as possible to exploit the underlying and existing and paid for high-quality journalism from the newsroom.

But there will be some ongoing continued costs associated with continuing to offer these products.

Sure, no doubt.

And just to be clear, there is not -- the costs we are spending this year is not highly kind of one-time costs.

I mean we do have one-time costs; some of those get capitalized, but there is a lot of people involved.

We have people in the newsroom involved.

We have ad sales people.

We have many technology people that will be hired and will support the ongoing product and probably products yet to be decided on.

Then just lastly, Denise, if you have any comments on the digital advertising outlook.

I mean should we just assume a low single-digit decline for now?

Is that sort of what we should expect in the industry for a while?

Alexia, Denise is not meant to be talking about advertising anymore because I have reorganized the Company.

Although, frankly, she could probably give you a better answer than me, I'm going to have a crack at it instead.

And say, no, we are in the process of developing and innovating, we believe, in what we are doing in terms of mobile digital advertising.

We saw some good growth in Q2 there.

You have heard me talking about video.

We have got a new Video General Manager.

We are making real strides, albeit on a very low base in terms of both numbers of impressions and also the monetizing of those impressions.

We have got a new Executive Vice President of Advertising who has arrived this week.

And we are very keen to improve the performance of The New York Times Company in digital advertising and I absolutely do not think that we should be satisfied with a continued contraction of digital advertising revenue.

We are looking for solutions and that is an area which we want to restore the growth.

Thank you very much.

Kannan Venkateshwar, Barclays.

Thanks.

Just one question from me, which is the circulation numbers on the Sunday side for you have been consistently improving, especially Sunday home delivery.

But we haven't really seen any affect of that on the ad side.

And given that Sunday accounts for a big proportion of all of the print ads, what is keeping that back?

Here is what I would say; that there is not a direct one-for-one correlation between circulation and advertising to be quite frank.

By the way, the good news for us is on the circulation side we make quite a bit of money from circulation, because we charge a premium price for a premium product.

So I would say that is really the answer to that is it is not just that one-for-one.

We don't sell, for example, like a magazine or even a television program where you are guaranteeing necessarily a rate, so I think that is probably the biggest --.

Though I want to say within that it is interesting; I mean we have over the course of the calendar year relaunched T Magazine, which is part of the Sunday offering with a genuinely brilliant editor, Deborah Needleman.

Both reshaping it editorially and also making it, I think, both a great read for fans of the magazine but also a great advertising platform for luxury goods.

What we are seeing on T Magazine is very significant year-on-year increases, both in ad pages and ad revenue.

I think the combination of the digital access arbitrage which made Sunday home delivery so attractive to consumers, the relative stability of the Sunday numbers, I think it has been -- possibly defensibly, but nonetheless I think it's very effective in terms of making The New York Times on a Sunday to include these magazines, a very strong potential buy for advertisers.

Okay.

And so one more question on video side.

You guys launched your first documentary recently.

So in terms of monetization could you just detail for us in terms of the opportunities out there and how you think the revenue line might look for the video product going forward?

I am going to give you, I am afraid, a kind of soft rather than a hard answer on this.

But we are starting from a relatively low base and a relatively low base of expectation from users NYTimes.com and our other digital assets, all videos and The Times.

But I think there are really quite encouraging signs over the last nine to 12 months that when we do get video right, be it a news feed for a big breaking story, some of the video used in the election campaign, the video included -- not all monetizing, must be said -- during the Boston bombing, or the video around stories like the selection of a new pope, we did well there.

I think the partnership I mentioned with Retro Report aggregation of other high-quality video was successful.

I think use of video in the multimedia story Snow Fall at the end of last year are all examples when we get it right it can be very eye-grabbing.

What Rebecca is now leading work on now between the newsroom and the business side of New York Times is an integrated programming strategy for video.

And although currently the numbers for revenue in video advertising are very low, the extraordinary rates of increase -- 600%, 700%, 800% in some months of increase in revenue --and the creative potential and the appetite for advertisers means I think that in due course the opportunity could be very large indeed.

Over time we expect, because we are not the only publishing house interested in video; most of the world's content players are thinking hard about video.

We expect [CBM's] video to come down.

But the appetite specifically from advertisers for opportunities to do video advertising on The New York Times are so great that we think our chance that we have to grow our share of the video ad market is large indeed, even if rates over time come down.

Okay, thank you.

That does conclude today's question-and-answer session.

Ms. Schwartz, at this time I will turn the conference back to you for any additional or closing remarks.

Thank you for joining us today.

We look forward to speaking to you again next quarter.

Ladies and gentlemen, this concludes today's conference.

We thank you for your participation.

You may now disconnect.