New York Times Co (NYT) 2019 Q1 法說會逐字稿

Good morning, and welcome to The New York Times Company's First Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Harlan Toplitzky, Vice President of Investor Relations.

Please go ahead.

Thank you, and welcome to The New York Times Company's First Quarter 2019 Earnings Conference Call.

On the call today, we have Mark Thompson, President and Chief Executive Officer; Roland Caputo, Executive Vice President and Chief Financial Officer; and Meredith Kopit Levien, Executive Vice President and Chief Operating Officer.

Before we begin, I would like to remind you that management will make forward-looking statements on -- during the course of this call, and our actual results could differ materially.

Some of the risks and uncertainties that could impact our business are included in our 2018 10-K.

In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com.

With that, I will turn the call over to Mark Thompson.

Thanks, Harlan, and good morning, everyone.

Well, another encouraging quarter.

In the first 3 months of 2019, we saw continued healthy growth in digital subs as well as further vindication of our distinctive approach to digital advertising.

Demand for our Crossword and Cooking products was also very strong in Q1.

I have some news to share this morning about our very latest product launch.

And we're in the final stages of preparation for the debut of our new TV program, The Weekly.

But let me begin with journalism.

Last month, The Times won 2 Pulitzers: one for our explanatory reporting for Susanne Craig, David Barstow and Russ Buettner, 18-month investigation in Donald Trump's family wealth; and one for our brilliant editorial writer, Brent Staples, who won The Times' first Pulitzer for editorial writing in 23 years.

We also shared in the Pulitzer awarded to ProPublica's Hannah Dreier for feature writing.

Hannah's award-winning work was featured in The New York Times magazine amongst other outlets.

These are only [3 of big]dozens of awards our journalists have won over the past 12 months.

The mission of this company is to deliver great journalism to the world.

We attribute the recent success of our digital strategy to the fact that this mission drives everything we do, including our investment decisions.

At nearly 1,600 people, our newsroom's the largest it's ever been, and we plan to expand it further over the course of 2019.

Investigative journalism remains a particular priority.

Original Times investigations drive user engagement and digital subscriptions, but they also drive America and the world's agenda.

The Mueller Report was released last month, and it cited The New York Times more than any other news organization, indeed more than 100 times, confirming both specific episodes The Times revealed and the broader portrait we painted of how The White House operates.

Indeed, as recently as last night, we published yet another breakthrough story about Mr. Trump's taxes in the 1980s and '90s.

But let me now turn to our results in the quarter.

In Q1, we added 223,000 net new digital-only subscriptions, of which 144,000 were to our core news product.

That took the company's total number of subscriptions to 4.5 million.

For the first time, digital-only subscription revenue was more than 1/4 of total company revenue.

Looking ahead, we expect that -- as in previous years, we'll see a seasonal dip in the rate of sub growth in Q2, but we remain bullish about our ability to build on our present momentum in subsequent quarters.

Over the coming months, you'll see us make some changes to our pay model.

We don't have any details of these changes to share with you this morning beyond saying that they're based on extensive testing in the U.S. and other markets, testing which has given us real confidence that we have the scope to accelerate digital subscription growth even further.

I also want to call out the progress we're making with our Crossword and Cooking products.

This quarter, the Crossword product passed the 500,000 total subscription mark, which makes it, in its own right, the fifth largest digital subscription product from a U.S. news provider.

Cooking is also scaling rapidly and indeed continues to beat every internal forecast we set for it.

Meanwhile, today we launched our latest new product, Parenting, in beta.

Made by parents for parents, this new product brings trademark Times' authority, authenticity and edge to one of the most critical parts of many of our users' lives.

We're very excited about it as we are about The Weekly, our new TV program for FX and Hulu, which launches in less than 4 weeks time.

I mentioned that we've had another very strong quarter in digital advertising.

Revenue grew 19% year-over-year, with growth coming increasingly from directly sold inventory, in particular related to the large-scale commercial partnerships we're securing as well as from our podcast and marketing services.

As you'll hear, we expect the strong growth to continue in Q2 aided in part by comparatively [easy] comps with the previous year.

Our digital advertising strategy is unique in the market and it's working.

Print advertising, by contrast, fell by 12% year-over-year, a return to familiar and somewhat deeper declines after the more moderate trends we saw in second half of 2018.

Total advertising revenue was flat.

Revenue from print subscriptions also fell slightly in the quarter, this time more in line with recent quarters.

The good growth in digital revenue more than compensated for print decline, and total company revenue grew by 6%.

Although costs were a little lower than our first quarter guidance suggested, total operating costs was still 7% higher than a year ago.

These higher costs, largely attributable to the additional investment we're making in our digital business, meant that despite the increase in revenue.

Adjusted operating profit fell from $55 million in Q1 2018 to $52 million in 2019.

We expect costs associated with this investment to remain elevated in subsequent quarters.

But let me now hand over to Roland for more detail on our results.

Thank you, Mark, and good morning, everyone.

As Mark said, this quarter represents another strong result and solid progress for the company.

Adjusted diluted earnings per share was $0.20 in the quarter, $0.03 higher than the prior year.

We reported adjusted operating profit of approximately $52 million in the first quarter, which is lower compared with the same period in 2018 by approximately $3 million.

Total subscription revenues increased 4% in the quarter, with digital-only subscriptions revenue growing 15% in the quarter to $110 million.

On the print subscription side, revenues were down 2.5% due to declines in a number of home delivery subscriptions as well as a continued shift of subscribers moving to less frequent and, therefore, less expensive delivery packages.

This decline was partially offset by a home delivery price increase that began early in the year.

Total daily circulation declined 8.6% in the quarter compared to the prior year, while Sunday circulation declined 6.4%.

Quarterly digital subscription ARPU declined approximately 7% compared to the prior year and approximately 3% compared to the prior quarter as a number of newly acquired subscribers on promotion was significantly larger than the number of existing subscribers whose promotional offers ended and graduated to full price.

This downward pressure was magnified by the $1 per week promotion offer which was in market during all sales periods in the quarter.

We expect that the more aggressive promotional offer, which resulted in strong net subscription additions in the quarter and other promotional tests, will continue to put downward pressure on ARPU throughout 2019.

Total advertising revenue was flat compared to the first quarter of 2018, with digital advertising growing 19% and print declining by 12%.

The increase in digital advertising revenue was largely driven by growth in direct-sold advertising on our digital platforms, including revenue sold against our podcasts.

The print advertising result was mainly due to declines in the studio entertainment, luxury and financial services categories, partially offset by growth in packaged goods, technology and education.

Other revenues grew 56% versus the first quarter in 2018 to $43 million principally driven by growth in our commercial printing operations from the Newsday suite of products and from additional floors of rental revenue from our headquarters building, both of which will begin to and move -- begin to anniversary next quarter.

GAAP operating costs increased 7%, and adjusted operating costs increased 8% in the quarter.

Costs grew primarily as a result of marketing expenses to promote our brand and products, expenses associated with our growing commercial printing business and continued investment in the newsroom.

Although costs grew slightly less than we predicted, we remain committed to scaling our digital consumer business and expect spending to continue at elevated levels in subsequent quarters.

Our effective tax rate for the quarter was 4%.

The low rate was primarily a result of a tax benefit from the impact of stock price appreciation on our equity-based compensation that settled in the quarter.

We expect the effective tax rate for full year 2019 to be between 20% and 25%.

Moving to the balance sheet.

Our cash and marketable securities balance decreased slightly during the quarter ending at $809 million.

Total debt and finance lease obligations principally related to the sale-leaseback of our headquarters building, which we expect will be repaid in the fourth quarter of 2019, were approximately $255 million.

Let me conclude with our outlook for the second quarter of 2019.

Total subscription revenues are expected to increase in the low- to mid-single digits compared with the second quarter of 2018, with digital-only subscription revenue expected to increase in the mid-teens.

Overall advertising revenues are expected to be approximately flat compared with the second quarter of 2018, and digital advertising is expected to increase in the mid-teens.

Other revenues are expected to increase approximately 35% largely due to the growth in our commercial printing operations and the debut of our television show, The Weekly.

Both operating costs and adjusted operating costs are expected to increase approximately 8% to 10% compared with the second quarter of 2018 as we continue to invest in digital subscription growth drivers, our journalism, product and marketing.

And with that, we'll be happy to open it up for questions.

(Operator Instructions) Our first question today will come from John Belton of Evercore.

Just wanted to ask a little bit about your international subscribers, maybe an update on what percentage of your base is coming international -- is now made up of international?

Any markets that have been particularly strong?

Any way to quantify the impact it's having on ARPU?

And then finally, if you saw the story yesterday that Amazon may be considering [arrangement] with a fund international operations for publishers like yourselves, any thoughts you have on that?

I will answer on the Amazon question.

But first, Meredith, do you want to talk about international subscriptions?

Sure.

I think it now -- international now accounts for 16% of total subscriptions, still growing at a rate slightly faster than domestic, but only slightly.

We're coming up on a year of renewal for beginning more aggressive price testing internationally and that's going quite well.

And as to market, we have been focused primarily in English-speaking markets outside the U.S., like Canada, Australia and the U.K. and those continue to be strong markets for us, though I would say we're seeing more diversity around the rest of the world as well.

So it's a fairly diverse audience in terms of other countries beyond those 3 English-speaking markets I mentioned.

Okay.

So I saw the story yesterday about Amazon.

Two things: Firstly, it was a story principally focused on Wirecutter, our consumer testing sites, and the story said that -- claim that Amazon have been approaching a number of such publishers proposing to help investment in international expansion of these services.

We straightforwardly don't comment on conversations with partners.

What I will say about Wirecutter specifically, again, we're very pleased with its progress.

Didn't choose to focus on it this quarter, but it continues to perform extremely well.

We do have some international licensing of Wirecutter content.

And over time, we will, I think, definitely consider whether there are ways of building an international business for Wirecutter alongside its growing and very successful domestic business.

But I want to say that's separate from the story, and we simply don't comment on such stories.

John, on the ARPU question, it's -- the international is not a significant pressure on ARPU, though it does have a bit of a dilutive effect.

It is clearly not the primary driver in the period.

The next question will come from Doug Arthur of Huber Research Partners.

Meredith, when you look at this table that breaks down print and digital by display and other, you continue to have very elevated growth in sort of digital other.

So is that mostly referral and affiliate revenues, or is that video?

What's driving that?

I know it was up strong in the fourth quarter, it's up 68% in the first quarter, so smaller component...

Yes, sure.

I'll answer, and Roland, if I'm missing anything, just to how we -- how you characterize things your way in.

I think the biggest driver there is probably audio, so advertising revenue from podcast, which continues to be a big and fast-growing business for us.

The Daily is the main driver there.

And The Daily has up to 2 million listeners a day.

It comes out every weekday, so it is a really big ad product.

And as audience grows for it, ad revenue grows for it, and then it's very, very well sold through.

I also think in other, we have marketing services.

And I would say this past quarter was a very brisk quarter for marketing services, so that -- the combination of business we drive from big Globe, HelloSociety and our original T-brand business, which is essentially making content for marketers who are driving original ideas through those services is also going very well.

Roland, I think that's everything I had.

Yes.

You had it covered.

And the one thing I'd add is that we are really very excited about the -- both the creative potential of podcasts at The Times Journalism, but also for a commercial prospects for the near-term advertising opportunity and medium-term subscription opportunity.

And I think in subsequent calls this year, you'll likely to hear us talking about plans for expanding our cost spend commitments.

Yes.

And I'll just add there.

In the current quarter, we launched more aggressive advertising for The New York Times in The Daily and that is working really well.

So we've got a series of new ads actually from Daily producers about the work of our -- how we go about the craft of journalism, and they're doing really well, and it's helping sort of connect Daily listeners shift to the funnel for general New York Times for new subscription.

Great.

And then just 2 quick follow-ups.

I know you're in beta on Parenting, but can we -- assuming that goes well, can we assume that the price points on that potentially will be similar to Crossword's?

And I can -- blanking on the second one right now, but...

Cooking and Crosswords.

I think we're not at the -- yes, yes.

For cooking.

Thank you.

Senile moment once again, but [indiscernible].

Don't blank.

Don't use it.

Yes.

I'll say we're not going to comment on where we'll set the price at this point, but we are incredibly excited about the launch.

And today is launch day, and I'll just say I think this is a space where we saw a real market opportunity that gives value to new parents in a way that isn't being fulfilled by other media companies, and particularly by other subscription services.

So we're very optimistic about Parenting.

And the -- the best early signal we have is, we launched a newsletter, weekly newsletter for Parenting, I want to say, 5, 6, 7 weeks ago, and we've already crushed our expectations on just people signing up to get the newsletter and then actually engaging with it from week to week.

And that is already -- in Cooking, a lot of the early success on Cooking was driven by very successful Cooking newsletter, and we are already well ahead, 5, 6, 7 weeks in to the Parenting newsletter than where we were for Cooking.

At the same time, and I think just generally, we are -- this is our third adjacent product to core news, and so we're just -- you know we're better at it than we were 4 years ago when we started it.

Okay.

And then finally, Mark, obviously, we're now at the launch point of The Weekly.

It's been discussed for quite a while now.

I know the costs are pretty much covered.

Is there any way you can sort of size what the financial impact will be of The Weekly for the rest of the year?

I want to say just the one piece of guidance I will give you is that the costs are fully covered.

We expect that this will be not greatly but will produce a contribution margin this year.

But the key thing in this with this first year is proving out our ability to turn Times Journalism into a great TV program in terms of quality and to find an audience for it.

So we've now seen quite a lot of videos, I think I'm a TV guy.

I think it looks very exciting, very encouraging, so let's see how we do.

But it will add both to the revenue and the cost line in ways which I think will not, in terms of adjusted operating profit, make a significant difference.

If it does make a difference, it will be to the good not to bad.

I'll make a comment about the sort of medium and long-term impact that we expect to have from The Weekly, which is similar to the impact we've had from The Daily, which is helping us take a bigger position in many more peoples' lives.

And I'm quite optimistic about that.

I think that's going to take a while to bear fruit.

But as I just mentioned, The Daily is now really beginning to drop new people into the subscription funnel for our core news product, and we expect that The Weekly should have a similar effect.

And I'll just echo what Mark said.

The episodes we've seen, we are incredibly excited about and can see it having the effect of just making people more interested in journalism and wanting to learn more about the particular stories that we're featuring.

Yes.

The total value to the enterprise from The Weekly we expect to surpass what the kind of pure accounting just on The Weekly by itself will yield.

But we do expect it to be positive but not enough to reshape our bottom line.

But again, that's not really reflective of the real value to the organization.

The next question will come from Alexia Quadrani of JPMorgan.

Just on the sort of the nonnews digital subscribers, going back to that Crosswords and Cooking have done extremely well in terms of subscriber adds.

Can you elaborate how we should think of those businesses in terms of, is there a lot more room to grow or is the incremental growth coming from the new verticals, like the Parenting you referred to?

I'm trying to get a sense also about profitability.

If you can talk generally about it?

I assume the cost structure is less than news side.

Is there any color you can add?

So just broadly, I'll answer the question about are we -- where are we in the current curve, and I would say still early in both Crosswords and Cooking, earlier in Cooking, but let me take each of them.

In Crosswords, one of the things we're most excited about is that we are driving a lot of the growth by being able to unlock existing value -- putting in value into the product.

So for example, in, I think, the fourth quarter, and again, in the first quarter, we put new games out in beta.

There was a game called Spelling Bee and there is an even newer game called Letter Box (sic) [Letter Boxed] that people are loving and playing very actively and that's having a very positive effect on starts on uptick.

So just the idea that there are sort of more puzzles and games for the kinds of people who like crosswords, we've got a lot of optimism about running them there, and we've got a really talented team of people who are very active in thinking up and getting ready to really test and release new games.

So I think there's a lot of promise in that.

I think there's also promise in just some of the value working Crosswords itself.

So one of the things we're working on this quarter is Leaderboards, which most games have, where you can sort of probably show your score to others and get others engaged, and the fact that you're playing, and I think over time you'll see us do more around community and collaborative play.

We've barely touched that, but there's real opportunity there.

I'll also say on Crosswords, we launched our first, what I would call, middle funnel, so not just direct-to-consumer marketing effort in Crosswords, I think late in Q4, early in Q1, and that's been really generative for the business and modest as far as expenditures, so I'm excited about that.

And I would say all of the same is true for Cooking, and it's just worth pointing to Cooking as a less mature product.

So you could argue there's even more running room there, and I would say that's some of the basic stuff, like just more valuable recipe as we had a really big hit, I think, it was in the first quarter, Sam Sifton's no-recipe recipes.

That's just gotten a ton of traction, and you could imagine many more things like that.

We've got a newsletter on weeknight meals.

So it's like just at the beginning, but getting a ton of traction.

And then the thing I would say, we're not great at yet in Cooking, and you're going to see a fair amount of product work in the next -- in the coming year on this, is actually using the -- getting people to use the product while they're cooking.

And we see a lot of room to improve there.

And then the last thing I'll say is, as with Crosswords, marketing in the middle and arguably for Cooking at the top of the funnel, just being able to use paid marketing to create demand, is also having a very positive effect.

We really exceeded our own expectations in the first quarter on both businesses, but particularly on Cooking, we think marketing played a role.

And I'll just say because you're asking about the profitability, we're finding we can spend relatively modest sums of money to drive a lot of marketing energy and demand creation on both products.

I just want to say, Alexia, that the total economic value of these platforms, also you should also think about synergies via bundling, via the fact that both Crosswords and Cooking provide significant, very valuable content back into our core.

I'd just take a single example, the mini Crossword as a habituation tool in -- on our smartphone news product has been really valuable.

You should also think about how these products relate not just to the core, but to Wirecutter, something we haven't yet fully developed is the addition of Wirecutter, a product, a review and recommendation [lair,] which certainly, that doesn't really have a relevance in Crosswords, but in Cooking, we think could be really quite interesting.

And similarly with Parenting and in the other products, there are more products as it were potentially to come after these ones.

So our strategy is for products which make a lot of sense as commercially as standalone products, but which can both work with each other and also work with the core to build a kind of constellation of products, which are worth more than the sum of the parts.

I'll add 2 more things to that.

It was nice to see both in the fourth quarter and in the first quarter all 3 products doing quite well, so you know exceeding growth expectations on all 3. And I would say that we're clearly proving out that we can do that with no product sort of coming at the expense of another, which I think speaks to a very broad audience of people for whom The New York Times doesn't yet play a meaningful role in their life and actually a real opportunity there.

And the related thing I'll say and something that we usually get asked about on the call and that I'm excited about is slow moving, but we are seeing over time, the total audience and subscription base for The New York Times becoming younger and more female and more from the center of the country.

And I think products like Cooking, Crosswords, other games, Parenting, all contribute to that effect.

And can I just ask that marketing, that you brought it up a couple of times.

I understand marketing spending's up this year, but could you dissect it a bit?

I mean, how much is really -- how much does the promotional spending fit into that mix?

And I guess more specifically, how reliant -- and I know there's a lot of components, so it's probably not an easy answer, but how reliant are you or maybe how successful is a another way to put it, are you on the promotional spending driving the sub growth?

Yes.

So let me tackle that broadly first, and then get at the second question.

Roland, you should fill in any gaps I have here.

But I think in general, the story on marketing for the last now 2.5 years has been going from complete expenditure -- total expenditure on direct response to spending more, but spending across the whole of the funnel and really quarter-over-quarter shifting more and more of that mix to the middle and the top of the funnel.

And I would say now that is the case across core news and Cooking and Crosswords.

Obviously, it's -- we spend much more significantly on core news, but the pattern looks similar.

And just to say what I mean on that middle of the -- bottom of the funnel is traditional direct response.

We've got a promotion, we're trying to convert through that ad, to get somebody to buy a subscription.

What we're doing more and more of it in mid- and higher-funnel work, and we would say middle funnel work is getting people to move up in meter count, so you've seen these kinds of stories, can we get you to see other kinds of stories, it's getting people to engage in behaviors that we know contribute to a relationship with The Times and ultimately a subscription, but over a longer time horizon.

So what is that that's getting people to register and come back and log in, that's getting people to download the app or to sign up for an e-mail?

And I would say that's all middle funnel work, where you've seen us being more active.

And then I want to say we're very excited -- we continue to be very excited about and proud of the work we're doing at the top of the funnel, both in core news and now more recently in Cooking where we have released a television commercial, and that work is really about sort of the longer-term effect of demonstrating to people how our journalism or our Cooking product is both different and worth paying for.

And I would say we look very closely at the return on the whole on the whole of our media mix across the funnel.

And while middle of the funnel takes longer to pay back than the bottom of the funnel and the top of the funnel takes longer than the other two, we are pleased with what we see in terms of payback.

And I think over time, you'll see that pay back particularly as we move up the funnel even more.

The second thing I'll say, which is your second question, is how should you think about it over time.

We have been saying on this call and very broadly and inside the building that the most important commercial work we're doing now is to get the product itself to be the primary engine and a far better engine of getting people to form a habit and ultimately pay and stay with us.

And by that, we mean doing the work on shipping software that helps people discover the content that's going to have the most value to them and want to come back again and again.

And I think as time goes on, I think you'll see us get better at that.

We've already gotten a bit better at that, and I think we have a lot of room to get a lot better at that.

And ultimately, that means that your marketing gets more efficient because you've got a better engine in the product itself to convert people and to get them to form a habit, pay and stay.

The next question will come from Kannan Venkateshwar of Barclays.

So just a few from me.

I mean the first question, I guess, is as you go into the rest of the year, you will start lapping promotions from last year.

I mean the first set of promotional cohorts that came in I think in September.

So just wanted to understand how you're thinking about that transition because obviously some of these subscribers will get stepped up quite substantially.

So what's the plan essentially to manage churn on that front?

So -- and it's worth saying, Kannan, that we had some promotions similar to the domestic promotion from September internationally before then, and we're already kind of further advanced with -- in some territories around the world.

Well, I mean, firstly, I want to say we're 3 months on since the last earnings call.

I can report again that we're seeing a very good retention for these cohorts as they mature through that first year, and I want to say there's nothing in the behavior we're seeing which looks different from earlier cohorts who have retained well.

We are doing exactly what you think we're doing.

We are developing tactics, and we'll be as well ready as this group migrate to tend to make intelligent decisions about what's the best way of treating each subscriber.

We have some tests out in the market.

And to state the obvious, this is the very significant -- $1 a week domestic offer is new.

And to some extent, not just you, but we are also going to get through the process of a year's anniversary, and we'll find out in the real world how that plays out.

But we're I think going to be very prepared.

We've done a lot of testing already and lot of thinking about it.

And I would say that as things stand currently, we've got no reason to be anything other than confident that we can handle the year maturity of this cohort effectively.

Meredith?

I think that's right.

I'll add 2 things.

We had a very large number of people on 50% off promotion, so that's the election of 2016.

And did a ton of careful work to test our way and to figuring out the best way to step those people up to full price and sort of exceeded all our expectations in doing that.

So we've done a version of this before.

The other thing I'll say is we really advanced, and still have a lot more room to go, but really advanced in our understanding of what engagement behaviors correlate to renewal and to return, and we are both better at how to stimulate those engagement behaviors far better than we were, say, a year ago or 2 years ago, and better at propensity modeling to know how to treat someone stepping up in full price.

So just giving a little more detail around what Mark said, but I'm broadly optimistic.

And it's worth saying we are a year in on having done this internationally, and we're not seeing anything other than what we would expect and hoped to see in terms of those renewal rates.

That's great.

And the second question is I guess when you look at the promotional structure right now, you have a $2 per week promotion beginning of the month and I think that moves over to $1 a week later in the month.

And I think, if I'm not wrong, this has been around now for at least 2 quarters.

So compared to the beginning when you started this plan versus now, are you seeing people basically wait longer in order to get the $1 offer versus maybe the first time you launched the offer when people were on the $2 plan?

So how should we expect that transition to play out and the impact on ARPU going forward?

I mean I have to say -- state the obvious, Kannan.

We appeal to thoughtful, intelligent people.

We always have the experience.

I mean literally going back to the opening months I think of the pay model, that consumers are smart about thinking about sale periods.

I mean -- and the other obvious point is that at the beginning of every month, people, on average, will have a nil or low story count.

And as the month progresses because the meter resets at the start of each month, as the month progresses, the story count goes up.

Our sales have been -- or our kind of special offers have always been timed to the latter part of the month because that is the time when it is most likely that people are repeatedly hitting the pay gate.

So the basic pattern of many of the digital ads in a given month coming in the second half of the month and indeed in the closing days of the month is that established pattern has been pretty much, certainly since I've been here, which is late 2012, early 2013.

Yes.

The 2 things that I think were -- the 3 things actually that we're getting better at sort of day by day our propensity modeling to understand how to present offers to people.

So based on what we've seen from their engagements so far, what's the offer they're most likely to take, and that means that, that has a positive effect on conversion.

The second thing that I would say we're getting better at is literally just how we articulate the offer itself.

So 2 days -- $2 is not always articulated that way.

There are other ways to present and articulate it, and I think we've still got some running room in optimizing just our messaging there.

And then Mark alluded to this, but I'll say even more directly, we're getting better at sort of managing the right cocktail of flexing the meter up and down as we [did this] as well.

So for example during the 2-day period around World Press Freedom day, which I think last week, we opened the meter to encourage people to come experience our journalism and then we tightened it back up at the end of that.

And just actually being able to do all of those things together and in concert and understand their collective impact is something we've gotten better at and, I think, can continue to get better at.

And then one last question for me, which is all these new products, which is Cooking and Parenting and Crosswords, for example, the subscribers who are coming in on these products, are these new subs are also adding on additional products, or are these just completely new cohorts that you're bringing into the ecosystem?

And how successful have you been in migrating them up to the news product if it's the latter group?

Yes.

I think it's a mix of things.

I would say in Cooking, we are generally pleased to see that we're bringing a lot of new people into the mix, and we are barely scratching the surface and cross-promoting the rest of The New York Times and think there's real running room there both in bringing in many more new people and also getting them into other Times products.

In Crosswords, they're slightly to somewhat more likely to be existing Times customers, so some of the point Mark made earlier about thinking that this is a holistic bundle and winning more share of wallet from people.

So just as an example of that, one of the best channels we have to get people to buy Crosswords is when they have bought the core news product so -- and fairly close in that time.

But I think we see a lot of opportunity to cross-promote across products and into the core and also an opportunity to bring new people into The New York Times.

Yes.

It's also worth always remembering that by far the biggest source of new subscribers to The New York Times is our core news product.

Exactly.

They're very far from saturation but this product is growing right now stronger than in most of the time we've had a pay model, other than this Trump bump.

It's -- and that dwarfs, although we're very, very pleased to get new subscribers from the new products, we're also very happy when we upsell the new products to existing subscribers.

Our biggest source of new subscriptions remains the core news product.

And at this point, we don't imagine that changing.

So we intend for and expect for that to continue to be the dominant product and a growing one.

The next question will come from Vasily Karasyov of Cannonball Research.

I have a clarification and a question.

Mark, in your prepared remarks you said that in Q2 because of seasonality, you expect a softer growth rate, I believe.

Can you please specify you're talking about growth rate of the subscriber base or sequential decline in net adds?

And are you talking about the old digital subs or new subscribers?

And I think you talked about reacceleration that you expect after that.

I don't think I want to say much more than I was referring to the number of new subscribers, principally thinking about the core news products.

I don't think we have enough information to be sure about seasonality in the other products, so there is some seasonality in Cooking as well.

So this was suggesting a reduced growth rate.

In common with previous years, nothing -- there's no more to -- because Roland gave you actually precise -- or more precise guidance on the revenue side from this.

This was simply saying that something, which, I think people, who follow us, are very used to of Q2 being a more muted quarter for digital ads than the other 3 quarters, we're simply saying no more than we expect that seasonal pattern to continue.

It doesn't mean by the way that we're suggesting we're going to go in reverse.

We'll still end up with very significant number of net new subscribers.

It's just that Q2 in '19 we think is likely to resemble Q2 in '18, '17 and previous years.

It's worth adding the detail there that it is always a much slower quarter for student subscription, which still play a meaningful role, and it's -- we always see just a bit less demand in the second quarter.

Okay, interesting.

And then I have a multipart question.

If I look at the release on what you guys said in your prepared remarks, so we see marketing spending still growing, but came in below expectations.

And then in your -- in the release you say that you continue to optimize the business in order to get to the 10 million subscriber target by 2025.

And also at the same time, I believe this is the first time when the new subscribers went down sequentially in Q1 versus Q4.

So will it be fair to say that you may be seeing sort of less returns on the marketing spending, and now you believe that the next growth in new subscribers will be through product improvement and optimization, like technologically, the interface, search function, multimedia?

So can you give us an idea where you think we are in terms of what's driving subscribers?

I will start.

I just want to make -- I'd like to make clarification, which is we didn't say that our marketing costs came in under expectations.

We said our total costs came in under expectations.

So that -- so right there, I think you want to understand that fact, not that it was marketing.

And I think Meredith actually answered this question earlier in the call very well when she discussed the types of levers we're looking at in terms of our product that we believe over time, not immediately, but over time will start to feather in and start to change sort of the ratio or the gearing between our marketing spend and our spend on product and the results we get from that.

So maybe Meredith can [indiscernible] on some of that.

Yes.

I'll just say the simple way to say it is, we have 130 million or 140 million people who come to us every month, and only 4.5 million who pay us, and there is a giant opportunity on our -- of web story pages, on desktop story pages, on our app to actually make our own platform through features and value, just a better engine of what gets people to form a habit, pay and stay, which over time should have the effect of lifting conversion, lifting engagement -- lifting conversion and engagement while sort of optimizing for audience.

And that means either over time, your marketing spend gets more efficient or you are able to spend more at the top of the funnel for the longer term or potentially you do less of it.

And just to reflect on the Q4/Q1 point you made, it's worth remembering that Q4 was a pretty exceptional news quarter, not least with midterm elections.

I don't regard the comparison between [172] or whatever it was and 144 as being significant in terms of the overall track of the model.

The next question will come from Craig Huber of Huber Research Partners.

I want to ask a question, quick question here on the cost, if I could first.

If we take out marketing costs in the first quarter, what was the percent change year-over-year for the remaining costs, please?

I guess if you also take out the commercial printing new contracts there?

Well, if you start here, if you just look at that production costs right because marketing's in SG&A, so if you just look at our results on production costs alone, you would see it was up about 8.9%.

About half of that was due to commercial printing, which we are at full bore in Q1 of '19 and has not started up yet as of Q1 of '18.

Okay.

Then what about the SG&A line.

And if you take out marketing there, what's the percent change there, please?

It's basically all marketing.

So basically flat excluding that, okay.

That's helpful.

And then switching over.

Your podcast at Daily with roughly 2 million listeners, and so I'm just curious how successful you've been here monetizing those folks, basically upselling them to buy your digital products, the news-only product in particular?

It seems like a big opportunity long term for you guys.

I would agree it's a very big opportunity long term.

Mark alluded to that before.

I think it's a successful and growing ad business with the potential to be even more successful kind of in year and over time, but probably in the long view, even more important as a driver of making our journalism taking a role in peoples' lives and ultimately getting them into our subscription funnel.

And I'll just say the thing that is remark -- I mean there are many remarkable things about The Daily, but at 2 million daily listeners, it's more listeners than the weekday paper ever had subscribers, which is kind of in and of itself, we see the audience is substantially younger, more likely to be female.

I think 75% of them are under 40.

And the listen-through rate, I'm sure there's a more technical term for that, is amazing.

So most people who listen to The Daily listen to the whole daily and so we would be...

Which is essentially 20 minutes of engagement on a smartphone is an astonishing number.

Anyone who looks at smartphone engagement and duration, an astonishing amount of time to have someone's attention from a smartphone device or indeed one of the in-home Echo or Google Home devices.

And the other -- so I'll tell you the ways we are beginning to -- you've seen us publicly begin to leverage The Daily more effectively and that will give you a sense of what we might do over time.

One, it is the parent of other programming that really becomes -- it can become a hit quickly.

So we launched the Caliphate series, which is both kind of critically acclaimed and also successful as a commercial product, which was our series with Rukmini Callimachi, following ISIS and terrorism broadly.

That was a special series that was launched in feed of The Daily.

And because we were able to call attention to it from The Daily and then of course because of the quality, we're so good at -- it's made by the same team that makes The Daily, that's a good representation of what you could imagine us doing with other shows.

And then I mentioned earlier, but it's worth saying again, we've begun -- The Daily is very successful paid ad product with even more room to be successful in here, but it is also proving to be a successful place for us to run our own ads that help people understand how the journalism that we do at The Times is different and worth paying for, and the spots that you listen to them for our own products really about the craft and they're done by The Daily producers, and I think the container of The Daily is like a uniquely good place to be able to extend that message, and we're super excited about that.

And I would say all of this is like just at the beginning.

The last thing that's worth saying is that the use case for audio journalism is giant.

If you think of all the things that people can -- the places or spaces in people's lives where they can listen to quality journalism versus read or watch it, we just think it's a giant use case.

And then also the age-old question here, is your company giving away too much of your content away for free?

And I want to ask along that line, Meredith, did you -- is there any talk, internal talk about tightening up your paywall further here and/or starting to ask people to register to be on your news website, for example?

I know you talked about this in the past, so where is that sort of discussion at now, please?

I mean I would just broadly say the level of influence that The Times have been able to achieve for its journalism is, first, because of the quality of the journalism and how different it is sort of in some from everything else out there, but it is also because we have been deliberately porous in our model.

And for mission reasons and to continue to see that we can create demand for that kind of journalism, I expect we will always have porosity in the model.

We've been very aggressively testing all different kinds of things related to the pay model, many of which you would have been able to see in the first half of this year so far.

So we've tested, and I mentioned this before, being more flexible in different periods of the month or tied to [moments] in the world on the meter itself.

We've been testing different versions of free trial, we've been testing exchanging registration and login for more access for the journalism in the spirit of having people make a relationship or begin a relationship, a nonpaid relationship with us with the idea that we can better engage them in the journalism over time.

And we've got some test lives right now around truncation.

And I would say all of these present an opportunity for there to be a cocktail of things that we do that more deliberately balance kind of porosity and friction, and we'll have more to say about that in future quarters, but I would not imagine a New York Times that doesn't continue to have sufficient porosity to see that our influence continues to be as high as it is.

What is absolutely clear, Craig, we announced 3 months ago a new target to reach 10 million subscribers to get past the 10 million milestone in our subscribers by 2025.

We're very clear, but to do that we're going to need greater acceleration, and we're going to need to get many more subscribers per quarter per year than we are at the moment.

And the tests that Meredith's talking about are very much aimed at finding ways of doing that.

So again, I'd say in -- as we go through this year and in the coming quarters, I think you'll hear us talking more about how we're planning to do that.

This will conclude our question-and-answer session.

At this time, I'd like to turn the conference back over to Harlan Toplitzky for any closing remarks.

Thank you for joining us this morning.

We look forward to talking to you again this -- next quarter.

The conference has now concluded.

We thank you for attending today's presentation.

You may now disconnect your lines.