New York Times Co (NYT) 2019 Q2 法說會逐字稿

Good morning, and welcome to The New York Times Company's Second 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, Investor Relations.

Please go ahead.

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

On the call today, we have Mark Thompson, President and Chief Executive Officer, who is joining us from our office in London; while in New York, we have 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 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've 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, we had another encouraging quarter with good growth in both digital subscriptions and digital advertising and the successful launch of our new television series, The Weekly.

We attribute these positive results to a sound strategy, a commitment to hard work and growing digital expertise of all of our colleagues and above all the dedication and talent of our amazing reporters, columnists and editors.

Having the best journalists in the world is our not-so-secret sauce, and that's why we continue to increase our investments in journalism.

So let's turn to the quarter and begin as usual with digital subscriptions.

Our core news subscriptions grew faster than we'd expected.

This quarter, we added 131,000 net new subscriptions to our core news product.

Of these, 8,000 came from a Google promotion and should be considered a one-off, but the remaining 123,000 net adds still represents a significant year-over-year increase on the 68,000 we saw in Q2 2018.

It's the strongest Q2 performance in years with a milder-than-expected second quarter dip.

Several factors account for this: some big news stories, the effect of the more aggressive introductory offer pricing we introduced last year and growth optimization driven by a much higher number of better designed tests.

Although subject to $1 a week introductory offer, the first U.S. subscriptions began on this promotion are about to reach their first anniversary.

We're obviously going to track them closely over the coming weeks and months, but I can tell you that retention continues to trend similar to previous cohorts.

Now as you know, we're committed not just to driving immediate subscription results but to ensuring that we deliver strong growth in the medium and long term.

We've talked in recent earnings calls about the testing we've been doing to further optimize our pay model with a particular focus on scaling direct relationships and engagement.

When a user is registered and logged in, we can communicate with them and understand their preferences and patterns of consumption more effectively than if they're anonymous.

That typically leads to higher engagement and subscription conversion.

At the start of July, we launched more extensive testing of registration and login.

The test plays out differently on different platforms, and we plan to experiment with a range of parameters and business rules, how many free articles a given user is able to read, for example, in return for registration over the coming months.

We don't expect this testing to have a dramatic near-term effect on net subscription additions.

Over time, however, we believe that the growing numbers of registered and logged in users of The Times will help us maintain or increase our momentum in building out our subscription base.

Turning back to Q2 2019.

We also added 66,000 new subscriptions to our Cooking and Crossword products.

The Cooking product, which crossed the 250,000 subscription market in the second quarter, and the Crossword product with more than 500,000 subs in its own right, are 2 of America's largest digital subscription products from a news provider.

Together with the growth in the core, that made for 197,000 new digital subscription adds and a grand total of 3.8 million digital-only subscriptions for the company.

Q2 2019 was also a good quarter for advertising.

Digital advertising grew by 14% year-over-year with a strong performance in direct sales, including from The Daily and our creative services.

These gains on the digital side were more than enough to offset familiar secular declines in print, and total advertising revenue grew slightly.

Now Roland will give you guidance on advertising for Q3 in a moment, but it's worth noting now that we don't expect the second half of 2019 to be as strong in digital advertising as the first half.

In recent quarters, we've been tracking against relatively weak digital advertising comparisons from a year earlier.

That's played a part in the significant year-over-year gains we've achieved in those quarters.

From Q3 onwards, we begin to comp against the strong gains from last year, and we expect that to have an impact.

One of the factors that contributes to the comp challenge is what I've previously called lumpiness.

Our digital advertising business is increasingly focused on large-scale, multimonth and in some cases multiyear partnerships with some of the world's leading brands.

Demand for advertising partnerships with The New York Times is strong.

Indeed, in recent months, we've concluded some of the largest deals in our history as a company, deals from which we will see much of the benefit in 2020.

These partnerships are distinctive and difficult to replicate and give us real pricing power, and that's why we're pursuing them so energetically and are willing to accept the increased variability that comes with them.

A big moment for us in Q2 was the successful launch of our television series, The Weekly, which premiered in June on FX and Hulu.

The Weekly is a fabulous opportunity to expose Times journalism to new audiences in an exciting new medium.

Both we and our partners are very pleased with its progress so far.

The Weekly was the largest driver of the 30% growth in other revenue in the quarter.

But The Weekly is important for another reason.

Along with The Daily, Wirecutter and our Cooking and Crossword products, it's evidence of the extensibility of The New York Times' brand across verticals and across different media and of our ability to delight and engage audiences far beyond our traditional heartland.

It's this breadth of appeal and the enthusiasm and imagination with which our newsroom is embracing these new expressions of Times journalism, combined with the continued strength of our core digital subscription offering, that gives us so much confidence in our future.

But let me hand over now to Roland for more details on the quarter.

Thank you, Mark.

And good morning, everyone.

As Mark said, we remain pleased with the progress as we continue to execute against our strategy.

Adjusted diluted earnings per share of $0.17 was flat compared to prior year.

We reported adjusted operating profit of approximately $56 million in the second quarter, which is lower compared with the same period in 2018 by approximately $4 million.

Total subscription revenues increased 4% in the quarter with digital-only subscription revenue growing 14% to $113 million.

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

This decrease in print subscription revenues was partially offset by a home delivery price increase that was implemented early in the year.

Total daily circulation declined 8.5% in the quarter compared with prior year, while Sunday circulation declined 7.1%.

Quarterly digital news subscription ARPU declined approximately 9% compared to the prior year and approximately 2% compared to the prior quarter as the impact from the number of newly acquired subscribers on promotion, largely at $1 per week, was significantly larger than the benefit from existing subscribers whose promotional offers ended and graduated to full price.

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

Total advertising revenue grew 1.3% compared with the prior year with digital advertising growing 14% and print declining by 8%.

The increase in digital advertising revenue was largely driven by growth in direct sold advertising on our digital platforms, including advertising sold in our podcast and our creative services business.

The print advertising result was mainly due to declines in the financial services, retail and media categories, partially offset by growth in technology.

Other revenues grew 30% compared with the prior year to $45 million, principally driven by the premier of our television series, The Weekly, which debuted on June 2, and from our commercial printing operations, which had not yet achieved full scale at this point last year.

GAAP operating costs and adjusted operating costs each increase approximately 7% in the quarter as a result of increased content costs, reflecting both higher staffing in the newsroom as well as production costs related to The Weekly.

Expenses associated with our growth in the commercial printing business and higher advertising also drove the increase.

Our effective tax rate for the quarter was 27%.

On a going-forward basis, we expect our tax rate to be approximately 26% on every dollar of marginal income we record.

Due in large part to a tax benefit we received in the first quarter of 2019, we now expect the effective tax rate for full year 2019 to be between the high teens and low 20s.

Moving to the balance sheet.

Our cash and marketable securities balance increased during the quarter, ending at $847 million.

Total debt and finance lease obligations, principally related to the sale-leaseback of our headquarters building, which we expect will be repaid in December 2019, were approximately $254 million.

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

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

Overall advertising revenues and digital advertising revenues are expected to decrease in the high single digits compared with the third quarter of 2018.

Other revenues are expected to increase approximately 25% to 30% largely due to our television series, The Weekly.

Both operating costs and adjusted operating costs are expected to increase in the high single digits compared with the third quarter of 2018 as we continue to invest in the drivers of digital subscription growth.

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

(Operator Instructions) The first question comes from John Belton with Evercore.

I just want to talk a little bit more about the digital advertising business, which I'm sure is going to be a focus of attention here given the new guidance.

So I was looking for any additional color on some of the underlying trends.

Is there any part of the business that has meaningfully weakened recently?

Is this more of a broader market issue, just kind of a lumpy business with tougher growth comparisons?

Because I know if I look back over a 5-year period, you've grown digital ad revenues at double digits on average.

Is there any reason to think the trajectory of this business has changed now relative to where you saw it 3 months ago?

Good morning, John.

This is Meredith.

A couple of things to say there.

First, I think broadly in answer to your question I would say demand for what The Times is selling in the ad business remains very strong.

I think we've got a unique proposition, which is grounded in brand safety and adjacency to IP that matters and is important and an ability to launch creative ideas in the world at scale.

And I don't think -- we don't feel demand changing for that in any way, and I don't expect that it will.

I think what you're really looking at here is that the costs matter a lot, particularly in the back half of the year.

So I think we were up in the low 30s percent in the fourth quarter last year in advertising.

And as Mark alluded to in his remarks, we feel quite confident in our strategy in filling a combination of media and partnerships and services, and each of those things drive the other.

As the business gets more -- becomes more about partnership, there's just more variability in the system because the timing of these things differs from year to year.

But we remain very confident in the strategy.

We remain optimistic that the demand that we've seen over the last number of years is very much there, and we remain confident and optimistic about our abilities to deliver on that.

Great.

So over the longer term, do you still view this as a nice growth driver for the company?

Yes.

And as we've said in previous calls, I think it remains that.

And also that the better we do on subscriptions and engagement, the better that is for the ad business over the long haul.

The next question comes from Alexia Quadrani with JPMorgan.

Just have a few questions.

Earlier this year, I think you'd spoke about exploring possible price increase in your digital subscription service.

I guess any update or any more thoughts on that?

And then I have a couple more.

Sure.

Hi, Alexia.

Yes, we did talk about that.

And in the second quarter, we launched a pretty substantial price increase test on a population of users who had been with us, I think, for a couple of years or more, and we're very pleased with the results of that test.

It exceeded our own expectations.

So I would say what we take from that is that we do have pricing power and that there is a lever to be used sort of as we see fit, and it remains to be seen when we may use that lever.

And as I've said in previous calls, I think we've got real opportunity on price on both ends of the demand curve, and you're beginning to see us now sort of exercise that, as I just described, in a test at the high end and also as we continue to make use of introductory offers at the low end.

And then on the churn, I know -- I think you had a promotional offer somewhat similar in Europe that you sort of launched last year August 2018.

Can you -- I think it's been now at least several months since the initial offer was anniversaried.

Can you give us an update on how churn is trending from those subscribers?

Maybe it's a potential read into how we may see it here in a month or a few months from here.

Absolutely.

And I would say just broadly to reiterate what Mark said at the top of the call, our sort of the picture of retention for the whole base of $1 a week subscribers looks quite similar to previous cohorts.

So there's nothing in what we've seen so far.

I think we're 10 months in domestically and 13, 14, 15 months in internationally.

There's nothing we've seen so far that troubled us.

We are 2 or 3 months into renewing the folks who came in on that promotion internationally.

And I would say the same thing, we used with what we've seen so far.

And then I'll say something I've said in previous calls, which is we've had very substantial cohorts of people in the past who sort of all over a 3-, 4-, 5-month period arrived at a step-up moment.

We had that at the end of 2017 and beginning 2018, a very large cohort of people who came in just after the election of 2016.

And we moved through that moment well ahead of our expectations, and what that gave us is sort of the operational muscle to know how to move through this moment.

So I'm very confident that -- it doesn't all come at once.

I think we launched $1 a week domestically in the U.S. the end of August last year, and then it flows through obviously for us the whole ensuing year.

And we are sort of very prepared to operationalize around if there are particular cohorts of people or users who we need to step up in price.

So I'm confident that we'll move through this moment as we have the prior ones.

And just one quick follow-up on the digital.

I know you guys have talked about digital advertising a fair amount already on this call.

But I just want to clarify, it sounds like demand is very, very strong, just a bit lumpier and obviously the comps are a challenge.

I guess my question is how much visibility do you have or how far out do you see that demand on digital advertising?

And doesn't the strong demand at The Daily, which I believe is lumped in there, as that becomes bigger and bigger, doesn't that maybe add -- take away a little bit of the volatility?

I think -- it's a big ad business.

So something has to be very, very big to take away volatility in a meaningful way, and I'll say The Daily is certainly much larger than we expected, an ascendent ad product.

But it's still -- we think about the scale of our ad business.

So generally over time, I think it will do that.

We added a second ad into The Daily at the end of June.

So I expect that to over time also have a positive impact.

And I'll just say in general, and you're getting at this, there is real demand for audio advertising in association with quality unique content that has big audiences.

And so we're optimistic that over time our other podcasts in addition to The Daily will become meaningful ad products.

And Alexia, if I can just add from London.

I've been in the room for some of these deals.

And the large-scale partnerships we're doing, I think, for example, our partnership with Verizon around 5G, is something which extends over a long period of time, months and indeed years.

And it's shaping up to be really quite the partnership.

So I think as we scale these big partnerships, over time that will to some extent offset the lumpiness that we've seen in recent quarters.

I think it's fair to say that this is probably going to be always a somewhat more variable business than the old as were fairly pure kind of just simply display-based business.

But we do know that some of these partnerships are lasting so long that we have some visibility into the future for those deals at least.

So I think, just to reemphasize what Meredith said, the demand for what we're doing -- I've just come from some sales meetings here in London -- remains very high indeed.

We feel very excited about the sales of The New York Times and the new people who want to work with us.

That's right.

And I would also just add the fact that we had a uniquely wide asset base of sort of media possibilities to put into a partnership, digital advertising, the paper, audio, creative services, live events, there are few, if any, who can match that at the scale of The New York Times.

And I don't think the demand -- fortunately, I've been at this business for a long time.

I don't think the demand for that goes away.

The next question comes from Vasily Karasyov with Cannonball Research.

Roland, I wanted to ask you a couple of questions on the cost growth in Q3 and what it implies for Q4, hopefully for outer years too.

So can you give us an idea, a, what the growth rates would be for production costs and SG&A maybe?

And then what percentage of the cost growth is variable versus fixed?

And if it's variable, what is it driven by?

Is it related to the $1 a week promotion rolling off?

Just help us dimensionalize how this will be -- what the trajectory will be.

So yes.

Let me start a little bit -- maybe the best place is to start by breaking down what happened in the past quarter so that there's some clarity there.

So of the total operating costs, right, the increase was 7.2%, and that broke out to be 11% growth in production costs.

And what was the driver there was investment in content, so news and editorials for the newsroom.

And also we've had the costs for production costs associated with creating the television show, The Weekly, for the first time.

And then we had commercial printing at full scale cycling on commercial printing at less than full scale.

And SG&A was just kind of -- that was about a 4% increase, and that increase was kind of spread amongst a bunch of areas.

I'll highlight that marketing was not a significant driver of SG&A.

So we don't typically get into the details of future quarters.

But we talk about what our investment thesis is, and so we could expect a similar breakout of cost growth.

We'll continue to invest in our content.

We'll have a full quarter of production of The Weekly.

We'll finish the cycle on the scaling up of the commercial business, and we are focused as we go forward into future quarters to drive our LTV to CAC ratio up.

So we're expecting to continue to invest in our product capabilities and with the desire to drive up our percent of organic versus paid starts and drive our LTV to CAC ratio, which is going to benefit profitability of the company.

And worth saying which we saw in the second quarter, so the product itself in the second quarter was a better engine of making people form a habit and pay and stay than in previous quarters versus paid marketing.

So if I wanted -- if I look at last year quarter-to-quarter progression of SG&A, for example, that would not be a good indicator for how things will go this year?

I don't -- I'm not sure how valuable that would be.

The next question comes from Doug Arthur with Huber Research Partners.

Well, just to clarify, I mean it seems marketing spend in the second quarter was not as high as expected.

And so do you anticipate in your third quarter guide that you will get back to kind of that 45-plus million area you had been running?

Well, our goal and whether this explicitly happens in the next quarter or over several quarters is to get the product to do more of the work that marketing has been doing in recent quarters.

So we would hope to be able to accomplish that over the next few quarters.

So, okay.

So marketing spend may not get back into the high -- mid- to high 40s then is the bottom line.

May not.

Okay.

And then, Meredith, to your point on the tough comps, I mean on digital advertising you're going up against a 32% growth comp in the fourth quarter.

That's 32% against an adjusted, taking an extra week out of '17.

So is it reasonable based on your sort of second half guidance that we could be down double-digit in digital ads in the fourth quarter?

I think Roland's already given the guidance.

Sorry.

Yes, I don't think we're guiding past the third quarter.

Okay.

And then just finally, just to clarify or I don't know if you can clarify, but as you anniversary these 1 week (sic) [$1 week] price promotions, I mean what -- are you intending to take them to full price?

Or is it to be determined?

Or any kind of guidance on that?

What our history suggests is that we'll be able to move a lot of them to full price.

We -- as I said in response to a related question, we're also operationally prepared to make step-up offers as necessary, and that's been how we've managed through these moments previously.

So I think that probably answers it.

The next question comes from Kannan Venkateshwar with Barclays.

A few.

I guess first on the ARPU side.

I guess, Roland, you mentioned that we might see the pressure in the second half of the year as well.

And you will have easier comps or I guess from an ARPU perspective your promotions started Q3 of last year.

So when you think about ARPU pressure in the second half of this year, as people do step up, we would expect that cadence to change in the opposite direction.

So just wanted to understand what the thinking is there on the ARPU side of it.

Secondly, on the subscriber growth side, over the last 4 quarters, your second derivative has accelerated; so year-over-year, the number of subs you're adding has accelerated.

But as you go into Q3 and Q4, you do have these tougher comps coming in.

So is it fair to say that given your retention rates in Europe and some of these other promotions you ran in the past, the trend lines seen over the last 4 quarters, that may not be fair to extrapolate going forward?

Okay.

On the ARPU question, so just to kind of level set here, we are happy with the way the $1 a week promotion has been working both on the starts and retention side, as we discussed.

So as that large -- continuing large number of subs come on at $1 a week, right, that's going to overwhelm the numbers stepping up.

That said, in terms of the trajectory of that, over the next several quarters we could expect the downward pressure on ARPU to start to moderate because we're going to have large numbers of folks stepping up either directly to full price in one shot or stepping up to something between their current promotion and full price.

So we'll see the pressure.

We'll see downward pressure continue because we aim to continue to bring on large numbers of subs.

But the quarter-to-quarter sequential numbers should moderate, so the drop should get less.

Yes.

And I think I'll take the second question.

And I'll just say broadly that I think quarter-over-quarter our understanding of the drivers of the business, what makes someone form a habit and pay and stay, is getting better, and Mark alluded to this in his remarks.

I think we are also getting sequentially better at intervening to move those drivers, and there are 3 places, kind of 3 ways to think about that.

One is on customer journey.

And we are, as Mark said, in a position now to run many more tests on sort of everything about friction and value exchange in that journey.

So where do you intervene?

At what meter count?

How do you message?

What offer do you show people?

I think we're also getting better sort of quarter-over-quarter at optimizing every part of the conversion funnel.

So from the time we show somebody an offer until they get to a thank you event, we've done a lot of work to optimize along that funnel, and there's still more room to go.

And then I would say the same about retention.

And on retention specifically, I think we've been very, very good at managing the mechanic of retention better, so things like rates and involuntary churn and how we message through those moments and intervene.

What we still have a lot of room to get a lot better at is engaging people from the moment they subscribe and getting them to form a habit and sort of behave virtuously by signing up for newsletters and downloading the app and registering and logging in, and all of that has real room for us.

So I guess my broad answer to you is I still think there's a fair amount of room in the model for acceleration, and I would see it as us just getting sorts of steadily better over time as opposed to a discontinuous moment.

Okay.

Can ask one follow-up question, Meredith, in terms of marketing and advertising budgets?

When I think about the framework, broadly we've seen digital businesses as, say, it's a part of science and so on.

I mean when we look at their marketing budget as a proportion of revenues it tends to be more in the 12% to 15% range depending on who you're looking at.

I think New York Times run with more at roughly about 8%, if I'm not wrong.

So when you think about the framework for what your marketing budget looks like over time, is that a framework we should be thinking about which is normalizing it as a proportion of revenues?

How are you thinking about that devolution over time?

I would say 2 things about it, and then Roland should add anything I'd have missed.

Our stated strategy is investing in the product itself to be a better engine of what drives growth in the business.

And by that, we mean both the journalism and the kind of combination of user experience and customer journey, and we've talked about that at some length.

Over time, and I mean sort of over a long haul, you imagine that makes your marketing more efficient.

So you can spend more to drive more growth, or ultimately, you may spend differently or less.

The thing we've been able to do so far, which has worked very well for us, is to really shift the marketing mix.

So in the time that I've been here, I think we've probably come close to tripling what we spend on marketing and gone from spending 100% of those dollars on performance marketing and direct response to nearly half and in some cases more than half on things that move sentiment or get people to sort of think or connect differently to The Times emotionally.

And I think that, what I've just described, I would say is a longer-term bet and one that I think pays off over a longer period of time.

I mean I would just add over the long term we would like to see the LTV to CAC ratio move up consistently, not in any drastic fashion.

So if you kind of translate to how that plays out represented as a marketing expense to revenue percentage, you would not expect us to drive that percentage up in the future.

Yes.

And if I could just add.

We're taking really quite a broad view about how we get the message out about The Times.

And I -- although it's fundamentally a journalistic project, I would say that The Daily, which is intrinsically cash positive, it generates revenue in its own [right] and indeed has got a very good -- has a good gross margin attached to, is a fabulous way of telling the story of The Times.

We do indeed inside The Daily often mention the opportunities to subscribe to The New York Times.

So what we're doing in podcasting, what we're doing in television are also intended and indeed the return to brand marketing for The Times is in turn -- is intended to at the very, very top of the funnel to get new audiences engaged in journalism, understanding the brand and getting ready for, if you like, the tactics we can use further down the funnel and, ultimately, the conversion tactics.

I mean I think our strategy, which is investing very heavily in content first and foremost above all in journalism and improving the way in which our product engages and brings people back again and again in a given week, is new to us.

At the end of it, if we can efficiently, with economic efficiently, we can spend -- continue to spend money actually at the conversion stage, I would say as long as it makes economic sense we should spend as much as we can.

And generally, I think high numbers out of marketing we associate with very big -- with periods where there's a lot of demand for the product.

The next question comes from Craig Huber with Huber Research Partners.

A few questions.

One, your cost growth outlook sort of the third quarter, you're up high single digits.

If I heard you right, I think you were saying that marketing cost in the third quarter should not be up over a significant number year-over-year or even sequentially.

If that is the case, can you maybe just help us understand better what is driving the cost growth of high single digits in third quarter?

So first, you mean having a full quarter of The Weekly, right?

So we had a partial quarter of The Weekly in Q2.

So that's a large driver.

And the other really is investing in the 2 other components of our growth strategy for digital subs, and that's content and product and technology.

Okay.

And then also just want to just better understand, it seems like you guys are getting more and more efficient I guess.

Or is it just timing in terms of the marketing spend here in second and third quarter?

In other words, you're not spending up dramatically year-over-year.

Is this kind of what you were hinting at or saying that this was sort of a slower growth of digital subs?

You're not going to spend overly aggressive here with marketing here.

But in a period the cycle when we get into more political season here, that's when you would expect the marketing spend to pick up significantly.

Sure.

I'm going to hand it to Meredith in a moment.

But just one point I want to make is we govern our direct spend based on internal rate of return.

So when there's demand and we can spend wisely and spend dollars we're going to get a sufficient return on, we will spend them.

So that can vary quarter-to-quarter and does vary quarter-to-quarter.

But from a bigger picture perspective, I'll pass it to Meredith.

Yes.

And I'll just kind of reiterate some of the things I've already said.

I mean we've got a stated strategy of making the product itself, which is the combination of journalism, user experience and customer journey, a better engine of the stuff that -- of growth of the things that make people engage and pay and ultimately stay a subscriber and advocate to others.

And I think you saw some of that in the second quarter.

I think we -- what -- we see a real opportunity in the market.

I think we have real running room to do better on what I just described and to get more out of the model based on what I just described.

I don't think that obviates the need for marketing.

I think we've just described sort of it can allow us in some cases to shift the mix and put more of our marketing dollars to work for more long-term efforts to move sentiment and to make our way into people's lives we're not already in.

But it's the more starts and retention that we can drive organically through our own product, the better.

And just going back to your question and I think the previous one, one of the unique things about The Times and news as a digital subscription business that I think is different from music and entertainment is we have 150 million people who are engaging with our products at any moment, and only, what now, 4.7 million who are paying us.

So that there is a giant audience of people who are already coming to us in some way organically, and a lot of what we're describing is making the most of that audience.

Then also, Mark, if I could ask you, can you just be a little more specific on where you're investing at for content in journalism both in the U.S. and outside the U.S?

Where are those dollars going towards?

Sure.

And I want to say that these decisions are not taken -- we absolutely make investment available to the newsroom.

The decisions are taken by the newsroom itself and by the publishing [strategy sells further].

But I would say current focuses have been on building further our capabilities in investigative journalism and investing more in tech coverage and that's globally, in particular trying to make sure that we cover the way in which tech is in Asia is becoming a geopolitically and economically incredibly significant force.

Those will be examples.

We're obviously going to be investing into [political] sites as we head towards the 2020 election period.

We're looking hard at ways in which we can -- we're also investing more in climate coverage.

And doing I think probably more climate stories than I think pretty much any other news organization on the planet at the moment.

We're also looking for ways, we've talked about this previously in earnings calls, of building out our podcasting capability and for further opportunities in television and film.

And for my last question, Mark, given the ongoing demise of the smaller midsize newspapers out there and the announcement of Gannett and New Media merging, talking about $300 million of cost cutting.

I'm sure some of that -- a good chunk of that is going to come at the expense of journalism.

At the end of the day, doesn't this all sort of make The New York Times much more of a major source of news in the U.S.?

In other words, doesn't that work to your benefit as the last man standing almost in the industry?

Well, No, I understand the point, Craig.

I mean we want to -- I want to say first and foremost that we love competition, and we think the plurality in journalism is very important.

And we are dismayed by the tribulations of the broader news business in America and indeed throughout the developed world.

We think that's a bad thing.

What is true is that we've got a model where we've been investing in journalism.

We have more journalists in our newsroom than we've ever had and will have still more to hire this year.

By end of this year, we'll have something like 1,750 people involved in journalism with The New York Times, by far the biggest in our history.

And as I've said before, we take the same view about content that Reed Hastings and Netflix do, which is if you want people to pay for great content you need to invest in the content so it's there for them to buy and delight.

If we can help other news organizations with our expertise and with partnership, we'll do that, and we're looking at ways in which we could potentially do that.

But we do have a thesis the -- America and the world is crying out for high-quality journalism delivered effectively in engaging and attractive digital products and monetized significantly through subscription.

That's our thesis.

We're determined to go on investing in it.

Mark, my last quick question.

That 1,750 number of total people involved in journalism today, where was that number when you started at the company 5-plus years ago?

I haven't got an exact number for you but hundreds fewer.

We're very substantially larger than we were.

And we -- as I said at the start of my remarks, we attribute the success of The Times, even building out its digital subscription business, very significantly to the investment and the focus that we put on journalism.

We think many news organizations have somehow tried to make a go at things through cost-cutting and reducing their newsrooms.

We think exactly the opposite.

To get a great journalism business to work, you have to invest in great journalism.

This concludes our question-and-answer session.

I would 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 next quarter.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.