Good day, and welcome to The New York Times Company conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. 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.
Good afternoon, and thank you for joining us on such short notice to discuss The New York Times Company's agreement to acquire The Athletic. Our press release was issued about an hour ago and is available on our website at investors.nytco.com. We've also published a short slide presentation to accompany this call, which is also available on our website. Joining me on the call today, we have Meredith Kopit Levien, President and Chief Executive Officer, and Roland Caputo, Executive Vice President and Chief Financial Officer. In a moment, Meredith will begin with short prepared remarks, and then we'll be happy to take questions. We plan to keep this call to about 30 minutes. Before we begin, I would like to remind you that during the course of the call, management will make certain forward-looking statements with respect to the acquisition.
These statements are based on our current expectations and assumptions, which may change over time. Actual results could differ materially due to a number of risks and uncertainties that are described in the press release, the presentation materials, the company's 2020 10-K and subsequent SEC filings. Listeners should not rely unduly on such forward-looking statements. Finally, please note that a copy of the prepared remarks from this call will be posted on our investor website shortly after we conclude. With that, I will turn the call over to Meredith Kopit Levien.
Thanks, Harlan, and good afternoon, everyone. Today is an exciting day for The Times Company. We've announced plans to acquire The Athletic, a media business with one of the largest newsrooms dedicated to covering sports globally. We believe this acquisition will accelerate our long-term growth strategy and advance our vision of making The New York Times the essential subscription for every person seeking to understand and engage with the world. This is an all-cash transaction of $550 million, subject to customary closing adjustments. The purchase is consistent with our long-held belief that deploying capital in service of our digital growth strategy is the best way to maximize shareholder value. While general interest news is and will remain our primary value proposition, we've been actively pursuing spaces where we can add value in people's daily lives.
Our view is that sports is among the biggest, particularly in terms of the potential for engagement with quality original journalism. Sports occupies a huge place in the fabric of global culture with deeply passionate fans and followers who wanna consume everything there is to know about their favorite teams and leagues and sporting events. The Athletic was built to serve those enthusiasts. Over the last decade, we have demonstrated our ability to build and scale high-quality products in and adjacent to news. When we announced our subscription-first strategy in 2015, we reported 1.2 million digital subscriptions to The New York Times. In the six years since, we've grown digital subscriptions more than six-fold, with the majority of which are to our core news product, with Cooking and Games each surpassing 1 million subscriptions at the end of last year.
Today, we see more growth potential within news and beyond it, domestically and internationally, which means that we are now in pursuit of a goal meaningfully larger than the 10 million total subscription target we set for ourselves in early 2019. We believe acquiring The Athletic will enable us to not only expand our addressable market of potential subscribers, but also to better penetrate our existing market and deepen relationships with current subscribers. Like Cooking, Games, Wirecutter, and Audm, The Athletic will give people another reason to turn to Times products as separate subscriptions or as part of a bundle. Indeed, we are acquiring The Athletic to continue to build out our portfolio of products that meet more of our audience's everyday needs. We've long covered sports in our core news report for a general interest audience.
What The Athletic brings is a dedicated product on a different scale, a multi-platform journalistic operation with one of the world's largest newsrooms dedicated exclusively to sports. Their editorial team, which is 450 people strong, published over 50,000 articles and 6,500 hours of audio content in 2021 while covering most major American professional sports teams and leagues, college sports in the United States, and the English Premier League. With this expansive coverage, The Athletic has achieved a strong product-market fit. In just six years since its founding, The Athletic has grown its subscription base in the U.S., the U.K., Canada, and Europe to 1.2 million, making it the fifth-largest English language digital journalism provider by subscribers.
Our plan is to accelerate The Athletic's growth further by expanding the audience for its journalism, by adding strength in areas like live data and visual journalism, and by applying our engagement, marketing, and customer journey expertise. In addition to subscriptions, we also see a big untapped advertising opportunity, much like the one we've built in our core business, which is downstream of our subscription business and powered by premium ad products and first-party data. To put a finer point on all this, we are buying a business whose next phase of growth depends on things we know how to do. Run a journalism organization known for the quality, breadth, and originality of its work, drive a large and deeply engaged audience, many of whom form a habit around that work and ultimately pay and stay and build a market-leading digital ad business.
On that note, let me say just a few words about how we plan to execute. The Athletic's newsroom will be run independent of The New York Times newsroom. Our plan is to sell The Athletic subscription as a standalone product at first, and ultimately to also include it in a broader Times bundle. I'm happy to say that The Athletic's co-founders, Alex Mather and Adam Hansmann, who built this business over the past six years, will be staying on as co-presidents. They'll report into David Perpich, one of our most talented executives, who will take on a new role overseeing The Athletic. David has played a big role in building and scaling every digital subscription product we have at The Times, including being an architect of the original digital pay model in 2011.
We currently expect The Athletic to be immediately accretive to our revenue growth rate while dilutive to the company's operating profit for approximately three years as we work to scale subscriptions and build an advertising business. Based on preliminary, unaudited estimates, we believe The Athletic had operating losses of approximately $55 million in 2021 on approximately $65 million in revenue. We currently forecast a slight improvement in operating losses in 2022 as we plan to make additional investments that will mostly offset revenue growth. We currently forecast smaller losses for 2023 and 2024 before turning accretive thereafter. Note that we have not yet completed the purchase price allocation, and as a result, this guidance does not include any estimate of book amortization expense. With that, Roland and I are very happy to take your questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Thomas Yeh with Morgan Stanley. Please go ahead.
Hi. Thanks so much for taking my questions. Two quick ones from me. First, can you talk about the differences that you see in how the consumers of The Athletic engage with the content that would dictate any changes to the approach on paywall restrictions or promotion strategy, subscriber churn dynamics and that type of stuff? Secondly, maybe just a little bit more help on talking a little bit more about how you think about the addressable market size for paid sports journalism as a whole and the subscriber cadence that you've seen historically at The Athletic would be helpful. Thanks so much.
Yeah. Thank you, Thomas. Let me take your second question. Well, let me do the first question first, which is, I think, what do we know about their engagement and the, you know, how people sort of come to and use and buy a subscription to The Athletic? The first thing to say is we like what they've achieved so far. We think there's a real opportunity to grow their audience further than they've done it. We've got a lot of expertise on our side in terms of customer journey and engagement and audience development and marketing, and we think there's a real growth opportunity there.
We also see a real opportunity to add you know add expertise in areas where The Times has done particularly well, like live journalism, data journalism, visual journalism. But make no mistake, we really like what The Athletic does. They serve you know a passionate sports fan who has an everyday need to keep up with their team and their league and the sporting events that they care about. You know that's the level of sort of product market fit they've already achieved is a big part of why we have real growth ambition here. I'm gonna make you repeat the second part of your question.
Yeah, just sizing the broader market. You talked about historically the 100 million TAM for core subscription journalism. I'm wondering, when you talk about expanding that market with sports, what that looks like and how we should think about the opportunity there.
Yeah. I'll just say very broadly, we certainly think it makes the TAM bigger. We'll have more to say about that over time, but we certainly think it makes the TAM bigger. You know, sports news is among the most searched for news that there is. Sports journalism is among the most engaged journalism that there is. What these guys have done is built a passionate following across, you know, a broad spectrum of the major leagues in the United States, NFL, MLB, MLS, et cetera, and in European soccer and in college sports. We think there's a real opportunity there on the TAM side in terms of larger TAM. I'll also say we think this helps us better penetrate the TAM we've already talked about.
You mentioned the 100 million people who we believe will pay for digital journalism in English over time. We believe that owning The Athletic helps us penetrate that audience even better. I'll say as well, you know, we see this as another tool in the toolkit to engage the subscribers we already have, and we're quite optimistic about that. We sort of see growth in all directions. We think we can help grow Athletic as a standalone subscription. We think The Athletic will bring new people to experience The Times and our broader portfolio of products, and we think there's real opportunity over time in a bundle, which you've heard us talk about a number of times this year.
Our next question will come from Doug Arthur with Huber Research Partners . Please go ahead.
Yeah, thanks. Two questions. Meredith, I don't know, I'm sure you've had a chance to sort of look at this pretty closely. So the first question is the current cross-pollination between Athletic subscribers and NYT subscribers, is it significant? Is it small? How do you frame that right now in terms of people who are subscribing to both?
Great question. Easy answer, Doug, it's small.
Okay. That's an-
Modest overlap in subscriber bases, which is what I think you're asking me about.
Yeah. Yeah. That's exactly what I'm asking. Secondly, in terms of the cost structure of The Athletic, I mean, while not a lot is known, you gave some numbers out there. I mean, they've made a very heavy commitment to, you know, a very talented and generally highly paid journalistic talent pool. How do you think about that in terms of what's it gonna take to scale the business to cover that cost eventually? Are there ways to kind of, you know, manage that going forward? It's a fairly large commitment on their part.
Yeah. Let me answer that in a broad way and in a slightly more specific way. You know, this is really about accelerating our long-term strategy. It's about realizing our vision of The New York Times as an essential subscription, you know, for many more people who wanna understand and engage with the world. We would not be doing it if we didn't see it as an opportunity over time to build a larger and more profitable company as The New York Times. We really believe in the combination of news and sports. You know, we also run a large newsroom, you know, filled with extraordinary talent.
From that newsroom, we produce a product that's allowed us to you know to grow you know to six times the size our digital subscriptions were. We're also, I'll just say to you, we're quite confident that the very things that are gonna take The Athletic to grow are things The Times you know has spent the last the better part of the last decade doing. Running that newsroom well, really developing a big audience for it, finding the right engagement model and customer journey and access model to get a lot of people to wanna pay, and building a market-leading and really differentiated ad business on a subscription-first model. We think we can do all those things.
We believe we can do all those things here, and we wouldn't be buying it if we didn't think we could.
Okay.
You should regard this as real ambition on our part about what the two companies can do together.
Terrific. Thank you.
Our next question will come from John Janedis with Wolfe Research. Please go ahead.
Thanks. Hey, Meredith. You talked about the untapped advertising opportunity, and I think The Times' digital revenue mix is about, call it 70%, circa 30% advertising. Wanted to ask, what does The Athletic's mix look like and where can that go?
Yeah, good question. The Athletic has a small advertising business today, quite small, fairly limited in terms of what it's associated with, so I would regard it as a green field. I would also think about us as, you know, as people who've built, you know, the right ad business for a subscription-first business. I think you may know my first job at The Times was running our ad business, and the big unlock in digital advertising at New York Times was when we said this business is subscription first.
Ultimately, the differential value of the ad business should be a large, deeply engaged audience, many of whom pay and stay, and whose first-party data we have access to use in privacy-forward ways, and where we have a pristine premium ad, you know, pristine environment, you know, with premium ad products that really work for marketers. We see a very similar opportunity here, and we believe it's a big untapped opportunity.
To your point, who's gonna be selling the ads then? Meaning, are you gonna then push them out of the call it the Times, or will it be the same sales force from The Athletic?
We are intending, and I think I said a version of this in my prepared remarks at the outset, to run The Athletic pretty independently. Certainly there is plenty of know-how on ad products and, you know, how to get and use first-party data. Where we find opportunities to do things together to create value, we will absolutely do that. I can tell you that advertising is a place where we think the field is green, and we are very excited to dig in, relatively quickly.
Got it. Maybe bigger picture. Structurally, over the long term, is a vertical like sports, say, less profitable on a margin basis than general news? You know, based on your comments, does that change your longer-term outlook on the business to one of growth and absolute cash flow rather than a flatter margin trajectory? Let me ask you, does that mean there's not a synergy number necessarily because they're run independently?
On the second part of your question, I'll say, you know, I think we're just getting started here. We've obviously done tons and tons of research, and certainly I think there will be places where we can share expertise. We have bought this business to invest in it, to grow it, and ultimately, I think I've said this before, to build a larger and more profitable New York Times Company. That's the future we see for these two things coming together. I think I've talked a lot about how we see that role, and I don't know if you wanna add anything there.
No, I would just add that you know, the synergy I would categorize as revenue synergies. I think Meredith did a good job explaining how the expertise we have in building an audience, engaging an audience, getting them to pay and stay the way we work through the customer journey, our ability to test and learn, our ability to apply AI to the journey and things like that, all will be able to be applied here, with The Athletic. Then if you think further on to the point where we're able to sell The Athletic as part of the bundle, and our ability to cross-sell and upsell, in both directions, I think there's plenty of synergies there.
All right. Thank you both.
Our next question will come from Craig Huber with Huber Research Partners. Please go ahead.
Yes. Hi, Meredith. A few questions. Maybe if we could just start with, obviously this has been in the press for quite a long time that you guys were looking at this potential acquisition stuff. I'm just curious, how long you've been talking with these folks for? What took so long to come to get to the altar here and stuff? What was sort of the hold up then in terms of just buying the thing? Was it just simply coming down to price or just doing your due diligence or what was it, please?
Hi, Craig. Thanks for joining us. I'll just say deals happen when they should. This is the right time for The New York Times and The Athletic to be doing this. We are coming at it from a real position of strength and with a real vision for what the two products or The Athletic brings as a complement to our growing portfolio of products and particularly to our news products. This is the right time to be doing it.
Should we expect over time some of the sports content from The Athletic side to find its way into The New York Times? Obviously, your own sports section is not real granular. Not being derogatory, but it's not. Do you think that might be part of the play here as well, the sort of sharing of the content on your legacy product?
Let me answer that question in two ways. First, let me just take a minute and sort of differentiate what our sports desk in the core report of The New York Times does and what The Athletic does. You know, we've got a sports team on the core report, whose work we're very proud of, but they're covering, you know, sports for a general interest audience and sort of world sports, and they're really covering sports at the intersection of culture and business and society. They've really, I think, done some of the best enterprise work and investigative work that's out there. That operation is about 1/10 of the size of The Athletic's operation just in terms of the journalists.
What we're talking about with The Athletic is doing something that is fundamentally on a different scale and honestly meeting a different need. They are meeting the need for the everyday sports fan who, like, literally can't get enough about their team, their league, the player, the sporting event that they love, and that's why we're buying them. We think that's a, you know, really big need that The Times with The Athletic can play a role in meeting.
On your question of would you imagine there being moments where you see The Athletic's stories on The Times, one of the things we're so excited about, and Roland and I have been talking with you all about for some time now, is just our ability to kind of cross-promote from our news product to our growing portfolio of other, you know, market-leading products. If you go on the homepage of The New York Times, you're gonna see recipes from the Cooking app, and you'll see, you know, promotions for Wirecutter, journalistic promotions for Wirecutter around what to buy. If you scroll down the main feed of our app, the bottom of that main feed is Games to play.
You know, to us, that is just a huge source of how we build audience for and interest in those products. You can imagine we'll do that here as well. The way we talk about it internally is that core news report with such a huge audience week over week, both a subscribing audience and a non-subscribing audience, a prospect audience, kinda like the sun in our solar systems, and it gives life to the other planets. You know, it helps grow more life. We think that will be the case here as well.
My final question, sort of a two-part thing. It sounds like you don't think there's much cost synergies here, per earlier question. Just wanna confirm that. Also in terms of the addressable market which came up earlier, do you have any sense how large the addressable market is that this is part of or is it just sort of intertwined with that 100 million?
Uh, it-
In other words, does it add to it, in other words?
Yeah.
How much does it add to it?
Let me just say, you know, unequivocally, this is about adding to the addressable market. Sports is a giant space with a passionate following. I've already mentioned we have a relatively modest, quite modest, you know, overlap in the subscription basis. Even from an audience standpoint, these guys meet an everyday need for a passionate sports fan. Very different need than the one we already meet. We think this is additive to the TAM and helps us penetrate the market. We already reached the 100 million people we've talked about for a long time.
You're not sure how much more, how much it adds to the 100 million, I guess, at this stage. Is that fair?
Well, we'll have more to say about that over time, but I would say additive. We've got a whole portfolio of products now that I think are additive between Cooking and Games and The Athletic, and potentially even Wirecutter, and we're deep into understanding how additive. What I can tell you is, you know, we are acquiring this company to accelerate our long-term strategy, and we are, you know, now talking about a goal meaningfully past the target of the 10 million subscriptions we talked about in 2019. We're talking about big ambition and big vision, and that's why we're doing this.
Great. Thank you very much, and congratulations.
Thanks. Thanks for joining us.
Our next question will come from Kannan Venkateshwar with Barclays. Please go ahead.
Thank you. So Meredith, I guess, a couple of questions. It may be a little bit more involved, I apologize for that up front. Purely in terms of valuation, when I think about the price paid here, the $550 million, I mean, the alternative would have been to build this organically. Like you said, your newsroom on the sports side is much smaller, internally. This translates into roughly about $1 million per journalist that you're acquiring. I would assume, given the history of The Athletic, you know, some of the journalists get paid a lot more than journalists internally inside New York Times.
The first question, I guess, is when we think about the structure of the deal, does this create some kind of a friction internally within the organization, on how the two sides fit together, and how they function? Secondly, when we think about the valuation itself, it translates into, I think on a per subscriber basis, about $450 or $460 per sub, which would imply a very low churn rate and a very high lifetime value, for these subs, just given the $6 price point. When we think about the price you're paying, why is this the right deal instead of you trying to do this organically or maybe acquiring a platform business or buying assets internationally to grow your distribution? Thanks.
Yeah. Let me say a few things about it, and Roland, you should feel free to weigh in as well. I'm gonna say one more time because I think it's important to say here. We think this is the right deal, the right moment. We couldn't be more excited about it, and we think it really helps us accelerate our long-term strategy and realize, manifest a vision of being the essential subscription to many more people in combination news, sports, and the other things in our portfolio. We are, you know, endeavoring to build a larger and more profitable company, and we believe that the things we know how to do will help us get The Athletic there, and get the whole thing there, and we're quite confident about that.
I wanna say there are a number of places where I think there's upside, and I've talked about some of them, but let me just try and put 'em together for you. I've just described, I think it was to Craig, how we believe we can play a real role in growing the audience to The Athletic based on what we've been doing for the last, you know, better part of the last decade. The New York Times, we think we've got real know-how there, and a real opportunity, including through some of the things I just described to Craig in terms of cross-promotion of content. But even just on the mechanics of audience development, we've been doing that for a long time.
Our leadership team has spent years perfecting a pay model, you know, and getting better and better as we go. We think there's a lot there we can apply to The Athletic customer journey and access model to grow it as a standalone subscription. I'm gonna say we also think there's growth to The Times subscriptions for buying The Athletic. That's what I mean when I say better penetrating the market we already have, and we think there's a retention benefit. We believe there's the opportunity for a retention benefit because we've got more things to engage with. Ultimately you have begun to hear us talk much more about the promise of a multi-product bundle where, you know, that's about more ARPU, more lifetime value over time.
We think that all sort of paints a picture of where the economic growth comes from. We know how to run an ad business. You know, Roland and I have talked a lot in the last year about how much more we like our ad business today and how we've gotten it into the position where it runs on the same high octane gas as our subscription business. We think there's real upside there. We believe there's real upside there. Roland, I don't know if you wanna add anything to that.
The only thing I'll add, Kannan, is that, you know, we use multiple methodologies in market comps and spent a lot of time, you know, informing our valuation models, and we feel really good about the purchase price relative to all those measures.
Got it. Can I ask one follow-up on Athletic? Has the asset been growing? I mean, have they been growing subscribers over the last year or so?
Yes.
Okay.
I can say more, but.
Thank you.
Yeah.
Thank you.
Yes.
This concludes our question and answer session. I would like to turn the conference back over to Harlan Toplitzky for any closing remarks.
Thanks everyone for joining us today. We're around to answer questions, and look forward to reporting our fourth quarter and full year results early next month. Thanks and have a good night.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.