Good morning, and welcome to The New York Times Company's fourth quarter and full year 2018 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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, Executive Director of Investor Relations and Financial Planning and Analysis. Please go ahead.
Thank you, and welcome to The New York Times Company's fourth quarter and full year 2018 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 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 2017 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, a strong fourth quarter capped a strong 2018 for The New York Times Company. Digital subscriptions grew more quickly than at any time since the months immediately following the 2016 election. Our strategy for digital advertising is paying off with exceptional year-over-year growth. Our smaller digital products are performing excellently. Indeed, we've made so much progress on our five-year goal of doubling digital revenue that we've set ourselves an ambitious new target. I'll turn to that shortly. First, let's look at the quarter in detail. One note first, Q4 2017 was a 14-week quarter. In our remarks this morning, we'll use the phrase like for like basis when comparing revenue in 2018 to a 2017 adjusted to account for that extra week. We don't make such an adjustment on the cost side.
We added 265,000 new digital subscriptions in the quarter, of which 172,000 were for our core digital news product and the balance from Cooking and Crosswords. Although the midterm elections played a part in this strong showing, audience behavior and week-to-week subscription additions suggest that our present momentum is broad-based and far less reliant on the politics of the moment than the surge of two years ago. By the end of the quarter and the year, we had a total of 3.4 million digital subscriptions, and including print, 4.3 million total subscriptions. On a like for like basis for the fourth quarter, estimated digital subscription revenue, including Cooking and Crosswords, grew 18% compared to 2017. On the same basis, total subscription revenue grew 5%.
Now we've taken a different approach to digital advertising than many other news publishers, with a focus on large scale partnerships with the world's leading brands, a suite of creative services, and a relatively low exposure to open market programmatic. This approach paid off for us in the fourth quarter with digital advertising revenue growing approximately 32% year-over-year on a like for like basis. Indeed, in the quarter, digital advertising exceeded print advertising for the first time ever. Digital represented 54% of total advertising revenue, compared to 46% from print. We expect to see future quarters where the relative proportions reverse, but this is still a significant moment in the digital transition of The New York Times. In Q4 2018, print advertising, which was once the lion's share of the company's revenue, was the smallest of our four principal revenue streams.
While print subscription revenue declined only modestly, print advertising fell, on a year-over-year like for like basis, of 6%. This was a significant sequential deterioration after Q3, where print advertising was nearly flat compared to the same period in 2017. The strength on the digital side meant that total advertising revenue grew by 11% on a like for like basis. Although as you'll hear, we're guiding to continued healthy growth in our digital advertising business in Q1 2019, the character of our emerging digital advertising model, in particular its reliance on a relatively small number of high-value deals, means that we may still see some variability in quarter-to-quarter results. We're encouraged by the fact that taking last year as a whole on a like for like basis, we grew digital advertising by more than 10%.
Total advertising revenue for The Times for the whole of 2018 increased by nearly $10 million on a like for like basis, the first year-over-year total advertising revenue growth since 2005. Total company revenue for Q4 grew on a like for like basis by 10%. Adjusted operating profit for the quarter was $94 million compared to $106 million in the same quarter last year. The two main reasons for the fall were first that extra week in 2017, and secondly, higher costs, especially in marketing. In 2015, we set ourselves the challenge of doubling pure play digital revenue from around $400 million to $800 million by the end of 2020. The end of 2018 was the third three-year mark in this five-year journey. In 2018, we generated $709 million in total digital revenue. In other words, we're already more than three-quarters of the way to achieving our target.
We'll continue to report on the progress to and beyond that $800 million goal. Now, as a company, we've decided to set ourselves a new public milestone. Our analysis of our market opportunity in the United States and around the world, together with our success in recent years in scaling our digital subscription business, has led us to reset our ambition for just how large our subscriber base could grow. We're setting ourselves the goal of at least 10 million subscriptions by 2025. There's reason to believe the ultimate number of subscribers could be far larger, but we've decided that exceeding the 10 million mark is the right target, stretching but realistic over the time period. How will we go about meeting this new goal? First, journalism. Our journalism is already widely recognized as being amongst the very best in the world.
Indeed, the quality and extraordinary breadth of The Times' journalism is the primary reason why our digital subscription model is currently growing so healthily. This was especially true in 2018. Our 10 million+ goal implies a further significant expansion of committed Times users, those who really make The Times an essential part of their lives, both domestically and around the world. To achieve that, we want to broaden and deepen our journalism still more to further enhance our leading position in investigative reporting, to continue to support the renaissance of opinion, to explore new ways in audio, visual, and multimedia of telling the most important stories of the day. The foundation of our mission, our strategy, and our offer to every new subscriber is high-quality journalism. That's why we've consistently invested in our newsroom.
Last year alone, we added more than 120 new journalistic positions, and today we have about 1,600 journalists on staff, a high watermark for The New York Times. In 2019, we will make a further targeted investment in journalism, which will include continued hiring. To hit that 10 million subscription milestone, we need not only to project The Times brand and Times journalism to new audiences around the world, but also to become more expert and more coordinated in engaging those audiences and converting them into paying subscribers. We will also make an additional investment in digital product and in marketing with the intention of accelerating medium-term growth of the model. Next, innovation. From the multimedia breakthrough Snow Fall way back in 2012 to our smash hit podcast, The Daily, creativity and innovation have transformed the way people now think about The New York Times.
More importantly, they've attracted new audiences. I never tire reminding people that nearly three-quarters of the audience to The Daily, Apple's most downloaded podcast of 2018, are 40 years old or younger. 2019 will see plenty more innovation and experimentation. Some of it will be cash generative from the get-go, like our new TV show, The Weekly, which launches in June, and the 5G partnership with Verizon that we announced together at CES. We won't hesitate to back great new ideas with investment when needed. Finally, we'll continue our work optimizing both our customer journey and pay model. As you've heard me say before, despite our progress to date, we still believe there's considerable further scope to accelerate subscription growth. Indeed, we currently have multiple tests in the field.
Now, as Roland will shortly confirm, we expect these investments to have some impact on total costs in Q1 and subsequent quarters. I want to emphasize that we also remain very focused on margin. We're unusual in having been able to rapidly scale a digital business while remaining strongly profitable, and we're determined to maintain that record. We have an opportunity to further accelerate digital subscriptions through additional investment now that will fuel future margin expansion. We will also begin to field test a price rise for digital subscribers in the early part of this year. Although this will be the first increase since the launch of the pay model in 2011, we have many years of experience of adjusting prices for our home delivery product to reflect the changing economics of print.
We're confident that our digital subscribers will also understand why the price paid for high-quality journalism sometimes has to increase if the journalism itself is to flourish. Finally, let me turn to the question of capital return. As you know, in recent years, our board has opted for a conservative approach to our balance sheet. This is not because we believe in conserving cash for its own sake, but because we want to maintain maximum flexibility regarding capital allocation as we navigate the opportunities and risks of our ongoing long-range business transformation.
As you've heard, we're still exploring the scope for further effective investment to accelerate the growth of our existing digital sub-model, and we're still on the lookout for tuck-in investments that could help us scale the total digital business faster. Nonetheless, we've clearly made some progress, and in the light of that, the board of directors has approved a modest $0.01 per share dividend increase to $0.05 per share. As you'd expect, the board will continue to keep the balance sheet and the best use of capital under close review, and we do not rule out further adjustments to the dividend in the future. Now with details of the quarter, here's Roland.
Thank you, Mark, and good morning, everyone. As Mark said, this quarter represents a strong result for the company. As a reminder, fiscal 2017 included an extra week, and therefore, the fourth quarter of 2017 contained 14 weeks as opposed to 13 weeks in 2018. The earnings press release we distributed this morning reports revenue on both a 14- and estimated 13-week basis. Like Mark, my comments on revenues today will exclude the impact of the extra week. However, estimating the cost impact of this extra week is more difficult, and therefore, all comparisons for expenses and profitability will be made versus the full 14 weeks of 2017 expenses. Adjusted diluted earnings per share was $0.32 in the quarter, $0.06 below the prior year.
We reported adjusted operating profit of approximately $94 million in the fourth quarter, which is lower compared with the same period in 2017 by approximately $12 million. Total subscription revenues increased 5% in the quarter, with digital-only subscription revenue growing 18% in the quarter to $105 million. On the print subscription side, revenues were down due to declines in the number of home delivery subscriptions, as well as a continued shift of subscribers moving to less frequent and therefore less expensive delivery packages. Total daily circulation declined 9.6% in the quarter compared with the prior year, while Sunday circulation declined 6.5%. Quarterly digital subscription ARPU declined approximately 3.5% compared to both the prior year and the prior quarter, as the 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 promotional offer, which was in market during all sales periods in the quarter. We expect that the more aggressive promotional offer, which continued to yield strong net subscription additions in the quarter, and other promotional tests, will continue to put downward pressure on ARPU in 2019. I wanted to note that in the fourth quarter, Google ran a cross promotion where they provided a limited number of their customers with a six-month free subscription to our digital news product. As is our practice, these promotional subscriptions are not reflected in the 172,000 net news additions we are reporting today and will only be counted in the event that they elect to convert their free subscriptions to a paid one at the time of promotion expiration.
Total advertising revenue increased 11% compared to the fourth quarter of 2017, our best overall result in recent memory, with digital advertising growing 32% and print declining by 6%. The increase in digital advertising revenue was largely driven by growth in both direct sold advertising on our digital platforms and creative services. The print advertising result was mainly due to declines in the luxury and financial services categories, partially offset by growth in advocacy, media, and books. Other revenues grew 50% versus the fourth quarter in 2017 to $47 million, principally driven by growth in our commercial printing operations from the Newsday suite of products, growth in affiliate revenue from the product review and recommendation website Wirecutter, our live events business, as well as additional floors of rental income from our headquarters building. Both GAAP operating costs and adjusted operating costs increased 8% in the quarter.
Costs grew primarily as a result of marketing expenses to promote our brands and products, our growing commercial printing business, and costs related to growth in our advertising creative services business, which were partially offset by lower print production and distribution costs related to our newspaper. We recorded two special items in the quarter, an $11 million gain from the wind down of our investment in Madison Paper Industries, a partnership that previously operated a supercalendered paper mill, and a $1.5 million charge, which represents the non-capitalizable expense related to the reconfiguration of our headquarters building to make more space available for rental income. This project is now substantially complete. Our effective tax rate for the fourth quarter was 29%. The underfunded balance of our qualified pension plans at the end of the year was approximately $81 million, and the plans were approximately 95% funded.
Moving to the balance sheet, our cash and marketable securities balance increased by $32 million during the quarter, ending at $826 million. Total debt and capital 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 $254 million. Let me conclude with our outlook for the first quarter of 2019. Total subscription revenues are expected to increase in the low to mid-single digits compared with the first quarter of 2018, with digital-only subscription revenue expected to increase in the mid-teens.
Overall advertising revenues are expected to decrease in the low- to mid-single digits% compared with the first quarter of 2018, and digital advertising is expected to increase in the mid-teens%. Other revenues are expected to increase approximately 50%, largely due to the growth in our commercial printing operations. Operating costs and adjusted operating costs are expected to increase approximately 10% compared with the first quarter of 2018 as we continue to invest in the digital subscription growth drivers of marketing, product and journalism. In addition, our commercial printing operations are fully scaled and comping against the quarter in 2018 with no significant costs. With that, we're happy to open it up for 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. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Alexia Quadrani with J.P. Morgan. Please go ahead.
Thank you very much. My first question is really on the impressive digital sub growth in the quarter. Can you provide maybe a bit more color on the drivers behind it? I guess you have a lot more data than we can see from out here. How much do you think is correlated with the more intense promotional activity? How much do you think is spiked around maybe news intensive events, or how much is really just the overall strength in the product and work you guys have been doing on the data analytical side?
Good morning, Alexia. I think I'll suggest that Meredith answers that.
Sure. Hi, Alexia. I think it's a combination of things, and it starts with, it continues to be a very strong news cycle, albeit I think one now that is not driven by a single story. I think our journalists' response to everything going on in the news continues to both be and appear different and worth paying for. I think that's the first and probably the biggest reason. I think the use of $1 a week as an introductory offer continues to be very good. We're seeing very positive results from that, and we're sort of getting better and more precise about how we deploy it and when we deploy it. It's also been a period of real experimentation and work on every aspect of the conversion funnel.
We did a lot of work on that in the second half of the year, and it really began to bear fruit in the fourth quarter. What I mean by that is everything about how we present an offer, from the messaging to the load time of the page, to the number of steps it takes somebody to get through the paid flow. Worth saying on all of those things, we've gotten a lot better, but there's still more room to get better from there. I think we're also getting better at spending into strong limits news cycle and into high demand, both on direct response and in our brand work. We're able to sort of spend more, change the level of spend in more places, and do all of that quite efficiently.
Perhaps if I can just add one other point is, for some time now, we've also, both from the data we've seen and from other indicators, come to believe that investigative breakthrough stories, which the Times breaks, which both in a sense, you may well come to the Times to find, but also mean that the Times is being talked about across the rest of media, are also really important in driving the model. One of the reasons that we've been investing so much in investigative journalism, we actually think it makes distinctive pieces which only the Times have got, worth, if you like, almost every bit of our marketing effort. They're good for our brand and awareness of the brand. They're good for finding new users. They're also good for getting regular users to use more and potentially convert to be subscribers.
I guess following up on that point, so I guess my takeaway is that the midterm election specifically doesn't sound like it was a driver. It's not one specific event. I know you don't guide for digital subs going forward, but there's nothing you would highlight saying, "Well, this was a particular benefit in Q4, so don't assume that will continue." That's my sort of read through. Then I just want to also ask about churn. I think historically you've said it's been stable. I'm assuming that's the case now, and I believe you started the $1 a week promotion back in August. I guess we'll need a few more months at least to sort of see if the churn begins to elevate once some of those promotions come off. Is that fair?
Let me have one more go at the midterms, then I'll get Meredith to address churn and the dollar a week cohort. We had a good midterms. We had a very good midterms. We saw good audiences, and we saw good conversion, and good subscriber numbers through the elections. In a way, I think what we're saying is, I wouldn't over-rotate on these events like the midterms now.
I think we've shown for some time now, almost going back to 2017 and Me Too, there are plenty of things we can do with our journalism which can move the dial as much as a kind of set piece event. I'm not sure if this makes it any easier to model what our results are going to be, but we're trying to generate our own momentum through our own efforts and our own journalism, and that seems to be working well.
I think that's right. I think we've also gotten better at the gearing of our access model around big events. We opened up for a few days the meter around the midterms in an effort to drive registration and login, which was very successful, and then we've now gone through a whole second half of the year where we also experiment with tightening the meter in key moments. I think that's going well, and you'll see us continue to test more there. On the question of churn broadly, and then specifically on $1 a week, I think churn has been, for the last 2.5-3 years, a very good story for the Times. It continued to be in the fourth quarter, and it continues to be broadly overall.
I would say that most of the work we're doing on churn and the best work we're doing on churn is in engagement. Actually, at the point of someone subscribing, getting the tooling right on getting them to set up so that they engage, and we've still got a lot of room to get better there, but that is starting to bear out and have an impact. On $1 a week, we're actually almost six months in on the first domestic cohort. We started that as an introductory offer in late August. If you control for news events, which we always do when we go back and look at our data, that cohort is retaining sort of right alongside all of our cohorts at 50% off. We're broadly optimistic about that. You can actually go back even a little further.
I forget the month, but I think it was at the beginning of the second quarter. It might have even been the end of the first quarter when we launched $1 a week outside the United States, much more aggressively. We're now 9 months, 10 months into those subscriptions, and I would say the same thing there. I'll also tell you, and it goes back to my answer sort of broadly on retention, that we are incredibly focused cohort by cohort on what it's going to take to get people to engage. One of the interesting things about the folks coming in on $1 a week is many of them are coming to us and going through their pay flow on mobile, and therefore, the expectation that they're going to engage on mobile really matters.
We're doing a lot to stimulate engagement in our app and on mobile broadly.
All right. Thank you so much.
The next question comes from John Belton with Evercore. Please go ahead.
Hey, thanks a lot for the question. I just wanted to ask too, on your new long-term subscriber target. The 10 million number sort of implies an acceleration from what we've been seeing over the last couple of years even. I'm just wondering if you've contemplated maybe the changes to the paywall and how you're going to get to that 10 million number. The second one is where the contribution from international subscribers that-
Yeah
Long term. Where's the subscriber mix going geographically and where is it possible?
Hi there. I'll start on the second question, and then I'll answer the first. We're now at, I think, 16% of our subscribers are coming from outside the United States, which is a bit of an uptick. We saw international subscriptions grow a little bit faster broadly this year, I think actually across two years, than in prior periods. We still believe that there is a very big opportunity for The New York Times to be one of a handful of dominant global news providers. We see a giant audience for whom we're relevant, and we're doing quite a bit of work to continue to be even more relevant outside the United States. That said, I think as we think about 10 million, we shouldn't under think the domestic opportunity.
I think we really are beginning to get our hands on the gears of our subscription model here in the United States and around the world, but sort of first here in the United States. I think you're going to see us continue to push very hard, both domestically and internationally. I think the opportunity domestically is quite large. That brings me, I think, to your first question, which is how are we thinking about the access model? If you go back to the launch of the pay model in 2011, we have broadly had the same-ish meter model. It's been at different levels of access, but it's been broadly the same. You get 20 stories, you get 10 stories, you get five stories, and then you have to buy a subscription if you want more in a given month.
In the second half of last year, and particularly in the fourth quarter, we began to launch a series of sort of increasingly aggressive and scaled tests, first outside the United States and now inside the United States, where we are testing, essentially getting registration and login in exchange for more and deeper access to The New York Times. Over time, we will test getting registration and login in exchange for different kinds of features and the opportunity to use new aspects of product from The New York Times. I would say we're still quite early in those tests. In December, we launched the sweeping registration and login for more access tests in Canada and Australia, and we launched a similar version of that test to a portion of the U.S. population in January. I would say it's still very early.
You'll continue to hear us talk about this, but the early results are relatively promising.
I wanted to go back to the start of your question, John. You're quite right. Our digital subscription model is growing very quickly now. If we carry on at the current rate, we will not hit 10 million by 2025. Hitting the target depends on a further acceleration of the model. You've heard us say, we think that's about putting more money and giving more support to our journalism. It's about improving engagement and the product experience. It's about optimizing the pay model and the customer journey. It's getting smarter and using more resources to effectively market both brand marketing all the way down to direct conversion marketing. This is a plan for a further acceleration with, not excessive, but we think some additional resources going in to make sure our plan works.
Yeah. I'll add to that. Mark talked about the investment in journalism, and we'll continue to do that, and I think the differentiation of that journalism will continue to be the most important aspect of the model. Beyond that, I think the biggest opportunity we have, certainly, in the next couple of years and potentially through this whole period that we're talking about over the next six years, is to make the product experience itself a better engine of getting people to form a habit and to pay and to stay as subscribers. When I talk about the product experience itself, I'm talking about the customer journey, which I've just described ways we're beginning to make it much more deliberate.
I also mean the user experience, the features and functionality that enable you to form a habit and engage with the journalism and the programming in association with those features and functionality. I would say we have a fair amount of work to do there to get that engine, and frankly, a lot of opportunity to get that engine working far, far better to get a very large audience of people who already come to us to engage much more deeply.
Interesting. Thanks a lot for the comments.
The next question comes from Craig Huber with Huber Research Partners. Please go ahead.
Yes, good morning. I got a few questions. Maybe if we could start, you mentioned early on, if I heard you right, about a price increase for the digital-only subs. Can you maybe talk about the magnitude of that and the timing of it? Did you say it was the first quarter?
What I think Mark said in his remarks was that we're going to begin this year and in the early part of this year to test what is the right approach to a price rise. I think it's worth noting that we have not raised prices in digital in seven and a half years since the launch of the model, and that we, as Mark said, we believe there is an opportunity to do so, particularly as we continue to invest in the journalism, and to invest in the product itself and our products and our journalism playing a bigger role in people's lives. You can expect to see us invest and begin to test there and sort of test our way into what is the right formula to continue to scale subscriptions at the rate that we need to with a higher price.
We do think, look, I think it's worth saying, we know from our experience with print that there are a number of people who are willing to pay a lot for The New York Times. We also know from our experience with print that we can continue to add value to the product, with investment in the journalism and the product experience to make it worth more to people. We intend to do work on both sides of that.
I'm sorry, is there a range of what you're thinking about to raise price? Are we talking like maybe 10% or more?
Just to be really straightforward about it, one of the things we will be testing is the level of price rises and how to apply them. The answer is, once we've done some testing, we'll have more to say both to our subscribers and to you, but nothing yet.
Okay. Thank you for that. My second question is, you obviously had very impressive digital ad revenue growth. For the year, roughly, how much of your digital ad revenue do you think comes from paying subscribers versus people that are coming on the site for free? What's the sort of breakdown there?
Yeah, I think that's a great question, and I would broadly say that this was the year, and I can't give you a very sharp answer to it, but I think thematically, this was the year that we proved that the key to being a successful, growing digital ad business was being a subscription business first. The sort of high octane gas in the tank of advertising is the same high octane gas in the tank of our subscription business, which is deeply engaged users who feel real affinity and emotional connection to the brand and who come back day after day and form a habit of The Times. That said, we've got, depending on what month you look, somewhere between 130 million-150 million people who use us, and only 4.3 million of them pay us.
We like having a multi-revenue stream business because we are able to monetize all of those who are not yet subscribers.
We think our pay model is growing faster than colleagues and competitors who have got harder paywalls because the porosity of our model allows lots of people to sample the product. The biggest value of letting people look at the Times for free, the biggest single advantage is they get used to the journalism, and many of them get attracted by the journalism. They engage, and some of them ultimately become subscribers. We don't break out the numbers for digital advertising, but it's true that our subscribers also turn a large number of the pages of the Times, and therefore they account for a lot of the digital advertising revenue, is also accounted for by subscribers because of their high levels of engagement. A very significant part of our total digital revenue across advertising as well as subscriptions comes from subscribers.
That doesn't mean that we should simply go for a super hard paywall, both for mission reasons and for the long-term health of our marketing funnel. We believe it makes sense to have a pretty porous model.
My last question is, if I could ask marketing costs. Can you give us a sense on a percentage basis, maybe how much you're thinking that might be up for this year? Or maybe asked differently, in the first quarter, I think you're talking about costs being up roughly 10%. If you took out marketing costs increase, how much would that overall number be up?
Yeah, I'm not going to give you an exact number, but in the first quarter, it's a good percentage of the increase is made up of marketing costs. Really, I think the way to think about it, you've got the commercial printing piece, which is comping on basically 0 last year. That's a large part of the increase. The combination of marketing, commercial printing, product and news together is explaining about 90% of the increase. A large chunk of that is commercial printing. Basically, the message here is the things that we believe are going to drive our subscription business growth and are going to benefit the long-term profitability of the company, those are the things we're spending money on.
Great. Thank you.
The next question comes from Doug Arthur with Huber Research Partners. Please go ahead.
Yeah, thanks. I'd just like to follow up on that. When you put out a goal of 10 million subs down the road, should we expect this marketing investment to continue ad infinitum, or in terms of the step up, probably not a 50% rate, or do you envision some leveling out here in the next four or six quarters? That's question one.
Yeah, I think that's a good and an important question. I don't think you should expect to see marketing costs go up in a linear way as we scale subscriptions. I think marketing has played a very important role and will continue to play a very important role in the model over the last couple of years. Two things to say about that. One, we are spending more today than we have probably at any other point, certainly in the last few years, more. Much more of that money is now going to upper funnel or brand work. I think, you'll see us continue to do that. That pays back over a longer time horizon. That is work that you do, I think, to build relationships and build engagement over the long haul.
I think as time goes on and as we invest in the journalism, the journalism itself begins to play some of that role. I think the best example we have of that today is The Daily, where we're able to sort of explain the story of the story, all that goes into it. That is also what we're doing with a lot of our increased marketing spend. The more that the journalism itself can do that in products like The Daily, The Weekly, in the cues that we put into the product itself, I think the more efficient we can be in our marketing spend. I think the second thing to say about that, Mark and I have now both talked about, and Roland just mentioned it, putting more investment into the product itself.
As the product itself, by which I mean the customer journey, the user experience, the programming that goes into that, as that becomes a better engine of getting people to form a habit, pay and stay, I think over time, there's less pressure on marketing and less of a need to sort of pay to get people to come to us. I just go back to that figure, 130 million people already come to us. They are already in front of us, and only 4.3 million of them pay us. There's a very big opportunity right in front of us where we don't have to go out and create an audience.
This is, I think, a really important point, Doug. That success there, investment in making a fundamentally more engaging, stickier product is, in a sense, one chunk of cost going in, which has a fundamental opportunity to improve the coefficients of engagement and conversion in a way which should make the entire curve steeper. Unlike, for example, a kind of direct marketing expense, which is a continuous expense, and you never get out of that kind of ratio, this is an attempt to make a fundamental change in the kind of geometry and the coefficients of how well the product engages and converts people to subscription.
Okay. That's great. In terms, again, going back to the 10 million, the Cooking and Crosswords, obviously not a big revenue contributor, but 93,000 sub growth in Q4, which is a pretty big number. I would assume in the 10 million figure, you have other products that-
Yeah
You're testing or looking at that may come into play here down the road.
Sure. Let me address that sort of broadly and specifically, and I'll be specific first. We are very pleased with the performance of both Crosswords, which is a relatively mature product. I think we're four and a half years into the pay model on Crosswords, and on Cooking, and I would say we see real running room in both of those products. I think Cooking, I think the fourth quarter was the best quarter we've had so far on Cooking, so better than when we launched the pay model. I think it was our second-best quarter ever on Crosswords. I would say on Crosswords, look out for new games. We've got a new game out in the market called Spelling Bee now, so sort of games, puzzles and games for curious, intelligent people.
We've got a new one coming out that we'll test in the first quarter, and we're seeing real momentum there and see no reason why that growth won't continue. On Cooking, I would say we're just getting started. I think that product, in the product itself, has a lot of opportunity to play a bigger role in people's lives. If you haven't seen it yet, I would point you to. We just launched a commercial for Cooking for our first sort of mid-funnel and upper-funnel brand effort around Cooking, and you get a sense of how much running room the product has by watching that. I think what you're really asking about is do we intend to keep putting more and new products into the market? The answer is yes. We will get a beta out on our parenting exploration, which we launched last year.
We'll get a beta into the market in the first half of this year there. We have a number of other irons in the fire in terms of products around which people have daily habits, where there is brand congruency with The New York Times, and The Times has permission to play in the space, and where there's real user need. All of that said, I think your question is more broadly about 10 million, and I would not underestimate the power of our journalism and particularly our digital products around that journalism to play an increasingly large role in people's lives. In other words, just the market for people paying domestically and internationally for our core news subscription, we think is very large, and we think we've only just begun to get at all the ways our core news product can play a role in people's lives.
Great. Thank you.
The next question comes from Kannan Venkateshwar with Barclays. Please go ahead.
Thank you. I have a couple. First is, I think there was a test in December, or actually there was a promotion run for $2 a week for some time, and obviously you're running a $1 per week kind of a promotion. If you can just help us understand the compare and contrast between those two promotions and how they tend to scale?
Yeah
How the elasticity is. That's the first one, and maybe I'll follow up after that.
Yeah. I think for a lot of the fourth quarter and potentially some, I'm trying to remember, some of the third quarter, we were using in our non-sale periods, $2 a week, and there it's a lot of tweaking around sort of the language of how you describe what is ultimately the equivalent of 50% off, and $2 a week is faring well. We do tend to drive more conversion in our sale periods. When we launched $1 a week, we actually launched it for a sustained period of time in the third quarter, and then we dropped back in the fourth quarter to only running it in our sale periods, which roughly correlate to the last 10 days of the month. If you're following, and occasionally we do a sale because something's going on in the world, so we'll do a one-day sale.
I think that's probably as much as I can say that would be useful to you about that. Roland, do you want to add anything?
Yeah. I'd just like to add, when we have the $1 a week promotion in market, the take rate is such, or the increment in the take rate is such that the amount of new subscriptions we get per $1 of media spend makes it such that the return on this acquisition investment is in excess of our hurdle rate, and we're able to bring many more subscribers onto the platforms per $1.
All right. Thank you.
We're looking at lifetime value, and we're tracking the retention, and as we mentioned before, the retention thus far, about through five months, looks comparable.
Okay. The second question is more around the investment guidance, and I just wanted to understand, as we go through the rest of this year, is this a pickup over the course of this year in terms of marketing and then it normalizes at some point? How should we think about the cadence of marketing spend and how that evolves over time?
Right. We guide quarter to quarter, so I can't give you any guidance out for the year. The investment, the kind of the components of the investment, as we've mentioned before, it's the marketing, it's investing in the journalism, it's investing in our product and how so that the engagement with our readers increases, and the ratio of those items will change over time. You've seen us heavy up on marketing the last few years, and we expect that to continue through quarter one. Eventually, those ratios will change, and as the product develops, we don't believe we'll have to add as much marketing spend to get as much benefit from the other aspects of that circle there, that trilogy of investment. We do not expect the marketing spend to continue to increase linearly.
Yeah, I think without giving any
Precise proportions of them. I think we can say there's another fairly obvious point, which is that marketing spend can commence relatively quickly. The business of hiring new journalists and new engineers takes rather more time. There's a sort of natural phasing of how this investment will appear.
Lastly, Mark, from your perspective, when you think about the pricing strategy, obviously you've had a lot of success with the $1 a week kind of promotions. At the same time, you're testing a higher price point. Longer term, when you think about the product, how should we think about the pricing structure? Will you change this year?
I think we should think of it as trying to exploit the demand curves as effectively as we can to use, as it were, relatively low introductory prices to attract people to become customers. I think crucially, never being exploitative, but being in a relationship with engaged users where we can reflect rising costs with rising prices. Also where we get better and better at bundling additional services. We talked about cooking and crosswords already to, over time, move customers to richer packages and higher price points. What we're trying to do, clearly we're significantly focused on scaling the number of customers we have.
We're also, at the same time, trying to figure out intelligent ways of maximizing aggregate yield by thinking hard, even as we're trying to grow the scale of customers, about how to make sure that reasonably quickly, we're also coming up with answers on yield. As I said in my remarks, we're really focused on margin, especially medium and long-term margin, and looking hard at how to make sure that we're using, and have available to us, levers like price and bundling to make sure that we can maximize yield on the model as well as the simple scale of customers.
Thank you.
The next question comes from Vasily Karasyov with Cannonball Research. Please go ahead.
Thank you. Good morning. I wanted to ask you a question first about The Daily, understand it better. It may be another underappreciated part of the business there. Can you give us any idea about what the usage base is, how is it growing, and how far you think it can grow? What is the monetization model here, and how much it's contributing to the digital advertising growth?
Yeah. Great question, and we love talking about The Daily. The first thing to say is I think it was the most downloaded podcast in America last year. It has a very strong audience, and that audience is still growing. I think the product keeps getting better. We keep investing in the team making the product. I think the product is showing that it's able to move across a range of topics, and I think you're going to see us do more and more with it. As to audience, I think we're now well over 1 million and I think close to 2 million daily listeners. My favorite thing to say about that is there's more daily listeners than the weekday paper ever had subscribers in its very, very long life. I think that's a milestone.
The character of who is listening to The Daily is also great for The Times in terms of the brand reaching in to new audiences. I think Mark may have said this already, but three-quarters of the audience is under 40, and the audience is disproportionately female, so more women than men. All of that is about sort of bringing new audiences to The Times. On the economics, The Daily is a now scaling and very successful ad business. We're essentially sold out all the time. As it grows, we can charge a higher CPM for it, and we can actually just charge more because there is more audience to it, and we now have a good track record of beginning to build programs around The Daily. You'll see us continue to grow The Daily as part of our ad business.
I would say in the ad market generally, audio and high-quality podcasting specifically, is of top interest. The last thing I'll say, which I think has thus far been sort of yet unexplored is, or only minimally explored The Daily as sort of a vehicle to stimulate subscription to The New York Times. You've seen us, if you listen to it, we have gotten a bit more aggressive about running our own marketing inside The Daily, as a vehicle to get people to think about buying a subscription to The Times as a way to support The Daily if they love it and are a listener. When we survey new subscribers, we do find The Daily to be a driver of that. I think we've seen real success with The Daily as a sort of parent of other podcasts.
We launched Caliphate, which was the special series with Rukmini Callimachi, our reporter deep on the trail of ISIS and terrorism. We launched that podcast into the feed of The Daily, and because it was launched into a large organic audience to begin with, it was like an instant hit. It also happened to be a great show, and Rukmini is phenomenal to listen to. That is just the beginning of what we can sort of launch out of The Daily. Then the last thing I'll say is The Daily was the inspiration for The Weekly. We are just at the beginning of all of the new ways that The New York Times can actually make its way into people's daily lives. I think listening to the Daily while you're making breakfast or brushing your teeth, in many ways, is a replacement to morning television.
We see The Weekly coming out in June on Sunday evenings as a replacement to other things that are already out there, and I think we're just at the beginning of that.
Forward with TV.
Yeah.
I think we showed with The Daily that we could move into an area of podcasting, and really break through. We haven't talked much about The Weekly because we've had so much to talk about this morning. It's a big deal. We've seen video. It's very exciting. It arrives in June. Again, who knows what, if that works, if that is a breakthrough as well, what we could do in the TV field as well.
That's very interesting. I think this is the first time you mentioned the economic impact of the Weekly. You said it's cash flow positive right away in the prepared remarks, if I understood you correctly. Would you mind sharing more details how it works? Is it straight licensing?
Yeah, I'm not going to say much more, but it was commissioned by FX and Hulu, so a cable and digital operator, FX, and Hulu, an over-the-top streaming service. The commission and other rights associated with the show means already there is a margin in series one. We're not gonna say how much, but it's already. This has not required, as it were, risk investments from The Times. It's already a margin positive activity.
Thank you.
Now, clearly, subsequent series and the rest of it depend on the success of the show with audiences and with those who've commissioned it. It's an example, and we actually have a surprising number of examples of big innovations that we've managed to engineer in a way which doesn't require substantial risk money.
Thank you very much.
The next question is a follow-up from Craig Huber with Huber Research Partners. Please go ahead.
Thank you again. Your sale-leaseback that comes up in the second half of this year where you can get out of it for those 21 floors. What is the exact date? It hasn't been clear to me for a while what the exact date is when you could potentially get out. I get that question a lot.
Yeah, that's gonna close in Q4, Craig. I don't have an exact date for you, but it will be Q4.
Okay. Is the intention, to the extent you could talk about it publicly, just to hang on to those 21 floors or-
Yeah.
to potentially sell them off?
We don't have a plan to do anything with those floors as of yet, other than to hold them.
My last question is on the new 10 million target. How are you guys thinking about the news-only product as a percentage of the 10 million versus these smaller products, Cooking, Crossword, and the other ones that you're going to launch here? By the time you, if you get to that number, are you still thinking roughly, say, three-quarters of that is news only?
I'm sorry, Craig. We're not gonna give you any kind of guidance on this. It's clearly gonna be a very large part of the total. The product, smaller products, bundle packages, and indeed our great print product are also all gonna form part of that 10 million plus. Just to say, we think of it as a milestone, not a ceiling of what we can achieve with the model.
Very good. Thank you.
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 is now concluded. Thank you for attending today's presentation. You may now disconnect.