Good morning, and welcome to The New York Times Company's first quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal our 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 and 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, Vice President of Investor Relations. Please go ahead.
Thank you, and welcome to The New York Times Company's first quarter 2019 earnings conference call. On the call today, we have Mark Thompson, President and Chief Executive Officer, Roland Caputo, Executive Vice President and Chief Financial Officer, and Meredith Kopit Levien, Executive Vice President and Chief Operating Officer. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call, and our actual results could differ materially. Some of the risks and uncertainties that could impact our business are included in our 2018 10-K. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliation to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com. With that, I will turn the call over to Mark Thompson.
Thanks, Harlan, and good morning, everyone. Well, another encouraging quarter. In the first three months of 2019, we saw continued healthy growth in digital subs, as well as further vindication of our distinctive approach to digital advertising. Demand for our crossword and cooking products was also very strong in Q1. I have some news to share this morning about our very latest product launch. We're in the final stages of preparation for the debut of our new TV program, "The Weekly." Let me begin with journalism. Last month, the Times won two Pulitzers, one for our explanatory reporting for Susanne Craig, David Barstow, and Russ Buettner's 18-month investigation into Donald Trump's family wealth. One for our brilliant editorial writer, Brent Staples, who won the Times' first Pulitzer for editorial writing in 23 years. We also shared in the Pulitzer awarded to ProPublica's Hannah Dreier for feature writing.
Hannah's award-winning work was featured in The New York Times Magazine, among other outlets. These are only three of the dozens of awards our journalists have won over the past 12 months. The mission of this company is to deliver great journalism to the world. We attribute the recent success of our digital strategy to the fact that this mission drives everything we do, including our investment decisions. At nearly 1,600 people, our newsroom is the largest it's ever been, and we plan to expand it further over the course of 2019. Investigative journalism remains a particular priority. Original Times investigations drive user engagement and digital subscriptions, but they also drive America and the world's agenda.
The Mueller report was released last month, and it cited The New York Times more than any other news organization, indeed more than 100 times, concerning both specific episodes the Times revealed and the broader portrait we painted of how the White House operates. Indeed, as recently as last night, we published yet another breakthrough story about Mr. Trump's taxes in the 1980s and '90s. Let me now turn to our results in the quarter. In Q1, we added 223,000 net new digital subscriptions, of which 144,000 were to our core news product. That took the company's total number of subscriptions to 4.5 million. For the first time, digital-only subscription revenue was more than a quarter of total company revenue. Looking ahead, we expect that, as in previous years, we'll see a seasonal dip in the rate of sub growth in Q2.
We remain bullish about our ability to build on our present momentum in subsequent quarters. Over the coming months, you'll see us make some changes to our pay model. We don't have any details of these changes to share with you this morning beyond saying that they're based on extensive testing in the U.S. and other markets, testing which has given us real confidence that we have the scope to accelerate digital subscription growth even further. I also want to call out the progress we're making with our crossword and cooking products. This quarter, the crossword product passed the 500,000 total subscription mark, which makes it, in its own right, the fifth-largest digital subscription product from a U.S. news provider. Cooking is also scaling rapidly and indeed continues to beat every internal forecast we set for it. Meanwhile, today we launch our latest new product, Parenting, in beta.
Made by parents for parents, this new product brings trademark Times authority, authenticity, and edge to one of the most critical parts of many of our users' lives. We're very excited about it, as we are about "The Weekly," our new TV program for FX and Hulu, which launches in less than four weeks' time. I mentioned that we've had another very strong quarter in digital advertising. Revenue grew 19% year-over-year, with growth coming increasingly from directly sold inventory, in particular related to the large-scale commercial partnerships we're securing, as well as from our podcast and marketing services. As you will hear, we expect the strong growth to continue in Q2, aided in part by comparatively easy comps with the previous year. Our digital advertising strategy is unique in the market and it's working.
Print advertising, by contrast, fell by 12% year-over-year. A return to familiar and somewhat deeper declines after the more moderate trends we saw in the second half of 2018. Total advertising revenue was flat. Revenue from print subscriptions also fell slightly in the quarter, this time more in line with recent quarters. The good growth in digital revenue more than compensates for print declines, and total company revenue grew by 6%. Although costs were a little lower than our first quarter guidance had suggested, total operating costs were still 7% higher than a year ago. These higher costs, largely attributable to the additional investment we're making in our digital business, meant that despite the increase in revenue, adjusted operating profit fell from $55 million in Q1 2018 to $52 million in 2019. We expect costs associated with this investment to remain elevated in subsequent quarters.
Let me now hand over to Roland for more detail on the results.
Thank you, Mark, and good morning, everyone. As Mark said, this quarter represents another strong result and solid progress for the company. Adjusted diluted earnings per share was $0.20 in the quarter, $0.03 higher than the prior year. We reported adjusted operating profit of approximately $52 million in the first quarter, which is lower compared with the same period in 2018 by approximately $3 million. Total subscription revenue increased 4% in the quarter, with digital-only subscription revenue growing 15% in the quarter to $110 million. On the print subscription side, revenues were down 2.5% due to declines in number of home delivery subscriptions, as well as a continued shift of subscribers moving to less frequent and therefore less expensive delivery packages. This decline was partially offset by a home delivery price increase that began early in the year.
Total daily circulation declined 8.6% in the quarter compared with the prior year, while Sunday circulation declined 6.4%. Quarterly digital subscription ARPU declined approximately 7% compared to the prior year, and approximately 3% compared to the prior quarter, as 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 resulted in strong net subscription additions in the quarter and other promotional tests, will continue to put downward pressure on ARPU throughout 2019. Total advertising revenue was flat compared to the first quarter of 2018, with digital advertising growing 19% and print declining by 12%.
The increase in digital advertising revenue was largely driven by growth in direct sold advertising on our digital platforms, including revenue sold against our podcasts. The print advertising result was mainly due to declines in the studio entertainment, luxury, and financial services categories, partially offset by growth in packaged goods, technology and education. Other revenues grew 56% versus the first quarter in 2018 to $43 million, principally driven by growth in our commercial printing operations from the Newsday suite of products and from additional floors of rental revenue from our headquarters building, both of which will begin to anniversary next quarter. GAAP operating costs increased 7%, and adjusted operating costs increased 8% in the quarter. Costs grew primarily as a result of marketing expenses to promote our brands and products, expenses associated with our growing commercial printing business, and continued investment in the newsroom.
Although costs grew slightly less than we predicted, we remain committed to scaling our digital consumer business and expect spending to continue at elevated levels in subsequent quarters. Our effective tax rate for the quarter was 4%. The low rate was primarily a result of a tax benefit from the impact of stock price appreciation on our equity-based compensation that settled in the quarter. We expect the effective tax rate for full year 2019 to be between 20% and 25%. Moving to the balance sheet, our cash and marketable securities balance decreased slightly during the quarter, ending at $809 million. Total debt and finance lease obligations principally related to the sale-leaseback of our headquarters building, which we expect will be repaid in the fourth quarter of 2019, were approximately $255 million. Let me conclude with our outlook for the second quarter of 2019.
Total subscription revenues are expected to increase in the low- to mid-single digits% compared with the second quarter of 2018, with digital-only subscription revenue expected to increase in the mid-teens%. Overall advertising revenues are expected to be approximately flat compared with the second quarter of 2018, and digital advertising is expected to increase in the mid-teens%. Other revenues are expected to increase approximately 35%, largely due to the growth in our commercial printing operations and the debut of our television show, "The Weekly." Both operating costs and adjusted operating costs are expected to increase approximately 8%-10% compared to the second quarter of 2018 as we continue to invest in the digital subscription growth drivers of journalism, product, and marketing. With that, we'd be happy to open it up to questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone 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 for a moment to assemble our roster. Our first question today will come from John Belton of Evercore. Please go ahead.
Yes, thanks a lot. Just wanted to ask a little bit about your international subscribers. Maybe an update on what percentage of your base is now made up of international, any markets that have been particularly strong, any way to quantify the impact it's having on ARPU. Finally, if you saw the story yesterday that Amazon may be considering an arrangement where they fund international operations for publishers like yourselves, any thoughts you have on that? Thanks a lot.
Hi, John. I will answer on the Amazon question. First, Meredith, do you want to talk about international subscriptions?
Sure. I think international now accounts for 16% of total subscriptions. Still growing at a rate slightly faster than domestic, but only slightly. We're coming up on a year of renewal for beginning more aggressive price testing internationally, and that's going quite well. As to markets, we have been focused primarily in English-speaking markets outside the U.S., so Canada, Australia, and U.K., and those continue to be strong markets for us. Though I would say we're seeing more diversity around the rest of the world as well. It's a fairly diverse audience in terms of other countries beyond those three English-speaking markets I mentioned.
Okay. I saw the story yesterday about Amazon. Two things. Firstly, it was a story principally focused on Wirecutter, our consumer testing site, and the story claimed that Amazon had been approaching a number of such publishers, proposing to help investment in international expansion of these services. We straightforwardly don't comment on conversations with partners. What I will say about Wirecutter, firstly, again, we're very pleased with its progress. Didn't choose to focus on it this quarter, but it continues to perform extremely well. We do have some international licensing of Wirecutter content. Over time, we will, I think, definitely consider whether there are ways of building an international business for Wirecutter alongside its growing and very successful domestic business. I want to say that's separate from the story, and we simply don't comment on such stories.
John, on the ARPU question, the international is not a significant pressure on ARPU, though it does have a bit of a dilutive effect, it is clearly not the primary driver in the period.
Okay. Thanks a lot for the color.
The next question will come from Doug Arthur of Huber Research Partners. Please go ahead.
Yeah, thanks. Meredith, when you look at this table that breaks down print and digital by display and other, you continue to have very elevated growth in digital other. Is that mostly referral and affiliate revenues, or is that video? What's driving that? I know it was up strong in the fourth quarter. It's up 68% in the-
Yes
First quarter or so.
Yes.
Smallish element.
Sure. I'll answer and Roland, if I'm missing anything just in how we characterize things, you'll weigh in. I think the biggest driver there is probably audio, so advertising revenues from podcasts, which continues to be a big and fast-growing business for us. The Daily is the main driver there, and The Daily is up to 2 million listeners a day. It comes out every weekday, so it is a really big ad product, and as audience grows for it, ad revenue grows for it, and it's very well sold through. I also think in other, we have marketing services, and I would say this past quarter was a very brisk quarter for marketing services.
The combination of the business we derive from Fake Love, HelloSociety, and our original key brand business, which is essentially making content for marketers or driving original ideas through those services is also going very well. Roland, I think that's everything under-
I think I have it covered.
Yeah.
The one thing I'd add is that we are really very excited about both the creative potential of podcasts for Times Journalism, but also for the commercial prospects, both near-term advertising opportunity and medium-term subscription opportunity. I think in a subsequent call this year, you'll likely hear us talking about plans for expanding our podcasting commitments.
Yes, I'll just add there, in the current quarter, we've launched more aggressive advertising for the New York Times in The Daily, and that is working really well. We've got a series of new ads actually from Daily producers about how we go about the craft of journalism, and they're doing really well, and it's helping sort of connect Daily listenership to the funnel for general New York Times online subscriptions.
Great. Just two quick follow-ups. I know you're in beta on Parenting, but assuming that goes well, can we assume that the price points on that potentially will be similar to Crosswords? I'm blanking on the second one right now, but-
Cooking and Crosswords. I think we're not at the-
Thank you.
Yeah.
I'm having a senile moment once again.
Yeah, I'll say we're not going to comment on where we'll set the price at this point, but we are incredibly excited about the launch, and today is launch day. I'll just say, I think this is a space where we saw a real market opportunity to give value to new parents in a way that isn't being fulfilled by other media companies and particularly by other subscription services. We're very optimistic about Parenting. The best early signal we have is we launched a newsletter, a weekly newsletter for Parenting, I want to say five, six, seven weeks ago. We've already crushed our expectations on just people signing up to get the newsletter and then actually engaging with it from week to week. That is already in Cooking.
A lot of the early success on Cooking was driven by a very successful Cooking newsletter, and we are already well ahead, 5, 6, 7 weeks into the Parenting newsletter than where we were for Cooking. At the same time, I think just generally this is our third adjacent product to core news, and so we're better at it than we were 4 years ago when we started this.
Okay, finally, Mark, obviously we're now at the launch point of The Weekly. It's been discussed for quite a while now. I know the costs are pretty much covered. Is there any way you can sort of size what the financial impact will be of The Weekly for the rest of the year?
I want to say, just the one piece of guidance I will give is that the costs are fully covered. We expect that this will be not greatly, but will produce a contribution margin this year. The key thing with this first year is proving out our ability to turn Times journalism into a great TV program in terms of quality, and to find an audience for it. We've now seen quite a lot of video. I'm a TV guy, I think it looks very exciting, very encouraging. Let's see how we do. It will add both to the revenue and the cost line in ways which I think will not, in terms of adjusted operating profit, make a significant difference. If it does make a difference, it will be to the good, not the bad.
I'll make a comment about the sort of medium and long-term impact that we expect to have from The Weekly, which is similar to the impact we've had from The Daily, which is helping us stake a bigger position in a million more people's lives. I'm quite optimistic about that. I think that's going to take a while to bear fruit. As I just mentioned, The Daily is now really beginning to draw new people into the subscription funnel for our core news product, and we expect that The Weekly should have a similar effect. I'll just echo what Mark said. The episodes we are incredibly excited about and can see it having the effect of just making people more interested in journalism and wanting to learn more about the particular stories that we're featuring.
Yeah. The total value to the enterprise from The Weekly, or we expect to surpass what the kind of pure accounting just on The Weekly by itself will yield. We do expect it to be positive, but not enough to reshape our bottom line. Again, that's not really reflective of the real value to the organization.
Got it. Thank you.
The next question will come from Alexia Quadrani of J.P. Morgan. Please go ahead.
Thanks so much. Just on sort of the non-news digital subscribers, going back to that, Crosswords and Cooking have done extremely well in terms of subscriber ads. Can you elaborate on how we should think of those businesses in terms of is there a lot more room to grow, or is the incremental growth coming from the new verticals like the Parenting you referred to? I'm trying to get a sense also about profitability. If you can talk generally about it. I assume the cost structure is less than the news side. I guess anything, Nicole, you can add.
Just broadly, I'll answer the question about where we are in the growth curve, and I would say it's still early in both Crosswords and Cooking. Earlier in Cooking, but let me take each of them. In Crosswords, one of the things we're most excited about is that we are driving a lot of the growth by being able to unlock existing value or put new value into the product. For example, in I think the fourth quarter and again in the first quarter, we put new games out in beta. There's a game called Spelling Bee, and there is an even newer game called Letter Boxed that people are loving and playing very actively. That's having a very positive effect on retention, on uptick.
Just the idea that there are sort of more puzzles and games for the kinds of people who like crosswords, we've got a lot of optimism about running room there, and we've got a really talented team of people who are very active in thinking up and getting ready to release, test, and release new games. I think there's a lot of promise in that. I think there's also promise in just some of the value work in Crosswords itself. One of the things we're working on this quarter is leaderboards, which most games have, where you can sort of proudly show your score to others and get others engaged in the fact that you're playing. I think over time, you'll see us do more around community and collaborative play. We've barely touched that, but there's real opportunity there.
I'll also say on Crosswords, we launched our first, what I would call middle funnel, so not just direct-to-consumer marketing effort in Crosswords, I think late in Q4, early in Q1. That's been really generative for the business and modest as far as expenditure. I'm excited about that. I would say all of the same is true for Cooking, and it's just worth pointing to Cooking is a less mature product, so you could argue there's even more running room there. I would say that's on some of the basic stuff like, just more valuable recipes. We had a really big hit, I think it was in the first quarter, Sam Sifton's No-Recipe Recipes, which has gotten a ton of traction, and you could imagine many more things like that.
We've got a newsletter on weeknight meals that's just at the beginning, but getting a ton of traction. The thing I would say we're not great at yet in Cooking, and you're going to see a fair amount of product work in the coming year on this, is actually getting people to use the product while they're cooking. We see a lot of room to improve there. The last thing I'll say is, as with Crosswords, marketing in the middle and arguably for Cooking at the top of the funnel, just being able to use paid marketing to create demand, is also having a very positive effect. We really exceeded our own expectations in the first quarter on both businesses, but particularly on Cooking, we think marketing played a role.
I'll just say, because you're asking about profitability, we're finding we can spend relatively modest sums of money to drive a lot of marketing energy and demand creation on both products.
I just want to say, Alexia, that the total economic value of these platforms also, you should also think about synergies, via bundling, via the fact that both Crosswords and Cooking provide significant, very valuable content back into our core. Just take the single example, the Mini Crossword, as a habituation tool on our smartphone news product has been really valuable. You should also think about how these products relate not just to the core but to Wirecutter. Something we haven't yet fully developed is the addition of Wirecutter, a product, a review and recommendation layer, which certainly that doesn't really have a relevance in Crosswords, but in Cooking, we think could be really quite interesting. Similarly with Parenting and in the other products, there are more products, as it were, potentially to come after these ones.
Our strategy is for products which make a lot of sense commercially as standalone products, but which can both work with each other and also work with the core to build a kind of constellation of products which are worth more than the sum of the parts.
Yeah. I'll add two more things to that. It was nice to see both in the fourth quarter and in the first quarter, all three products doing quite well. Exceeding growth expectations on all three, and I would say, clearly proving out that we can do that with no product sort of coming at the expense of another, which I think speaks to a very broad audience of people for whom The New York Times doesn't yet play a meaningful role in their life and actually a real opportunity there. The related thing I'll say, and something that we usually get asked about on the call and that I'm excited about is slow moving, but we are seeing over time, the total audience and subscription base for The New York Times becoming younger and more female and more from the center of the country.
I think products like Cooking, Crosswords, other games, Parenting, all contribute to that effect.
Can I just ask about marketing? You brought it up a couple of times.
Yep.
I understand marketing spending's up this year, but could you dissect it a bit? How much is the promotional spending fit into that mix?
Yep.
I guess more specifically, how reliant, and I know there's a lot of components, so it's probably not an easy answer, but how reliant are you, or maybe how successful is another way to put it, are you on the?
Yeah
Promotional spending driving the sub growth?
Yeah. Let me tackle that broadly first and then get at the second question, Roland. You should fill in any gaps that I have here. I think in general, the story on marketing for the last now 2.5 years has been going from complete expenditure, total expenditure on direct response to spending more, but spending across the whole of the funnel, and really quarter-over-quarter, shifting more and more of that mix to the middle and the top of the funnel. I would say now that is the case across core news and cooking and crosswords. Obviously, we spend much more significantly on core news, but the patterns look similar. Just to say what I mean on that, bottom of the funnel is traditional direct response.
We've got a promotion, we're trying to convert through that ad to get somebody to buy a subscription. What we're doing more and more of is mid and higher funnel work, and we would say middle funnel work is getting people to move up in reader count. You've seen these kinds of stories, can we get you to see other kinds of stories? It's getting people to engage in behaviors that we know contribute to a relationship with The Times and ultimately a subscription, but over a longer time horizon. What is that? That's getting people to register and come back and log in, that's getting people to download the app or to sign up for an email, and I would say that's all middle funnel work where you've seen us be more active.
I want to say, we continue to be very excited about and proud of the work we're doing at the top of the funnel, both in core news and now more recently in cooking, where we have released a television commercial. That work is really about sort of the longer-term effect of demonstrating to people how our journalism or our cooking product is both different and worth paying for. I would say we look very closely at the return on the whole of our media mix across the funnel, and while middle of the funnel takes longer to pay back than the bottom of the funnel, and the top of the funnel takes longer than the other two, we are pleased with what we're seeing in terms of payback.
I think over time, you'll see that payback, particularly as we move up the funnel even more. The second thing I'll say, which is your second question, is how should you think about it over time? We have been saying on this call and very broadly inside the building, that the most important commercial work we're doing now is to get the product itself to be the primary engine and a far better engine of getting people to form a habit and ultimately pay and stay with us. By that we mean doing the work on shipping software that helps people discover the content that's going to have the most value to them and want to come back again and again. I think as time goes on, you'll see us get better at that.
We've already gotten a bit better at that, and I think we have a lot of room to get a lot better at that. Ultimately, that means that your marketing gets more efficient because you've got a better engine in the product itself to convert people and to get them to form a habit, pay, and stay.
Hi, thank you very much.
The next question will come from Kannan Venkateshwar of Barclays. Please go ahead.
Thank you. Just a few from me. The first question, I guess, is as you go into the rest of the year, you will start lapping promotions from last year, I mean, the first set of promotional cohorts that came in, I think, in September. Just wanted to understand how you're thinking about that transition, because obviously some of these subscribers will get stepped up quite substantially. What's the plan, essentially, to manage churn on that front?
It's worth saying, Kannan, that we had some promotions similar to the domestic promotion from September internationally before then, and we're already kind of further advanced in some territories around the world. Well, firstly I want to say, we're three months on since the last earnings call, I can report again that we're seeing very good retention of these cohorts as they mature through their first year. I would say there's nothing in the behavior we're seeing which looks different from earlier cohorts who have retained well. We are doing exactly what you think we're doing, we are developing tactics and we'll be, as it were, ready as this group migrate to attempt to make intelligent decisions about what's the best way of treating each subscriber. We have some tests out in the market.
To say the obvious, this is the very significant $1 a week domestic offer is new. To some extent, not just you, but we are also going to go through the process of a year's anniversary, and we'll find out in the real world how that plays out. We're, I think, going to be very prepared. We've done a lot of testing already and a lot of thinking about it, and I would say that as things stand currently, we've got no reason to be anything other than confident.
That we can handle the year maturity of this cohort effectively. No.
I think that's right. I'll add two things. We had a very large number of people on a 50% off promotion just after the election of 2016, and did a ton of careful work to test our way into figuring out the best way to set those people up to full price, and sort of exceeded all our expectations in doing that. We've done a version of this before. The other thing I'll say is we've really advanced, and still have a lot more room to go, but have really advanced in our understanding of what engagement behaviors correlate to renewal and to return. We are both better at how to stimulate those engagement behaviors far better than we were, say, a year ago or two years ago, and better at propensity modeling to know how to treat someone stepping up in full price.
Just giving a little more detail around what Mark said. I'm broadly optimistic, and it's worth saying we are a year in on having done this internationally, and we're not seeing anything other than what we would expect and hope to see in terms of those renewal rates.
That's great. The second question is, I guess when you look at the promotional structure right now, you have a $2 per week promotion beginning of the month, and I think that moves over to a $1 a week later in the month. I think, if I'm not wrong, this has been around now for at least two quarters. Compared to the beginning, when you started this plan versus now, are you seeing people basically wait longer in order to get the $1 offer, versus maybe the first time you launched the offer when people were on the $2 plan? How should we expect that transition to play out and the impact on ARPU going forward?
I have to say, to state the obvious, Ken, we appeal to thoughtful, intelligent people. We've always had the experience. You could go back to the opening months, I think, of the pay model, that consumers are smart about thinking about sale periods. The other obvious point is that at the beginning of every month, people on average will have a nil or low story count. As the month progresses, because the meter resets at the start of each month, as the month progresses, the story count goes up. Our sales have been, or our kind of special offers, have always been timed to the latter part of the month, because that is the time when it is most likely that people are repeatedly hitting the pay gate.
The basic pattern of many of the digital ads in a given month coming in the second half of the month, and indeed in the closing days of the month, is an established pattern, has been pretty much, certainly since I've been here, which is late 2012, early 2013.
Yeah. The three things actually that we're getting better at sort of day by day are propensity modeling to understand how to present offers to people. Based on what we've seen from their engagement so far, what's the offer they're most likely to take? That has a positive effect on conversion. The second thing that I would say we're getting better at is literally just how we articulate the offer itself. $2 is not always articulated that way. There are other ways to present and articulate it, and I think we've still got some running room in optimizing just our messaging there. Then Mark alluded to this, but I'll say even more directly, we're getting better at sort of the managing the right cocktail of flexing the meter up and down as we do this as well.
For example, during the few day period around World Press Freedom Day, which I think was last week, we opened the meter to encourage people to come experience our journalism, and then we tightened it back up at the end of that. Just actually being able to do all of those things together and in concert and understand their collective impact is something we've gotten better at and I think can continue to get better at.
Thanks for that. One last question from me, which is, on all these new products, which is Cooking and Parenting and Crosswords, for example, the subscribers who are coming in on these products, are these new subs who are also adding on additional products, or are these just completely new cohorts that you're bringing into the ecosystem? How successful have you been in migrating them up to the news product, if that's the approach?
I think it's a mix of things. I would say in Cooking, we're generally pleased to see that we're bringing a lot of new people into the mix, and we are barely scratching the surface in cross-promoting the rest of The New York Times and think there's real running room there, both in bringing in many more new people and also getting them into other Times products. In Crosswords, they're slightly to somewhat more likely to be existing Times customers, but some of the point Mark made earlier about thinking about this as a holistic bundle and winning more share of wallet from people. Just as an example of that, one of the best channels we have to get people to buy crosswords is when they have bought the core news product, and fairly close in that time.
I think we see a lot of opportunity to cross-promote across products and into the core, and also an opportunity to bring new people into "The New York Times.
Yeah. It's also worth always remembering that by far the biggest source of new subscribers to "The New York Times" is our core news product.
Exactly.
Very far from saturation, but this product is growing right now stronger than in most of the time we've had a pay model.
Yeah.
Other than this Trump bump. That dwarfs, although we're very, very pleased to get new subscribers from the new products, we're also very happy when we upsell new products to existing subscribers. Our biggest source of new subscriptions remains the core news product.
At this point, we don't imagine that changing. We intend or expect for that to continue to be the dominant product and a growing one.
All right. Thank you.
The next question will come from Vasily Karasyov of Cannonball Research. Please go ahead.
Thank you very much. Good morning. I have a clarification and a question. Mark, in your prepared remarks, you said that in Q2, because of seasonality, you expect a softer growth rate, I believe. Can you please specify, are you talking about growth rate of the subscriber base or sequential decline in net adds? Are you talking about the all digital subs or new subscribers? I think you talked about re-acceleration that you expect after that.
I don't think I want to say much more than I was referring to the number of new subscribers, principally thinking about the core news product. I don't have enough information to be sure about seasonality in the other products, so there's some seasonality in cooking as well. This was suggesting a reduced growth rate in common with previous years. There's no more to be said than that. Roland gave you actually more precise guidance on the revenue side from this. This was simply saying that something which I think people who follow us are very used to, of Q2 being a more muted quarter for digital ads than the other three quarters, we're simply saying no more than we expect that seasonal pattern to continue. It doesn't mean, by the way, that we're suggesting we're going to go in reverse.
We'll still end up with a very significant number of net new subscribers. It's just that Q2 in 2019 we think is likely to resemble Q2 in 2018, 2017, and previous years.
It's worth adding the detail there that it is always a much slower quarter for student subscriptions, which still play a meaningful role, and we always see just a bit less demand in the second quarter.
Okay, interesting. I have a multi-part question. If I look at the release on what you guys said in your prepared remarks, so we see marketing spending still growing but came in below expectations. In the release, you said that you continue to optimize the business in order to get to the 10 million subscriber target by 2025. At the same time, I believe this is the first time when the new subscribers went down sequentially in Q1 versus Q4. Would it be fair to say that you may be seeing less returns on the marketing spending, and now you believe that the next growth in new subscribers will be through product improvement and optimization, like technologically, the interface, search function, multimedia. Can you give us an idea where you think we are in terms of what's driving subscribers?
I will start. I'd like to make a clarification, which is we didn't say that our marketing costs came in under expectations. We said our total costs came in under expectations. Right there, I think you want to understand that fact, not that it was marketing. I think Meredith actually answered this question earlier in the call very well when she discussed the types of levers we're looking at in terms of our product, that we believe over time, not immediately, but over time, will start to feather in and start to change sort of the ratio or the gearing between our marketing spend and our spend on product and the results we get from that. Maybe Meredith can reiterate some of that.
Yeah. I'll just say, the simple way to say it is we have 130 or 140 million people who come to us every month, and only 4.5 million who pay us. There is a giant opportunity, on our mobile web story pages, on desktop story pages, on our apps, to actually make our own platform, through features and value, just a better engine of what gets people to form a habit, pay, and stay. Which over time should have the effect of lifting conversion, lifting engagement, and lifting conversion and engagement while sort of optimizing for audience. That means either over time, the marketing spend gets more efficient, or you're able to spend more at the top of the funnel for the longer term, or potentially you do less of it.
Just to reflect on the Q4, Q1 point you made. It's worth remembering that Q4 was a pretty exceptional news quarter, not least with the midterm elections. I don't regard the comparison between 172 or whatever it was, and 144 as being significant in terms of the overall track of the model.
Thank you.
The next question will come from Craig Huber of Huber Research Partners. Please go ahead.
Thank you. I want to ask a question here on the cost if I could, first. If we take out marketing costs in the first quarter, what was the percent change year-over-year for the remaining costs, please? I guess if we could also take out the commercial printing, the new content.
Well, if you start here, if you just look at the production costs. Because marketing's in SG&A. If you just looked at our results on production costs alone, you would see it was up about 8.9%. About half of that was due to commercial printing, which we are at full bore in Q1 of 2019 and had not started up yet as of Q1 of 2018.
Okay. What about the SG&A line then, if you take out marketing there, what's the % change there, please?
It's basically all marketing.
Basically flat, excluding that. Okay. That's helpful. Thank you. Then switching over, your podcast, The Daily, with roughly 2 million listeners and so on. I'm just curious, how successful have you been here monetizing those folks, basically upselling them to buy your digital products, the news-only product in particular? It seems like a big opportunity long term for you guys.
I would agree. It's a very big opportunity long term. Mark alluded to that before. I think it's a successful and growing ad business with the potential to be even more successful kind of in the near term and over time, but probably in the long view, even more important as a driver of making our journalism play a bigger role in people's lives and ultimately getting them into our subscription funnel. I'll just say. There are many remarkable things about The Daily, but at 2 million daily listeners, it's more listeners than the weekday paper ever had subscribers, which is kind of in and of itself, a feat. The audience is substantially younger, more likely to be female. I think 75% of them are under 40. The listen through rate, I'm sure there's a more technical term for that, is amazing.
Most people who listen to The Daily listen to the whole Daily.
Which is effectively 20 minutes of
Yeah. 70-
20 minutes of engagement on a smartphone is an astonishing number. Anyone who looks at smartphone engagement and the durations, it's an astonishing amount of time to have someone's attention from a smartphone device or indeed.
Yes
... one of the in-home Echo or Google Home devices.
I'll tell you the ways we are beginning to, not publicly, begin to leverage The Daily more effectively, and that'll give you a sense of what we might do over time. One, it is the parent of other programming that really can become a hit quickly. We launched the Caliphate series, which is both critically acclaimed and also successful as a commercial product, which was our series with Rukmini Callimachi following ISIS and terrorism broadly. That was a special series that was launched in the feed of The Daily, and because we were able to call attention to it from The Daily, and then, of course, because the quality was so good, it's made by the same team that makes The Daily. That's a good representation of what you could imagine us doing with other shows.
I mentioned earlier, but it's worth saying again, The Daily is a very successful paid ad product with even more room to be successful in year. It is also proving to be a successful place for us to run our own ads that help people understand how the journalism that we do at The Times is different and worth paying for. The spots, if you listen to them, for our own products, are really about the craft, and they're done by The Daily producers. I think the container of The Daily is a uniquely good place to be able to extend that message, and we're super excited about that. I would say all of this is just at the beginning. The last thing that's worth saying is that the use case for audio journalism is giant.
If you think of all the things that people can, the places or spaces in people's lives where they can listen to quality journalism versus read or watch it, we just think it's a giant use case.
The age-old question here, is your company giving away too much of your content away for free?
I-
I wanted to ask along that line there, Meredith, is there any internal talk about tightening up your paywall further here and/or starting to ask people to register to be on your news website, for example? I know you've talked about this in the past, but where is that sort of discussion at now, please?
Yeah. I would just broadly say the level of influence that the Times has been able to achieve for its journalism is first because of the quality of the journalism and how different it is in sum from everything else out there. It is also because we have been deliberately porous in our model for mission reasons and to continue to see that we can create demand for that kind of journalism. I expect we will always have porosity in the model. We've been very aggressively testing all different kinds of things related to the pay model, many of which you would have been able to see in the first half of this year so far. We've tested, and I mentioned this before, being more flexible in different periods of the month or tied to events in the world on the meter itself.
We've been testing different versions of free trial. We've been testing exchanging registration and login for more access to the journalism in the spirit of having people make a relationship or begin a relationship, a non-paid relationship with us, with the idea that we can better engage them in the journalism over time. We've got some test slides right now around truncation. I would say all of these present an opportunity for there to be a cocktail of things that we do that more deliberately balance porosity and friction, and we'll have more to say about that in future quarters. I would not imagine a The New York Times that doesn't continue to have sufficient porosity to see that our influence continues to be as high as it is.
What is absolutely clear, Craig, we announced three months ago a new target of over 10 million subscribers to get past the 10 million milestone in our subscribers by 2025. We're very clear that to do that, we're going to need growth acceleration, and we're going to need to get many more subscribers per quarter, per year than we are at the moment. The tests that Meredith's talking about are very much aimed at finding ways of doing that. Again, I'd say as we work through this year and in the coming quarters, I think you'll hear us talking more about how we're planning to do that. Great. Thank you.
This will conclude our question and answer session. At this time, I'd like to turn the conference back over to Harlan Toplitzky for any closing remarks.
Thank you for joining us this morning. We look forward to talking to you again next quarter.
The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.