Good morning everyone, and welcome to The New York Times Company's first quarter 2018 earnings conference call. All participants will be in a 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 and then one using a telephone keypad. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. This time, I'd like to turn the conference call 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 first quarter 2018 earnings conference call. On the call today we have Mark Thompson, President and Chief Executive Officer, Meredith Kopit Levien, Executive Vice President and Chief Operating Officer, and Roland Caputo, Executive Vice President and Chief Financial 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 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 Toplitzky, and good morning, everyone. Q1 2018 was another strong quarter for the company, with overall revenue up, profit up, and continued strong growth in our digital subscription business. We've won three more Pulitzer Prizes since the last time we spoke to you. The Pulitzer for Public Service for our reporting of sexual harassment, the sixth Public Service Pulitzer in our history, more than any other media company. The Pulitzer for National Reporting for coverage of Russian interference in the 2016 presidential election. The Pulitzer for Editorial Cartooning for a strikingly original illustrated series in our opinion section about Syrian refugees in the U.S. The cornerstone of our entire strategy as a company is investment in the best journalistic and creative talent in the world, and it's very pleasing to see it honored in this way.
Indeed, today is World Press Freedom Day, which has been marked every May 3 for the past 25 years. It's meant to remind people of the perils faced by journalists around the world, and unfortunately, this year it's more important than ever to take notice. We're in the middle of one of the deadliest weeks anyone can remember for journalists around the world, with many killed in Kabul, one in Gaza, and scores more imprisoned around the world. Too often, journalists risk their freedom, and in some cases their lives, to report the truth. Our business is based on the pursuit of that truth, and we stand with our colleagues around the world in defense of our profession's responsibility and commitment to free and fair reporting in the public interest. Now, turning back to the business of the call.
We have a new CFO, Roland Caputo, who you'll be hearing from for the first time in a few minutes. Now, we interviewed many internal and external candidates for this key role and appointed Roland because of his combination of strategic imagination and operational mastery, and because we judged him best able to help us accelerate our digital transition. I'm really looking forward to working with him in this new role. Let's turn now to the quarter, beginning with our digital subscription business. We added a total of 139,000 net digital subscriptions, of which 99,000 were to our digital news product and the balance to our crossword and cooking products. We entered the quarter, therefore, with a grand total of 2,783,000 digital-only subscriptions. Total subscriptions, including print, are now in excess of 3.7 million. Retention of our core digital news product remains a very encouraging story.
We continue to retain the post-election cohorts, some of whom are now well over a year into their subscriptions, at least as well as earlier cohorts. Revenue from our digital-only subscription business was up nearly 26% compared to the same quarter a year earlier at $95 million, while print subscription and single copy revenues were down less than 1%. Digital subscriptions are clearly a success story for The Times, and we believe there's real scope to accelerate progress further. In recent quarters, we've been ramping up both brand and direct marketing spend and will continue to do so as long as the investment makes sense. Let me turn to digital advertising.
As I've said in previous calls, the character of our advertising model, with its increasing reliance on strategic commercial partnerships and often large individual campaigns, means more lumpy results than was the case, say three years ago, as individual partnerships and campaigns come on and off stream. As predicted, this variability, combined with somewhat lower audiences compared to the post-election and inauguration highs of the first quarter of 2017, mean that Q1 2018 got off to a subdued start with the digital advertising revenue in the quarter falling 6% year-over-year. We're very pleased with our pipeline, however, and while we expect Q2 to be another down quarter, we're confident we will return to solid year-over-year growth in digital advertising revenue in the third quarter.
In a rapidly evolving digital ad marketplace, we believe that our differentiated offering, the safety of our environment, and the growing desire of the world's biggest brands to associate themselves with The Times, position us for success. Print advertising performed better than we expected in the quarter, declining by only 2% compared to the same quarter a year earlier. We do not view this as a new trend, however, and as you'll hear, expect the decline rate in the second quarter more like some of those we experienced in 2017. Adjusted operating costs were $10 million higher in the first quarter than the year earlier, as we continue to invest in Times journalism and digital products.
Given the significantly higher overall revenue, driven in particular by that growth in digital subscriptions, the net result for the company as a whole was adjusted operating profit of $55 million compared to $50 million a year earlier. In previous earnings calls, I've talked about innovation in areas like VR, AR, and audio. This year you'll see us turn our attention to television. First up, at the end of May, is an independent Showtime documentary, where the Times newsroom and our coverage of the first year of the Trump administration is a subject. We have our own projects in the works, including a recently announced agreement with Anonymous Content that will help us accelerate moving Times journalism into film and TV. The first big project coming from this arrangement is a planned feature film based on the Times coverage of the Harvey Weinstein story.
We're developing our own TV offering, which we expect to do on television what our podcast, "The Daily," has so successfully done with Times journalism and audio. More news on that project is coming soon. Now, for more detail on the quarter's results and with guidance for Q2, let me hand over for the first time to our new CFO, Roland Caputo.
Thank you, Mark, and good morning, everyone. Before I begin discussing the quarter this morning, I'd like to thank everyone for the warm wishes that have come my way over the past week. I'm excited by the prospect of enabling the company to execute on subscriber-first strategy in order to further accelerate top line digital revenue growth and long-term profitability. Given my background as a business operator, I also look forward to the opportunity to continue to improve operational excellence across the organization. Now let's get to the quarter. As Mark said, this quarter represents another strong one for the company. Adjusted diluted earnings per share was $0.17 in the first quarter, compared with $0.10 in the prior year. We reported adjusted operating profit of approximately $55 million in the first quarter, compared with an adjusted operating profit of $50 million for the same period of 2017.
Total subscription revenues increased 8% in the quarter, with digital-only subscription revenue growing 26% in the quarter to $95 million. On the print subscription side, revenues were down slightly due to decline in single copy revenues. Total daily circulation declined 9.4% in the quarter compared with the prior year, while Sunday circulation declined 7.1%. These declines reflect difficult comparisons with the first quarter of 2017, when we experienced elevated post-election demand for the newspaper. Volume declines were mostly, but not entirely, offset by price increases for both home delivery subscriptions and the single copy daily cover price. ARPU on our digital-owned news products increased sequentially in the first quarter, as subscribers who initiated subscriptions in late 2016 and early 2017 continued to cycle off of promotions and graduate to full price. We expect this improving trend in ARPU to continue. Moving along to advertising.
We reported that total advertising revenue declined 3% compared to the first quarter of 2017, as both print and digital advertising were lower in the period. The 6% decrease in digital advertising revenue was driven by continued declines in direct sold desktop display, which more than offset growth in smartphone advertising. Print advertising, while lower than the first quarter of 2017 by 2%, showed strength relative to recent trends as declines in the luxury, retail, and entertainment categories moderated considerably in the quarter and were mostly offset by growth in the media, advocacy, and financial categories. On a monthly basis, compared to last year, overall advertising revenue declined 3% in January, grew 2% in February, and declined 9% in March.
It's worth noting that these monthly results were slightly skewed as we published the T Magazine in February of this year, while the comparable issue was published in March of 2017. Because of this, the February 2018 result was boosted by approximately 3.5 percentage points, while March was depressed by a similar amount. Other revenues grew 5% versus the first quarter in 2017 to $28 million, principally driven by affiliate referral revenue from the product review and recommendation website, Wirecutter, as well as from our commercial printing business. This growth was partially offset by a decline in our live events business. In the quarter, we completed the renegotiation of our drivers' collective bargaining agreement, which culminates a multi-year effort to renegotiate all of our major craft union contracts. This has resulted in two significant benefits.
First, it has allowed us to reduce current and future operating costs related to the production and distribution of The New York Times newspaper. Additionally, it enables us to further monetize our College Point production facility through commercial printing. In the first quarter, we began producing and transporting the Newsday family of products and expect transition of this work from Newsday facilities to our College Point facilities will be complete by the end of the third quarter. Both GAAP operating costs and adjusted operating costs increased 3% in the quarter. In both cases, the cost increase was related to higher compensation costs, which were partially offset by lower print production and distribution costs. In the quarter, we reported one special item, which has been excluded from our adjusted results.
This nearly $2 million charge represents non-capitalizable expense related to the reconfiguration of our headquarters building to make more space available for rental income.
We have signed leases for four and a half floors, and we expect to begin recording rental income in the second quarter. We anticipate recording rental income on the remaining floors in the second half of this year. As was mentioned on the fourth quarter call, the rules with respect to pension reporting have changed. Beginning with this quarter's results, interest costs, amortization of prior service credit, and gains or losses from our pension and other post-retirement benefit plans have been presented outside of operations on a new line item titled, "Other components of net periodic benefit costs." The service costs related to our pension activity will continue to be presented within our operating results. We believe this is a fairly immaterial change for us as we have historically adjusted most of these items out of our non-GAAP adjusted operating profit measure.
Previously, however, our adjusted operating profit included the benefit of prior service credits, which, as I noted, are now presented outside of operations. Our prior year's results have been recast for comparability purposes. The change in this item increased our adjusted operating costs, thereby lowering adjusted operating profit by approximately $2 million for the first quarter of 2018, approximately $2.4 million for the first quarter of 2017, and approximately $9.7 million for the full year of 2017. Our effective tax rate for the first quarter was approximately 20%, as compared with 45% in the first quarter of 2017, a result of the tax legislation that was enacted late last year, as well as a one-time benefit from stock-based compensation. Moving to the balance sheet, our cash and marketable securities balance increased during the quarter, ending at $749 million.
Total debt and capital lease obligations, principally related to the sale leaseback of our headquarters building, were approximately $251 million. Let me conclude with our outlook for the second quarter of 2018. Total subscription revenues are expected to increase in the mid-single digits compared with the second quarter of 2017, with digital-only subscription revenue expected to increase approximately 20%. Overall advertising revenues are expected to decrease in the low teens compared with the second quarter of 2017, and digital advertising is expected to decrease in the high single digits with a return to solid growth in the third quarter. Other revenues are expected to increase approximately 25%.
Operating costs are expected to increase in the low-single digits, while adjusted operating costs are expected to increase in the mid-single digits compared with the second quarter of 2017 as we continue to invest in marketing and other efforts to drive incremental subscription growth. With that, we'd be happy to open it up for questions.
Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask your question, you may press star and then one using a touch-tone telephone. If you are using a speakerphone, we do ask you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. Our first question today comes from John Janedis from Jefferies. Please go ahead with your question.
Thank you. Mark, a few weeks ago, you talked about the relationship between news providers and how they're thinking about news content and the digital players. Can you give us a little more color on your view on how this is going to evolve and to what extent this creates a larger growth opportunity for the company?
It's just worth starting, John, by saying that we have a thesis at The New York Times about being a destination, and wherever we can, we want to draw readers into deeper engagement and into direct consumption of The New York Times, on the mobile web or on our apps. Because of that, I think we, in a sense, when we think about major digital platforms, when we think about Facebook and Google, often we're thinking about how we can get a marketing advantage by our prominence on those platforms, how we can work with them to get Times journalism widely distributed. Of course, also how that can ultimately lead to deeper consumption and to revenue, both of an advertising kind, but of advertising revenue and ultimately subscription revenue.
I want to say that the overall context of pretty searching questions being asked in particular about Facebook, we think are broadly net positive for The New York Times. In recent conversation with Facebook, they've made it clear that they want to somewhat reduce the total prominence of news on the Facebook platform, but within that, to give greater prominence to the most trusted news sources. They've said to us quite explicitly that they believe The New York Times, from their own data, is a good example of a trusted brand. That shift, we think, will certainly not harm us and could help us. We're deep in dialogue with Google as well about ways of differentiating high-quality news and of working effectively together to boost our particular thesis around engagement and subscription.
I'd say that events in recent months, like the Google change on the so-called First Click Free policy and the arrival of Subscribe with Google are both examples of Google listening quite carefully to our needs. We're less dependent on the major platforms than many other publishers directly for revenue. Generally, I would say our relationship with the big platforms is good, and net-net, I think, the developments of recent months are to our benefit rather than disbenefit.
Okay, thanks, Mark. Maybe separately, I was hoping you can give us an update on your new subs, meaning, again, as you approach 2.5 million, do you see any reason to widen the net? Are you still seeing good demand from corporate and education? I guess to wrap that up, 5 months in, what are you seeing from lowering the wall to 5 free articles a month from 10?
Okay. No, I'll hand over to Meredith to give you a detailed answer to that. Just to say, the one thing you didn't mention there, which I think I would say we're very encouraged by, is the extent to which the combination of the news cycle and new marketing tactics and indeed new journalism in key markets like Canada, Australia, and the U.K. are really helping with the story of striking acceleration in the numbers of new subscribers coming from outside the U.S. I think our international story is a really encouraging one. Meredith, do you want to answer the other question?
Sure. I may not do this in perfect order, John, and I may miss one or two because there were a few questions in there, so stop me if I do. Broadly, I want to say, to start, we had a very good start in the first quarter, I think our best one in 3 quarters, and I think that bodes well for the future. That is in part because of the change we made to meter count. I would say we did a fair amount of testing as to what the results would be from taking the meter from 10 to 5, and our results are broadly in line with what we expected to see. You generally get more people to the gateway, and you convert better.
We're doing quite a bit of work on mobile conversion specifically, and I would say we are just beginning to get better at that, and there's a lot of running room there, so you can see us continue to improve there. I think you asked about education and corporate. I will say, in general, we are optimistic in both of those places and we have quite a bit more running room in both of them. On the corporate side, I'll say we've made a very big investment in business coverage at "The New York Times" over the course of the last year, and you can sort of see day by day, week over week, more business stories, greater breadth, more reporters being hired, more hard-hitting coverage. As we do that, I think you'll see us explore what that means in terms of more corporate subscriptions.
I think that's going to be good for direct-to-consumer subscriptions as well. We have some focused efforts around EDU, which you can expect to see us launch in the back half of the year. I can't remember if you asked about international, but I'll say this was also a very good quarter for international, and we've gotten more sophisticated in our ability to play with price internationally, and we did some positive experimentation in the U.K. and Europe in this quarter, which paid off nicely.
Great. That's helpful. Thank you.
Our next question comes from Doug Arthur from Huber Research. Please go ahead with your question.
Yeah, thanks. 3 questions. Roland, when you talked about ARPU, digital subs and digital subscription revenues were roughly up the same amount year-over-year in the quarter. So when you talk about improvement in ARPU, are you talking about increases or are you just talking about stabilization? That's question one.
Actually, sequentially, if we look at Q1 versus Q4 of 2017, we've got an increase, an absolute increase, albeit modest, but an absolute increase in ARPU.
Okay. On a sequential basis. Okay. As these promos roll off in impact from a year ago, it sounds like you think that's going to continue to improve somewhat over the course of the year.
Right. The biggest factor to look at is the percentage of folks that are on full price compared to the new ones coming in on promotion. For a number of quarters, we've seen the gap, the year-over-year monthly gap in ARPU, we've seen that being closed. Now we see actual ARPU increasing. Again, this isn't guidance, but if you just, for illustrative purposes, you think about a world where we continue at the same level of acquisition that we've experienced recently, you will see ARPU increase, and you will see the gap between last year's month-over-month ARPU continue to close and eventually tick up and exceed.
Yeah. Terrific. Okay. Two other questions quickly. Given the print volume declines on circulation, is it too crazy to think at some point you might consider a price decrease to print? I know that's the Holy Grail, but these are pretty thunderous declines in volume.
Well, if I can just, Mark, I do want to say that I think Q1 2017.
Yeah
was a rather unique point in time. This is the immediate aftermath of the 2016 election. It's the run-up to the inauguration, and there was a quite disproportionate, you can see this in the digital page views for The Times in the same period, an absolutely intense, almost obsessive focus on the news. It's still very strong today, but not as strong as it was in this peak. That had a one-off effect. It was probably the best quarter for print in, I don't know, a decade maybe. I wouldn't read too much into the point-in-time year-over-year comparison. I'll hand to Roland.
No, I would make the same point. I would just go back, and if you looked at Sunday, specifically in Q1 of 2017, it was flat year over year. We've not been up against comps like this in quite a long time.
Okay, finally, on the rental income, is that going to go into other revenues? Can you update us on what you ballpark range think that could look like in a year or so?
Well, the answer to the first part of the question is yes, that is going to roll into other revenues. We've got four of the seven additional floors assigned to leases, and we're still working on the others, and anybody who's ever bought a house or rented an apartment knows these aren't done till they're done. I don't want to make an assumption necessarily on what that rent would be. Ultimately, we'll have double the number of floors generating rental income than we have today.
Which gives you a broad guide. What I want to say, Doug, is that we're doing as well, maybe even slightly better than we thought we would in terms of the floors we've rented so far. We're very pleased with the results so far, confident about filling the rest of the space. It's very much going according to plan. A rough reckoning will be to look at the rental income we've already got.
Terrific. Thank you.
Our next question comes from Craig Huber from Huber Research Partners. Please go ahead with your question.
Yes, hi. A few questions. I'll start with the housekeeping one, if I could. What are you expecting for the tax rate for your company, adjusting for one-time items this year, please?
You can look at the base tax rate as being somewhere between 26%-27%. Any individual quarter will have a variance from that in terms of our effective rate, could be up or down. I think if you use 26%-27%, that's a good assumption.
For the full year, or are you saying for the remaining three quarters? Because you're obviously well below that in the first quarter, as you said.
Right. I don't know which way the adjustments will come in the next three quarters. For the entire year, I'd say a safe number is 26%-27%. That's our base rate.
Yeah. You're saying that's like the benchmark, as it were, although there's often variation, that's the benchmark that we would think of for modeling purposes.
If we could switch over to your digital subs, is it fair to say that the international piece of that was roughly, say, 13%, 14%, 15% of the total?
Yes.
Actually, a little bit higher than that in this quarter.
Yes.
We did better, but the average overall for the entire base is about 15%. Yeah.
Okay. The addressable market here, Mark, as you think out here for the digital subs, let's just dream a little bit. If you think out five years from now on your digital subs, what are you thinking just from a budget standpoint, what do you think possibly this could get to? I guess I'm trying to also get to how many people on a global basis access your times.com and on the paid side of it, how large do you think this could actually be in terms of the number of millions of people three to five years?
We know that, depending on the month, 30, 35, 40 million people from outside the U.S. are coming to us. That's simple, straightforward, current international reach. We know that slowly but surely, the percentage of international subscribers is increasing, and I would say that there's some evidence in the incoming cohorts of subscribers of an acceleration relative to domestic subscribers, though domestic subscribers also continues to grow strongly. The overall addressable market, if we think of a group of people around the world with college degrees, let's say, these are rough indicators of potential for The Times, and with a good command of English. There are many hundreds of millions of people in that category, and you wouldn't need to penetrate to that market very deeply before you had a much, much larger subscriber base.
I've talked publicly in the past about an aspiration of 10 million or more digital subscribers. I think you should take that more as an order of magnitude rather than a precise target. I believe that given the enormous scale of the addressable market, given the progress we're already making, and now the successful steps we're taking in some international markets, both around how we apply relatively modest investment in new journalism, often using a small number of journalists and opinion writers, live events and other tactics to increase our profile and the new tactics we've got around pricing and around how we market in these markets encourage us to believe that we can continue to grow very substantially. I want to say, I said that we've now got grossed up digital and print, more than 3.7 million subscribers as of today.
When we think about 10 million, we're talking about a 3x increase, recognizing that over the time I've been chief executive, we've already seen a more than 2x increase in subscription. For me, without being fanciful, I think there's potentially a great deal of scope for this model to grow, and indeed to grow in a way which will not see the direct costs growing at the same rate. At the level of contribution margin potential, even when we think about the marketing costs associated with the growth, an attractive business profile for the growth as well.
Also two more questions, if I may. If you could just talk about the ARPU number for your digital subs in the first quarter. It looked like to us it was up roughly $0.30 versus the fourth quarter. If you adjust the fourth quarter for the extra week, is that roughly how the math works for you guys?
Well, I want to say, ARPU is not a number we disclose. We disclose numbers of subscribers, and we disclose revenue. Get out the calculator, I would say.
Yeah, there's just some confusion out there that people have had. I've been hearing not adjusted for that extra week. I just want to hear your thoughts on that. My last question-
I'm looking at Roland, who's frowning, it must be said. Do you want to address the issue of weeks?
Sounds like a no at this point.
Are you talking to me? Sorry, Mark?
Yeah. I understand the point, the question you're asking. I'm not sure we've got an answer for you. What I want to say more broadly is what you heard earlier about the improvement in ARPU, and the fundamentals around that, which is a higher proportion of the file being on full price. That being the reason, because we had a very big cohort of people in intro offers. A very high proportion of those were successfully converting to the full price. We're naturally seeing an improvement in ARPU. That's undoubtedly what we see. When we look ahead to the rest of 2017, we think the story in ARPU is going to be a positive story.
The only thing I'd add to this is, although ARPU is clearly important, when I think about this aspect of the business, I'm most interested in the extent to which we can continue to strongly grow the total digital revenue. If, as it were, we're successful in accelerating our model, so we have more people coming onto the fold, again, paying in their first year, let us say, half price, so that has a downward pressure on ARPU. As long as the total amount of digital revenues continue to grow strongly, I'm very happy. We're at a point where we're trying to grow the numbers of subscribers and the business as a whole. We know from our print business, that certainly on the print side, we have very strong pricing power. We believe in digital as well.
Such testing as we've done encourages us to believe that as and when we decide we want to move ARPU up by implementing price rises, we will be able to do that without excessive churn. I would say, just in terms of the overall management of the company, I feel very comfortable about the situation on ARPU.
Craig, thinking about the question of 13 and 14 weeks, if you imagine subscribers signing up cumulatively on a smooth plane, and the basic offer being promotion for 52 weeks, I don't really see how 13 versus 14 weeks really affects this. Because what we're talking about is, as I mentioned before, the real driver, the main driver being the percentage of folks paying full price relative to the percentage of folks on promotion, which is mixing together to get to our ARPU. Whether there were 13 or 14 weeks in the fourth quarter of 2017, someone's offer is still for 52 weeks. If you can imagine the mouse going through the snake, that's not going to change that. As we continue to have more people on full price, that ARPU trend is going to be trending upwards, as I mentioned before.
Thank you for that. Let me just ask one more, if I could please. On the cost front, your cost outlook for the second quarter, I guess the adjusted cost is up mid-single digits. I assume a good chunk of that is because of extra marketing costs. If you backed out marketing costs, is the cost more like flat year-over-year? What's driving them, I guess I'm trying to get to?
Well, it's a couple of things. It's not just the marketing costs. A decent portion of the cost growth is due to additional hires in a couple places in journalism, and those who are supporting our digital growth initiatives, and investing in new products.
There's a few things going on. It's not just marketing, although marketing is an important part. Great. Thank you, guys.
Our next question comes from Alexia Quadrani from JP Morgan. Please go ahead with your question.
Hi, thank you. Sorry to stay on the same subject, but I'd love to sort of follow up on some commentary on the sub-growth guide going ahead for this full year. I know you don't give a number anymore, but you sort of give us commentary, and you gave a lot of helpful positive data points that are very encouraging, which I appreciate. Anything that we might be missing, either positive or negative, whether it's marketing campaigns, patterns you saw in the quarter, that just might give us a better sort of more data point to kind of make our own conclusion of what the sub numbers will look like, digital sub-only numbers will look like for the rest of the year.
Sure.
Go ahead. Yeah, I have one more after that.
Sure. I'll take that. I'll say a few things. One, we think the midterms is going to present a vigorous news cycle, and so we expect to see audience be very robust in the back part of the year, and we think that'll have an impact on digital subs as it did with the presidential election of 2016 and the immediate aftermath. We are thinking hard about that. Alexia, I think we're getting much more sophisticated about how we market. The right sort of cocktail of brand versus middle funnel versus direct messaging and the right media mix. As we get better at that, I think you're going to see marketing play a more meaningful role in our ability to drive subscriptions. I think we're also getting more effective at driving what I would call virtuous behaviors.
Engagement in the form of people getting closer to the gateway where they have to subscribe, getting them to read one more story, and also doing things that we know make them engage more deeply, like signing up for newsletters or registering and logging in with Times. You're going to see us unleash more effort around all of that.
Thank you very much. Just on the digital advertising side, looks like it gets a little bit worse in this current coming quarter before it sort of gets better in Q3, per your guide. I guess anything we should know a bit more on what's causing both of those deltas, particularly the one where it sort of takes a little bit of a dive before it gets better?
Sure. I think Mark has said, and I've said in previous calls, that the business is getting more driven by large commercial partnerships. I think a partnerships business is sort of inherently lumpier because it takes more time to get partnerships into the market. We do have a fair amount of visibility into our pipeline, and we are quite optimistic about that pipeline for the back half of the year. That's why the guide to a return to solid growth in the back half of the year. In the first half of the year, we saw, in the first quarter, some depression on page views just comping against in Q1 the election. We've also seen, and I think this explains the full sort of media story in the first half of the year, we're continuing to see the audience pattern shift to mobile.
In mobile, in direct sold mobile, our CPMs are generally, I think, higher than many others in the market, but lower than desktop. As that shift continues, you feel pressure there. Then I would say in the first half of the year, category shifts from in different parts of the year, and we play in virtually every category. There's a small number of categories that we have assumed would be in what we would call structural decline, categories like classified and real estate. I would say those declines, we have some exposure to that in the first half of the year, and those declines are just happening faster than we expected. I'll also say the comps get meaningfully easier in the back half of the year.
Yeah. I want to say, Alexia, we remain very confident about our thesis about-
Absolutely
Digital advertising. I can't remember a time where the conversations with, as it were, the chief marketing officers of the world are so positive about us and the potential for really large scale partnerships. Some of the partnerships we're signing up to are individual campaigns are for many, many, many millions of dollars. The era where a single campaign can be worth more than $10 million to us, we're definitely there and we're seeing that.
That's right. I would add just to Mark's point, brand safety, deep engagement, bigger, more beautiful ad canvases, and frankly, fewer of them on pages, are all things that marketers are seeking right now, and those are all things that The New York Times is selling. That's why the optimism for the back half of the year and for the long haul. I'll also say we just introduced, and I may have mentioned this on the last call, a couple of new and very promising data products that are grounded in our first-party data.
What we can know based on the context of what people engage with on The Times, and we did a formal introduction of those to the market at our NewFront at the beginning of this week. We're very optimistic about those having impact in our media business specifically, where in the first half of the year we feel the pressure because of the shift to mobile.
All right. Thank you very much.
Our next question comes from Kannan Venkateshwar from Barclays Capital. Please go ahead with your question.
Thank you. Just a couple. First on the trend lines during the quarter. Would it be fair to say that, as you ramp up marketing for later on in the year, the second derivative of growth that we are seeing, the 100,000-odd sub growth for the last three quarters, that should accelerate? From a pricing perspective, I think, Meredith, you mentioned a couple of campaigns internationally and a bigger focus on the educational segment.
Yes.
Does that mean the sequential improvement in ARPU that we've seen, that trend line could temporarily reverse as you push deeper into some of these initiatives? I have a follow-up.
Yeah, let me take pricing first, and I've said this in prior calls. I think we have opportunity at both ends of the demand curve on price. We are seeing real success with cooking and crosswords, getting higher uptake on our more expensive bundles, and I think you're going to see us continue with that. We are just beginning to market those products, particularly cooking, more aggressively. I think cooking is a seasonal product. You'll see more of that in the back half of the year. We've also revved up the engine on a third product that we announced an exploration on parenting, and we're not going to stop there. I think because of that and because of the trends that Roland described before, you can imagine continued improvement in ARPU.
On the other side, as international becomes more and more important, and we are getting better at price experimentation there, particularly in what I would call rest-of-the-world markets beyond Canada, U.K., Australia, where we've been incredibly focused for the last few years, you would see pricing on the other side. You'd see us lower prices. I think the statement you just made is broadly correct, that while, as Roland described, the base gets larger and the number of people on full price gets larger year-over-year, and we've also had a very good trend of getting people to step up to full price. As we get more experimental in EDU and international, you see pressure on the other side.
It's probably worth noting that at times of heightened demand, when we get an influx of new orders, right? We get that bit of dilution on ARPU. The amount of revenue we get in from having that many new subs dwarfs whatever the diminutive effect of the degradation of ARPU is.
If I can make the most basic point of all, which is that we think this is still a relatively immature.
Yes
We want to grow it 3x, 4x, 5x. We're trying to drive the scale of the base. We certainly keep a close eye on total revenue out of the model and its growth path. But we're not yet, I mean, when the thing is more mature and we're closer to what we think is saturation, we'll focus much more on ARPU. At the moment, our key goal here is to grow the size of this business and the numbers of subscribers we've got. In some ways, if we can get an acceleration of net starts, and we're not going to give you guidance on that, but we certainly, we're very focused on whether we can accelerate from where we are.
If the price of that in the short run was a reduction of ARPU, I think we'd take that in the interest of long-term growth.
Okay. Thanks for that. Secondly on the television side, Mark, you mentioned a few initiatives there. Would be great if you could expand on that and give us some sense of the scale of the opportunity there as well as what kind of cost impact we might see.
I'll talk briefly, and then I'm going to hand over to Meredith, and we're going to be very circumspect. We're very excited about the possibilities for The New York Times in television. I distinguish between digital video, which is an important thing for us to do. We have a lot of video. We are beginning to win awards for our video, and rightly so. I think the quality of the video is very good, and it's becoming an integral part of our news report in the way that still photography has been for many decades. We do have ambitions. We think that we demonstrated with The Daily podcast, our ability to translate the quality, the authority, and the humanity of Times journalism into audio. We think we can do the same for television.
By television, we may be talking about television which is delivered via traditional television, for example, cable TV, or through streaming services. What I mean by this is an extended viewing experience. Not a fragmentary experience, but extended. TV shows and TV programs. We think this could be a way both of directly generating revenue, but also, again, of getting Times journalism in front of new audiences and further building the reputation and the influence of The New York Times. Meredith, do you want to say more?
Yeah. I think you said most of it. I'll add a couple of things. Mark mentioned in his opening remarks that we have entered into an arrangement with Anonymous Content with whom we're working to essentially get more upstream on television and film projects that come out of Times IP. In the past, that's been sort of a narrow, discrete, relatively low revenue business for us, and we see an opportunity for the Times to play a bigger role in that, and you will hear us talk about that quarter over quarter as projects begin to unfold. There's a fair amount of activity there, including the project Mark mentioned at the top of the call about the Weinstein story.
As to The New York Times actually creating programming for television around which people would form habits, Mark mentioned we're also aggressively pursuing what we might do there with more news to come. What I would say in both cases, I think there are three ways that The Times will benefit. One is a general raising of the public consciousness for the power and the importance of quality, original, independent journalism. We, a number of us around the table, had the pleasure of seeing the premiere of a Showtime documentary that I think Mark also mentioned, called the first episode of The Fourth Estate over the weekend, which just exposes people to the work of independent journalism, and I think that will just make more people spend more time with and on journalism, which is good for us.
Secondly, we have had the very positive experience with The Daily, where it forms a new audience. It is a new revenue stream. The Daily happens to make its money largely through advertising, but it also makes more people spend more time on the destination of The New York Times because it interests them in more than just the story they've heard. I think in this case, our pursuit in television will have that effect, and then we think it's a revenue opportunity in and of itself.
Thanks, Meredith. We should just emphasize that the Showtime documentary is an entirely editorially independent.
Yes
Showtime came to us.
Their show.
It's their show, and it shows The Times, warts and all. I think it's possible, by the way, you may finally get the particular pleasure of seeing an earnings call actually happen. You can see how carefully we dress for the occasion and all the rest of it. Something to look forward to. I think that's premiering in May, so we'll see.
All right. Thank you.
Ladies and gentlemen, at this time, we've reached the end of today's question and answer session. I'd like to turn the conference call 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.
Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.