Good morning, and welcome to The New York Times Company third quarter 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'll be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. Now I'd like to turn the conference over to Andrea Passalacqua, Director of Investor Relations. Please go ahead.
Thank you, and welcome to The New York Times Company's third quarter 2013 earnings conference call. Joining me today to discuss our results are Mark Thompson, President and Chief Executive Officer, James Follo, Executive Vice President and Chief Financial Officer, and Denise Warren, Executive Vice President, Digital Products and Services. 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 2012 10-K. I should also mention that our presentations will include non-GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com.
Finally, in the financial results reported this morning, the results of the New England Media Group are reported as discontinued operations for all periods presented. With that, I would like to turn the call over to Mark Thompson.
Thanks, Andrea, and good morning, everyone. The third quarter of 2013 was a strong one for the company. We increased our revenue, decreased our costs, and as a result, significantly increased our operating profit compared to the same quarter last year. We also made significant progress on our strategic initiatives. We recognize that despite these positive developments, we still have a great deal of work to do to transform our business model and to achieve our goal of long-term sustainable growth. The company's operating profit for Q3 2013, before depreciation, amortization, severance, and a special item, was nearly $40 million. That compares to $30 million for the same period of 2012 and represents an increase of 35% year-over-year. In the quarter, we increased overall revenue by 2% with a continued build in our digital subscriber number and notable sequential improvement in print advertising revenue trends.
The company also increased its revenue over the first nine months of 2013. Our digital subscriber count continued to grow, and at quarter end, paid digital subscriptions at The Times and the International Herald Tribune were approximately 727,000, an increase of more than 28% year-over-year. We added more net new digital subscribers than we did in the second quarter. As you know, we're currently working on a suite of new paid products and services that we'll begin to launch in the first half of 2014, and we're confident our new initiatives will ensure we remain an industry leader on this front. Advertising performance was significantly better in Q3 than in the first half of the year. Revenues from advertising declined in the quarter by 2% versus the prior year. This compares to an 11% decline in Q1 and a 5% decline in Q2 for our continuing operations.
This is the best advertising revenue trend that the company has reported in three years. Also, during the quarter, we welcomed Meredith Kopit Levien as our new Executive Vice President of Advertising. Meredith has been charged with leading our sales effort and has already begun to make an impact on the structure and organization of our sales team, recruiting bright new talents at The Times, including sales executives from GQ, Vogue, Politico, and Forbes, among others. A key focus for Meredith and her team will be innovation in and development of our digital advertising proposition. In the quarter, digital advertising revenue declined 3%. Both Meredith and I are determined to restore it to growth. The overall relative improvement in advertising, combined with strong circulation revenue and further progress on cost reduction, resulted in the increase in operating profit for the quarter. Jim will outline those numbers shortly.
We also made significant progress on our strategy in the quarter. We successfully completed the sale of the New England Media Group. We launched the International New York Times, formerly the IHT. As you know, we believe a single national and international brand, combined with tighter global newsroom and editorial integration, a single worldwide advertising sales force, and a new international marketing effort will yield new readers, new digital subscribers, and increased advertising revenues. We're also advancing other elements of the strategy I announced in April. In the first quarter of 2014, we will launch the redesigned nytimes.com, which has been available as a prototype since earlier this year, followed by our lower priced and niche products, as well as our enhanced tier.
We believe there are consumers who are interested in tiered versions of The Times' current digital products, and we're eager to introduce these new options to the market. On video, which is an ongoing effort, we're in the process of generating significantly more high-quality content to meet growing demand. In the first half of 2013, we doubled video streams across our digital properties. We're making strides with our conference business. Last month's third annual Schools for Tomorrow conference was sold out. It featured the first ad unit on nytimes.com to host a live webcast of a Times conference. On November the 12th, we'll be staging our second annual New York DealBook conference here at the Times Center. In 2014, we plan a record number of 19 domestic and international conferences. In September, we announced the initiation of a quarterly dividend in the fourth quarter that began paying last week.
This allows us to return capital to our shareholders while also maintaining the financial flexibility necessary to continue to invest in our company's transformation and growth initiatives. Given the expectation of continued variability in advertising revenue and the fact that our growth strategy is still nascent, we intend to maintain our prudent view of both balance sheet and free cash flow. To conclude, we are at an early stage in the transformation of The New York Times Company, and much work still lies ahead. Nonetheless, the tangible progress we've made on a number of fronts during this quarter is encouraging. I look forward to updating you on future calls, but for now, I'd like to turn things over to James Follo.
Thank you, Mark, and good morning, everyone. Our company's positive performance in the third quarter was the result of overall revenue growth, combined with an ongoing focus on expense management, which together enabled us to deliver growth in operating profit before depreciation, amortization, severance, and special items of 35% compared to the third quarter of 2012. Our strength on the revenue side was a result of sequential improvement in print advertising trends and continued progress in building our digital subscription revenue stream. Circulation revenues rose 5% in the quarter, with the monetization of our digital products as the main driver. The continued growth of the Times' digital subscription numbers, combined with the price increases at the Times on the print side, led to circulation revenue growth to more than offset declines in advertising and other revenues, resulting in an increase of revenues of 2% in the quarter.
In the third quarter, digital-only subscription revenues were approximately $38 million, an increase of about 29% from the same quarter in 2012. For the first nine months of 2013, digital-only subscription revenues totaled $110 million, up 42% compared to the same period last year. Advertising revenue trends improved in the third quarter relative to the first half of the year, with print advertising revenues down less than 2% and digital advertising revenues down about 3%, leading to an aggregate advertising revenue decline of 2% versus the prior year. Print and digital advertising both saw particular strength in September. Despite the sequential improvement, advertising revenue continues to be affected by secular trends, economic factors, and a complex digital marketplace. Advertising revenues again exhibited the month-to-month volatility and short-term buying decisions that have pervaded the market, down 15% in July, flat in August, and up 7% in September.
National print advertising saw positive growth in the third quarter, leading to overall positive growth in the national category, while retail and classifieds each declined on the print side. Digital advertising revenue declines were driven by the classified category and also saw decreases in national and retail. Digital advertising continued to experience challenges in the quarter from programmatic buying issues, along with the pricing pressures caused by a glut of inventory across the market. Despite this pressure, we expect to gain momentum on the digital advertising front and ultimately return to positive growth by focusing more heavily on areas such as video, tablet, and unique custom advertising. Rounding out our results, operating expenses before depreciation, amortization, and severance decreased about 1%, and on a GAAP basis, costs were also down 1%.
We report an operating profit of $13 million in the quarter and a diluted loss per share of $0.03. The earnings per share loss was driven mainly by an income tax expense of $2.6 million, which includes a $1.5 million charge related to the remeasurement of our deferred tax assets as a result of the New England Media Group sale. Excluding severance and special items, the diluted loss per share was $0.01. Moving on to costs, the company continued its long-term cost expense management effort in the third quarter as we again found ways to trim expenses across a broad spectrum of categories. Lower pension expense and raw material costs, as well as printing and distribution efficiencies, were the largest contributors to the decline, despite expenses associated with our growth initiatives in the quarter.
Raw material costs declined 13% in the quarter, mainly due to lower consumption and lower newsprint prices. We will continue to be diligent in trimming expenses and managing legacy costs, but we expect the expenses associated with our new strategic initiatives will accelerate in the fourth quarter and will continue to do so in 2014 as we begin to market our new products domestically and internationally. We are now estimating that operating profit will be negatively affected by about $10 million in the fourth quarter and about $15 million-$20 million for the full year of 2013 as a result of these initiatives. Some of the investment spending that we expected to incur in the third quarter has been a bit delayed, as hiring has taken longer than originally planned.
Moving to the balance sheet, at the end of the third quarter, our cash and marketable securities totaled approximately $938 million, exceeding total debt by approximately $255 million. The increase in our cash balance was the result of cash flows from operations as we continue to generate meaningful cash. This amount does not take into account the New England Media Group sale proceeds. In the quarter, we also repurchased about a $12 million principal amount of our 6 5/8% senior notes. As Mark mentioned, we finalized the sale of the New England Media Group last week for approximately $70 million in cash, subject to customary adjustments, and we've also filed an 8-K with further historical information for the remaining company.
We will not be updating our underfunded pension status today, but I can confirm that the estimate we gave on our second quarter call would not have been affected by the New England Media Group sale, since we are retaining substantially all pension and post-retirement obligations. Finally, we have begun the marketing of one additional floor of a headquarters building for rental purposes, which makes up a total of about 31,000 sq ft. We aim to complete this process in the middle of next year, and we'll begin recording rental income at that time. This will bring us to a total of seven leased floors, and we don't currently anticipate leasing any additional floors. As a reminder, before we get into our fourth quarter outlook, financials for the fourth quarter 2012 continuing operations were provided through last week's 8-K file.
Our fourth quarter guidance on revenue trends will be based upon a 13-week comparison, excluding the impact of the additional week in the fourth quarter of 2012. In last year's fourth quarter, we estimated the extra week resulted in an incremental $14 million of circulation revenue and $12 million in advertising revenue. Fourth quarter circulation revenues are expected to increase in the low single digits%, as we expect to see continued benefit from our digital subscription initiatives and from this year's print price increase at the Times, which will be partially offset by difficult print comparisons connected to last year's election season. Advertising revenue trends in the fourth quarter remain subject to month-to-month volatility and are expected to decrease in the low single digits%.
Fourth quarter operating costs, based upon the comparison with the longer 2012 quarter, are expected to increase in the low single digits% as investments around our strategic growth initiatives offset the benefit of a shorter quarter. With that, we'd be happy to take your questions.
Thank you. We will now begin the question and answer session. If you'd like to ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then two. At this time, we'll pause momentarily to assemble our roster. The first question is from Alexia Quadrani of J.P. Morgan. Please go ahead.
Hi, thank you. My question's on the improvement we saw in the newspaper, the print advertising revenue in the quarter with a particularly strong performance I think you highlighted in September. Could you give us any more detail on really what was the delta there? It is really a very impressive number considering the trends over the last several years. I know you said it's very volatile, but do you see anything that really changed there, or was it just an abnormally strong September that pulled up the whole quarter? I know you said it's still lumpy going into Q4, but anything you can share about October will be helpful as well.
Morning, Alexia, it's Mark here. Hi. I think it's fair to say that we saw through the quarter strength in many categories within the national category, many different categories improving. Among strong categories in quarter three in print were American fashion and international fashion and corporate. I don't want to say too much about October. You heard Jim give the overall guidance for the quarter of low single-digit declines. We have limited visibility even now into November and December, and the fall of the holidays is different this year from last year. It's fair to say that the quarter's got off to a good start. We're seeing, again, strength in a number of categories, financial, American fashion, automotive. We've also, through September and October, seen a strength in the entertainment category as well.
Just a second question on how should we look at the digital-only sub growth going forward? I know you're in the process of creating this tiering structure, changing some of the pricing. But in the interim, as that's sort of being rolled out, with anniversary sort of the two-year launch of this, should we still be able to see some sub growth in the interim continuing?
I'm going to hand over to Denise, but just to say that you'll have heard me say that we had slightly more net added new digital subscribers in the third quarter than the second quarter. We are continuing to see growth in the current model with the current offering. Obviously, our strategy is to add additional different products to the portfolio absolutely with the intention of trying to reach out to new subscribers. We are continuing to see some buoyancy in the current portfolio lineup. Denise, you want to add to that.
Sure. I guess what I'll add is, of course, the big initiatives that we're betting on to roll out next year are where a lot of the big growth is going to come from. We've talked about those extensively. As Mark mentioned, the current model still has some steam. Obviously, the fourth quarter guidance is reflective of that. Let me just mention a couple of things that we haven't spoken about in the past, just to give you a sense of how we're planning to increment subscriptions going forward. One is a focus on corporate sales. That's something we really haven't spoken about, but we believe there's more room to grow here, and we're much more focused on this effort. The second one is interesting. You might have seen this, Alexia. On Sunday, we're actually launching a single copy promotion.
This is a test of an ability to convert single copy users to digital subscribers. If you pick up a copy of the paper this Sunday, you'll see a unique code that will enable you to redeem for four weeks of digital access. Our goal here is to generate new subscriptions and actually to get data on our single copy users. As you can imagine, it's very difficult for us to get that kind of data. Just two examples of things that we're excited about, and just innovation that occurs in the model on a fairly regular basis. The other thing I'll mention is that we've got a pretty significant focus on retention. We've revamped our call center, and we now have experts focused on retention, both on the print and the digital side of the operation.
This is in a pilot phase right now, but we're actually seeing some nice results. Just a couple of examples to give you a sense of how we're planning on managing this and where we can generate some opportunity going forward.
All right, Denise, thank you. That's very helpful. Then just in terms of when from the outside should we really expect to see some, I guess, some cues that these digital initiative roll-outs are being successful or some sort of data points. Is it still a couple of quarters out where we can really sort of ascertain.
Yeah
How successful they've been?
Yeah, we're not planning to roll out the first of these until sometime in the second quarter. Again, you have to give these initiatives some time to kind of get to their steady state.
Okay, thank you very much.
Yep.
Thanks, Alexia.
The next question is from John Janedis of UBS. Please go ahead.
Hi. Thank you. Good morning.
Good morning, John.
You've talked about the pressure on digital advertising. This is the first time I can recall where digital underperformed print. Jim, I know you mentioned your assumption of a turn, I think, in the current quarter. Is it your sense that the things you're focusing on will not be subject to some of the pressures you've seen on a historical basis?
Well, if I can go, I would go first. I think what we saw in quarter three was a significant improvement in the print numbers. That's clear. Digital, for some quarters now, has been actually on a pretty steady rate of decline at around the 3% mark. John, you heard me say that something that I, the whole management team, but in particular, our new Executive Vice President for Advertising, Meredith Kopit Levien, are really focused on developing and innovating our offering in digital advertising to correct that decline and restore digital advertising to growth numbers. Meredith's been here still only really a few weeks now, but she's right now hard at work with her colleagues on trying to address this and return digital advertising to growth.
Okay. Thank you. I think or I'm sorry if I missed this, but did you give an outlook for digital sub growth in Q4? I know you had a tough comp from the election last year. Maybe on a related note, being, I guess, 6 or 7 quarters plus in, how has retention changed for digital subs?
Let me just answer the first question, which is we expect that the number of subscribers in the fourth quarter will roughly be in line with the third quarter.
The number of ads.
Yeah, the number of ads. Exactly. Thank you. Retention. Retention is actually still very strong with our digital subscribers. As you would expect, as you bring on folks who are sort of less loyal and it gets a bit harder to attract folks as the model gets more mature, those folks tend to have retention rates that are less than the folks you brought on initially. On average, we're really pleased with it. We obviously benchmark against our print retention, and we are well above our print retention rate. We continue to see nice performance. As I said, we think there's more to be had there, and it's the reason why we're focusing on retention in our call center. We think that's a real opportunity for us.
That's quite an interesting point. It's not a widely known point that the retention profile for digital is actually slightly better than print.
Got it. Okay. Thanks, Mark. One last thing for you. You talked about total initiative spend in prior quarters, maybe from what we call kind of a phase one there. Has that number changed going into 2014 in terms of the total number for phase one?
No. I would say not. I think we just got off slower, but I think we're largely on track for 2014.
Thank you very much.
Okay.
The next question is from Craig Huber of Huber Research. Please go ahead.
Yes, good morning. A few questions. First, concerning your print ad revenue trend here in the third quarter year-over-year, can you give us the percent change in maybe your top five or six national ad categories? How did they perform?
Look at that. I'm not sure how valuable this is, to be honest, because they dart around year-on-year. If we look at year-on-year comparisons, I'll give you a few in Q3. American fashion was up nearly 31% year-on-year. International fashion up 17%. I think in particular, we'd point to the success of T Magazine as a great magazine, but also a great platform for fashion advertising as being part of that. We also saw a very significant growth in corporate, with corporate year-on-year showing something like a 57.4% increase year-on-year. I think the most important thing to say about Q3 is we saw a broader front of improvement across more categories than we've seen for some quarters now, all within under the heading of national.
Mark, what about the luxury good category? How did that do, please?
Do we have numbers to hand on luxury?
American fashion category.
What we call American fashion includes an awful lot of luxury.
International.
International fashion also includes luxury. I think you can take from that luxury has done very well. Also, it must be said in the quarter, I think also luxury was a pretty strong performer for the International Herald Tribune.
These last 7 quarters, they're roughly down 2%-4% digital ad revenue performance. Is that all pricing or is there some volume pressure in there as well?
Essentially, it's all price.
Yeah.
It's all price.
Also, I think it's roughly $33 million of digital ad revenues you guys had in the quarter. How much of that would you ballpark was mobile advertising?
Small. Less than 10%.
Okay. Finally, if I could, just two housekeeping questions. What was the daily and Sunday print circulation % change year-over-year? I'll-
Daily was down 5.1%, and Sunday was down 2.5%.
Okay, and then lastly, for newsprint, what was the percent change there for average price and then for consumption? Thank you.
The decline was almost split exactly down the middle between price and volume. I think the total cost was down somewhere around $3.2 million. Split that right in half between the two.
Great. Thank you.
Next question is from William Bird of FBR. Please go ahead.
Yes. Hi, you mentioned on video advertising that you doubled the screens in the first half. Can you talk about, I guess, how video ad revenue is developing and just what are some of the next steps for video? Thank you.
Well, perhaps I'll have a go and then, again, ask Denise to come in as well. The key point about video is that there is very strong demand. We're working hard to increase the number of impressions, partly because we want to improve the overall user experience, and we think that there is a real appetite from users of our digital services for video. Also because there is very considerable and as yet unfulfilled advertiser demand. We're hard at work on a very wide-ranging strategy for improving the quality and relevance of video, the amount of video, and the findability, and the, as it were, the marketing of video on the site to take advantage of both the commercial and the creative opportunity. Denise, do you want to add to that?
There's nothing to add.
Okay.
I think that's perfectly well stated.
Very good.
Separately, do you have an early sense of what the expense outlook might look like for 2014?
Not yet, but what I would say is we'll have a full year's worth of spending related to the growth initiatives. You've got to account for that. Most of our spending this year has really been in the third quarter ramping up into the fourth quarter. I think you'd probably get a pretty good idea of what that run rate number should be in the fourth quarter. I said the operating profit impact of that was $10 million, some revenue associated with that. The cost related to that, you get a pretty good idea. That number will grow on a quarterly basis. You'd have to expect that you'd see some growth in expenses on that line alone.
Yeah.
We're deep into the planning process on the rest of the business.
Yeah.
It's hard to make a call now.
Continuing to try and put downward pressure on costs everywhere we can.
Sure. We think that is core part of our strategy to manage kind of the core business costs, and yet to have a year in the last six or seven that we haven't found ways to reduce that. It's early. It's hard to make a commitment at this moment.
Thank you.
The next question is from Kannan Venkateshwar of Barclays. Please go ahead.
Thank you. A few questions. First was on the EBITDA front. I think till recently, you guys had guided to a mid-single digit kind of growth rate, and you came in at about 35%. Was that just related to the $10 million that got deferred in expenses to the fourth quarter?
No, I would say, look, this is a relatively small quarter, right? The base number last year, EBITDA was $30 million. Small changes in advertising, for example, drive big changes in %. As we've said, September ended up being a very strong quarter. It accelerated quite a bit as we went through the quarter. Advertising is a 90% margin business. When you see 7% growth in September advertising, that has very big impact on kind of year-over-year growth percentages. In absolute dollars, it doesn't necessarily have to be that big to meet that percentage. That's really the key reason behind that. I think we had a little bit of better performance on cost.
I think our guidance in at a conference in September was flat, which came in, I think, down $2 million and so. It's just a couple things here and there.
Yeah.
Largely off a small base is why that percentage.
That movement in print advertising from July year-on-year, significantly down through August, flat through a positive September. Is the outlook changed significantly through the quarter?
Right.
Okay. Then the other, you guys had the launch of the International New York Times recently. When we look at 4Q, some of the digital circulation numbers that you're guiding towards, does that include the impact of that launch?
It does, but I want to caution you, it's very, very small in 4Q. Our efforts really get ramped up later in the quarter and next year. Our objective really this year is we're introducing a new brand to the audience and making sure that the people who were formerly IHT subscribers become INYT subscribers. That's really what the focus of our efforts are. We're actually seeing very nice results, better than we had expected. We're off to a very strong start. The numbers that are included in this quarter will be very, very small as it relates to that initiative.
Yeah, the base we're working off is 10% roughly of digital subscribers. I think history suggests that although some American brands, I think of Discovery, I think of CNN, have delivered very successful international businesses, it takes time because the fundamental awareness of the brand and the products are much lower outside the U.S. than they will be inside. We see this as a long-term growth, and it's just we're hard at work at it. We don't expect instant results.
Okay. In terms of the International Herald Tribune, could you give us some visibility in terms of what the model there is? Like, which countries is this new brand being launched in, and what does the pricing plan look like? Is it similar to the U.S. and so on?
Well, without going into too much detail, we have a physical newspaper, which has got a very great historical strength but is pretty mature in Europe, but has seen opportunities and growth, especially in Asia, but also in some other parts of the world. We believe that two things, the name change, it's a, for consumers, a relatively subtle adjustment, but nonetheless, the name change, plus the much stronger integration, both of the editorial and newsroom operations between The New York Times, New York, and now International New York Times in Paris and Hong Kong. In commercial terms, more importantly, the closer working together of the advertising teams, essentially, we're moving to a single global advertising sales force, will mean that the new physical International New York Times will be an even stronger advertising platform with particular strength in the luxury categories.
Therefore, the profitability, we don't break out the profitability of the international newspaper, of the physical newspaper should be secured and may even increase. Meanwhile, on the digital side, we're already obviously, because it's the internet, we have a global presence for nytimes.com and for our apps. For the first time, the whole suite of digital products will be under the New York Times banner. We have plans through a much more coherent and more aggressive marketing campaign over time to build usage of the different digital products and to encourage more people to become subscribers, which also should both improve the effectiveness of the digital assets as advertising platforms, but also, as you heard me say, we also hope will increase both the numbers of subscribers and the revenue we get from digital subscription.
Okay. Just one last question on the cost side. You've been able to squeeze out a lot of costs over the last few years, and that continues to be the case even in the guidance years. Where exactly is this cost cut coming from? If you could just provide some visibility, that would be great.
I'll let Jim answer that, but just to say, one example Jim mentioned in his remarks is that we have been reshuffling people around this building and believe that we can successfully run The New York Times using one fewer floor of this building in 620 Eighth Avenue, and we'll rent out the building and get a positive revenue stream out of that. That would be an example of what we're up to.
Look, we've had positive revenue cost trends on pension this year. Now, some of that is simply we're materially better funded than we once were, so just the math around that helps us this year. There were some actions taken with respect to union agreements earlier in the year that also contributed to that. Obviously, on the supply side and manufacturing side, we continue to look at all areas. From outside printing, distribution, we aggressively go at that. We've got some really good, smart people in that area, continue to do a really good job. We've been doing this a while, so it does tend to have to be pretty broad in the categories. But those are some of the bigger categories. As we go forward, I think the fourth quarter guidance would suggest we'll see a little bit of pressure on the cost side.
I think long-term, we think there's some more opportunity, and we'll just continue to have to be aggressive at it, that's all. Headcount is always an issue. Now we're adding quite a bit of heads on the growth side, but in the core business, we continue to find ways to be able to do things more efficiently with less bodies, and we'll have to continue to do that.
That's right. Last week, we ran a two-page ad for "The Book Thief," which consists of the two blank pages in the newspaper and saved us a fortune in ink.
All right. Thank you.
Our next question is from Wescott Rochette of S&P Capital IQ. Please go ahead.
Thank you. I had just two basic questions. One on your conference business, so you have 14 planned for next year, is that correct?
19.
19, sorry. How does that compare to 2013 and kind of in broad strokes, where do you see that business kind of going over the next few years?
I think we had 15 or 16 this year. I haven't got the number to hand, but that sort of number. Well, one of the reasons we like the conference business is firstly that a well-managed conference business in itself brings a good margin with it and is a profitable business. Also potentially it offers an additional complementary platform for advertisers and sponsors. It's potentially a great way of marketing the Times, both as it were B2B and B2C in terms of getting some of our best-known journalists and opinion writers out there. We think it's a very good additional platform alongside our physical newspaper and our digital platforms. The plan is to continue to build it out both domestically and internationally. Although you're going to see the expansion in 2014, that's not the end of the story.
We hope we can build it out into a business, which is always going to be small relative to the main news business that we're in domestically, internationally, but is a very useful adjunct.
Right. All right. Sounds good. One other question. You mentioned going into corporate sales, which is something that I haven't really heard you guys focus on before. Is it going to be similar to the way you kind of approach education? As you kind of manage that business, how are you going to monitor and manage kind of a cannibalization of your existing customers at probably a lower rate as they get to the corporate?
Yeah.
Thank you.
The answer is yes, it'll be very similar to the education business. Interestingly, what we've actually found is the corporate sales business actually can be a way to generate leads for the consumer business. Why is that? Because essentially what we do is we only enable you to use New York Times access through your corporate IP. There's a really hard sense around it, and once you get hooked, you kind of want it, and you want to use it personally. We actually have found that corporate sales have actually led to increases in consumer sales, so we're excited about that.
Perfect. Thank you very much.
Sure.
The next question is from Edward Atorino of Benchmark. Please go ahead.
Yeah. What is the current single copy daily sales and Sunday sales? Have they been holding up, going down? I know that the subscription numbers are interesting, but how is single copy doing?
Well, single copy is really the most challenge of our circulation in that in quarter three, New York Times daily single copy was down somewhere in the 15% range. On Sunday, probably a little bit less than that, maybe 10%.
Yeah, just under around 9-ish.
Yeah.
What % of the total would that be?
We're talking about total dailies, say, I would call it.
I think daily single copy is around 20%-25%.
That's a lot.
Sunday, less than 20%, about 19%.
That's right.
Yeah. The Sunday single copy, same dimension, 25%?
Yeah, a little bit less than that.
What?
A little bit less than 10%.
That's really small. Okay.
Yeah.
On the new services for the online, are they going to be sort of a package deal, individually priced services? How is that kind of subscription set up?
There's two elements to this, Ed. It's Denise. Two elements. First, let me just say that every new product that we're launching will be incorporated into the core subscription bundle, okay? If you're a current subscriber, you will have access to the new products we're launching. That's the first thing to say.
Okay.
Second thing to say is that we've got a number of different products launching at different price points. The idea here is to capture the demand that we see existing along the entire demand curve. We have basically a number of products rolling out at price points that are lower than the least expensive offer right now, which is the $15 every four weeks offer for the web and smartphone app. We've uncovered a sizable demand at lower price points, and we want to make sure we capture that. We also have what we're calling an enhanced tier, a tier that sits on top of the most expensive prices we charge for additional products and services that you can add to an existing bundle, be it digital or print.
These are a package of things.
Yeah.
Not one thing. Okay.
In the enhanced tier, it's a package of things.
Yeah.
In the other products and services that I mentioned, there are several that we're rolling out, several unique products that we're rolling out that are each different.
Will the International New York Times have the same link with the online product?
Yes.
Yeah. It's package deal, separate pricing?
Yeah. It's very similar structure to what we have here in the domestic marketplace. We're going to experiment with pricing in the international marketplace as we have to. Again, that's part of the marketing and acquisition plan that we have set out for later on this year and next year.
Last question. Jim, would you mind going through the strategic expense sort of track? I was a little confused, which is easy.
Well, we said in the fourth quarter that operating profit would be negatively impacted by $10 million in the fourth quarter. Now, we're not yet really getting meaningful dollars in revenues out of those initiatives. You would expect, on the cost basis, something a little bit north of $10 million on the cost basis on strategic initiatives. For the full year, we said 15-20 operating profit impact, again, with some contribution to revenues. That would suggest your costs impact this year would be something north of $15 million-$20 million on the cost side.
That's going to extend into 2014? Are you guys-
When I said in 2014, is you gotta assume, because most of our spending has happened back half of the year and is accelerating, just given the numbers I gave you, fourth quarter spending will be meaningfully more than third quarter spending. Therefore, you need to build in that ramp throughout the year, and you'll have four quarters of spending against those growth initiatives. Marketing dollars in our digital product and services will be really all around, once the product launches. You would expect to see a fairly significant ramp as you launch those products in our cost base.
Pricing strategy for 2014, you've sort of raised prices pretty regularly as the year comes along. Will that be a continued process?
It'll be a continued thing we'll look at, but as usual, we never pre-announce any sort of pricing strategies.
What is the current monthly price for the online product?
There's three different prices depending upon the package you buy. The least expensive is $15 every four weeks. That's for access to the website and smartphone apps. There's $20 every four weeks for access to the website and tablet. There's the all-digital access bundle, which is $35.
Again, that's, as Denise said, that's a 4-week thing, so it's 13 billings. Multiply those by 13 for your annual revenues.
Okay. One more. Is Craig on the phone?
The next is a follow-up for Craig Huber of Huber Research. Please go ahead.
Yes. I did want to ask, these price points here, $15, $20, and $35 for your core digital product. Do you think you have any room to raise prices there over the next twelve months? Obviously, you guys have been very aggressive raising prices on print for years in various stages and stuff. Do you think you have room to raise prices, or are you just going to try and kind of focus on the volume side of things?
We think that the greatest value we can deliver to the corporation is to execute on the strategy that we've outlined by managing the demand curve and rolling out the products and services that we've identified for next year. That really is the best value that we can deliver to the organization at this stage.
It's obviously the case that the broader the portfolio of products you've got and the more price points you've got, the more flexibility you have over time to adjust price. As, exactly as Denise says, we're mainly focused currently on the strategy of a broader portfolio.
Great. Thank you.
This concludes our question and answer session. I'd like to turn the conference back over to Andrea Passalacqua for any closing remarks.
Thanks everyone for your time, and we'll talk to you again next quarter.
Okay. Goodbye, everyone. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.