Good day, and welcome to The New York Times Company First Quarter Earnings 2012 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to your host, Ms. Paula Schwartz. You may begin.
Thank you, and good morning, everyone. Welcome to our first quarter 2012 earnings conference call. We have several members of our senior management team here to discuss the results with you, including Arthur Sulzberger Jr., Chairman and Chief Executive Officer, Jim Follo, Senior Vice President and Chief Financial Officer, and Scott Heekin-Canedy, President and General Manager of The Times. All of the comparisons on this conference call will be for the first quarter 2012 to the first quarter of 2011, unless otherwise stated. Our discussion will include forward-looking statements, and our actual results may differ from those predicted. Some of the factors that may cause them to differ are included in our 2011 10-K. Our presentation will also 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 corporate website at www.nytco.com.
Now I'll turn the call over to Arthur Sulzberger Jr.
Thank you, Paula, and good morning, everyone. I'm pleased to say that 2012 is off to a good start. Our first quarter results are a testament to our successful digital strategy. Just one year after launching digital subscriptions at The Times, subscribers to paid digital products across the company totaled approximately 472,000. Our strategy has provided a model for the rest of the industry, and we continue to see reports that a growing number of U.S. newspapers are adopting metered models. Even as the advertising environment remains challenging on both the print and digital fronts, this year, we expect to build on that strong start as we embark on our second year of paid digital subscriptions. We are exploring opportunities to deepen our readers' engagement through mobile, video, and social media, all of which have been growing rapidly.
We are investigating opportunities to further extend The Times brand and expand its global footprint. As an example, in February, we launched Science Times China, a monthly magazine based on our Science Times coverage, translated into Chinese and distributed in the largest cities in China. Underlying most of our growth opportunities is our award-winning journalism, the strength and depth of which are unmatched in the industry. It was announced earlier this week that for the second consecutive year, all three newspaper units owned by The Times in 2011 won Pulitzer Prizes. The New York Times won two for explanatory and international reporting, The Boston Globe won for film criticism, and The Tuscaloosa News won for breaking news reporting. While the global news environment continues to change dramatically, our quality journalism with its broad scope and in-depth analysis positions us as a continued leader in the news space.
Disciplined cost management is a key element of managing our business. Our challenge remains how do we maintain our high-quality journalism while further reshaping our company for the future? This involves the careful balancing of our investments to support our digital initiatives while finding further cost efficiencies across our organization. During the quarter, we made progress on our search for a new CEO. Our board of directors has retained the global search firm Spencer Stuart, and we are looking both internally and externally for an executive who meets our needs. We will take the time necessary to find the right person for the role. Now I'd like to turn the call over to Jim Follo.
Thanks, Arthur, and good morning, everyone. Our first quarter results reflect continued strength in the circulation side of our business, led by the introduction about a year ago of The Times' digital subscription packages, as well as solid cost management, which together enabled us to achieve 9% growth in operating profit before depreciation, amortization, and severance. This growth was despite continued uncertainty in the advertising marketplace. In the financial results reported earlier this morning, the results of the Regional Media Group, which was sold early in the first quarter, are reported as discontinued operations for all periods presented. We continued to refine and build upon our digital subscription initiatives in the first quarter. The Times recently reduced its pay meter count to 10 articles from the original 20 in both The Times and bostonglobe.com.
We are pleased with our progress to date in creating a robust new revenue stream based upon charging for digital access to our award-winning content. Overall circulation revenues were again bolstered by these digital pay products, especially at The Times. Total circulation revenues were up 10% for the company and 13% for The New York Times Media Group in the quarter. Our new consumer revenue stream was enhanced by the improvement in home delivery circulation we have seen following the launch of digital subscriptions in the form of new orders and improved retention rates, as well as by the print price increases implemented by The Times at the beginning of the year. While total revenues for the company were flat, the advertising environment again presented challenges in the first quarter.
Digital advertising revenue was down 10%, driven by ongoing challenges at The About Group, which saw a 24% decline in advertising revenues. While digital advertising revenue at the News Media Group decreased 2%. Print advertising trends improved slightly from the fourth quarter and finished down 7%, while overall advertising revenues were down 8%. We maintained our focus on managing costs in the quarter. The company's operating expenses before depreciation, amortization, and severance declined 1%. On a GAAP basis, costs were up 1% as we reported operating profit from continuing operations of $20 million in the first quarter compared to $26 million in the same period of 2011. Diluted earnings per share from continuing operations, excluding severance and special items, was $0.08 in the first quarter compared to flat in the same period of 2011.
On a GAAP basis, we reported diluted EPS of $0.09 per share from continuing operations in the quarter, compared to $0.02 in the first quarter of 2011. Returning to our digital initiatives, as we recently announced, in conjunction with the anniversary of our digital subscriptions, as of March 18th, the Times Media Group had 454,000 paid digital subscribers, up 16% from the fourth quarter. This number includes subscriptions to the Times, the International Herald Tribune digital packages, e-readers, and replica editions. The Boston Globe had 18,000 paid digital subscribers to bostonglobe.com as of March 18th, also including e-readers and replica editions. The sponsorship of more than 100,000 Times users ended in December, and we have already converted a large number of these readers to digital subscriptions, and we expect to continue that process into the second quarter.
In addition to the sale of our Regional Media Group for $140 million in January, in the first quarter, we also completed the sale of 100 of our remaining units of Fenway Sports Group for $30 million, resulting in an $18 million pretax gain. We still own 210 units and continue to actively market that remaining stake. Now let me provide more depth on our first quarter revenues. At the News Media Group, digital advertising showed weakness and was down 2% while print advertising decreased 7%. The group's total advertising revenues, which declined 6% year-over-year in the quarter, saw a sequential improvement in the last two months, declining 9% in January, 7% in February, and 2% in March.
The group's weakness in digital advertising was led by declines in real estate classified and national display, which was soft in the first two months of the year, but returned to healthy growth in March. In the first quarter, we saw digital gains in retail display, as well in the automotive classified category. Within the News Media Group, at the New York Times Media Group, while overall revenues were up 3% in the quarter, advertising revenues were down 5%, as growth in both print and digital retail advertising was more than offset by national and classified print declines. Aggregate national advertising declined and aggregate classified advertising was also lower. The Times' digital strategy is focused on continuing to grow its subscriber base and extend its digital brand.
We plan to build on our success in the second year of our paid digital subscription offerings through both the recent paywall adjustment to 10 free articles and through the ongoing rollout of new features, functions, and content. Most recently, we enhanced our Times offering by including group corporate accounts and special rates for college students, faculty, and administrators. We plan to launch group accounts for education subscribers in the second quarter. Ongoing investment in our content will continue to be a critical component of our digital strategy as we expand some current content to drive increased engagement levels and create some entirely new homes for content. For instance, the Times, just this week, redesigned its popular health blog, Well, to better showcase the breadth of its expanded health and wellness content. We remain focused on building our offerings, particularly in areas of mobile, social media, and video.
In the first quarter, for instance, The Times launched Business Day Live, a video program that features original news reports from The Times' business, media, and technology desks on nytimes.com homepage every weekday morning. The program is broadcast live from The Times newsroom and complements the TimesCast report that appears on nytimes.com on weekday afternoons. Premium advertisers are increasingly embracing such environments. Our print platform has been positively impacted by our digital strategy as well. The initial benefits to home delivery circulation should again be evident in our upcoming ABC report for the period ended March 2012, capturing the continued early success for our paywall. The Times' Sunday home delivery volume again showed positive year-over-year growth in that six-month period, this time at nearly 2%. This latest data is another clear indicator of the multi-platform demand for our products.
Also on the circulation side. At the beginning of 2012, the Times instituted a price increase of 4% on average for home delivery across all days of the week, and a $0.50 per copy rate increase for weekday single copy edition. This was our first increase in two and a half years. We anticipate this change will contribute to improvement in Times circulation revenue in 2012, despite the slight volume declines that inevitably accompany a price increase. At the New England Media Group, advertising revenues declined 12% in the quarter, mainly due to weakness in print advertising. Overall, national ad revenue was down, and total retail advertising revenue was also lower. Digital classified ad revenue showed growth reflecting increases in automotive and recruitment, but combined classified revenue was down, resulting from continued print weakness.
On the circulation front, in April, the Globe instituted a price increase of $0.25 per copy for weekday single copy edition in the Boston Metro area, and $0.50 outside that area. For seven-day home delivery customers, there will be a price increase of about 6%. The Sunday only rates will remain unchanged. This was also the Globe's first circulation increase since 2009. At the beginning of the second quarter, the Globe also launched a new digital replica edition, enabling subscribers to enjoy the actual print edition enhanced with digital features on their computers, tablets, and mobile devices. The Boston Globe ePaper is available on bostonglobe.com, as well as in the iTunes store, as an iPad and an iPhone app. Moving on to the About Group.
Total revenues decreased 23% to $24 million in the first quarter, with decreases in cost per click in display advertising both contributing to the decline. About is beginning to show progress in its turnaround efforts, particularly on the display side. There is still more work to be done. The group continues to aggressively respond to increased competition in both display and search advertising markets, and we are moving forward with a variety of initiatives to address these challenges. Declines in CPC advertising in the first quarter continued to result from lower click-through rates. Lower advertising rates for CPC ads remained an issue as well, a trend that was in line with the marketplace. In the fourth quarter, About began to see positive impact on traffic, and that trend continued into the first quarter, which page views up 6% in the quarter.
However, the traffic strength was offset by lower click-through rates and ad rates on the CPC side, and the gradual ramp-up of the new sales team on the display side. As a result, we don't expect to see meaningful improvement in revenue trends until the second half of 2012, when display advertising is expected to return to growth. On the display side, About made strides in its sales plan to better leverage the site's strong reach, averaging 60 million monthly unique visitors in the U.S. in the first quarter. The group rebuilt its sales staff in the second half of 2011 and is slowly increasing sales activity. That said, much of the team is still new and it will take time to perfect its execution. The About Group's operating costs were flat in the first quarter, and operating costs excluding depreciation, amortization, and severance increased 4% to $15 million.
Operating costs in the first quarter of 2011 were reduced by a benefit from the sale of ucomparehealthcare.com, which more than offset the declines in compensation and benefits expense in the first quarter of 2012. Operating profit declined to $7 million in the quarter. On a company-wide basis, our focus on controlling expenses led to a reduction in operating costs, excluding depreciation, amortization, and severance by 1% in the quarter, mainly due to lower benefits and outside printing expense, partially offset by higher compensation and various other costs. However, we still expect costs to increase modestly this year. We plan to increase spending as we continue to invest in our digital capabilities and subscription acquisition efforts, invest in About sales and marketing efforts, reset our variable compensation targets, even as we expect expense savings in our production and distribution operations and from further leveraging our centralized processes and resources.
Early this second quarter, we completed the consolidation of most of the Worcester Telegram & Gazette printing into the Globe's facility. The Globe has also begun to see the financial benefit from printing and delivering a local competitor, resulting in higher production costs as well as the associated revenues. In the first quarter, our liquidity position was improved further as we recognized the cash proceeds from the January's Regional Media Group sale and February's sale of our Fenway Sports Group shares, bringing our cash position to $431 million. Two of our priorities for this cash will be managing our underfunded levels of our pension plans and paying off our $75 million 4.6% notes that mature later this year. Depreciation and amortization increased to $32 million in the quarter, with the increase entirely attributable to the accelerated depreciation expense related to the Worcester consolidation, which was $7 million.
Turning to our outlook in the second quarter, advertising trends for the News Media Group are expected to be similar to the first quarter levels. While at The About Group, advertising revenue trends are expected to improve modestly. Although at the beginning of the second quarter, we cycle through the first full year of our digital subscription packages at The Times. We expect to see continued benefits from these initiatives, as well as from the print price increases. Total circulation revenues are projected to increase in the high single digits in the second quarter. As I alluded to earlier, operating expenses are expected to increase in the low single digits in the second quarter. With that, we'd be happy to take your questions.
Thank you, sir. If you would like to ask a question, please signal by pressing the star key followed by the digit one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one and we'll pause for a moment to allow everyone an opportunity to signal. We'll take the first question from Alexia Quadrani from JP Morgan.
Thank you. Just a couple of questions. First on, could you give us some color of what you're seeing in April so far in terms of print advertising trends? I think you said that Q2 should be similar to Q1, but it seems like Q1 ended in sort of a period of strength from starting from weakness in January. I'm wondering if the numbers you saw in March have continued into April.
Alexia, it's Scott. April is off to a slow start compared to the last couple of months of Q1, as Jim noted. We saw sequential improvement in Q1, but as I've said in the last several quarters, the month-to-month results are very volatile, and it's in large part a reflection of the way advertisers approach their spending plans. They tend to be characterized by last-minute decisions and short-term planning horizons. In April, we're seeing a slowdown compared to February and March. The stronger categories in April, corporate, automotive, luxury continues to be strong for us as it was in Q1 and all of last year. While we had a really strong Q1 for entertainment driven by the Oscar season and the strong product lineup from studios, we're seeing a slowdown in April that'll probably continue through the quarter.
Financial services came off a good quarter and is a bit of a challenged category in April. Real estate has been a challenged category through Q1, is in April, and that's likely to continue.
And-
Just Alexia, on the Globe side. While we'll see some improved print trends in April, some of that stuff is attributed to kind of one-time events and some special issues in April. We think kind of the core fundamental trends that we saw in the first quarter, we see somewhat persisting into the second quarter. I think there's been some strengthening on the digital side. Overall, as we said, trend's similar.
Jumping over to the circ trends, can you provide a bit more color, I guess, on the impressive circulation results that you've reported? I guess any sense on how much the digital subscription revenue contributes to that line item?
The digital subscription was a major part of it. We did see revenue growth in print. The price increase has gone very well, living up to our expectations. It will serve us well throughout the year. Digital subscription growth, as indicated in the numbers we've disclosed, was good and will continue to be. The outlook, I think, is very good for the rest of the year.
Given the price increase that we put in early part of the year or so, I think both of them contributed to good growth, both print and digital sides.
Yes.
And then-
A good part of it clearly came from digital subscription growth.
It sounds like print would have been positive even without digital. Is that correct?
Print was positive, yes.
Yes.
Okay. Just the last question on the Lincoln conversion, I think you commented that it's going well. I guess two questions. Any sense on what percentage have converted? Second question on that part would be, I guess what sort of timeline do you really put out there for those conversions? I guess it's only been about four months or so, but how long do you think people either decide one way or the other? I guess, what are you looking to in terms of sort of the end game there?
The largest part of the conversion is behind us. It has gone extremely well. If you want to look back prior to the launch of our pay model a year ago and think about the top 1 million most engaged users, the MEU program was the very top decile. Its conversion rate is quite a bit superior to the nearest deciles as we look back on the past year. We're not going to disclose the conversion rate itself. We're still seeing conversions, and we expect that to continue through the first half of this year. As with all of our engaged users, we will continue to market to them, and we have confidence that we can continue to convert.
Lexi, I would just add to that. We did begin converting in the fourth quarter or so. We did see a meaningful number, not a tremendous number, but a meaningful number that converted in the fourth quarter. All the conversion has been spread over a longer period than just the first quarter.
Okay. Thank you very much.
We'll take the next question from John Janedis from UBS.
Hi, thanks. Good morning. Jim, you obviously mentioned your improved cash position, and it's been getting better now for a while. Can you give us your updated thoughts on maybe timing around potential return of capital and an update on the pension? Thanks.
I'll start with the pension. I did say in my remarks that we continue to focus on that as a priority, as well as we have a small maturity debt coming due later in the second half of the year of $75 million. There's been no change in that statement since the last quarter. We'll continue to look at and consider accelerating contributions to that plan. There's nothing meaningfully required to be made this year. We're ahead of the required contributions by about a year, except for some contributions largely driven by some union agreements, and that's somewhere in the $30 million-$40 million range. At a minimum, we'll be doing about $40 million this year, and then we'll continue to look selectively at accelerating some of those payments.
Look, we're keenly aware of the issue. We continually and we will continue to be in discussions with the board about what the best use of cash is and have nothing to report here on the call. The board continually evaluates the best use of that cash, and I just don't have anything new to report at this moment. We're in a fortunate position with our balance sheet. I will say that, and I said in my remarks as well, we do feel pretty confident and comfortable with our ability to exit fully our stake in Fenway Sports Group, so that will further enhance that as well. Look, we're continuing to generate good cash from operations, so we're fortunate to have a very healthy balance sheet at this point.
Okay. Thanks. Separately, can you give us more color maybe on News Media digital ad revenue? We haven't seen a negative growth rate in a while. Has there been a shift in advertiser psychology maybe away from premium display to cheaper social media sites? Have you seen any change in trend in sell-out rate at nytimes.com?
We've seen no change in sell-out rate at nytimes.com. There is no structural shift that we can identify. We're cognizant of the dramatic changes that are taking place on the digital landscape, but we don't believe they're affecting our business. There is a shift in the psychology, though, for digital spending, and I think I've been talking about this since the middle of last year. Certainly since the middle of last year, we began to see signs of it earlier in the year. We've started to see digital advertising be much more sensitive to the macroeconomic environment. Print has been for a long time, and we've talked about how it's been very sensitive to, reactive to events in the macro environment, whether it's the European sovereign debt crisis or the debt ceiling concerns or fears of double-dip recession.
Certainly through 2010 and for much of the history of digital advertising, it seemed to be somewhat, if not a lot, insulated from those kinds of concerns. Beginning in the middle of last year, the mindset has changed. It's sensitive as print is sensitive, maybe not quite as sensitive, but similar to. That sensitivity was clearly in place in Q1. On the earnings call in January or early February, the Q4 call, I talked about the kind of cautious outlook that we had for Q1. The outlook that Jim spoke to and was in his remarks is a similarly cautious outlook for Q2 with much of the same psychology in place. Now, the deep uncertainty that existed in January has diminished, but the confidence in the economic environment is still tentative. It's not a deep confidence, and hence that caution permeates advertiser spending plans.
One difference in the Q2 outlook from Q1 is the fact that we're up against, in digital, very steep comps in the technology category. There were quite a number of product launches in Q2 last year. There will not be similarly large product launches in Q2 this year. There is the potential and expectation for such launches later in the year. That's a timing consideration. Because of the steepness of the comps in Q2, that factors into the cautious outlook that we've shared.
Thank you, Scott.
We'll go next to Craig Huber from Huber Research Partners.
Yes, good morning. I want to ask you a little further about your CEO search, Arthur. Just given it's been about four months now since your CEO so-called retired, are you prepared at all to become the CEO on a full-time basis here going forward if you don't find the right candidate?
I have no doubt but that we will find the right candidate, and I'm looking forward to that.
Okay. Also if I could ask about about.com. Can you just explain, I guess, your strategy here to try and turn this around and give us a little more flavor, if you would, what you're doing with the management there, the sales force, just the efforts you're doing internally that you can't control?
Yeah. Look, the things that we control, I would say the best are display advertising, and I think there's a number of factors that contribute to it being pretty challenging performance. We do feel like there's more activity in the market that we participate in. I think it takes time. We've had a fair amount of turnover, both at the senior level and at the people on the ground, in the sales staff. We do feel some momentum building behind that. That's the part of the business, obviously, we're in most control over, except for the economic forces. To Scott's point earlier, it's not the most robust environment, but nevertheless, the comps do get a little bit easier. Another thing we can control is page views, and I think we've done a pretty good job of turning that around.
In our last quarter call, I said we had gone into positive page view growth territory, and we've continued to accelerate that. Our page views, as I said in my remarks, were up 6% in the quarter. We expect to continue to see growth in page views, and that will ultimately translate into better display advertising. We're looking for premium display to really carry the day. On the CPC side, obviously page view growth will also benefit on the CPC side. We'll continue to work on that front. There are certain things we don't control. Ad rates from CPC ads, which is principally served by Google, is not something we have control over, and that really has been negative, less negative in the first quarter than we saw in the fourth quarter, however. Then the click-through rate.
Click-through rate is driven by people who click on ads and also quality of ads. There are a number of things we can do there to entice more click-throughs and to serve more ads on pages, and that's in our control, and we've got a number of initiatives between now and the end of the year. We think we're going to move positively in the right direction on both of those lines. I think display advertising, we should really begin. I think the second quarter is a meaningful quarter for us. As our guidance suggested, we are expecting to see improved advertising trends in the second quarter.
You mentioned lower click-through ad rates. Can you just help us quantify how much you're seeing down in the ad rates online?
Well, look, page views are up. I won't be specific here. I'll help you out, though. Page views are up 6%. Ad rates are down. I think Google disclosed their ad rates were down, I believe somewhere around 10%, 12% in the quarter. We actually performed better than that on the ad rate side, but I prefer not to be specific about that. The rest of it is really click-through rates, and the click-through rates is both volume of ads on the pages and the number of clicks on those ads when people see it. There's things we can do on the click-through side that is both in our control and not in our control.
Lastly, what about rate Street or your online display? How have those trended versus a year ago, please?
Scott, do you want to?
I'm sorry, Seth. He was asking about About.com. nytimes.com, our rates are holding up well. We continue to command high CPMs for our premium positions and placements.
Lastly, if I could just sneak in one more thing here. I think you mentioned earlier on the last six months, your Sunday print circulation volume was up about 2%. Should we take your comments to mean for the daily part of your New York Times daily circulation volume down, say, roughly 3% from a year ago over that six-month period? Is that reasonable?
Yeah. Our Q1 print decline was in the vicinity of 5%.
Daily. Okay.
Yeah. That's very similar to Q4, so the six-month is in it.
Again, remember, that was a reflection, at least in part, of a price increase we put in place early part of the quarter.
While we're on the subject, what is it for daily and Sunday, the circulation volume decline, I assume, in the first quarter for The Boston Globe?
On the Globe. If you can give me just a second, I'll get to that. We're down about 5%. Let me see what I have there. Just want to give a pure print number. Just give me one second, Craig. Let me see. What is it, daily or Sunday? Daily is about 9%, Sunday about -3%. Both those are negative.
-9, -3. Great. Thank you.
We'll move to the next question from Doug Arthur from Evercore.
Jim, you threw out some numbers before, down 9% January, 7% February, 2% March. Was that print only at the Times or was that total advertising?
Total advertising.
At the Times or the whole media group? I assume at the Times.
News Media Group.
News Media Group. Scott, it looks like retail improved in the quarter. Obviously March was stronger than the rest of the quarter. Was some of that Easter or was that a non-event?
Easter, there's no discernible impact from the earlier Easter this year.
Okay, retail looks like it's hit a little bit of an equilibrium for the moment.
We had a good quarter. Each month of the quarter was positive.
Okay. Thank you very much.
Moving next to Edward Atorino from The Benchmark Company.
Yeah. I got, I guess, three quickies. One, can you talk about print circulation volume at the Times, post the price increase, number one? There are two numbers I would like you to explain. There's the 472,000 circulation in one place, and then there's the 454 in another. What's the difference?
The difference is the bostonglobe.com.
Oh, okay.
With The New York Times together.
Yep. Lastly, as I said, could you talk about circulation volume post price increase?
It's really the numbers I stated a minute ago about Q1 versus Q4. The Q1 print decline was 4.8%. The print decline in Q4 was 4.2%. There are obviously a lot of things going in there.
Yep
the key difference was the price increase.
Yeah.
The Sunday was down in Q1, 0.3%. Q4, it was down 2%.
Is there any way to say if there's any cannibalization of advertising by the digital product from the print product Times? You got that blended, you got print advertising and. Is there any way to tell people are shifting from the print to the digital, which could have a negative impact overall since the print.
If you step back and just think about the larger trends, we acknowledge that there's a secular trend and shift of advertising from print to digital. The way we sell is on an integrated basis, and something like 80%, it fluctuates from month to month, but 70%-80% of our top 100 advertisers are advertising across platforms. We work with them to design campaigns that exploit the advantages of each platform. Aside from the macro statement, it's difficult to answer that question.
I know it is. If I were advertising and let's say I wanted to spend $100,000, am I going to get more bang for the buck? Am I going to be able to take advantage of the differential and basically you would've been better off getting all print? There's no way to figure that out, I guess.
My advertising sales colleagues would ask you what your objectives are, and they'd try to design the right spend that maximizes your expectations on the objective. It could be a multi-platform buy that you make.
Got you. Thanks for your patience. Thanks.
We'll move next to William Bird from Lazard.
Good morning. Just a couple questions. I guess first on cost. Was just wondering if you could discuss Q1 costs. They seem to have come in below guidance. Why was that? And is it likely that Q2 costs could also come in lower than guidance?
Well, look, it came below guidance. There wasn't really one thing that drove it. Weren't huge dollars. It was down 1%. We said it would be low single digits. Look, our best view of our business today is the guidance I gave this morning. Things change. I don't have a crystal ball. If it was that precise, I would've delivered my first quarter guidance, and I didn't. That is our best view of what's likely to happen. I'll reiterate the things that are going to drive that. We are printing local competitor up in Boston. We're getting the revenue from that, but there's meaningful production costs related to that. Now, we had some of that in the first quarter, but not the full quarter. We're continuing to market and acquire new customers, digital customers, and that continues. That's a bit of a lumpy spend.
It's not as linear as maybe we all like, but those are the things that are going to drive our business. As we look out a little bit into latter part of the year, we'll be spending more on Olympic coverage. We'll be spending more on political coverage. There's a bunch of things that support our guidance. That's our best view of what we're likely to see in the second quarter. It's not precise. We will continue to do, I think, our usual job of managing costs as tightly, but that's embedded in that guidance.
I would add to what Jim just said the following. We continue to take cost out of our operations, and we expect to continue to be able to do that into the future. At the same time, we're investing in our business and we're particularly in the digital side of the business. We've got part of our costs that are going in one direction and another part of our costs that are going in the other direction. To Jim's point, there is no one big thing, but there are lots of things, the timing of which sometimes is off. I think it's one way to think about what's going on with our expenses.
Do you have a number for nytimes.com for the number of paying digital subs as of 3/31/2012?
The number we disclosed as of March 18th was a week short of the full quarter. Our quarter ended on March 25th. We chose to disclose then because we were making a first anniversary announcement that included several component parts, one of which was the change in the pay gate. We jumped the gun, in a sense, on our quarterly announcement, saw no reason to update it for one week. Our next announcement will be the Q2 earnings call.
Can you give us any sense of just kind of your early read on tightening the paywall to 10 articles and how that's impacting sign-ups? I realize it's early days, but-
It's going extremely well. We're very, very pleased with the response rate since we've made that change. We expect that to continue on.
We're pleased with the paid view performance as well.
Yes.
Great. Thank you.
We'll go next to Leo Kulp from Citi.
Hi. Good morning. Thanks for taking the questions. Two quick ones. First, can you confirm whether or not your operating expense guidance includes or excludes the accelerated depreciation?
All the accelerated depreciation we've now put behind us, and we've booked it in the first quarter. It's about $7 million. There will be no more accelerated depreciation related to that plant consolidation.
Got it. Okay. Thank you. Going to The New York Times, it seems like the ad pages in The New York Times Magazine kind of dropped off pretty dramatically this year. Is that a function of tough comps, or is there something else you're seeing there?
I think what we're experiencing in our magazine segment of our business is probably what you're seeing across the industry, based on certainly the reports that I've seen about magazine performance in Q1 and beyond. It's particularly so in our weekly magazine. The T Style Magazine is doing a bit better.
Thank you.
It appears there are no further questions at this time. Ms. Schwartz, I'd like to turn the conference back over to you for any additional or closing remarks.
Thank you for joining us today. Please give us a call if you have any follow-up questions. Thanks.
That concludes today's presentation. Thank you for your participation.