Good day, and welcome to The New York Times Company third quarter earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to your host, Ms. Paula Schwartz. You may begin.
Thank you, Matt, and good morning, everyone. Welcome to our third quarter 2011 earnings conference call. We have several members of our senior management team here to discuss our results with you, including Janet Robinson, President and CEO; Jim Follo, Senior Vice President and Chief Financial Officer; Scott Heekin-Canedy, President and General Manager of The New York Times; and Martin Nisenholtz, Senior Vice President of Digital Operations. All of the comparisons on this conference call will be for the third quarter of 2011 to the third quarter of 2010, 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 2010 10-K.
Our presentation will also 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 corporate website at www.nytco.com. Now I'll turn over the call to Janet Robinson.
Thank you, Paula, and good morning, everyone. We continue to execute on our strategy of transforming our business. This quarter, we made significant progress in developing a robust digital subscription revenue stream, reducing our operating costs, meaningfully improved our liquidity through the early repayment of high-interest debt, and tripled our initial investment on the sale of a portion of our stake in Fenway Sports Group. Our results also reflect the current sentiment of the larger economy as factors ranging from the European debt crisis to weaker consumer confidence led to a challenging advertising environment. At the same time, we achieved 6% growth in operating profit before depreciation, amortization, severance, and special items through incremental subscription revenue resulting from the launch of The New York Times digital model as well as through continued focus on cost management.
While the lack of clarity on the direction of the economy caused advertisers to exercise more caution than we saw in the first half of the year, nytimes.com maintained its strong traffic levels and continued to fulfill its premium advertising commitments in the quarter. Our digital subscription initiatives remained our top focus in the third quarter as The Times continued to build its pay offerings. The Boston Globe launched the new subscription site, bostonglobe.com, and the International Herald Tribune this month announced its own digital subscription packages. These last two items are excellent examples of how our digital monetization efforts are evolving. We continue to position ourselves to capitalize on our digital content across many of our brands in our ongoing effort to build a meaningful digital subscription revenue stream.
Turning to our results for the quarter, with expenses down 4%, we saw GAAP operating profit grow to $33 million from $9 million in the same period of 2010. Our operating profit before depreciation, amortization, severance, and special items increased to $65 million in the third quarter from $62 million in the same period in 2010. Circulation revenues saw a boost from our new digital paid products at The Times. Total circulation revenues were up 3% for the company and 6% for our New York Times Media Group in the quarter. It is worth noting that The Times has also seen benefits to home delivery circulation following the launch of its digital subscription plans due to an uptick in new orders and improved retention.
Digital advertising revenues saw a loss of 5% in the third quarter, driven by continued challenges at the About Group, which saw a 21% decline in advertising revenue. Although digital advertising growth across the News Media Group did not see quite the same strength in recent quarters, it posted a 6% gain. In fact, in the two-quarter period since the launch of digital subscription packages at The Times, the News Media Group has seen an 11% increase in digital advertising revenue, with nytimes.com, of course, contributing heavily to that total. Print advertising revenue was down 10% in the quarter, and as a result, total advertising revenues were down 9% and total company revenues were down 3%. Diluted earnings per share, excluding severance expense and special items, were $0.05 in the third quarter compared with $0.07 in the same period of 2010.
On a GAAP basis, we reported diluted earnings per share of $0.10 in the quarter, compared with a diluted loss per share of $0.03 in the third quarter 2010 period. Returning to our digital initiatives, two quarters into the pay model launch, we have seen very good momentum and paid digital subscribers grew to 324,000 at the end of the third quarter. This total paid digital number includes subscribers to the digital packages, e-readers, and replica editions. The large majority of these subscribers have now advanced to paying full rates to access The Times' digital content.
If our experience with print subscribers is any indication, now that these subscribers have converted to full payment, it is highly likely that they will become loyal users. In addition to these paid subscribers, there are more than 100,000 highly engaged users who have free access to nytimes.com and its smartphone apps through the Lincoln sponsorship until the end of this year, and we expect to see a high conversion rate among these users once this sponsorship ends. We also continue to experience growth in the number of home delivery subscribers with linked accounts to nytimes.com, and that total was approximately 800,000 at the end of the third quarter. In total, the Times had paid or sponsored relationships with more than 1.2 million digital users at quarter end. Nytimes.com has maintained its strong traffic and its ranking as a top five news and information site.
Average monthly unique visitors for the quarter were about 33 million in the United States and generally in line with the 11-month average for the site leading up to the launch of subscriptions, while page view declines continued to be less than we projected, down an average of 11% compared to pre-launch levels. Nytimes.com also remains the most highly trafficked newspaper site in the world, with more than 47 million unique visitors globally in August. The Times's app for both the iPad and iPhone remain free to download, but access beyond the top news section is now available only through subscription packages. We have seen 7.3 million downloads of our iPhone news app since its 2008 launch, and more than 2.8 million downloads of our iPad app since its original launch.
Both of these apps are now available on Apple's Newsstand, which offers a new level of convenience by providing automatic updates and an easy way for users to find their news. Advertising positions continue to see high demand on the iPad. One premium advertising engagement worth highlighting is Ralph Lauren's exclusive sponsorship of the Times's iPad app for the month of September, which received tremendous acclaim in the marketplace. The sponsorship provided free access to certain sections of the app for the first time and featured interactive, expandable, rich media ad positions, many of which contained e-commerce functionality right inside the app. The app also hosted live video with an exclusive live stream of Ralph Lauren's Fashion Week show. Expanding the accessibility of our Times digital subscription packages even further, we continue to enhance our offerings.
Including shared access, meaning that the home delivery and all digital subscribers receive an additional login to share with a member of their household. At the beginning of the third quarter, Times one-click subscriptions were also available in the iTunes store. Also early in the third quarter, the Amazon Kindle and Barnes & Noble NOOK began offering subscribers to the Times on those devices free access to nytimes.com. The Times is currently the best-selling newspaper on both of those devices. Finally, in the third quarter, we began offering special education rates across all of our digital packages to college students, faculty, and administrators, mirroring our strategy in the print environment. Later this quarter, we will begin rolling out gift subscriptions, and we plan to launch group accounts for corporate and education subscribers within the next few months.
We also recently launched digital subscription packages at the IHT, in which its iPad and iPhone apps are now paid products. These offerings are expected to bolster our consumer revenue streams by bringing our international subscribers into the fold, who, until now, have been able to access the IHT apps for free. The apps provide round-the-clock news across 19 sections from multiple news hubs, and we are confident that many readers value the quality and convenience of the apps enough to pay for them. Now let me offer some more depth on our third quarter revenues. At the News Media Group, which includes The New York Times, New England, and Regional Media Groups, circulation revenues were up 3% for the quarter and contributed nearly as much to the total revenue line as advertising.
Continued strength at the News Media Group in digital advertising, which was up 6%, could not offset the softness in print advertising, which ended down 10%. We faced difficult comparisons again this quarter at the Times and the Regional Media Groups from British Petroleum's 2010 spending related to the Gulf oil spill, which was responsible for approximately two percentage points of the print decline. The effect of cycling BP's spending will be minimal in the fourth quarter. The News Media Group's total advertising revenues declined 7% year-over-year in the quarter. Digital advertising remained resilient, led by growth in retail and national display and in the automotive classified category. By total advertising category, national and retail were both down 6%, and classified was down 12%.
Within the classified area, real estate was down 17%, recruitment was down 14%, and automotive declined 4%. Breaking down the News Media Group into its component properties. At the Times Media Group, which represents 66% of the News Media Group's advertising revenues, ad revenues were down 6% in the quarter as continued growth online, particularly in national display, could not offset print declines. Demonstrating a pattern similar to the first half of the year, the middle months in the quarter, in this case August, was the strongest from a total advertising revenue perspective, although all months showed declines. Combined print and digital national advertising in the Times Media Group was down. National ad categories where we saw the largest combined declines were automotive, driven by marketing shifts and delayed product launches from domestic and foreign manufacturers. Transportation, due to domestic airline consolidations, a reduced number of flights and marketing strategy shifts.
Entertainment, as studio support for new releases and box office sales have both been weak. Categories experiencing the largest gains were technology, driven by product innovation campaigns, a search engine branding campaign and enterprise solution marketing. The luxury cluster saw gains driven by campaigns from American and international clothiers, as well as accessory manufacturers. Healthcare, as pharmaceuticals and top-tier hospitals ran large branding campaigns and promoted new drugs. Aggregate retail advertising declines improved from the previous quarter as a result of strong gains in fine arts, coupled with moderating declines in other retail categories. Aggregate classified advertising declined in all three major categories, automotive, real estate and recruitment, due to lingering softness in home sales and in the job market in the local and national arenas. Demonstrating that The Times' video coverage is gaining as much respect and prominence as its more traditional coverage.
The Times won two news and documentary Emmy awards last month for the multimedia project, A Year at War, which chronicles the lives of an American battalion over a year-long deployment in Afghanistan, for 14 Actors Acting, an online feature for The New York Times Magazine. The Times is also finding innovative ways to use video to enhance the reader experience, such as a new storytelling feature that enables video to be embedded directly within the text of a story. The Times' newsroom also just announced the expansion of its opinion pages online, which will soon include more contributors, content and video, as well as enhanced discussion features, building on the new Sunday Review section. Separately, The Times recently launched India Ink, an English-language blog offering news and analysis with a distinct perspective on topics that matter most to Indians and those interested in India.
nytimes.com continues to invest in tools, functionality and increased content across the site, including upcoming expansions of our technology blog, Bits, to incorporate a larger B2B focus and our popular health blog, Well. At the New England Media Group, advertising revenues declined 10% in the quarter due to weakness in print advertising. Digital ad revenues showed growth every month, driven by increases in the automotive classified and national display categories. Combined print and online national advertising was down, led by decreases in financial services and studio entertainment categories, offset in part by gains in travel and healthcare advertising. Total retail revenues were lower, led by softness in categories including home furnishings and department stores, offset in part by increases in books and other retail categories. Aggregate classified advertising also declined overall.
In September, we launched bostonglobe.com, a new paid subscription site that offers The Globe's award-winning journalism in a new, elegant environment that employs the latest technologies and capabilities. Boston.com will remain free to users, as our research showed there are two distinct digital audiences using these two brands. One that prefers reading the full range and depth of The Globe's journalism, and the other looking for quick headlines on news, sports and entertainment. We have received very positive feedback on the bostonglobe.com's clean design. Since the site just began charging for access yesterday, it is too soon to gauge subscriber response. We are, however, pleased by the interest shown by the high number of users who registered during September and the first half of October. The site was initially sponsored by Coldwell Banker and available at no charge to readers.
In addition to a new consumer revenue stream, bostonglobe.com will create incremental opportunities for advertising adjacencies that target the most engaged readers of The Globe's content. Readers who come to the site through third parties such as the search engines, blogs and social media will still be able to access those individual articles, and the homepage and section fronts will also remain free to browse. Of course, The Globe's home delivery subscribers receive free access to bostonglobe.com. At the Regional Media Group, advertising revenues decreased 10% due to weakness in print advertising, particularly in the retail category. On the digital side, the group saw strong growth every month in retail display, as well as in automotive and recruitment classified categories. Moving on to the About Group, total revenues declined 21% to $26 million in the third quarter due to equal declines in cost per click and display advertising.
The CPC declines were primarily due to lower click-through rates, as well as negative impact on traffic that resulted from both increased competition and Google algorithm changes. In addition to making key changes internally in the third quarter, About is aggressively responding externally to increase competition in both the display and search advertising market. We believe the new management team's focus will accelerate progress. Early this year, About instituted a plan to grow its content and traffic and to improve its advertising effectiveness, and it is making significant progress with the implementation. About is doubling the number of how-to videos across its 24 channels and is on pace to reach nearly 10,000 videos in its library by the end of the year.
Expanding the volume and distribution of expert content on its platform, including launching its Spanish language channel and increasing its roster of topic sites, which is now at more than 900. About has also been rolling out a disciplined sales plan to better leverage the site's strong reach, which averaged 40 million unique domestic visitors in the quarter. We believe the sales initiative will prove instrumental in revitalizing About's display advertising business. In addition, while About continued to experience a negative effect on traffic due to Google algorithm changes implemented earlier this year, it began to see slight improvement in page view trends during the quarter. Search rankings ultimately determine page view statistics, which impact both display and cost per click advertising. Efforts to address these issues will benefit both of About's advertising revenue streams.
Despite cycling through the design changes made in July 2010, cost per click revenue at the About Group did not see the benefit in the third quarter as the impact of a recent algorithm change in review rankings that affected our consumer search business offset the benefit of easing comparisons. Display advertising saw third quarter declines in categories such as retail and automotive, but showed growth in categories including consumer packaged goods and pharmaceuticals. The About Group's operating costs decreased 13% and operating costs, excluding depreciation, amortization, and the severance, decreased 14% to $13 million, primarily because of lower variable compensation costs and marketing expenses. Operating profit declined to $10 million in the quarter from $14 million in the same period last year. Importantly, due to its variable cost structure, About's operating margin remained strong at 37% in the quarter.
Now let me turn the call over to Jim, who will give you more detail on our results and outlook before we take questions.
Thank you, Janet. Even as we add new revenue streams across our company, in the third quarter, expense controls remained a critical component of our overall strategy, and we will remain aggressive in pursuing opportunities to reduce costs and to further improve our financial flexibility. That focus on improving financial flexibility was most recently highlighted by the previously announced prepayment in August of our $250 million 14% notes more than three years before their due date, which we expect to lead to expense savings of more than $39 million annually through 2015. We incurred a $46 million loss on the prepayment in the third quarter, which represents the make-whole premium and accelerated non-cash interest expense that would have been recognized over the remaining maturity period. The charge was closer to $28 million after factoring in a tax benefit.
At the beginning of the third quarter, we sold more than half of our Fenway Sports Group stake for $117 million, tripling our initial investment, and we continue to see robust demand for our remaining interest. In the third quarter, operating costs were down 4%, a result of lower variable compensation costs and professional fees. We remain focused on identifying further efficiencies across our operations, which through 2012 could come in the form of increased manufacturing efficiencies, further leveraging our centralized resources, and lower ongoing outside printing expenses while continuing to invest in our digital businesses. Turning to special items, our third quarter earnings were favorably affected by $0.24 per share by the $65 million gain on the FSG sale and unfavorably affected by $0.18 per share by the $46 million prepayment charge related to our 14% notes.
Severance costs were higher in the quarter at $3 million compared to $500,000 in the prior year period. Newsprint expense decreased approximately 3% in the quarter with nearly 7% decline due to lower consumption.
Offset in part by a 3% increase in higher pricing. Newsprint expenses have remained stable since July 2010, but the prices in the third quarter of 2010 reflected usage of lower priced inventory. In the fourth quarter, newsprint prices are expected to be relatively flat versus the same period in 2010. We continue to improve our liquidity position. We finished the quarter with $263 million in cash and short-term investments and reduced net debt to $509 million at quarter end, compared to $597 million at the end of the second quarter. On the pension front, recent declines in interest rate, as well as softness in the equity market, have had a negative effect on the funded status of many defined benefit plans, including our company-sponsored and joint company-sponsored and guild-sponsored plans.
While we have already addressed our minimum funding requirements for 2011 and a significant portion of 2012 through voluntary contributions, we may choose to make additional voluntary contributions later this year. We will make this determination based upon factors including market activity in the fourth quarter and other potential uses of cash. Note that since the majority of our pension plans are now frozen, any actuarial gains and losses from interest rate changes and asset performance are amortized over a longer period of time. Thus, while we do expect to see an impact on our funded status from these dynamics, this should not have a significant impact on pension expense in 2012. Turning to our outlook. In the first half of October, we saw advertising trends improve modestly relative to those of the third quarter due to stronger growth in digital advertising revenues at the News Media Group.
We expect to see continued benefit from our digital subscription initiatives, and total circulation revenues are projected to increase in the low to mid-single digits in the fourth quarter. We'll continue to make progress on the cost front. Operating expenses are expected to decline in the low to mid-single digits in the fourth quarter. With that, we'd be happy to open up for questions.
Okay, thank you. Ladies and gentlemen, 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're on 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 to ask a question. At this time, we will go to Alexia Quadrani with J.P. Morgan. Please go ahead.
Thank you. Just a couple of questions on the digital subscription rate. I think you did say that you're seeing a large majority of subscribers now becoming full paying. Can you give us a sense of what the conversion rate is from the promotions to the full-paying subscribers? Staying on that topic, in terms of new subscribers going forward, is there a sort of a metric or maybe an internal goal you guys use in terms of what you look to and hope to attain each month going forward?
We don't give conversion rates out, Alexia. What we will say is that we are extremely pleased with what we have seen in regard to the conversion rate. As you know, we've had promotional programs in place, but we have been pleased to see how people are converting to full payment. The same is going to hold true also at The Globe in regard to promotional offers. They have a 4-week $0.99 offer that will convert to a $3.99 per week full pay offer. So the use of promotion moving to conversion is how really both operating units are looking at this conversion. In regard to projections as far as new subscribers, we don't give that out as well in regard to our expectations.
As noted, we are doing certainly a lot of promotion and marketing, and we also are adding many things in the, what we would consider, I guess, phase two of our rollout that I noted in my remarks that included corporate accounts, gift accounts, education accounts, certainly the shared accounts that I noted in regard to multiple logins. There are a number of things that are part of that program to increase subscriptions. I would also remind you that that 100,000 that was the Lincoln subscription, that free subscription that Lincoln did pay for our most engaged users, does expire at the end of the year. Those are highly engaged users, and we expect that those people will look positively upon a paid subscription to The Times, particularly because of our experience in print.
We might see a particular bump probably at the start of the year. Is that what you're suggesting?
That program expires at the end of the year. We're starting to market to those people, but as I noted in my remarks, if our experience on the print side is any indication with these very engaged brand loyalists when indeed we do market, we are hopeful that they will indeed convert to full payment.
Just a follow-up question on the comment you made earlier in your remarks about the broader business. I think you said that August was the strongest month in the quarter. I don't know if you have the monthly data with you, but if not, was the, I guess, a bit of a decline in September, a relative decline to August?
Was it significant or was it really just month-to-month seasonality, jumping around? It's not that big of a deal.
It was jumping around. It was a very volatile quarter. As I noted, a lot of that was due to a lot of the negative sentiment out there in regard to the economic climate that we did see, to be quite frank, all during the quarter, July, August, and September.
Okay. Thank you very much.
You're welcome.
The next question will be from Craig Huber with Barclays Capital.
Yes, good morning. A couple questions. On the digital front, last quarter you said that e-readers and replica editions were like 57,000. What is that number this quarter, please? That's embedded in this 324,000 number that's in the text.
It's about the same, Craig. There's modest growth.
Okay. You talked about the benefits on the circulation front for your flagship paper. I believe in the six months from the last ABC statement, ending March, on a year-over-year basis, your daily circulation was down, say, 3.5%. What is that tracking here for this latest three-month period here? I mean, you have benefits you're talking about. Is it down but less severe, closer to flat? Or is it actually up?
Your question is specifically about print?
Yeah, print for the daily.
The print circulation continues to decline, but those declines, particularly on Sunday, moderated in Q3.
Okay. Can you talk further, if you would, Janet, about what you're seeing in October? Just also, can you maybe just quantify for us how September did for your News Media Group with the advertising?
As far as October, we've given guidance that we see modest improvement, but as you can well understand, it's very early still in the quarter for us to give more color on that. In regard to September, as we've noted, it was an extremely volatile quarter in regard to the ad commitments. Primarily because of the economic conditions. There are categories, as we've said, that did extremely or did well, I should say, during the quarter and showed gains during that quarter, particularly the luxury segment that we've noted often. But from a standpoint of the fourth quarter, it's usually a very heavy luxury category quarter in addition to a heavy retail quarter. There's also a lot of branding that's usually done during this quarter as well.
We're looking at those categories that would be affected very carefully, of course, in regard to their performance in the fourth quarter.
Over the last 4 years, you guys have taken out about 30% of your cost and obviously a very brutal environment here. If the economy doesn't cooperate here over say, the next 2 years, do you feel you can take out another 10%-15% of your total cash costs?
Craig, as we've repeatedly said, we'll just continue to be aggressive. I'd prefer not to put a number out there, but we still think there's areas that we can go to take cost out. I think we'll have to be adaptable to the revenue environment as I think we always have. We've been answering the same question about is there anything more to cut for probably four years, and we tend to find ways to do that. The dynamics in the business changes and where there are things where maybe the opportunity wasn't there a year ago. I think we will have to maintain a pretty adaptable view. As we said in our outlook, we'll see again low- to mid-single-digit decline in the fourth quarter. We've been pointing to back half of the year acceleration of that.
We'll have to see, but the best we can say is we're going to be aggressive as we need to be, and we will have to be adaptable to the revenue environment without being precise.
Great. Thank you.
You're welcome.
The next question will be from Leo Kulp of Citi.
Hi, good morning. Thanks for taking the question. Can you talk a little bit about what you saw driving the deceleration in digital growth at the News Media Group this quarter? You sort of maxed out on the growth from the homepage, or is there something else happening there? Looking out to next year, can you help us think about how to quantify the potential impact from iPad and mobile apps sort of ramping up?
Well, on the growth question, I think the simple answer is that as we have seen over the last couple of years now, as the economy has gotten a little bit more squirrely, advertisers are pulling back a bit. You saw that in 2010, and we saw that again a bit in 2011 in the third quarter. We don't think that there's anything fundamental about that. It's just simply a question of some of the very significant economic issues that have faced us in the third quarter.
Scott, I would just add to what Martin has said, we saw a similar deceleration at the end of Q1 associated with the events in Japan, and the kind of ricochet effect it had on business and consumer confidence. Within a few weeks after that, the ad spend on digital came roaring back.
We do see these episodes, if you will, when things going on in the larger economy can result in advertisers hitting the brakes. Just one final thought. The October trends that I mentioned suggest that News Media Group performance will be better in October, and that's what we're seeing in the early part. It's fairly volatile and very tied to economic conditions.
Yeah. On the iPad, iPhone question, it's a bit too early to call next year. I would say that as we see new entrants in the marketplace, like the Kindle Fire come on stream, we think that benefits our business. We think that the more people adopt these technologies, the better. We've seen really nice uptake in the last several weeks on the iPhone and iPad download side, particularly with the success of the iPhone 4S. All of that's, I think, pointing to a positive future.
Thank you very much.
You're welcome.
The next question will be from John Janedis with UBS.
Hi. Thank you. Good morning. Janet, just to clarify from Greg's question earlier, is the 224,000 digital subscription package subscribers from the second quarter on an apples-to-apples basis? The third quarter number is something like 260,000. Is that maybe the ballpark number?
In the second quarter, we noted 224,000 were paid digital subscribers. There were 57,000 added in regard to the eReader. When you're looking at this month, we have joined the eReader and replica editions with the paid subscribers, and the total is 324,000.
Okay. Thank you. Martin Nisenholtz, just back to digital within News Media. To what extent are you seeing any kind of pricing pressure or competition from some of the social media players?
We're not really seeing that in the News Media Group at all. Obviously, Facebook has poured billions and billions of ad impressions on the marketplace, and they are quite hot now with respect to testing and execution on the social media side of the equation. I think that's viewed somewhat separately from the brand-building activities that are being executed on sites like nytimes.com. I would suggest that they're quite separate in terms of the advertisers' overall spend. It's always very difficult to parse out where money is coming from across an advertiser's total budget. There's no question that Facebook has grown dramatically in the last 18 months. That money is never a zero-sum game, and that money is coming from all over the marketing budget. It's not coming from the digital spend on premium brands, per se.
Okay. Then Martin, we talked about this last quarter, but given the ongoing changes over at Google or with Google, can you talk about the environment that you need to see for the segment to actually grow revenue again?
Are you talking about About.com?
Yeah, about.com. Yeah.
Yeah. Well, actually, as Janet noted, we've begun to see some good positive momentum on volume as the year has progressed. I would suggest that we have not seen the kind of hit to volume on the subsequent iterations of Panda over the last several months, including the last one that was done about two weeks ago. The volume trends are actually quite positive for us. As we cycle through the more dramatic changes that happen in the first quarter of next year, we have a fairly optimistic view of the volume improving. That, I would say, is going positively in our direction. Obviously, we can't predict what Google is going to do with its algorithms, but so far so good coming out of this year.
In terms of the other variables, click-through rate, cost per click, those are obviously harder to call because we see them retroactively.
Okay. Maybe one last question. The help wanted growth that you guys posted was the weakest I think you've had since the first quarter of last year. I'm wondering, to what extent do you think this is a result of the economic climate versus loss of share? Are you seeing any kind of change to start the fourth quarter?
I think it's directly related to the economic climate.
Okay.
At the Times, we were seeing help wanted growth in print and digital earlier in the year.
Okay. Thank you.
Sure.
Moving along, we'll go to William Bird with Lazard.
Thank you. Jim, I was wondering if you could talk a little bit about free cash flow deployment, I guess, given the pension and just a small required debt repay next year. Does that likely mean the dividend and buybacks are kind of on hold for a bit?
Well, look, we were hoping to have interest rates be more favorable this year than they have been. Obviously, this low rate environment is quite a bit of pressure. On the debt side, we're really getting much closer to what we feel on a net debt basis is comfortable. We've got only one maturity we're facing, and that's in September. That's a small number. It's $75 million, easily handled by existing cash and cash from operations. I would also say that we expect to be in this period where CapEx will continue to run at a low level. We do see free cash flow generation being strong as we look out. I think we'd still like to see some improvement in the funded status of the plans. As I said in my remarks, I think we will consider some additional funding.
We're not required to make any, but this is very sensitive to interest rates, as I've regularly said. Rates have been moving up since they hit their low in late September. We've seen some real help there. It's pretty volatile. I think it's a little premature, but I think those issues are closer to being on the radar screen than they were certainly a year ago. We'll continue to focus on it and we'll leave our options open at this point.
I apologize if I missed this number, but how much have you contributed to the plan year to date?
Somewhere around, I believe, $75 million, about $80 million total. We have just a small amount that we'll contribute to our guild plan between now and the end of the year. It's about $80 million.
Okay. Just finally on just October and Q4 outlook. You mentioned digital has gotten a bit better. I was just wondering if you could comment on print and whether you've seen any change in trend in print.
not as of yet seen a change in the trend on print. There are several categories that continue to be quite strong, have been strong all year. Technology has had a lights-out year. We expect it to continue to grow. Based on discussions we've had with advertisers and what we see in the pipeline, our luxury segment has had a very strong year. Referring back to Janet's point about the fourth quarter, we have reason to believe that they will continue to be a strong segment for us. Of late, healthcare and hotels have been quite strong as well. All of these in both print and digital. The technology in print has had just an exceptional year.
Shed some light on the whole question of secular change, because we saw the technology category shift quite decisively toward digital a few years ago with little expectation that it would come back to print. In fact, it has come back into print very strongly as part of a cross-platform strategy for so many of these advertisers. There's an important lesson in that category, I believe. Telecom, live entertainment, department stores, books, all did well in Q3. Some of those categories should continue to do well into the future.
One thing I would just add to keep in mind is that BP percentage. In the third quarter, BP p.l.c. accounted for 2% of that decrease in print. As I noted in my remarks, the effect is minimal in the fourth quarter. 2% is quite a large percentage of a decline that should be kept in mind.
Great. Thank you.
You're welcome, Bill.
Moving along, we'll hear from Douglas M. Arthur with Evercore Partners.
Yeah, Jim, SG&A, if you adjust for severance, I'm not sure how severance breaks out between production and SG&A, but assuming it's all in SG&A, you were down about 7% sequentially in SG&A from Q2. That's a pretty big drop. Does that partly reflect less launch costs with the paywall, and is that kind of level sustainable?
Well, the launch costs should go the other way. We're actually spending more money year-over-year for marketing against the paid launch, obviously. We've spent $ several million against that. That's embedded in the number. I think a good part of that, we've got some performance-based compensation issues, some stock-based compensation. There's been some meaningfully lower professional fees. I think they have largely driven that number down. I think that if you look forward to the fourth quarter, maybe that'll moderate a little. We are expecting similar performance on the cost side in the fourth quarter as we saw in the third, as my guidance remarks would suggest.
Okay. One last question on cost. You ended last year with about 7,400 FTEs company-wide. Is that a figure that could be around 7,000 or lower by year-end?
Yeah. In fact, the number at the end of September was about 7,200. On a year-over-year basis, that's down about 1.2% off of where we were last year at the end of September. It's about 7,200.
Okay. Thank you.
We'll move now to Edward Atorino with Benchmark.
Hi. Regarding the pricing of the digital product. The Sunday package is very strong, and I hear that a lot of people get the Sunday package because they get the online for free. Have you thought about charging those folks $1 a week or something? You'd get an awful lot of additional dollars right to the bottom line. Or generally, charge the print subscriber a little bit to get the online.
We're very happy with our pricing program as it currently stands. It's had, as we've already noted, a notable impact on volume trends, and we like that. We always say that we have pricing power, and we look at all of our options to exercise that power, and it's something we think about.
We're looking at all frequencies in regard to the orders since the launch. People have been looking at new orders, some in seven-day, some in weekender, some in Sunday ed. We of course reserve the right to your pricing advice. We also, of course, reserve the right to increase pricing both on the print side and on the digital side if we feel it's an appropriate time to do that. We're always evaluating that.
Would you review the paid models for Boston, I believe, is up and running. Anything in the regionals?
The regionals are doing very well in regard to digital advertising growth. We certainly have that under consideration, but I think it's a little early for the regionals to take that into consideration now.
Mm-hmm.
Our Worcester Telegram & Gazette is a paid site that, in fact, I think is celebrating its 1-year anniversary this month. They have seen some notable success, particularly in regard to retention of the print subscribers, and they have met all of their advertising commitments as well. It certainly is something to take into consideration for a broader group of our properties.
Martin mentioned that things look a little better at About. Any sign of the ad business getting better along with the other improvements or getting less worse?
I'm going to have Martin just give you an overview in regard to what we've done with the acceleration of the ad program or ad staff down there.
Yeah. Well, first, just in terms of the numbers, I think as you go into 2012 and you look at the comps, we should have some materially easier comps next year.
Got you. Yeah.
Yeah. To Janet's point, we have completely rebuilt the sales force beginning over the summer. Her point about the new management team is spot on. We have a great deal of excitement about this new team, which is led by Darlene Geen, and she and her team have really now fully staffed the advertising team as well. We think that there's significant potential as we go into next year at about.com, both because we're cycling through some easier comps and because we have, I think, a much better team on the ground. I should also add, just to punctuate some of the things that Janet said, we now have over 900 guide sites.
We've got, I think, a much more productive relationship with the guides based on a new contract that we rolled out over the summer, and which I think we're all very excited about in terms of guide productivity and commitment. The guide network is the centerpiece of the business, and we continue to expand it, as well as the Spanish language portion of the business as well. One thing that I've said repeatedly on these calls, and I think some of the competition is now coming around to this perhaps, is that we are focused on quality.
We believe that over the long term, as Google adjusts its algorithms to find quality on the web and to identify and surface it, that we will be in a great position, not only at our News Media Group, where, of course, that's a foregone conclusion, but at About as well, because of our focus on this guide network and the great work that they do. That will continue to be the focus in the business. As I say, some of our competitors seem now to be coming around to this fact.
Thanks. Janet, could you sort of go over the October outlook for the quarter? You've mentioned about the October going-forward trend. Could you just sort of summarize it again for me, please?
Well, we said that indeed there was modest improvement going forward in October that we were seeing in the first part of October. Modest improvement, particularly on the digital side. That's the guidance that we've given.
Fashion seems to be hot. Are you getting your share of fashion?
Yes, we've done very well. In my remarks, I said that it's both international and American fashion and also accessory manufacturers that performed very well in the third quarter. As I noted, the fourth quarter is a very active period for luxury fashion, beauty advertisers, and also for retail. That is the category that we're keeping a very close eye on and certainly being very proactive in regard to getting our share of market and then some.
Thank you very much.
You're welcome, Ed.
This does conclude the question and answer session. I'll turn things back over to Paula Schwartz for any additional or closing remarks.
Thanks again. Please give us a call if you have any follow-up questions.
Again, this does conclude today's conference call. Thank you for your participation.