New York Times Company (The)

Good morning and welcome to the New York Times second quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Harlan Toplitsky, Executive Director of Investor Relations and Financial Planning and Analysis. Please go ahead.

Thank you and welcome to the New York Times Company's second quarter 2021 earnings conference call. On the call today, we have Meredith Kopit-Levian, President and Chief Executive Officer, and Roland Caputo, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call. These statements are based on our current expectations and assumptions, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2020 10K and subsequent SEC filings. Given the impact that the COVID-19 pandemic had on our business in 2020, we will also present certain comparisons of our operating results in 2021 to 2019. which we believe in many cases provides useful context for our current year results. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliation to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com. With that, I will turn the calls over to Meredith Kopitz-Levion.

Thanks, Harlan, and good morning, everyone. We now have more than 8 million paid subscriptions across our digital and print products, a testament to the success of our strategy, the strength of the market for paid digital journalism, and our unique opportunity to meet that demand. That milestone follows a second quarter with strong revenue and profit growth, modest net subscription additions, and progress on advancing our underlying model. Total subscription revenue grew 16% in the quarter, the largest year-on-year subscription revenue gain in more than a decade. Advertising revenues surged compared with the same period last year. The combined strength in these two revenue streams more than offset cost growth And as a result, we recorded $93 million in adjusted operating profit, a 78% improvement compared to the same quarter in 2020. We saw moderated growth in net subscription additions in the second quarter, which we expected given that Q2 is traditionally our softest of the year, and we were comparing against last year's historic results at the beginning of the COVID crisis. We added 142,000 net digital subscriptions with roughly half in news and the balance in cooking and games. We continue to expect that our total annual net subscription additions will be in the range of 2019, although that remains difficult to predict with precision. Our advertising performance was better than expected with total revenue up 66% year on year. As with subscriptions, the biggest factor in the gain in advertising nearly 80% year-on-year and more than 22% over the same period in 2019. It was also another strong quarter for demonstrating the breadth, reach, and impact of our journalism with unparalleled coverage of the devastating events in South Florida, the political crisis in Haiti, and the still-surging pandemic. Pulitzer Prizes were announced in June, and the Times was the only news organization to win more than one this year. Culture writer Wesley Morris won the Pulitzer for commentary for his urgent and moving essays exploring the intersection of race and culture. And for the seventh time in our history, the Times won the Pulitzer Prize for public service journalism's highest honor for our coronavirus coverage. This body of work is the quintessential example of the expansive journalism the Times can uniquely deliver. More than 1,000 journalists contributed to our coronavirus reporting, as did many others across the company, including engineers, data scientists, product designers, and product managers. The work of our data journalism team in particular is worth noting. The Times launched an around-the-clock effort to track every known coronavirus case in the U.S. and made that data publicly available. That coverage continues to fill a vacuum that has helped local governments, healthcare workers, businesses, and individuals better prepare through each stage of the pandemic. It has also brought us new audiences who rely on and return to our products repeatedly. Demonstrating the strength of our journalism across platforms and subject matters, in mid-July, the Times was nominated for the Primetime Emmy Award for Best Documentary for our film Framing Britney Spears. The film ignited intense scrutiny of court-ordered conservatorships and continues to resonate with audiences globally. We produced it as part of our New York Times Presents series, a partnership with FX, that was recently extended. I'll turn now to our underlying revenue drivers in the quarter and share some specifics about the work ahead. As we've said in prior calls, we expect to feel the effects of comparing our results against last year's heightened news cycle for the remainder of the year, and we believe that while the news cycle will continue to have significant effects on our subscription growth, we are increasing our control over the levers of the models. Our audience in the second quarter was below the historic highs of 2020, driven largely by declining engagement with the COVID story domestically. But as we saw last quarter, our average weekly audience was larger than in the same period in 2019 and every prior period. For the second quarter in a row, we were also pleased to see readers engage across a broader range of storylines than they did last year. We view this as a positive leading indicator of future net subscription additions, as we have seen that experiencing the breadth of our report correlates with paying and staying. We're leaning into that breadth, both within our core news experience and across our adjacent products, like cooking, games, and Wirecutter, by experimenting more aggressively with programming to expose more of our audience to the full value of the times. With sustained strength relative to 2019 and prior years and overall audience, and with more than 100 million registered users, we are also experimenting more aggressively and, we believe, more successfully on our customer journey and access model. And as our pace of new registrations continues to be healthy, we have now begun to focus even more on getting registered users to subscribe and to engage more deeply once they do. That experimentation with our access model has given us increasing insight into when our readers are ready to subscribe, which in turn is leading to higher conversion rates. As a result, our digital monthly net subscription additions have grown each month since Lowe's in March. We believe we have additional room to optimize conversion as we strengthen engagement in key areas like newsletters, and our growing body of live experiences. Last quarter, we noted that the newest cohort of news subscriptions appeared to be retaining slightly less well than in the past, which contributed to a small increase in overall churn. Q2 domestic news churn was unchanged from the first quarter and remains at a comfortable level. While we experienced an uptick internationally in non-core markets, we believe our churn overall is generally at a healthy level. We also believe that our increased focus on subscriber engagement and on making the subscriber experience clearly superior to registered and anonymous experiences will help maintain healthy churn levels. And we remain confident in our overarching approach to graduating subscribers from promotional prices to step-up and full prices. We continued in the last quarter to lay the groundwork for a more strategic bundled subscription offering that has the potential to be more widely appealing and uniquely valuable to millions of people in their daily lives. Throughout the quarter, we ran tests on our all-digital access bundle, which combines news, cooking, and games. These tests demonstrated that there is meaningful demand for the bundle and that those who choose it are better at retaining than those who subscribe to only one product. Building on these promising results, we plan to do more testing around pricing, positioning, and marketing of the all-digital access bundle in the second half of the year. And this fall, we plan to launch our paid subscription product for Wirecutter and experiment further with Autumn, both of which over time have the potential to widen the appeal and value of a Times bundle. Given the opportunity we see, an addressable market of at least 100 million people who are expected to pay for English language journalism, and a unique moment in which daily habits are up for grabs, we are continuing to invest in the value of our individual products and the broader bundle. That includes investing thoughtfully into our news operation to cover the most important stories of our time and to meet more news needs. It means investing into our adjacent products to meet a broader array of life needs, as we have done with cooking and games, each of which is now closing in on a million subscriptions. And it means investing to build the underlying tech, product experience, and company culture required for us to scale. We believe these investments will enable us to grow our market share and also to build a larger and more profitable company over time. I'll turn briefly now to the drivers of advertising growth. Our ad business is no doubt benefiting from an advertising market recovery, but we also believe we're seeing the effect of the groundwork we laid to build competitive advantages. Those advantages include our robust first-party data targeting capabilities, our large and growing suite of hit podcasts, and our ability to create unique multi-platform collaborations that help marketers launch new ideas and products into the world. Now, before I turn things over to Roland, let me share an update on the company's ongoing emphasis on and investment in building out a world-class digital product development team. As we focus on scaling our strategy of journalism worth paying for, our ability to attract, develop, and retain top talent in areas well beyond journalism is paramount. This is especially the case in engineering, which is now one of our largest business side functions. I'm happy to say that later this month, we'll officially welcome a new chief technology officer Jason Sobel, who joins us after five years at Airbnb and half a dozen years at Facebook during its early days of growth. Jason joins our other highly talented Times leaders who are steering our digital product development work to its next phase of growth. And with that, I'll turn it over to Roland.

Thank you, Meredith, and good morning. While subscription unit growth was modest in the quarter, substantial growth in both subscription and advertising revenues, which are a result of fundamental strength in the underlying business, delivered strong financial results, especially when compared with the muted results from the second quarter of 2020. Adjusted diluted earnings per share was 36 cents in the quarter, 18 cents higher than the prior year. We reported adjusted operating profit of approximately $93 million, higher than the same period in 2020 by $41 million, and higher than 2019 by $37 million, which is an important comparison point given the impact that the pandemic had on our 2020 results. We added 77,000 net new subscriptions to our core digital news product and 65,000 net new subscriptions to our standalone digital products for a total of 142,000 net new digital-only subscriptions. As of the end of the quarter, we had approximately 930,000 game subscriptions and approximately 830,000 cooking subscriptions. The international share of total new subscriptions remained at 18% as of the end of the quarter. Total subscription revenues increased 15.7% in the quarter. As Meredith said, this is the highest rate of subscription revenue growth in well over a decade. with digital only subscription revenue growing more than 30% to $190 million. Digital only subscription revenue grew as a result of the large number of new subscriptions we have added in the past year. Continued strength in retention of the dollar per week promotional subscriptions who have graduated to higher prices. And finally, the positive impact from our digital subscription price increase, which began late in the first quarter of 2020. Digital new subscription or proof of the quarter increased approximately one percentage point compared to the prior year and nearly five percentage points compared to the prior quarter, which marks the first quarter with a positive year-over-year result since 2013. This improvement was primarily a result of subscriptions graduating from their introductory price to either a full price or an intermediate step-up price in the quarter, as well as the continued benefit from price increases on our more tenured full price subscriptions. ARPU related solely to domestic new subscriptions increased approximately 1.5 percentage points versus the prior year and nearly 5 percentage points versus the prior quarter. We continue to expect to demonstrate pricing power throughout 2021 as the impact from subscriptions graduating from discounted promotions and the price increase on 10-year digital subscriptions continues to provide a tailwind to digital news ARPU throughout the year. Print subscription revenues increased more than 1% as home delivery revenues benefited from the first quarter price increase, which more than offset declines in subscription volume. Total daily circulation declined 4.5% in the quarter compared with prior year, while Sunday circulation declined approximately 1%, which represents a significant improvement in the recent trend following the steep declines experienced as a result of the widespread business closures and the decrease in community and travel as a result of the pandemic. As compared with 2019, print subscription revenues declined 5.5% as single copy and international bulk sale copy declined, while revenue from domestic home delivery subscriptions was flat. Total advertising revenues increased more than 66% in the quarter, as digital advertising grew nearly 80%, while print advertising increased by 48%. largely as a result of the impact of the comparison to weak advertising revenues in the second quarter of 2020 caused by reduced advertising spending during the COVID-19 pandemic. Digital advertising was also buoyed by our proprietary first-party targeted ad products and expanded audio product portfolio. Versus 2019, digital advertising grew 22% as a result of higher direct sold advertising, including traditional display and audio. Second quarter digital advertising revenue exceeded the guidance we gave in early May, largely as a result of better than expected performance from larger technology and financial services advertisers spending heavily on our targeted and audio products. Meanwhile, print advertising increased 48% as compared to 2020, primarily driven by growth in the luxury, media, technology, and entertainment categories. Despite this impressive level of year-on-year growth, print advertising revenue lagged 2019 by 33%. Other revenues increased nearly 9% compared with the prior year to $47 million, primarily as a result of an increase in Wirecutter affiliate referral revenue. It's worth noting that midway through the second quarter, we began printing the Wall Street Journal, Barron's, and the New York Post out of our College Point production facility. significantly increasing utilization of the company's only owned printing plant. Adjusted operating costs were higher in the quarter by approximately 15% as compared with 2020 and 6.5% higher in 2019. Cost of revenue increased approximately 9% as a result of growth in the number of newsrooms, games, cooking, and audio employees, other costs associated with audio content, a higher incentive compensation accrual, and higher subscriber servicing and digital content delivery costs. This was partially offset by lower print production and distribution expenses. Sales and marketing costs increased approximately 35%, driven primarily by higher media expenses, which had been reduced dramatically last year in light of the historically strong organic subscription demand experienced in the early months of the COVID-19 pandemic. When compared to 2019, sales and marketing costs decreased 14% as a result of lower advertising sales costs, partially attributable to a workforce reduction that we enacted in the second quarter of 2020, as well as lower media expenses. Media expenses in 2021 were 14% lower than in 2019. It's worth noting that third quarter 2020 media expenses were also significantly favorable compared to 2019, which will make for another difficult comparison in the third quarter of 2021. Product development costs increased by approximately 28%, largely due to growth in the number of engineers employed and a higher incentive compensation accrual than we had recorded in the second quarter of 2020. I'll again reiterate that we plan to continue adding to headcount in this area over the foreseeable future, as we expect to continue leaning into investments in product development, as well as on our core news and standalone products to drive growth. General and administrative costs increased by 6%. And when you control for severance and multi-employer pension withdrawal obligation costs, G&A costs would have increased by 19%, largely due to increased headcount in support of employee growth in other areas, higher outside services, and a higher incentive compensation accrual. Our second quarter cost growth came in at the low end of the guidance we issued on our first quarter call in early May, largely as a result of slower-than-expected hiring for our growth initiatives in a tight labor market. We had one special item in the quarter, a nearly $4 million charge resulting from the early termination of one of our tenants' leases in our headquarters building, as we ad space to accommodate growing headcount to support our growth initiatives. Our effective tax rate for the second quarter was approximately 25%, As we've said previously, we expect our tax rates to be approximately 27% on every dollar of marginal income we record, with significant variability around the quarterly effective rate. Moving to the balance sheet, our cash and marketable securities balance ended the quarter at $947 million, an increase of $56 million compared to the first quarter of 2021. The company remains debt-free with a $250 million of underlying credit available. Now, let me conclude with our outlook for the third quarter of 2021. Total subscription revenues are expected to increase approximately 13 to 15% compared with the third quarter of 2020, with digital-only subscription revenue expected to increase approximately 25 to 30%. Overall advertising revenues are expected to increase approximately 30 to 35% compared with the third quarter of 2020, and digital advertising revenues are expected to increase approximately 40% to 45%. Other revenues are expected to increase approximately 5%. Both operating costs and adjusted operating costs are expected to increase approximately 18% to 20% compared with the third quarter of 2020 as we continue investments into the drivers of digital subscription growth and comp against another quarter of low spending last year as a result of actions taken during the first year of the pandemic. And with that, we'd be happy to open it up to questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 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, then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Wassily Kersayov from Cannonball Research. Please go ahead. Hello, Vasili, is your line open?

Oh, yes, sorry. I'm having minor technical differences. Meredith, I wanted to ask you this. Compared to how you felt about your net ads guidance for the full year on the last quarter call, are you feeling more confident or less confident? And if so, why? And if it's unchanged, the level of your confidence, what would change that?

Thanks. Thanks for that, Vasili. I would say it's unchanged. So I'll reiterate what I said in the prepared remarks, which is our outlook at this point is that we continue to believe we'll finish in terms of net additions broadly in the range of 2019. And I shared in the prepared remarks that we have seen improvement since March in terms of net addition, so that gives us confidence. I'd say we believe we are continuing to improve our control of the levers of the model, even while the new cycle continues to have effects. So there's plenty of runway that we believe can help us keep optimizing for conversion. Our ability to use our meter in more sophisticated ways, in more dynamic ways, is getting better. We've got lots of engagement around live experiences and newsletters that's superior to 2019, and we think there's opportunity there to apply our customer journey and access model a little bit more deliberately. And as I said in the prepared remarks, we have been testing our bundle, and those tests are quite promising. And so all of that gives us, you know, the confidence that we're on track for what we've suggested so far. But, you know, it remains hard to predict precisely.

Thank you very much.

The next question comes from Craig Huber from Huber Research Partners. Please go ahead.

Yes, hi, good morning. Meredith, can you talk a little bit about the use of the $1 a week promotion for 52 weeks? It seems like you guys are being more aggressive with that week in and week out here versus maybe what you were doing a year or two years ago. Can you talk about that? And also, I'd be curious also to hear a little further about churn, how you're feeling about that, and is there versus two years ago, you mentioned a little bit, but just talk about that.

Yes. Good morning, and happy to answer both of those, and Roland should weigh in with anything I miss. On a dollar a week, we are continuing to use it aggressively as a way to bring subscribers in, and you can regard our use of it as real confidence in being able to step people up to interim and full prices at the one-year mark. So the fact that we continue to use it is a signal that it's really working. We're two and a half, three years into now having sort of tested it and gone through, you know, a couple of full cycles now of stepping people up. So we use it because it works, and I think you can assume we're going to continue to use that. We like what we see there. On churn, I'll address it in two ways, and I'll repeat some of what I said in the prepared remarks. As far as using step-up pricing and bringing people up at the one-year mark to interim and full prices, we like what we see there. So from a churn perspective, You can regard the fact that we're continuing to use that strategy as comfort with what we're seeing more broadly on churn. I'd say we think our churn is healthy. We're comfortable with where it is. We talked in the last quarter about the fact that we've seen a bit of an uptick in churn because the size of the new group that we brought in, they were retaining slightly less well than prior cohorts. This quarter, we're stable to that on domestic churn, which we feel good about and think is healthy. We saw international tick up a bit this quarter, and I'd say that is, from what we can tell, that's based on our strategy of more aggressive promotional pricing in non-core markets, but I'd say it's all sort of taken together, you know, in a range of comfortable, healthy, sort of in line with our expectations. And I mentioned this in the prepared remarks, but I'll say it again. We are putting a lot of work and energy now and more to come into subscriber engagement and really better delineating sort of value in the subscribed state versus the registered state or the anonymous state. We think all of that has the potential to help us on the retention side.

To my follow-up, Meredith, if I could, how many people are you expecting to raise prices on the digital subscriptions this calendar year, please? Thank you.

Roland, I may ask you to, you know, quantify that. Sure.

Yeah, so over the course of the whole year, we expect about a little more than a million and a half subs transitioning to higher prices from the dollar a week. And then about 500,000 tenured subs receiving a price increase. some of which have already received that price increase in Q1 and Q2, obviously.

Great. Thank you, guys.

The next question comes from Kanan Venkateshwar from Barclays. Please go ahead. Thank you.

Sure. I guess firstly on the operating leverage side, I think 2020 and so far in 2021, you've seen a reasonable amount of operating leverage and I don't think we've seen that before 2020. And part of it is just the cadence of costs. I think it's being pushed out a little more than what you guys may have anticipated. I just wanted to understand that trend a little bit better. Why are costs coming in lower than what you guys have been guiding to for the past few quarters? Is it just a timing issue? Is it conservativeness? And should we expect the separating leverage to continue? And then in terms of mix of subscribers, I think, Meredith, correct me if I'm wrong, if I'm reading this commentary correctly, your churn commentary seems to indicate that domestic churn is stable versus first quarter, but sequentially international churn is higher. And if I remember correctly, more than 50% of your subs come from outside the U.S. I mean, gross additions, more than 50% comes from outside the U.S. So if you could just talk about that mix and how that shifted over the last couple of quarters or even during the COVID period. and how you expect that to evolve, that will probably give us a better sense for what to expect on the subscriber front.

I have one more question. I'm happy to start with the churn question, and then Roland, I may ask you to take the operating leverage question. But on churn... It is not half of our starts or new net additions coming from international. It's a lower number than that. But you did get the first part of what you were asking, right, that domestic churn is stable. And as I said in the prepared remarks, it ticked up a bit internationally, and we believe that's a result of the more aggressive promotional pricing we're using in non-core markets, which is still, I'd say, you know, experimental for us. And I think we've got a lot of room to improve there. Roland, I don't know if you'd add anything to that.

No, I think that's exactly right. I'll take the operating leverage question at this point then. So, you know, overall, like really nothing has changed in our outlook in terms of operating leverage from when we last spoke. So, you know, looking longer term, we said we'd get some this year and we'd expect that to drop some more profit over time. So we've not really have a different outlook on that. But as far as this year, I think there's two things going on. One is it's a very tight labor market and we've not been able to hire at the pace we assumed we could. So that's what's driving some of our costs coming in below our guidance and our expectations, and therefore that's dropping to the short-term bottom line. The other factor is advertising revenue, which is performing better than we expected this year. That's a complete short-term benefit, not necessarily a longer-term benefit. So those two things have come together, I think, too. provide a little more bottom line than we expected this year, so it came a little faster. But I wouldn't read into that that it is really changing our longer-term trajectory from anything else we've discussed in the past.

Got it. And one follow-up for Meredith, maybe. Meredith, we've seen some of these headlines around your interest in the athletic. There's a lot of cash sitting on the balance sheet. I mean, there's close to a billion dollars sitting on the balance sheet right now. If you could just maybe talk a bit more about, you know, your strategic goals with respect to use of that cash and how you think about M&A to add on to your capabilities.

Yeah, I'm happy to do that. I would say, in general, our preference is to use the strong balance sheet that we have to, you know, invest into our strategy and to maximize the value of our product. And we are always open to how we might do that, and we've got, you know, somewhat of a track record of doing it, you know, albeit with, you know, relatively modest in size acquisitions, but, you know, we acquired Wirecutter five years ago, and we've now talked in a few of these calls about beginning to experiment with Wirecutter in the bundle, and this fall we'll We'll do that. We acquired Autumn, so a relatively small scale, but important audio, subscription audio app, which gives us a place to experiment with subscription audio. Last year, we acquired Serial Productions, which we continue to be very, very excited about. That added to the value we provide on the audio storytelling side, so we are absolutely excited open to using the balance sheet and, frankly, prefer to use the balance sheet to accelerate our strategy. And we, you know, will continually evaluate opportunities to do that.

Thank you both. The next question comes from Thomas Yeh from Morgan Stanley. Please go ahead.

Hi. Good morning. Thanks. Realizing it's a little bit early, can you share your views on how you're thinking about 2022 relative to 2021? Given your comments on a new cohort churn that you're working through this year, is it right to assume that dynamic might turn more favorable or more normalized next year as you move through some of the lower quality new joins that happened last year? And then more on the bundling opportunity that you spoke about, can you give us some color on what to expect on that rollout? Is the expectation that that expands to subscriber base, or do you think that it comes through in higher ARPU? Any help sizing that would be helpful?

Yeah. Good morning, Thomas. Both good questions. I'll start and Roland can add as he sees fit. I'll just say on 2022, we are certainly not in a position to give any kind of a projection. But what I will say is, you know, we have been – We've got a strategy. That strategy is working. We are deeply confident in it, and you can assume that we're going to continue to build on that strategy. You know, this has been a year, you know, where we are comparing against a sort of once-in-a-lifetime thus far news cycle from the prior year, and a lot of our work has been to really build resilience in our engagement and in the model, even recognizing that there are going to be continued fluctuations in the news cycle. And what you're hearing us talk about today and what you heard us talk about in the last quarter is how we're doing that. And, you know, bit by bit, month over month, quarter over quarter, we get more confident in how we do that. So that's the work, and I think, you know, you can – take that as much as we can say about the next year. More broadly, and it relates to the bundle, we just really believe that we've got a big market opportunity. We expect there will be something in the order of at least 100 million people who will pay for English language journalism through digital subscription. We've penetrated that market now. We've got 8 million We just crossed 8 million subscriptions, so that's a relatively modest percentage of that market, and we really believe that we can meaningfully increase that percentage over time. And I'll say, I've said this in prior calls, you know, we will do that on the strength of our individual products, and we're going to keep investing into our individual products, obviously. you know, our news product is and will continue to be the main driver of audience and engagement, at least we expect it will, and certainly that has been the pattern thus far. But to your broader question, we do think, and our tests are showing, that the bundle presents an opportunity to widen the circle of interest in the Times, so more you know, to bring more people into a relationship with the New York Times. Our tests have shown, and also our track record of... ... ...

It seems Meredith is having some technical issues. Jason, do you want to move on to the next question?

Yes. Our next question comes from Doug Arthur from Huber Research. Please go ahead.

Yeah, thanks. Harlan, can you hear me?

Yes, you're coming in. Okay.

I don't know if Meredith is back or not. I kind of – I think she mentioned, you know, better engagement trends toward the end of the second quarter. So I'm kind of interested in how that's carried into the third quarter. Obviously, you've got the Delta variant story of concern that, you know, six months ago wasn't as big a concern. And I'm sort of interested as to whether the traffic numbers to the site and engagement have accelerated in the third quarter, and does that have implications for net ads? That's sort of the first question.

Yeah, hi, Doug. So, I mean, what I can say while Mara's getting her text straightened out, I mean, we wouldn't comment exactly on a short-term trend, but we do see, you know, the news is getting more interesting, as I think you've witnessed. And what we're seeing, though, is that engagement while below 2020 still remains ahead of 2019. And 2019 was our best year for engagement, so it's better than anything we've seen prior to that. You know, we will see how this news cycle plays out. We just know it does change over time. It seems that it's been, from a consumer reader perspective, that it is getting a little hotter. But it's just to see how that will play out.

Okay, and then just one follow-up. I mean, you threw out some numbers on subscriptions for, you know, cooking and autumn and games, et cetera. I mean, that group was up over 40% in the year over year in the second quarter. What's the pricing power potential in the non-news subscription area?

Yeah, I mean, Meredith, you back? Okay.

I'm back. So sorry. So tired of doing this from a home office. Carry on.

Did you hear the question? I did not hear the question, unfortunately. Finding power for our cooking and games products.

Yeah, good question. I'd say broadly, as each of those products close in on, you know, they're both getting close to a million subscriptions, I think we've got very big ambitions for both of them, and I don't rule out pricing power as part of that. I would say we are still in early days with both products. They've both proven product markets fit, but I think the number of people for whom they can be relevant and the value they provide in people's daily lives is still our focus. So I would say, sure, I don't rule out pricing power over time, but at this point, we are focused on scaling daily habitual use for both of those products, scaling subscriptions, and the role they can play in a bundle. And I'm assuming my Wi-Fi is okay and you can hear me. Good.

Yeah, that's great. Thank you very much.

The next question comes from Alexia. Quadrani from J.P. Morgan. Please go ahead.

Hi. Thank you. Just a clarification question and then a follow-up. When you mentioned that the sub-growth was improving each month, month to month, I think from the lows of March or from where you were in March, is that inclusive through July or is that just through the second quarter? And then my second question really is on digital advertising. Roland, I think you mentioned that you're seeing better than expected growth in digital advertising, but it was short, you know, the short-term phenomenon for what you can see, if I understood you correctly. And I'm just curious of what would give you the confidence in seeing sort of maybe having better visibility or better confidence in longer-term digital advertising growth. I mean, it sounds like you're gaining some share of wallet. It sounds like you've seen bounce back in financial services. It just doesn't sound like it's just easy comps here.

Yeah, I'm happy to.

Roland, you want to start? I can start on the ad question. Yeah. So, I mean, right now we're real happy with the results. And, you know, a lot of it is the market coming back. But, you know, as I mentioned, I think the advent of the first-party targeted products, like that's a real breakthrough for us. And that is selling briskly. We think that's a competitive advantage. you know, within the publisher set. So we do think we're grabbing a little bit more market share there. And the same thing with expanding our portfolio of audio products. So given those two things, as long as the market is good, we think we'll continue to have some good digital ad results. We don't kid ourselves that, you know, we still know that the platforms are taking most of the dollars and most of the growth. So when I said short term, I don't really mean a quarter. I just mean, you know, kind of as far as the eye can see and not to think about it as a big driver for years to come. But as long as the market's healthy, we should be able to grab a good portion of that.

Yeah, I'll just add a beat. And I think we said this in the last call. We did a lot of work on our ad business over the last couple of years and particularly last year to improve the profile of it so that as it does grow, you know, it's better growth. And I do think that lasts. But to Roland's point, we also understand the limitations of the fact that we're playing in a market that is largely made by very, very large digital platforms. So it is certainly a better business. And we expect it will continue to be a better business, but one for which our expectations are tempered. On your first question, Alexia, I was pointing specifically in my prepared remarks to the quarter that we've just completed. But if you consider the fact that we told you we've just crossed another mile marker with 8 million subscriptions, that gives you some signal as to how we're feeling now.

Thank you.

The next question comes from John Janidis from Wolf Research. Please go ahead. Great, thanks.

Meredith, can you compare the domestic and international subs, meaning do they engage on similar stories? And specific to international, with the lower ARPU, what does subscriber acquisition cost and lifetime value of the sub look like compared to the U.S. and longer term? do they pick into the 20% plus range as a percent of the total?

Yeah. Good questions. Generally, I would say on international, you can regard our work there as a sort of very long-term strategy. It's why we're comfortable with the more aggressive promotional pricing, particularly in markets that have not have not been core, so markets that go beyond Canada, UK, Australia. So as we sort of reach out and promote more aggressively beyond the core markets, we see ourselves as playing a really long game here. And I would say domestic is generally ahead of international, and particularly when you get to non-core markets internationally in terms of in terms of, you know, all the ways we would sort of measure the health of the base because we've been doing it longer. But we're very comfortable with sort of where we are internationally and where it fits into our strategy. On your question about subscriber acquisition cost, I would just point to – across the board, so domestically and internationally, we still bring in the lion's share of our starts organically. That is true domestically. It is also true internationally. And so, you know, if you process that for the whole, it's possible that, yeah, I'm not even sure I could give an accurate answer except to say that most of our starts do still come you know, from the product engine and not through paid marketing.

Maybe I'm rounding here. I think in the past you've talked about in that kind of 50-ish percent plus range. Has that moved around much over time?

What are you referring to? Sorry.

The starts organically versus paid?

Oh, it's higher than that. It's higher than that. Majority of our starts across the board come in organically.

Okay. And maybe separately from a retention?

Just to characterize the overwhelming majority come in organically.

Okay. Thanks. And then from a retention perspective, good to hear on the churn side. For the subs graduating from the promotional pricing, is the proportion of subs increasing to interim compared to full pricing what you expected, or are you finding more of a skew to the lower end to retain the subs?

Roland, I'll let you take that one. Yeah, sure. No, we've got a model that does the predicting for 80% of it. And actually, it skews slightly towards going to full price from going to the step up slightly more than 50%. And that's been pretty stable the last couple of quarters.

Okay, maybe I'll think of one more then. Roland, thank you. Can you talk more about your ARPU expectations going forward? It sounds like you expect it to accelerate from here? And I know there are puts and takes, but are there any kind of guardrails on magnitude?

Well, you know, some of that depends on how many starts come in on the dollar a week. So, you know, the more starts that come in at a dollar a week, that will have a huge effect on the ARPU. But our expectation is that you'll see positive year-over-year ARPU for the next couple of quarters. It would take a very, very, very, very, very large influx of dollar a week, new dollar a week promotion subs to make that not come true. I wouldn't expect the sequential to be improving, but the year over year. Okay, great. Thank you.

This concludes our question and answer session. I'd like to turn the conference back over to Harlan Toplitsky for any closing remarks.

Thanks, Jason. Before I sign off, I want to note that in a few limited instances, Meredith's remarks may not have been audible. As is our practice, we've posted her prepared remarks, our total prepared remarks, on our website at investors.nytco.com. And thank you for joining us this morning. We look forward to talking to you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.