The New York Times Company (NYT) Q1 2011 Earnings Report, Transcript and Summary

Good day, and welcome to The New York Times First Quarter 2011 Earnings Conference Call. [Operator Instructions] For opening remarks and introductions, I'd like to turn the call over to Ms. Paula Schwartz, Director of Investor Relations. Please go ahead.

Thank you, Keisha, and good morning, everyone. Welcome to our First Quarter 2011 Earnings Conference Call. We have several members of our senior management team here to discuss the 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 Times; and Martin Nisenholtz, Senior Vice President of Digital Operations. All of the comparisons on this conference call will be for the first quarter of 2011 to the first 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 will turn the call over to Janet.

Thank you, Paula, and good morning, everyone. Our operating performance reflects the continuing transformation of our company, which intercepted with an important milestone in the first quarter. While the challenges for our company and for the larger economy are not yet behind us, the recent launch of subscription packages on NYTimes.com and across other digital platforms bring our plan for a new revenue stream to life. While the advertising marketplace remains challenging, we are confident that the path we have been pursuing to transform our company is the right one. Our properties are well-positioned to continue to capitalize on the digitization of our content, and this provides us with another reason for optimism about the future of our company. In the first quarter, we continued our focus on core initiatives, including maintaining an unwavering commitment to our brand promise of high-quality journalism across properties, highlighted recently by our four Pulitzer Prizes, two for The New York Times, one for The Boston Globe, and one for our regional newspaper, the Sarasota Herald-Tribune, the first time in more than a decade that all three of our news units have won Pulitzers in the same year. Executing on the further monetization of our digital offerings with the introduction of NYTimes.com subscription packages at the end of March, a historic development for our company. Maintaining discipline on expense controls, even as we have taken out nearly 30% of our cost base over the past four years, and managing our asset portfolio to maintain its alignment, with our core operations and strategic initiatives, leading to our opportunistic divestiture of some small portions of our investment portfolio in the first quarter. The advertising marketplace faced increased pressure in the first quarter, reflecting the uncertain economic environment, recent global events and secular forces. The volatility we saw in our business could also be witnessed in economic indicators, such as from the consumer confidence index, which showed strength in February, but then fell in March. As a result of these effects, the 4.5% increase in our digital advertising did not fully offset the 7.5% decline in print advertising in the quarter, leading to total advertising being down 4%. Combined with the circulation decline of 4%, total revenues were down 4% in the quarter. With expenses remaining flat for the quarter, our operating profit, before depreciation, amortization and severance, decreased to $61 million in the first quarter from $83 million in the same period of 2010. On a GAAP basis, operating profit was $31 million in the first quarter, compared with $53 million in the same period of 2010. Diluted earnings per share excluding severance expenses and special items were $0.02 in the first quarter, compared with $0.11 in the same period of 2010. On a GAAP basis, we reported diluted EPS of $0.04 in the quarter, compared with $0.08 in the first quarter 2010 period. As you know, we introduced Times digital subscription packages in Canada in mid-March, and globally at the beginning of the second quarter. I am happy to report that the initial response is encouraging. We are pleased with the number of subscribers we have acquired to date, as initial volume has meaningfully exceeded our expectations. In addition, we have seen an increase in new home delivery orders from seven-day to weekend-only since the launch, as print subscribers of all frequencies received digital access at no additional cost. Approximately three weeks after the global launch, we have surpassed 100,000 paid digital subscribers. In addition to those loyal online readers receiving free access this year, through a sponsorship from a luxury automobile manufacturer. So soon after the launch, we do not yet have visibility into conversion and retention rates for these paying customers after the initial promotional period, although early indicators are encouraging. Accordingly, we expect that we will be in a better position to disclose additional details as this initiative evolves. While the current highly-charged news cycle makes comparisons difficult, declines in traffic at NYTimes.com are within our expectations. In thinking about these declines, it is important to understand that a segment of inventory on any site goes unsold on the premium market, and is instead used for remnant programs, or promotional house ads. In our new online model, the revenue stream we are adding direct from consumers in the form of subscriptions is balanced against the loss of some inventory that would have been sold on the remnant market. But we fully expect to continue to meet all of the demands for premium inventory on the site. As for ongoing operating costs associated with this initiative, we expect approximately $13 million in incremental expenses for the remainder of 2011, primarily due to promotional costs. As you recall, the heart of our metered model is that users can access 20 articles for free each month, but are asked to become digital subscribers once they hit that mark. The homepage and section fronts remain browsable for free, and DealBook content also remains accessible for free at this time, as we are building reader loyalty to this recently relaunched product. We are intent on remaining part of the open web, so we are welcoming visits from third parties, such as search engines, social networks and blogs. And of course, all home delivery subscribers receive free access to our all-inclusive digital package, providing them with Times content across the website; Times tablet apps, such as the iPad; and Times smartphone apps, such as the BlackBerry. We also released a major update to The Times' iPhone news application in conjunction with the digital subscription launch, adding video, slideshows and more blog content, improved navigation tools and more opportunities for sharing. The top news section of the app remains free to all users, but access to the remainder of the app's content requires a digital subscription. We have seen a total of 6.5 million downloads of our iPhone App since it's 2008 launch. Our NYTimes App for the iPad is also converted to a subscription product, and is available in conjunction with the digital packages. It still offers access to more than 25 sections of Times content, with the top news section remaining free for nonsubscribers, and has had more than 1.8 million downloads since its original launch a year ago. The latest version of this app has received excellent reviews, and advertisers, such as Salvatore Ferragamo and Ralph Lauren, have leveraged our ability to create rich advertising experiences that build on unique capabilities of the device. As a result, we have commitments from a wide range of advertisers well into 2011. We have worked closely with those clients to deliver innovative, engaging advertising that readers react to and remember. The e-reader application business has proven to be another vibrant market, where consumers are willing to pay for quality content, further diversifying our revenue stream and strengthening our digital businesses. E-reader platforms that offer content from our publications include, the Kindle, Nook and Sony Reader. We continue to be the top-selling newspaper on the Kindle, and we have seen a 40% increase in total subscriber growth across the various devices since December. The Kindle and the Nook also recently announced that subscribers to The Times on those devices soon will receive free access to NYTimes.com. Another one of our strategic focuses is managing our asset portfolio, which in the first quarter, lent itself to some small divestitures. We sold a portion of our indeed.com stake for a pretax gain of $5.9 million. But we still retain a substantial portion of our initial minority interest in the job listing aggregator, which is the number one job site worldwide with over 50 million unique visitors per month. In February, we also divested of our UCompareHealthCare business, which fell under the above group umbrella, and was sold for a nice return on our investment. Now let me offer some more depth on our first quarter revenues. Total revenues for the company declined 4%, with advertising revenues down 4%, circulation revenues down 4% and other revenues up 3%. At the News Media Group, which includes The New York Times, New England and Regional Media Groups, continued strength in digital advertising, which was up 15%, could not offset the softness in print advertising. The group's total advertising revenues, which declined 4% year-over-year in the quarter, declined 5% in January, were up 4% in February, and declined 9% in March, a pattern that exemplifies the volatility in the marketplace that I referred to earlier. Digital advertising remain resilient, led by growth in national display. We also saw gains in retail display, as well as in two of the major classified advertising categories, automotive and real estate. By total advertising category, national revenue was down 2%, retail was down 9%, and classified was down 6%. Within the classified area, recruitment was up 2%, automotive was flat and real estate declined 10%. Breaking down the News Media Group into its component properties, at the Times Media Group, advertising revenues were down 2% in the quarter, as growth in digital display was more than offset by print declines. Combined print and digital national advertising was down slightly, national advertising categories experiencing the largest declines were media, resulting from significant comparisons related to retransmission wars of 2010; hotels, where anticipated spending for major change was pushed until later in the year; and studio entertainment driven by fewer new releases and adjustments to marketing spend based on box office results. Digital experienced strong gains in studios however, including Web display and iPad sponsorships. National ad categories where we saw the largest combined gains were international and American fashion, as well as the luxury segment continues to post solid gains due to domestic and European designers and luxury watches; technology, where a combination of cross-platform branding and continued influx of new tablets and smartphones presents great advertising opportunities; and financial services, driven primarily by mutual fund companies and private wealth management firms. In addition, the expanded DealBook franchise is proving to be an attractive environment for financial and other national advertisers. Aggregate retail advertising declined despite strong digital growth, the business and economic uncertainty in the marketplace associated with the Middle East unrest, rising oil prices and the crisis in Japan, increased in the first quarter, particularly in March. This dynamic had more of an impact on print while digital continued to grow. Aggregate classified advertising declined, as gains in recruitment, led by a pickup in the financial and technology jobs sectors, were offset by declines in the real estate and automotive categories. Growth in real estate display, driven largely by the Manhattan real estate rental market was offset by declines in aggregate listings. Classified automotive advertising revenues continued to be affected by macroeconomic issues. The company remains aggressive in advertising product innovation, building premier positions across all modes of delivery. About three quarters of The Times' top 100 print advertisers also spend online. NYTimes.com especially continues to be a leader in brand advertising, and marketers come to us for our reach, the quality of our audience and our ability to create and execute unique campaigns. The site has made bold moves on the advertising front, particularly on the homepage where we have managed to balance a greater user experience with a greater advertiser experience. Premium advertisers such as Gucci, Lincoln and Microsoft, have made NYTimes.com their first destination for breaking digital advertising campaigns. Innovation also came in the print form during the quarter, as The New York Times Magazine launched a redesign under new editor, Hugo Lindgren in March, featuring a revamped layout, as well as a variety of new features, including a regular column from Times Executive Editor, Bill Keller. Readers and advertisers have both responded positively, and we have seen strong showings in the weeks since the redesign from categories such as healthcare, real estate and financial services. This strength in the main magazine, combined with the growth in our T Magazine, led to a double-digit increase in advertising revenue across Times Magazine products in the first quarter. Last month, we also launched our own initiative in the group buying space with Times Limited, which is an extension of what we have been doing for our long history as a company, connecting local businesses with readers. Our deals have curated with our specific audience in mind, and so far have included retailers such as the Italian marketplace, Eataly, and the famed restaurant, 21 Club, both in Manhattan. Our high-quality advertisers are welcoming the opportunity to work with The Times in providing these exclusive offers, which focus on premium products and experiences, and are being provided for limited time and in limited qualities (sic) [quantities]. We believe The Times is uniquely positioned to thrive in this specific niche of an increasingly popular marketplace. At the New England Media Group, advertising revenues declined 5% in the quarter due to weaknesses in print advertising. Digital ad revenues showed strong growth, reflecting increases in a variety of online categories, including national, retail and classified automotive. Combined print and online national advertising was down, led by declines in the telecom, national, auto and packaged good categories, offset in part by increases in travel, financial services and museum advertising. Total retail advertising revenues were also lower, led by softness in categories including department stores, home furnishings and general merchandise, offset in part by increases in the electronic and appliance category. Aggregate classified advertising declined overall but saw solid gains in automotive, reflecting strength across both print and digital platforms. In the second half of this year, The Global split its digital brand into two, keeping boston.com free, while launching a subscription pay site bostonglobe.com. The Boston Globe and boston.com are very strong brands in the marketplace. And based on extensive research, we believe those brands offer us an opportunity in the digital arena to meet the media needs of two distinct audiences. The addition of bostonglobe.com provides advertisers a new avenue to reach an affluent, educated audience in a distinctive, online environment where we expect readers will take the time to read full articles. bostonglobe.com will include content published in The Globe along with breaking news throughout the day, as well as original video, photo galleries and interactive features. boston.com will continue to be the best place to learn what is happening in the Boston area, and will offer users a place to get a quick read of news along with breaking news and sports coverage from the globe. 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 a growth in national and retail display, as well as in automotive and recruitment classified categories. At the larger News Media Group, circulation revenues were down 4% due to print volume declines across the group. According to our latest internal statistics, in the first quarter, The Times’ net paid circulation averaged 905,000 on weekdays, down 4% from the first quarter of 2010, and 1.3 million on Sundays, down 3%. Looking ahead, we will continue to evaluate our circulation pricing in coordination with our overall multi-platform strategy. And as you know, the launch of digital subscriptions at NYTimes.com and soon, bostonglobe.com, introduces a second digital revenue stream to the mix. As I mentioned earlier in my remarks, we have also seen an uptick in print circulation orders at The Times early in the second quarter. In November, we launched a significant expansion of our popular DealBook site at NYTimes.com, more than doubling our staff in that area, along with our ability to cover breaking financial news for a high-level audience of key suite executives and decision makers. Since the relaunch, Dealbook's online traffic has seen significant year-over-year gains on a monthly basis. In March for instance, it had another record breaking month, nearly doubling its page views versus March 2010. In March, we added another layer of personalization to NYTimes.com, with the launch of the recommendations feature, which points readers to articles based on what they have read in the past month, and further deepens engagement on the site. A dashboard available through article pages gives users a view of their recent reading history, including a tally of the articles they have read on the site by section, such as Business day and world. And a glimpse of their most read topics for that period, such as nuclear energy or the federal budget. Based on the behavior captured in the dashboard, recommendations also suggests current articles that may be of interest. These digital efforts, along with many others, have helped to ensure that NYTimes.com remains the most trafficked newspaper site in the United States, with about 38 million unique visitors in March. That number grows to nearly 62 million uniques when you look at the site's global audience. Expanding our reach has ultimately driven our efforts to grow our audience in print, online, mobile, e-readers, tablets, social media and other products. In particular, during the past couple of years, The Times has launched a number of mobile products, such as our iPhone, Android, BlackBerry and Pre Palm (sic) [Palm Pre] apps. In the first quarter, we averaged more than 120 million page views per month from these mobile sites and apps. On the social media front, The Times continues to interact with Twitter, and is the most popular newspaper there, with more than 3 million followers, and with countless journalists and newsroom feeds sharing content and integrating The Times with online conversations. And The New York Times also has a very strong following on Facebook, with more than 1.2 million fans there. Moving on to the About Group, total revenues declined 10% to $31 million in the first quarter, and advertising revenues also declined 10%, mainly due to a decrease in cost-per-click advertising. We have begun to execute on planned investments toward a number of strategic initiatives at About, particularly to respond to some of the secular changes taking place in the search universe. To address them, About is currently expanding the volume and distribution of expert content on its platform, including launching its Spanish-language channel, which includes all original content and can be accessed at about.com/espanol, increasing its roster of more than 800 guide sites by about 25% in popular categories, such as food, home, health, autos and parenting, doubling the number of how-to videos across its 24 channels, which will soon be available via YouTube and redesigning its Home Page. Design changes in cost-per-click advertisements served by Google had a negative effect on click through rates in the quarter, and we expect that to be the case through the second quarter as well. About also experienced a moderately negative impact on page views from the algorithm changes Google implemented in the quarter. Display advertising saw first quarter declines in categories such as retail, education and home improvement, but showed growth in categories including consumer packaged goods, pharmaceuticals and travel. In addition to the effects of the uneven economy and competitive market pressures, About was cycling difficult comparisons with the first quarter of 2010 when total advertising grew 30%. The About group's operating cost decreased 7%, and operating cost excluding depreciation, amortization and severance, also decreased 7% to $14 million, primarily due to the gain from the sale of UCompareHealthCare in February. Operating profit declined 14% to $14 million in the quarter. Nevertheless, About's operating margin remains strong at 46% in the quarter. Total revenues from all our digital businesses increased 6% in the first quarter to $96 million from $90 million in the first quarter of 2010. Digital businesses accounted for 17% of the company's revenues in the first quarter versus 15% in the same period of 2010. Total digital advertising revenues rose 5% to $84 million from $80 million in the prior-year period. Digital advertising revenues continued to grow its share of revenue, and made up 28% of our total ad revenues in the quarter, up from 26% in the first quarter of 2010. In March 2011, advertising revenues further softened, partly due in response to the uneven economic climate. In the first half of April, we saw total advertising trends improve, relative to those in March, with declines at approximately the same level as in the first quarter. Wrapping up, despite the continued challenges into our business brought by the continued uneven economy and secular changes, we believe the investments and initiatives we have outlined, particularly in our digital businesses, set the stage for our successful transition into a future where the underlying value of our content is more consistently recognized and rewarded across our platforms. Now let me turn the call over to Jim, who will give you more details on our results.

Thanks, Janet. Our emphasis on expense control remains a strategic underpinning of the business, and we will continue to pursue opportunities to aggressively reduce costs. As Janet mentioned, we have taken nearly 30%, or $850 million out of our cost base over the past four years, all while maintaining the high quality of our award-winning journalism. This quarter, we are cycling against an 18 [ph] decline in our operating costs in the first quarter of 2010. Operating costs were flat in the quarter despite higher promotion and newsprint expense, which were offset by decreases in various other expenses. While further expense control efforts have become more challenging, we remain focused on managing our expenses to identify further efficiencies in our operations and to respond to the secular changes in our industry. Getting to the special items, our first quarter earnings were favorably affected by $0.02 per share from the sale of a portion of the company's interest in the job listing aggregator, indeed.com. EPS in the first quarter of 2010 had been favorably affected by $0.04, or gain from the sale of an asset at one of our paper mills, in which the company has an investment, and unfavorably affected by a $0.07 tax charge for reduction in future tax benefits for retiree health benefits, resulting from the federal health care reform legislation that was enacted in March 2010. Severance costs increased by $500,000, but were minimal in both the current and the prior years at less than $1 million in each quarter. Depreciation and amortization was $29 million in the quarter, compared to $30 million in last year's quarter. In 2011, we expect depreciation and amortization to be between $118 million to $123 million. Newsprint expenses increased by 13% in the quarter, with a 16% increase in higher pricing, offset in part by a 3% decrease in lower consumption. Given current industry forecast for 2011, newsprint prices are expected to increase during the second half of the year. Newsprint prices will be higher in the second quarter of 2011, as a result of prices rising steadily during the same period in 2010. Net interest expense increased 20% in the quarter to $25 million, as a result of the $225 million debt offering we completed in November. In 2011, we expect interest expense to be between $100 million and $105 million. Then in January 2012, our 14% notes due 2015 will be pre-payable, and it's our current intention to eliminate that debt from the balance sheet at its earliest feasible date. The joint venture lines are a $6 million loss in the first quarter. These joint venture results were negatively impacted by Fenway Sports Group acquisition last year of Liverpool Football Club, mainly due to the amortization expense associated with the purchase, which we expect will impact results from joint ventures for the remainder of the year. Income from joint ventures in the first quarter of 2010 was $9 million, including a $13 million gain from the sale of the asset I've mentioned as part of last year's special items. Turning now to our pension obligations, the company made contributions of approximately $54 million in the first quarter to certain qualified pension plans. The majority of these contributions were discretionary. We continue to manage our liquidity position and finish the quarter with $352 million in cash and short-term investments, even after making the pension contributions. We had no outstanding borrowings, excluding letters of credit under our revolving credit agreement during the quarter. We continue to tightly manage capital spending, with capital expenditures totaling approximately $10 million in the quarter. We project capital expenditures will total between $45 million and $55 million for the year, which includes investments in the digital systems across the company. Our effective income tax rate was 21.2% in the quarter. The rate was affected by an adjustment to reduce the company's reserve for uncertain tax positions. In the first quarter of 2010, our effective income tax rate was 65.6%, driven by the tax charge I mentioned as part of these special items. Excluding that charge, our effective income tax rate was 39.3% in that period. We remain committed to aggressively managing operating expenses despite higher newsprint prices, pension expense and promotion costs, although expect operating cost to increase modestly in the second quarter. We are well-positioned to maintain our leadership position in an increasingly digital media marketplace. Despite the highly competitive environment and an uneven economy, successful efforts across our organization to continue to introduce new revenue streams, and positively impact our overall financial performance, demonstrating our trademark excellence and resiliency. And with that, we'd be happy to take your questions.

[Operator Instructions] Our first question will come from Alexia Quadrani with JPMorgan. Alexia Quadrani - JP Morgan Chase & Co: Thank you. The first question is just on the 100,000 subs [subscribers] that you highlighted in the release. Am I right in assuming since they're paid subs, they do not include any benefit from the Lincoln promotion or overlap with print subscribers?

That's correct, Alexia. That is above and beyond the more than 100,000 that we've signaled in the press release. Alexia Quadrani - JP Morgan Chase & Co: And then those revenues are obviously included in circulation revenues, is that fair?

Well, they will be going forward. I mean this is a second quarter issue.

Yes. Alexia Quadrani - JP Morgan Chase & Co: Okay. And on about.com, you mentioned the ramp up in investment spending there. Could you, I guess, quantify that, or give us a bit more color? How should we, maybe, be thinking about profitably of About going forward?

I think the investments at About are fairly modest, and we have a great deal of flexibility in the cost structure there. So even as we make some investments, I think we have some room to continue to produce very, very good operating margins. Alexia Quadrani - JP Morgan Chase & Co: Okay. And then just lastly, just trying to get a sense of your commentary on print advertising in the second quarter. You said April was looking more like the trends in Q1. The comps do look a fair bit tougher in Q2 but even with that, should we assume sort of the that minus 7 decline area?

Alexia, this is Scott. I think the way to look at the second quarter is to go back and understand what happened in the first quarter, and this is -- Janet noted this in her remarks. We saw an increase in total combined advertising, print and digital, in February after a slight decline in January, and then a significant decline in March, which we attribute to a change in the business climate that seemed to be tied to turmoil in the Middle East, the spike in oil prices, and the concerns about the implications of the crisis in Japan. We've seen -- the climate seems to be moderating with respect to those factors in April, and some help [ph] that they'll continue to moderate, influencing what we might expect for revenue in the second quarter. But I think we're prepared to make that statement, only with regard to what we've seen so far in April. And I think what we saw in March is a lesson and a good example of what happens in this advertising marketplace, that the things that are happening in the larger economy and global marketplace can quickly have impact on our results on advertising spending, contributing to the volatility in the marketplace, and the lack of visibility. Alexia Quadrani - JP Morgan Chase & Co: Okay. Thank you. Just on that same topic, the auto classified number, which obviously was a highlight in the first quarter, did you see some weakness in that in March as well, along with the rest of the business? Or did that sort of stay strong?

Well, at The Times for the automotive category as a whole, which includes our national brand advertising, we started to see some signs of that in March, and anecdotally we heard from auto manufacturers that they're viewing this environment with escalated gasoline prices and high prices in oil. They're viewing this marketplace now with a caution that wasn't there earlier in the year. Alexia Quadrani - JP Morgan Chase & Co: Okay. That's very helpful. Thank you,.

Our next question will come from Craig Huber with Access 342.

I got a couple of housekeeping questions. First, this pension contribution of $54 million, do you anticipate having to make another contribution, or you make another contribution later this year?

Craig, the $54 million included certain amounts -- lesser, the lesser portion that was certain amount that are required to be paid into certain union pension plan. The bulk of it was a discretionary contribution, we were just really being opportunistic. We will likely leave our options open. We've essentially made all our required commitments to the plans as of today all the way through the end of 2012. So I think we will reserve the right to be opportunistic as we do that. But, again, as far as I said, we're not required to make anything for the next -- balance of the next years.

And then my other question, on this JV line, you lost, I think it's five point -- you lost money in that line, yes, about $5.7 million. How much of that, Jim, was from this amortization that you guys had a book related to this Liverpool Football Club acquisition, doing what Sports Ventures did? Could you ballpark that for us on quarterly basis?

Let me just say that's -- I mean last year, the joint venture line had a fairly large gain, so if you would exclude that gain, which is about $12.7 million, we lost about $3.6 million in the quarter. So I'd rather not be precise in this. This is a private company, really high-profile private company. We'd rather not get involved with some of that. But I'd say the performance of our -- we do expect the performance of our Forest Products Group to improve throughout the year. And a fair amount of that additional loss would have come from that issue. But I don't want to be more precise than I’ve just given you.

Okay. Then if we jump over to about.com, if we could, do you think the entire 10% decline in about.com's revenues in this quarter was all tied to pay it's click advertising with Google? The changes there, like, it's annualized in the middle of this year?

No. Obviously, the CPC performance at About is affected by a number of factors, including ones we have been talking about now for a couple of quarters. We referenced it -- I think Janet referenced the design change to AdSense that was mandated last year. But in the quarter, we also saw some weakness on the display side. We had a very, very significant comps to overcome in the quarter. I think we were up 30% in that range last year. And as others have said, the climate, the advertising climate for display was mixed in the quarter, as some of the macroeconomic events affected the selling environment. So the combination of that, as well as the CPC impacts affected the 10% decline.

And then also, what happened in your Regional Papers? They're down 9%, 10% in the ad revenues in the quarter. So I'm sure a little of that was Easter effect, but anything else here?

It's predominantly retail that has shown softness on the regional side. There was some telecom softness as well, Craig. On the flip side, as far as the positive categories, though, digital is coming on quite strong in regard to the regionals.

Okay. Thank you.

Our next question will come from John Janedis with UBS.

Thank you. Janet, over the past couple of quarters, you've really called out the third month, meaning, I guess first, December and then March, as being particularly weak. If you think it's possible that maybe some of your larger national advertisers, more retailers are concerned about their expenses, so they're maybe pulling back? I think you referenced Japan for March, but any other possibilities, given what you saw in December as well?

Well, it's hard to say universally, what all national advertisers do in regard to the quarterly spend, but I'm certain that most look at their spend during the course of the quarter, and ask whether or not they should spend that particular month or save their dollars for future quarters. And I think that it's not only dependent on the macroeconomic trends as we've noted, but also in regard just to their own advertising flight packages. I think anecdotally, as we look at some of the national advertisers -- I'm going to have Scott jump in here too in a moment -- anecdotally, as we look at the conversations that we're having with many of the national advertisers, it's clear that the second half of the year is a very strong retail time, and many of the advertisers, both national-based like our luxury goods and our retail side, really have to gear up for that period of the year. So that those retail trends, and that branding trends on some of the national side, really dollars can be saved for that flight of spending as opposed to earlier in the year.

Let me just add to Janet's comment about the end of quarter part of your question. I don't have any specific information from March or December, but I did have conversations last year at the end of Q2, where I spoke with advertisers who said that the Greek debt crisis created uncertainty about their companies' performance, and they got requests to pull back on their spending. And that just adds to the point that I've already made, that all businesses I think, are very sensitive to possible shocks to the economy, and they react quickly, and I do think we experience the effects of that. With regard to Janet's point about Q1 and possible implications for the rest of the year, I'll reiterate that visibility isn't good, but we do have some anecdote here and there that gives us a sense of the flavor of what might be in the pipeline. Luxury advertisers, as a kind of a broad generalization, captures three or four of our categories, international fashion, American fashion, fashion jewelry, cosmetics, had collectively, in aggregate, a good Q1. And in conversations with them, we understand that they think that the same dynamics will be in place for them at the rest of the year. And along with some department stores have indicated that the second half, that we might expect to see some increases in their spending. So I think that's kind of the next point that Janet was referring to.

Thanks. And Scott, is the luxury category, is it like around 12% of your advertising at this point for the New York Times? Is that a good ballpark?

Yes. That's a pretty good number.

Okay, thanks. And Jim, to clarify, is your operating assumption that newsprint producers will announce the further price increase, and that they stick maybe this year? Because it feels like other folks out in the marketplace don't believe that and I just want to make sure I reconcile what you're talking about in terms of the view.

I think they're, on the market view, I think it's still that we could see some further price increases in the second half of year, although that keeps on getting pushed out, I admit. I mean I think the view is that it will be early this year, and that has not happened. There has been some capacity that's been taken out recently which will go towards tightening the markets, so I think a cautious view would be that there could be some. But I do agree that it's much less certain than it was earlier in the year.

And then just maybe one last quick one. Just back to the paid digital subs, I'm not sure if you have the data, but were the majority that 100,000, were they people that hit the pay wall and then paid? Or was it just folks who more or less just signed up when they saw the promotion? Or maybe can you tell us, to what extent that the actual paying subs are starting at a $20 rate versus maybe the $0.99 user?

We're not going into the specifics of the 100,000. What we have said, we'll reiterate, that it's more than 100,000. We're very pleased, it's above expectations. It's definitely contributing. We see an uptick in the increase to home delivery. What we will say is that very early on in the conversion, and it is extremely early, we are encouraged by the results that we're seeing from promotional offers that were out there, converting to full payment. We're not going to break out the 100,000, because it's so early in the process. But as we noted, John, as this initiative evolves, we're going to continue to give information to outline the progress that we're making.

Thank you very much.

We'll take our next question from Doug Arthur with Evercore Partners.

Yes. Jim, did the timing of the pay wall launch, did it impact costs and how much, particularly in the SG&A line in the quarter? I mean you made reference to the $13 million incremental promotion for the rest of the year, I guess. I'm just particularly curious on SG&A.

It should not be a factor in the first quarter. It would be relatively minor. That $13 million would be on a run rate basis meaningfully above the first quarter expense.

Okay. Because I mean SG&A was relatively flattish year-over-year, but it did uptick quite a bit as a percent of revenues. So is the implication that you've kind of squeezed all the costs out of the SG&A that you're likely to do this cycle?

Well, look, I did suggest that we did have a timing issue in the first quarter related to print circulation marketing. That will reverse itself in the second -- kind of, remaining three quarters of the year. Look, we acknowledge that having taken out such a big block, it's getting harder. But, look, despite the fact that we had some promo timing issues, we had newsprint price increases, we have pension working against us, we're still able to manage that flat. As you get deeper into the year, some of that stuff goes away. We think the newsprint price impact would mitigate itself. The timing of the print circulation will reverse itself. Now we will then start spending against our digital initiatives, so that will be a go against us but I do think generally, the second half of the year comps should be better than the first half.

Our next question will come from William Bird with Lazard Capital.

I was wondering if you could talk a little bit about just expected growth dynamics at About, given the Google changes, just wondering if the negative 10 is kind of a reasonable growth run rate?

Yes. Well, it's really hard to give guidance on growth dynamics. So we'll just say that -- we've said for two quarters, and I suggested it in answer to another question, that we have some headwinds but we're not standing still. We're certainly improving instrumentation inside the business to make more analytically-driven choices with respect to content development. We're continuing to improve quality, which we have been investing in since we bought the business. We're creating, as Janet said, more new guide sites in 2011 than we've created in any other year. We're creating a robust Spanish-language site, which she also referenced and we're rapidly ramping our video efforts. So we've pretty much made investments in the business since we acquired it, having built the sales staff there and bought businesses like ConsumerSearch, improve the content quality. But all I'm going to say is, as I've said before, that we do face headwinds, the design change through June, and we have been somewhat negatively impacted by the algorithm changes that were put in place earlier in the year.

Well, one thing I would add to that though, is the first half of this year, the comps -- and so I think this whole display in the second quarter of last year, we grew 39%, we were about flat in the fourth quarter of last year on the display side. CPC in the first quarter last year grew 31%, it was actually down six in the quarter. So the comp story gets a lot different as we get deeper into the year. Now that being said, some of the algorithm issues in the first quarter, you don't comp against for a while. So there's a lot of moving pieces here, but the comps do get way easier in second half of the year.

Jim, could you also talk about the tax rate? What was the size of the adjustment, and what should we think about as the tax rate for the balance of the year?

Look, the tax rate, we regularly say, we haven’t moved off this number. On every incremental dollar we bring is about 42%. So we look at our kind of long-term tax rate is 42%. We have historically had some reserve releases that come out of our balance sheet, that have really suppressed that rate. We haven't intended to forecast those releases in our rate, but we generally look at kind of pro forma rate of 42% as the right rate to use for our business.

And Jim, you spoke to just the challenge of finding more avenues for expense reduction. Are there any other further areas where you think you might have opportunities?

Yes. But it's likely to be over a broad list of areas where I don't think I would precisely say there's one area that leads the most. I think it's just a constant refining efficiency process here. Again, the core spending absent a couple of the call-outs, pension, timing on marketing spend, and newsprint, when you carve that out, I mean it does show a fairly rigorous approach to managing those costs, and so we'll continue to do that. Pension longer-term, I think we're at kind of the high watermark for pension expense this year. Pension expense relative to last will spike, but then it should recede once we get out beyond that. But that's not really a manage issue, that's more of a kind of an accounting, reporting issue. But again, it is likely to be long list of categories that contribute to fairly aggressive managing.

And Jim, what was the size of the print circulation marketing in the quarter that won't be repeated?

About $3 million or $4 million. But again, when we get into the second quarter, we'll be spending against the launch of the paid model. So while that issue will reverse itself in the remaining three quarters, not fully in the second quarter but throughout the remainder of the year. On the print side, we will then introduce, and as we said in our comments, is that $13 million of incremental spending. So some of that will get introduced into our P&L. I'm not suggesting, however, that our costs are going to go up by $13 million, there will be some offsets there as well but -- so that's the number.

Great. And just one final. Just to clarify. When you talked about newsprint and you talked about kind of some outlook for newsprint, does that outlook imply any assumption on the price increase? Or is it what's already happened?

What we talked about was the second quarter, and the only reason we have increases in the second quarter is we're comping against a rising market last year. There has not been a newsprint price increase announced since June of last year. So once we get into the third quarter, assuming no other increases, then you start comping against a flat newsprint price. And we haven't gone beyond the second quarter here.

Great. Thank you very much.

Our next question will come from Leo Kulp with Citi.

Thanks for taking the question. Two quick ones. I know it's a little early, but could you talk a little bit about the impact on the payroll on traffic and revenues at the Times website, especially considering the remnant inventory issue? And then on the display weakness from the macro, is that because your advertisers have just, in general, been spending less on display because of the events? Or is it because they're spending less because the news environment was less attractive due to those events? And if that's the case, have you seen an improvement since these crises that sort of retreated from headlines?

Well, let me start with the traffic. Again, as we've been saying, we're going to keep the comments fairly high level at this point. We're very pleased with the progress we're making, and the traffic is well within our model in terms of its delivery and performance today. But we're three weeks into this, and I don't think it's a good idea to get into too much more detail. And so far, all of the theories that we had with respect to the metered model. How it works? How we modeled it? What its impact on premium inventory is? What its impact on remnant inventory is? All of them are above our expectations with respect to the kind of performance that we're seeing. So just to reiterate something that Janet said in her prepared remarks, we fully expect to meet any of our premium inventory needs as we go further into the year, based on what we've seen to date.

Leo, Scott. If I understand your question about display correctly, I'm not sure I would tie -- first of all, it wasn't just display. There were a number of categories that were affected by this climate in March. The way I would explain it is that the news events, the turmoil in the Middle East had direct impact on oil prices and then the crisis in Japan raised questions about the strength of the economy and consumer confidence and business confidence, whether these events would have a significant impact on the economy, and I think now that we're cycling past kind of the shock effect of those news events, people are regaining their confidence and that's why we've seen an improving trend in early April.

And there's no correlation, Leo, between display and the paid model. Just to remember that the paid model really didn't start until March 28.

Our next question will come from Edward Atorino with Benchmark Company.

I have a couple of thoughts here. On The Times, there's a lot of buzzwords that people are finding their way around your system et cetera, like that, is that as severe as it looks on the outside? Secondly, on the online advertising, is there a fixed rate structure there? Or is it -- how do you price that, actually? And is there room to adjust pricing as you go forward?

Well, let me start with the point about the pay wall, and just so everyone's on the same page, let's start with the fundamentals. Our model deliberately balances the need for broad reach for advertising purposes, against the need to create a second robust revenue stream on the subscriber side. So that's the idea. And to answer your question directly, we're seeing far less effect from the so-called workarounds than we, in fact, modeled. We know there are certain small number of people who will try to circumvent the wall. We have cataloged and continue to track every conceivable way that people are doing this. Again, the good news is that fewer people are doing it than we modeled. The people who are doing it will likely never pay in any event, and if we see the numbers change for whatever reason, we have a broad range of mitigating techniques to combat these unscrupulous people. So bottom line, the impacts are far less than we modeled, and we expected to have some impact. So there's really nothing more to say to it beyond that.

Has there been much affect on the print circulation yet?

As I said, we have seen increases in home delivery across all frequencies, Ed, with the adoption of the paid model.

And I'm not precisely clear on your question about ad impressions. We have always had flexibility with respect to pricing and, in fact, The Times website has been at or near the top of the pricing pyramid for many years now and continues to be. And the reason for that, in part, is because even from the beginning, we were registering all of our heavy users, and could target much more finely than a typical website could target based on demographics and then over time, behavioral attributes. So we've been, we’ve had a lot of pricing leverage from the beginning. The Times website, in particular, is considered one of a rarified group of premium sites that do not need to work with ad networks. We work with no ad networks. We have a relationship with Google AdSense, which is a non-blind, so-called long-tail relationship, that is the only people who can buy the inventory, are Google, smaller advertisers, we have a 2,000 advertiser block list. But the rest of the inventory is all sold by us at premium. So part of the point that Janet made at the outset in her prepared remarks was that, we have a lot of excess inventory each month just like every website does, and it's that inventory that we can moderate to some extent, based on the metered model. So to summarize, we do have great leverage. We continue to have great leverage. We raised rates on key parts of the site, key parts of the site last year, both the homepage and some of our premium display positions. And I think we'll continue to have that going forward based on our audience and our brand composition.

One more question, on the joint venture income, it sounds like there could be negative numbers over the course of the year, given the large impact of the depreciation from the soccer team?

Well, look, I'm not going to get into what it is, or what it's not, but I will say that is pre-seasonal -- our objective on potential lines are pre-seasonal line, which is a lot of that is very much driven around the baseball season. So the baseball season is obviously very concentrated in the second and the third quarter. So I wouldn't necessarily extrapolate that first quarter into the rest of the year.

Got you. Okay, thanks.

We'll take a follow-up question from John Janedis with UBS.

My question was answered.

That concludes the question-and-answer session today. At this time, I'd like to turn the conference back over to Ms. Schwartz for any additional or closing remarks.

Thanks, again for joining our call. Please call us if you have any additional question.