The New York Times Company (NYT) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to The New York Times Company Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. And now, I would like to turn the conference over to Andrea Passalacqua, Director of Investor Relations. Please go ahead.

Thank you, and welcome to The New York Times Company's Third Quarter 2013 Earnings Conference Call. Joining me today to discuss our results are Mark Thompson, President and Chief Executive Officer; Jim Follo, Executive Vice President and Chief Financial Officer; and Denise Warren, Executive Vice President, Digital Products and Services. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call, and our actual results could differ materially. Some of the risks and uncertainties that could impact our business are included in our 2012 10-K. I should also mention that our presentation will include non-GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investor.nytco.com. And finally, in the financial results reported this morning, the results of the New England Media Group are reported as discontinued operations for all periods presented. With that, I would like to turn the call over to Mark Thompson.

Thanks, Andrea, and good morning, everyone. The third quarter of 2013 was a strong one for the company. We increased our revenue, decreased our costs and, as a result, significantly increased our operating profit compared to the same quarter last year. We also made significant progress on our strategic initiatives. But we recognize that despite these positive developments, we still have a great deal of work to do to transform our business model and to achieve our goal of long-term sustainable growth. The company's operating profit for Q3 2013 before depreciation, amortization, severance and a special item was nearly $40 million. That compares to $30 million for the same period of 2012 and represents an increase of 35% year-over-year. In the quarter, we increased overall revenue by 2% with the continued build in our digital scriber numbers and notable sequential improvement in print advertising revenue trends. The company also increased its revenue over the first 5 -- first 9 months of 2013. Our digital subscriber count continued to grow, and at quarter end, paid digital subscriptions of the Times and the International Herald Tribune were approximately 727,000, an increase of more than 28% year-on-year. We added more net new digital subscribers than we did in the second quarter. As you know, we're currently working on a suite of new paid products and services that we'll begin to launch in the first half of 2014. And we're confident our new initiatives will ensure we remain an industry leader on this front. Advertising performance was significantly better in Q3 than in the first half of the year. Revenues from advertising declined in the quarter by 2% versus the prior year. This compares to an 11% decline in Q1 and a 5% decline in Q2 for our continuing operations. This is the best advertising revenue trend that the company has reported in 3 years. Also, during the quarter, we welcomed Meredith Kopit Levien as our new Executive Vice President of Advertising. Meredith has been charged with leading our sales effort and has already begun to make an impact on the structure and organization of our sales team, recruiting bright new talents for Times, including sales executives from GQ, Vogue, POLITICO and Forbes, amongst others. A key focus for Meredith and her team will be innovation in and development of our digital advertising proposition. In the quarter, digital advertising revenue declined 3%. Both Meredith and I are determined to restore it to growth. The overall relative improvement in advertising, combined with strong circulation revenue and further progress on cost reduction, resulted in the increase in operating profit for the quarter. Jim will outline those numbers shortly. We also made significant progress on our strategy in the quarter. We successfully completed the sale of the New England Media Group. We launched the International New York Times, formerly the IHT. As you know, we believe a single national and international brand, combined with tighter global newsroom and editorial integration, a single worldwide advertising sales force and a new international marketing effort will yield new readers, new digital subscribers and increased advertising revenues. We're also advancing other elements of the strategy I announced in April. In the first quarter of 2014, we will launch the redesigned nytimes.com, which has been available as a prototype since earlier this year, followed by our lower-priced and niche products, as well as our enhanced tier. We believe there are consumers who are interested in tiered versions of The Times current digital products, and we're eager to introduce these new options to the market. On video, which is an ongoing effort, we're in the process of generating significantly more high-quality content to meet growing demand. In the first half of 2013, we doubled video streams across our digital properties. And we're making strides with our conference business. Last month's 3rd Annual Schools for Tomorrow conference was sold out. It featured the first ad units for nytimes.com to host a live webcast of The Times conference. On November 12, we'll be staging our second annual New York DealBook conference here at The TimesCenter. In 2014, we plan a record number of 19 domestic and international conferences. In September, we announced the initiation of a quarterly dividend in the fourth quarter that began paying last week. This allows us to return capital to our shareholders while also maintaining the financial flexibility necessary to continue to invest in our company's transformation and growth initiatives. Given the expectation of continued variability in advertising revenue and the fact that our growth strategy is still nascent, we intend to maintain our prudent view of both balance sheet and free cash flow. To conclude, we are at an early stage in the transformation of The New York Times Company and much work still lies ahead. Nonetheless, the tangible progress we've made on a number of fronts during this quarter is encouraging. I look forward to updating you on future calls. But for now, I'd like to turn things over to Jim Follo.

Thank you, Mark, and good morning, everyone. Our company's positive performance in the third quarter was the result of overall revenue growth, combined with an ongoing focus on expense management, which, together, enabled us to deliver growth and operating profit before depreciation, amortization, severance and special items of 35% compared to the third quarter of 2012. Our strength on the revenue side was the result of sequential improvement in print advertising trends and continued progress in building our digital subscription revenue stream. Circulation revenues rose 5% in the quarter with the monetization of our digital products as the main driver. The continued growth for The Times' digital subscription numbers, combined with the price increases at The Times on the print side, led the circulation revenue growth to more than offset declines in advertising and other revenues, resulting in an increase of revenues of 2% in the quarter. In the third quarter, digital-only subscription revenues were approximately $38 million, an increase of about 29% from the same quarter in 2012. For the first 9 months of 2013, digital-only subscription revenues totaled $110 million, up 42% compared to the same period last year. Advertising revenue trends improved in the third quarter relative to the first half of the year with print advertising revenues down less than 2% and digital advertising revenues down about 3%, leading to an aggregate advertising revenue decline of 2% versus the prior year. Print and digital advertising both saw particular strength in September. Despite this sequential improvement, advertising revenue continues to be affected by secular trends, economic factors and a complex digital marketplace. Advertising revenues, again, exhibited the month-to-month volatility and short-term buying decisions that have pervaded the market, down 15% in July, flat in August and up 7% in September. National print advertising saw positive growth from the third quarter, leading to overall positive growth in the national category while retail and classifieds each declined on the print side. Digital advertising revenue declines were driven by the classified category and also saw decreases in national and retail. Digital advertising continued to experience challenges in the quarter from programmatic buying issues, along with the pricing pressures caused by a glut of inventory across the market. Despite this pressure, we expect to gain momentum on the digital advertising front and ultimately return to positive growth by focusing more heavily on areas such as video, tablet and unique custom advertising. Rounding out our results, operating expenses before depreciation, amortization and severance decreased about 1%, and on a GAAP basis, costs were also down 1%. We report an operating profit of $13 million in the quarter and a diluted loss per share of $0.03. The earnings per share loss was driven mainly by an income tax expense of $2.6 million, which includes a $1.5 million charge related to the remeasurement of our deferred tax assets as a result of the New England Media Group sale. Excluding severance and special items, the dilutive loss per share was $0.01. Moving on to costs. The company continued its long-term cost expense management effort in the third quarter as we, again, found ways to trim expenses across the broad spectrum of categories. Lower pension expense and raw material costs, as well as printing and distribution efficiencies, were the largest contributors to the decline despite expenses associated with our growth initiatives in the quarter. Raw material costs declined 13% in the quarter, mainly due to lower consumption and lower newsprint prices. We will continue to be diligent in trimming expenses and managing legacy costs, but we expect the expenses associated with our new strategic initiatives will accelerate in the fourth quarter and will continue to do so in 2014 as we begin to market our new products domestically and internationally. We are now estimating that operating profit will be negatively affected by about $10 million in the fourth quarter and about $15 million to $20 million for the full year of 2013 as a result of these initiatives. Some of the investment spending that we expected to incur in the third quarter has been a bit delayed as hiring has taken longer than originally planned. Moving to the balance sheet. At the end of the third quarter, our cash and marketable securities totaled approximately $938 million, exceeding total debt by approximately $255 million. The increase in our cash balance was the result of cash flows from operations as we continued to generate meaningful cash. This amount does not take into account the New England Media Group sale proceeds. In the quarter, we also repurchased about $12 million principal amount of our 6 5/8% senior notes. As Mark mentioned, we've finalized the sale of the New England Media Group last week for approximately $70 million in cash, subject to customary adjustments, and we've also filed an 8-K with further historical information for the remaining company. We will not be updating our underfunded pension status today, but I can confirm that the estimate we gave on our second quarter call would not have been affected by the New England Media Group sale since we are retaining substantially all pension and post-retirement obligations. Finally, we've begun the marketing of one additional floor of our headquarters building for rental purposes, which makes up a total of about 31,000 square feet. We aim to complete this process in the middle of next year, and we'll begin recording rental income at that time. This will bring us to a total of 7 leased floors, and we don't currently anticipate leasing any additional floors. As a reminder, before we get into our fourth quarter outlook, financials for the quarter 2012 continuing operations were provided through the last -- through last week's 8-K filing. Our fourth quarter guidance on revenue trends will be based upon a 13-week comparison, excluding the impact of the additional week in the fourth quarter of 2012. In last year's fourth quarter, we estimated the extra week resulted in an incremental $14 million of circulation revenue and $12 million in advertising revenue. Fourth quarter circulation revenues are expected to increase in the low-single digits as we expect to see continued benefit from our digital subscription initiatives and from this year's print price increase at The Times, which will be partially offset by difficult print comparisons connected to last year's election season. Advertising revenue trends in the fourth quarter remains subject to month-to-month volatility and are expected to decrease in the low-single digits. Fourth quarter operating costs, based upon the comparison with the longer 2012 quarter, are expected to increase in the low-single digits as investments around our strategic growth initiatives offset the benefit of a shorter quarter. And with that, we'd be happy to take your questions.

[Operator Instructions] And the first question is from Alexia Quadrani of JPMorgan. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: My question is on the improvement we saw in the newspaper, the print advertising revenue in the quarter with a particularly strong performance, I think, you highlighted in September. Could you give us any more detail on, really, what was the delta there? I mean, what really -- I mean, it is really a very impressive number considering the trends over the last several years, and I know you said it's very volatile. But what really -- and is there anything that really changed there, or was it just an abnormally strong September that pulled up the whole quarter? And I know you said it's still lumpy going into Q4, but any read on what -- anything you can share about October would be helpful as well.

Alexia, it's Mark here. I think it's safe to say that we saw, through the quarter, strength in many categories across the -- within the national category, many different categories improving. Amongst strong categories in quarter 3 in print were American fashion and international fashion and corporate. And I don't want to say too much about October. You heard Jim give the overall guidance of -- for the quarter of low single-digit declines. We have limited visibility even now into November and December, and the fall of the holidays is different this year from last year. But it's fair to say that the quarter has got off to a good start. We're seeing, again, strength in a number of categories: financial, American fashion, automotive. And we also, through September and October, seen a strength in the entertainment category as well. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And just a second question on the -- how we -- how should we look at the digital sub-growth, digital only sub-growth going forward? I know you're in the process of creating this tiering structure, changing some of the pricing. But in the interim, as that's sort of being rolled out, we've anniversary-ed toward the 2-year launch of this, should we still be able to see some sub-growth in the interim continuing?

Well -- I mean, I'm going to hand over to Denise. But just to say that -- you've heard me say that we had slightly more net added digital news -- digital subscribers in the third quarter than the second quarter. And we are continuing to see growth in the current model with the current offering, obviously, our strategies to add additional different products to the portfolio, absolutely with the intention of trying to reach out to new subscribers. But we are continuing to see some buoyancy in the current portfolio lineup. But, Denise, you want to add to that?

Sure. I guess what I'll add is, of course, the big initiatives that we're betting on to roll out next year are where a lot of the big growth is going to come from. We've talked about those extensively. And as Mark mentioned, the current model still have some steam. Obviously, the fourth quarter guidance is reflective of that. But let me just mention a couple of things that we haven't spoken about in the past, just to give you a sense of how we're planning to increment subscriptions going forward. One is a focus on corporate sales. That's something we really haven't spoken about. But we're -- we believe there's more room to grow here, and we're much more focused on this effort. The second one is interesting. You might have seen this, Alexia. On Sunday, we're actually launching a single-copy promotion. This is a test of an ability to convert single-copy users to digital subscribers. If you pick up a copy of the paper this Sunday, you'll see a unique code that will enable you to redeem for 4 weeks of digital access. Our goal here is to generate new subscriptions and actually get data on our single-copy users. As you can imagine, it's very, very difficult for us to get that kind of data. So just 2 examples of things that we're excited about and just innovation that occurs in the model on a fairly regular basis. The other thing I'll mention is that we've got a pretty significant focus on retention. We've revamped our call center, and we now have experts focused on retention, both on the print and the digital side of the operation. And this is in a pilot phase right now, but we're actually seeing some nice results. So just a couple of examples to give you a sense of how we're planning on managing this and where we generate -- where we can generate some opportunity going forward. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: That's very helpful. And then just in terms of when we'll see -- when, from the outside, should we really expect to see some -- I guess some cues that the rollout, the digital initiative rollouts are being successful, just for data points. Is it still a couple of quarters out where we can really sort of ascertain how successful they've been?

Yes. We're not planning to roll out the first of these until later in -- well, sometime in the second quarter. And again, you have to give these initiatives some time to kind of get to their steady state.

Your next question is from John Janedis of UBS.

You talked about the pressure on digital advertising. This is the first time I can recall where digital underperformed print. Jim, I know you mentioned your assumption of a turn, I think, in the current quarter. But is it your sense that the things you're focusing on will not be subject to some of the pressures you've seen on a historical basis?

Well, as I -- if I can go first. I think what we saw in quarter 3 was a significant improvement in the print numbers. That's clear. Digital, for some quarters now, has been, actually, on a pretty steady rate of decline at around a 3% mark. John, you heard me say that something that I -- the whole management team, but, in particular, our new Executive Vice President for Advertising, that is Kopit Levien, are really focused on developing and innovating our offering in digital advertising to correct that decline and restore digital advertising to growth numbers. And Meredith has been here still only, really, a few weeks now. But she is, right now, hard at work with her colleagues on trying to address this and return digital advertising to growth.

Okay. And then I think -- or I'm sorry if I missed this, but did you give an outlook for digital sub-growth in 4Q? I know you had a tough comp from the election last year. Maybe on a related note being, I guess, 6 or 7 quarters plus in, how has retention changed for digital subs?

So let me just answer the first question, which is we expect that the number of subscribers in the fourth quarter will roughly be in line with the third quarter.

The number of ads.

Yes, number of ads, exactly. Thank you. And then retention's actually still very, very strong with our digital subscribers. I mean, as you would expect as you bring on folks who are sort of less loyal and it gets a bit harder to attract folks as the model gets more mature, those folks tend to have retention rates that are less than the folks you brought on initially. But on average, we're really, really pleased with it. We obviously benchmark against our print retention, and we are well above our print retention rate. So we continue to see nice performance. But as I said and -- we think there's more to be had there, and it's the reason why we're focusing on retention in our call center. We think that's a real opportunity for us.

But that's a quite an interesting point. It's not a widely known point that the retention profile for digital is actually slightly better than print.

And one last thing for you. So you talked about total initiative spend in prior quarters, maybe from what we call kind of a phase one there. Has that number changed going into '14 in terms of the total number for phase one?

No. I would say not. We just got off slower, but we'll -- I think we're largely on track for '14.

The next question is from Craig Huber of Huber Research.

A few questions. So first, concerning your print ad revenue trend here in the third quarter year-over-year, can you give us the percent change of your top 5 or 6 national ad categories? How did they perform?

Look at that, I'm not sure how valuable it is, to be honest, because they dot around year-on-year. But if we look at year-on-year comparisons, I'll give you a few in Q3: American fashion was up nearly 31% year-on-year; international fashion, up 17%. I think, in particular, we point to the success of teen magazine as a great magazine, but also a great platform for fashion advertising as being part of that. We also saw a very significant growth in corporate, with corporate year-on-year showing something like a 57%, 57.4% increase year-on-year. But the -- I think the most important thing to say about Q3 is we saw a broad frontal improvement across more categories than we've seen for some quarters now, all in the -- under the heading of national.

Mark, what about the luxury good category? How did that do, please?

Do we have numbers to hand on luxury? What we call American fashion includes an awful lot of luxury, and international fashion also includes luxury. So I think you can take them out that luxury has done very well. Also, it must be said in the quarter, I think, also, luxury was a pretty strong performer for the International Herald Tribune.

And then also your -- these last 7 quarters of roughly down 2% to 4% digital ad revenue performance, is that all pricing, or is there some volume pressure in there as well?

Essentially, it's all price.

Yes.

It's all price.

And then, also, I think it's roughly $33 million of digital ad revenues you guys had in the quarter. How much of that would you ballpark this mobile advertising?

Small. Less than 10%.

Okay. And then finally, if I could, just 2 housekeeping questions. What was the daily and Sunday print circulation percent change year-over-year?

Daily was down 5.1%, and Sunday was down 2.5%.

Okay. Then lastly, for newsprint. What was the percent change for average price and for consumption?

The decline was almost split exactly down in the middle between -- it was between price and volume. I think the total cost was down somewhere around $3 million, $3.2 million. Split that right in half between the 2.

Next question is from William Bird of FBR. William G. Bird - FBR Capital Markets & Co., Research Division: You mentioned on video advertising that you doubled the streams in the first half. Can you talk about, I guess, how video and revenue is developing, and just what are some of the next steps for video?

Perhaps, I'll have a go. But again, I'll ask Denise to come in as well. The key point of that video is that there is very, very strong demand. And we're working hard to increase the number of impressions, partly because we want to improve the overall user experience and we think that the risk -- real appetite from users of digital services for video, but also because there's very considerable and as yet unfulfilled advertising demand. So we're hard at work on a very wide-ranging strategy for improving the quality and relevance of video, the amount of video and the findability and the -- as were the marketing of video on the site to take advantage of both the commercial and the creative opportunity. But, Denise, do you want to add to that?

I -- there's nothing to add, perfectly well stated.

Very good. William G. Bird - FBR Capital Markets & Co., Research Division: And separately, do you have an early sense of what the expense outlook might look like for 2014?

Not yet. But what I would say is we'll have a full year's worth of spending related to the growth initiatives. You got to account for that. Most of our spending this year has really been third ramping up into the fourth, and then you probably get a pretty good idea of what that run rate numbers should be in the fourth quarter. I said the operating profit impact of that was $10 million, some revenues associated with that. So the costs related to that, you get a pretty good idea. And that number will grow as -- on a quarterly basis. So you'd have to expect that you'd see some growth in expenses on that line alone. And then we're deep into the planning process on the rest of business. It's hard to make a call now.

We continue to try and put downward pressure on costs everywhere we can.

Sure. I mean, that's kind of -- we think that is core part of our strategy, to manage kind of the core business costs, and we've yet to have a year in the last 6 or 7 that we haven't found ways to reduce that. But it's early. It's hard to make a commitment at this moment.

The next question is from Kannan Venkateshwar of Barclays.

So a few questions, first was on the EBITDA front. I think till recently, you guys have guided to a mid-single-digit kind of growth rate, and you came in at about 35%. Was that just related to the $10 million that got deferred in expenses to the fourth quarter?

No. I would say, look, this is a relatively small quarter, right. So the base number last year, EBITDA was $30 million. So small changes in advertising, for example, drive big changes in percent. As you -- as we've said, the September ended up being a very, very strong quarter and picked up quite a bit of -- accelerate quite a bit as we went through the quarter. So it -- advertising is 90% margin business. So when you see a 7% growth September advertising, that has very big impact on kind of year-over-year growth percentages. But in absolute dollars, it doesn't necessarily have to be that big to do that percentage. That's really the key reason behind that. I think we had a little bit of better performance on costs. I think our guidance in -- at a conference in September was a bit flat. We came in, I think, down a couple of million or so. It's just a couple things here and there, largely off a small base is why that percent...

So are now moving to print advertising from July year-on-year to significantly down through August, flat through opposed to September as -- the outlook changed significantly through the quarter.

Okay. And then the other -- you guys had the launch of the International New York Times recently. So when we look at 4Q, some of the digital circulation numbers that you're guiding towards, does that include the impact of that launch?

It does. But I want to caution you, it's very, very small in 4Q. Our efforts really get ramped up later in the quarter and next year. Our objective, really, this year is we're introducing a new brand to the audience and making sure that the people who were formerly IHT subscribers become INYT subscribers. So that's really what the focus of our efforts are. We're actually seeing very nice results, better than we had expected. So we're off to a very strong start. But the numbers that are included in this quarter will be very, very small as it relates to that initiative.

Yes. The base we're working off is 10%, roughly, of digital subscribers. And I think history suggests that although some American brands, I think of Discovery, I think of CNN, have delivered very successful international businesses. It takes time because the fundamental awareness of the brand and the products are much lower outside the U.S. than it will be inside. So we see this is a long-term growth initiative. We're hard at work at it. We don't expect instant results.

Okay. So in terms of the International Herald Tribune, could you give us some visibility in terms of what that model there is, like which countries does this new brand being launched in? And what does the pricing plan look like? Is it similar to the U.S. and so on?

Well, I mean, the -- I mean, without going into too much detail, we have a physical newspaper, which has got a very great historical strength, but it's pretty mature in Europe at -- but has seen opportunities and growth especially in Asia, but also in some other parts of the world. We believe that -- 2 things, the name change. It's a -- for consumers, a relatively subtle adjustment, nonetheless, the name change, plus the much stronger integration, both of the editorial and newsroom operations between New York Times, New York and, now, International New York Times in Paris and Hong Kong and in commercial terms, more importantly, the closer working together of the advertising teams. Essentially, we're moving to a single global advertising sales force, will mean that the new physical international New York Times will be an even stronger advertising platform with particular strength in the luxury categories. And the -- therefore, the profitability, we didn't break out the profitability of the international newspaper, of the physical newspaper should be secured and may even increase. Meanwhile, on the digital side, we're already, obviously, because it's the Internet, we have a global presence for nytimes.com and for our apps. For the first time, the whole suite of digital products will be under The New York Times banner. And we have plans through a much more coherent and a more aggressive marketing campaign, over time, to build usage of the different digital products and to encourage more people to become subscribers, which also should both improve the effectiveness of the digital and assets as advertising platforms, but also, as you heard me say, we also will increase the -- both the numbers of subscribers and the revenue we get from digital subscription.

Okay. And just one last question on the cost side. I mean, you've been able to squeeze out a lot of costs over the last few years, and that continues to be the case even in the guidance years. So where exactly is this cost cut coming from? If you could just provide some visibility, that would be great.

I'll let Jim answer that. But just one example Jim mentioned in his remarks is that we are -- we have been reshuffling people around this building and believe that we can successfully in The New York Times using one fewer floor of this building in 620 Eighth Avenue and we'll rent out the building and get a revenue -- a positive revenue stream out of that. That will be an example of what we're up to.

Look, we've had positive revenue cost trends on pension this year. Now some of that is simply we're materially better funded than we once were, so just a map around that helps us this year. There were some actions taken with respect to union agreements earlier in the year that also contributed to that. Obviously, on the supply side and manufacturing side, we continue to look at all areas. From outside printing, distribution, we aggressively go out that because we got some really good smart people in that area continue to do really good job. We are -- we've been doing this a while, so it does tend to have to be pretty broad in the categories. But those are some of the bigger categories. As we go forward, I think the fourth quarter guidance would suggest -- see a little bit of pressure on the cost side. But I think long term, we think there's some more opportunity and -- we just continue to have to be aggressive at it, that's all. And headcount is always an issue. We're adding quite a bit of heads on the growth side. But in the core business, we continue to find ways to be able to do things more efficiently with less bodies, and we'll have to continue to do that.

That's right. And last week, we ran a 2-page ad for The Book Thief, which consists of 2 blank pages in the newspaper and saved us a fortune on ink.

Our next question is from Westcott Rochette from S&P Capital IQ. Westcott Rochette - S&P Capital IQ Equity Research: I had just 2 basic questions, one on your conference business. So you have 14 planned for next year, is that correct?

19. Westcott Rochette - S&P Capital IQ Equity Research: 19, sorry. How does that compare to 2013, and kind of in broad strokes, where do you see that business kind of going over the next few years?

So I think we had 15 or 16 this year. I haven't got the number to hand, but that sort of number. Well, the -- one of the reasons we love the conference business is, firstly, that a well-managed conference business is, itself, a good -- brings a good margin within, and it's profitable business. But also potentially, it offers an additional complementary platform for advertisers and sponsors, and it's a great -- potentially, a great way of marketing The Times, both -- as we're B2B and B2C, in terms of getting some of our best known journalists and opinion writers out there. So we think it's a very good, additional platform alongside our physical newspapers and our digital platforms. And the plan is to continue to build it out, both domestically and internationally. So although you're going to see the expansion in 2014, that's not the end of the story. We have -- we can build it out into a business, which is always going to be small relatively to the main news business that we're in domestically and internationally, but is a very useful adjunct. Westcott Rochette - S&P Capital IQ Equity Research: Right. All right, sounds good. One other question. You mentioned going into corporate sales,, which is something that I haven't really heard you guys focus on before. Is that going to be similar to the way you've kind of approach education? And as you kind of manage that business, how are you going to monitor and manage kind of a cannibalization of your existing customers at probably a lower rate as they get to the corporate?

So the answer is yes, it'll be very similar to the education business. And interestingly, what we've actually found is the corporate sales business actually can be a way to generate leads for the consumer business. Why is that? Because essentially, what we do is we only enable you to use New York Times access through your corporate IP. So there's a really hard fence around it. And once you get hooked, you kind of want it. You want to use it personally. So we actually have found that corporate sales have actually led to increases in consumer sales. So we're excited about that.

Your next question is from Edward Atorino of Benchmark.

Yes. What is the current single-copy daily sales and Sunday sales? Have they have been holding up, going down? The subscription numbers are interesting, but how is single copy doing?

Well, single copy is really the most challenged of our circulation. And in the -- in quarter 3, New York Times daily single copy was down somewhere in the 15% range, and on Sunday, probably a little bit less than that, maybe 10%.

Yes, just under -- around 9-ish%.

What percent of the total would that be?

We're talking about total dailies, say, I would call it...

I think daily single copy is around 20%, 25%, and Sunday, less than 20%, about 19%.

That's right.

And Sunday single copy, same dimension, about 25%?

A little less than that, a little bit less than 10 on a percentage basis.

That's really small, okay. On the new services for the online, are you giving sort of a package deal, individually priced services? How is that going to subscriptions?

Okay. So 2 elements to this -- and it's Denise. Two elements. First, let me just say that everything, every new product that we're launching will be incorporated into the core subscription bundle, okay? So if you're a current subscriber, you will have access to the new products we're launching. So that's the first thing to say. Second thing to say is that we've got a number of different products launching at different price points. The idea here is to capture the demand that we see existing along the entire demand curve. So we have some -- basically, a number of products rolling out at price points that are lower than -- the least expensive offer right now, which is a $15 every 4 week offer for the web and smartphone app. We've uncovered a sizable demand at lower price points, and we want to make sure we capture that. But we also have what we're calling an enhanced tier, a tier that sits on top of the most expensive prices we charge for additional products and services that you can add to an existing bundle, be it digital or print.

This -- so a package of things?

Yes.

Not one things, okay.

In the enhanced tier. It's a package of things. In the other products and services that I mentioned, there are several that we're rolling out, several unique products that we're rolling out that are each different.

Also, will the International -- it's going to be called then International New York Times, have the same link with the online product?

Yes.

So -- and it's package deal, separate pricing?

Yes. It'll be -- it's very similar structure to what we have here in the domestic marketplace. I mean, we're going to experiment with pricing in the international marketplace as we have to, right? So that's -- again, that's part of all -- that's part of the marketing and acquisition plans that we have set out for later on this year and next year.

Last question. Jim, would you mind going through the strategic expense sort of track? I was a little confused, which is easy.

Well, we said in the fourth quarter that operating profit would be negatively impacted by $10 million in the fourth quarter. Now we're not yet really getting meaningful dollars in revenues out of those initiatives. So you would expect, on the cost basis, something a little bit north of $10 million on the cost basis on strategic initiatives. For the full year, we said $15 million to $20 million operating profit impact, again, with some contribution to revenues. So that would suggest your costs impact this year would be something north of $15 million to $20 million on the cost side.

And that's going to extend into '14?

And then when I said '14 is you got to assume -- because most of our spending has happened back half of the year and is accelerating, just given the numbers I gave you, fourth quarter spending will be meaningfully more than third quarter spending, and therefore, you need to kind of build in that ramp throughout the year and you'll have 4 quarters of spending against those growth initiatives. Marketing dollars in our digital products and services will be really all around once the product launches. So you would expect to see a fairly significant ramp as you launch those products in our cost base.

Pricing strategy for '14? You've sort of raised prices pretty regularly. And as the year comes along, will that be a continued process?

It'll be a continued thing we'll look at. But as usual, we never preannounce any sort of pricing strategies.

What is -- and say, what is the current monthly -- I should say I should know this. What is the current monthly price for the online product?

So it's -- there's 3 different prices depending upon the package you buy. The least expensive is $15 every 4 weeks. That's for access to the website and smartphone apps. Then there's $20 every 4 weeks for access to the website and tablets, and then there's the all-digital access bundle, which is $35.

And again, that' -- as Denise said, that's a 4-week thing. So it's 13 billing, so multiply those by 13 for your annual revenues.

And next is a follow-up, for Craig Huber, Huber Research.

Yes. I did want to ask, these price points here, $15, $20 and $35 for your core digital product, do you think you have any room to raise prices there over the next 12 months? And obviously, you guys have been very aggressive, raising price on print for years in various stages and stuff. But do you think you have room to raise prices, or are you just going to try and kind of focus on the volume side of things?

We think that the greatest value we can deliver to the corporation is to execute on the strategy that we've outlined by managing the demand curve and rolling out the products and services that we've identified for next year. That really is the best value that we can deliver to the organization at this stage.

It's obviously the case as the broader the portfolio of products you've got and the more price points you got, the more flexibility you have over time to adjust price. But as exactly as Denise says, we're mainly focused currently on a strategy of a broader portfolio.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Andrea Passalacqua for any closing remarks.

Thanks, everyone, for your time, and we'll talk to you again next quarter.

Okay. Goodbye, everyone. Thank you.