The New York Times Company (NYT) Q4 2013 Earnings Report, Transcript and Summary

Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to The New York Times Company Q4 and Full Year 2013 Conference Call. [Operator Instructions] Andrea Passalacqua, Director of Investor Relations, you may begin your conference.

Thank you, and welcome to The New York Times Company Fourth Quarter and Full Year 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; Denise Warren, Executive Vice President, Digital Products and Services; and making her debut on this call, Meredith Kopit Levien, Executive Vice President of Advertising. 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 investors.nytco.com. And finally, this morning, we will discuss the impacts on our revenues of the extra week in our fiscal fourth quarter and full year of 2012, which is also provided in the exhibits of this morning's press release. Cost and profitability metrics include the additional week. With that, I would like to turn the call over to Mark Thompson.

Thanks, Andrea, and good morning, everyone. 2013 is my first full year at the company, and we finish on a high note, posting solid results in the fourth quarter. As you'll hear, there's some complexity in comparing the quarter with the same period in 2012 because of the special items and the fact that Q4 2012 had an extra week. Nonetheless, we were pleased with the fundamentals of our business in the period. We slightly increased our overall revenues, excluding that extra week in 2012. We saw favorable trends in both print and digital advertising and added more net new digital subscribers than in the previous 2 quarters. We turned costs, notwithstanding significant investment in our growth initiatives. We also made noteworthy progress on our new strategy in 2013, and we remain on track to execute that strategy in 2014 and beyond. This year will be an important one for us, with a particular focus on new digital subscription products we intend to launch in the second quarter and on our efforts to restore digital advertising to sustainable growth. The new products are intended to expand our subscription base by offering consumers a wider and more tailored set of subscription options, with additional packages available at price points both below and above our current portfolio. The reaction of readers to these products and the new portfolio will obviously be key, and we're watching that closely throughout the year. At the start of 2014, we launched the redesigned nytimes.com. It's been getting almost unanimously positive reviews with cleaner, more engaging user experience. As part of the redesign, Meredith and her team made The Times' first foray into native digital advertising with the launch of paid posts, and this effort is already driving incremental advertising revenue. We remain committed, of course, to always clearly labeling these advertiser stories as such, but we're also heavily focused on advertising innovation, as traditional banner advertising becomes a smaller contributor to revenue industry-wide. But native advertising is only one of the new digital advertising products will be introducing in the coming months as part of a broad transformation of our capabilities in advertising. In recent months, Meredith has made some formidable external hires to complement our already strong in-house talent roster. She's placed a fresh focus on ad tech and combined our U.S. and global sales forces into a unified team. In 2014, we will apply greater focus to mobile monetization, seek to expand our high CPM video inventory and develop more sophisticated audience targeting capabilities. This will be a critical year in the story of advertising of the company. And as you've heard, Meredith is here this morning to answer any questions you may have about that. Next, international. As you know, we've rebranded the former IHT as the International New York Times, but much of our work on the international expansion front still lies ahead of us. Bolstered by new international marketing efforts and that combined worldwide advertising sales force, in 2014, we will continue our pursuit of new readers, new digital subscribers and increased advertising revenues from our audience outside the U.S. With regard to video, we're providing significantly more premium content to meet growing demand and, in the fourth quarter, launched The New York Times Minute, which is a 1-minute video capsule of the day's top headlines, updated 3x every week day. In 2013, we increased our video stream count by more than 60%, and that was against tough election-related comparisons in the second half of 2012. And finally, as part of the larger brand extension initiative, we're also making strides with our conference business. Our expanded 2014 lineup of domestic and international conferences will again include our popular luxury and oil and money conferences, as well as our annual cities, schools and DealBook conferences, and we'll incorporate some new conferences to be announced soon. But let me turn now from our future plans to the results of the quarter. The company's operating profit for Q4 2013 was $69 million. That compares to $35 million in the same period of 2012 and a large gap arises principally from a special charge in 2012's fourth quarter. For full year 2013, the company had an operating profit of $156 million compared to $104 million in 2012. Excluding depreciation, amortization, severance and special items, operating profit in 2013 grew to $256 million from $245 million in 2012. The growth in profitability in 2013 over 2012 is encouraging, given the extra week in 2012 and given that 2013 also saw a significant investment in our growth initiatives. The revenue performance of both the quarter and the full year was the result of the continued build in our digital subscription base, as well as an improvement in advertising revenue trends, excluding that additional week. Print advertising revenue showed steady improvement in the second half of the year, declining less than 2% in the fourth quarter, in line with third quarter levels, while digital trends also showed progress in the quarter and ended up roughly flat. At quarter-end, paid digital subscriptions across the company was approximately 760,000, an increase of 19% year-on-year. We added 33,000 net new digital subscribers in the quarter, which is more than we added in each of the previous 2 quarters and positions us well to 2014. Our advertising performance maintained the momentum it began in the third quarter, as overall advertising revenues declined 1%. Advertising revenues ended the year on significantly better footing than they began it, declining an average of 2% in the second half of 2013. In the quarter, digital advertising revenue was roughly flat, which represents an improvement on the pattern we've seen in recent quarters and a step in the right direction that we recognize we have a lot more to do on this front. The relative improvement in advertising revenue, circulation revenue growth and reduced costs contributed to our performance in the quarter. Our declining operating costs demonstrate that the expense management around legacy costs was tight in 2013. We will ensure that it remains tight in the current year. We need to reduce existing costs wherever we can, not least to reduce the bottom line impact to the investments associated with our strategic initiatives. Jim will outline those numbers in more depth soon. So to conclude, the tangible progress we made on a number of fronts in 2013 is encouraging. We posted improved results in the year while moving forward with our strategic plan. We remain in the early stages of the transformation of The New York Times Company, and 2014 will be a year in which we have a lot to deliver. I look forward to updating you on future goals. But for now, I'd like to turn things over to Jim Follo.

Thanks, Mark, and good morning, everyone. As you've already heard, because of fiscal calendar, both the fourth quarter and full year of 2012 had an additional week for purposes of our results. My comments that address revenues will exclude the impact of the actual week. Costs were more difficult to break down on a week-to-week basis, so cost and profitability metrics include the additional week. As Mark noted, we closed 2013 on a positive note, marked by a quarter of improved revenues and attention to costs. We're taking a very strategic approach to our investment spending, fueling those initiatives that are clearly focused on driving revenues, especially in our digital subscription business, while continuing to search for avenues to reduce nonessential costs. Our fourth quarter performance reflects the steady build of the circulation side of our business, combined with continued improvement on its advertising side, resulting in slight overall revenue growth. Costs, again, declined, the result of our continuing commitments to cost -- to expense management, as well as the impact of the additional week. Operating profit before depreciation, amortization, severance and special items decreased 12% to $97 million, largely as a result of the additional week and the impact of spending on growth initiatives. Circulation revenues rose 3% in the quarter, with the digital subscription revenue stream contributing the most to that increase, partially offset by difficult print comparisons connected to last year's election season. We saw a 19% growth in the company's digital subscription base and also benefited from the 2013 home delivery price increases at The Times. This combination led to circulation revenue growth to more than offset declines in advertising and other revenues, resulting in a slight overall revenue growth. Advertising maintains its momentum on the print side while showing improvement on the digital side, leading to an aggregate decline of 1%. In the fourth quarter, digital-only subscription revenues were approximately $39 million, an increase of approximately 22% from the same quarter in 2012. For the full year, digital-only subscription revenues totaled $149 million, up 36% compared to 2012. Advertising revenue trends continued to improve in the fourth quarter relative to the first half of 2013, with print advertising revenues again down less than 2% and digital advertising revenues roughly flat. Advertising revenues continued to exhibit the month-to-month volatility and short-term volume decisions that have pervaded the market, up 8% in October, down 1% in November and down 11% in December. Print and digital advertising both saw particular strength in October and notable weakness in December. National print advertising saw positive growth in the fourth quarter, leading to overall positive growth in the national category while retail and classifieds both declined on the print side. Our roughly flat digital advertising revenue was driven by losses in the classified category and less so, the national category, as growth in retail largely offset these declines. Digital advertising continued to experience challenges in the quarter from programmatic buying issues, which led to pressure on ad rates, as well as some additional pricing pressures caused by the glut of traditional ad inventory. But as Mark mentioned, we're already gaining traction on the digital advertising front and feel we have established a path towards positive growth. Rounding out our results, operating expenses before depreciation, amortization and severance decreased 3%. And on a GAAP basis, costs were also down 3%. We report an operating profit of $69 million in the quarter and diluted earnings per share of $0.24. Excluding severance and special items, diluted earnings per share was $0.26. The company continued its long-term expense management effort in the fourth quarter as we found ways to lower overall cost by trimming across a broad spectrum of categories, even in the face of increased investments associated with our growth initiatives. In addition to the effect of the additional week, printing and distribution efficiencies, as well as low professional fees, raw material expense and pension expense were the largest contributors to the decline. We will continue our work on trimming costs this year as we ramp up initiative spending. Until the second quarter of 2014, when the initiatives really get underway, we're still making significant investments, largely ahead of associated revenues, particularly for our new pay products. We continue to market one floor of our headquarters building for rental purposes, which makes up a total of 31,000 square feet. We aim to complete this process this year, and we'll begin recording rental income at that time. This will bring us to a total of 7 leased floors. Moving to the balance sheet. Our liquidity position only strengthened in 2013. In addition to steady cash flows from operations, our balance sheet was bolstered by the proceeds in the sale of the New England Media Group, as we further sharpened our focus on our core brand. All-in, we ended 2013 with approximately $1 billion of cash and marketable securities, even after making $74 million in pension contributions during the year. At year end, our total cash position exceeded our total debt and capital lease obligations by approximately $316 million. For accounting purposes, on a GAAP basis, based upon preliminary results, the underfunded status of our qualified pension plans as of December 29, 2013, was approximately $80 million. That compares to $350 million at the end of 2012. The funded status of the company's qualified plans was positively affected by the rise in interest rates and strong pension asset performance. We expect our retirement cost in 2014 will continue to experience significant volatility as we experienced in 2013. In 2013, retirement costs, including pension, multi-employer pension and retiree medical cost, declined $27 million to $18 million as pension interest costs were significantly lower and expected earnings on plan assets were significantly higher in 2013 than in 2012. In 2014, we expect that retirement costs will increase approximately $19 million to $37 million, due principally to lower expected return on pension assets, due to a shift in asset mix to bonds from equity, higher interest costs, the impact of the sale of the New England Media Group on retiree medical costs and higher multi-employer pension withdrawal costs. As the company has gotten smaller over the past several years, mainly as a result of divestitures, our retirement plan obligations have not declined proportionately as we've largely retained all pension liabilities. As a result, due to the large size of our pension plans relative to the size of the company, the impact of changes and discount rates, asset performance and funded position may obscure trends and financial performance of our operating business. Looking ahead, in our first quarter 2014 earnings release, we'll begin to provide a non-GAAP presentation of adjusted operating costs and adjusted operating profit, in each case excluding nonoperating retirement in costs in an effort to provide a clearer picture of the operating performance of our business. Our adjusted operating profit calculation going forward will remove financing and amortization costs related to historical pension, retiree medical and multi-employer pension withdrawal liabilities. Service cost from pension retiree medical benefits will continue to be included, but the other pension components, including interests, expected return on assets and amortization of actuarial gains and losses, which are not related to the operations of our business, will be excluded, and we will refer to them as nonoperating retirement expenses. For the same reason, we will also present our operating expenses excluding depreciation, amortization, severance and nonoperating retirement costs. These adjusted measures will be provided as a supplement to GAAP operating cost and operating profit. We'll also include a reconciliation of adjusted operating profit to GAAP operating profit and adjusted operating costs to GAAP operating costs in our earnings release. We believe this view will make it easier to understand how our employee benefit plans affect our financial position or operating performance, allowing for better long-term view of the business. The adjusted presentation just also facilitate comparisons with operations of peers. Moving to our outlook. First quarter circulation revenues are expected to increase in the low-single digits, and we expect to see continued benefit from our digital subscription initiatives, as well as from the most recent Times' home delivery price increase. Advertising revenue trends in the first quarter remain subject to month-to-month volatility, but are currently expected to be in line with fourth quarter levels based upon a 13-week comparison. We expect comparisons will get tougher as the year progresses, given that advertising in the second half of 2013 was relatively strong. First quarter operating costs are expected to increase in the low- to mid-single digits, as investments around the company's strategic growth initiatives accelerates. In addition to the higher retirement costs I mentioned earlier, we expect that cost related to our growth initiatives will increase by approximately $25 million to $30 million year-over-year in 2014. We expect the operating profit will, again, be negatively affected by the issues for the full year of 2014, with potential positive contributions to profitability beginning late in the year. And with that, we'd be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Alexia Quadrani with JPMorgan. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: Just a quick follow-up on your outlook for the advertising revenue. Do you have any sense of how advertising trends did in the month of January? And then a second question, sort of a bigger question is how do you see the downside risk or I guess the risk-reward of the changing pricing tier on the digital subs? You guys have done such a great job a few years into this paid model. You came to see very good growth. I guess if you could just talk more broadly about how we can sort of assess the risk and reward of this new initiative and -- coming up.

Alexia, it's Mark here. I'm going to ask Meredith to answer the first question and, perhaps, get Denise to effect on the second one. But, Meredith, why don't you have a go at the January trends?

Sure. So in January, we would say, in print, we saw a nice start to the year, generally bolstered by the Super Bowl and the Oscars rates. So beyond that, as Jim said, we expect the rest of the quarter to be broadly in line with what we saw in the fourth quarter.

Yes. And then looking further ahead, we're also noting some slightly tougher year-on-year comps later in the year.

Yes, absolutely. The second half comps are a lot more challenging.

Okay. Denise, you want to do that rather complicated question.

Yes.

So the sort of the tradeoffs involved in the new launches.

Yes. I think the question you're asking, Alexia, is what's the potential for cannibalization as we introduce lower pricing tiers. And I think it's really important for me to underscore something we've said in the past, which is that we strongly believe that the cannibalization effect will be mitigated by the fact that the vast majority of our core customers prefer complete access to Times journalism. So in our view, that really does provide an effective fence around the trade-down. And we believe that we're going to be able to manage it accordingly. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And when do you think we'll get, from the outside, a sort of sense of how it's initially going? Will it take a couple of quarters, or will you get a sense right away?

We're going to be looking at the results from day 1. So as we did with the initial foray into the digital subscription business, we built the model to be flexible so that we can make changes as we see them happening. It's hard for me to say. I think it's going to take a couple of quarters for the business to settle in and for it to be at a stable level. But you'll -- we'll be sharing the results once we announce on a quarterly call, so you'll get a read on that fairly quickly. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And then just last question, and I'm sure you guys probably get tired of being asked this, but the cash continues to build. I guess can you update us on your priorities to use of cash?

Sorry. Could you just repeat the question again, Alexia? Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: With the cash continuing to build every quarter, post the sale being where it is, could you update us on use of cash?

Well, I mean, we don't have any change really to the -- to our current view on this. We restored a dividend in the course of 2013. And we continue to take a pretty prudent view of the balance sheet, because of the relative scale of our pension and other obligations in relation to the size of the current Times Company and because of continued volatility in revenue, particularly in advertising revenue. So we have no real change on that. But as you say, the balance sheet is, in a sense, a process which began a couple of years ago, strengthening the balance sheet has taken in the quarter and through 2013 we've taken it to another stage. Do you want to add anything, Jim?

I think I would add is we're coming off in about 12 months of maturity of somewhere in the neighborhood of $200 million, $225 million of bonds that come due. And obviously, the plan right now is to take some of that cash off the balance sheet and retire that debt. Consistent with Mark said, we do think we need to rightsize the debt to the business as it exists today post the divestitures that we've gone through the last couple of years. But I will say just -- I noted in my remarks, too, the pension issue is clearly gotten significantly better, and we feel pretty good about where that's gone. But there's still -- we still have to watch carefully the business and the trends and we'll continue to be flexible.

Your next question comes from the line of William Bird with FBR. William G. Bird - FBR Capital Markets & Co., Research Division: Could you discuss just the timing on the new tiered product launches? And just overall, how do you expect digital subscribers to trend in the first quarter?

Denise...

Sure, I'll take this. Let me start with the second question first. So as Jim said, just in terms of revenue, we expect overall circulation revenue increase in the low-single digits. As for subscribers, we expect largely to be in line with last year's trends, excluding the benefits of the holiday. And where we see the growth coming from in the first quarter is what I'll call our optimization efforts, which are retention efforts and marketing optimization around improving the performance on marketing by establishing more rigorous and diligent testing of marketing creatives and pretty much every way we market our customers. International will grow in Q1 and contribute to that, and then the corporate and education sector will also be a contributor. So that's the outlook for Q1. In terms of timing, what we've said is second half is when we begin to launch the first of our new products. The first one to launch will be NYT Now.

Quarter 2 is what we said...

Sorry, second quarter, right, not second half. My apologies. William G. Bird - FBR Capital Markets & Co., Research Division: Okay. And then, separately, just on advertising, I guess a question for Mark and Meredith. Have you made any tweaks to your print ad sales strategy? Is there anything you're doing differently in the second half that might explain the print declines narrowing as well?

I'll go first but then I'll hand to Meredith. We just determined the first things that we -- in the first half of 2013, we reorganized the company, set up advertising as an independent division. I hired Meredith to come in as Unit Head of Advertising. We saw a lot of tenures in role and structure, and so we've got a very strong in-house team, but we also saw some new talent coming in to the company and I think a lot of energy flowing into advertising. I think that's -- as well as, obviously, broader facts to the U.S. economy and trends to the industry rate. I think that's part of what was going on. But, Meredith, do you want to pick up things for me?

Yes, I would agree with all that. I would add to it that we have for a long time and continue to approach the market on an integrated basis. And so if you look at the categories where we did well in print in the fourth quarter, like corporate or home furnishing, books, entertainment. These are all categories that generally are bolstering in the print and digital. So I think we're doing well on an integrated basis and selling integrated programs.

Your next question comes from the line of Craig Huber with Huber Research Partners.

I have a few questions, please. I'll start with the -- on the digital subscription side, what percent of your digital subs, say, in the fourth quarter are from international, please?

So, Craig, it's Denise. So our international subscriber base grew in line with expectations in the fourth quarter. As for the overall percentage, it did grow, but we're not going to get in the habit of updating this number in the future as our overall mix is going to be changing substantially with the launch of all of our new products.

Okay. Let me ask another question. For your mobile advertising, what percentage of mobile advertising right now is digital? You have $53 million of digital ad revenue in the quarter. What percent roughly is for mobile?

It's still a modest percentage. And we think about it in terms of 2 front categories, smartphone versus tablet. And what we saw was strong gains in smartphone, and we had some difficult comps in tablets. So it's really 2 different stories there, and we do expect it to continue to grow.

And then, Jim, these investment costs you're talking about for the new year here, can you just explain to us, if you would please, just how they layer in for 2014 by quarter and how that would compare to a year ago?

Well -- so this year, we really didn't spend much in the growth initiatives, and the first quarter it was quite modest. And quite frankly, it's quite modest in the second quarter. We began to -- those costs began to increase in the third quarter. And so I would say for the full year, somewhere in the $20 million range is what we -- is what the initiatives we spent on. And, let's say, at least half of that, maybe a little bit more was in the fourth quarter. So we're certainly hitting our stride, and so we'll begin to build on that number even as we go into next year. So we'll see year-over-year growth pretty substantial in the first quarter, because we're comping against nothing. So the spending will exceed, obviously, the spending we saw in the fourth quarter, and then build beyond that. So the guidance I gave was for increased cost relative to that $20 million. So that would suggest somewhere around $40 million to $45 million building throughout the year for total -- for the total expenses.

Then my last question, if I could, on the print side for advertising in the quarter. Could you just give us a little bit of breakdown in terms of like maybe your top 3 or 4 ad categories, most particularly, I want to hear about luxury good, please, and also hit the 3 to 4 categories are the worst year-over-year?

Sure. We saw strength in corporate, as I said before, driven largely by the energy companies. We saw strength in home furnishings, which I think can be attributed to just broader economic improvement. We saw strength in books, which has to do with revamping of our book section, as well as great titles being introduced in the fourth quarter, the [indiscernible] and then strength in live entertainment. As it relates to luxury, specifically, there, again, I think it's sort of a tale of categories within the broader luxury category. So broadly, in the fourth quarter, luxury was down. We saw strong results from American fashion and strong results, as I said, on home, which we consider luxury, less strong results in fashion jewelry and international, there, has to do with some in the international case, money spent earlier in the year. So just a different pacing for international fashion, and we had some operational issues in fashion jewelry we expect to improve.

Your next question comes from the line of Kannan Venkateshwar of Barclays.

So a couple of questions. The first is on the cost side. You guys have done an excellent job over the last few years cutting down costs, and it looks like there's still a lot more room. So that's one lever that you guys are able to use a lot. And the second part is, of course, the revenue mix shift, which is potentially in 2015, with video and some of the new initiatives also starting to contribute. So when we think about the end state for the business, I mean, what is the kind of margin profile that we should be looking at? That's one part. And the second part is if you can just detail out some of the cost segments where there is still more room for you to go, that would be great.

Where there's room to go, we continue to look at kind of the non-digital part of the business. Digital, we're clearly in the investment mode, and I gave the number out where we're going to see that spending on the growth initiatives growing by $25 million to $30 million. That's in addition to the core business is growing. Because our core business, we expect to continue to grow. So that side of the business growing. On the non-digital side, it's shrinking. It's shrinking in G&A functions. It's shrinking our -- in the print area. We expect those to continue. So that's the way this thing will develop. I will say that I tried to give some visibility into the full year cost next year. We've got some headwinds relative to the growth initiatives, relative to the pension costs, which will create some real headwinds next year on the cost side of the business. But again, there's lot -- there's revenue coming from a big chunk of that, too. But the revenue will come following some of that cost build. That's where we see kind of the cost development. We do think there's opportunity. But you can't go through that significant cost reduction that we've gone through over a number of years and not think it's -- it doesn't get materially harder. But harder doesn't mean there's not more there, which is -- I think we've developed some expertise in that area, and we'll just have to continue to be good at it.

And it just reflects on margin. I'm not going to give you kind of -- to how to model out a single number for this. But to make an obvious point, the -- some of the secular pressures, for example, on print advertising, have the effect of removing very high-margin revenue. And manifestly, to defend margin, cost-cutting becomes an important tool, as well as investment in new revenue streams. And obviously, where everyone can, one's trying to develop a new revenue streams, which are, themselves, high margin. But as you know, print advertising has got a margin of around 90%, and that's tough to match with new revenue streams. So I think -- although as Jim says, cost cutting becomes progressively harder with each turn of the wheel, it's going to be an important tool or weapon in our armory, alongside the other tasks, which is developing new products and services to drive fresh revenue.

So one additional question on the video side of the business. I mean, out of all the initiatives that you've outlined in the past, it looks like, potentially, from a revenue perspective, and correct me if I'm wrong, video might actually be one of the biggest contributors going forward. So I wanted to understand, when you're looking at that particular market, a lot of the others out there, like AOL and so on, obviously, have a revenue stream already associated with it. And then you're talking to advertisers today. Compared to your print advertising segment, has that conversation changed? Because your print advertising tends typically to be driven by events like new product launches and so on, because of which we see some volatility. But the profile in video, I'm assuming, maybe slightly different. So some visibility on that would be great.

I'll take a first crack at that. Video is obviously a growth area of advertising for us. It was in the fourth quarter. We expect it to be again in the coming quarter. But I do think that what we're seeing in video is that it's still being primarily used for brand advertising, and I think that's some of what you're asking about print.

Yes.

I think I would say at the moment -- I mean, we are at a fairly early stage in the development of video for our digital assets. Consumers of nytimes.com and our apps are still in the process of getting used to the idea of expecting and using video. We're seeing very strong year-on-year percentage increases in revenue but from, at the moment, at a relatively low base. So I think we've got a long build on video, but I'm pretty encouraged with the progress we've made so far.

Your next question comes from line of Doug Arthur with Evercore.

Jim, not to beat the dead horse here, but on the investment spending, it seems like you didn't spend -- I mean, you were very specific on the third quarter conference call about the impact in the fourth quarter. And it seems like you didn't spend everything you thought you would in the fourth quarter. So it's -- is it fair -- is that fair to say and is that going to spill into the first half of 2014? And then the shares outstanding was up a lot. Is that the warrants because of the stock price? And is there a further dilution potential if -- at higher levels of the stock price?

I'll take that one first. The answer is when the stock price goes up, its dilutive impact on common stock equivalents, including warrants, goes up. So you're right that the increase in the share count is driven by not just the warrants, but that's a big number, but also stock options that are in the money. So all those things drive share price up. So we're not in control of that. We're happy when the share price goes up and the stock price goes up. So that's the answer there. You're right, we didn't spend quite what we thought we would in the fourth quarter, but I don't want overstate that issue. Probably a couple of million bucks we thought we'd spend that we didn't, maybe a couple of million. So it's all kind of embedded in that number. Quite frankly, had we spent all the money we thought we'd spend the year-over-year comps that I gave you, the $25 million to $30 million, would be lower on a year-over-year basis. But we're still on track. We still -- ultimately, we still feel comfortable with the margins we set out to achieve. We've just spent less kind of building to get to that point, but we're still on track to launch on time. And we still think this will still have the same margin potential as we set out to achieve.

And again, I'm getting repetitive here, but just to clarify. If you do spend everything you expect to spend in 2014, the spending will be at a run rate of $40 million to $45 million. Is that correct?

Again, we spent about $20 million in '13, and we expect that number to grow, between $25 million and $30 million. So that would suggest $45 million to $50 million, total all-in spending on those initiatives through the end of -- right.

Your next question comes from the line of Edward Atorino with Benchmark.

On pricing, any idea on the circulation cover price? Has that stayed the same? Because it's -- I see it in New York. Is the other New York price up on the cover?

We largely increased home delivery prices by, on average, somewhere -- the 5% in early January. And as usual, we feel pretty good about the decision we made. We think we'll have, at least the -- or not, if not better, intended effect. So our -- the guidance we had in the first quarter kind of embeds -- probably largely seen as kind of a stable print circulation line, largely with...

Is that price increase both in New York and out of New York? It's just one pricing?

Yes. It's home delivery across-the-board.

Anything with the digital monthly price? Is that still -- are you going to add features? Are you going to make these features in the package deal, or is each one thing going to have a sort of incremental price?

So for the lower-tier products, they will carry a lower price than our lowest offer, which is $15 every 4 weeks. Core subscribers...

So $15, huh?

Yes, $15 every 4 weeks for the least expensive digital package currently. Those core subscribers will get the new products as part of their package, again, another way to preserve trade-down. And just to remind everybody, we also have a premium tier launching, which will be more expensive than the most expensive package, which is $35 every 4 weeks. So we're really trying to exploit the entire demand curve with a variety of different prices and products for our customers.

Roughly, how many people are paying $15 and how many people are not?

We don't disclose that, Ed. As you can imagine, as we've said earlier, if you do the ARPU calculation, you could figure it out on your own. I mean, more people tend to pay for the lower-priced offerings than the higher ones.

Right. What was your ad rate strategy for 2014? You raised -- I might have missed this -- raised ad rates?

No.

No change.

No change.

You did not -- okay. Regarding the advertising trend, you talked about fashion. Was fashion overall down in the fourth quarter year-over-year?

Overall, it was probably close to flat if you mix different categories. We break it into 3 different categories. But overall, it's probably close to flat.

And then the trend in -- was it February, January, whatever it is, that's...

In general, we're optimistic about luxury.

What did you do on the classified categories? Any pricing there? Any trend?

No, no. Classified, by the way, is a pretty small part of business, only represents about 10% of our print business.

Lastly, on the balance sheet, you've got all this cash. No, no. Somebody asked the same question, so I guess let's skip it. Okay.

I would now like to turn the conference back over to our presenter, Andrea Passalacqua.

Thank you for joining us this morning, and we look forward to talking to you again next quarter.

Thanks, everyone.