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New York Times Co (NYT) Q3 2019 Earnings Call Transcript

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New York Times Co (NYSE: NYT)
Q3 2019 Earnings Call
Nov 6, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to The New York Times Company's Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Harlan Toplitzky Vice President of Investor Relations. Please go ahead.

Harlan Toplitzky -- Executive Director of IR and Financial Planning & Analysis

Thank you and welcome to The New York Times Company's Third Quarter 2019 Earnings Conference Call. On the call today we have Mark Thompson President and Chief Executive Officer; Roland Caputo Executive Vice President and Chief Financial Officer; and Meredith Kopit Levien Executive Vice President and Chief Operating Officer. 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 2018 10-K. In addition 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.

With that I will turn the call over to Mark Thompson.

Mark J. T. Thompson -- President and Chief Executive Officer

Thanks Harlan and good morning everyone. Well Q3 2019 was our best ever third quarter for new digital new subscriptions indeed the fourth best quarter in the history of our pay model and a very encouraging quarter for the company as a whole. We now have more than three million subscriptions to our digital news product more than four million total digital subscriptions and just under five million total subscriptions. We also saw a number of other significant positive developments in the business to which I'll turn shortly. We did slightly better than expected in digital advertising as we warned in our last call Q4 is going to be challenging too. Overall company revenue grew by 3% in spite of the 7% decline in overall advertising revenue.

The advertising decline combined with content and digital product development investment meant that adjusted operating profit decreased from $54 million in 2018 to $44 million. Let me begin with the digital subscription story. Overall including M.I.T. Cooking and Crosswords we added 273000 net new digital subscriptions in the quarter of which 209000 were subscriptions to our core news products. That 209000 was 46% more than the equivalent net adds in Q3 2018 which were themselves more than 1/3 higher than the adds in Q3 2017. So we're clearly seeing acceleration in our digital new subscription model. What accounts for it? Well first one of the liveliest environments in the US can remember, after quite stopped the quarter, there was a dramatic pick up in the new cycle. In the second half of all business was September. The volume and intensity is continued in the present quarter and look set to persist into 2020 which is itself of course, an election year.

The weight and complexity of the stories impeachment Brexit Boeing and so on have played to the strength of Times journalism and our growing capabilities in infographics podcasting video and now TV. But there's far more to the time than news and comments. Take The 1619 Project our landmark reflection on the political social and cultural impact of slavery on America. If you haven't yet you should read it and listen to the podcast. Outstanding journalism is drawing more and more paying customers to The New York Times. But there's another factor at work as well. We're making major advances in our understanding of and ability to optimize the user journey toward subscription. In recent quarters greater expertise by the use of data deeper cooperation between our journalists and our digital product teams and a better testing platform have given our subscription model fresh momentum and you've seen that in our subscription growth. But in Q3 we also made a significant change to our pay model.

Most anonymous users now have to register and log into The New York Times if they want to read more than a very limited number of stories. It's much easier for us to encourage these logged-in users to engage more deeply with our content and consider subscribing. And we certainly saw a positive effect from this change in our net subscription adds during the quarter. And encouragingly the change is not so far led to any appreciable loss of overall unique users. In other words we've not seen an adverse impact on the top of our funnel. A second promising development concerns the retention of those customers who joined under the $1 a week introductory offer we launched in 2018. It's still pretty early days just under 80000 $1 a week subscribers have reached their second billing cycle after promotion expiration. But so far they're retaining above our expectations. Indeed only fractionally less well than those cohorts who have begun their subscriptions on $2 a week offers.

As a result overall churn was in line with recent quarters another factor contributing to the high number of net adds in the quarter. We're successfully migrating a substantial proportion of these $1 a week subscribers directly to full price while moving most of the others to an intermediate price and keeping a small minority at $1 a week. We will continue to adjust these proportions as we learn more and get better at assessing payments and retention propensity subscriber by subscriber but we're very satisfied with these early results. It's also worth noting that we were able to achieve a record number of net new subscriptions while holding marketing spend roughly flat with the second quarter. In other words per subscription acquisition costs fell and the lifetime value to subscription acquisition cost ratio improved in the quarter.

The organic strengths of our model journalistic quality product experience pricing and customer journey did more of the work of subscription conversion and we needed relatively less paid marketing to deliver the overall results. We also had another strong quarter of net adds for our two smaller subscription products M.I.T. Cooking and Crosswords. As a result of that and the strength in the core total digital-only subscription revenue rose by a healthy 14.5%. Now I've talked in recent earnings calls about a potential price rise for our core new subscription. The success of our price rise tests and our growing confidence in our ability to deliver discrete messages to different segments of our subscriber base has convinced us that we can execute a price rise for tenured subscribers with minimal risk of reducing new subscriber growth momentum. I'm going to update you this morning where we're currently firming our plans for such a price rise in 2020.

Our increasing run rate of new subscriptions makes our goal of hitting the 10 million total subscription milestone by or before 2025 look well within reach. But since we've announced our objective in February we've often been asked how many of these subscriptions we expect to come from outside the U.S. and I want to answer this question this morning. Next week will be the seventh anniversary of my arrival at The Times as CEO. By the end of that first quarter Q4 2012 we had 51000 international digital subscribers to The Times. By Q3 2019 that number had grown to 525000 a tenfold increase. We're finding growing demand for high-quality serious journalism around the world. And we believe we can access this international market largely through the strength of our core news report and our growing capability and engagement AI-assisted personalization and improving pricing and marketing strategies rather than by undertaking a large-scale build-out of local cost centers around the world. So we set ourselves the goal of quadrupling the number of subscribers outside of the U.S. to a total of two million or more by 2025.

We therefore expect 20% or so of that overall milestone of 10 million subscriptions to come from international customers. Before I turn to advertising let me mention another recent positive development for The Times namely the agreement we've reached some weeks ago to take part in Facebook News. Facebook News is a new initiative within the broader Facebook experience that is intended to offer users a curated selection of news from quality sources. Under the agreement The New York Times will make its content available in the form of headlines very short summaries and links. A small number of stories under 1% of the whole will be unlocked so that Facebook users can read them in their entirety.

To do so just as with the other stories users will have to move from Facebook to our digital assets. Facebook News should bring new users to The Times. Consumption of the overwhelming majority of stories will increment our pay meter and support our subscription model. But we chose to participate in the model only after we reached a multi-year agreement for a license fee which is a step change compared to previous content yields. But more important than the immediate financial benefit of the agreement is its strategic significance. Although we previously received small payments for participation in various experiments and innovations launched by the digital different digital platforms this is the first time that a Silicon Valley major has recognized the value of Times journalism to its platform with a substantial multiyear fee.

I'll turn to advertising now. Digital advertising fell by 5% year-over-year in Q3 as I said a little less than we predicted and print advertising by 8%. The main reasons for the decline on the digital side were a tough comp with Q3 2018 and fewer large deals than we achieved in that quarter. We talked about this variability or lumpiness in the large-scale deals before. As you'll hear when Roland gives the guidance we expect this pattern to continue into Q4. We faced an even more daunting comp digital advertising grew in Q4 last year by 32% on a like-for-like basis with several individual partnerships including one that brought in nearly $10 million not repeating. We decided to consolidate our influencer capabilities into Fake Love our acquired advertising agency and to close HelloSociety as a stand-alone business.

This will have some revenue impact in Q4. Finally in an effort to protect our users data we are controlling the usage of tracking pixels by advertisers and agencies more stringently. Over time we believe this will be beneficial to our business as well as The Times readers but it too will have some impact in the quarter. But we remain confident in our strategy and our ability to grow digital advertising revenue in future quarters. Indeed in recent weeks we've reached some of the largest commercial agreements in our history including a multiyear deal with Verizon to offer free access to The New York Times to over seven million students and teachers in Title I high schools across America. This deal is in addition to our agreement with Verizon to support investment in 5G innovation in our newsroom. We also believe that we have a big opportunity around first-party data. Our new digital access model means that we're going to know far more about millions of our most engaged users and we'll be able to tailor advertising messages to them more effectively in ways that rely on this first-party data.

And we have lots of running room in audio. The Daily is a monster hit with an astonishingly valuable audience and it just continues to grow. We're also advancing our plans to expand our creative capabilities our audiences and our inventory in this promising category. At the same time for the past four years we've described ourselves as a subscription-first company. And where there is a trade-off to be made between engaged user experience and a media advertising revenue we will increasingly favor the subscription side. Let's take mobile apps. Our iOS and Android apps are the digital services that drive the highest per user consumption of our journalism.

We've decided the beginning January 2020 in an effort to improve low time and the overall user experience we will no longer present open market programmatic advertising within these apps. That will result in the loss of digital advertising revenue in the single-digit millions. But we believe that this will be more than made up by gains in engagement and a higher propensity by app users both to subscribe and retain. Taking the quarter as a whole Q3 2019 suggested not just that our strategic thesis is working but that it is scalable far beyond the traditional expectations of the news industry. We pulled a big new growth lever this summer with our registration model but believe we have many further levers still to pull.

And on that note let me hand you over to Roland who has more of the details behind the drivers of the quarter.

Roland A Caputo -- Chief Financial Officer

Thank you Mark and good morning everyone. As Mark said we remain pleased with the progress we are making as we continue to execute against our strategy. Adjusted diluted earnings per share was $0.12 in the quarter $0.03 lower than the prior year. We reported adjusted operating profit of approximately $44 million in the third quarter which is lower compared with the same period in 2018 by approximately $10 million. Total subscription revenues increased approximately 4% in the quarter with digital-only subscription revenue growing 14% to $116 million. On the print subscription side revenues were down 3.3% due to decline in the number of home delivery subscriptions a continued shift of subscribers moving to less frequent and therefore less expensive delivery packages as well as a decline in single copy sales.

This decrease in print subscription revenues was partially offset by a home delivery price increase that was implemented early in the year. Total daily circulation declined 9.1% in the quarter compared with prior year while Sunday circulation declined 7.9%. At the end of August the Starbucks retail chain discontinued the distribution of all newspapers including The New York Times at its corporate-owned locations. This had a meaningful impact on copies accounted for approximately one percentage point of the decline. Subscription revenue was immaterially impacted by the loss of this distribution channel. Quarterly digital news subscription ARPU declined approximately 11% compared to the prior year and approximately 3% compared to the prior quarter as the impact from the large number of newly acquired subscribers mostly on the $1 a week promotion was significantly larger than the benefit from existing subscribers whose promotional offers ended and graduated to higher prices during the period.

This quarter also included the conclusion of the 52-week promotional period for the first $1 per week cohort whose subscriptions began in late August and September of 2018. As Mark said we're very happy with the retention we're seeing from the first cohort who has now passed their second post promotion billing cycle. While many of these subscribers were stepped up to full price a portion of this cohort was stepped up to an intermediate price providing a somewhat smaller benefit on ARPU than would otherwise have been realized. The proportion of subscribers on promotion relative to the total subscriber base continues to grow. Given the success we're experiencing in retaining new subscribers beyond their initial promotional period either at full price or an intermediate step-up price we plan to continue to use a low introductory price to acquire long-retaining profitable subscribers.

As such we expect downward pressure on ARPU to continue into 2020. We expect both year-over-year and the sequential declines in ARPU to moderate somewhat as subsequent cohorts of new subscribers graduate from the $1 per week introductory offer to higher prices. Total advertising revenue declined approximately 7% compared with the prior year with digital advertising declining 5% and print declining by 8%. The decrease in digital advertising revenue is largely driven by declines in our core direct sold platforms partially offset by continued growth in podcast. The print advertising result was mainly due to declines in the financial services home furnishings and luxury categories partially offset by growth in the advocacy category.

Other revenues grew 26% compared with the prior year to $48 million principally driven by revenue associated with our television series The Weekly which aired eight new episodes in the quarter. When we laid out our goal of at least 10 million subscribers by subscriptions by 2025 we noted that achievement of this milestone will require investment specifically in three areas: journalism product and marketing. The growth in GAAP operating costs and adjusted operating costs which each increased approximately 5.5% in the quarter was directly related to accelerating the rate of subscription growth toward that goal. Specifically costs grew as a result of increased content costs reflecting both higher staffing in the newsroom as well as production costs related to the weekly. Growth in the number of employees working in digital product development also drove costs higher.

We are particularly pleased that we were able to incur slightly lower marketing spend in the quarter at the same time that subscription net additions were so strong. Continued investment in content and product should allow us to moderate marketing spending over time while continuing to grow digital subscriptions unabated. While the cost guidance we provided in our earnings release this morning states that we expect cost growth to slow considerably in the fourth quarter note that we expect to return to higher levels of investment in subsequent quarters. We recorded two special items in the quarter a $4 million charge related to our restructuring and a $2 million gain from a multi-employer pension plan liability adjustment. Our effective tax rate for the third quarter was 27%. On a going forward basis we expect our tax rate to be approximately 26% on every dollar of marginal income we record with some variability around the quarterly effective rate.

Due in large part to a tax benefit we received in the first quarter of 2019 we expect the effective tax rate for full year 2019 to be in the high teens. Moving to the balance sheet. Our cash and marketable securities balance increased during the quarter ending at $878 million. Total debt which is now entirely related to the sale leaseback of our headquarters building in which we intend to repay in December 2019 was approximately $246 million. In the quarter we entered into a $250 million revolving credit facility. Our strong balance sheet and an accommodating credit market provided an opportunity to lock in favorable terms now for source of liquidity should the need arise in the future. Let me conclude with our outlook for the fourth quarter of 2019.

Total subscription revenues are expected to increase in the low to mid-single digits compared with the fourth quarter of 2018 with digital-only subscription revenue expected to increase in the mid-teens. Overall advertising revenues and digital advertising revenues are expected to decrease in the mid-teens compared with the fourth quarter of 2018. Other revenues are expected to increase approximately 25% to 30% largely due to our television series The Weekly and the licensing revenue from the recently announced Facebook News agreement. Both operating costs and adjusted operating costs are expected to increase in the low single digits compared with the fourth quarter of 2018 but as I mentioned earlier are expected to return to higher levels in 2020 as we continue to invest in the drivers of digital subscription growth.

And with that I'm going to be happy to open it up to questions.

Questions and Answers:

Operator

[Operator Instructions] And the first question comes from Alexia Quadrani with JPMorgan.

Alexia Skouras Quadrani -- JP Morgan. -- Analyst

Hi, thank you very much. Just a couple questions. Just a couple of questions. Mark thank you for the color on the subscription growth in your comments and the drivers behind that. That's very helpful. You mentioned that the news cycle has been elevated and as a consumer it definitely appears to me that elevated news cycle has continued into the fourth quarter. I'm curious if you would agree with that statement in terms of thinking broadly about the drivers of sub growth in the fourth quarter. And then and Roland you talked about the natural moderation in ARPU going forward and all the drivers behind that. I'm just wondering if we could begin to see some evidence of that leveling off in the fourth quarter.

Mark J. T. Thompson -- President and Chief Executive Officer

Well I mean the way I think about the news cycle goes as follows. If you look back over recent quarters we've seen different levels of news. Right now we're seeing a lot of both very significant running domestic stories the impeachment process the runners and riders to go on Democrat side in terms of presidential candidates and so on and some very big international stories as well. But I want to say that over the last let's say two to three years we've seen really very strong numbers coming out of our model and a background picking up of the numbers of net new subscribers we've been able to add to our news product which is kind of pressed on in a sense through different levels and intensities of news. So although I think we are heading it would appear you can't be certain heading it would appear into a very very busy news period.

And as I said in my remarks my sense I'm a former journalist and editor myself is this is going to blur into the election year. We're not that far away from Iowa and the start to the primaries process and so forth. I don't think our model by any means and the growth we're seeing entirely relies on news. I think that we've demonstrated very broad appeal for The Times international appeal for The Times. And I think the underlying acceleration is not solely dependent on the news cycle.

Roland A Caputo -- Chief Financial Officer

So regarding the ARPU I think these two questions are linked. And we expect to continue to acquire large numbers of new subscribers in the future. And again as I mentioned we plan to continue the $1 a week promotional offer because we believe it is working really well for the company. And so as that happens the number of subscribers we bring on is expected to be much higher than the number of folks that are transitioning to higher prices and the mathematical result of that is pressure on ARPU. However as I mentioned before we believe that that decline will begin to moderate as more and more folks step up from that $1 a week to higher prices. And also as Mark mentioned we are planning a rollout of a price increase to tenured subscribers sometime in 2020 and that will also take some pressure off ARPU.

Alexia Skouras Quadrani -- JP Morgan. -- Analyst

And then just a follow-up a clarification. I think Roland you said higher levels of investment in subsequent quarters and costs is that versus Q4 with more moderate or versus full year of 2019? I'm assuming it means it's going to be cost increase be lower in Q4 but then kind of get back to elevated levels in 2020 but.

Roland A Caputo -- Chief Financial Officer

Yes so it's the latter. The comment was relative to Q4 which is going to be a low a very low growth percent.

Mark J. T. Thompson -- President and Chief Executive Officer

Yes. If I can just add and you should have gleaned this from what Roland and I said our view is we're building a machine both journalistic machine and a digital product machine which is scalable. And we do take significant comfort from the way we were able in Q3 to drive the numbers of new subscribers without increasing marketing costs from Q2. So you can begin to see that at least one part of the improving operating leverage which we think our model will give us. We're obviously very focused on building a product and a set of capabilities which enables us to continue to significantly scale the number of subscribers. But with the over time the growth of costs beginning to kind of the gap between the costs and the revenue progressively widening as the model scales.

Alexia Skouras Quadrani -- JP Morgan. -- Analyst

Thank you very much.

Operator

And the next question comes from Vasily Karasyov with Cannonball Research.

Vasily Karasyov -- Cannonball Research -- Analyst

Good morning, congratulations on a good quarter Wanted to ask you this question early in the year you were talking about increased focus on driving subscriber starts with product organically rather than paid starts. So I was wondering if you could give us an update how that progressed in Q3 and how you use that for different cohorts of subscribers. And the second part of the question Roland can you help us understand in more detail the impact on the P&L of paid starts versus organic? Is it just as simple as moving between marketing expense and production costs?

Roland A Caputo -- Chief Financial Officer

Sure. I'll let Meredith start and then I'll follow.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

Yes. The simple answer to the first part of your question is yes I think what we've just seen in Q3 is that our thesis of the product itself doing more of the work to get people to make a habit with us and then ultimately pay and stay is working. I think Mark and Roland just alluded to the fact that I think Mark said it in his remarks throughout the call that we had a higher percentage of starts coming just from the organic engine. So I think that's really beginning to work. I'll say there were three major changes that we've been working on for some time that began to land in the third quarter.

The first one was what Mark described as the pay model change where we now have the majority of people coming to us being encouraged to register and log in to get to read more than a small number of stories. The other one is we're beginning to feel the effects of a restructure in our digital product organization that we did a year ago I think is just bearing fruit now which is just allowing us to frankly advance our digital products faster and more effectively. So more testing more experimentation. And then the last thing I'll say is the product experience itself the way that people follow stories engage with news understand what is a brand-new story what is an exclusive story. We're getting much better at how we do that between products and news and I think we're just at the beginning of that.

Roland A Caputo -- Chief Financial Officer

So regarding how that shows up in the P&L I want to point out there's probably two dimensions to this. One is kind of the simple dimension which is as we scale back on marketing costs and we continue to invest in our newsroom and we increase our investment in digital product development you'll see some switch from costs that currently show up in SG&A to be much more heavily weighted to production. But the real difference that really is going to affect our P&L for years is that marketing direct marketing expenses drive starts in the period that you spend the money. Investment in product and journalism drive starts for multiple periods.

As we make the journalism better there's more journalism as we have a better digital manifestation of that journalism as we have better business rules and an access model around that journalism we believe that will drive starts for many periods to come. And so if you think about the three areas we repeatedly talk about investing in which is the journalism the digital product and the marketing we've also talked about the gearing of how we would grow those areas changing over time and we believe we're starting to cycle out of a high-growth period of time for marketing and ramping into a higher growth period of time for our product a digital product development with a continual investment in our journalism.

Vasily Karasyov -- Cannonball Research -- Analyst

Thank you.

Operator

And the next question comes from Craig Huber with Huber Research Partners.

Craig Anthony Huber -- Huber Research Partners -- Analyst

Yes, morning. Mark you mentioned earlier in your prepared remarks that the new cycle was significantly higher I guess in the second half of August and into September. Did you see a commensurate pickup in your digital subscription growth in that period versus let's say the first half of the quarter was?

Mark J. T. Thompson -- President and Chief Executive Officer

Sure. And perhaps according to us was so impressive. The idea that you have a relatively quiet kind of early summer with kind of back-to-school intensification of news as you head past the middle of August. That's a I would say there's some seasonality about it which is those two was particularly sharp this year. And I want to say that there was a pickup. We won't disclose numbers but there was something of a pickup over the quarter. I also want to say that we talked about this change in the access model that kicked in pretty much at the beginning of July but had some weeks before it's it kind of geared up and its effects became really really apparent. And it's and we haven't done the detailed analysis to try and separate the two factors. There was a second we think that that change also built real momentum in the model as we went through the quarter. So there's two factors to state let's say.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

And then it's worth saying on the second one of getting people to register and log in and return is a long-term engagement strategy. So we are building a population of people who will convert over a long period of time which is we're happy to see that happening. So it's not just that at the point of friction where they're asked to register and log in that they convert it is also that they begin to engage. We are more effective in engaging them when they register and log in and return. And then they convert sort of over a period of time. So there's an assumption that it gets better over time.

Mark J. T. Thompson -- President and Chief Executive Officer

It's worth adding another benefit is that we can track them between devices. Because they're logging on to different devices we can see cross-device use. And we're quite healthy tracking how these cohorts who arrived on this are tracking. And I want to say we're still seeing positive effects from the cohorts who registered and logged on back at the beginning of July. We're still seeing now months later better coefficients as it were in terms of that virtuous behaviors and propensities subscribed so far for those cohorts many many weeks later. So all of this stuff is encouraging for our model.

Craig Anthony Huber -- Huber Research Partners -- Analyst

My next question about the paywall. Is it still five free articles out there in the U.S. but also international? And how do you sort of think of that going forward?

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

It's actually dynamic now. So we're essentially experimenting and training models to get at what is the right cocktail of engagement for to get somebody to ultimately pay and stay. And so depending on what your journey is how you come to us what your prior behavior with us was you'll see a different number of articles. But it's basically now varying between five and 10. But depending on what journey you take you may see a different number.

Craig Anthony Huber -- Huber Research Partners -- Analyst

Then maybe also if you could kindly just talk about sort of your outlook for marketing spend you've talked in the past that it's getting more and more efficient and you might are you sort of reaching a ceiling here in terms of how much you could spend where it's not helping you as much if you add another say $5 million or $10 million to it?

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

I think Roland basically answered this question and I'll just say we're very pleased in this quarter to see improvement in the organic engine and its ability to drive starts. I think and I think over the long haul that is a mechanism for finding operating leverage but we don't rule out that there will be periods where we'll want to spend more. And I'll just tell you we've now seen this was one of them. But when we see opportunities to spend kind of into demand that has a positive effect on the model. So I would say I wouldn't call it a trend yet but I think over the long haul what you've been hearing us say repeatedly is that the plan is to get the product itself which is the UX and the journalism to do more of the work. It's also worth saying that as you look at the mix of spend in marketing one of the things that's been really pleasing is we're making our we're still making our way up the funnel and Roland said earlier sort of investment in digital product work in journalism is long work and it pays off in big ways over a long period of time. I would say the same of brand work. So the more that we can shift the spend that we have to middle and upper funnel work middle funnel work getting people to engage brand work getting people to sort of think or feel a particular way about The Times that is an investment in the long-term health of the business.

Roland A Caputo -- Chief Financial Officer

And we're tracking lifetime value subscriber acquisition cost ratios very very closely.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

Yes.

Roland A Caputo -- Chief Financial Officer

We're getting better at projecting lifetime value. One of the reasons we're so pleased about the early news on retention of the $1 a week customers is that that solidify the view about lifetime value. And as Meredith says what we think we can economically sensibly spend the variable direct marketing cost to get the subscribers we will do. We're encouraged that we've seen some weeks now where we've been able to get great numbers without having to put as much money in.

Craig Anthony Huber -- Huber Research Partners -- Analyst

Guys is that five to 10 free articles across all devices because you're obviously moving toward asking people to register before they access the content. So is that sort of five to 10 free articles across all devices out there as opposed to per browser per device like it's been historically?

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

So just to clarify when I said five to 10 we're talking about how many stories you get after you register. So if you're anonymous you basically after one story now you have to register and log in to get more. And then what we're doing is training a model to understand based on your particular journey what's the right number of articles after you register and log in that gets you through engagement and ultimately to pay and stay.

Craig Anthony Huber -- Huber Research Partners -- Analyst

And my final question if I could. What should the size of the newsroom be at the end of this year or right now versus where it started the year at? Obviously you guys increased that outside the U.S. you're talking about Australia and Canada but maybe you could just flush that out a little bit.

Mark J. T. Thompson -- President and Chief Executive Officer

Yes. So let me kind of go first. Meredith may want to add to this as well. I mean look the question of how big a newroom you need there are many many factors that play into that. This is ultimately a Board a publisher and Board decision. And one of the main things we look at is what does it take to cover a really complex world better than anyone else and deliver the best journalism in the world. And so this is not purely as it were a near-term economic question. What I want to say is we do not believe that we're going to have to scale newsroom costs for as it were endlessly to continue to feed subscriber growth. We think that for example the international target we talked about and I said earlier we have to quadruple the number of international subscribers by the mid-2020s from 0.5 million to two million or more.

We don't believe that we're going to have to as well populate the entire world with we already have over 30 New York Times bureaus around the world. We do not believe we're going to have to massively scale that kind of on-the-ground journalism to achieve those numbers. We're going to do it through superior kind of personalization and focus on subscribers and their propensity to subscribe and by improving pricing and marketing tactics initiative. So it's this is not it's rather unlike for example the television screeners who do tend to find they need significant local scripted content to drive subscriptions in a given market. So this is another area where we think as it will we can achieve if you think of the newsroom costs relative to revenue that we can achieve over time improving operating leverage.

I want to say though The Times wants to remain the best news provider in the world and where we need to put more boots on the ground anywhere on any area to achieve that we our model basically is you invest in great journalism and from that great journalism the rest of the entire kind of business strategy of the company and the appeal to subscribers flows from the quality of the journalism.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

I think that's right. And I would just say I think we've gotten to where we are because of the continued investment in journalism over the last very long long period of time. So when we talk about the product itself becoming the primary engine and an improving engine of getting people to make a daily habit with us and ultimately become subscribers and stay subscribers we assume continued investment in our journalism and continued investment in the digital product experience and that's where we're focusing that investment. I think if you look at across the portfolio we've made a sizable investment in our journalism in audio and that's really paid off. And I think you're going to continue to see us invest across a breadth of topics as we've done with new products.

Craig Anthony Huber -- Huber Research Partners -- Analyst

I'm sorry I appreciate that. Where does that put the total newsroom size though?

Mark J. T. Thompson -- President and Chief Executive Officer

We can't give a direct guidance on that. I mean we're currently around the 1700 mark in the newsroom. I can't really add to our previous remarks.

Operator

And the next question is from John Belton with Evercore.

John Thomas Belton -- Evercore ISI -- Analyst

I have two questions. First on Facebook News. Can you just talk a little bit more about the decision to participate in that product? And maybe compare and contrast that decision with the one ultimately not to participate in Apple News Plus? And on Facebook News as well you mentioned a multiyear license fee here. Will the agreement have any impact on operating expenses going forward? My second question is for Roland on the balance sheet. Any update on plans on what to do with the maturation of the sale leaseback agreement? And how do you think about the optimal capital structure going forward?

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

I'll take the first one John. We decided to participate because we saw this as Mark alluded to in his remarks it was a substantial increase in what we've seen from a platform for the right to use New York Times content. So I think the amount of money Facebook was willing to commit to us represented a step change in what we've seen from a platform before and so that made sense. And then I would say secondly it's really important to say this it was consistent with our business model of driving subscriptions via direct relationship. So what Facebook is ultimately getting from us is largely links and short summaries that send people back to our owned and operated platforms. So we think that's ultimately good for our top of the funnel and helps drive the business model that we have. As to cost which I think is what your second question is about the answer is no.

Roland A Caputo -- Chief Financial Officer

So John as you know when we in essence buy back the our condo interest in the building we'll be debt-free at that point. In essence the revolving credit facility one way to look at it is replacing the liquidity that we lose with the completion of that transaction. However none of that really changes our outlook our current outlook which is that having a conservative balance sheet has served us very well in an industry that's in transition in a company that's in transition.

And really focusing on having maximum flexibility to invest when we want and how we want independent of the vagaries of the industry or the vagaries of the marketplace we believe is important to the long-term share value for all shareholders. Because we're still in a period where we believe there's plenty of opportunity as we continue to invest in the drivers of growth and the drivers of our growth strategy. So being a little repetitive here but we still think there's plenty of room to invest organically. We continue to look for potential small- to mid-sized acquisitions all which would be in service of our growth strategy. So for now really not a change.

John Thomas Belton -- Evercore ISI -- Analyst

Understood. Thank you.

Operator

And the next question comes from Doug Arthur with Huber Research Partners.

Douglas Middleton Arthur -- The New York Times Company -- Analyst

Couple of questions. Meredith can you just update us on your progress in the podcasting product? And also in terms of The Weekly do you feel that you're getting some leverage off The Weekly in terms of new subscribers to digital?

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

That's a good question. Yes. I'll start on The Weekly and just say we have always envisioned it to be a very good marketing tool for The Times in addition to everything else. So one big story at a time certainly is bringing Times journalism and very deep reporting into homes that we probably weren't in before. It was big part of our choice to go with FX and Hulu in combination. So I would say broadly yes it's bringing new audiences to The New York Times. On audio may make you go back and ask the question again but I think you're asking sort of where do we see running room and I would say kind of everywhere and Mark caught us this in his remarks The Daily audience continues to grow.

We don't see that moderating in any way. So as the audience grows the ad business grows and that's happening at a really nice clip. The Daily is also serving as a great distribution mechanism for new programs. So the day we was basically the parent of 1619 which I think highest episodes into might be six at this point. 1619 has been a huge hit launched into feed of The Daily. I think it immediately went because it launched into the feed of The Daily and then each of that was so good immediately went to the top of the charts as far as listen to podcast. So it's our sort of audio strategy of having The Daily as an envelope to send other things out into the world is really working. And then I would say and I alluded to this before we're continuing to invest pretty aggressively into our audio newsroom and we have an expectation that we will put more product into the world as we did with 1619 with that audio newsroom. And I think in the near term very good for our ad business. There's a lot of demand for high-quality audio. And I think in the short medium and long term I think that will stimulate our subs business in direct and indirect ways.

Douglas Middleton Arthur -- The New York Times Company -- Analyst

Okay. Great. And then Roland I'm wondering in terms of your cost guidance. Obviously it's very preliminary for 2020. I mean you sort of alluded to the flexibility to step up marketing costs if there's an opportunity. Obviously you're going to continue to invest in content. I mean is it and the reference to 2020 cost is made off of the fourth quarter guide. So can we sort of think at this point of sort of mid-single-digit cost growth across the board? Or is that is it too early to say that?

Roland A Caputo -- Chief Financial Officer

Well I mean we our tradition is not to guide past the quarter but not to directly give guidance. But back on the marketing question most of this was about discussing the lower cost guidance for Q4 than we had in previous quarters and we don't think that's going to continue. Specifically on the marketing on the direct side we believe the efficiency of our machine here is getting better and that will require less marketing dollars to bring in the same amount of subs.

However Meredith touched on this the brand aspect of marketing I mean we will keep the option open that when there are opportunities that we believe that an injection of brand spend will be beneficial to the top of the funnel and therefore the long-term growth of the company we're going to do that. But all said back to the three areas of investment what we see is a bit of a pivot from the investment in marketing to a much more of a heavy-up on our investment in digital product development. So you can triangulate among those numbers and see. We'll continue to spend and invest in the growth in 2020.

Douglas Middleton Arthur -- The New York Times Company -- Analyst

Okay. Great. And Meredith just a follow-up on the audio. Can are there any sort of subscriber numbers or unique numbers you can give us in terms of any new benchmarks you've hit there?

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

I'll say three things about it. One we may have said on the prior call I don't remember but we crossed one billion downloads for The Daily. So I think..

Mark J. T. Thompson -- President and Chief Executive Officer

We told publicly about I think regularly now more than two million listens a day. And I think now something like 12.5 million listens over a month and you'll know Craig Doug that the one thing that's interesting is I think exciting about The Daily is the demographic 3/4 of this audience is 40 years old or younger 45% is 30 years old or younger. So in terms of as with the broader health of our brand and our funnel bringing in a large number of millennials who are typically completing the show which means 20 minutes at the moment often on iTunes or Spotify but on a smartphone. So engagement of 20 minutes or more by millennials on a smartphone to a serious journalistic product is I mean I don't think anyone in the world is doing that to be honest. And it's a really exciting thing for us.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

The only other thing I'll add I shouldn't pick favorites from our marketing efforts but we really like the audio ads that we're running for our own products essentially to drive subs inside The Daily. So they're generally our journalists talking about how they do their work and those are having a very positive effect. And you can expect to see us do more of them.

Operator

And the next question is from Kannan Venkateshwar with Barclays.

Kannan Venkateshwar -- Barclays -- Analyst

First I just wanted to get a clarification on the international numbers that you guys provided the 500000 subs. Meredith if I'm not wrong last quarter you had mentioned 16% of your total subs were international which would imply roughly about 570000. And I know promotions rolled off internationally as well. So I just want to make sure we're looking at apples-to-apples when I look at the 16% of total sub number last quarter versus the 500000 that you guys quoted this quarter? And then I have a couple of others which I will follow-up.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

Yes it's I think it's that 16% of new subs don't forget we've got Cooking Crosswords in our numbers as well which I think answers the first question.

Kannan Venkateshwar -- Barclays -- Analyst

Okay. So I guess from a trend perspective is it fair to say that you guys are growing despite the promotions rolling off internationally? That's the clarification I just wanted to get.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

Yes. Yes.

Kannan Venkateshwar -- Barclays -- Analyst

Okay. Okay. And then second...

Mark J. T. Thompson -- President and Chief Executive Officer

Have you got that first point which is we're talking about 0.5 million over around three million which is my mental math says that's about 16% as opposed to the higher number which includes Crosswords and Cooking?

Kannan Venkateshwar -- Barclays -- Analyst

Sure sure. Yes. We got it. And secondly from a guidance perspective for the next quarter what I wanted to understand was obviously there's this promotional roll off coming and you guys are expecting it. And obviously you have a plan to deal with it. So in terms of assumptions for revenue growth next quarter as well as how you guys are thinking about sub growth if you could just help us think through the variables and whether you expect numbers in Q4 to replicate the strength that we saw in Q3? And related to that I guess is when you look at this $1 a week promotion obviously it's been a work cost for you guys over the last year or so. How is the yield on that trended over time as that promotion has matured? Are you attracting the same number of subs that you did initially? Or has that eased off a little bit as it matured?

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

I think I'll take a stab at the first one and Roland may add some and take the second one. Just on the drivers of the business which is what I think you're asking about how should you think about future quarters and particularly the next quarter. I think it goes back to something both Mark and I said which is we're beginning to build a flywheel here which is essentially can we continue to have a large anonymous audience? And I think there's a new cycle in that. I think there's also our own ability to stimulate things like search and social promotion can we get that audience through the application of friction or in some cases the ease of friction can we get them to become a registered user of The New York Times? Once we've done that can we get them to log in return and log in and then can we convert them? So I think that answers the question of sort of how should you think about the numbers going forward not to the models tied up in that.

Mark J. T. Thompson -- President and Chief Executive Officer

Thanks Meredith. It's one of the observations for me. I mean firstly if part of your question kind of is are we as we're seeing off of fatigue. In other words an initial an offer was initially attractive is beginning to wane in its attractiveness. The answer is absolutely not. There's no evidence at all. On the contrary I think there's some evidence that people are kind of discovering about it and we're getting new subscribers because of the offer. The other thing the next thing says there is some complexity there because obviously what we've now done is we've changed part of the geometry of the pay model and that's interacting with the numbers as well as the simple offer. So we've continued to have as we have done now for some years had part of any month when we are on a higher price and part of the month where we're on a lower price and typically the lower price is that $1 a week offer. That's continued. But we've also now got a much much larger and rapidly growing cohort of registered logged-in users who were able to interact with it more effectively and get higher conversion from. So there's a lot going in the model but and as per yield what I want to say is the we've said that the $1 a week so as we're through that first year retained very much in line with previous cohorts there's no difference in their retention. Clearly a really important question has been how well would they retain when you get to a point where they're being asked to pay a higher price. And I don't want to add to the remarks we made in Roland and my scripts at the beginning of this call but to say the initial signs are very encouraging and we will know more as we go through some more months and see more of these guys going through. But I would say in terms of what the ultimate yield from these subscribers is going to be which is a mixture of obviously price and retention I would say the signs are very encouraging.

Roland A Caputo -- Chief Financial Officer

Yes the only thing I would want to add is where this all comes together between the number of folks we have signing up their retention rates how they ultimately step up and all the other moving parts the percentage of international. If you go back to our guidance for the fourth quarter we're saying we believe we can grow that digital subscription revenue in the mid-teens once again off a bigger base. So when that all comes together we're still growing the revenue and we're growing it without that percentage increase reducing.

Kannan Venkateshwar -- Barclays -- Analyst

Got it. And one last question which is on the tenured subs. I mean how are you guys thinking about what tenured sub actually is? What percentage of your base is that? And how you're thinking about that process of stepping up? Is it gradual? Is it is there some kind of a product change in order to implement that? If you could just help us think through.

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

Yes. We won't to say much about that but I would just say time and engagements. They've been with us a long time the best predictor of someone's retention is how long they've been a subscriber have they been with us a long time and how engaged are they.

Kannan Venkateshwar -- Barclays -- Analyst

Okay. But any sense you can give us on what how big that base is?

Mark J. T. Thompson -- President and Chief Executive Officer

I don't think we want to do that Kannan. I mean I want to say our assumptions are pretty commonsensical. We're talking about people who have been subscribers for a long time. And we've got arguably nearly 170 years of experience with a certain class of subscriber. We know that beyond a certain point subscribers retain very very well.

Operator

And this concludes our question-and-answer session. I would like to turn the conference back over to Harlan Toplitzky for any closing comments.

Harlan Toplitzky -- Executive Director of IR and Financial Planning & Analysis

Thank you for joining us this morning. We look forward to talking to you again next quarter.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Harlan Toplitzky -- Executive Director of IR and Financial Planning & Analysis

Mark J. T. Thompson -- President and Chief Executive Officer

Roland A Caputo -- Chief Financial Officer

Meredith A. Kopit Levien -- Executive Vice President, Chief Operating Officer

Alexia Skouras Quadrani -- JP Morgan. -- Analyst

Vasily Karasyov -- Cannonball Research -- Analyst

Craig Anthony Huber -- Huber Research Partners -- Analyst

John Thomas Belton -- Evercore ISI -- Analyst

Douglas Middleton Arthur -- The New York Times Company -- Analyst

Kannan Venkateshwar -- Barclays -- Analyst

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