Earnings Call Transcript - NYT Q1 2020

Operator, Operator

Good morning, and welcome to The New York Times Company's First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Harlan Toplitzky, Vice President of Investor Relations. Please go ahead.

Harlan Toplitzky, Vice President of Investor Relations

Thank you and welcome to The New York Times Company's first quarter 2020 earnings conference call. On the call today, we have Mark Thompson, President and Chief Executive Officer; Meredith Kopit Levien, Executive Vice President and Chief Operating Officer; and Roland Caputo, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that management will make Forward-Looking Statements during the course of this call and our actual results could differ materially. Some of the risks and uncertainties that could impact our business are included in our 2019 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 Thompson, President and CEO

Thanks Harlan. And good morning, everyone. I will start with a few high-level observations about the coronavirus pandemic. I will then ask my colleagues, Meredith and Ron, to go through the quarter in detail. Today, you are going to hear a broadly encouraging story about how the Times is performing so far during the pandemic, with record-breaking audiences and subscriptions, and a firm belief that we can and should continue to roll out our ambitious growth strategy for the company. But we haven't and never will lose sight of the scale of the human tragedy and economic disruption that the coronavirus is bringing to America and the world. Some of our reporter colleagues are chronicling this tragedy on the ground every day. Although we are doing everything we can to keep them safe, they are running some of the same risks as frontline healthcare professionals. Our thoughts are never far from them, or from the patients and health workers they are covering. We are incredibly grateful to them, and indeed to all of our colleagues who are working around the clock and overcoming a number of obstacles to keep this great newspaper strong and able to serve its readers everywhere at a time when those readers need it most. Our business model, with its increasing emphasis on subscription revenue and reducing reliance on ad revenue, and our fortress balance sheet, puts us in a far better position than most news organizations, not just to successfully ride out this storm, but to thrive in a post-coronavirus world. But we should also have the humility to acknowledge that there is much we still don't know and can’t predict about this pandemic and its economic impact. Patience, responsiveness, flexibility, and resilience will all be key over the coming months. Our response to the crisis has so far been effective; we tracked the impact of the bars from the moment our reporters arrived on the ground to cover the first outbreak. We moved to home working in the initial wave for U.S. companies in the first half of March. Our previous home working drills and overall business continuity planning helped ensure that the transition went smoothly and without interruption to either newsroom or business operations. As a result, we were currently operating at a very high level of productivity despite the limitations of remote working and the inability to travel for all but essential journalistic reasons. We are delivering what we believe is the most trustworthy news and most useful guidance about the coronavirus, as well as offering a full suite of non-bias opinions and features to inform and diversify our readers through the crisis. Our digital teams are continuing aggressively into our growth strategy. While our print teams are doing a magnificent job getting our newspaper printed and distributed to readers everywhere, despite the immense challenges involved. And like everyone else, we would love to return to something approaching normality as soon as possible, but we are also being realistic. Yesterday we told colleagues that we don't expect the majority of them to return to the office until the 8th of September at the earliest. Their health and safety will always be paramount to us. Given the current effectiveness of our remote working, we do not believe that this decision will have any significant impacts on business results. Our digital transformation has succeeded so far because we have maintained the momentum of change year-in and year-out over many years now. We are determined not to allow the present disruption to reduce this momentum. As you will hear, lower ad revenue will put pressure on profitability for some time. To mitigate that, we will cut costs where we can, but only in ways we believe will not slow down the execution of our strategy. These cost reductions will likely lead to some job losses in the coming months. We expect only a comparatively small number of these. We expect no such job reductions in journalism and none that would impact our core growth strategy. We will continue to invest in that strategy and to hire both in journalism and in engineering data and other digital product functions. We expect the company's net headcount to increase rather than decrease by year's end. This is clearly a strange, unsettling time for everyone, but this week we do have some things to celebrate at the Times. Once again, the work of our brilliant journalists has been celebrated with a clutch of - Meredith will give you the details of those in a moment, and thanks to the amazing new subscribers, the New York Times has passed some significant new milestones. By the end of April 2020, which includes the first month of the present quarter, we had more than four million subscribers to our digital news products. More than five million digital-only subscriptions in all, and more than six million total subscriptions across digital and print - all historic highs for this company and for the entire American news business. But now let me hand over to Meredith for a full review of Q1 and our assessment of our prospects going forward.

Meredith Kopit Levien, Executive Vice President and COO

Thanks Mark, and good morning everyone. For over a decade we have made the most ambitious investment in original journalism in the company's history; the importance of that investment and its centrality to our business strategy has never been more evident. So let me start by thanking the extraordinary staff of The New York Times, our colleagues in the newsroom, and every person in the organization who supports their work. As Mark said, the Pulitzer Prizes were awarded earlier this week, and the Times was honored with three for international reporting, for investigative reporting, and for commentary. That brings the total number of Pulitzer Prizes awarded to this institution to 130, far more than any other news organization. What is so inspiring about this year's awards, as our executive editor Dean Baquet said on Monday, is that they involved many desks and many journalists, and they are a testament to a modern news organization honoring not just narrative storytelling, but also work from our visual investigations, video, television, and audio teams. Our mission is to seek the truth and help people understand the world, and at this incredibly difficult time, our newsroom of more than 1700 people is working tirelessly to provide our readers with the trusted information that they need to understand and to navigate the pandemic. When no U.S. government or public health agency was publicly tracking all County-by-County domestic cases of coronavirus, Times journalists leaped into action in late January and began building a comprehensive dataset. We made that dataset publicly available so that other journalists, researchers, scientists, and government officials could study and better understand the spread of the virus. Having a deep bench of expertise has been especially helpful in this moment. You see it in the work of reporters like Donald McNeil, who has covered pandemics around the globe for more than 30 years, or Dr. Sherry Fink and Nick Kristoff, who, along with their photographers and videographers, have reported from hospitals to tell the story of healthcare workers who are risking their lives to save others, and countless people on our news and business desks who are working around the clock to deliver up live, real-time briefings on the spread of the virus and its implications for businesses, markets, and economies. Our investment in original journalism has also meant that we can innovate and adapt to changing reader needs. Over the last six weeks, we have expanded our lifestyle coverage and our service journalism to help people deal with quarantine. Our new at-home section includes recommendations on movies to watch, recipes to try, games to play, and even instructions on how to give yourself a buzz cut. All of this has meant record audiences and engagement. In March, well over half of all American adults came to the New York Times and readers viewed two and a half billion pages, almost double what we typically see in a month. We had around 240 million unique users based on our internal data, by far the highest number ever. The new customer journey that we launched almost a year ago, which requires registration and login in order to see more than one story, has also seen millions more readers register and then return and log in each week. That, combined with the surge in audience, gave us a historic number of total net digital-only subscription additions in the first quarter at 587,000, including 468,000 for news and 119,000 for standalone products. To put that in context, 587,000 total digital-only additions is two-thirds more net ads than we brought in during the first quarter of 2017, at the peak of the so-called Trump bump. During these extraordinary circumstances, we made the decision in early March to open up access to the vast majority of our virus coverage; many readers did not see a paywall on the vast majority of the Times stories that they use. While fewer readers converted to subscription because they ran into a paywall, anonymous readers, and those who registered, still subscribed in record numbers. While we don't expect a striking surge in traffic from the first quarter to continue indefinitely, indeed we have already seen anonymous traffic begin to come down. We have been encouraged by the behavior of registered readers, whose return rates are improving week over week. That is in part because of the unique nature of the news cycle, but it is also because of deliberate work in stimulating return by helping people follow storylines, get continuous live updates, and explore a broader range of their interests. While the news environment will change, as it always does, we expect that the larger number of registered readers and our growing effectiveness in getting them to return and form a habit will mean an improvement in the underlying rate of net additions versus the period prior to the crisis. Another encouraging sign is the continued diversification of our subscriber base. Our newest subscribers are more likely to be younger and more diverse, both geographically and also in terms of race and ethnicity. Subscriptions to cooking and crossword products have been especially strong, as has affiliate revenue from Wirecutter. Crosswords had its highest quarterly net ads on record in the first quarter, and cooking had its second highest. It should surprise no one that our cooking advice on how to stock your pantry has gotten more than 2.5 million page views and counting. We continue to be excited about our early foray into TV with The Weekly and proud of the work that our team has made with our partners at FX and Hulu. In fact, a Weekly episode shared one of the three Pulitzer Prizes I mentioned earlier for its investigation into how reckless lending devastated a generation of New York City taxi drivers. We expect to continue to work with FX and Hulu when TV production resumes, likely in the form of a smaller number of longer specials. But we don't expect this change to have a material impact on our bottom line. Now we have talked in prior calls about the importance of audio in enabling The Times to reach new audiences and play new roles in people's lives. The Daily’s audience has surged to almost three million downloads every day, despite the change in the morning routine for many listeners. We are also continuing to add to our audio talent ranks and to our programming. We announced last week that opinion contributor Kara Swisher will launch a new interview show with us this fall. And last month, we launched a new slate of shows that we are referring to as the quarantine season. We also made a small acquisition in the quarter of an audio subscription app and business called Audm, which provides a read-aloud array of audio versions of magazine stories, including our own and those of The Atlantic, The New Yorker, and New York Magazine, among others. All to say that even with the profound difficulties caused by the crisis, it has been a period of growth, innovation, and strategy acceleration in our journalism across our platforms and in our subscription business. The story on advertising is quite different. Though here too, we see an opportunity for strategy acceleration. First-quarter advertising revenue declined 15% overall, with the economic slowdown beginning to play a role in March, and the declines were much steeper. As Mark suggested, there is macroeconomic uncertainty and visibility is limited, but we are expecting a pronounced downturn in advertising for at least the next quarter and likely beyond. The declines will likely be steeper in print and digital but significant in both places. That said, we continue to have real confidence in our ability to run a sustainable and highly profitable ad business in a post-pandemic world that draws its unique strengths from our large and growing subscription business. We have been on a multi-year journey to transform our ad business, and the current circumstances will hasten that transformation as the key trends we have been talking about for some time play out faster in a recession. One of those trends is a greater concentration of our ad business in a smaller number of growing categories, like tech, telecom, and financial services, where we are able to build larger multi-platform collaborations, like the ones we have talked about with Google and Verizon. Another trend is significant growth in demand for advertising products that bring brands closer to the deeply engaged audiences of the Times. As we talked about in prior quarters, we are increasing our investment in and focus on ad products that derive their value from first-party data collected from our readers, privacy-friendly ways, and also consumer insights about what drives and engages those readers. Our ad business will also benefit from our increasing investment in audio. Podcast ad revenue grew 30% in the first quarter as The Daily became an even larger and more sought-after platform for our advertisers. We do expect some softening of demand for both data-driven display and audio during the recession, but less so than in our legacy products. So let me pull all of what I just said together. Notwithstanding pressure from advertising, the fundamentals of our subscription-first business model give us great confidence in the long-term prospects for the company. And I will end with a remark again, we are living through a surreal and harrowing period for our city, our country, and the world. We so appreciate the essential workers, first responders, and medical professionals everywhere who are saving lives and keeping so many of us safe. And we are deeply grateful to all of our Times people in New York and around the world who are helping our audience understand and navigate this unprecedented crisis. They have our first sound thanks. And with that, I will turn it over to Roland.

Roland Caputo, Executive Vice President and CFO

Thank you, Meredith. And good morning, everyone. Although we do expect short-term results to be negatively affected by a decline in advertising, our subscription business, which represents approximately two-thirds of our revenue, provides strength and resilience to a recurring revenue stream that is expected to grow further as we continue to excel at our core mission. Adjusted diluted earnings per share were $0.17 in the quarter, $0.3 lower than the prior year. We reported an adjusted operating profit of approximately $44 million in the first quarter, which is $8 million lower than the same period in 2019. Total subscription revenues increased approximately 5.5% in the quarter, with digital-only subscription revenue growing 18% to $130 million. This represents a continuation in the sequential increase in the rate of quarterly growth, largely as a result of the large number of new subscriptions we have added in the past year, as well as strength in retention of the dollar-per-week promotional subscriptions which have passed a yearlong promotional period and have graduated to higher prices. Quarterly digital news subscription ARPU declined approximately 10% compared to the prior year and approximately 3% compared to the prior quarter, consistent with the rates of decline we reported for the fourth quarter of 2019. For both sequential and year-over-year ARPU trends, the large number of newly acquired subscriptions, mostly on the dollar-per-week promotions, and the deeper promotional rates in many areas outside of the U.S. more than offset the benefit from subscriptions graduating from their introductory promotions to either step-up or full price, as well as a one-month benefit from price increases on 500,000 of our more tenured full-price subscriptions. We expect that the digital news subscription price increase, which went into effect in March, will begin to more significantly benefit ARPU in the second quarter, but will be more than offset by the impact of continued strength in subscription additions largely at the dollar-per-week promotion, as well as some continued outsized growth in international subscriptions, which monetize at a lower rate than our domestic ones. International subscriptions made up approximately 18% of our digital-only news subscriptions at quarter end. On the print subscription side, revenues were down 3.4%, largely due to a decline in single-copy sales, as many sales outlets were closed beginning in the latter half of March, and to a lesser extent, the decline in the number of home delivery subscriptions. 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 11.9% in the quarter compared with the prior year. All Sunday circulation declined 8.6%, while the rate of decline in home delivery copies was in line with recent historic trends. The increase in the rate of decline was driven by reduced newsstands and other single-copy sales. The closure of hotels, universities, and other outlets as a result of stay-at-home orders across the country contributed approximately one percentage point to the copy decline, while the loss of Starbucks as a distribution outlet in August of 2019 contributed approximately two percentage points to the decline. Production and distribution of our print products, both in the New York area and across the United States, continue to operate like clockwork, albeit with new safety measures in place. While we expect that the continued closure of newsstands will have a more diluted impact on revenue in the second quarter than in the first quarter, I’m happy to report that our home delivery business has been much less impacted, and we are fulfilling many new orders for home delivery subscriptions, both locally and across the nation. Total advertising revenues declined approximately 15% in the quarter, as you would expect; results for the month of March were significantly below those of January and February. Digital advertising declined approximately 8% in the quarter compared to the prior year, largely as a result of strong comparisons in the prior year in direct-sold advertising, as well as lower demand related to the pandemic. Higher traffic on the site resulted in an increase in open market programmatic advertising, which only partially offset lower direct-sold demand. Print advertising declined, dropping 21%, as it was more directly impacted by the pandemic, especially in the luxury, media, entertainment, and financial categories. Other revenues grew 21% compared with the prior year to $52 million, principally driven by revenue associated with our television series, The Weekly, which aired seven new episodes in the quarter, as well as from licensing revenue related to Facebook News. As a prelude to the discussion of our costs of the quarter, I want to call attention to a change we have made in the presentation of our operating costs. These changes were made in order to better reflect how we manage the business and to provide readers with more clarity into the investments the company is making to further its subscription-first strategy. As a reminder, we have repeatedly said that these investments are expected to funnel into three main areas: one, journalism to fulfill our mission and create compelling content products; two, enhance the digital products that our journalism consumers use; and three, marketing, which we expect will become increasingly efficient as we continue to invest in the first two areas. Most costs previously labeled as production are now included in cost of revenue and reflect all costs related to our newsrooms, print production and distribution, digital content delivery, and subscriber and advertiser servicing. The selling, general and administrative costs have been split into three categories: sales, marketing, product development, and general and administrative. Please see the earnings release we published this morning for a more detailed description and reconciliation of first quarter 2019's results in the new presentation, as well as two years of quarterly history under this presentation. We have also posted two years of quarterly history under the new presentation on our Investor Relations website. GAAP operating costs and adjusted operating costs each increased approximately 3% in the quarter. Costs of revenue increased slightly, largely due to higher journalism costs, including growth in the number of newsroom employees and costs related to The Weekly, which was partially offset by lower print and distribution costs. Sales and marketing costs decreased approximately 1.5% as lower advertising sales costs were partially offset by higher marketing costs. Media expenses, a component of sales and marketing costs, increased only slightly in the quarter, demonstrating that we have become less reliant on increased acquisition spend to drive subscription growth. Product development costs increased by approximately 30%, largely due to growth in the number of employees engaged in digital subscriptions strategic initiatives. Our effective tax rate for the first quarter was 15.5%, which was lower than the statutory tax rate largely due to a benefit from stock price appreciation on stock-based awards that settled in the quarter. On a going-forward basis, we continue to expect our tax rate to be approximately 25% on every dollar of marginal income we record, with some variability around the quarterly effective rate. Moving to the balance sheet, our cash and marketable securities balance ended the quarter at $687 million, flat compared with the fourth quarter. The company remains debt-free with a $250 million revolving line of credit available. On our last earnings call, I reported that our qualified pension liability was 99% funded. While we typically only update the status of these plans annually, given the recent market volatility, I will make an exception to that practice and report that as of yesterday, we estimate the funded ratio to be approximately 94%, and we continue to believe that performance of the plan's assets alone should be sufficient to fully close the funded status over time without any material need for company cash. A consistently conservative approach we have taken in managing our balance sheet, in tandem with the continued strong results produced by our subscription-first business, has provided us the financial flexibility and confidence to continue pursuing our growth strategy even as we manage through the economic fallout of the COVID-19 crisis. Let me conclude with our outlook for the second quarter of 2020, which is based on our current knowledge and assumptions and could be impacted by the developments of the pandemic. All subscription revenues are expected to increase in the mid to high single digits compared with the second quarter of 2019, with digital-only subscription revenue expected to increase in the high twenties. Overall advertising revenues are expected to decrease approximately 50% to 55% compared to the second quarter of 2019, and digital advertising revenues are expected to decrease approximately 40% to 45%. Other revenues are expected to decrease approximately 10% as licensing revenue from Facebook News is expected to be more than offset by lower revenues from our television series, The Weekly, and lower revenue from our live events business as a result of the COVID-19 pandemic. Both operating costs and adjusted operating costs are expected to be flat or to decline in the low single digits compared with the second quarter of 2019 as we pull back on nonessential spending while continuing to invest in the drivers of digital subscription growth. And with that, we would be happy to open it up for questions.

Operator, Operator

The first question comes from John Belton of Evercore. Please go ahead.

John Belton, Analyst

Thanks everyone. Good morning. I just wanted to talk a little bit more about the subscriber trends you are seeing. So I think Meredith, you talked about expecting a higher net addition trajectory after the crisis winds down relative to what you were seeing before the crisis. How is that impacting the way you think about the 10 million subscribers target in the long term? And then I just wanted to double-check one thing. I think you said you now have over 4 million digital-only news subscribers as of the end of April. So that implies something north of a hundred thousand net additions for that product alone in April. Thank you.

Meredith Kopit Levien, Executive Vice President and COO

I will go ahead and answer that. Good morning, John. I would say a version of what I said earlier, which is what drives our optimism for our continued ability to drive a step function increase in net ads is the idea that we are getting many more registered users in this period. And we are getting better at stimulating them to come back and get them to form a habit, so even as overall audience again, starts to come down. We are confident that we'll see some lift in the model. And I think your second question is, where does that leave us on the path to $10 million? I think we have said all the way through that we see that as a milestone goal in its own right.

Mark Thompson, President and CEO

I guess I would just perhaps add, John. Also, what we are looking at is the 2016 election where we hit a peak. As we said in the first quarter of 2017, not a bigger peak than we have just hit now. And then after a couple of quarters, audiences fell back. But a lot of people have come to The Times because of that. And they say then we, after the Trump bump effect diminished, we had a much higher run rate of subscribers than before. And particularly in what matters is the large number of registered logged-in users we are gaining. We have got real confidence that, although certainly a lot of people are coming to us now for the coronavirus, many of them will stay, and we hope will become loyal long-term users and subscribers with time.

John Belton, Analyst

Got it. Thank you very much.

Operator, Operator

The next question comes from Alexia Quadrani of JPMorgan. Please go ahead.

Alexia Quadrani, Analyst

Thank you. Good morning. I hope everybody is safe and well.

Mark Thompson, President and CEO

Thank you Alexia.

Alexia Quadrani, Analyst

I wanted to ask you a couple of follow-up questions on the heightened demand for subscriber growth. Can you walk through your thinking of maintaining your level of promotions? I know you vacillate back and forth in the $1 to $2 a week at different times of the month. But I'm curious what you think of maintaining that sort of high level, given that you are seeing such much more demand; and then just sort of staying on that topic. I understand you don't have a crystal ball, but you clearly have more insight into leadership trends than we do. How should we think about sort of churn in these your vast my new subscribers so when this crisis hopefully begins to eventually die down?

Mark Thompson, President and CEO

I'm going to pass to Meredith for the first part of the question. She might want to talk about the second part. But I just on churn, to say manifestly with each new big event like this, we get new people in. As Meredith says, we are seeing some actually, I think very excitingly, for The New York Times Company, we are seeing some younger, more geographically and racially diverse people coming to The Times. We touched in large more than half of U.S. adults. It would be foolish to be too precise about people churn trends. I want to say the backdrop is of a company that has become far more experienced at understanding every stage of the subscriber lifecycle, including retention, and we think very good at understanding churn. Even before the coronavirus strike, every senior person in the organization was focused on trying to make the customer journey, but also the fundamental experience of Times journalism so compelling and so kind of addictive in terms of features, bringing you back day after day that usage will be high, perceived value will be high, and therefore churn will be low. But let me hand it to Meredith now for the main part of the question.

Meredith Kopit Levien, Executive Vice President and COO

Sure. Thank you, Mark, and good morning, Alexia. On the question of promotion, what I would say is you can see this as a period where we are leaning into very strong demand, and we have been aggressive in our use of the dollar-a-week promotional offer. In part because we think it takes us to the outer edges of our propensity circle; and the comments I made earlier about the widening of our subscriber base to include more young people, more geographic and racial and ethnic diversity, I think, is a testament to that. We are also getting, and I think we have said this in prior calls, more confident about our ability to really work across the whole of the demand curve, bring people in at a promotional price, and then manage them through a step-up moment, and then ultimately to being a tenured subscriber that will accept the price rise because they are getting so much value out of the product. And I think that is why you see us continuing to use the dollar-a-week offer because we think we can graduate; we have been successful at graduating people up. Let me say a couple of things on churn to come in behind Mark's. One is that the very strong core news net ads number in the quarter was a function of both high starts and low stops. So churn did play a big role in that, good news on churn. And Mark alluded to this. I think the most important thing with churn is not that we are sort of improving the mechanics of it, although we do, but I think a lot of those gains have been realized; it is that we are getting better at getting people to just engage in the product, and I mentioned a couple of things, and I will underscore them. There was a ton of work done in advance of coronavirus, and then we really leaned into it during the pandemic and still are, to be better at covering things in a live way and to give people a reason to keep coming back. That is playing a big role in engagement, as is just getting people to find other things they are interested in on The Times. Registered and logged-in users are just much more effective at being able to do that.

Alexia Quadrani, Analyst

And then just a quick follow-up on advertising, if I may. I'm just really on digital advertising. How widespread is the weakness across your different advertisers? Was it really isolated to several verticals? So you really saw cuts across the board? And you mentioned some strong numbers from The Daily. I'm curious if you saw a pullback in advertising on The Daily.

Meredith Kopit Levien, Executive Vice President and COO

Yes. Mark, I'm happy to take that one. I would say broadly the advertising trends are sort of following what is going on macroeconomically. So we have seen pressure everywhere, as I said earlier in general, in both print and digital, particularly in digital. Some of the categories like tech and financial services and telecom, where we tend to do bigger, integrated collaborations, have held up better and will likely continue to hold up better. One of the trends we have talked about for a while is just the idea that we will have a larger concentration of advertisers in a smaller number of categories. I think it is fair to say, in both print and digital, we saw more pressure in our legacy categories, and I think we can assume that will continue through the crisis. And your second question was about The Daily; we have tried to answer it, and you will tell me if I'm getting to your actual question. I already mentioned the surge in audience, and I would say marketer demand for The Daily continues to be strong, though demand for everything we do from an advertising perspective is softer than it was before the pandemic. But The Daily — though it is because the audience cans are so significant and because demand is strong relative to other places — was still a very good story for us in the first quarter. I think it will continue to do so all year.

Alexia Quadrani, Analyst

Thank you, that was very helpful.

Mark Thompson, President and CEO

And actually, Alexia, I just have one final point to come back once again to churn. Just I'm not sure quite how clearly we said this in our written remarks. As you know, we are involved in the number of exercises of setting new subscribers who were previously on $1 a week to higher prices. We also, as you know, we mentioned we got a general price rise going through the system for tenured subscribers. Before the coronavirus hit, we were continue to see, we think very encouraging results on both of those as actually better than our modeling beforehand. So the underlying story with all these changes, the price was in very encouraging for the long-term future of the model. And as you have heard, we think it is more likely that the coronavirus will be, as it were, retentive and have a positive effect on retention and, all things being equal, will reduce the propensity of churn. So, I would say the churn picture is looking actually very good.

Alexia Quadrani, Analyst

Thank you.

Operator, Operator

The next question comes from Vasily Karasyov of Cannonball Research. Please go ahead.

Vasily Karasyov, Analyst

Thank you. Good morning. I have a couple of questions. One, I wanted to ask you if you could remind us how print subscription revenue usually behaves in an economic downturn? If we could isolate it from the COVID-19 impact, what normally happens in environments of economic recession? And then, a quick question for Roland. Roland, I think in your prepared remarks, you said that the revenue from The Weekly is down due to COVID-19. Can you explain maybe why that happens? Is it type of advertising? That would make sense to me. Thank you.

Mark Thompson, President and CEO

Thank you, Vasily. I think maybe Roland, you should address both of these questions.

Roland Caputo, Executive Vice President and CFO

Okay, great. Hi, Vasily. How are you? So, home delivery and revenue associated with it: the question is, is about how that reacts, I guess, in a recessionary period. So, the answer is actually it holds up very, very well. If you look at how that worked in 2008 and 2009, we actually were able to raise prices during that period. If we looked at the reaction of consumers now during the pandemic, we actually have seen an increase in new starts both locally and across the country. We expect that to hold up very well. But the single-copy side of it is really where we will get hurt the most, with the closure of all the outlets. We see some of that demand getting swept up in home delivery for folks who had a single-copy habit and now can't get a single copy. More and more of them are already home delivery. So that is very stable in a recession. The question about The Weekly, I think it is in the guidance for Q2, and it is not about advertising revenue; it is about a lower number of episodes that we expect to air. We book revenue when we air the episodes. I think Meredith mentioned also for going forward with our agreement with FX and Hulu, we expect to make fewer episodes in the coming months and we expect that to be longer-form, so that the economics will change somewhat. But to just repeat what Meredith said, we don't expect any significant impacts from that.

Operator, Operator

The next question comes from Doug Arthur of Huber Research Partners. Please go ahead.

Doug Arthur, Analyst

Yes, thanks. Two questions. First, digital subscription revenue was up about 18.3% in Q1. You are saying high twenties in Q2, I believe. You sort of talked about some of the contours of that, but is that mostly because of higher volume? Is it the impact of the one of the price increase? So what is the driver of the delta between Q2 and Q1? And I have got a follow-up on costs.

Mark Thompson, President and CEO

Okay. Meredith, do you want to answer that question?

Meredith Kopit Levien, Executive Vice President and COO

I'm happy to. I think it is a combination of those things, probably driven more by volume. But, as we have said on price in particular, so the very large number of people coming in on a promotional price, but we are seven, eight months in now to stepping those folks up. And that is going very well. It is broadly in line with what we saw on the step-up sometime back for 50% off. And we have also, I think Roland mentioned this in his prepared remarks, we have also taken a large number of tenured subscribers through a price increase, an annual increase, and that has gone well. So, I think it is a combination of all of those things.

Roland Caputo, Executive Vice President and CFO

And Doug, you had a question on costs as well.

Doug Arthur, Analyst

Yes. Just looking at the reclassification, Roland, if I go back to Q1 of 2019, it looks like about 30% of SG&A is being kind of re-bucketed into the cost of production costs of goods, and I guess that is mostly in circulation. And I know you broke it down. But can you just describe a little bit the thinking behind the re-bucketing?

Roland Caputo, Executive Vice President and CFO

Sure. So the idea here is, our previous presentation really was a vestige of how the business had been run for many, many decades. The idea is to create a presentation that is much more representative of how we are running the business today. We have that cost of revenue category, and that is really content creation, what it costs us to service our subscribers and our advertisers, all the print production and distribution, and also the digital content delivery. So the cloud costs associated with sorting our content on the web, our costs to produce that content, and then breaking out product development as a single line item. That is really the cost to produce and enhance our apps and our web products and then isolating sales and marketing so that there is a better illustration of what we are spending there. G&A is the general management; it does include corporate, enterprise tech. So the cost of the accounting system is going to be in G&A and our other unallocated costs. But we really wanted to isolate the areas where we are investing.

Doug Arthur, Analyst

Okay, thank you very much.

Operator, Operator

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

Craig Huber, Analyst

Yes, hi. Good morning. Thank you. Maybe I could start my first question with Meredith or Mark? When you think about the opportunity set long-term here in terms of the addressable market for your digital subscribers, can you just sort of update us on your thoughts on that? In the past, you sort of talked about it as far as the people outside the U.S., college-educated, English-speaking and stuff, but if you want to talk with that, please. And I have some follow-ups. Thank you.

Mark Thompson, President and CEO

Meredith, why don't you take this one?

Meredith Kopit Levien, Executive Vice President and COO

Yes, I'm happy to. We have a few different ways of looking at it. But every way we look at it essentially suggests that there are no fewer than 100 million people in the addressable target audience of English-speaking, college-educated individuals with some demonstration of willingness to pay for news. That number is probably getting bigger, not smaller. The 100 million people is roughly half in the United States and half outside the United States. I would say, just based on what we have shared today in terms of the number of subscribers we have now, I think we have still got a lot of revenue room on converting that addressable audience. And one more thing that is worth saying, this was a very strong period domestically, but it was also a very strong period internationally. We have launched, I think you talked about this a quarter ago, a new approach internationally where we are more aggressive in pricing, assuming that we are a second brand in this market, particularly in markets beyond Canada and Australia, beyond the English-speaking world. We have gotten more aggressive with pricing and also with how we apply the meter in markets like Latin America and Southern Europe and parts of Asia and India. We are just at the beginning of that, and I think everything we have seen so far would suggest that the addressable audience, and also gives us a very good approach to getting at that audience.

Mark Thompson, President and CEO

I would just add, Craig, briefly, in some of the numbers Meredith mentioned in her remarks are really striking. I mean, we got this as a ComScore number, 163 million unique in the U.S. and, as I said, our own modeling suggests 70 million people came to The Times in March. That is a far greater number than we were seeing five or ten years ago. When I arrived at the Times in 2012, we were seeing unique numbers well under a hundred million typically. There is a real sense that The Times is becoming a genuinely global news provider but also reaching into younger, more diverse, and more geographically spread than those who historically have a taste for news. I think sometimes the people who follow the posting very closely miss the fact that The Times is becoming of much broader appeal than some of those classic stereotypes would suggest. Within that, of course, the fishing grounds for more engaged users and people who could become subscribers grow bigger. So I think that is very encouraging.

Craig Huber, Analyst

Then my other question I wanted to ask is on the legacy part of the business. Am I correct in thinking that on your print volumes for circulation, that roughly 15% is non-home delivery? If that is the case, I assume the overwhelming majority of that is going away right now, given this virus; and stuff. When you take that in conjunction with, I think you said the fall off of the acceleration, maybe in the home delivery is coming down a little bit, but nothing overly significant sounds like. If I have that right, the underlying number down roughly 10% between daily and Sunday in the first quarter. It might be down 25% or so, if not worse, in the second quarter. You are thinking that in conjunction with advertising for print, you are down 60% in total right now. I don't want to make this the main focus of the call, but just long-term, you guys are positioned your company to eventually shut down the hard-copy paper. Does this environment now, that numbers you are seeing on the print volume side to print advertising side in your mind potentially accelerate the move to a digital-only product here? Long-term here, what sort of points you look for? Is it just when you get to free cash flow negative? Is that when you would cut off the print version and go to digital-only down the road here? I know it is not anytime soon, but what is your sort of thought?

Mark Thompson, President and CEO

I’m going to ask Roland to address this substantively, but let me just start off by saying, we believe that our print product has got many, many years of a successful and profitable life ahead of it. Our principal strategic focus, as you know, is building a big digital business, but we love offering print products. So do our subscribers. As Roland said, actually, we have seen very, very encouraging signs in many ways in terms of fresh demand for the print product during the coronavirus crisis. So we are very committed; I mean, this is clearly a tough time for this product. Single-copy sales, as you have suggested, have been massively hit for completely obvious reasons. I think you probably will confirm that much less than 15% of the total revenue is from print. But if I would just say as Chief Executive, we are really still committed to the print product. We see it as part of our portfolio for a long time to come. And Roland, why don't you take it?

Roland Caputo, Executive Vice President and CFO

Sure. First of all, I want to say that there has not been an increase in the trend of home delivery declines. For nine consecutive quarters, that volume has dropped between 6% and 7%. We don't see that changing, and we have been able to pass through because of the value of the product and the loyalty of the subscriber base. We have been able to pass through price increases on an annual basis, so I don't see that trend changing at all. On the single-copy side, it is somewhat less than 15% of our revenue; and that single-copy side has been in slow decline for, I want to say, 25 years or something like that. But admittedly, I think the COVID crisis, if that changes the landscape of retail and outlets, that will change the landscape of single-copy. Yet to be determined if how many folks have a very strong single-copy habit will then move to a home delivery subscription. I don't see that being a giant change in our revenue profile there. On the ad side though, our experience has been that most dollars that leave from the print advertising product do not return. I would say there is probably an acceleration there. Lastly, I want to remind folks that the print newspaper is profitable without a dollar of advertising. So as long as there is sufficient demand, we will continue to have a print product, and we will continue to be cash-generative.

Meredith Kopit Levien, Executive Vice President and COO

I will only add to that our launching of the new home section in print is a testament to our belief that there is still a deeply engaged and a very high-value customer, and we think there is still lots of imagination and innovation to put into that product. So we still think there is more to come there in terms of delivering real value to our audience.

Craig Huber, Analyst

If I could just ask a question here. Your outlook for advertising in the second quarter; does this assume anything materially different in the month of June than what you saw in the month of April?

Meredith Kopit Levien, Executive Vice President and COO

Roland may come in behind me and give a sharper answer. But I would say as you think about our remarks on advertising, for - I would take what you think about our business generally and the trends that you see generally applied, and then put them in the macroeconomic context I described. That is as much as we are ready to say.

Craig Huber, Analyst

Thank you.

Operator, Operator

The next question comes from Kannan Venkateshwar of Barclays. Please go ahead.

Unidentified Analyst, Analyst

Thank you. This is Calvin on for Kannan. I have two questions. The first one is on the cost of print. Can you talks about how much it costs you can take out in the print segments to offset revenue declines? You mentioned advertising costs earlier, but any other drivers of cost flexibility there? And the second is on pricing. Does the current economic environment change how you are approaching price step-ups on those promo subscriptions that are rolling off? In other words, are you say proactively or reactively stepping up more subs to say a dollar to two instead of a dollar to full price? Thank you.

Mark Thompson, President and CEO

Thank you. Thanks Calvin. Roland, why don’t you take this?

Roland Caputo, Executive Vice President and CFO

Yes. On the print costs, I'm not going to cite a specific number, but we have found for many years that we have been on a path to drive more and more efficiency, and we have been very successful at that. I expect that to continue. There will be some changes we make either internally or with our partners, so we will chase efficiencies. I think we will chase them a little bit more aggressively given the ad dollars being less than we otherwise would have expected. Not much more to say; we will continue to chase that. On the pricing side first, we have paused our price increase on digital subs. We had the first tranche of tenured subs that were lined up to get a price increase; that occurred in March. There were a few more, or less than 200,000, that came a little later. They were notified and haven't started paying higher prices yet. We would have hit another tranche in early fall. We have made a decision to pause that and wait and see, and we will reinstate that when we believe it is appropriate. Maybe Meredith wants to talk a little bit about the dollar-a-week promotion and how we are managing that.

Meredith Kopit Levien, Executive Vice President and COO

Yes, I'm happy to, Roland. I think I said this earlier, but I will say again, we are seven or eight months into an annual renewal for people. The first group of folks who came in on a dollar a week, and it is growing at least as well as our expectations. It is going basically broadly in line with what we saw for the 50% off folks who moved up to full price prior to the dollar-a-week being our primary promotion. We are pleased with that, and I will say we expect what we are seeing so far. But we also expect to get continually better at it. We have said in prior calls that we are training algorithms to sort out what are the engagement signals we can use to determine who we step up/partially how we go to full price. Bit by bit we get a little bit better at executing on this, but in general, this has gone very well, and you should take it as a signal of our continued use of the promotion, recognizing how important price is to be in the role economics, that we have built confidence in our ability to get people up in price.

Operator, Operator

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

Harlan Toplitzky, Vice President of Investor Relations

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

Operator, Operator

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