The New York Times Company (NYSE:NYT) The Athletic Acquisition Conference Call January 6, 2021 8:00 AM ET
Company Participants
Harlan Toplitzky – VP, IR
Meredith Kopit Levien – President, CEO & Director
Roland Caputo – EVP & CFO
Conference Call Participants
Thomas Yeh – Morgan Stanley
Doug Arthur – Huber Research Partners
John Janedis – Wolfe Research
Craig Huber – Huber Research Partners
Kannan Venkateshwar – Barclays
Operator
Good day and welcome to The New York Times Company’s Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Please note this event is being recorded.
I would now like turn the conference over to Harlan Toplitzky, Vice President of Investor Relations. Please go ahead.
Harlan Toplitzky
Good afternoon, and thank you for joining us on such short notice to discuss The New York Times Company’s agreement to acquire The Athletic. Our press release was issued about an hour ago and is available on our website at investors.nytco.com. We have also published a short slide presentation to accompany this call, which is also available on our website.
Joining me on the call today, we have, Meredith Kopit Levien, President and Chief Executive Officer; and Roland Caputo, Executive Vice President and Chief Financial Officer. In a moment, Meredith will begin with short prepared remarks and then we will be happy to take questions. We plan to keep this call to about 30 minutes.
Before we begin, I would like to remind you that during the course of the call, management will make certain forward-looking statements with respect to the acquisition. These statements are based on our current expectations and assumptions, which may change over time. Actual results could differ materially due to a number of risks and uncertainties that are described in the press release, presentation materials, the company’s 2020 10-K and subsequent SEC filings. Listeners should not rely unduly on such forward-looking statements.
And finally, please note that a copy of the prepared remarks from this call will be posted on our investor website shortly after we conclude.
With that, I will turn the call over to Meredith Kopit Levien.
Meredith Kopit Levien
Thanks, Harlan and good afternoon, everyone. Today is an exciting day for The Times Company. We’ve announced plans to acquire The Athletic, a media business with one of the largest newsrooms dedicated to covering sports globally. We believe this acquisition will accelerate our long-term growth strategy and advance our vision of making The New York Times the essential subscription for every person seeking to understand and engage with the world. This is an all-cash transaction of $550 million, subject to customary closing adjustments.
The purchase is consistent with our long-held belief that deploying capital in service of our digital growth strategy is the best way to maximize shareholder value. While general interest news is and will remain our primary value proposition, we’ve been actively pursuing spaces where we can add value in people’s daily lives.
Our view is that sports is among the biggest, particularly in terms of the potential for engagement with quality, original journalism. Sports occupies a huge place in the fabric of global culture, with deeply passionate fans and followers who want to consume everything there is to know about their favorite teams, leagues, and sporting events. The Athletic was built to serve those enthusiasts.
Over the last decade we have demonstrated our ability to build and scale high quality products in and adjacent to news. When we announced our subscription-first strategy in 2015, we reported 1.2 million digital subscriptions to The New York Times. In the six years since, we have grown digital subscriptions more than six fold, the majority of which are to our core news product, with Cooking and Games each surpassing a million subscriptions at the end of last year.
Today, we see more growth potential, within news and beyond it, domestically and internationally, which means that we are now in pursuit of a goal meaningfully larger than the 10 million total subscription target we set for ourselves in early 2019.
We believe acquiring The Athletic will enable us to not only expand our addressable market of potential subscribers, but also to better penetrate our existing market and deepen relationships with current subscribers. Like Cooking, Games, Wirecutter and Audm, The Athletic will give people another reason to turn to Times products as separate subscriptions, or as part of a bundle.
Indeed, we’re acquiring The Athletic to continue to build out our portfolio of products that meet more of our audience’s everyday needs. We’ve long covered sports in our core news report for a general interest audience. What The Athletic brings is a dedicated product on a different scale, a multi-platform journalistic operation with one of the world’s largest newsrooms dedicated exclusively to sports. Their editorial team, which is 450 people strong, published over 50,000 articles and 6,500 hours of audio content in 2021, while covering most major American professional sports teams and leagues, college sports in the United States, and the English Premier League.
With this expansive coverage, The Athletic has achieved a strong product-market fit. In just six years since its founding, The Athletic has grown its subscription base, in the U.S., the UK, Canada and Europe, to 1.2 million, making it the fifth largest English-language digital journalism provider by subscribers. Our plan is to accelerate The Athletic’s growth further by expanding the audience for its journalism, by adding strength in areas like live, data and visual journalism, and by applying our engagement, marketing and customer journey expertise.
In addition to subscriptions, we also see a big untapped advertising opportunity, much like the one we’ve built in our core business, which is downstream of our subscription business and powered by premium ad products and first-party data. To put a finer point on all this, we are buying a business whose next phase of growth depends on things we know how to do; run a journalism organization known for the quality, breadth and originality of its work; drive a large and deeply engaged audience, many of whom form a habit around that work, and ultimately pay and stay; and build a market-leading digital ad business.
On that note, let me say just a few words about how we plan to execute. The Athletic’s newsroom will be run independent of The New York Times newsroom. Our plan is to sell The Athletic subscription as a standalone product at first, and ultimately to also include it in a broader Times bundle.
I’m happy to say that The Athletic’s co-founders, Alex Mather and Adam Hansmann, who built this business over the past six years, will be staying on as Co-Presidents. They’ll report into David Perpich, one of our most talented executives, who will take on a new role overseeing The Athletic. David has played a big role in building and scaling every digital subscription product we have at The Times, including being an architect of the original digital pay model in 2011.
We currently expect The Athletic to be immediately accretive to our revenue growth rate, while dilutive to the company’s operating profit for approximately three years as we work to scale subscriptions and build an advertising business. Based on preliminary, unaudited estimates, we believe The Athletic had operating losses of approximately $55 million in 2021 on approximately $65 million in revenue. We currently forecast a slight improvement in operating losses in 2022, as we plan to make additional investments that will mostly offset revenue growth.
We currently forecast smaller losses for 2023 and 2024 before turning accretive thereafter. Note that we have not yet completed the purchase price allocation and as a result, this guidance does not include any estimate of book amortization expense.
And with that, Roland and I are very happy to take your questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session [Operator Instructions].
Our first question will come from Thomas Yeh with Morgan Stanley. Please go ahead.
Thomas Yeh
Hi, thanks so much for taking my questions. Two quick ones for me. First, can you talk about the differences that you see in how the consumers of The Athletic engage with the content that would dictate any changes to the approach on paywall restrictions or promotion strategy, subscriber churn dynamics and that type of stuff?
And then secondly, maybe just a little bit more help on talking a little bit more about how you think about the addressable market size for paid sports journalism as a whole, and the subscriber cadence that you’ve seen historically at The Athletic would be helpful. Thanks so much.
Meredith Kopit Levien
Yeah. Thank you, Thomas. Let me get your second question — well, let me let me do the first question first, which is, I think, what do we know about their engagement, and how the people sort of come to and use and buy a subscription to The Athletic. The first thing to say is we like what they’ve achieved so far. We think there’s a real opportunity to grow their audience further than they’ve done it.
We’ve got a lot of expertise on our side in terms of customer journey and engagement and audience development and marketing. And we think there’s a real growth opportunity there. And we also see a real opportunity to add expertise in areas where The Times has done particularly well, like live journalism, data journalism, visual journalism, but make no mistake, we really like what The Athletic does. They serve passionate sports fan who has an everyday need to keep up with their team and their league, and the sporting events that they care about. And we — the level of sort of product market fit they’ve already achieved is a big part of why we have real growth ambition here.
And I’m going to make you repeat the second part of your question.
Thomas Yeh
Yeah, sizing the broader market. You talked about historically, the $100 million TAM for core subscription journalism. I’m wondering when you talk about expanding that market with sports, what that looks like, and how we should think about the opportunity there.
Meredith Kopit Levien
Yeah, I’ll just say very broadly. We think — we certainly think it makes the TAM bigger. We’ll have more to say about that over time. But we certainly think it makes the TAM bigger. Sports news is among the most searched for news that there is. Sports journalism is among the most engaged journalism that there is. And what these guys have done is built a passionate following across a broad spectrum of the major leagues in the United States, NFL, MLB, MLS, etc., and in European soccer and in college sports.
So we think there’s a real opportunity there on the TAM side in terms of larger TAM. I’ll also say, we think this helps us better penetrate the TAM, we’ve already talked about. You mentioned the 100 million people who we believe will pay for digital journalism in English overtime, and we help — we believe that owning The Athletic helps us penetrate that audience, even better. And I’ll say as well, we see this as another tool in the toolkit to engage the subscribers we already have. And we’re quite optimistic about that.
So we sort of see growth in all directions. We think we can help grow Athletic as a standalone subscription. We think The Athletic will bring new people to experience The Times and our broader portfolio of products. And we think there’s real opportunity over time in a bundle, which you’ve heard us talk about a number of times this year.
Operator
Our next question will come from Doug Arthur with Huber Research. Please go ahead.
Doug Arthur
Yeah, thanks. Two questions. Meredith, I don’t know, I’m sure you’ve had a chance to sort of look at this pretty closely. So the first question is, is the current cross pollination between Athletic subscribers and NYT subscribers? Is it significant? Is it small? How do you frame that right now in terms of people who are subscribing to both?
Meredith Kopit Levien
Great question, if the answer Doug is small.
Doug Arthur
Okay. So that’s a…
Meredith Kopit Levien
Modest overlap in subscriber bases, which is what I think you’re asking me about.
Doug Arthur
Yeah, yeah, that’s exactly what I’m asking. And then secondly, in terms of the cost structure of The Athletic, I mean, while not a lot is known, you gave some numbers out there. I mean, they’ve made a very heavy commitment to very talented, and generally highly paid journalistic talent pool. How do you think about that in terms of what’s going to take to scale the business to cover that cost eventually? Or there are ways to kind of manage that going forward? It’s a fairly large commitment on their part.
Meredith Kopit Levien
Yeah, let me answer that in a broad way, and a slightly more specific way. This is really about accelerating our long term strategy. It’s about realizing our vision of The New York Times, as an essential subscription, for many more people who want to understand and engage with the world. And we would not be doing it, if we didn’t see it as an opportunity, over time to build a larger and more profitable company as The New York Times.
So we really believe in the combination of news and sports. We also run a large newsroom filled with extraordinary talent. And from that newsroom, we produce a product that’s allowed us to grow to six times the size our digital subscriptions were. We’re also, I’ll just say to you, we’re quite confident that the very things that are going to take The Athletic to grow, are things The Time has spent the last, the better part of the last decade doing.
So running that newsroom well, really developing a big audience for it, finding the right engagement model and customer journey and access model to get a lot of people to want to pay. And building a market leading and really differentiated ad business on a subscription first model, and we think we can do all those things. We believe we can do all those things. Here we wouldn’t be buying it if we didn’t think we could.
You should regard this as real ambition on our part about what the two companies can do together.
Doug Arthur
Terrific, thank you.
Operator
Our next question will come from John Janedis with Wolfe Research. Please go ahead.
John Janedis
Thanks. Hey, Meredith. You talked about the untapped advertising opportunity. And I think The Times’ digital revenue mix is about call it 70-30 advertising, and so want to ask, what does The Athletics mix look like? And where can that go?
Meredith Kopit Levien
Yeah, good question. The Athletic has a small advertising business today, quite small, fairly limited in terms of what it’s associated with. So I would regard it as a greenfield. I would also think about us as people who’ve built the right ad business, or a subscription first business. I think you may know my first job at the time was running our ad business and the big unlock in digital advertising.
New York Times was when we said this business is subscription first. And ultimately, the differential value of the ad business should be a large, deeply engaged audience, many of whom pay and stay and whose first party data we have access to use in privacy forward ways and where we have a pristine premium ad — pristine environment with premium ad products that really work for marketers. We see a very similar opportunity here. And we believe it’s a big untapped opportunity.
John Janedis
To your point who’s going to be selling the ads, meaning are you going to then push them out of that the call it The Times or will it be the same sales force from The Athletic?
Meredith Kopit Levien
We are intending, and I think I said a version of this in my prepared remarks at the outset to run The Athletic pretty independently, but certainly there is plenty of know-how on ad products and how to get and use first party data and where we find opportunities to do things together to create value, we will absolutely do that. And I can tell you that advertising is a place where we think the field is green and we are very excited to dig in relatively quickly.
John Janedis
Got it. And then maybe bigger picture structurally over the long term is a vertical like sports, say less profitable on a margin basis than general news. Based on your comments does that change your longer term outlook on the business to one of growth and absolute cash flow rather than a flatter margin trajectory? And let me ask you, does that mean there’s not a synergy number necessarily, because they’re run independently?
Meredith Kopit Levien
On the second part of your question, I’ll say, I think we were just getting started here. We’ve obviously done tons and tons of research. And certainly, I think there will be places where we can share expertise. But we have bought this business to invest in it to grow it. And ultimately I think I said this before, to build a larger and more profitable New York Times Company. And that’s the future we see for these two things coming together.
I talked a lot about how we see that. Roland, I don’t know, if you want to add anything there.
Roland Caputo
Yeah, I would just add that the synergy I would categorize as revenue synergies. And I think Meredith did a good job explaining how the expertise we have in building an audience and engaging an audience, getting them to pay and stay the way we work through the customer journey, our ability to test and learn, our ability to apply AI to the journey and things like that, all will be able to be applied here with The Athletic. And then if you think further on, to the point where we’re able to sell The Athletic as part of the bundle, and our ability to cross sell and upsell in both directions, I think there’s plenty of synergies there.
John Janedis
Thank you both.
Operator
Our next question will come from Craig Huber with Huber Research Partners. Please go ahead.
Craig Huber
Yes. Hi, Meredith. A few questions, if we just start with them. Obviously, this has been in the press for quite a long time that you guys were looking at this potential acquisition stuff. I’m just curious, how long you did chat [ph] or talk with these folks for what took so long to come to get to the altar here and stuff? What was sort of the holdup then, in terms of didn’t buy anything? Was just simply coming down to price or just doing your due diligence, or what was it, please?
Meredith Kopit Levien
Hi, Craig. Thanks for joining us. I’ll just say, deals happen when they should, this is the right time for The New York Times and The Athletics to be doing this. We’re coming at it from a real position of strength and with a real vision for what the two products that The Athletic brings as a complement to our growing portfolio of products, and particularly to our news product. So this is the right time to be doing it.
Craig Huber
Should we expect over time some of the sports content from The Athletic side to find its way into The New York Times? Obviously, your own sports section is not real granular, not being derogatory, but it’s not. Do you think that might — is a part of the play here as well, sort of share some of the content on your legacy product?
Meredith Kopit Levien
Let me answer that question in two ways. First, let me just take a minute and through differentiate what our sports desk in the core report of The New York Times does and what The Athletic does. We’ve got a sports team on the core report, whose work we’re very proud of, but they’re covering sports for a general interest audience and for World Sports. And they’re really covering sports at the intersection of culture and business and society. And they really, I think, done some of the best enterprise work and investigative work that’s out there.
But that operation is about a 10th of the size of The Athletics operation, just in terms of the journalists. But what we’re talking about with The Athletic is doing something that is fundamentally on a different scale and honestly, meeting a different need. They are meeting the need for the everyday sports man who like literally can’t get enough about their team, their league, the player, the sporting event that they love, and that’s why we’re buying them. We think that’s a really big need that The Times with The Athletic can play a role meeting.
On your question of would you imagine there being moments where you see The Athletics stories on The Times, one of the things we’re so excited about and Roland and I have been talking with you all about for some time now. It’s just our ability to kind of cross promote, from our newest products to our growing portfolio of other market leading products.
So if you go on the home page of the New York Times, you’re going to see recipes from the cooking app. And you’ll see promotions for Wirecutter journalistic promotions for Wirecutter around what to buy. If you scroll down the main feed of our app, the bottom of that main feed is game to play. And to us, that is just a huge source of how we build audience for an interest in those products. And you can imagine, we’ll do that here as well.
But the way we talk about it internally is that core news report with such a huge audience. Week-over-week, both a subscribing audience and a non-subscribing audience, a prospect audience, kind of like the sun in our solar systems, and it gives life to the other planets. And we think that will be the — it helps grow more life. We think that will be the case here as well.
Craig Huber
And then my final question is sort of a two part thing. It sounds like, you don’t think there’s much cost synergies here per earlier question. Just want to confirm that. And then also, in terms of the addressable market, which came up earlier, do you have any sense how large the addressable market is, that this is part of, or just sort of intertwined with 100 million? In other words it adds to it, in other words.
Meredith Kopit Levien
Yeah.
Craig Huber
How much does it add to it?
Meredith Kopit Levien
Let me just say, unequivocally, this is about adding to the addressable market versus a giant face with a passionate following. I’ve already mentioned we have a relatively modest, quite modest, overlap and subscription basis. But even from an audience standpoint, these guys meet an everyday need for a passionate sports fan. So very different need than the one we already meet. We think this is additive to the TAM, and helps us penetrate the market. We already reached the 100 million people we’ve talked about for a long time.
Craig Huber
But you’re not sure how much more — how much it adds to the 100 million, I guess, at this stage. Is that fair?
Meredith Kopit Levien
We’ll have more to say about that over time. But I would say, additive. We’ve got a whole portfolio of products now that I think are additive between Cooking and Games and The Athletic, and potentially even Wirecutter. And we’re deep into understanding how additive. What I can tell you is we are acquiring this company to accelerate our long term strategy. And we are now talking about a goal meaningfully past the target of the 10 million subscriptions we talked about in 2019. And we’re talking about big ambition and big vision, and that’s why we’re doing this.
Craig Huber
Great, thank you very much, and congratulations.
Meredith Kopit Levien
Thanks. Thanks for joining us.
Operator
Our next question will come from Kannan Venkateshwar with Barclays. Please go ahead.
Kannan Venkateshwar
Thank you. So Meredith, I guess a couple of questions. It may be a little bit more involved. I apologize for that upfront, but purely in terms of valuation, when I think about the price paid here, the $550 million, I mean, the alternative would have been to build this organically. And like you said, your newsroom on the sports side is much smaller internally. This translates into roughly about $1 million per journalist that you’re acquiring. And I would assume given the history of The Athletic, some of the journalists get paid a lot more than journalists internally inside New York Times.
So the first question, I guess is when we think about the structure of the deal does this create some kind of friction internally within the organization on how the two sides fit together, and how they function? And then secondly, when we think about the valuation itself, it translates into, I think, on a per subscriber basis, about $450 or $460 per sub, which would imply a very low churn rate and a very high lifetime value for the subs just given the $6 price point.
So when we think about the price you’re paying, why is this the right deal, instead of you trying to do this organically or maybe acquiring a platform business or buying assets internationally to grow your distribution? Thanks.
Meredith Kopit Levien
Yeah. Let me let me say a few things about it and Roland you should feel free to weigh in as well. I’m going to say one more time, because I think it’s important to say here, we think this is the right deal, the right moment. We couldn’t be more excited about it. And we think it really helps us accelerate our long term strategy and realize manifest a vision of being the essential subscription with many, many, many, more people in combination news, sports and the other things in our portfolio.
We also are endeavoring to build a larger and more profitable company. And we believe that the things we know how to do will help us, help The Athletic get the whole thing there. And we’re quite confident about that.
I want to say there are a number of places where I think there’s upside and I talked about some of them. But let me let me just try and put them put them together for you. We — I’ve just described, I think to Craig, how we believe we can play a real role in growing the audience for The Athletic, based on what we’ve been doing for the last better part of last decade.
New York Times we think we’ve got real know-how there and a real opportunity, including through some of the things I just described, to Craig in terms of cross promotion of content, but even just the mechanics of audience development. We’ve been doing that for a long time. We also now have been — I’ve spent — our leadership team have spent years perfecting a pay model, and getting better and better as we go. And we think there’s a lot there we can apply to The Athletic customer journey and access model to grow it as a standalone subscription.
I’m going to say we also think there’s growth to The Time subscriptions for buying The Athletic. That’s what I mean, when I say better penetrating the market we already have. And we think there’s a retention benefit. We believe there’s the opportunity for retention benefits because we we’ve got more things to engage with. And ultimately, you have begun to hear us talk much more about the promise of the multi-product bundle, where that’s about more ARPU, more lifetime value over time.
So we think that all sort of paints a picture of where the economic growth comes from. And then we know how to run an ad business. Roland and I’ve talked a lot in the last year about how much more we like our ad business today, and how we’ve gotten it into the position where it runs on the same high octane gas as our subscription business. And we think there’s real, and we believe there’s real upside there.
Roland, I don’t know if you want to add, add anything to that.
Roland Caputo
The only thing I’ll add on Kannan is that, we use multiple methodologies and market comps and spent a lot of time informing our valuation models. And we feel really good about the purchase price relative to all those measures.
Kannan Venkateshwar
Got it. Can I ask one follow-up on Athletic? Has the asset been growing? I mean, have they been growing subscribers over the last year or so?
Meredith Kopit Levien
Yeah.
Kannan Venkateshwar
Okay.
Meredith Kopit Levien
I can say more but…
Kannan Venkateshwar
Thank you.
Meredith Kopit Levien
Yeah.
Kannan Venkateshwar
Thank you.
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
Thanks everyone for joining us today. We’re around to answer questions. And look forward to reporting our fourth quarter and full year results early next month. Thanks and have a good night.
Operator
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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