B (2:15)

Yeah. So Snap, Jordan.

C (2:19)

Yes.

B (2:20)

Is it the 400 million? Is it the 1.7 billion? Or is it the 500 million?

A (2:25)

I should know this. I think it's the. I think I was looking more at, like, the amount of cash they were burning, frankly, than the amount of revenue they were making. But I think I'm going to go with the 500 million. Yes.

C (2:37)

I'm going to go with the 400 million.

B (2:39)

Lee wins.

A (2:40)

Okay.

B (2:42)

Snap had actually less digital revenue last year than the New York Times, but they are going public at a market capitalization of somewhere in the $20 billion range compared to the New York Times's $2.5 billion.

A (2:56)

And yet they're also burning money more terribly than the New York Times. Too right now.

B (2:59)

Yeah, they contrived. They made $400 million website. They had $400 million of revenue last year, but somehow they contrived to lose more than $500 million. So they were like spending twice as much money as they were taking in.

A (3:13)

The thing with Snap is it seems like no one is really clear on how they're losing the money. Like a lot of tech, young tech companies, people are very clear on how they are losing the money. How are they burning it? And it seems like there's just like a lot of bafflement over where Snap's money is actually going. They have this big like general set, like general and administrative section.

C (3:31)

Yeah. Their s. Their GNA expenses were more than their sales and marketing expenses and, and, and almost as much as their engineering.

A (3:38)

Yeah.

C (3:39)

Expenses. It was a lot. It was a lot for something. It should be minor.

A (3:42)

So that administrative, I mean it's kind of a grab bag category. It's everything from your legal expenses to your CEO to liter administrative, like back office costs. It's, it's, that's why no one knows what's in it. That it's this huge expense and it's kind of, it's kind of murky.

B (3:57)

Although the, although the really big expense is the cloud.

A (4:03)

Yeah.

B (4:03)

They pay, they signed, they have signed $3 billion. They have promised to pay Google and Amazon between them, $3 billion over the next five years. So 2 billion to Google and another billion dollar to Amazon just to host this vast amount of video. Because they are one of the largest online video companies out there, if you think about it, just to host all of that video because they don't want to host it themselves. And that's their big expense.

C (4:29)

Well, but I think it would be interesting to see that number in context both to. Against what they would have had to spend on server infrastructure, data warehouses. What would that number be? That's a pretty big number though. And compared to other. I mean Airbnb exists in the cloud also. These companies were formed after Amazon Web Services was created, so they never had to deal with all that stuff.

B (4:49)

Right. But this is the big difference. There are two big companies based on Amazon Web Services. As you say, every major startup is built on the Amazon.

C (5:01)

Why wouldn't they?

B (5:02)

But the cost of AWS for a company like Airbnb is de minimis, frankly. I mean you can host a website without it costing that much money. Where it really starts becoming expensive is when you're streaming a huge quantity of video, which is why that's a major expense for Snap and for Netflix more than anyone else.

C (5:22)

Right. So you wonder how much would it be if they did bring it in house and did it.

B (5:25)

It would almost certainly cost more. I mean, one of the reasons they outsource these things is because Amazon and Google are much better at that kind of thing than, than anyone else would be trying to do it from scratch. But it does kind of remind us that even though we live in this world where we all get streaming video to our phones and it's, and we can watch clips and all of the rest of it that is not free, people are paying substantial amounts of money and in Snap's case, billions of dollars for us to be able to enjoy that video.

A (5:59)

So I kind of want to go like big picture, big Snap for a moment here about like you have this company, right? This, this money losing, you know, very hot tech company. It's supposed to be the way that advertisers are going to get to young people because No1under25 understands Snapchat or knows how to use it really proper. The under 25 said that's their, you know, religiously devoted to it. I think like, I think they said like they spend like 30. The users spend like 30 minutes a day on it on average. And so at the same time they have this like, you know, fairly large but not huge audience. It's very devoted that they haven't been able to figure out how to make money on yet. And they're going to ipo. And it seems like people think this is kind of a throwback, right? Because like we've talked for so long on this show about how companies have been avoiding going to IPO at all costs for like Ubers of the world just will not go to ipo. But they want to get to a point where they're either making money or just continue along with private or with private venture funding for so long as they can. Now you have a company like Snap that is sort of doing something that's almost like pre Facebook ish, that they're, they aren't really in a sound place, but they think that they'll somehow be able to turn this audience into something valuable and they're hoping the public markets will pay for it.

B (7:08)

So I think what, what we're looking at here is simply a question of valuation. Yeah, the Snap last venture round, I think it was Series F was at a roughly $20 billion valuation, which is more or less where they're going to ipo. What you really don't want to do is IPO a lower level than your last round. Or, you know, what you want to do is you want to IPO in terms of, like, giving your investors the ability to start exiting and making lots of money, which is kind of the reason why they invested in you in the first place. They want that ability to exit. And they want that ability to exit not when you're the most profitable, but rather when you have the highest valuation. And so if they think that now is the highest valuation, or more to the point, that, like, their compound annual return will start going down if they wait longer, then it makes sense to do it now.

A (8:08)

So they have like a ripe. They are a ripe peach sitting on the tree, the IPO tree to be.

C (8:13)

Plucked, trending, or the way Felix is explaining it there at a peak, I mean, you know, that's the real thing. And in fact, it might go down.

B (8:20)

Or it might just go up more slowly in future.

C (8:23)

Growth is already starting to slow a little bit.

B (8:25)

But look at someone like Twitter. You know, they had their IPO and all of their investors went, oh, my God, we've made lots of money. And then the stock price just slowly kind of eroded.

C (8:34)

Well, but they also had a lot. Well, they had about 300 million in revenue right before they went public. And I mean, if you compare to Facebook, Facebook had three, almost $4 billion before they. They were much bigger, and they had almost 500 million users. Users already. So they wait. They waited. You know, they were a little bit more mature when they went public than Twitter or Snapchat.

B (8:53)

I do think that Snapchat has a lot of promise in terms of brand advertising. I think that in general, most of the ads that we see on Facebook and Google are basically direct response ads. A bit like, you know, the ads on Slate Money, frankly, you know, it's like, here's a product. Buy this product. You know, here's a call to action. Do this thing. And what you don't see so much online is just general, like, you know, the kind of advertising you see on the super bowl, right? Just like trying to increase general awareness of your brand, or the kind of ads that you see in magazines and glossy magazines, or more generally, the kind of ads that you see in. On television, right? So the classic example being something like cpg, Consumer packaged goods, right? Like toothpaste. You know, you don't see ads for toothpaste online, but you do see ads for toothpaste on television. And as your media consumption moves, you know, generationally from TV to things like Snapchat, and as Snapchat provides exactly the Same kind of immersive experience that TV does. You're watching it and you're sitting through like videos. I think you'll definitely. I think it's almost certain that companies like Snapchat are going to be seeing a huge amount of brand advertising. The question, of course, is whether Snapchat itself will get that or whether it will all wind up in, in the, you know, Facebook's and Google's anyway.

C (10:25)

I think so. I think the key thing to see for Snapchat is what its next year revenue will be because the revenue grew something like sevenfold. I mean, it was like 50 something million.

B (10:34)

It's very easy to grow sevenfold when you're coming from a tiny base.

A (10:38)

Right.

C (10:38)

But yeah, what does that look like next year? I think that's the key thing. Can it sustain this?

B (10:43)

But also the other thing, if they're raising $2 billion, which they're likely to raise in this IPO, that's going to give them a lot of Runway to be able to lose $500 million a year for the next four years before they need to really worry about being profitable. They have space to be able to work this out.

C (11:00)

Yeah, they're not alone in not having turned a profit yet. I mean, not by a long shot.

B (11:05)

We're about to talk about another company which has not turned a profit yet.

A (11:10)

Are we moving on to that company? Or are we letting Snapchat dissolve, vanish.

B (11:16)

Or let's let Snapchat just disappear after 24 hours. You will never think about Snapchat again, at least until the actual ipo, which is going to happen soonish. So, Lee.

C (11:30)

Yes.

B (11:31)

Actually, this is not true. Airbnb is making money. It's a profitable company.

C (11:35)

It was its first profit last year, defined by ebitda.

B (11:39)

So EBITDA means its profit before various expenses, which we try to sort of. La la, la la. I can't hear you, ignore.

C (11:48)

Right. I mean, you know, ebitda, whether and when to use EBITDA is a topic of much discussion. I mean, I was always trained as a, when I started out in financial journalism that you always want to look at net.

B (11:57)

I.

C (11:58)

Certain industries go by ebitda, as you know, and in this case, I mean, it is.

B (12:01)

So what does EBITDA stand for?

C (12:03)

The earnings before earnings, Interest, taxes, depreciation and amortization.

B (12:07)

And does Airbnb have much in the way of taxes and depreciation and interest?

C (12:13)

I mean, they do, they do. We just don't know what those numbers are.

B (12:16)

I mean, and presumably if they were making money In a sort of making money sense, they would let that be known rather than. So.

C (12:22)

Well, they're not. This is all according to sources close to the company. They're not letting any of this be known. I mean, they're still very private. But, you know, in my book, I had sources who were close to the company who, you know, were. I trust completely and. And share those numbers with me. And those numbers have been shared elsewhere also.

B (12:38)

And. And Airbnb is the outlier of the three companies we're talking about here. It doesn't have 400 million. It doesn't have 500 million. It had $1.7 billion in revenue last year, and that's going up to, what, 2.8 billion this year?

C (12:56)

Yeah, I had a piece for Fortune this week that. And these numbers are in the book. I mean, this company, this is a much bigger company than I think most people realize, and a much more profitable company than most people realize.

B (13:05)

That's not the total amount of money that people are spending on Airbnb.

C (13:08)

It's their revenue. And they collect 6 to 12% from the traveler and 3% from the host. So that is their revenue, and that is what's.

B (13:15)

So what that means is that if their cut was 1.7 billion last year, then the total amount spent on their platform was, what, 10 times that?

A (13:23)

An order of magnitude larger?

C (13:26)

Yeah, many, many times that. I mean, it's. Yeah, but that's. I mean, you have, you know, the number of users on Airbnb is. This is why I wanted to write a book about it. It's become a sort of social and cultural phenomenon. You know, they've had 160 million sort of trips taken is the way they define it, cumulatively. Okay, but those numbers are still doubling every year.

B (13:47)

This is a fascinating. I find Airbnb to be a really fascinating company. And I have a bunch of questions which I have for you from reading your book. Okay, so the first question is I've heard two different theories about what helped Airbnb become, like, the sort of phenomenon that it is. One is all based on trust, that somehow the reason that this never took off in the past was that no one had really cracked the nut of being able to have people trust, that the people staying in their home wouldn't trash it. And the Airbnb managed to do various sort of Facebook integrations and stuff, which really kind of. They cracked that nut. And the minute you cracked that nut, it became this sort of floodgate. The other theory which I've heard is just price really that people have found that they were able to travel to places for much longer and much cheaper because Airbnb is cheaper than the alternatives which have historically, historically been hotels. Do you come down on one side or the other?

C (14:53)

I hate to say this, but both are true. I will tell you. So, yeah, trust is a big part of it, but it's not the only thing. It's not like we could have done this, but we didn't trust anyone before. You really couldn't have done this on this scale. You never could go to any city before and say, I want to choose from 40,000 different individual homes, many of which actually look quite appealing, even if I'm a high end traveler. And, and yeah, trust, you know, that it's, it's, it's, you know, going to be safe.

B (15:21)

So what, and how do you know that? How did, how did Airbnb, unlike its competitors, managed to let get people to trust this thing?

C (15:31)

Well, a couple things, I mean, number one, number a big difference is that those other companies, you know, when I first heard about Airbnb many years ago, I rolled my eyes because I said there's, this is like a classic tech company thinking it can reissue an old idea to the marketplace and with a snazzy new website and do something different. It really was different. One of the big things that was different that isn't talked about much is that those other sites, whether it's HomeAway or Vrbo, they were vacation rental companies. They were located primarily in beach towns or mountain towns. It was where you booked your summer vacation or your winter vacation.

B (16:04)

Right. And it was often second homes.

C (16:06)

Yeah, it was second homes and it was easy.

B (16:07)

People feel less, fewer qualms about renting out their second home than their first.

C (16:13)

Yes, but not even just that, but it's just a much different market. When you're talking about opening up one and two bedroom apartments in cities around the world, you're speaking to a different kind of traveler. It spoke especially to the millennial traveler, which is what glommed onto this first.

B (16:27)

Okay, so coming back to this trust question, like are you saying that millennials are more trusting or that first homes make it easier to trust? What do to commoditize that trust?

C (16:39)

Yeah, a couple of things. Number one, it was the design of the website. They created these kind of two sided review system where, you know, this is a natural checks and balances system that is supposed to keep everybody honest. The truth is there' bit of great inflation and you know, things can always fall through the cracks. It's a Public platform. But that was a very big.

B (16:55)

It was a little bit like. Like the ebay rating. Yeah. When you get a high rating. So that. That was smart.

C (17:01)

Yeah. Except for you're going into someone's home, so you might want to pay even more attention to it. And you're sleeping. You know, it. You know, if you're sharing the space with someone, which is how the company started.

B (17:09)

And then the other thing which you just said, which was, which was I think absolutely key, is that you said design. And this is actually, I would say most of the value of Snapchat as well, comes down to just little tweaks of product design, which it just, you know, lots of people might try and do this, but they just did it in a better design way. And the founders of Airbnb famously did not come out of Stanford. They came out of risd. They came out of a design school.

C (17:39)

Right. Which is why no one wanted to touch them. But, you know, design wasn't just the look of it, though. It was also the fact that you could have payments right there. They were absolutely emphatic about that. You have to be able to have payments on this platform. And the other sites, VRBO or HomeAway or whoever, they were basically like a classified ad. I mean, you, you paid a fee, you know, and then the business model is also different. Those other sites were not taking a fee of the booking. They were just pay us an annual fee and you can advertise on this.

B (18:06)

And that was, and I think that's also key is that Airbnb just managed to squeeze in before companies like Stripe completely commoditized the payments lay. And so, you know, they managed to solve that problem before it was solved for everyone.

C (18:22)

Yeah, they did. Yeah.

A (18:23)

I mean, also, just hindsight being 20 20, in a way, it's not surprising that a well designed site that allowed broke Millennials right after the Great Recession to travel somewhere. I mean, that's also just.

C (18:36)

Absolutely. I mean, Felix mentioned the price. I mean, that is not to be underestimated. The price is. Many polls, like, you know, we'll find that that is the single biggest reason people. People try Airbnb on both sides. And then you also have people. It was the Great Recession, so people needed a cheap way to travel, especially Millennials. And also, and there's a whole bunch of other reasons why Millennials like it as well. But also on the hosting side, people were, you know, Airbnb really makes a big deal about this, about how they're saving the middle class. But, you know, a lot of people started doing it because they needed to do it and then and then liked doing it.

B (19:10)

Okay, so I have two questions about price because this is late money. And the first question is how do people set the price of their apartments? And then the second question is, is Airbnb really cheaper than hotels? Because I've seen some articles saying that it's certainly in some cities. It isn't.

C (19:31)

Well, it really depends. I'll answer your first question first. Pricing is. They have come up with a lot of tools that you can use as a host. They have a whole pricing smart pricing system internally at Airbnb now that you can use. And it really factors in when events are coming to your town. It factors in. And that's really when Airbnb is very useful and very threatening to the hotel companies. But there's this whole cottage industry of Airbnb kind of bolt on companies out there now. So there are a couple, there are outside companies that will also help you with your pricing as well. So there's a whole lot of support for you. One thing that has happened is the supply of Airbnb has gone up in certain markets. Some hosts complain my pricing is. There's so many people doing it now that it's hard to keep my prices up. So that's, you know, so I have.

A (20:17)

Kind of a forward looking question. In your book, you talk a lot about this tension with the Airbnb about, you know, the mom and pops who just rent out their apartment or their room and the essentially commercial, the kind of clandestine commercial users who are running four or five apartments and they're more or less operating a secret hotel. And this has been the constant regulatory battle in cities like San Francisco or New York where people are worried about housing. And I guess my question is, for this company, which also has a really big valuation and is booming business, is it going to be able, I guess, make good on that valuation? Is it going to be as profitable as its investors hope without those clandestine commercial operators? Like, are they really key to its future? Does it have to basically be a fake hotel business or can they actually kind of rein that in and be the middle class, you know, mom and pop based business they kind of portray themselves as and still be profitable like they want to be?

C (21:13)

That's a great question. I mean, they have reigned that in a lot, especially in those hypersensitive markets like New York and San Francisco. They have kicked off a lot of those listings, a lot of those listings. The major, major ones also just kind of saw the writing on the wall and have gone to other sites, There are still people, you know, renting three, four, five, maybe more places in those cities.

B (21:32)

And they're cool with that?

A (21:33)

No.

C (21:34)

Well, they say they're not cool with that. That's the big question. They say they're not cool with that. But what they're looking for is. Is places that don't reflect their mission. I mean, it's important that, you know, what people seem to want on Airbnb is this kind of hostiness. I mean, a little bit of it. They do want it. So if you rent a place on Airbnb and it looks and feels like a corporate hotel, it's not. It's not good. So even the commercial entrepreneurial people are sort of playing by the onesie.

B (21:56)

So can I. I need to come in here, because this is one of the few nonfiction books where I actually, like, laughed out loud in the middle of reading it. And I just want to read this one paragraph, which. Which made me laugh because it's absolutely on this point, which. Which says. So Airbnb is really big on this, like, friendly branding. And they came up with this mission, which. Anyway, so in the mission, they. They hired this guy called Doug Atkin, who. Who, like, went out and vast expense, you know, traveled around the world and came back with two words, and he said the words that Belong anywhere and everyone. Wow, that's amazing. Your words are great. And they. They re. Architected the entire company around this. This. This slogan, bel. And then you write this, which is my favorite paragraph in the whole book. In November 2014, four months after the company launched Belong Anywhere as its mission, Chesky, this is. The CEO went back back to Douglas Atkin. He said that he loved Belong Anywhere and he truly felt it would be the company's mission for the next hundred years. But he still had some pressing questions. What does it actually mean? I mean, this is classic, right?

C (23:07)

Yeah, yeah. But look, I mean, I was very skeptical of the whole Belong Anywhere when it first launched. I thought, you know, people just want a cheap and kind of interesting place to stay. But this is a humongous part of what this company sees itself as about. And it is, you know, the people who work there. You know, I asked Brian Chesky at one point, I said, so what are your. What are your goal? Like, what really are your goals for 2020? What are your metrics that you actually watch? He says, well, what we're most concerned with is how many people can belong Anywhere. You know, it just answers every question.

B (23:40)

He's super on message.

C (23:42)

Well, he believes that. He really believes it. And actually, the more I looked into this, and I talked to people who are not necessarily, you know, Kool Aid drinkers, but just people who have studied this company, and, you know, this really is what it's about. And this is one of the reasons that it has taken off. I mean, there are a lot of intangible reasons why it's taken off. I mean, you know, Price is one, but also Millennials is another. Millennials who think nothing of trusting someone they've only met digitally, which is a big part of it. But also this notion that, like, our societies become so separate. You know, people are tired of staying in a sterile, corporate hotel room. They want to stay separate. They want a little more connection.

B (24:16)

It's mostly just washer dryers. People just really like being able to do their laundry.

C (24:22)

Do you mean that metaphor?

A (24:25)

So here kind of coming back to the commercial operator, but also speaking to this whole, like, the long term.

C (24:28)

Yeah, I didn't totally answer that question yet.

A (24:30)

Well, so here's why I have a little bit of trouble fully buying their line about it. And I'm speaking as a millennial who travels almost exclusively on Airbnb. Like, I. I very much like this service, and I've used both ends. I've stayed with, like, couples in Cambridge who made me coffee in the morning and with people who are basically just running a hotel in, like, Portugal. But, like, you know, if you go onto the site and you just start looking around, like, if you just type in Paris, their biggest market. Right. And you just start looking at some of the popular neighborhoods, the Marais, it is easy to find the people who are running, like, multiple listings. Some are good and kind of hide it, but others, it takes 15, 20 minutes of legwork, and you can kind of figure out who's got a little chain going. And so this is if I can do it. Like, you know, Jordan Weissman, not even really putting his reporter skills to work, literally just, like, on his couch at one in the morning trying to book his vacation. God knows someone paid full time to do it would also be able to. So this is. This is why I have a little bit of. I just like. Like, I have a hard time fully. I have a hard time believing their branding, let's put it that way.

C (25:34)

Well, but they're not saying that. They're not saying that they don't have any of them. They're definitely not. I mean, you know, Brian Chesky, he likes that there are entrepreneurs on this site, and it depends on the market. I mean, in housing constrained markets like New York and San Francisco, I think they would pay a lot more attention to that. And this was a big point of debate. You know, so the hotel companies say. I mean, Airbnb has said we don't interview everyone who goes on the site. We don't always know who's there. And the hotel companies say, that's B.S. you know, you could look in the back and we, the hotel companies have people looking. And, you know, But I did speak to one real, you know, one expert, the CEO of Air DNA, which is a data firm that now all the banks use to get his Airbnb data from. And he was a host who got in trouble for hosting because he had six or seven listings in Santa Monica. But he said, you know, it's very easy to write your way around. You know, it's very easy to hide. He said, it is very, very easy to, you know, get behind the system, even if. If they were to try to enforce that more.

B (26:32)

And I guess my question is, is that a problem? Like, to. To what. To what extent is it important for Airbnb to not have multiple listings? Or is it really only in a few places like New York and Reykjavik, where people care about this?

C (26:49)

Well, I think it's important in two ways. It's important in those sensitive markets, definitely, but it's also important for the brand and the products. It's the product it's delivering, you know, I mean, the millennial who likes Air. I don't know. You can't take that corporate stuff too far in that direction. Otherwise you seem like a hotel company and you don't have that sense of belonging. I mean, of course that stuff is out there. But I don't know, it's funny. I mean, I've used Airbnb a lot in my research for this book. Just going in and just plain old booking with no agenda. Most of everything I booked was like a onesie, and I wasn't trying for that. So that's a very small sample scale. I did more research than that.

B (27:29)

Great word. Which you use from One of the VCs who invested in Airbnb, who called it an anti commodity.

C (27:36)

Yeah, that was Reid Hoffman. Yeah. And that's a big reason why people like it. It's unique. It's like, you know, we're so obsessed with everything artisanal, you know, from our chocolates to our pickles, whatever. Well, you know, especially the younger generation wants that in their hotel rooms. I mean, they don't want the cookie cutter experience. And, you know, Airbnb really pushes this live like a local thing, but that is one of the most kind of unique things about it, that you can stay in the narrow, beautiful streets of Georgetown, on that street rather than on the arterial road where the very nice hotel is. I mean, you get access to places you just wouldn't otherwise have access to.

B (28:14)

Jordan.

A (28:15)

Yes.

B (28:15)

We're going to do the one in the middle here, the one with $500 million of digital revenue, which is more than Vox Media, more than buzzfeed, more than Vice. It's kind of surprising that this hugely successful digital company is the New York Times. So how did that happen? What's going on there?

A (28:37)

So the New York Times is, well, like everyone at media, but like in a transition point, and they're kind of fighting this, really running this really, you know, frightening race where their print advertising is declining, it's falling rapidly, and they're trying to make up for it with a combination of online advertising, which is a brutal, horrible game especially. It just, it's. It's really hard to. To make a profit off that. And then also digital subscriptions, and we've all probably, you may have heard about how digital subscriptions got this huge bump after, after Donald Trump for, you know, was elected. People suddenly felt compelled to pay for their news finally, as kind of like a support, you know, the fourth estate type thing. And there's always this question of, like, how well can a subscription model work? And I found this really interesting paper that came out this week that least spoke, you know, generally well to kind of what the New York Times is doing. And so what they. A few years ago, what they did was they went and finally put down a paywall, right? They gave you a limited number of articles you could. You could read each month. First it was 20, and then they eventually lowered it to 10. And then eventually you had to pay. Right. And the idea was to finally just make people subscribe to the damn, you know, site, to the newspaper. And the fear was that that was going to also chase off, that was going to decrease the amount of digital advertising revenue, which was really precious, and they wouldn't get as many visitors to the site. And so there's always been this question of, you know, what's the balance? How much are you making in subscription revenue versus how much are you losing in advertising? Right. Because you need both of these things to make up for all the declining print revenue. So this new economics paper just came out that's really kind of cool, which tried to figure out this question. Essentially what they did was they went and they compared the New York Times to the Washington Post and USA's Today's Performance and they did a bunch of equations and yada yada yada, regressions. Don't need to get into the details of that. That what they found was that for every $1 of new subscription revenue, they only lost about 13 cents in advertising, online advertising revenue. But then also this interesting thing happened where essentially putting on the paywall preserved print subscriptions. It got people to continue subscribing to that because they couldn't get it for free online. And so that had a knock on effect where it preserved some of their print advertising.

B (30:44)

Well, that was really one of the main reasons why they implemented the paywall in the first place was as a way of stopping people from giving up their print subscriptions because they had this policy and I don't, I doubt this policy will ever change that. If you have a print subscription, then you get full access to the digital site for free and offer just for the price of your print subscription. And actually when they launched, this is not true anymore, but when they launched some print subscriptions, you know, if you just got the Sunday paper were actually cheaper than the pure digital subscription because they were making so much money from those print ads that they actually preferred you to have a slightly cheaper print subscription and also get all of that money from print ads.

A (31:29)

And so, you know, the idea here is their, their basic strategy was sound, right? Like they made the right call. They may have made it even like too late. Perhaps this is something they should have done years before, but at the same time. So okay, they have the right strategy. The question is, and I think it's kind of terrifying, everyone is, is it going to be enough? Are they going to be able, is the New York Times or anybody else going to be able to make back enough money doing what they're doing now to make up for this rapidly declining print advertising budget? And you know, to give you a sense, you know, Digital subscriptions are $63.7 million. That's all their digital subscriptions. That's still less than they get in print ads in a quarter. So and the, it just like, I don't know, I mean, maybe, you know, you guys are in this, but this kind of affects all of us, right? Like they are sort of the, they. If the New York Times can't make it, nobody can. I guess that's sort of what we all feel like. So I mean this is kind of the fear. It's on the one hand they are doing, they appear to have found the right model. On the other hand, there is no. It is unclear if that the right model is enough to save them.

C (32:32)

Well, I think it. I think you have to look at the trend lines, right? That 63.7 million pales in comparison to the Prince still. But you have to look at the. I mean, I'm holding up my elbows in a big X here. It's like, you know, this is the trend for the print and this is the trend. It's all at the crossover point.

B (32:47)

That's exactly.

C (32:48)

Crossover point.

B (32:48)

That's exactly. The point is that everyone knows that at some point print is going to go to zero, right? At some point they're going to stop printing. No one knows when that's going to be, but it's inevitable at some point. And when print goes to zero, they actually get a huge financial benefit from that. Because. Because the physical. The cost of physically printing and distributing the New York Times is enormous. It costs billions of dollars. They spent literally billions of dollars on new printing presses and that kind of stuff.

C (33:17)

So it's our equivalent of Amazon Web Services.

B (33:19)

So the minute. So the minute that you stop printing and distributing the New York Times, you get this huge dividend and that will help. And then. And they're going to continue to print and distribute the New York Times for many years to come. So they have. They get to rely on that print revenue for as long as it exists. And then when they no longer need that crutch, they can drop it off behind them. And then they get the benefit of no longer having to pay all of the expenses of printing and distributing. And at that point, with any luck, the digital subscription revenue will be multiples of what it is today. The CEO of the New York Times, Mark Thompson, has said that he wants 10 million digital subscribers. And, you know, it's a stretch goal. They're nowhere near that now. But in principle, I don't see any reason why they shouldn't be able to achieve that.

C (34:10)

I would also love to see some changes, and this study mentions this a little bit in terms of just the quality of the engagement of the online reader and just being able to distinguish between a casual reader and a really engaged one and charge better targeted ad rates for those people so that there's more of a reflection of quality.

B (34:28)

The FT does this very well because they have a huge amount of data about their readers. And so once you're logged in, in order to be able to read the ft, they can really serve you up very targeted ads, which have extreme and very expensive Ads. The New York Times does this less. Well, when you're logged into the New York Times, the ads you see are not particularly targeted to you. So that's a little bit of opportunity they have there. And the other big question though, which I have, is that beyond the financial subscriptions, which are often expensed, the Wall Street Journal and the FT and the New York Times, which is in many ways sui generis, it's kind of the only paper which has got anything like this kind of amount of subscription revenue. If you look at the news business more generally, I think that the New York Times always has been kind of unique, is kind of unique, and that other news organizations really can't look to it as a model.

A (35:28)

Yeah, I mean, I guess I should sort of amend what I said. If the New York, you know, saying if the New York Times can't make it, nobody can. Just because the New York Times. Exactly. Just because they can make it doesn't mean anybody else can, you know. Yeah. And it's also since the New York Times is drawing its subscriptions from across the entire country, in a way, the world. The world, yeah. It's drawing from the pool that the San Francisco Chronicle could theoretically be drawing from as well, or that, you know, the Milwaukee Journal Sentinel could, but they're not.

B (35:55)

But they're not global. I mean, I feel like the only other entity which is even beginning to try and get that kind of global subscription support is the Guardian, possibly also.

A (36:07)

The Washington Post is doing something interesting where they're almost more trying to push out what USA Today used to be in some ways, like digitally, I mean, not in terms of quality of journalism or approach to it, but in terms of just being a lower cost subscription model and having some tie ins with Amazon Prime. So they're a little bit more of the budget newspaper, but still a national, well respected journalistic institution. So maybe you can add them to the list of people who might be able to thrive on this. But yeah, you're right. There is a question of how many journalistic institutions can actually thrive on this digital subscription model, period. How much room is there on the boat?

C (36:40)

You know, another thing is, I mean, the genie's out of the bottle, right? The consumer is so used to free information and free, really good information. And I was just thinking about this on the way over here. I mean, the whole podcast boom. Do you know how much amazing stuff is out there on podcasts now? Amazing, amazing stuff. Listen to us. But I mean it that it's all free. I mean, this whole new, you know, there's so much free stuff out there.

B (37:01)

I feel like that's a fascinating and very true thing, is that the quality of free information is very high. And one of the reasons why people were so shy about asking for digital subscriptions, because everyone knew that, like, why would I pay for X when I can get Y for free? And why it's just good as X in the news business. Bloomberg is a really great example of the BBC. Bloomberg and the BBC are never going to ask for subscriptions. They're extremely high quality. And so there was this idea that if there's a free alternative, then why would people pay? I think what we have seen with the New York Times and now the Washington Post is that people are willing to pay for things even when there are free alternatives which are just as good.

C (37:47)

Yeah.

A (37:47)

There was actually an interesting little detail in the study too, which talked about substitution. Right. If you went to the New York Times and you got paid, walled out, did you go and look somewhere else for the same story, essentially? And people didn't. It was this interesting behavioral thing. You would assume people would just go, okay, let me look for the Bloomberg version of this for free. But instead they just appeared to. Or look for the Washington Post version of this for free. But instead they. They just, you know, didn't read the news. Well, but.

C (38:13)

But the thing about that is, the reason why people would say, now I really want to see what the Times has to say about this is because of decades and decades of expensive, incredible journalism. And, you know, the new journalism has to pay for that. You know, and branding. But that, but, you know, the New York Times, I would say, you know, a lot of brands in my company too. I mean, it's built on that kind of quality. And so the model needs to be able to pay for that to pay for that journalism. Otherwise the quality will go down and then. And then you've lost and you won't.

B (38:43)

Be able to pay for the. Yeah. And just wrapping this up, I feel like what we're talking about here is legacy brands. The Washington Post has been around for a long time, as the Guardian, the Economist has been around for 150 years. They have an amazing subscriptions, digital subscriptions business. What's less clear is how many. And there are a few digital companies like the Information, which have decent digital subscription businesses with much, much, much, much smaller newsrooms.

C (39:12)

Right.

B (39:14)

You know, what remains to be seen is whether you can have a digitally native, non legacy brand with a large newsroom or whether you even need that, or in a digital world Maybe you don't need big newsrooms anymore. Maybe you don't need a one size fits all newsroom like the New York Times. And you can just have little bits of newsletter writers and stuff who get relatively small revenues, but that's okay because they're relatively small.

C (39:35)

But what's being monetized and what the sales pressure is in scale right now. And so that's why you see so many brands really chasing the traffic numbers, because the advertisers want to see the numbers rather than the, you know, that's why I think any, any increased focus on the quality of that readership would, would, you know, be more welcoming to a smaller model. But right now, everyone is focused on getting as big as possible, as many readers as possible to be able to monetize them.

B (40:00)

So it's time for the numbers round. Lee, what's your number this week?

C (40:05)

My number is 25.2, and that is the average PE of the S&P 500, and it's well above the long term average of 16.

B (40:12)

So that is basically the cost of a dollar of earnings. If a company is making a dollar in profits every year, you need to pay $25.20 to buy that company on the stock exchange. It will take you. If they make that money every year, it'll take you 25 years for you to get your money back.

C (40:31)

Yeah, it suggests that the market's overvalued. This is from my colleague Chantilly's cover story on the promise and the peril of the Trump economy, which just came out. But, and he's been long, long been saying that the market's overvalued, Sean. But. And it's been that way for about a year. It's been above. It was about 20 a year ago, but it's come up and so just something to pay attention to.

B (40:50)

Good times. An IPO, if you're, if you're sure is. My number is 136 billion. So, yeah, we've been talking about companies like that, which are billion dollar companies, multibillion dollar companies. New York times is worth two and a half billion dollars. Snap is worth 20 billion dollars. IT IPO is at Airbnb is what, 30 billion? Something like that. There's a small consumer packaged good company you might have heard of called Unilever, which is worth $136 billion. That is a big company, and that has recently been the target of a takeover attempt by Kraft Heinz or Heinz Kraft, whichever one they are. And I guess implicitly, Warren Buffett has been looking for Big, big elephant hunting targets. For a while. I feel like Unilever is a classic Warren Buffett company.

C (41:45)

Unilever. You know, it's so interesting. Paul Pullman, the CEO, has been on this real mission to lead with sort of. He's put in place all these values around sustainability and all these other things. And the point being, this is doing good business by doing well. And it's. He's. A lot of people say that he has really put his money where his mouth is for almost a decade now. And so it would be sort of a shame for business at large to see that get diminish in any way.

B (42:12)

Because. Because Kraft Heinz is run by a bunch of Brazilians who really don't care about that kind of thing.

C (42:18)

They're ruthless.

B (42:18)

They're ruthless.

C (42:19)

Yeah.

B (42:20)

All right, Jordan, do you have a number?

A (42:21)

My number is $7,700. That is how much more a the median family, white family with less than a high school education is worth than the median black family that has at least some college education. So again, if you're a white family and you're like, have not gone to. Not finished high school, not gone to College, you're the 50th percentile. You're worth $18,800. If you're a black family and you have some college, the parents have some college education, you're worth $11,100. And so this is just a really, I think, interesting and kind of really sad illustration of the black white wealth gap in this family where you can be a black family that's more educated, that has made the right decisions in life. And essentially, because of the legacy of things like housing policy, white families who don't even make it through high school through 12th grade, you know, are gonna be richer. Just like, straight up.

C (43:20)

We have a long way to go in this country.

A (43:22)

Yeah.

B (43:23)

So that's it for us this week. Leigh Gallagher, you are the most wonderful person. We love you.

C (43:30)

Thank you so much for having me. It's been so much fun.

B (43:33)

One more last plug for your book. What's it.

C (43:36)

Oh, by me or by you?

B (43:37)

Yeah, by you. There's no one else here with a book.

C (43:39)

I thought you were gonna say it. My book is the Airbnb Story. How Three Ordinary Guys Disrupted an Industry Made Billions and Created Plenty of Controversy.

B (43:50)

I love those long subtitles on thrift stores now. Especially when they use the word disruption.

C (43:55)

I know, but they really did. They really did.

B (43:58)

They disrupted.

C (43:59)

I've another word for it.

B (44:00)

We never even got into the whole disruption conversation. And whether or not, they actually disrupted the hotel industry. But maybe if, if you ever come back, which we very much hope that you will, we can, we can have that conversation some other time. So, Lee, thank you very much for coming. Thanks also to Zach Dynastyn, the producer, the executive producers, Steve Lichti and Andy Bowers. Rate to us. Our email is slate money@slate.com check out the whole Panoply roster@itunes.com panoply and we will talk to you next week on Slate Money. Gonna make it at. I got a date with destiny. I'm running late for that. Grab a paper. Hey, kid, you gotta pay for that. The New York Times.

A (44:56)

Yeah.

B (44:58)

The New York Times.

A (44:59)

Extra, extra.