Washington Post Company (WPO)

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The Washington Post Company (NYSE: WPO) is an education and media company that publishes The Washington Post and Newsweek and operates Cable ONE. The Company also owns Kaplan, Inc., a provider of educational and career services for individuals, schools and businesses.

WPO's newpaper and magazine divisions have suffered in recent years as the growth of Internet advertising has siphoned a steady flow of advertising dollars away from traditional print media. Although WPO is seeking to recapture some of these dollars by strengthening its own online presence, its average daily circulation and newspaper and magazine advertising revenues continue to slip. Furthermore, WPO's overall revenue from advertising continue to decline as advertisers move towards the Internet and other media like digital television.

The 2008 Financial Crisis boosted enrollment in Kaplan's educational and professional programs as many have sought to earn additional degrees due to the scarcity of jobs. In 2009, Kaplan generated 58% of The Washington Post Company's revenue, a higher percentage than any of the company's segments have ever generated.

Company Overview

The Washington Post Company is a educational and media company- its five main business divisions include education, newspapers, magazines, television broadcasting, and cable television.

The Washington Post Company owns The Washington Post; Washingtonpost.Newsweek Interactive (WPNI), the online publishing subsidiary whose flagship products include washingtonpost.com, Newsweek.com, Slate, BudgetTravel.com and Sprig.com; Express; El Tiempo Latino; The Gazette and Southern Maryland newspapers; The Herald (Everett, WA); Newsweek magazine; Post-Newsweek Stations (Detroit, Houston, Miami, Orlando, San Antonio and Jacksonville); Cable ONE, serving subscribers in midwestern, western and southern states; and CourseAdvisor, an online lead generation provider.^[1] The Company also owns Kaplan, Inc., a provider of educational and career services.^[1] The Company has an ownership interests in the Los Angeles Times-Washington Post News Service and Bowater Mersey Paper Company.^[1]

Most of the company's operations occur in the United States. The Company’s operations in geographic areas outside the United States consist primarily of Kaplan’s foreign operations and the publication of the international editions of Newsweek. During the fiscal year 2009, these operations accounted for approximately 12% of the Company’s consolidated revenues.^[2]

Business and Financial Metrics

First Quarter 2010 Results^[3]

The Washington Post Company reported net income available for common stock of $45.4 million ($4.91 per share) for its first quarter ended April 4, 2010, compared to a net loss available for common stock of $19.2 million ($2.04 loss per share) in the first quarter of last year. Revenue for the first quarter of 2010 was $1,171.2 million, up 11% from $1,054.1 million in 2009. The increase is due to revenue growth at the education, television broadcasting and cable television divisions, offset by revenue declines at the magazine publishing and newspaper publishing divisions. The Company reported operating income of $92.5 million in the first quarter of 2010, compared to an operating loss of $19.6 million in 2009.

Business Segments

Education (58% of 2009 revenue)^[2]

Effective in the third quarter of 2009, Kaplan reorganized its operations into four segments: Kaplan Higher Education, Kaplan Test Preparation, Kaplan International and Kaplan Ventures.

Kaplan's education segment revenues, 2007-2009^[2]

Kaplan Higher Education

Kaplan Higher Education provides a wide array of certificate, diploma and degree programs, on campus and online, designed to meet the needs of students seeking to advance their education and career goals.

Kaplan University

Kaplan University specializes in online education, is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools and holds other programmatic accreditations. Most of Kaplan University’s programs are offered online, while others are offered in a traditional classroom format at ten campuses in Iowa, Nebraska and Maryland. Kaplan University also includes Concord Law School, the nation’s first fully online law school. At year-end 2009, Kaplan University had approximately 60,400 students enrolled in online programs and 5,120 students enrolled in its classroom-based programs.

Kaplan Test Preparation

Kaplan Test Preparation includes the following businesses: Test Preparation and Tutoring; Professional and Licensure; and Kaplan Publishing.

Test Preparation and Tutoring

The test preparation and tutoring business prepares students for a broad range of college and graduate school admissions examinations, including the SAT, ACT, LSAT, GMAT, MCAT and GRE. During 2009, these courses were offered at numerous locations throughout the U.S., Canada, Puerto Rico, Mexico, London and Paris. KTP also offers courses online, which are delivered in a live online classroom and a self-study format. In addition, KTP licenses material for certain of its courses to third parties and a Kaplan affiliate, which, during 2009, offered courses at 55 locations in 11 countries outside the U.S. KTP also offers programs and services, including college admissions examination preparation courses, directly to schools and school districts for students in kindergarten through 12th grade.

Professional and Licensure

The professional and licensure businesses (collectively, “Professional and Licensure”) prepare professionals for a variety of licensing and advanced designation exams and offer continuing education in various fields. Professional and Licensure includes the following businesses: Kaplan Medical and Kaplan Nursing, which prepare students for licensure exams including the USMLE and NCLEX exams; Kaplan PMBR, which offers full-service bar review in 19 states, as well as review for the multistate portion of the bar exam nationwide; Kaplan Schweser, which offers test preparation courses to financial services professionals for the CFA, FRM and CPA exams, as well as continuing education for accountants; Kaplan Financial Education, which provides entrance exam preparation and continuing education courses for financial services professionals; Kaplan Real Estate Education, which provides courses for real estate, home inspection, architecture and engineering; Kaplan Professional Publishing, which provides printed and online materials that help individuals study for and/or satisfy state licensing and continuing education requirements; and Kaplan Continuing Education, which offers certificate programs in fields such as business, finance, health care and information technology. The courses offered by KTP are provided in various formats including classroom-based instruction, online programs, printed study guides, in-house training and through other technological means. During 2009, these businesses enrolled more than 638,000 students in their courses (including over 206,000 enrolled in online programs).

Publishing

Kaplan Publishing, which is operated separately from Kaplan Professional Publishing, publishes a variety of general trade and educational books in subject areas such as test preparation, business, law, medicine and nursing. At the end of 2009, Kaplan Publishing had nearly 550 books in print, more than 330 e-Books and 20 mobile applications for smart- phones.

Kaplan International

Kaplan International includes Kaplan Europe and Kaplan Asia Pacific. Kaplan Europe, which Kaplan formed in connection with the 2009 reorganization, includes the following businesses, which are all based in the U.K. and Ireland: Kaplan Professional; Kaplan International Colleges; and a set of higher education institutions. Kaplan Asia Pacific operates primarily in Singapore, Australia, Hong Kong and China.

Kaplan Ventures

The Kaplan Ventures division manages and develops businesses in markets adjacent to Kaplan’s core educational businesses. Kaplan Ventures’ management provides these businesses with industry expertise and management support with a view toward the long-term strategic benefits these businesses may provide to Kaplan. In 2009, the Kaplan Ventures division included Kaplan EduNeering, Kaplan Compliance Solutions, Education Connection, Kaplan IT Learning, The Kidum Group and Kaplan Virtual Education.

Newspaper Publishing (15% of 2009 revenue)

The Washington Post

WP Company LLC, a subsidiary of the Company, publishes The Washington Post, which is a morning daily and Sunday newspaper primarily distributed by home delivery in the Washington, DC, metropolitan area, including large portions of Maryland and northern Virginia. The Post’s two primary sources of revenue are advertising and subscription fees, which accounted for 68% and 29% of its total revenue in 2009, respectively. Advertising revenue is derived from the sale of display and classified advertisements, as well as the insertion of preprinted advertisements.

Average paid daily circulation of the Washington Post^[2]

The Slate Group

The Slate Group publishes Slate, an online magazine, and several additional websites. Slate features articles analyzing news, politics and contemporary culture and adds new material on a daily basis. Content is supplied by the magazine’s own editorial staff, as well as by independent contributors. The Slate Group also publishes The Root, an online magazine focused on issues of importance to African Americans and others interested in black culture, offering daily news and provocative commentary on politics and culture; The Big Money, an online magazine launched in September 2008 featuring articles and commentary on business news; and Foreign Policy, a bimonthly print magazine and website that features articles analyzing current events, business and policy news from around the world. In addition, Foreign Policy hosts a small number of foreign policy conferences every year.

Express Publications

Express Publications Company, LLC, another subsidiary of the Company, publishes Express, a weekday tabloid newspaper, which is distributed free of charge using hawkers and news boxes near Metro stations and in other locations in Washington, DC, and nearby suburbs with heavy daytime sidewalk traffic. A typical edition of Express is 48 to 60 pages and contains short news, entertainment and sports stories, as well as both classified and display advertising. Current daily circulation is approximately 184,300 copies. Express relies primarily on wire service and syndicated content and is edited by a full-time newsroom staff of 23. Advertising sales, production and certain other services for Express are provided by WP Company. The Express newsroom also produces a website, ExpressNightOut.com, which features entertainment and lifestyle coverage of local interest.

Post–Newsweek Media

The Company’s Post–Newsweek Media, Inc. subsidiary publishes two weekly paid-circulation, three twice-weekly paid-circulation and 26 controlled-circulation weekly community newspapers. This subsidiary’s newspapers are divided into three groups: The Gazette Newspapers, which circulate in Montgomery, Prince George’s and Frederick counties and in parts of Carroll County, MD; and Southern Maryland Newspapers, which circulate in southern Prince George’s County and in Charles, St. Mary’s and Calvert counties, MD; and the Fairfax County Times, which circulates in Fairfax County, VA. During 2009, these newspapers had a combined average circulation of approximately 835,000 copies. This division also produces military newspapers (most of which are weekly) under agreements where editorial material is supplied by local military bases, with the exception of one independent newspaper. In 2009, the 12 military newspapers produced by this division had a combined average circulation of more than 125,000 copies. The Gazette Newspapers have a companion website (Gazette.net) that includes editorial material and classified advertising from the print newspapers. The military newspapers produced by this division are supported by a website (DCMilitary.com) that includes base guides and other features, as well as articles from the print newspapers. The Southern Maryland Newspapers‘ website (SoMdNews.com) also includes editorial and classified advertising from the print newspapers. The Fairfax County Times website (FairFaxtimes.com) also includes editorials and classified advertising from the print newspapers. Each website also contains display advertising that is sold specifically for the site. The Gazette Newspapers, Southern Maryland Newspapers and the Fairfax County Times together employ approximately 170 editors, reporters and photographers. This division also operates a commercial printing business in suburban Maryland.

The Herald

The Company owns The Daily Herald Company, publisher of The Herald in Everett, WA, about 30 miles north of Seattle. The Herald is published mornings seven days a week and is primarily distributed by home delivery in Snohomish County and online at Heraldnet.com. The Daily Herald Company also provides commercial printing services and publishes The Enterprise, a weekly community newspaper home delivered in south Snohomish County. The Daily Herald Company also publishes La Raza del Noroeste, a weekly Spanish-language newspaper that is distributed free of charge.

Greater Washington Publishing

The Company’s Greater Washington Publishing, Inc. subsidiary publishes several free-circulation advertising periodicals that have little or no editorial content and are distributed in the greater Washington, DC, metropolitan area using sidewalk distribution boxes. Greater Washington Publishing’s periodicals of that kind are Apartment Showcase, which is published monthly and has an average circulation of about 46,000 copies; New Homes Guide, which is published six times a year and has an average circulation of about 51,000 copies; and Guide to Retirement Living Sourcebook, which is published nine times a year and has an average circulation of about 35,000 copies. Greater Washington Publishing, Inc. ceased publication of Washington Spaces Magazine in 2009, with the November/December Early Winter 2009 issue as its final issue.

El Tiempo Latino

El Tiempo Latino LLC publishes El Tiempo Latino, a weekly Spanish-language newspaper that is distributed free of charge in northern Virginia, suburban Maryland and Washington, DC, using sidewalk news boxes and retail locations that provide space for distribution. El Tiempo Latino provides a mix of local, national and international news together with sports and community-events coverage and has a current circulation of approximately 50,000 copies. Employees of the newspaper handle advertising sales as well as prepress production, and content is provided by a combination of wire service copy, contributions from freelance writers and photographers and stories produced by the newspaper’s own editorial staff.

Magazine Publishing (4% of 2009 revenue)

Newsweek, Inc. (“Newsweek”) publishes Newsweek, a weekly global forward-looking news and ideas magazine and its digital platform, Newsweek.com. Newsweek is published domestically and internationally. The domestic edition of Newsweek includes more than 100 different geographic or demographic editions that carry substantially identical news and feature material, but enable advertisers to direct messages to specific market areas or demographic groups. Newsweek is sold through subscription mail order sales derived from a number of sources, principally direct-mail promotion, as well as online and on newsstands. Newsweek‘s published advertising rates are based on its average weekly circulation rate base and are competitive with those of the other publications in its category. Newsweek reaffirmed its plans to reduce its domestic rate base to 1,500,000 copies in the first quarter of 2010, reflecting a shift in focus to a different demographic that is closer to its core base of loyal subscribers. This demographic consists of a group of subscribers who are highly educated, who have demonstrated a high level of interest in news and ideas and who have higher incomes. This will change Newsweek’s competitive set, making it the largest premium news and ideas magazine, aligned more closely with The Economist, New York magazine, New Yorker, Wired, BusinessWeek and The Atlantic. In 2009, Newsweek, Inc. increased the subscription price of Newsweek and its national advertising rates to reflect a more valuable subscriber base. Internationally, Newsweek is published in English in a Europe, Middle East and Africa edition; an Asia edition covering Japan, Korea and south Asia; and a Latin America edition. Editorial copy solely of domestic interest is eliminated in the international editions and is replaced by other international, business or national coverage primarily of interest abroad. Newsweek estimates that the combined average weekly paid circulation for these English-language international editions of Newsweek in 2009 was approximately 460,000 copies.

Television Broadcasting (6% of 2009 revenue)

Post–Newsweek Stations, Inc. (“PNS”), a subsidiary of the Company, owns six television stations located in Houston, TX; Detroit, MI; Miami, FL; Orlando, FL; San Antonio, TX; and Jacksonville, FL. Revenue from broadcasting operations is derived primarily from the sale of advertising time to local, regional and national advertisers. In 2009, advertising revenue accounted for 90% of the total for PNS’s operations. Advertising revenue is sensitive to a number of factors, some specific to a particular station or market and others more general in nature. Some examples include a station’s audience share and market ranking; seasonal fluctuations in demand for air time; annual or biannual events, such as sporting events and political elections; and broader economic trends. The recent economic crisis put downward pressure on advertising revenue as businesses cut their advertising budgets. Most notably, the automobile industry, historically a large buyer of television advertising, contracted dramatically in recent years and reduced overall advertising spending accordingly. PNS’s revenue in 2009 reflects the effects of this contraction.

Cable Television (16% of 2009 revenue)

Through its subsidiary Cable ONE, Inc. (“Cable ONE”), the Company owns and operates cable television systems that provide video, Internet and phone service to subscribers in 19 midwestern, western and southern states. At the end of 2009, Cable ONE provided cable service to approximately 669,000 basic video subscribers (representing about 48% of the 1,395,000 homes passed by the systems) and had in force approximately 219,100 subscriptions to digital video service, 392,800 subscriptions to cable modem service and 109,600 subscriptions to VoIP (digital voice) service. Digital video, cable modem and VoIP services are available in markets serving virtually Cable ONE’s entire subscriber base. The digital video services offered by Cable ONE include certain premium, cable network and local over-the-air channels in HDTV.

Trends and Forces

Rise of the Internet and Other Media Cause Newspaper Revenues to Fall

WPO, along with other leading newspaper publishers such as New York Times Company (NYT) and Gannett (GCI) have been impacted tremendously by the growth of the Internet and other media like Digital Television. Many of these new media take readers away from WPO's traditional newspapers and magazines. For example, The Post's average weekday circulation and average Sunday circulation have dropped by about 12% since 2003.

The Impact of Internet Advertising has drastically weakened WPO's advertising sales for its publications, as advertising on the Internet is generally much cheaper and can reach a larger audience than traditional newspapers or magazines. Advertisers use the metric cost per thousand or CPM to measure the effectiveness of advertising through a particular medium. CPM measures the cost required to reach a thousand viewers with a particular advertisement. Because of the rise of this more cost-effective medium for advertising, WPO and other publishing companies have seen their advertising revenues plummet.

In order to mitigate decreases in readership and advertising in its publications, WPO has complemented many of its printed publications with online publishing activities, primarily through washingtonpost.com.

Increases in Newsprint Prices

One of the biggest expenses for the newspaper and magazine divisions is newsprint (paper), which are generally the second largest expenses next to labor costs.^[4]

In November 2008, newsprint prices jumped up 26% from October 2007, to $700 per metric ton, the highest prices in over a year.^[4] To combat this increase in newsprint prices, WPO and other newspaper publishers have implemented various cost-cutting measures like using smaller pages and reducing circulation.^[4]

Growth in Standardized Testing

WPO's Kaplan division has grown tremendously over the years due to introduction of new standardized tests, for which Kaplan provides training. The No Child Left Behind Act (NCLB) has also positively impacted Kaplan. ^[5] NCLB, introduced in 2001 by President Bush, has put an increased emphasis on standardized testing in American Schools by requiring states to develop exams in various subjects to be given to all students in certain grades.

Hurricanes

WPO's Cable One subsidiary is vulnerable to extreme weather conditions, especially hurricanes. Nearly 12% of Cable One's customers live in gulf coast area, which is frequently affected by hurricanes. Following Hurricane Katrina, the cable division reported a loss of $23.7 million in damaged property and lost thousands of subscriptions. ^[6]

Competition

Becuase WPO is such an expansive media company, it competes in several industries including Education and Test Preparation, Cable TV, and Magazine and Newspaper Publication.

In the education segment, WPO competes with Princeton Review (REVU) and McGraw-Hill Companies (MHP), which also offer test and admission preparation services.

• Princeton Review (REVU): specializes in classroom-based, online, and printed products and services that are used in standardized preparation and general educational material.^[7]
• McGraw-Hill Companies (MHP): selling a wide range of printed, online, and broadcasted materials about the financial services, energy, contstruction, marketing, and other related markets.^[8]

In the Cable TV industry, WPO competes against firms that provide cable service like DirecTV and Verizon Communications (VZ) but also against larger media conglomerates like News Corporation (NWS) that own networks across the U.S.

WPO's newspapers compete against numerous local newspapers in the markets in which they circulate, like The Washington Times in Washington D.C. WPO's Washington Post controls the Washington D.C. (DMA) market, with 43% of residents in the DMA market daily.^[9] In the national newspaper segment, WPO faces primary competition from the New York Times Company (NYT), Gannett (GCI), and News Corporation (NWS). NYT's New York Times, Gannett's USA Today, and NWS's Wall Street Journal are WPO's largest national competitors.

References

1. ↑ ^{1.0 1.1 1.2} Washington Post Company: Corporate Overview
2. ↑ ^{2.0 2.1 2.2 2.3} The Washington Post Company 2009 Annual Report
3. ↑ BusinessWire: "The Washington Post Company Reports First Quarter Earnings"
4. ↑ ^{4.0 4.1 4.2} "Gannett's Newsprint Cost Rise Signals Industry Peril" Bloomberg.com 11/23/2008
5. ↑ US Department of Education
6. ↑ WPO 10K 2006, Pg 39
7. ↑ REVU Google Finance Page
8. ↑ MHP Google Finance Page
9. ↑ WashingtonPostAds.com
10. ↑ NYT 2007 10-K, Item 1, pg. 3
11. ↑ ^{11.0 11.1} NYT Google Finance Page
12. ↑ GCI 2007 10-K, Item 1, pg. 4
13. ↑ ^{13.0 13.1} GCI Google Finance Page
14. ↑ NWS 2007 10-K, Item 1, pg. 16
15. ↑ ^{15.0 15.1} NWS Google Finance Page