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WIKI ANALYSIS
Although The Washington Post Company (NYSE: WPO) is best known as the publisher of its namesake newspaper and Newsweek Magazine, its magazine and newspaper divisions, collectively, were only responsible for slightly more than 20% of WPO's 2007 operating income.[1] The company derives the majority of its net income from its educational (Kaplan), cable television, and broadcast television divisions.[1]
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. In 2007, circulation revenue from The Washington Post and Newsweek decreased by 5% and 6%, respectively, because total subscriptions declined.[2] Furthermore, WPO's overall revenue from advertising declined by 9% during the year as advertisers moved towards the Internet and other media like Digital Television.[2] However, WPO's Kaplan business grew by 21% in 2007[3] as the demand for standardized test preparation continues to rise.
Business 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.[4] The company operates predominantly in the United States, earning about 88% of its 2007 revenue in the U.S.[4]
Education (48.6% of Revenue, 31.2% of Operating Income)
Kaplan, Inc., a subsidiary of the Washington Post, operates the company's education division.[4] Kaplan provides a range of educational services for children, students and professionals through various test preparation courses and training courses.[4] In 2007, education division revenue increased 21% to about $2.03 billion, driven by a 19% growth in its higher education business.[3]
- Test Preparation and Admissions includes Kaplan's standardized test preparation for tests like the SAT, ACT, LSAT, GMAT, and GRE.[4] Additionally, the test preparation division includes English-language course offerings and the K12 and Score! businesses.[3] This division also includes Kaplan Publishing, which publishes a variety of business (i.e. sales and marketing, personal finance, entrepreneurship, real estate and leadership) and educational books (i.e. test preparation and admissions).[4] In 2007, Kaplan provided courses to more than 440,000 students across its divisions.[4] Test prep revenue grew 24% in 2007, reaching about $569.3 million mainly because of the acquisitions of Aspect and PMBR in October 2006.[3] Excluding revenue from acquisitions, test prep sales increased by 6% following increases in test preparation courses. In Q4 2007, WPO revised its test prepartion business, closing 75 of its Score! centers, which cost the company $11.2 million in restructuring charges. [3] This initiative represents WPO's move away from their declining tutoring center business.[3]
- Professional: offers education and preparation courses to corporations and individuals. Programs include Kaplan Financial, which has courses for financial services and insurance industry professionals and Kaplan CPA, which offers test preparation courses for the Certified Public Accounting Exam, and other professional programs.[4] In 2007, the company acquired EduNeering, which provided courses for more than 600,000 professionals in the life science, healthcare, energy, and food service industries.[4] Revenue from the professional division increased by 18% in 2007, primarily because of the acquisition of EduNeering and the Financial Services Institute of Australasia; excluding these acquisitions, its revenue grew by 8% during the year.[3]
- Higher Education - consists of 70 schools in 22 states that provide classroom-based instruction and two institutions that specialize in distance education.[4] The classroom-based schools offer a variety of bachelor degree, associate degree and diploma programs.[4] In 2007, higher education revenue increased by 19%, following an 11% climb in enrollments.[3]
Newspaper Publishing (21.3% of Revenue, 13.9% of Operating Income)
WPO publishes several daily and weekly newspapers across the country. Some of WPO's newspapers, like The Washington Post, earn revenue through circulation fees and advertising, while other publications like its Express Publications are distributed free of charge and rely entirely on advertising sales to generate revenue.[6] The newspaper industry overall has seen its circulation and revenues slide following the advance of the internet and other new media. For example, The Washington Post's average weekday circulation has slid over 12% since 2003, as customers gravitate to other forms of news media.[7] Because of this declining readership, WOP's publications are also struggling to secure advertising sales. In 2007, revenue from the newspaper division decreased 7% to $889.8 million,[8] following a 3.4% decrease in average weekday circulation and a 13% decline in print advertising sales from The Washington Post (The Post).[8]
- The Washington Post: a morning daily and Sunday newspaper distributed primarily in Washington, D.C., Maryland and northern Virginia. [7] In 2007, its average paid circulation decreased by about 3.4% for both its daily and its Sunday editions.[7]
- Express Publications: a weekday tabloid newspaper named Express, which is distributed free of charge using hawkers and news boxes near Metro stations in Washington, D.C. [9]
- Washingtonpost.Newsweek Interactive: produces washingtonpost.com, which averaged more than 232 million page views per month during 2007.[6] The features the complete editorial text of The Post as well as most of its classified advertising.[6]
- Post-Newsweek Media: publishes two weekly paid-circulation, three twice-weekly paid-circulation and 34 controlled-circulation weekly community newspapers. [10]
- The Herald: a morning daily newspaper distributed primarily in Everett, Washington, about 30 miles north of Seattle. [11]
- Greater Washington Publishing: publishes several free-circulation advertising periodicals that are distributed in the greater Washington, D.C. metropolitan area. [12]
- El Tiempo Latino: a weekly Spanish-language newspaper that is distributed free of charge in northern Virginia, suburban Maryland and Washington, D.C. [13]
Magazine Publishing (6.9% of Revenue, 6.6% of Operating Income)
WPO owns Newsweek, a weekly news magazine published both domestically and internationally that earns revenue primarily through advertising but also through circulation fees.[14] In the U.S., Newsweek ranks second in circulation among the three leading weekly news magazines (Newsweek, Time and U.S. News & World Report).[14] Newsweek is distributed mainly through subsription mail orders, but is also sold in retail stores and newsstands, which together sold an average 3.1 million copies per week in 2007.[14] In 2007, Newsweek's revenue totaled $288.4 million, a 13% decline from a year earlier which was primarily attributed to a 9% reduction in advertising revenue during the year.[8]
Television Broadcasting (8.1% of Revenue, 29.8% of Operating Income)
WPO owns six television stations located in Houston (NBC), Detroit (NBC), Miami (ABC), Orlando (CBS), San Antonio (ABC), and Jacksonville, Florida (independent).[15] These stations are located in the 10th, 11th, 16th, 19th, 37th and 49th largest broadcasting markets in the United States.[15] WPO earns the majority of its TV broadcasting revenue through national and local advertising, which together accounted for 96% of the division's 2007 revenue.[16] In 2007, the television broadcasting division earned about $340 million in revenue, a 6% decrease from a year earlier because of decreases in political and winter Olympics-related advertising.[8]
Cable Television (15.0% of Revenue, 25.9% of Operating Income)
WPO provides cable service through its Cable ONE subsidiary to over 1.3 million people[17] in 19 midwestern, southern, and western states.[18] In 2007, Cable ONE earned $626.4 million in revenue, an 11% increase from 2006 as the company expanded into new markets.[17]
Financial Analysis
WPO earned about $4.18 billion in 2007, a 7% increase from 2006.[1] Furthermore, the company's 2007 revenue represents an approximate 47% growth since 2003 as WPO has expanded its business, primarily its education division and Cable ONE subsidiary.[1] For example, education revenue increased 21% and cable revenue grew by 12% in 2007.[2] Conversely, the company's growth has been partially offset by declining trends in newspaper and magazine readership- circulation revenue declined 5% and 6% at The Post and Newsweek, respectively.[2] This led to less advertising, as advertising revenues across its publications declined by 9% in 2007.[2]
WPO's operating expenses followed its growth in revenue, reaching $3.7 billion in 2007, a 7% increase from a year earlier.[2] This increase in operating expenses is primarily attributed to expansion costs related to the growth of WPO's Kaplan and Cable ONE businesses.[2]
Overall, WPO's operating income increased by 4% in 2007, reaching $477 million.[2] However, WPO's 2006 operating income was 11% less than in 2005 because of one-time costs associated with early retirement plan buyouts at The Washington Post.[19] Comparatively, WPO's 2007 operating income was still 7.4% below its operating income in 2005[1] as its earnings from its newspaper publishing, magazine publishing, and television broadcasting divisions dropped sharply in 2007.[2]
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.[7] As a result, the company's circulation revenue has also declined steadily, capped by a 5% and 6% decrease in circulation revenue from The Post and Newsweek in 2007.[2]
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. In 2007, for example, The Washington Post's CPM measured at $11.32[20], compared to an average of $6 for online advertisers.[21] Because of the rise of this more cost-effective medium for advertising, WPO and other publishing companies have seen their advertising revenues plummet. For example, in 2007 the WPO's advertising revenue across its aggregate publications declined by 9%[2], driven primarily by a 13% and 9% drop in advertising sales from The Post and Newsweek respectively.[8]
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.[8] In 2007, revenue earned through the website increased 11% to $114.2 million, driven by a 16% growth in display online advertising.[8]
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.[22] The Washington Post, Express, and El Tiempo used about 152,258 tons of newsprint in 2007, at prices of $506 to $565 per ton of newsprint.[23] In November 2008, newsprint prices jumped up 26% from October 2007, to $700 per metric ton, the highest prices in over a year.[22] WPO's newspapers operated at an already low 7.5% operating margin in 2007, which would be adversely affected by increases in the cost of newsprint.[5] 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.[22]
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. [24] 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. Kaplan has capitalized on NCLB by offering supplemental education and training to students for these standardized tests- Kaplan's revenue earned from test preparation grew by 24% in 2007.[3]
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. [25]
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): earned $146.1 million in revenue in 2007 and specializes in classroom-based, online, and printed products and services that are used in standardized preparation and general educational material.[26]
- McGraw-Hill Companies (MHP): earned $6,772.3 million in revenue in 2007, selling a wide range of printed, online, and broadcasted materials about the financial services, energy, contstruction, marketing, and other related markets.[27]
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.[28] 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.
| Company | Average Weekday Circulation (Thousands) | Revenue (Millions) | Operating Margin |
| New York Times Company (NYT) | 1,066.6 (New York Times)[29] | $3,195.09[30] | 7.12%[30] |
| Gannett (GCI) | 2,300 (USA Today)[31] | $7,439.46[32] | 22.19%[32] |
| News Corporation (NWS) | 1,700 (Wall Street Journal)[33] | $32,996[34] | 16.31%[34] |
| Washington Post | 658.1[7] | $4,180.4[1] | 11.41%[1] |
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 WPO 2007 10-K, pg. 84-85
- ↑ 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 WPO 2007 10-K, pg. 41
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 WPO 2007 10-K, pg. 42
- ↑ 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 WPO 2007 10-K, Item 1, pg. 1-2
- ↑ 5.0 5.1 WPO 2007 10-K, pg. 78
- ↑ 6.0 6.1 6.2 WPO 2007 10-K, Item 1, pg. 7
- ↑ 7.0 7.1 7.2 7.3 7.4 WPO 2007 10-K, Item 1, pg. 6
- ↑ 8.0 8.1 8.2 8.3 8.4 8.5 8.6 WPO 2007 10-K, pg. 43
- ↑ WPO 10K 2006, Pg 6
- ↑ WPO 10K 2006, Pg 7
- ↑ WPO 10K 2006, Pg 8
- ↑ WPO 10K 2006, Pg 8
- ↑ WPO 10K 2006, Pg 8
- ↑ 14.0 14.1 14.2 WPO 2007 10-K, Item 1, pg. 14-15
- ↑ 15.0 15.1 WPO 2007 10-K, Item 1, pg. 9-10
- ↑ WPO 2007 10-K, Item 1, pg. 9
- ↑ 17.0 17.1 WPO 2007 10-K, pg. 44
- ↑ WPO 2007 10-K, Item 1, pg.15-16
- ↑ WPO 2007 10-K, pg. 46
- ↑ WashingtonPostAds.com
- ↑ The Rogue Marketer
- ↑ 22.0 22.1 22.2 "Gannett's Newsprint Cost Rise Signals Industry Peril" Bloomberg.com 11/23/2008
- ↑ WPO 2007 10-K, pg. 22
- ↑ US Department of Education
- ↑ WPO 10K 2006, Pg 39
- ↑ REVU Google Finance Page
- ↑ MHP Google Finance Page
- ↑ WashingtonPostAds.com
- ↑ NYT 2007 10-K, Item 1, pg. 3
- ↑ 30.0 30.1 NYT Google Finance Page
- ↑ GCI 2007 10-K, Item 1, pg. 4
- ↑ 32.0 32.1 GCI Google Finance Page
- ↑ NWS 2007 10-K, Item 1, pg. 16
- ↑ 34.0 34.1 NWS Google Finance Page
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