Washington Post - Guild NewsMay 13, 2002
Who’s Optimistic? “Despite the biggest advertising recession in recent memory, we could have a pretty good year in 2002.” This isn’t what the Guild bargaining committee has been hearing in negotiations, where management constantly paints a depressing economic picture. Rather, it’s what Washington Post Co. Chairman Donald E.Graham told stockholders in a letter dated March 8, introducing the company’s annual report for 2001. Graham continued:“In fact, the next two or three years should be good ones for the company, even assuming no advertising recovery (as long as it doesn’t get still worse). When advertising does start to recover -– we have no idea when that will be –- we’ll be ready to make progress across the company.” Who’s Spending? Last May, as the drop-off in ad revenue was beginning to alarm publishing executives, newspaper analyst John Morton was quoted as saying, “A recession for the newspaper industry just means you can’t take as many truckloads of money to the bank.” Now, as employees at The Post newspaper are again being asked to sacrifice for the bottom line, it may be instructive to know where some of those truckloads of cash, which we helped earn, went when they left the bank. From 1990 to 2000, The Washington Post Co. spent almost $1.3 billion on acquisitions. It spent another $104 million on new businesses in 2001. About 60 percent of this money overall went to expand the company’s cable and education divisions. And at least one of the recent acquisitions, the $50 million purchase of Southern Maryland Newspapers in February 2001, landed the company in court. Over the same period, the company spent more than $1 billion to buy back its own stock. And it made about $350 million in outside investments, largely Class A and B shares of Berkshire Hathaway Inc., run by Post Co. board member and longtime company mentor Warren E. Buffett, the world’s second-richest man. (Berkshire has long held about 18 percent of the Post Co. Class B stock, the class available to the public. According to the company, Buffett “played no role whatever” in the Post Co. decision to invest in Berkshire.) The company’s steady accumulation of assets, while funded largely from cash, didn’t happen without some debt in recent years. At the end of 2001, the Post Co. reported $933 million in outstanding borrowings -– though at an enviable average interest rate of 3.5 percent. The stock buybacks of Post Class B shares, which totaled $426 million in 1999 alone, have slowed to a trickle. Who’s Gaining? Who’s Losing? With ad revenue sluggish or in decline at the company’s three “ad-based businesses” –- the newspaper division, magazines and broadcast television –- Graham and other top company officials have high hopes for its two fee-based divisions: cable and education. That’s where the expensive acquisitions were made in the last decade, and that’s where substantial revenue growth is starting to show. In the case of cable, it means the company’s growing numbers of mostly rural subscribers are now paying for digital service –- a premium they enjoyed free for a year. And in the case of Kaplan Inc., the company’s education subsidiary, it means the long-standing losses are getting smaller. Kaplan isn’t just the place for pricey test-prep courses anymore. It also encompasses professional training, career schools, an online law school, after-school programs for youngsters and much more. Last year its revenue jumped 40 percent to almost $500 million, making it the company’s second-largest revenue producer (after the newspaper division, which posted $843 million). About one-fifth of the education revenue came through the federal Title IV student financial aid program. Despite this growth, the education division continues to show red ink, even through the first quarter of 2002. The reasons are varied, and some are steeped in accounting arcana, such as the stock compensation plan for top Kaplan management, valued at $25 million last year. But as The Washington Post newspaper awaits a resurgence of recruitment advertising –- and is showing improvements in other ad categories -- many Americans who aren’t being recruited to work are going to school. And they’re paying Kaplan handsomely to do so. Who’s Too Big? Diversification notwithstanding, The Washington Post Co. remains at heart a newspaper company. And The Washington Post newspaper, the company’s single largest profit center, remains the heart of the newspaper division. The Post itself has long been the largest-circulation newspaper in the District and Virginia, and is now neck-and-neck with the Sun in Maryland, giving it immense market clout. But acquisitions and expansion over the years in other parts of the division, while nowhere near the scale of those in cable or education, have made it what competitors see as a regional Goliath –- aiming to stomp them into the newspaper graveyard. Even before its purchase last year of Southern Maryland Newspapers, the Post Co. owned the Gazette chain of more than 30 suburban Maryland papers, produced military newspapers, operated a commercial printing business in Maryland and published advertising periodicals aimed at car shoppers, home buyers, renters and seniors. It’s part of a sometimes synergistic, “ring around the metro” strategy pursued by publishers across the country. But now the company, its Gazette subsidiary and a regional advertising cooperative (half owned by the Gazette) are facing an anti-trust lawsuit filed in U.S.District Court in Baltimore by two independent, relatively tiny competitors. The publishers of St. Mary’s Today and the Sentinel community newspapers allege a conspiracy to restrain trade and an attempt to monopolize the market. They charge the Post Co. with predatory practices such as below-cost ad pricing and a weekend raid in which the Gazette hired away the entire Sentinel newsroom staff. The defendants have denied all allegations of illegal conduct. But in a decision in August, a federal judge declined to dismiss most of the claims, allowing the case to go forward. The anti-trust issues also have come under scrutiny by the Maryland Attorney General’s Office, which has contacted the Post Co. for “certain information” about commercial printing, the company has said. The U.S. Justice Department’s antitrust division likewise has been asked to investigate, by the Washington Times among others. But “to date neither agency has challenged the acquisition of the Southern Maryland Newspapers,” the company said in March. In ripening Fruits: Don Graham’s salary freeze –- and yours.
-- Keith Sinzinger, Post Foreign Desk
Fruits of Your Labor I: Post Profits in Perspective -- As another round of collective bargaining between the Newspaper Guild and The Post draws near, Guild member and Foreign Desk editor Keith Sinzinger takes a look at the Post's bottom line. First in a series. Fruits of Your Labor III: Don Graham’s Salary Freeze –and Yours -- Guild member and Foreign Desk editor Keith Sinzinger compares Washington Post CEO and chairman Donald E.Graham's pay freeze (locked in at $399,996) to managment's proposal to freeze employees' pay this year. Third in a series.
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