“We Do Not Have the Answer To The Problems of Newspapers” – Donald Graham, Publisher Of The Washington Post, And If The Likes Of Him Don’t See A Solution Then Is It Just A Matter Of Time For Print?

Philip M. Stone June 22, 2007

Donald Graham’s presentation to the newspaper Mid-Year Review was remarkable for its candor – newspapers including his are in big trouble and his only solution is to make up for those lost revenues elsewhere.

In the Washington Post Company’s case, Graham, unlike many of the speakers before him, had more than just Internet operations to boast about. His Kaplan education business is going gangbusters and that is where his company’s real growth is.

“Rapid growth at Kaplan and faster than expected progress in cable look as if they’ll give our company a platform to continued growth in operating income for the next few years,” he told investors.

Note he didn’t include the print edition of the Washington Post as an entity that will show growth.  And just like the speakers before him he said newspaper cost-cutting had to continue. “Our efforts are focused on growing our traffic and audience online, increasing reader participation with PostPoints, identifying new revenue opportunities, and continued cost-cutting at the print newspaper.”

He said the PostPoints loyalty program is doing better than its business plan envisaged. “The essence of the program is rewarding Post readers first for being seven-day subscribers; second for patronizing our advertisers and particularly for certain parts of stores or product lines that our advertisers really want to promote; third, readers can earn points by actions that benefit us, such as placing classified ads, participating in certain areas of the website and even contributing to local charities,” he explained.

“I thought PostPoints had quite ambitious goals for reader participation, and it is very, very early in the program’s development, but the number of people signing up for it has exceeded our ambitious aims by quite a bit. Since its launch in April, 86,000 people have signed up. A heavy user of a PostPoints card can earn $50 a year, and that may or may not be enough to influence reader behavior, but we’re off to a good start.”

Unlike other newspaper companies, the Post did not spend billions of dollars in past years buying up overpriced metropolitan newspapers such as the New York Times Company buying the Boston Globe or McClatchy buying the Minneapolis Star Tribune  and instead the company diversifed into other products. Graham has Warren Buffet to thank for that — the Post is the one board on which Buffet continues to serve. In a fascinating letter published by the Wall Street Journal back in April Graham wrote, “I am in a position to testify to Mr. Buffett’s value on a board of directors, since our board is now the only one he serves on outside of Berkshire Hathaway’s. Our market capitalization is just over $7 billion; Mr. Buffett’s recommendations to management have been worth – no question – billions.” And by that he means the billions the newspaper didn’t spend buying more newspapers.

Instead the Post has spread its wings into other areas such as education, and the Kaplan business is doing very well – something the company can lean back on as its traditional media products continue their leaner times.

As Graham explained in New York this week, “In 1990, newspaper division revenues were 48% of our company’s revenues and newspaper operating income was 51% of the company’s total. Last year, because our other businesses had grown quite a lot in between, newspaper revenue was only 25% of the company’s total and division operating income was 14% of the total.”  In other words if ever there was an example of how it pays not to put all ones eggs into one basket, then this is it! Diversification is the keyword.

And he admitted The Washington Post print edition is suffering. “Advertising revenues for the first five months at the Washington Post were poor,” he explained. “We are down approximately 12% in total ad sales through May…The Post reported down circulation in March by 25,000 copies daily and Sunday by 31,000.”

One thing that all the speakers in the two days said in common was that the classifieds business is a disaster, and so one bombshell that caused a buzz came from Scott Flanders, president and CEO of the privately-held Freedom Communications. He told a round table discussion that ended the conference, “I think the industry needs to look very hard at the free classified model because I think part of it is a critical mass issue. As our pages of print classifieds get smaller and smaller, it becomes a slippery slope of relevance as to whether we’re going to have the reader referencing those pages. I think we may have to look at it through the other end of the telescope and develop a point of view that maybe it means we need to walk away from some of the traditional revenue sources.”

Gary Pruitt, McClatchy CEO, told the roundtable the most important thing newspapers can do right now is to get advertisers to think “total reach” rather than just print circulation. “Circulation is always going to be important because that’s what pre-print advertisers buy – they need to know that precise number. But we need to think in terms of audience and most of the advertising buys need to be in terms of audience. After all, that’s how people are buying. Therefore to be comparable, we need to move to that metric.”

And what about newspapers biting the bullet and accepting lower margins? Flanders said newspapers are shooting themselves in the foot by under investment, even if that does mean in the short-term accepting lower margins.

And for all of the problems detailed during the coverage of the meeting for the past three days, we’ll leave it to Pruitt to tell what he believes is actually right with the newspaper industry today. “The daily newspaper in each local market is less subject to audience fragmentation than any other medium it’s competing against, because every other outlet favors more competition within their medium. More television channels, more radio stations, more Internet, more of everything else, but only one daily newspaper in each market for the most part.

“So we’re holding on to our audience better than our competitors. Our lead over the number-two outlet in terms of share of audience is actually growing, even though our audience in print is declining. And then when you add to that the unduplicated reach of our online sites, our audience is actually growing. While ad revenue may be the best indicator to your current performance, I think the best indicator of your future performance is your audience. More people want what we produce today than wanted it yesterday.

“That’s not the profile of a dying industry.”

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