As someone who believes the mainstream media has, for the most part, abandoned its journalistic integrity, and that New Media is the purveyor of real reporting, I can’t say I’m saddened by the Washington Post Company’s (NYSE:WPO) awful quarterly results. In fact, I’m rather eager to get to the numbers:
- Circulation down 7.2%; Sunday circulation down 7.7%
- Operating profit down 55%
- Print/ad revenue down 8%
- Newspaper division lost $34 million
Stick that newspaper in the fireplace and light it up. People get their news from the Internet. They get substantive analysis from the blogosphere. I have a friend who has impeccable journalist credentials, and he says there’s one word nobody dares speak in staff meetings:
Content stinks. Articles are poorly written and researched, tackling topics that aren’t compelling, and often exhibit unacceptable bias. Journalists are not doing their job.
Here’s an example. I just wrote an explosive investigative piece on corruption at the Tarrant Regional Water District in Fort Worth, Texas. John Basham, a challenger in the upcoming Tarrant Regional Water District election, said he repeatedly told the Fort Worth Star-Telegram — which is owned by The McClatchy Company (NYSE:MNI) — about this corruption over a period of five years … and never investigated.
Why am I, a financial reporter by trade, doing investigative work that a local newspaper should be doing? Maybe that’s why its daily circulation has crashed over 60% from 537,000 daily in 2007 to 201,000 today. Maybe that’s why the stock has lost 97% of its value since 2005.
Content is king, and newspapers have given that up to New Media.
The only thing keeping newspapers afloat, amid 8% declines in advertising revenue, are inserts from local businesses. Those Staples (NASDAQ:SPLS), Office Depot (NYSE:ODP) and OfficeMax (NYSE:OMX) inserts, and the coupons from Kroger (NYSE:KR) and Safeway (NYSE:SWY), are all newspapers are left holding for revenue. These big companies are still scared to pull those ads; they aren’t completely sold yet on other forms of advertising.
However, online display ad revenue was up 16% at the Washington Post Company, so they’re headed in that direction. My journalist pal is convinced that such a day will come. And when it arrives, the first company to yank its ads will open the floodgates.
Which means online is the future of newspapers. The display revenue number is good, although online classified revenue fell 6%. The TV broadcasting segment saw a 14% increase in operating income and cable was up 12%. That’s where WaPo is going to have to make its stand, and it’s darn fortunate to be diversified as it is.
But even diversification isn’t all its cracked up to be. Washington Post also is the parent of Kaplan Education, a for-profit education subsidiary. The for-profits are being absolutely destroyed by declining enrollment and regulatory assaults. The Kaplan division saw a 3% revenue decline and $4.1 million operating loss. If it weren’t for the fact that Kaplan itself is diversified — test preparation revenue was up 10% — it’d be an even bigger drag.
By the way, things aren’t much better at The New York Times (NYSE:NYT). Total advertising revenue was down 11.2%, while print advertising was down 13.3%. USA TODAY — the flagship publication of Gannett (NYSE:GCI) — saw a 7.9% circulation decline.
Interestingly, the Wall Street Journal, owned by News Corporation (NASDAQ:NWSA), saw circulation increase 12.3%. Now, why would that be? Why would all these massive newspapers lose readers in droves, while the Journal finds people flocking to them?
As for the stocks … The future of WaPo depends entirely on its diversification and ability to retain online revenue. The other stocks are probably fine for the time being. Thus, I wouldn’t short anything just yet, since nobody is on the verge of bankruptcy.
But newspapers are a sunset industry. I would look for other opportunities.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.