Just a couple of days ago, and out of the blue, Amazon founder Jeff Bezos (himself not Amazon) took The Washington Post Company (NYSE:WPO)’s namesake newspaper and Watergate-era icon off its hands, ending four generations of stewardship by the Graham family.
What does an e-commerce pioneer like Bezos have to do with an old-media newspaper like the Post? More importantly, what does the future hold for The Washington Post Company (NYSE:WPO) following this turning point?
The right man for the job
Newspapers have undoubtedly reached a bottom, devastated by the disruptive changes brought by the Web and the mobile devices that completely reshaped media economics. This industry’s future picture is painted in dark colors. Based on PricewaterhouseCoopers’ latest estimates, total U.S. newspaper revenue is expected to deteriorate at a combined annual growth rate of nearly 3% over the next five years as circulation trends look up, but advertising will slip at a compound annual rate of 4.2%.
Did Bezos just make a mistake investing in a dying business? One thing is for sure: He is going to take his time away from Wall Street’s eagle eye, and put himself to the test. “We will need to invent, which means we will need to experiment…I am excited and optimistic about the opportunity for invention”, he said in a letter addressed to the employees of The Washington Post Company (NYSE:WPO).
The Post without “The Post”
Selling their family jewel was, obviously, a difficult decision for the Grahams, though the right one. Over the past, the newspaper publishing segment has been a drag on the company’s results. For the first half of 2013 alone, this segment reported operating losses of roughly $50 million, although overall the company scored an operating income of $116.1 million.
Fortunately, the Grahams have been doing a lot more than just publishing a newspaper. The company derives a big chunk of its revenue from Kaplan, a higher education and test preparation service. The rest comes mainly from six local television stations and the Phoenix-based cable provider, Cable One.
However, when it comes to profits, the local broadcasting and cable units are carrying the day. For the six-month period ended June 30, the cable division’s operating profits rolled in at slightly above $81 million, up 14% compared to the same period in 2012. Broadcasting operating profit jumped 11% to $83 million, backed by increased incremental advertising revenue and higher retransmission revenue – the money TV stations get from pay-TV operators for letting them carry their signals.
Looking ahead: Kaplan’s key role
In 2010, the Government Accountability Office issued a report on for-profit schools exposing their deceptive practices, such as charging higher fees compared with state colleges and spending less on teaching. Because for-profit universities get most of their tuition money from federal loans and grants, legislators demanded reforms. But, many industry players made a big fuss over the new rules attracting a constant barrage of negative press. Since the report came out, enrollment numbers have been going downhill, not just for Kaplan, but also for its direct peers.
