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Post Co. Reports First Operating Loss in 37 Years

By Frank Ahrens
Washington Post Staff Writer
Saturday, August 2, 2008

The Washington Post Co. yesterday reported its first operating loss in 37 years as a publicly traded company, as deteriorating conditions at the company's flagship newspaper combined with the cost of payroll reductions to drag down second-quarter earnings.

Although company revenue rose 6 percent in the quarter, the gain was not enough to offset the $87.4 million cost of early-retirement packages offered to employees across the company in an effort to slash payroll costs. As a result, the company suffered an operating loss of $2.7 million for the quarter.

The red ink flowed largely from The Post Co.'s newspaper division -- the flagship Post, the suburban Gazettes, the Express, El Tiempo Latino and other papers -- which reported an operating loss of $96.7 million for the quarter, compared to $17.8 million in operating income in the same quarter of 2007.

It was only the second time in decades that the newspaper division dipped into the red.

"We're troubled by the results of the last six months, but as our shareholders know, we are focused on the long-term," said Katharine Weymouth, Post publisher and chief executive of Washington Post Media. "To that end, we've already made significant cuts in our expenses through a voluntary buyout and the closure of one of our printing plants.

"We're planning more expense cuts, but we're also investing in new features, both in print and on the Web, new Web sites and niche products," she added. "We will weather this storm and get back to the profitable business our shareholders expect."

Shares of The Post Co. closed down $19.50 yesterday at $598.75.

In addition to The Post, The Post Co. owns the Kaplan education company, Cable One cable company, six television stations, Newsweek, Slate and other publications. Newsweek reported an operating loss of $3.7 million for the quarter.

Strong performances by Kaplan and Cable One were not enough to prevent The Post Co.'s quarterly loss of 31 cents per share. In the second quarter of last year, The Post Co. reported a profit of $68.8 million ($7.19) on revenue of $1.05 billion.

Like almost all U.S. newspapers, The Post is losing subscribers and advertising. Gains in viewership and ad revenue at washingtonpost.com have not made up for the losses suffered by the ink-on-paper Post.

Unlike many other papers, however, The Post's dominance of local advertising has kept it in the black -- until recently, that is.

The newspaper division was responsible for $79.8 million of the total $87.4 million cost of the early retirements, or "buyouts" -- 231 staff members with the newspaper division took buyouts.

Even with removing the $79.8 million buyout charge from the equation, the newspaper division reported a loss of $16.9 million, though $11.6 million of that was depreciation and amortization, leaving the actual cash loss for the quarter at $5.3 million.

Charges associated with a 2006 buyout pushed second-quarter newspaper division operating income into the red. But with the buyout charge removed that quarter, the division would have been in the black.

Second-quarter print advertising revenue at The Post this year was $99.8 million, down 22 percent compared to the same period last year, and down 17 percent for the first six months of the year.

Major newspaper chains such as Gannett Co. and McClatchy Co. do not break out the profit of their individual papers, so it is difficult to compare The Post's performance with other large metro dailies such as the Chicago Tribune, Los Angeles Times or Miami Herald.

But newspaper analyst John Morton has consulted for a number of large metro dailies and, without naming them, said The Post is generally less profitable than comparably sized papers, as it historically has been.

"I think the primary reason that you're doing worse from a financial point of view is that you have a Baghdad bureau" and other costly news-gathering operations, he said. "Some of the other papers don't even have a state capital bureau anymore."

Advertising revenue at The Post Co.'s online units -- washingtonpost.com, the Slate Group, The Root and other entities -- was up 4 percent for the quarter to $29 million.

For the first six months of the year, Post daily circulation was down 2.6 percent, with Sunday circulation dropping 3.7 percent. Daily circulation now stands at 631,900 with Sundays at 881,400.

Other papers have been losing money, as well, and many have been making cuts.

Earlier this week, Texas's A.H. Belo Corp., publisher of the Dallas Morning News and three other papers, reported a second-quarter loss of $3.2 million. The owners of the Newark Star-Ledger said on Wednesday that they would put the paper up for sale if 200 of more than 1,400 full-time employees did not take a buyout by Oct. 1. Earlier this year, Chicago's Tribune Co., which owns a number of papers, began cutting 500 positions company-wide. The New York Times is cutting 100 newsroom jobs.

The Post has had three rounds of buyouts in five years, reducing its newsroom from more than 900 journalists to fewer than 700, but has never had newsroom layoffs. The traditionally stable paper has been anything but during the first six months of 2008.

In February, Weymouth -- granddaughter of the late Katharine Graham and niece of Washington Post Chairman Donald E. Graham -- was appointed Post publisher and chief executive of Washington Post Media, which includes the paper's Web site and other properties. Two months later, the paper won six Pulitzer Prizes, a Post record for one year.

In June, Post Executive Editor Leonard Downie Jr. announced his retirement after 17 years at the paper's helm. The following month, former Wall Street Journal managing editor Marcus Brauchli was named as Downie's replacement.

At Kaplan, which now accounts for 52 percent of Post Co. revenue, second-quarter revenue was $576 million, up 14 percent from the same period in 2007.

At Cable One, The Post Co.'s cable system with customers largely in the Gulf States and the Northwest, revenue was $179 million, up 16 percent from the same period in 2007.

Second-quarter revenue at The Post Co.'s six television stations (seven by year's end, pending closure on a second station in the Miami market) was $83 million, down 6 percent from the second quarter of last year.

At The Post Co.'s magazine group -- largely Newsweek -- revenue was $63 million, down 15 percent from the second quarter of last year.

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