Thursday, March 04, 2010

Fall of the Washington Post, Part Four

Want to see where the Washington Post Company is headed? Look at the following snapshots of the firm’s workforce in 1993, 2000 and 2008.

Now look at the percentage of the parent company’s operating income earned by newspapers, Kaplan and the other operations.

In the early 1990s, the Washington Post Company derived half its profits from the newspaper business and half its profits from everything else. In 2006 and 2007, newspapers accounted for just 14% of its operating profits. In 2008, the newspaper operations and Newsweek collapsed and Kaplan, broadcast television and cable provided all the profits. Since 2005, Kaplan and television have been carrying print media on their backs. How long can this go on?

The answer: not much longer. Besides the challenges to its newspaper and magazine businesses, the Post Company faces issues connected with its defined benefit pension plan. The company’s pension obligations have increased from $261 million in 1996 to $1 billion in 2008 – a jump of 286%. At the same time, corporate management has not made a contribution to the benefit plan since 2002 and had “no plans” to contribute in 2009. Management has contributed to its Supplemental Executive Retirement Plan, which has benefits paid directly by the firm each year.

Pension issues caught up with the company in 2008. That year, the Washington Post Company reported $65.7 million in net income. That was the lowest absolute amount and the lowest percentage of revenues (at 1.5%) since at least 1984. The company also reported a loss of $630.6 million in “pension and other postretirement plan adjustments,” of which $468.3 million came from losses on pension plan assets. That helped generate a net comprehensive loss of $439.5 million – probably the worst year in the company’s history.

The pension issue is connected to the Post’s business segments. Kaplan now accounts for the majority of the company’s workforce, but the vast majority of Kaplan’s employees have less than five years of tenure. If they are enrolled in the Post’s pension plan at all, they may have very little in vested benefits. But some employees with the Washington Post newspaper and Newsweek have been present at those subsidiaries for many years. They probably account for a disproportionate amount of the company’s pension obligations. So the very divisions that are losing the most money now will also cost the most in pension spending in the future.

One option used by companies in this sort of position is to sell under-performing subsidiaries. But the Washington Post Company is unlikely to sell its flagship newspaper for two reasons. First, the market for print publications of any kind is tough these days. Second, the brand name of the Washington Post, with its aura of Graham, Bradlee, Woodward and Bernstein, still has compelling power. An aggressive management team should be able to figure out how to make money from it.

There may be such a way, but it could very well mean destroying the newspaper as we know it. We’ll conclude in Part Five.