Wednesday, March 03, 2010

Fall of the Washington Post, Part Three

As badly as the Washington Post newspaper has performed, the stellar results of the Kaplan Inc. division have almost made up for it. Almost.

Kaplan is one of the world’s premier educational testing services. The company was created by Stanley H. Kaplan, a Brooklyn tutor who wanted to help working-class kids from public schools demonstrate their competitiveness for college admissions. Kaplan essentially invented the test preparation industry by designing a program to train for the SAT. The SAT’s creators tried to stamp out Kaplan’s business by saying test preparation did not work, but Kaplan was able to prove otherwise before the Federal Trade Commission. The Washington Post Company purchased Kaplan in 1984 and the founder retired ten years later.

Early in its history with the Post, Kaplan was a small part of the parent company’s business. Kaplan only had 600 employees in 1994 and 1995, less than a tenth of the parent company’s full-time workforce. The Post Company did not bother to report separate business segment results for Kaplan until 1999. By then, Kaplan had really started to take off.

Kaplan does much, much more than train students to perform better on the SAT. It offers online bachelor’s and master’s degrees in management, criminal justice, paralegal studies, information technology, financial planning, nursing and education. It has an online law school and a standalone virtual public school. It operates higher education businesses in Europe. It operates 44 English-language schools in the U.K., Ireland, Australia, New Zealand, Canada and the United States. It oversees multiple programs for continuing training of professionals, especially in financial management. It even operates facilities in Shanghai and Hong Kong.

All of this growth has mushroomed steadily over the last two decades. Consider the following measures.

1. Kaplan full-time employment has risen from 750 in 1993 to 13,200 in 2008 – a 1660% increase.

2. In 1993, 149,000 students took Kaplan’s test preparation courses. In 2008, 411,000 students took the courses, a 176% increase.

3. In 1999, Kaplan reported $258 million in revenues. In 2008, Kaplan reported $2.3 billion in revenues, an 806% increase.

4. Kaplan had negative operating income in 1999, 2000, 2001 and 2003. But since 2004, it has contributed $765 million in operating profit to the Washington Post Company, more than any other subsidiary.

The differences in performance between the Washington Post newspaper and Kaplan Inc. are remarkable and impossible for any management team to ignore. What do they mean for the company? We’ll find out in Part Four.