What's really going wrong (and right) at The Washington Post
Not so long ago, Donald Graham was being lionized as the model of a results-driven CEO. Even The New York Times, a sometimes catty rival to other high-profile papers, quoted a Post staffer who hailed Graham's Washington Post as America's "best-run newspaper company."
In 2012, the tide has shifted with a whoosh. A half-dozen articles have trashed the Post, saying its legendary newsroom is in decline and its parent company committed a series of business blunders. A Forbes cover story in February characterized Graham as a "nice guy finishing last."
So have Graham and the Post suddenly, as Vanity Fair put it, lost their way? I happen to think not for reasons explained below. But the Post's changing fortunes do exemplify a melancholy state of affairs mid-year for the newspaper industry:
Even a company with unusual financial strength, doing rapid, well-funded and varied digital innovation is not posting positive numbers.
In the first quarter of 2012, Washington Post print advertising declined 17 percent from the same period in 2011. Circulation fell 9.8 percent daily and 5.2 percent Sunday.
But the bigger disappointment was that digital publishing revenues (including Slate) had decreased 7 percent in a year.
All those totals were among the worst in the industry, as they had been in the second half of 2011. But in the industry too, digital revenue growth had slowed in the first quarter of this year to 1 percent after growing by nearly 11 percent in 2010 and 7 percent in 2011.
I am told that April was another bad month for ad results at the Post and May and June mediocre ones -- also typical for the industry.
As is customary for the Post, no detailed explanation has been forthcoming for the poor ad results or how, when and whether they can be fixed. Top executives also declined to respond on the record to details of the negative articles.
Graham did, however, have something to say about the notion that the quality as well as the quantity of the Post's journalism is not what it once was.
"My defense is 'read it,'" he said in a phone interview. And behind the complaints that the Post is under-investing in news, Graham said that he hears people saying, " 'Make it be 1989 again.' I can't do that."
There are some explanations for the particularly poor publishing results of the last nine months:
- Big metros continue to take the worst hits in print advertising and circulation losses. The Post has stronger competition and a slightly higher mix of national advertising, a particularly weak category, compared to mid-sized and small papers like those former Post director Warren Buffett has been buying.
- The digital slowdown is a bit more mysterious, but those companies that were early to the Web and have established a substantial revenue base are having the worst of it. McClatchy and the New York Times Co. also posted digital advertising declines in the first quarter.
- Top jobs in both digital and print advertising at the Post have turned over in the last two years. The newsroom has had turnover too with the planned departure after the election of managing editor Liz Spayd and another managing editor, Raju Narisetti, moving to The Wall Street Journal earlier this year.
- The Post starts from a high base in circulation and has historically had low subscription and single-copy cover prices. After rate increases in the last year, the Post remains a close second in metro circulation to the Los Angeles Times (though Washington, D.C., is only the eighth largest market).
- In news staffing too, the Post started high and after recent buyouts still has a newsroom head count of more than 600.
The Post remains a holdout among the biggest papers -- national and metro -- by not instituting some kind of digital paywall. Why not? My hunch is that the current traffic, including national and international readers, supports an ad base management chooses not to endanger, though the current stall-out could be reason to reconsider.
As an innovator, the Post is systematic and prolific, following the "many small bets" mantra but not so many or so small that the company is just tinkering at the edges.
Graham was an early investor in Facebook, a mentor to Mark Zuckerberg, and he sits on the company's board. The Post has three distinct Facebook-related ventures: Trove (a personalized selection of articles), Social Reader (telling you what friends are reading) and SocialCode, a social media agency for businesses trying to build that capacity.
The Post has launched successful event and newsletter businesses, as I wrote a year ago.
There has also been ample trying and failing fast in the Post's DNA. The company hired Web pioneer Rob Curley several years ago to launch a hyperlocal site in Loudon County, Va., which ultimately failed. It employed Travis Fox and other noted videographers to produce quality in-house pieces for the website that never gained hoped-for traffic. Most recently, it was a partner with the New York Times and USA Today in Ongo, an ad-free compilation news site, that failed in May after a year in business.
Exact numbers are not available, but all this adds up to a substantial investment in R & D, the kind the industry is often accused of failing to mount. And the company is willing to operate the Post at a small profit or break even, losing a little money some years, during this protracted period of digital transformation.
It can afford that because of some unusual financial strengths. Its Kaplan education division, now accounting for more than 50 percent of revenues, has suffered under a federal investigation of recruiting at for-profit schools and subsequent enrollment loss. Graham wrote in the annual report that Kaplan still turned a profit of more than $100 million last year and he expects it to resume growth in 2013.
But the company's diversification doesn't stop with Kaplan. It has smaller and highly profitable local broadcast and cable divisions. Together these contributed roughly $64 million during the dismal first quarter, in which both Kaplan and publishing were in the red a combined $36 million. In 2011, cable and broadcast generated $245 million in operating earnings, a margin of about 25 percent.
A sky-is-falling-in assessment of the company last month in the Columbia Journalism Review, "The Washington Post Co.'s Self-Destructive Course," left out the contributions of these cable and broadcast divisions.
The Post is one of a very few companies in news or other industries whose pension plan is over-funded. And, while it has a $400 million line of revolving credit, it has no long term debt. Other newspaper companies are using earnings for interest payments, reducing debt, making legally required pension contributions or all three. The Post has none of those obligations, allowing it to forgo profits at the newspaper and reinvest.
In 20 years as CEO, Graham has perfected a low-key style of pitching the company to investors. Washington Post Co.does not do quarterly forecasts or earnings conference calls, answering analysts questions. Graham owns so much stock that he effectively controls the company himself. So he outlines general strategy and then invites potential investors, as he put it in the annual report, "to come along with us" or not.
A little more transparency and detail from the top might fit this turbulent era better. But contrary to Forbes's nice-guy-finishing-last jibe, Washington Post stock, while down about 15 percent from its peak in the last year, is doing about the same as peers Gannett, New York Times and McClatchy.
Still that leaves the perception that the Post, like the industry, is in a swoon. As Graham says, 1989 is not coming back. By the same token, some payoff on digital investments (and stabilization of print) cannot come too soon.
Disclosure: I have known Don Graham for more than 40 years, since he was a mentor when I joined my college paper as a freshman. Poynter also has a number of joint projects and consulting engagements with The Washington Post newsroom.
Correction: It was not in the second quarter that daily circulation fell 7.84 percent and Sunday circulation dropped 15.66 percent, as originally reported here; it was in the six-month auditing period from Oct. 1, 2011-March 31, 2012.