Shareholders Day
November 15, 2002
Following are transcripts of the presentations made at The Washington Post Company's Shareholders Day on November 15, 2002. The transcripts have been edited and contain clarifications.
The presentations at this Shareholders Day meeting contain certain forward-looking statements that are based largely on the Company's current expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please link to Risk Factors under Shareholder Information on this website and refer to the section titled "Forward-looking Statements" in Part I of the Company's Annual Report on Form 10-K.
REMARKS
by
ALAN FRANK
President and Chief Executive Officer
Post-Newsweek Stations
Good morning.
My headline today for Post-Newsweek Stations is there are no surprises. We have great stations in great markets and they are performing well, most out-performing their competitors.
You are all familiar with Post-Newsweek Stations. We have six, all major market and until this year, all network affiliates. I'll talk more about that in a minute, but our stations are WDIV-Detroit, and KPRC-Houston, both NBC affiliates; WPLG-Miami, and KSAT-San Antonio, both ABC affiliates; and WKMG-Orlando, a CBS affiliate and WJXT- Jacksonville, formerly a CBS affiliate and now a superstation independent.
These are challenging times for TV stations. You've read and heard about all of the competition out there for our viewers and advertisers: between cable and their 500 channel universe; and DVDs; and blockbuster movies; and the consolidation in radio; and the internet; and video on demand, etc. Times are not getting easier.
Well, the truth is that local television, over the air television broadcasting stations, are still unique. We are the only real video source for local news and local information and entertainment, and our unique affiliation with the major networks gives stations across the land a powerful local-national combination that is hard to beat. And we believe that what we bring to our local markets, to our local viewers and advertisers, is the key part of that equation.
As long as we run stations that are absolutely responsive to their local
market, and we are positioned as a market leader, we will continue to
do quite well.
Here's how we're doing this year. This is operating income. As it always has been. EBITDA, no cash flow.
Our overall financial results for the first three quarters of this year appear encouraging. While revenue increased significantly, expenses were held relatively flat.
As you can see, PNS revenues are up $17.5 million or 7.7% compared to
last year. However, there are several major items included in these numbers
that should be considered when comparing the broadcast division's revenue
performance in 2002 versus 2001.
First, every state in which we have a station - Michigan, Texas and Florida
- all experienced significant gubernatorial and congressional races plus
there were several hotly contested ballot proposals. This resulted in
substantial political spending by candidates and special interest groups.
Through September, $14 million gross, or $12 million net, of political and ballot issue revenue had been recorded.
But that was only the beginning. By the time the polls closed November 5, a total of $37 million gross, or $31.5 million net, was on the books.
This remarkable performance reflects the standing of our stations in
their markets as news leaders, and it perhaps reflects as well our commitment
to covering the races and televising debates and offering free time to
the candidates.
Political revenues, however, are very cyclical. As you can see, every other year there has been a burst of political activity. The future of this revenue is unclear since this year's campaign finance legislation only went into effect the day after the election last week.
Another positive influence on our revenue this year was a result of our two largest stations, WDIV in Detroit and KPRC in Houston, carrying the Winter Olympics from Salt Lake in February. Our NBC-affiliated stations generated significant, non-recurring incremental revenues of approximately $5 million net.
Lastly, the negative impact of September 11 on the 2001 revenue numbers causes the 2002 numbers to look that much stronger. Last September, we not only lost revenues due to our uninterrupted around the clock news coverage but numerous advertisers either cancelled their schedules outright or put a temporary hold on advertising. It is not possible to pinpoint exact dollars associated with September 11t, but I estimate the loss last September to be approximately $8 million for Post-Newsweek.
These factors, however, were somewhat offset by a significant drop in network compensation this year. Through September, PNS' network compensation was down $6.8 million. $6.2 million of this reduction was due to the new 10-year NBC affiliation agreement in Detroit and Houston. The impact of this decrease flows directly to the bottom line.
If there had been no reduction, our numbers would look like the second column on this chart. The impact of this represents almost one and a half (1.4%) margin points.
In addition to the ups and downs of political, Olympics and network revenues,
our fate remains tied to the automobile industry.
Auto and truck advertising revenue account for a quarter or more of our advertising revenues. We experienced an estimated 8% revenue increase in this category in 2002 due, we believe, largely to the zero percent financing deals that helped drive auto sales this year.
One of the hallmarks of our stations has been our manager's ability to smartly manage costs while keeping the quality of our product intact. Our year-to-year expense results through September show expenses increasing a modest $1.3 million or 1%.
However, when you add back in the pension credit, our expenses are flat year to year and actually down $1.5 million from 2000.
Furthermore, if revenue related expenses such as local and national sales rep commissions are excluded, expenses are down $1.1 million from 2001 and $1.7 million from 2000.
So those are the highlights of our financial picture. Now I'll talk briefly
about each of our stations.
WDIV is in our largest market, 10th ranked Detroit, and continues as the market's overall ratings leader. In the latest ratings book this past October, WDIV was #1, sign-on, sign-off, #1 at 6 p.m. news. At 11p.m. we win by a very wide margin, beating the other two newscasts combined! WDIV also wins in prime time - it is the highest rated NBC affiliate in the top 20 markets - and also wins in the access time period and late night, plus it is strong in daytime and early morning. And WDIV's general manager Joe Berwanger has announced that this year they will be producing their great Thanksgiving day parade in high-definition, one of the first such events by a local station in the country.
KPRC, our other NBC affiliate, is having a great year! Houston is the 11th largest market and one of the most competitive, with 16 over the air stations. KPRC's newscasts consistently rank as first or a close second in key demographics. In May, for instance, KPRC's news at 4 p.m. was tied for #1 in key demos as was the late news, while both the 5 and 6 p.m. newscasts were second. And their morning newscast achieved it's highest ratings ever, and the performance of their daytime line-up is much improved. They are the market's top biller, and overall the station under general manager Steve Wasserman is just humming along.
Another very complex market with an extreme number of over the air competitors is Miami. This market is perhaps second only to Los Angeles in complexity. And like in L.A., ratings for all of the traditional stations have fallen. But despite ABC's plunge in prime time ratings - they lost 25% of their ratings in prime time in February, and 33% in May! WPLG's late news in February actually improved its share of the adult demo, and in May was off less than half a demo rating point.
As a lead-in to early news, general manager John Garwood creatively placed
"Millionaire" with "Weakest Link" and so far it's
working. They are in a dead heat with "Oprah" in adults 18-49
and the news at 5 now is second in key adult demos.
One of our favorite stories is our other ABC affiliate, KSAT, Channel 12 in San Antonio, the 37th largest market. KSAT is #1 in most day parts and off to a great start again this season. The early morning news is enjoying double and triple audience gains, and in October was #1.
The morning talk shows are also both #1, as is "Dr. Phil" at 3 p.m. and "Oprah" at 4, each alone beating the next two stations' combined.
At 5 p.m., KSAT's news is #1, doubling the NBC affiliate's rating, and
at 6 p.m. the station also wins. And even at 10 p.m., in spite of the
fall of the ABC prime time schedule, KSAT wins the late news. In fact,
they are the top-rated late news on any ABC station in a metered market.
Under general manager Jim Joslyn this is a very well run station, performing
at a high level across all sectors.
One of our more interesting stations is WKMG, our CBS affiliate in Orlando, now the 20th largest market, and the station named for Katharine Meyer Graham, of course. It's also important for us because so much of our growth path will be here. We bought WKMG in 1997, taking over a station that had four owners in the prior dozen years. And we had a hiccup or two after buying it. But last year a long-time Post-Newsweek veteran, Henry Maldonado, became general manager and we are on track now. WKMG has become Orlando's #1 station in prime time, up 20%, while over-delivering CBS' national audience by 30%. Our 11 p.m. newscast is now second, and in the early news there has been progress as well.
Along with a new general manager, in the last year and half we have a
new news director, moving him from WJXT, and new sales management, plus
on air there are new anchors, a new weatherman, and many new reporters.
We've been through this type of re-build before, in Houston, Detroit,
Miami and even Jacksonville. And we're on the right track now in Orlando.
Our most unique report this year is on WJXT, our superstation in Jacksonville. It is now an independent, no longer affiliated with CBS. We had been with the network for 53 years, and depending upon how you measured performance, WJXT was either the first or second best CBS - performing station in the country. However, we were unable to negotiate a renewal of our business agreement with the network, they wanted to alter the terms to include cutting out all compensation. We decided that it was prudent to chart our own course. With a station this strong, one with ties so deep into their community, we could become just as strong and with the added benefit of controlling our own destiny. Somewhat unprecedented, but we felt proper under the circumstances.
So now at WJXT, under general manager Sherry Burns, we are creating a
different type of station, first of all almost doubling the amount of
news that we produce. Plus we have great syndicated programs. That's why
we don't refer to ourselves as an independent, it has a different connotation
to some others than what WJXT is and brings to the table - this is a powerhouse
station, whether it gets it's programming from a source in New York or
L.A., or produces it themselves, it plays a key role in the life of Jacksonville.
It is too soon to absolutely declare how we are doing, but here's the grade so far.
For total day, WJXT is 2nd in the market, less than half-point from the top-rated station.
Its newscasts are still the top-rated in the market, we are the market leader in news. We have ranked first every week of the 16 weeks since the switch, first at 5 p.m., 5:30 and 6 o'clock newscasts.
And we have ranked first every week at 10 pm against the other newscast that had been established in the time period for over 11 years!
And we now produce a truly unique program, Eyewitness World News, with local anchor Tom Wills… airing weeknights at 6:30, it is produced with the added resources of CNN and The Washington Post newsroom, and ranks second only to Tom Brokaw, beating Rather and Jennings. Here's a clip of WJXT's Eyewitness World News
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Video - Real Player
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Video - Windows Media
To go with their strength in news is a great lineup of syndicated programming, from "Oprah" to "Dr. Phil" to "Frasier" and "E.T." And by the way, WJXT's bottom line performance is also right on plan, they will make their budget this year.
So the bottom line for this year for Post-Newsweek, so far, so good. We are working hard to keep the faith of our viewers and our advertisers. That's what we do and who we are. No surprises: top stations, top performers.
That's a brief look at Post-Newsweek Stations. I'm glad to have had the
opportunity to talk with you this morning. Thanks.
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