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.
QUESTIONS AND ANSWERS
by
MR. GRAHAM and MR. MIGHT
MR. GRAHAM: That's just a great presentation, Tom, and please stay up here while questions are collected.
I would repeat my two earlier comments about Cable One. At 720,000 subs, we are far from the largest cable system in the industry, but I honestly think that we are the largest cable system in the industry with no depth, and I hope you paid attention to that slide of Tom's that said that the cable company has generated cash, has brought cash into the Washington Post Company every year but one since we've owned it. I don't know of another cable company in the United States of which that is true.
Questions for Tom. What are the return on capital characteristics of the cable business? Are you earning your cost of capital? If not, over what period do you expect returns to exceed your cost of capital?
MR. MIGHT: That's the big cable question. It's complex. Certainly, if you look at just the free cash flow, so far it's no, but we're at a pivotal point where capital spending is going down nicely every year and should continue to do that, as these new products generate tremendous new amounts of cash flow. So I think we are at the pivotal point, and it will be a very nice return on investment over the next couple of years.
MR. GRAHAM: Last week's Barron's contained an article forecasting impending doom for the cable industry based on advances in digital compression technology. What is your view? And, second, what's your view of video-on-demand and telephony?
MR. MIGHT: I discussed that article, as one of our board of director's is quite into technology, yesterday, to get his opinion, and we share an opinion that the technologists are absolutely perfect and accurate, almost always accurate, in predicting what technology can do and the trend lines. What they have failed to do miserably is predict human behavior and marketing. The Internet bubble and bust is the perfect example of that. The Internet was capable of doing many things that nobody cared about.
I view that article very, very similarly. I think the technical predictions
are somewhat correct, but the marketplace prediction was very wrong.
VOD, as with other products, we will be the last of the top 10 MSOs to
launch that. We are the only ones that have not so far because it's not
clear that it is a moneymaker or a good shield against DBS. I would expect
we're more than a year away from knowing that. When we know that, we will
or will not launch at that time.
Telephony is even further away. The risk there is that massive capital spending may be required, although IP telephony, it's supposed to be much kinder on capital than traditional telephony that Cox and AT&T are doing.
MR. GRAHAM: Other cable companies have begun have begun to get substantial revenues from advertising. Where do you see Cable One heading on this revenue stream?
MR. MIGHT: Our advertising revenue and cash flow per sub are above industry averages. So we've always done well in advertising. We have many fewer subs, but per sub we do quite well.
MR. GRAHAM: Question from a shareholder from Cleveland. Why did you decide to concentrate on Idaho, where you bought, instead of California, where you sold?
MR. MIGHT: The last shareholders meeting I went into great detail how we got to where we are with that, so I skipped it this time, but in short, we focused on large, non-urban systems. We were in the suburbs of San Francisco, for example, where it would be very difficult for us to operate in our unique manner with all of these other cable systems doing things around us differently.
In Idaho, these are five towns, totally separate from each other, and there aren't cable systems adjacent to us, and we think we do things better, but we take our time to do it well, and we can do that without comparisons in the short run to someone next door who may be doing something we think is foolish economically in cable.
MR. GRAHAM: We've got about three more questions, Tom, before we head to education, and here is one I think some other shareholders will appreciate. I get lost among the abbreviations. What is DBS? How is it different from what Cable One offers and what is a cable modem?
MR. MIGHT: DBS means Direct Broadcast Satellite. You probably know it under the name DirecTV or Dish Network. Those are the two DBS providers, and they provide these little 18-inch dishes that you can receive several hundred channels of video with. The second part of that was?
MR. GRAHAM: What is a cable modem?
MR. MIGHT: Oh, a cable modem is a high-speed Internet access device that you plug into the cable plant just like you plug your TV into the cable plant. It comes out of the wall and the house, and with that you can get tremendously fast broadband download of Internet content.
MR. GRAHAM: To do an advertisement, I have a cable modem, and it is incredible. It just makes the experience of getting on the Internet completely different from your home.
Another question. Did Cable One participate in the industry's new accounting and disclosure standards development and will Cable One adopt those standards?
MR. MIGHT: Yes, we did, and, yes, we will.
MR. GRAHAM: Finally. Actually, this is a series of questions.
First question. Cable valuation metrics have changed in major markets. Prices have come down. Have they declined in rural markets as well?
MR. MIGHT: Yes, in a very similar proportion, but they're still not down to the level where we like to buy.
MR. GRAHAM: That was the second question. If yes, are acquisitions a continuing growth opportunity?
Yes, but we're pretty picky about the prices we pay.
Given the continuing consolidation in cable, how does that affect your costs relative to the larger players in things like box purchases and programming?
MR. MIGHT: We must be paying a penalty of some sort, and we can never measure that because that's all very confidential information, but free cash flow is the ultimate measure per customer of how you're doing there because that incorporates all of the programming charges, all of the capital costs. And if we are third in the industry in free cash flow, our economies of scale are not hurting us too much.
MR. GRAHAM: What does it mean to you that EchoStar and DirecTV will remain in separate hands?
MR. MIGHT: Well, I don't know for sure, but they compete against each other very, very aggressively, and we're wounded a little bit in fight because of the price competition to steel customers from each other. If there were only one, I think because they don't make money at their current price points, they would have to raise prices because they have these same programming increases that I showed you or very close, yet they've not passed that cost on to their customer, but they're not making money.
So, presumably, if there was more of a monopoly in the sky, they would charge an appropriate, profitable price, and that would help us actually.
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