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

CHRISTOPHER M. SCHROEDER
Chief Executive Officer and Publisher

Thank you very much.

You know, I found recently a wonderful quote from Arthur C. Clarke, the great author and science fiction writer, among other things, and he wrote many years ago that technological revolutions are most often overestimated in the short run and underestimated in the long run - overestimated in the short run and underestimated in the long run.

In many respects, when you think about it, it is a perfect statement and, in many cases, a perfect warning or caution as we think about the Internet overall. Because, as we all know, there was a period of time where the Internet could do absolutely nothing wrong, a period where the Internet could do absolutely nothing right, and as the pendulum swing hovers somewhere in the middle, here's the reality. With the exception only perhaps of television and telephones, it is the most ubiquitous part of Americans' behavior today.

And so with that in mind, I'd like to leave you today with three fundamental points and perhaps an overarching theme. I hope that I can persuade you to believe that we have a very unique business proposition, and as I'll explain to you, I think it is very much based on advertising, and it works very, very effectively.

Secondly, I think we at WPNI are well on course where we hope to be going right now. We can always do better, but I think we are doing the right things in the right way.

And third, competition is real and it's nature is new. Now nothing new about competition being a big part of any of our lives, but there's something quite distinct in challenges not only for me, but for The Washington Post Company overall I want to share with you.

The overarching umbrella theme, however, is that this is a unique medium and that we must be constantly thinking about what we do in the Internet world on the terms of the medium. I will suggest to you that interactivity, personalization, true multimedia, ubiquitous devices are unique to this medium, as television was to radio before it, and I, and my people, and all of us here, need to be thinking over and over again on those terms.

A lot of people have asked me when am I going to start charging for washingtonpost.com, and please don't get me wrong. I think about this question every day, and we explore it, and I cheer on the many people out there who are looking to do subscriptions, either in all or in part of their sites. Of course, if we were talking about television 30 years ago, none of us would think anyone would ever pay for television. Of course, time will tell you how a whole industry exists in that model.

There are two distinctions that I would suggest to you to keep in mind, though, from that analogy:

The first distinction is that competition is one click away and almost invariably for free. As I'll explain to you in a minute, we are building a very significant audience not only here in Washington, but around the world right now, and I think if you put up a wall, you'll be putting up a wall where people can go to other related places, maybe not as good, but related for free, and there's a whole new generation of audience coming who do not want to be paying for now who watch it.

The second difference is an interesting one. So many people think they're already paying for Internet content because they're paying $19.95 a month or $49.95 a month or whatever through their ISP charges. They are charges by which they connect to the Internet. That's completely different from a television analogy.

So for me in my belief right now, I think in the next two to three years, which is as long as I'll predict, in any quality content site, advertising revenue will be the fundamental driver to the tune of 80 percent. So that's where I spend most of my time. We'll explore things, we'll look at things, I'll cheer folks on, but the fact is that's the way that I think we're going to be focusing our attention, and there are very fundamental reasons for that being the case.

There is a very significant audience opportunity for Internet advertising right now, which is the largest driver of all: media habits and behaviors are fundamentally changing, and the ad products now are very, very different. We're no longer in the world of Times Squares on the screen of computers, where you have 20 different things blinking at you. We have products now which are visually alluring, they are memorable, they get engaged in people's minds, and most importantly, people act, they act on what they see.

I'll give you a little bit more detail right now. The Internet is the only medium, when you think about it, whose prime time is daytime. The large percentage of people, particularly adults who access the Internet, access it at work during the day, when no other medium reaches them - at work, during the day, when no other medium reaches them. Of course, it reaches people at home in a growing and substantial level as well.

In fact, the interesting behavioral studies are showing how people actually have a computer next to them when they watch television, which is why I think MSNBC and others have such good success in driving people to their site from the television programming that they do right now.

But here is an important point. It is reaching people on task. Studies will show you that 40 percent of Americans literally, physically get up and leave the room when TV ads come on. That doesn't even include lazy people like me who just click through them when they come on. But when you're online, and you're at your desktop, you are focused, you are on task. And as long as we don't offend you or overly annoy you, we have an opportunity there I think to reach a very, very powerful message in a way that no other medium has been allowed before.

The demographics here astounding: well-educated, well-financed individuals. Business decision-makers, studies are showing right now, are absolutely saying the Internet is the best place to find them in any given way with a media message, and this media offers a very unique thing which no other media has offered before.

For the first time in advertising history, I can send a general branding message to everybody in this room, I can send a very specific message to this half of the room, at the same time doing everyone in this room, or I could send a specific message just to you as an individual, all at the same time. It is the first media that marries regular brand advertising with direct marketing. So I think it's a very, very powerful outlook as we look at it.

And to give you a little bit of sense about the audience, I'll start there, because in the end, it all really begins and ends with the audience overall.

This is for Newsweek.com. You can see just very, very substantial growth in the yellow bars in how Newsweek has been doing overall. It's up almost 50 percent year-over-year. The blue bars are high, of course, in September and October of last year, because those were the horrible months that we all remember so well after September 11th, but this is a very dramatic increase in Newsweek, and it's doing very well in the revenue performance as well, which I'll come back to.

Now, the audience for The Washington Post is a very interesting opportunity and challenge for us. Because in the great tradition of The Washington Post newspaper, done so extraordinarily well by The Washington Post newspaper, we are a very, very local site. We want to have people live, interact, transact, vibrant, alive with washingtonpost.com if you live in and around the greater Washington area.

At the same time, fascinatingly enough now, almost 80 percent of our audience comes from outside of Washington. So there is an opportunity never before afforded to The Washington Post newspaper, which is to reach a mass audience nationally, and as Don alluded to, I think fundamentally internationally.

Our core, our essence is Washington. You live here if you're local, and if you want to know how Washington affects you if you live outside of here, you can come to washingtonpost.com and we'll help you.

To give this in terms of hard numbers and growth overall, we are running, on average, about 5½ million people who come to washingtonpost.com in any given month, 5½ million people, and these numbers, by the way, are understated. Our own logs show that these numbers are higher, but folks measure things differently in Independent World.

To the point that I just made before, somewhere between 37 and 40 percent penetration in the Washington, DC, market - Reston, Bethesda, the suburbs, Washington, DC, itself - 37 to 40 percent penetration, which is far greater than any other local news or information site in any major city around, better than The New York Times in New York, better than the Chicago Tribune in Chicago, better than the Atlanta Journal Constitution in Atlanta, better than Digital Cities in any city. So a very substantial local presence and, at the same time, again, with 80 percent, 4-plus million people from around the country who are coming to The Washington Post on a regular basis.

A quick word about National. I could describe the alliance very well, but it's not just a quantity of audience, but a quality of audience. These folks are making a lot of money. They are very engaged in issues that want to understand how issues affect their lives. They are well educated. They've been to school, they've been to post-graduate school. Again, they want to know how Washington impacts their lives, and a lot of them are business decision makers. We, in fact, rank highest in business decision makers of any of the non-financial business sites that are out there right now from our research.

Now I've thought of several ways to convey to you how valuable and important the local audience is and our performance through that local, and there are a lot of ways that I could structure it for you, but this I think drives the point home very, very well, with some caveats.

There's always some "apples to oranges," when you compare Internet numbers to radio. If you compare radio to television, there's always little things that you compare, and I want to say right up front I'm now just comparing daytime figures. If you go to network television at night, the numbers are obviously largest with Friends and the big shows in this regard. But remember what I said before, which is that daytime is prime time for the Internet.

If washingtonpost.com were a radio station in the Washington area, we would be larger during the day than any other radio station in town.

If we were a broadcast television station, we would be larger than any other television station in town.

If we were a cable station, we would be far and away the largest cable station here in town.

So to put it in other terms, at a very reductionist level, every time I see an advertiser, if we at washingtonpost.com were a television station or a radio station or a cable station, we should be on the top of the list of what we're thinking about buying progressively, a very, very interesting way to look at the way these audiences are beginning to magnify.

I talked to you a little bit before about that ad products here are becoming more visually alluring, and there's a lot of controversy out there about what is visually alluring and what, in fact, is just a pain in the neck for people when they're on the computer.

The general line that I've given to the creative folks at washingtonpost.com is to be visually alluring, grab people before they begin an experience or after they end an experience. Do not interrupt them once they've begun their task. You've seen this, all of you, I'm sure, at some point.

You'll be on some site, and you're in the middle of the fourth sentence of a paragraph and Ameritrade pops up in the middle of your screen, and you just want to go crazy. That's like doing television advertising where you're in the middle of the sentence of a sitcom and a Coke ad appears. It makes no sense when you think about it in hindsight.

So, again, I might play to the edge of the border sometimes as I experiment, but the fundamental rule is grab people before they start, grab people as they are leaving or surround the experience with something that they will remember visually.

So just to give you a couple of ideas right here, if we could show, the Tysons Corner ad. You haven't started yet, the sign comes up, 3/4 seconds, a message comes across the screen that pops into you. You now can ignore it or look at it, but at least it's something that's gotten your attention.

On the National Branding site, go ahead. I haven't interfered with you. I love the fact that you laughed. I'm going to come back to that 888 number. Remember that because I'm talking about it in the context of another client in a second.

This one was a little bit controversial, but I think it was very, very interesting.

Seven and a half seconds before you start, the opportunity right now. (National Branding #2) Fascinatingly enough, and I think it gives a very good sense of where this industry is going overall right now, I've gotten more complaints about changing a few color schemes on the home page than I got about that ad, and I think it's, in part, because it was visually alluring, I think it is, in part, because people understand that there needs to be an advertising component in the sites that they have right now.

And I think in the end, if you do things like this, I mean, think about when you go to a movie theater before a movie starts, you see, "Screen Gems Presentation," and it comes out; you see the lion of MGM, and it comes out. These kinds of things I think can be acceptable.

Now, what you have to do is you've got to watch how often you show them. If every time you came to washingtonpost.com you saw that thing, you wouldn't be coming back a whole heck of a lot. So you would not have seen that ad more than once in a day, and that kind of balance that we put into it right now.

It is all well and good to talk about beautifully aesthetic, visually alluring products, but where the rubber hits the road in the end is do they work? Are we, at its essence, matching buyers and sellers in an online world? That is the question that matters. Nothing else matters really in the end that I could say to you right now.

So I have very, very religiously, and all of the major quality content sites, have very, very religiously done significant research, over the last year and 18 months, independent research with Independent Research or with the clients themselves doing their own research to figure out whether or not Internet advertising is effective for them, and no bells and whistles, no highfalutin technology. Ask the questions in the same way that they measure advertising and television in radio or print. Ask the same questions, and I'll stand by the results.

We have right now over 20 case studies along the lines of the ones that I'm going to describe to you now, but I just want to focus in on a couple that are very, very powerful.

We have a major local retailer here in town who used to do research all the time with customers who bought in their store on print, television and radio. They bought a significant ad campaign on our campaign, and they introduced the Internet as part of their research.

They found, much to their pleasure, and to their interest, that 65 percent of the people who bought in their store are in washingtonpost.com on a regular basis, meaning three to five times a week, over 20 percent of them could actually recall the ad with specificity, and roughly 10 percent of them said they came into the store because they saw the ad. These numbers stand up excellently with any other media research in that regard.

We have a major national advertiser who sells very high-end products. And what they want to do, their goal was to get 12,000 people to fill out a questionnaire in a 3-month period on what they did, and that would be considered a success. Well, a couple of things happened when they did a campaign. We sent over 53,000 people to their site. We did independent research on their brand lift and message association lift, all of which were double digits, higher than they were getting at that time in television.

And here is something which is fascinating, why I asked you to think about that 1-888 number before. Of the people who filled out the survey, wanted it filled out, 26 percent of them did it by phone. They did it by phone. How do I know that? Because I have a separate 1-888 number on those ads, any of the 1-800 numbers they use. So I measured that specifically.

So one of the great takeaways here is that the Internet is not just a medium by which you drive people to do actions on the Internet, but you actually, first example, drive people into the store; second example, get people to pick up the phone, as well as flip through on the Internet - very, very significant.

The last thing that I'll point out to you, which I'm sure those of you who have been on the site have seen, I made a decision about a year ago that I could do more effective targeting of advertising if I got some basic information about our users. Firstly, it helps us understand the site more broadly, but specifically there is no reason why I should be serving local advertising to someone who lives in San Francisco.

So I did a three-point survey. I didn't ask your name, I didn't ask for any personal information about you as an individual, but I did find out your gender, your age, and your zip code, nothing more, and I placed what we call a cookie on the computer. All that means is if your computer logs onto washingtonpost.com, I'll know those three points are associated with you and nothing more - fully privacy protected.

We've done this now for the last three months. We have over 8 million people who have filled out this survey. Now, because it's done by computer and not by individuals, not all of those 8 million are one. Some people filled out the survey more than once, but we still believe that many millions of people are unique in this regard, and we've just begun to sell it.

And so to tell you right now our first major local advertiser who shifted from a regular campaign to the ability to target to the Washington market only literally saw their leads for the year double in two weeks. Something I think very interesting is happening out there, and it's something that is being proved in the numbers that we're doing right now.

Just to give you a quick overview, and it goes to my point before, and I think it's going to remain this way for a while, the revenue is fundamentally driven by brand advertisement and action advertisement, as well as jobs, cars, and real estate. We have a little bit of revenue in syndication and other little deals that we do, registration we do. We have been charging people, for example, who can look at our archives, but the fundamental driver, again, is advertising.

This is a very nice growth number. We're about a $36-million company this year at the end. We started at $13 million. Obviously, we had a great lift in the "go-go" years, but even in a year which people have referred to as an advertising recession, we've had very nice growth year-over-year going forward.

I think the key box I'd ask you to focus on is the green box there because the green box represents the kind of advertising I've described to you just a moment ago, and that box will be getting only larger and larger as time goes forward, I believe, in the Internet medium overall.

To give it to you in breakout terms, in terms of the growth year-over-year, national, local, Newsweek, the advertising I described to you before, is up over 50 percent year-over-year. Now, albeit we're talking about millions of dollars here, not hundreds of millions of dollars, but it still is a very, very significant impact, and of those quality content sites I described to you before we've all benchmarked, all of them up 20, 30, 40 or more percent year-over-year.

Something very, very significant I think is happening overall. Even Yahoo is up in the mid high 20s right now year-over-year.

On the recruitment side, jobs are a very, very important part of our business. We are obviously flat this year, but this has been a very tough economy, and the recession has had real ramifications with recruitment, as Don alluded to before. The fact that we're flat and Monster is down in excess of 20 percent I think is a pretty significant statement that we're holding our own. I'm going to come back to that in a second.

Cars and real estate, we've had very nice double-digit growth as well. Overall, it takes our revenue growth in around 18 percent or more.

A quick word about recruitment right now. We launched our site, which was then called WashingtonJobs.com, which is now WashingtonpostJobs, which has formed a great partnership with what we do in the newspaper, and it had very, very significant growth between 1999 and 2000, for obvious reasons, where the economy was there.

We also launched the new product in that period of time, which had great ramifications. And, again, in a world where the recruitment market certainly, in print, has been heaving its challenges and even online many companies have gone down. We have stayed steadily up, at least to a slight degree.

Now, we made a very conscious decision that the best way to compete in the important recruitment space was to leverage the heritage of The Washington Post newspaper and compete locally. You know this better than I do. There is a difference between finding a job in Reston, Virginia, and Bethesda, Maryland. There is a difference because the commute is longer; the schools are different. There are a lot of different ramifications. We understand that.

You go to a lot of the national sites; they don't think there's a difference between downtown Washington and the suburbs of Baltimore. Our focus here has made us an extremely, extremely strong player, and it's a strategy that I think is very effective. Most studies show, in the end, that in excess of 85 percent of people, when they look for a new job, still stay within the geography they were in. So I think we're in the right place in the right area right now and growing very powerfully.

Don said before the great recruitment question is how much and when it will come back. I'll give you a third question, and that question is where because there's no question it'll be coming back, to some degree, and hopefully to a very strong degree in print, but it's also going to be coming back to online, and I think we are extraordinarily well-positioned to be sure that The Washington Post, as an institution, are maximizing those revenue streams.

The last slide I'll show you on this, but it's a wonderful trend about our revenue overall. The blue line is last year's revenue on a month-to-month basis. The yellow is the month-to-month this year, and you're just watching that gap widen, which is exactly where we wanted to be. Each month we've had, over the last eight to nine months or so, more and more ad revenues coming in on a month-to-month basis. So I think it's a good trend overall.

You will be reading, if you've not read already, that there are sites out there that will say they are cash-flow positive, they are net profitable, a lot of things that are going on out there. I want to share a couple of observations with you on that.

A lot of the different companies account for their revenues and costs in different ways. It's not that easy to do apples and oranges. There are some companies out there, particularly with major national media already, whether they're in television or they're in print, who have a huge advertising national base to leverage which have allowed them to perform well.

These are two important caveats, but the single most important point that I can make to you is I do not go to bed at night without thinking about what I can do to make this company profitable as soon as possible. That's all well and good what I said before. It's not irrelevant.

The single most important thing is we are focused on building an economic franchise which, over time, will be a significant profit contributor to The Washington Post overall. We are pleased that we cut our losses over a third in the last year. I will tell you right now we will cut our losses in half in the next year, and I think we're on a very good path to be doing what we need to be doing overall, while doing the great things that we're doing in terms of where this franchise is going overall.

So, trust me, my commitment to this could not be greater.

The last point, as I said to you, you know, seems very obvious. We should all be worrying about our competition, but there's something in the nature of Internet competition which Bo Jones feels at the newspaper, Rick Smith feels at Newsweek, Alan Frank feels in television, all of us feel in the world right now.

The days of what I'll call monolithic competition, us against Organization X, while not over, per se, are significantly different. Because I'll tell you this, if you pick up The Washington Post newspaper, and you point to any section of it, I'll be able to name to you six or seven competitors who are trying to make a business out of that area alone.

Now I thought of how to show this to you. I actually have two slides I could have put up, with over 150 people that we consider competitors to us, in one degree or another, but you can get a sense of it.

In the recruitment space, we don't have just little books that come up at subway stations which are competitors any more. They are nationally well-funded groups like Monster, HotJobs, Career Builder, and even the company sites themselves now people can go to on a regular basis.

In automotive, it's Auto Trader, Autobytel, Car Point. In news and information, AOL News, Yahoo News, I should have here for sure, MSN, MSNBC, New York Times, other major networks, all are taking people's attention, one click away and for free - all. Sports, ESPN now we have to think about, as well as the teams themselves, and in community, this idea of being of and part of the Washington area. The fact is AOL thinks about it, does it all the time. MSN is thinking about it all the time. eBay defines community in whole different ways that have ramifications about us - tchotchkes, cars, cars of all things - these are communities that people will go to.

And for all that I've talked about today, and for all of the wonderful advancements in technology, here's something that has not changed. There are still 24 hours in a day. To get people's attention, we have to compete against these guys because folks can go to them very, very quickly and one click away.

So, to wrap up, we must think about everything we do, in terms of the ad products we create, in terms of the journalism we provide in this medium on the medium's terms. This is not a newspaper online, this is not a television online, it is not a radio station online; it is an experience that is worth your while. It makes your life better, easier, faster, cheaper than the way you do things now. Otherwise there's nothing to us.

I will, on a permission basis, constantly look to find ways to target information, both journalism, as well as advertising, to people here in ways which are useful to you, always permission based. We will be very aggressive, absolutely imperatively aggressive, in the local market. We will fight hard, very, very hard, in the national market.

We will be looking to have the best in alluring and memorable advertising products and research them, and at the very essence, and the foundation of who we are, we will be the best in journalism, in trust, content, interactivity and our experience because, in the end, in my world, The Washington Post translates to our audiences as trust, a place you can go where you know what you're going to get. And whether we add interactivity or we add multimedia and other things doesn't matter. That's the essence of who we are.

Thank you for listening.

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