What Do The Washington Post, The Financial Times and El Pais All Have In Common? Hint: Think Textbooks

Philip M. Stone March 11, 2008

If ever diversification was a financial commandment then The Washington Post Company, Pearson, and Prisa can testify that the education business is a good place to be these days.

The Washington Post Company has publicly stated it no longer considers itself to be a media and education company, but rather an education and media company. During the second half of 2007 the education side of the business started bringing in more than 50% of the revenues – it closed out 2007 bringing in 48% in total and this year will be the defining year when education really does rule the roost.

Pearson, publisher of The Financial Times, doesn’t break out individual numbers for its units but it is thought the FT, after four years of terrible losses, is well back into profitability, perhaps earning as much as £30 million (€40 million, $60 million) last year, but that’s just a drop in the bucket for the parent company that makes the vast majority of its money from education publishing – in 2007 the company as a whole announced pre-tax profits of £549 million (€715 million, $1.1 billion).

And while Prisa has a reputation for its profitable Spanish media holdings, including publishing El Pais, Spain’s largest circulation paid-for daily,  and also having a 15% holding in France’s Le Monde, its education division is going gang-busters – it is already the largest publisher of school textbooks in Spanish-speaking Latin America and has a sizable presence in Portuguese-speaking Brazil, and it is now setting its eyes on Spanish language and English language education projects in the US.

And while, no doubt, each of the newspaper holdings of these three companies must stand on their own feet, on the corporate level the continued growth of the education business helps to cushion and give time for new newspaper strategies to work out.

Compare that to a McClatchy which has newspapers, and only newspapers with their web sites and affiliated Internet businesses, and there is nothing to fall back on. As go newspapers, goes McClatchy. And right now that means south.

The Washington Post Company reported terrible media business numbers for full year 2007 and Q4, but most of those losses were made up by its Kaplan education division. It was not lost on anyone when Donald Graham at the UBS Media week in December spent most of his presentation talking-up the education business and he gave fairly short-shrift to the media side. He was, in effect, concentrating on the good news. His comment that “2007 was not a good year for anybody in the newspaper business.” was crouched in what a great year it was for the education business.

He probably has a lot to be thankful that Warren Buffett sits on his board, and when in the 1990s newspaper publishers were paying obscene amounts of money for newspaper properties (New York Times Company for the Boston Globe), the Washington Post Company concentrated on diversification.

Thus although it had to report that its 2007 overall profit fell 11% because of a 40% decline in newspaper operating income, the Kaplan education division earned  12.7% more operating income than it did in 2006, and overall accounted for 48% of the company’s revenue.

At the Post advertising revenue was down 13% and circulation was down 3.5%. Among its cost-cutting activities, the newspaper has gone the buyout route, and it quit printing most daily financial tables plus it reduced the width of its pages and all of that has helped reduce newsprint usage by some 19%, but it is still struggling and like most newspapers it doesn’t see any light at the end of the tunnel. But the Post Company doesn’t need to panic; it can take time to get things right as long as the education business holds up.

At the Financial Times in London the years 2002 through 2005 saw losses and there were all sorts of rumors that Pearson wanted to dump the paper although American CEO Marjorie Scardino once famously said, “Over my dead body”. (When she refused to say that the following year as the losses continued it just added to speculation the newspaper would be sold).  It took the company some five years to turn the paper around, including naming a new editor and a new publisher who had previously worked well together and that teamwork seems to be working again. And while no company wants losses from any part of its operation, and the money people did punish Pearson shares when the FT was not doing well, at least Pearson’s education business financially bought the FT time to straighten things out.

The paper recently has been busy selling off its French and German newspaper brands and is now concentrating on building one global FT brand in preparation for when the Wall Street Journal truly begins its Murdoch international onslaught.  It’s also working on improving its Saturday edition (the best seller of the week) with the How To Spend It glossy magazine full of advertising by the luxury trade with the marketing idea to boost sales via an even better Saturday editorial product so people consider the Saturday newspaper as a Saturday/Sunday newspaper.

Pearson’s education business is mostly centered in the US via its Simon & Schuster textbooks and Harcourt Education, but books are bulky and costly to ship so the company is moving more and more into online education courses, and career education online products are particularly growing. In all education provided 64% of Pearson’s operating profit in 2007.

At Prisa, much of its news coverage in the past few months has centered on its stake in Le Monde (financially not good since the French newspaper continues to lose money and it wants increased investment) and also difficulties in expanding Prisa’s holdings in Sogecable, a satellite-pay television platform. And Spain is Europe’s number one market for free newspapers. But Prisa’s education business is number one in Latin America and the company, too, is setting its sights on the US Hispanic and English-language education markets.

Chairman Ignacio Polanco recently told the Financial Times, “We have to grow in the US … and compete directly in the field of English school textbooks. Over the next five years, the bulk of our investments will be in the Americas, in television production, in radio and in publishing including the Internet.” He said there was no question that English was the company’s new business frontier.

So, to answer the question posed by our headline, those newspapers all belong to companies that make large proportions of their revenues from the education business, and that buys/bought  their newspapers more time to work out how to solve any financial difficulties. And, oh yes, two of the parent companies, the Post Company and Pearson, already competitors in the US education market are about to get competition from Prisa, and each believes there is more than enough business to go around.

Assuming they’re right, that can’t be bad news for their newspapers.