WASHINGTON 2002
The Post Company's New Profile
When Donald Graham presented The Washington Post Company’s financial results to investors this summer, he did not begin with his flagship newspaper or his award-winning magazine. In fact, his comments about ad sales, readership, and newsprint costs at The Washington Post and Newsweek came almost as an afterthought, squeezed into the last eight minutes of a thirty-two-minute presentation.
Graham focused instead on subjects foreign to most newspaper investors, but increasingly familiar to Post company stockholders: academic tutoring, digital cable television, and the future of graduate school enrollments. “The path we’ve been on has been different enough from other companies over the years,” Graham explained in the presentation at the Mid-Year Media Review in Manhattan this June. “We really don’t focus primarily on short-term results.”
Nor, in recent years, has the company focused on the news business for growth. The company’s magazine and newspaper divisions, which accounted for 68 percent of revenue in 1993, continue to grow. But they now bring in only 51 percent of total revenue. The company has invested $1.5 billion in for-profit education and cable divisions since the early 1990s. Education alone accounted for one in every five dollars the company collected in 2001, up from just 5 percent of revenue when Graham became chairman in 1993 [also in this issue, Donald Graham's Washington Post, by Scott Sherman].
If the growth continues, the education business, called Kaplan Inc., is poised to outstrip the newspaper business in size, leading investment analysts to consider covering the Post as an education stock. “Until recently Kaplan has been this sort of interesting aside,” said Trace Urdan, an education analyst at ThinkEquity. “But it has grown, and it is becoming more important to a point where investors have to pay attention.”
Put simply, The Washington Post Company is no longer the same company that Graham’s mother, Katharine, took public in 1971, with roughly equal investments in newspapers and magazines, and a smaller investment in broadcast television. Donald Graham now oversees CableOne, the seventeenth-largest cable provider in North America, nearly 200 tutoring centers, and forty-five for-profit colleges and career training schools. He also commands the nation’s only online law school, a burgeoning test-preparation business, and a growing cable Internet business. [Visit CJR's Who Owns What for the Washington Post Company's current holdings]
For his part, Graham says the company is simply following a strategy laid out by his mother, with advice from Warren Buffett, a major shareholder: Keep the news divisions editorially and economically strong, while increasing value for investors with low-priced acquisitions. “As a company, we are agnostic about which of our businesses we make acquisitions in,” Graham said. He added that values in the education market have been more promising in recent years, a belief that has provided the company with a growing buffer against drops in advertising spending.
This transformation has increased the need for vigilant editorial protections on the news side. Both for-profit education and the cable business are political hot-potatoes, dependent on federal regulations and funding. Kaplan has also played a role in influencing the debate over privatizing public school tutoring and offering standardized tests to grade-school students. It has left the company’s journalists in the awkward, but increasingly common, position of reporting on their own company. “I feel like all of us who have to deal with the occasional Washington Post Company story in our reporting, uncomfortable,” explained Jay Mathews, the Post’s education columnist.
Company editors, reporters, and executives insist safeguards are firmly in place. “Our protections are named Leonard Downie and Mark Whitaker,” Graham said, referring to the editors of the Post and Newsweek. His charge to them:
“Editorial policy will be made regardless of the company’s interest.” As a result, Post editorial writers do not respond to their parent company’s interests, says Fred Hiatt, the editorial page editor. Likewise, the company’s lobbying work on Capitol Hill always defers to the newspaper’s opinion. Executives, for example, recently scrapped plans to lobby for legislation that would reform federal pension regulation after a critical Post editorial, says Patrick Butler, the company’s vice president in charge of public policy. “We’ve never had a problem with people being confused with what The Washington Post is saying editorially and what The Washington Post Company would like to see,” he said.
That has not stopped the company from lobbying on a wide range of regulatory interests, however. Between 1997 and 2000, The Washington Post Company’s disclosed federal lobbying expenditures increased eightfold, from $40,000 to $324,000, far outstripping what most other newspaper companies disclosed. (Lobbying costs have since declined significantly at the Post, with executives expecting costs to drop by more than half this year.) In 2001 the company paid $80,000 to a lobbying firm whose main role was to monitor the progress of President George Bush’s education initiative, a new law that will likely increase business both for Kaplan’s tutoring program and its rapidly expanding test-preparation business. It has also worked closely with Senator Pete Domenici on a $4.6 million federal job-training program, a portion of which would benefit a Kaplan subsidiary in New Mexico.
Overall, the newspaper’s editorials have supported these interests, calling for higher school standards, the use of vouchers, and further exploration of online education. In most articles and editorials, the potential conflicts of interest are prominently disclosed. But disclosures have not insulated the company from criticism for its coverage of education issues.
In 1998 Newsweek ran a cover story called, “Does Your Child Need a Tutor?” which included color photos and editorial descriptions of ebullient students at a Kaplan tutor center. “High fives are exchanged for real good efforts, and every success is awesome,” reads one description of one such center. Timothy Mullaney, now an editor for Business Week, was assigned essentially the same story a few months later as a free-lancer for The Washington Post Magazine. But Mullaney’s reporting led him to far less bullish conclusions about the tutoring business, making him skeptical of the motivations behind the Newsweek package. “I thought it was seriously below Newsweek’s standards, and I wondered where it came from,” Mullaney said, adding that his Post editors, who ran his story, never questioned his skepticism.
For Newsweek’s Whitaker, such criticism is misplaced. The story originated, he says, from his observations of his own children’s experience, not from his company. “I was seeing it in their schools, just talking to friends,” he said. “We were quite conscious of making sure that we reported it in a straight, even-handed way.” The Newsweek story, he added, included reporting on Kaplan’s competitors and discussion of the tutoring industry’s limitations.
More recently, the Post’s editorial page went to bat for
its own company in a debate over the propriety of online education.
In an unsigned piece, Amy Schwartz, a member of the paper’s
editorial board, wrote about a spat between Harvard University’s
law school and Concord Law School, the online subsidiary of Kaplan.
In 2000, Harvard had prevented one of its professors from taping
lectures for Concord, since it considered the online school a
competitor. After disclosing the paper’s relationship to
Concord, Schwartz’s editorial suggested that Harvard’s
caution was somewhat exaggerated. “We can’t help thinking,”
the editorial read, “that the likelihood of videotaped lectures
becoming a competitive threat is just another of those fervid,
mostly overblown predictions of how the Internet will alter human
behavior.” Hiatt says neither Graham nor anyone else at the
company gave any input to the editorial. But Graham is involved
in the issues Schwartz raised. At the Mid-Year Media Review in
June, Graham offered an editorial aside of his own after reporting
the profitable graduation of Concord’s first class: “Take
that, Harvard law school!” he told the audience of investors.
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