WASHINGTON
2002
The Post Company's New Profile
BY
MICHAEL SCHERER
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.
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.
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.
Michael
Scherer is an assistant editor at CJR.
