Earnings Drop for Media and Education Conglomerate
In a vacuum, the 2Q11 results reported for The Washington Post Company’s (NYSE:WPO) cable division last Friday were disappointing. Revenues were flat, operating margins narrowed, and video subs down in 2Q11 for Cable ONE, The Washington Post's cable subsidiary. Not exactly top of the press release material... Well, everything is relative. In comparison to the conglomerate’s education business, Kaplan, Cable ONE turned in a banner quarter.
Revenues for the for-profit-education company dropped 15% YoY, or $114m, as student enrollments fell 30% at Kaplan schools. Operating margins plummeted from 15% to 3% YoY at Kaplan and 2Q11 profits were nearly cut in half for The Washington Post, which generates 60% of revenue from education. Newspaper revenue also slumped, falling 6% YoY.
Meanwhile, Cable ONE grew revenue less than 1% to $191m, reported 8% lower operating margins and lost near 40k video subs YoY, yet it still generated 50% of the Post’s total operating income in 2Q11—up from 26% a year ago. Cable ONE was however able to add Internet and voice connections, but the gains represented a rare highlight to an overall disappointing 2Q11.
The poor performances of its education and newspaper divisions magnify the importance of The Washington Post's cable operations. Given that Kaplan’s enrollment is expected to remain lower and that newspaper declines will surely continue, the Post will rely more heavily on cable to generate earnings in the future, which could prove troublesome.
Despite The Washington Post’s overall size, its cable division is dwarfed by many of its cable’s competitors. It has lost video subs in each of the last six quarters, and its penetration of video subs with broadband and voice services was the lowest of all cablecos in JSI’s 1Q11 survey. Depending on revenue and earnings growth from a smaller player that operates in an increasingly consolidated industry is not an enviable position for the Post to be in. In the near future however, it may not have a better option.