Washington Post 2006 Annual Report Download - page 52

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This analysis should be read in conjunction with the consolidated ers. In the second quarter of 2006, the cable division began
financial statements and the notes thereto. offering telephone service on a limited basis using voice over
Internet protocol (VoIP); at the end of 2006, cable telephone
OVERVIEW services were being offered to about half of homes passed with
2,900 subscribers as of December 31, 2006. The continued
The Washington Post Company is a diversified media and education launch and selling of telephony will be a major emphasis for the
company, with education as the largest and fastest-growing busi- division in 2007. The cable division's subscriber base improved
ness. The Company operates principally in four areas of the media overall in 2006 due to some recovery from Hurricane Katrina at the
business: newspaper publishing, television broadcasting, magazine cable division's systems on the Gulf Coast of Mississippi. For all
publishing and cable television. Through its subsidiary Kaplan, Inc., other regions, there was a decline in basic video and digital video
the Company provides educational services for individuals, schools subscriber categories primarily as a result of the $3 monthly basic
and businesses. The Company's business units are diverse and rate increase implemented in February 2006; no monthly rate
subject to different trends and risks. increase for basic cable service is planned in 2007. High-speed
The Company's education division is the largest operating division data subscribers grew 23% in 2006 (289,000 at the end of
of the Company, accounting for 43% of the Company's consolidat- 2006, compared to 234,100 at the end 2005), and this continues
ed revenues in 2006. The Company has devoted significant to have a large favorable impact on the division's revenue and
resources and attention to this division, given the attractiveness of operating income. The cable division began offering bundled ser-
investment opportunities and growth prospects. The growth of vices in 2003 (basic and tier service, digital service, and high-
Kaplan in recent years has come from both rapid internal growth speed data service in one package) with monthly subscriber
and acquisitions. Each of Kaplan's businesses showed revenue discounts. In the fourth quarter of 2005, a new bundling service
growth in 2006, except Score! While operating income increased offer was introduced whereby discounts are offered for new
for most of Kaplan's businesses in 2006, operating income was subscribers or existing subscribers taking new services (basic ser-
down at Kaplan Professional and Score! Kaplan Professional results vice, enhanced digital service, high-speed data service and teleph-
were adversely impacted by a significant decline in demand for ony service, which started in 2006). The bundling elements are
Kaplan Professional's real estate book publishing and real estate priced at $29.95 each for six months, and most $29.95 pricing is
course offerings. Kaplan's higher education division showed available for an extended period of time for customers taking three
improved operating income in 2006 for both its online and fixed- or more services.
facility operations due to increased enrollment, particularly with the The Company's newspaper publishing, broadcast television and
online programs. magazine publishing divisions derive revenue from advertising and,
Kaplan made several acquisitions in its test preparation business in to a lesser extent, circulation and subscriptions. The results of these
2006, including SpellRead, originator of SpellRead Phonological divisions tend to fluctuate with the overall advertising cycle, among
Auditory Training, a reading intervention program for struggling other business factors. Like many other large newspapers in 2006,
students; and PMBR, a nationwide provider of test preparation for The Washington Post experienced a decline in advertising demand,
the Multistate Bar Exam. Kaplan's international operations expand- particularly in the second half of the year. Overall, print advertising
ed in 2006 with the acquisition of Tribeca Learning Limited, a revenue at The Washington Post newspaper declined 4%, with
leading provider of education to the Australian financial services declines in classified, national and retail, offset by increases in
sector, and Aspect Education Limited, a major provider of English- zoned advertising. Circulation volume continued a downward trend.
language instruction in the U.K., Ireland, Australia, New Zealand, However, the Company's online publishing businesses, Wash-
Canada and the U.S. Kaplan's other international operations ingtonpost.Newsweek Interactive and Slate, showed 28% revenue
include businesses acquired in 2005, such as Singapore-based growth in 2006.
Asia Pacific Management Institute, a private education provider for The Company's television broadcasting division experienced a
undergraduate and postgraduate students in Asia; and The Kidum large increase in operating income due primarily to significant
Group, the leading provider of test preparation services in Israel; as political and Olympics-related advertising in 2006. The Company
well as businesses acquired in 2003. Kaplan made 11 acquisitions will face challenging revenue and operating income comparisons in
in 2006; the four largest are mentioned above. Over the past 2007 due to the absence of significant political and Olympics-
several years, Kaplan's revenues have grown rapidly, while oper- related advertising. Newsweek magazine showed an advertising
ating income (loss) has fluctuated due largely to various business revenue increase of 1% due to increased revenues at the interna-
investments and stock compensation charges. tional editions.
The cable division has also been a source of recent growth and The Company generates a significant amount of cash from its
capital investment. Cable ONE's industry has experienced signifi- businesses that is used to support its operations, to pay down debt,
cant technological changes that have created new revenue oppor- and to fund capital expenditures, share repurchases, dividends and
tunities, such as digital television, broadband and telephony, as acquisitions.
well as increased competition, particularly from satellite television
service providers and, to a smaller extent, other telephony provid-
36 THE WASHINGTON POST COMPANY