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Saturday February 4, 2012
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Saturday February 4, 2012
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Gary B. Pruitt, Chairman, President and CEO, The McClatchy Company
May 18, 2011, Sacramento, California
Much of McClatchy's work over the past year, while reflected in the results I'm about to share with you, has been focused on our future. We are, quite simply, working hard today for a better tomorrow.
And we've made important progress to that end. As you'll see, McClatchy continues its transformation into a hybrid print and digital media company that serves diverse audiences on multiple platforms. By re-engineering our company today, we ensure our future and the continuation of a 154-year legacy of public service.
Let’s review McClatchy's performance over the past year and take a glimpse at that future.
Our 2010 financial results reflect two powerful forces at work: the lingering effects of the recession, particularly in California and Florida, and the shift of advertising from print to digital media. In 2010, our revenues declined 6.5% with advertising revenues down 8%.
Still, 2010 was a good year for McClatchy. Every one of our newspapers was profitable. We continued to restructure our operations and reduce costs. As a result, we generated $382 million in operating cash flow, up 3% from 2009 and the first operating cash flow growth for McClatchy in several years.
Our digital business, an important part of our future, continued its growth with digital revenue up 2.4% to about $190 million in 2010, representing 18% of our total advertising revenue -- among the highest percentages in our industry. By the end of the first quarter of 2011, digital advertising grew by another 2% representing 20% of all advertising revenue in the first quarter.
Direct marketing, which includes direct mail, niche products and our Sunday Select preprint advertising program, is another increasingly important part of our business. Direct marketing revenue grew 3% to about $125 million in 2010 and was up about 7% in the first quarter of 2011.
We made good progress in refinancing and reducing debt. We paid down $174 million in debt last year, including all of our bank term debt and extended maturities on our remaining debt. Most of it doesn’t come due until 2017.
Let's take a closer look at what we are we doing to move the company forward in the weeks, months and years ahead.
We are intensely focused on five key areas:
* Driving new revenue, especially digital;
* Growing overall audience;
* Producing high-quality journalism;
* Permanently reducing costs; and
* Continuing to pay down debt
Driving New Revenue, Especially Digital
People think of McClatchy as a newspaper company. While that's true, it's not the whole story. We're participating in the secular shift of advertising from print to digital media.
McClatchy's digital revenue has grown every single year, even in the depths of the recession. As we've already seen, digital advertising revenue now accounts for about 20% of McClatchy's total ad revenue, but the percentage is even greater in certain categories.
More than half of all our employment advertising is digital, about 40% of automotive and more than a quarter of real estate advertising revenues are now being generated online.
This is where we see the benefits of McClatchy's valuable internet investments, particularly CareerBuilder, the nation’s No. 1 employment website, and Classified Ventures, a thriving online classifieds company that operates Cars.com and Apartments.com. These companies are contributing to our digital growth in classified advertising, which improved by nearly 30 percentage points in 2010.
Not only do these companies provide leading online products used by each of our newspapers, their strong earnings contribute to our bottom line. Last year, Classified Ventures paid McClatchy $24 million in cash dividends as a result of our ownership stake.
Income from all of McClatchy's equity interests more than doubled in 2010 to $11.8 million, with the increase coming primarily from two sources, Cars.com and CareerBuilder.
To date, retail and national advertising have had less of an impact on our digital business, partly reflecting their slower migration online. But that is changing, and we are determined to meet the growing demand for digital retail and national advertising.
Our partnership with Yahoo, for example, allows us to leverage McClatchy's sales efforts to sell ads on both McClatchy and Yahoo websites.
Our Find n Save digital marketplace debuted in Sacramento last November and has since expanded to 21 McClatchy websites in the first quarter. Find n Save provides local shoppers access to online coupons, digital versions of preprints found in our newspapers and searchable store inventories among other features.
This month we are launching Deal Saver in selected markets. Deal Saver is our digital group-buying product offering local daily deals to consumers in our markets.
We are creating separate, digital-only sales teams to drive results online. We've targeted two McClatchy markets to start -- Tacoma and Miami -- and expect these digital-only sales forces to expand to other markets over time.
In both online and in print, we're pursuing local revenue opportunities. Most of our ad revenue decline right now is coming from large advertisers, and we're working to offset that decline with small and midsized advertisers.
Our Print & Deliver program, launched in 2010, offers neighborhood retailers and other nontraditional advertisers the ability to distribute preprinted circulars in their immediate vicinity where they can do the most good. We distributed about 400 million circulars for our advertisers in 2010 under this popular program and expect that number to grow in 2011.
We're experimenting with paid content. While most of our content is free online, we're testing several different paid models, including paid mobile apps, niche publications with deep, original content in areas such as sports and politics, and soon we will roll out a metered pay wall at one of our daily newspaper websites.
Growing Overall Audience
Audience growth is another area of focus.
While daily and Sunday circulation was down in the mid-single digits in 2010, our online growth is robust. But not all internet traffic is equal. We get higher rates and better results for our advertisers from local audiences. Local unique visitors to our websites grew by about 17% last year and were up another 6% in the first quarter.
We've also launched dozens of iPhone apps with more in development. McClatchy newspapers are now available on Amazon’s Kindle and Sony's eReader. We're developing a special news app for the iPad and launching apps for the Android and BlackBerry smartphones.
Mobile advertising revenue is a small part of our business right now, but that audience is growing exponentially. Advertising will come and we plan to be there when it arrives. Just like the web, the audience arrived first and the advertisers followed.
Producing High-Quality Journalism
Our commitment to high-quality journalism is unwavering. It's what McClatchy is all about.
Quality journalism is critical in retaining and growing our audiences and it distinguishes McClatchy from proliferating new media competitors.
Last year we added a corporate vice president for news in Anders Gyllenhaal. Anders is a former executive editor of The Miami Herald and two other McClatchy papers. He is a past chairman of the Pulitzer Prize Board and is leading a number of news initiatives across the company. These include greater collaboration among McClatchy newsrooms, developing distinct products for different platforms and fundamentally changing the way our newsrooms work in the 24/7 news cycle of the digital age.
Last year, McClatchy litigated 31 major access matters, including opening more proceedings at the Guantánamo Bay prison facility in Cuba and unsealing probation records in the Jaycee Lee Duggard kidnapping case in California.
We don’t take on these cases purely for our own interests. We do so to protect the public's right to know as guaranteed by the Constitution.
McClatchy's commitment to quality journalism continues to be recognized by our peers in the news business.
Last month, The Miami Herald won the Robert F. Kennedy Journalism Award for its coverage of the U.S. prison camps at Guantánamo Bay. The RFK award, one of the most prestigious prizes in all of journalism, salutes outstanding reporting on human rights and social justice.
We didn't add to our total of 52 Pulitzer Prizes last month when the 2011 winners were announced. Still, three McClatchy newspapers were named as finalists by the Pulitzer jurors: the Lexington Herald-Leader for editorial cartooning and The Miami Herald and El Nuevo Herald in the breaking news category for their coverage of the earthquake in Haiti.
Our journalists continue to produce compelling stories, pictures and editorials that benefit their communities and the nation despite the difficult economic environment. That speaks not only to McClatchy's commitment to public service journalism, but also to our strategic focus on restructuring our business.
Permanently Reducing Costs
We have no choice but to permanently realign our expenses with the new revenue realities of our business, but that doesn’t mean across-the-board cuts. It means being smarter about how we run our business.
In 2010, we reduced cash expenses by $108 million. Much of this work was made possible by technology. We are sharing news stories and resources among papers as never before and centralizing and standardizing computer systems across the company for greater efficiency and greater savings.
We continue to focus on our strengths: news, advertising and digital. A decade ago, about one-third of McClatchy’s employees worked in one of these three critical areas. Today, the number of employees is about half.
We are working to nurture a high-performance culture at McClatchy, employing fewer managers and broadening employee responsibilities.
Continuing to Pay Down Debt
Lastly, we are relentless in paying down debt.
We paid off another $20.6 million in the first quarter of 2011 to reduce our overall debt to $1.75 billion. Reducing risk and strengthening our financial position remains a top priority for us in 2011.
What we're doing collectively is creating the model for a leading local media company that can support quality journalism. That’s important work; it’s difficult work. But we are getting it done.
Thank you.
The McClatchy Company