Saturday, October 27, 2012

Paywall coming next month for Kansas City Star readers

I wrote about it in the July 27 Turner Report, and it is coming to pass in the near future- the Kansas City Star will join other McClatchy newspapers that have implemented paywalls preventing readers from having unlimited free access to their websites.

In a Thursday filing with the SEC, McClatchy said its program, called the Plus program, was introduced at five newspapers in September and was an immediate success. The filing was printed below with the portion abour the paywall italicized:

The McClatchy Company (NYSE: MNI) today reported net income in the third quarter of 2012 of $5.1 million or 6 cents per share. In the third quarter of 2011 the company reported net income of $9.4 million or 11 cents per share.

Revenues in the third quarter of 2012 were $287.5 million, down 4.2% from the third quarter of 2011. Advertising revenues were $212.0 million, down 5.4% from 2011, and circulation revenues were $62.8 million, down 2.0%. Total digital advertising revenues grew 2.7% in the third quarter of 2012, with digital-only advertising revenues up 12.7% from the 2011 quarter. Digital advertising represented 22.9% of total advertising revenues in the third quarter of 2012 compared to 21.1% of total advertising revenues in the third quarter of 2011.

Results in the third quarter of 2012 included accelerated depreciation totaling $2.3 million ($1.4 million after-tax) primarily related to relocating Miami newspaper operations and severance and other restructuring charges totaling $3.9 million ($2.3 million after-tax). Income in the third quarter of 2012, excluding the net impact of these items, was $8.8 million compared to income in the third quarter of 2011 adjusted for similar items of $10.0 million. (Non-GAAP measurements are discussed below.)
Operating cash expenses, excluding charges associated with restructuring plans, declined $2.9 million, or 1.3%, from the 2011 quarter. Operating cash flow, a non-GAAP measure, was $67.1 million in the third quarter of 2012, down 12.8%.

First Nine Months Results:
Net income in the first nine months of 2012 was $29.9 million, or 35 cents per share. Net income in the first nine months of 2011 was $12.4 million, or 14 cents per diluted share.
Revenues in the first nine months of 2012 were down 4.7% to $875.1 million compared to $918.2 million in 2011. Advertising revenues in the 2012 period totaled $644.4 million, down 6.0%, and circulation revenues were $192.7 million, down 1.4%, compared to 2011.
Results in the first nine months of 2012 included the following items:

  • Accelerated depreciation totaling $6.5 million ($3.9 million after-tax) primarily related to relocating Miami newspaper operations.
  • Severance and other restructuring charges totaling $7.2 million ($4.3 million after-tax) related to continued restructuring of the company's operations.
  • A gain on the extinguishment of debt totaling $6.1 million ($3.8 million after-tax).
  • Reversal of non-cash interest expense totaling $7.8 million ($4.8 million after-tax) related to the release of tax reserves.
  • A favorable adjustment to net income totaling $7.0 million for tax settlements related to state tax positions previously taken.
Income in the first nine months of 2012 excluding the net impact of these items was $22.4 million compared to earnings in the first nine months of 2011 adjusted for similar items of $15.9 million. (Non-GAAP measurements are discussed below.)

Management's Comments on Third Quarter Results:
Commenting on McClatchy's third quarter results, Pat Talamantes, McClatchy's President and CEO, said, "Our third quarter results demonstrate that we're making progress in an uncertain economy. The advertising trend continued to move in the right direction in the third quarter: Ad revenues were down 6.8% in the first quarter of 2012, down 5.7% in the second quarter of 2012 and down 5.4% this quarter. We were particularly pleased to see continued growth in our digital advertising revenues and are excited about initiatives underway to pursue new revenue in both advertising and subscriptions.

"It's noteworthy that a growing percentage of our advertising revenues are now coming from sources outside of our traditional newspapers. Digital advertising and direct marketing together now make up over 36% of our advertising revenues.

"Advertising revenue from our digital initiatives continues to grow at a very healthy rate. Digital-only advertising revenue increased 12.7% in the quarter with automotive advertising from our products fueling the performance. Through the first nine months of 2012 our products have contributed nearly $23 million in digital advertising revenues - about a third of our total digital classified ad dollars. Our daily deals product, dealsaver®, continues its healthy growth with revenues up 84% in the quarter. Total digital advertising, which includes digital advertising both bundled with print and sold on a stand-alone basis, increased 2.7% compared to the 2011 quarter. Digital advertising now represents 22.9% of McClatchy's total advertising revenue compared to 21.1% in 2011. Our digital traffic also grew in the quarter with daily average local unique visitors to our websites and mobile content up 2.4%.
"In July, we launched impressLOCALTM , a suite of online products designed to offer local businesses a comprehensive digital marketing solution. impressLOCALTM provides affordable packages that include website customization, search engine marketing and optimization, social media presence and marketing services, as well as branding opportunities on the web through mobile and e-mail campaigns. It's now available at our newspapers in Fort Worth and Kansas City. While still early, our sales efforts have been positive and we plan to roll out impressLOCALTM to our other larger markets in early 2013 with our remaining markets to follow later in 2013 or early 2014.

"Direct marketing advertising, which now accounts for nearly 14% of our ad revenues compared to 11.4% two years ago, ended a string of nine consecutive quarters of growth with a decline of 2.5% in the third quarter. Although revenues declined modestly, the decline reflects, in part, the timing of some products and our culling of less successful products while keeping the more profitable ones that have good growth potential. For instance, revenues from our Sunday Select product, a package of preprinted advertisements delivered to non-subscribers upon request, grew 25.2% in the third quarter and were up 36.1% for the first nine months reaching nearly $10 million to date with deliveries to more than 625,000 households.

"Circulation revenues decreased in the quarter, down 2.0%. While circulation revenues and volumes declined in the third quarter, we are focused on developing strategies to generate additional subscription revenues and improve circulation volumes at our newspapers.

"In early September, five McClatchy newspapers – The Sacramento Bee, The Modesto Bee, the Fort Worth Star-Telegram, the Ledger-Enquirer in Columbus, Ga., and the Sun Herald in Biloxi, Miss. – introduced new subscription packages, known as our Plus program, for digital content that ended free, unlimited access to the newspapers' websites and certain mobile content. The Plus program includes subscriptions for both combined digital and print readers and digital-only readers. A metered paywall on each of the newspaper websites requires users to pay for content after accessing a limited number of pages or news articles for free each month. Existing home delivery subscribers are given free access to the digital content and rolled into the bundled print and digital Plus program when their subscription renews.

"We are excited about the early results. Thus far, only a small percentage of renewals have opted out of the Plus program, telling us our print readers value our content and high-quality journalism and are willing to pay extra for it in digital form. Similarly, we have added thousands of new digital-only subscribers to our paying customer base. We intend to expand this model to our other markets beginning next month. We believe the new subscription revenues will begin to make a more significant impact in the fourth quarter. In 2013, we believe the new Plus program could add more than $20 million depending on a number of factors, including how quickly we complete our company-wide rollout.

"Cash expenses, excluding restructuring costs, were down 1.3% in the quarter as compared to the third quarter of 2011. We continued to carefully balance expense management with strategically investing in our products and doing so enabled us to generate another quarter of healthy operating cash flow. For instance, our cash expenses declined even though we invested approximately $2.0 million in new revenue initiatives and enterprise-wide operating systems in the third quarter. All of our papers continue to publish daily, providing communities with needed news and information in whatever print or digital form they choose to access it. And every one of them does so profitably. Clearly high quality content delivered daily in multiple mediums continues to be a successful business.

"Our share of income from all equity investments was $11.7 million in the third quarter of 2012 and $27.1 million in the first nine months of the year. McClatchy's investments, particularly our digital investments, are consistently producing strong results which speak to the staying power of the underlying products. They are strategically important to our newspaper websites and we continue to work closely with these companies to maximize financial and operational performance.

"Looking forward, we will continue to focus on our strong and growing set of products and revenue initiatives, especially in digital and direct marketing. One thing we have learned from the 2011 fourth quarter holiday season and the spring holiday season this year is that advertisers increasingly bunch their spending around these major events. We are cautiously optimistic for another strong holiday season, but do not have sufficient visibility to provide specific guidance on advertising revenues for our fourth quarter.

"We will continue to carefully balance expense management with strategically investing in our products. We expect to continue to benefit from stability in newsprint pricing, recognizing that comparisons to 2011 get tougher even in a soft newsprint pricing environment. On balance, we expect cash expenses to be flat to down in the low-single-digit percent range in the fourth quarter of 2012."
Elaine Lintecum, McClatchy's CFO said, "We focused our excess cash flow for the third quarter on paying seasonally higher interest and tax payments. The debt balance at the third quarter remained at $1.564 billion and we finished the quarter with a cash balance of $15.7 million. Our nearest-term bond maturity in November 2014 is approximately $66 million – not an issue given our free cash flow. Our leverage ratio at the end of the third quarter as defined in our credit agreement was 4.71 times cash flow and our interest coverage was 2.19 times." 

1 comment:

Anonymous said...

Anytime I run across a Paywall, I send them an email that I pay $60. a month for internet service. It will be a cold day when I start paying these ripoff companies for individual articles or a digital subscription.

They are going by the wayside with their printed editions, and they are setting their selves up to do the same with their online operations.

My .02 cents worth.
Dave R