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gannett morganstanley2005


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gannett morganstanley2005

  1. 1. Morgan Stanley Media & Communications Conference May 5, 2005 Washington, DC Doug Arthur, Morgan Stanley: We’re going to jump right into Gannett with Doug McCorkindale and Gracia Martore up here on the stage, and Doug’s going to make a few introductory remarks. I’ve got plenty of questions, but obviously we’re happy to take from the audience at any point in time. Doug? Doug McCorkindale, Chairman, President and CEO of Gannett: Should I cut out the remarks completely and just go to your questions? Arthur: I want to hear what you have to say. McCorkindale: All right. Good morning all. Before I proceed, at your place is one of those forward-looking statements. You know all the propaganda, so pay attention to it. The challenge and the great opportunity, I think, for Gannett – or, from our point of view, any media company today – is figuring out what our customers want, and delivering it where and how they want it. All of our viewers and readers today, as you probably know, have multiple choices and various ways to get their news and information, just like all of you do. Our game plan over the past couple years is to find ways to appeal to all of our different customers, and notwithstanding what you may be reading, that includes young people. It includes committed newspaper readers, TV viewers, Web surfers, and anybody who wants news and information from a reliable source. Note that: Reliable source. We have expanded our range of products in our communities to appeal to the tastes of our many different customers and our advertisers. I think we’re rather uniquely positioned in communities around the country to reach the people that the advertisers want and need to reach. Basically, we just are expanding our footprint, and our footprint is getting results. Over the past two years, as some of you know, Gannett has posted the industry’s leading ad revenue growth because we understand our markets, and I think we understand our customers. I know that some of you have suggested
  2. 2. that we’ll have a tougher time this year because of the numbers we’ve posted in the last two years. Well, I think you need to take a closer look. In the first quarter of this year, our pro forma newspaper advertising revenues increased almost 5%, which again put us at the high end of the industry’s results. In the first quarter, though, we did see a mixed bag of results, both in the U.S. and in the U.K. And I must tell you that so far, we haven’t gotten April’s numbers in in the U.S., but these trends seem to be continuing into April, Namely a mixed bag. You will recall in the first quarter that local advertising increased over 6%, and I think we’re going to post very good numbers in local again in April – tempered, though, by the absence of Easter. The employment numbers in our U.S. newspapers were strong in the first quarter, but again, as many of you know, auto advertising globally, both here and in the U.K., and across all of our platforms, continues to be soft. Turning to the U.K. for a moment, Newsquest seems in April to be continuing to see the same softness that they saw in the first quarter, particularly in employment and in auto. Those two categories are weak. They’re weak throughout the U.K. In television in the U.S., the first quarter obviously lacked the political and Super Bowl advertising, which helped us in the first part of 2004. And we are also seeing a softer ad picture, especially in the core and, especially, in auto, again. Nevertheless, despite these comparisons, our stations took advantage of their top rankings and did a good job in recouping some of the ad dollars. For the most part, a lot of this comes from our new business efforts, which are running ahead of 2004. It also resulted from increased billing from online. In February, we had our strongest sweeps performance on a household basis for our metered markets. Despite significant declines from our friends at NBC, we had a very strong performance in the key selling demo of 25-54. On a group-wide basis, our stations maintained their competitive position, especially in late news. We have a couple of markets, in fact, where they actually improved---NBC stations with some of the challenges that that entails. In Buffalo for example, they had their best rating book in the history of the station. On an overall basis, for the group for late news, 18 of 19 markets were ranked #1 or #2, and ten were ranked #1. For morning news, which most of you know is a very important growing segment, nine of the stations were ranked #1, and 14 of the 19 were #1 or #2. We believe numbers like this are the best way to attract advertisers, wherever they’re going to come from, in this year of very tough comparisons. Looking forward to the second quarter for television, based on the pacings we are seeing, we are lagging last year’s results in mid- to high-single digits. Last year, keep in mind, we brought in about $14 million of political advertising, and we had some help from the Friends and Frazier finales. We’re going up against those numbers, so we are lagging. Take a look at newspapers. Our overall strategy of broadening our base of customers, is to offer multiple and diverse products, and we believe that strategy
  3. 3. continues to succeed. We now have over 800 non-daily publications in our communities. Revenue from these non-dailies – and that excludes Army Times and Nursing Spectrum and Clipper – was up 21% in the first quarter. And we expect another double-digit revenue number in the second quarter. In addition, our online efforts continue to grow and attract both new visitors and advertisers. Total online revenues for the first quarter increased 47%. At our U.S. community newspapers, excluding the U.K., revenues were up over 63%. CareerBuilder, which as you know we own with our friends from Knight Ridder and Tribune, maintained its top position in the online employment field, with over 20 million unique visitors in March. They also increased their revenue 88% in the first quarter of 2005. In addition to Career Builder, we continue to invest in our strategy of extending the reach of our local content through our online platforms., for instance, is a Web-based resource that allows shoppers to do online research for offline shopping. We also partnered again with Knight Ridder and Tribune in March to invest in, which is a content aggregation service that continuously monitors breaking news from over 10,000 online sources, and categorizes daily news content into a number of topics. And where it makes strategic sense, we also are expanding our footprint through what you might call tuck-in acquisitions. HomeTown Communications Network, is an example. It’s a community publishing company – one daily, 62 weeklies and twice-weeklies, some telephone directories, and some niche publications in Michigan, Ohio, and Kentucky. I think it’s important to understand that in our local markets, advertisers and readers do not rely exclusively – as much as we’d like them to – on the daily newspaper to meet their needs. And the paid circulation of our newspapers does not fully measure the reach of our brands in the communities we serve. As I mentioned, we have more than 800 local, non-daily publications and 100 websites that supplement our reach for advertisers. And for example, according to our measurements – and we think this is very accurate, and the advertisers are paying a good deal of attention to it – our local young reader publications are adding about 2 percent to the reach of each of our brands. These products also increase our reach, obviously, to the younger consumer, which a number of advertisers are interested in reaching. Our weeklies and shoppers and TMCs all add to that big picture. The daily newspaper’s reach in local markets is only one element of the mix that we’re trying to sell to advertisers. In a number of markets, we can reach as much as 100 percent of the market through a combination of all these products. Our targeted non-daily products allow advertisers to reach geographic and demographic and psychographic groups that they are trying to target. In an overwhelming majority of the Gannett communities, the daily newspaper, along with these ancillary publications and Web sites, remain the dominant medium to which consumers turn for news and information and especially advertising. One
  4. 4. important point I should note from the recently-released ABC data is that USA TODAY’s paid circulation was up slightly, year over year. A very impressive gain, we think, after raising the single-copy price 25 cents last September. Now, if you read the New York Times, you don’t get that result because they tend to have trouble with numbers, but it was up. (Laughter) And if you read the text, we’ve got more circulation than we actually have, so we’ll go with their best number. Anyway, we think, in addition to the numbers, the quality of the readership of USA TODAY is very important. According to IntelliQuest, USA TODAY reaches 1.1 million readers who influence business/technology decisions; while, interestingly, the Wall Street Journal only reaches about 900,000 of such people. And the New York Times only reaches half the number USA TODAY reaches. Additionally, the Mendelson Affluent Survey indicated that USA TODAY reaches more C-suite level readers than either the Journal or the New York Times. Before I stop and take your questions, I want to mention three other things. Newsprint---some of you have asked about that. Recently, several of the domestic suppliers announced a price increase for June 1, I would categorize that as simply illogical, given the March increase, which has yet to settle in the general marketplace. Gannett is committed to establishing price trends that provide the greatest stability while remaining connected to the market realities. And I think some of the suppliers are not dealing with the market realities. Second is the delay from the SEC in the expensing of options. We’ll start expensing them in January of ’06, and we’ll give you some heads-up as we get closer to implementation. And finally, as I’ve said elsewhere, we’re pleased with the recent changes at the FCC. We think Chairman Martin is an excellent choice. His policies, to the extent that we have understood them and he has revealed them, have been consistently positive in terms of deregulation, and hopefully will allow us to participate more in the marketplace. Let me stop there and go to your questions. Arthur: I’ll start off, and certainly, if anyone in the audience wants to throw up their hand, please go ahead. Just not to be too short-term-oriented, but it seems to me that the newspaper stocks sold off pretty significantly after – or during, and sort of after the first quarter results, primarily – from what I can tell – on comments from the companies that there was an abrupt slowdown in ad momentum in the second half of March, and that there hadn’t been much of a rebound post-Easter in April. Now, we did have the earliest Easter holiday in 10 years, and that tends to create havoc, particularly with classified advertising on the weekends. So, if you could amplify on your comments about the mixed-bag picture you’re seeing in April, and how much the slowdown in the second half of March was caused by the holiday.
  5. 5. McCorkindale: As I said, you’re just a few days ahead of us. We haven’t gotten April’s numbers in. Calling around, it appears there was that blip. It obviously did affect it on the retail side and the classified side. I think we’re seeing a slight pickup – maybe not enough to take care of the drop, but it’s not a continued negative. It is picking up. As I said, I think our retail numbers are going to be pretty good. Auto is still hurting. Real estate is strong in most markets. Interestingly, in some of the boom markets, there simply are not enough new homes to generate the amount of activity that you would expect. Phoenix is a prime example. They have no inventory. And auto is mixed in most places. We haven’t, again, seen the numbers. It is picking up a little bit on the East Coast, but the East Coast was soft last year, so it’s an easy comparison. It’s a market-by- market result, so we’ll give you an answer in a few days, but it has started to improve a little bit. Arthur: Okay, second question. One of the key arguments or assumptions of the people who are short newspaper stocks right now---is that the circulation woes are creating tremendous leverage with the ad agencies to lower national ad rates with the mass market newspapers. Therefore, the ad revenue prospects – particularly in national, less so with the local and retail – are going to doom ad momentum in this industry for some time until the circulation problems straighten out. And obviously, notwithstanding the fact that a lot of the newspapers that have taken their circulation down have done it on the third- party side, which wasn’t getting full rate yet. What’s your comment? What’s your reaction to that concern? McCorkindale: We’re not seeing that. The short folks, probably most of the hedge fund guys – I was at a hedge fund conference yesterday: I mean, it’s fascinating, their view of the world. It’s a little different than ours, and I understand that’s how they make money. But our numbers were pretty good, in circulation. Not great, but pretty good. USA TODAY having a positive number after increasing the price 50 percent is a pretty good number. I think some of our friends in the industry may have taken their numbers down a little bit more than they could have, but in order to sort of cover your whatever, they were overly conservative. We’re not seeing any comment from national advertisers. It’s simply not bubbling up. USA TODAY’s ad picture is fine. It’s a rather well-known national product. Simply no pushback. But of course, our circulation numbers are reasonably okay. Indianapolis was actually up. We’re seeing a little softness in New Jersey. Phoenix is recovering nicely. We’re not seeing it, Doug.
  6. 6. Gracia Martore, Sr. Vice President and Chief Financial Officer, Gannett: USA TODAY implemented an 8 percent increase in January, and there hasn’t been any pushback to that. Arthur: And where do you – I mean, USA TODAY has always had lower rates, historically, than the Wall Street Journal or New York Times. Where are you on that calibration right now in terms of getting rates more up toward large, well- known national publications. McCorkindale: You know, I haven’t seen the recent comparisons. We’re getting up there. We’ve been up 8 percent two years in a row now, and we’re not getting push back. USA TODAY is delivering results. I don’t have the chart in front of me, - There’s still a gap –but there’s lots of room. I’ll go back and tell Craig Moon that he needs to be more aggressive. (Laughter) Arthur: What about cash flow? One of the – I guess the only positive – from the delay in getting clarity on the FCC regulations is that it kind of inhibits large, local media companies doing large deals because they don’t know what they can own. Hopefully that’s going to work itself out over time, but that’s allowing companies to build up an awful lot of cash. How are you using your cash; and why are the dividend rates, given the favorable tax laws on dividends, not higher in this industry? McCorkindale: Well, I can’t speak for the industry. Our dividend rate used to be higher. Many of you sitting in this audience suggested they thought that was an unwise use of our money, and we should go out and buy things and buy back our stock, which is what we’ve been doing. We could certainly increase the dividend. The board considers it every fall, and we have room. We’ve increased it – whatever it is – 36 times since 1967. But right now, we’re buying back the stock. Notwithstanding your comments about the shorts, we think Gannett’s a hell of a buy at this price, and it’s adding to our bottom line. You can all run the math. You buy back Gannett stock at $77 - $78, and 5 percent money, and it’s a positive. So we’re primarily buying back the stock. If the marketplace changes or an acquisition comes on the market---you know, as we did a couple years ago, we bought back $1 billion, and then we did $4-plus billion of acquisitions in the following 6 to 9 months. We’ll just change the game plan for whatever makes good sense, and where we can make money for the shareholders.
  7. 7. Questioner: To offer my own opinion, the issue between your perception of the stock and where it actually is, is sort of a terminal value of distribution, and how distribution plays out. My question is, the value of Gannett to me is the newsroom, the aggregation of news, and not distributing it on a piece of paper, but the ability to distribute it however you see fit. The question is, how do you see that progressing for you, where you can still sort of mine the cash flow that is always going to be the paper; whereas there’s a million opportunities to use your newsroom as an asset in---whether it’s cell phones or a thousand different opportunities. How do you picture that? Because I think that would unlock some of this terminal value debate that’s pressuring your stock so horribly. McCorkindale: I think I agree with what you’ve just suggested, and what I tried to say is we’re trying to broaden the footprint. Take Cincinnati, for example. We have a young person’s publication; we have a Web site; we have other niche publications; and we are talking to the telecom world about telephones. The math on that tends to be rather one-sided from their point of view at this point, so it doesn’t make a lot of money for us. But you’re right, we have the newsroom. My view, that the job of the newsroom is to aggregate information and put it in a user-friendly format. You press this button, it goes out on dead trees; you press that one, it goes out in a digital format to the Internet. As long as we have those folks that can edit the news and put it in the right format, we have to spread it every way somebody wants it. That’s what we’re trying to do. But you don’t want to get ahead of yourself like some folks did in 1999, and just throw it up against the wall and then see how much money you can lose. Gannett likes to make money. That theoretically is the business we’re supposed to be in. So we make money on all of our websites. Gannett’s websites are profitable in the U.K., at USA TODAY, television, and newspapers. So we’re trying to do what you suggest, but do it in a financially positive manner. Questioner: I have an 18-year-old. We get three newspapers dropped daily, and he doesn’t read them at all. He’s a bright guy. He goes on the Internet and he reads the news. McCorkindale: Do we have a young person’s newspaper in your market? Questioner: No.
  8. 8. McCorkindale: Well, what we found out is a lot of the same news that we’re putting into the traditional newspaper, if we package it to give it to young readers in the format that they want it and when they want it---very, very positive response. We’ve started all these young publications, and they’re really---they’re profitable ahead of schedule and doing well. The balancing act is to give young people what they want when they want it. They do read: 85 percent of the Internet is text, so this nonsense that they don’t read is not the answer. They just want it when they want it, and we have to do that. At the same time, we have to make sure we don’t destroy the traditional newspaper for the old folks like you or me, and that’s the balancing act. We’re trying to do both. You’re absolutely right; that’s our challenge. Questioner: I don’t think he pays anything. I’m not aware of any… McCorkindale: He probably doesn’t. Our young publications are free. The Internet is an interesting model. I don’t know how long everybody’s going to keep giving away their newsroom product, as this gentleman was referring to. It does cost us money, and if we didn’t have that back office creating all the information, the math would be interesting. Questioner: Can I just jump to another question? You talked about newsprint. What is newsprint now, 15 percent of total cost, Gracia? McCorkindale: Gracia’s our expert. Martore: Somewhere between 15 percent and 17 percent. Questioner: Somewhere in that area, okay. I thought – I haven’t been a paper analyst in many, many years, a newsprint analyst – but I thought I read that operating rates are really, really high, despite the fact that advertising demand is soggy, as we all know here. So why is it illogical for rates to go up if supply/demand and capacity/utilization is so high? Martore: Well, I think one of the ways that they’ve gotten their operating rates up is that they shut down capacity and closed capacity in general. It’s not a sustainable
  9. 9. business model for them. As well, there have been exports out of this country to other places like India, and that’s helped them to show operating rates that are greater. So I don’t think that there is, in fact, a supply issue. I think there’s more of a demand issue, and we just don’t think it’s logical that they haven’t completed fully in the market whatever they’re going to get from the March price increase that they pushed back. Questioner: That’s not uncommon, that they would stretch that out. Martore: No, well, it’s not been uncommon because the newspaper companies have responded to illogical price announcements and delayed them. I don’t think June 1 is the appropriate time for the next go-round. Questioner: What was in the increase in March, percentage-wise, and what’s the… Martore: They asked for $35. Depending on whatever company you talked to, some or none of that has stuck so far. Arthur: I think one of the things you saw in the first quarter was that consumption was down, and I wanted to---which leads me to a question. Last year, Knight Ridder started implementing – or I guess really back in ’03 – they started experimenting with lighter basis-weight newsprint, and the concern was it was going to mess up the opacity of the broad sheet, and maybe bleach the color and lower the quality of paper. But now, even the New York Times is talking about going to a lighter basis weight, and you, I believe, mentioned that as well. What’s happening there, and what does it save you? How light can you go, and how much newsprint does it save? Martore: We have been doing some pilots with about 10 of our newspapers, and what we’ve found is that the quality and the opacity of the newsprint varies from mill to mill, and from pressroom to pressroom. In some of our pressrooms, it has worked very, very well, and there’s no difference, frankly, between the quality we’re getting on lightweight versus standard newsprint. So in those situations, we’ll use lightweight. In some other pressrooms where the quality has not been as good on the lightweight side, it has caused those kinds of problems, and so we need to look at that and see if there are ways to improve that. If not, then you
  10. 10. have to weigh what the impact is on advertising versus going to lightweight, so it’s still a process. Arthur: What does it save? Martore: It has some meaningful savings. McCorkindale: Less than 10 percent, Doug. It’s single-digit numbers, better in some markets than in others, depending on the effect. Martore: But there are other things we’re doing with regard to consumption. We’ve trimmed web width on single-wide presses from 25 inches to 24 inches. And we’re doing some other conservation measures. So all of that is in the pot of the numbers that you are seeing. Arthur: And the usage number, Gracia? What’s the percentage? Martore: Usage number in the first quarter was down about 3 percent to 4 percent. Arthur: Historically, the newspaper industry has been able to raise cover prices during downturns. With the circulation woes we’re all aware of here, does that put you in a little bit of a box at this point, to do that? McCorkindale: No. As I said, we just raised USA TODAY from 50 cents to 75 cents. Questioner: What about the overall company? McCorkindale: We have price increases scheduled on a regular basis, where it makes sense. We haven’t been raising single-copy prices in some time, but the home delivery goes up. Not as big an impact as from years ago, when I can remember helping a quarter by just raising the price in Rochester. The company’s gotten too big for that, but…
  11. 11. Questioner: So overall, the cover price has done what? Martore: We’ll selectively, each year, where we think there’s an opportunity on the home delivery side---it’s more on the home delivery side than on the cover price. McCorkindale: The home delivery, rather than the 50 cents or the $1, $1.50 on Sunday. Questioner: And ad rates? How are we looking on that front? Martore: Similar to what we said with regard to our assumptions back in December, that it’s a market-by-market decision. It’s a product-by-product, category-by-category decision. But low single digit kinds of increases. McCorkindale: Yeah, 3 percent, 4 percent, 5 percent, 8 percent for USA TODAY. It varies. Questioner: Can you just talk a little bit about the FCC ownership deregulation? In the context that we just talked about, where the newsroom is the asset, why would you want to get into TV stations? That, to me, is actually a commodity that you don’t need. I don’t understand why another old-school distribution channel would be something that we’d want. McCorkindale: We’re not interested in deregulation just for the sake of owning a television station in a market where we have a newspaper, or vice-versa. The so- called benefits there of having two in the same market, as we do in Phoenix---it’s good. Is it something we’re going to go run out and pay 3 more times on a multiple basis? No. It makes good sense on duopolies. We could make a lot of money in duopolies by cutting out the back office, but as Doug referred to earlier, what it does is it opens up conversations between companies to put pieces together without having to have certain assets that you have to sell on a fire sale because of a six-month or one-year rule of having to diversify out of the market. We had that problem in Cincinnati and Oklahoma City, when we had cable and a newspaper there a number of years ago. So it allows you to just talk about transactions that make economic sense without worrying about regulations that are out of date.
  12. 12. Questioner: In Phoenix, you have a dominant newspaper, pretty dominant TV presence. Does that---how has that helped you, and does it give you more hits on your Web site? Because I mean, one of the untold stories to a certain extent, is that the local newspaper Web sites typically are the most heavily trafficked for news, weather, sports. Now, there’s been an issue about monetizing that, but if you own a major affiliate and a newspaper, doesn’t that give you a leg up in terms of dominating Internet traffic as well, and does that mean anything? McCorkindale: Yes. In Phoenix, we have, which is doing well. But we did a measurement of stand-alone new advertising coming to the complex. Discount everybody; it’s already in one or the other. And we’re picking up, oh, $12 million, $15 million of revenue. Okay, that’s fine. But that’s not a huge amount of money, to get back to the gentleman’s question. It’s good, though, it’s positive. We’ll take it. Will we go out and spend 15 times cash flow for some property that’s doing very well just to have cross ownership in the market? No. The math has to work. It’s a positive, but it’s not worth a heck of a lot of money. Questioner: I was hoping you could elaborate a little bit further on the economic differential between distribution via the Internet and paper distribution? In particular, how the ad dollars work? The subscription price versus the newsstand price? And how you compete with free services like Yahoo? Then I have a follow-up after that. McCorkindale: All of our Internet is free, not necessarily by choice, but that’s the marketplace we’re operating in. We allocate costs within the Gannett company, so if the Internet piece of the newspaper activity is getting some benefit from the newsroom – which it should, by definition and other pieces – we allocate costs on that. Gracia, correct me if I’m wrong here but I think, as a general statement, our Internet activities are much more profitable than our newspapers in terms of return on revenue. The advertisers are paying for it. We’ve been increasing our rates to advertisers on our Internet sites. We’re not getting any pushback. So the economics are very positive because the whole Gannett company, it’s---I don’t know, we said $200-and-some-odd million plus last year. It’s going to be a heck of a lot higher this year with revenue growing at 49% or 50% or more. The math still makes a lot of sense. We think they need to be businesses, but we are getting no subscription revenue from our Internet sites, which we obviously do from the newspapers, if that’s what you’re getting at.
  13. 13. Questioner: That’s part of it. The other is sort of a cost-per-thousand impression, where we’ve seen some press, particularly on the sell side, where they’re talking about the cost per impression for newspapers is the most expensive vehicle right now, and that’s one of the reasons why newspapers are losing share. But since there’s this dual use---that’s what I’m trying to understand. McCorkindale: Our advertisers, we let them buy it either way. You can buy our Internet site or you can buy the print stand-alone. We’re not finding many that are buying just the Internet on a stand-alone basis. The automobile and the employment categories would be two prime examples, although real estate also falls into that. We are finding people are buying print and then paying the upcharge to get onto the Internet site. I don’t---pushback on cost-per-thousand or whatever happens if you’re not delivering for the advertisers. If you have a big, big footprint in each market, as I tried to describe earlier, we are delivering. We’re getting the message out one way or another. And pricing has not been an issue with us when we’re doing a good job. If we’re not covering the market, sure, they’re going to push back. The first guys to push back will be the automobile dealers; they’re sitting on inventory they can’t sell, they have lots of cost problems. But it’s not an issue if you deliver. Questioner: Just one quick follow-up question. Is there an opportunity to leverage your news and reporting effort between television and the newspapers, so you can get further operating leverage? McCorkindale: Yes. Doug was referring to that in Phoenix. We’ve done some coverage of news events using the folks out of the news department of the newspaper and/or the television, and have saved double coverage. And, of course, that goes on the Internet. Again, is it a lot of money? No. Is it some money? Yes. But it’s not like you’re going to cut your costs by 20%, at least not the way we’re doing it. Questioner: (Inaudible.) McCorkindale: Yes, there’s more room, but as I was answering earlier, you don’t chase a newspaper or a television station just to get a cross-ownership benefit in the market. It’s a plus, it’s worth something, but it’s not what would drive a silly number; or at least not the way Gannett looks at deals.
  14. 14. Questioner: Could you speak a little about classified advertising, employment advertising in specific? Both what has the trend been looking like into April? And what has the trend been as far as the shift between online and in print? McCorkindale: That’s what I was just trying to answer, the second part first. We’re seeing folks still buying both, primarily coming in on the print side and then adding an upcharge and going on the Internet side, and then adding another upcharge to go to the CareerBuilder website that the three of us have. That’s going very, very well. It’s growing faster proportionately on the Internet side. Again, they have a very, very low base, and the rates have gone up a little bit, so the revenue picture there is growing at a faster rate, but with a much, much smaller base. The overall employment picture we’re seeing in the U.S. is solid just about everywhere. It’s not quite as aggressive as it was in the last part of 2004, but – I haven’t got April’s numbers yet, but they’re pretty good just about everywhere. There are some markets, especially in the Midwest if they’re automobile-related, where it’s not as positive as you might want it to be. In the U.K., on the other side, the employment numbers are not positive. The south of England, which is the fastest-growing part of England, at least theoretically, is even softer than the northern part of England, although we’re doing okay in Scotland. But positive picture, England excepted. Arthur: Doug, the sort of consortium here between Tribune, Knight Ridder, and Gannett. You’re accumulating a fair amount of interesting Internet properties, with CareerBuilder obviously being the central one, but Topix, Cross Media, some retail stuff. Is it conceivable, not this year, down the road, given multiples in the Internet space, and given the growth rate, versus multiples in traditional media – that this thing could go public and unlock some of the value as it grows to shareholders? McCorkindale: Anything’s possible, Doug. We haven’t discussed that at all with Knight- Ridder or Tribune. I mean, we’ve got a great working relationship. The three companies are on the same wavelength on almost everything we’re doing, and we’re looking for other opportunities. To write a check as we did for was not a lot of money for any of the companies, so as long as we can find new technology investments like that, we’ll write the check and keep it in-house. We just haven’t discussed the public setting.
  15. 15. Questioner: Yes, because the top 10 newspaper companies account for almost 10% of the Internet advertising world, and the stocks are trading at 8 times cash flow, so you look at that and you say, “Hey, how’s this going to get arbitraged?” But one final question, going back to more pedestrian issues: Cost, year over year. You spent a lot of money in ’04 on new products, particularly in the newspaper business. You took advantage of very strong ad revenues to invest. Your non- newsprint costs were up like 5-ish, which is an unusually high number for you guys. How do costs – and particularly in the newspaper group; we talked about newsprint – play out ’05 over ’04? Martore: In the first quarter, pro forma constant currency basis in the newspaper segment, excluding newsprint expenses, were up about 2.8 percent. We’re going to continue to invest in the products that Doug talked about because we think that that’s an important part of our strategy. It’s worked very well so far. There are still a lot of opportunities out there for us to continue to invest in, so we gave out some assumptions in December with regard to expenses. We’re still comfortable with those assumptions, but we will not, on a quarter-by-quarter basis, constrain ourselves from making investments just because, in a particular quarter, that might push expenses up a couple of tenths or whatever. Questioner: So like first-quarter run rate is probably a decent range for the balance of the year? McCorkindale: Yes, I would think so. I mean, we---two and a half years ago, we had 250 non-daily publications; now we have over 800 in the States. That costs some money. If they don’t make money, we don’t have an ego trip. We don’t have to keep them going. But they are all going very well, and the young publications in particular, to get back to the earlier question, they’re ahead of budget, and they’re moving very, very nicely. If you see some of them, they’re very thick with advertising. Questioner: Great, well, thank you very much. ####