Web 3.0 & McClatchy (Part 1)

Introduction

The McClatchy Company is the third largest newspaper company in the United States. The Company publishes 31 daily newspapers and approximately 50 non-dailies across 29 locations in the United States. The prominent newspapers from the Company include the Miami Herald, the Kansas City Star, the Charlotte Observer and the Sacramento Bee. McClatchy also owns some of the leading local websites in each of its daily newspaper markets. The Company through its sites offer users information, comprehensive news, advertising, e-commerce and other services. McClatchy Interactive provides content for websites, software development and publishing tools.

McClatchy operates Real Cities, the largest national advertising network of local news sites and owns 14.4% of CareerBuilder, the nation’s largest online job site. The Company also owns 25.6% of Classified Ventures, a newspaper industry partnership that offers classified sites such as the nation’s number two online auto site, cars.com, and the number one rental site, apartments.com.

In 2Q07, 84% of the Company’s revenues came from advertising and 12% of the revenues came from circulation. Run-of-press or ROP contributed 37% to the advertising revenue, while classified advertising contributed 33% and 8% came from national advertising. However, there is a continuous shift from ROP to preprint and online advertising.

The Company’s consolidated advertising revenues in August 2007 decreased 9.2% and total revenues were down 8.4% to $144 million from $158 million in August 2006. Year-to-date advertising revenues declined 8.0% and total revenues were down 7.1% on a pro forma basis. Advertisement revenues from the classified category fell 17.3%. However, what is worrying for the Company is the fact that online advertising revenues fell by 3.1% in August 2007 compared to August 2006. Year-to-date online advertising revenues have risen by a meager 1.7%.

The Company realizes the tough conditions prevailing in the newspaper industry and is looking at consolidating its position. It recently acquired Knight Ridder for approximately $4.6 billion and divested off 12 newspapers under Knight Ridder post acquisition and sold off Star Tribune newspaper to Avista Capital Holdings for $530 million.

Online advertising grew by 22.3% to $29.2 million in 2006 over 2005. Online only revenues constituted 32% of the total online revenues in 2006 and the remaining 68% was from newspaper up-sells. Online revenues of the company have been steadily growing with McClatchy focusing on local media, adoption of robust online classifieds and the national presence it has achieved with the successful acquisition of Knight Ridder. The Company is focusing on developing, acquiring and growing online properties as a measure to protect the downslide in the revenues. Somehow, it hasn’t quite achieved the right mix of assets yet.

The Company already operates some of the leading local Internet business in each of its daily newspaper markets and it recently expanded its network with the addition of 51 sites owned and operated by MediaNews Group. The enhanced Real Cities Network will now reach more than 44 million unique visitors each month (Source: Nielsen//NetRatings, June 2007). In July 2007, the Company had entered into a similar partnership with DotConnect Media.

In April 2007, Yahoo! entered in an alliance with McClatchy for online advertising. The deal will provide McClatchy, an opportunity to increase their online advertisement revenues by leveraging Yahoo!’s display advertising technology, targeting and inventory management capabilities. We are going to see many more acquisitions and partnerships by McClatchy in the online space as it builds-up its online presence.

The industry trend at the macro level is very clear. McClatchy, however, needs to balance its portfolio so as to be able to produce enough high growth online advertising revenues, and for that, it appears, a significant portfolio rebalancing is still needed.

(To Be Continued)

This segment is part 1 in the series : Web 3.0 & McClatchy
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