McClatchy: Focusing on Online and Local

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.

In 2006 advertising contributed 86% and circulation contributed 12% to the revenues of the company. Run-of-press (ROP) advertising contributed 44% to advertising revenues, classified advertising contributed 39% while the remaining came from National Advertising. McClatchy is experiencing a trend where both national and regional retailers have been shifting a major chunk of their advertising to pre-print and online from ROP advertising.

McClatchy experienced a 5.2% fall in its February 2007 advertising revenues over February 2006. Daily newspaper circulation of McClatchy fell by 4.3% and revenues from Sunday newspapers fell by 3.7% in February 2007. The advertising and circulation revenues of the newspaper publishing companies experienced a decline in January and February 2007 and Edward Atorino, analyst with Benchmark & Co. believes the overall tough market conditions will continue well into the year and “earnings numbers for 2007 are under a cloud”.
Majority of McClatchy’s newspapers have witnessed a decline in circulation and McClatchy shares have consistently under performed the comparable S&P Midcap 400. However the company’s Internet advertising revenues grew by 1% in February 2007 over the same period in 2006.

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. Online advertising revenues of the company are expected to grow by 25-30% in 2007 and constitute 10% of the company’s total ad revenues.

With tough market conditions McClatchy has decided to pursue a three pronged business strategy: 1) to operate high-quality newspapers in growth markets, 2) become a one-stop shopping platform by providing direct marketing and direct mail products to help advertisers reach out to target audiences and 3) to operate the leading local internet business in each of its daily newspaper markets.

Keeping in line with its business strategy the Company has been consolidating its position in the newspaper publishing market by rebalancing its portfolio of newspapers – acquisition of the Knight Ridder, Inc., divestment off 12 newspapers under Knight Ridder post acquisition and an agreement to sell the Star Tribune newspaper to Avista Capital Holdings for $530 million. The acquisition of Knight Ridder has resulted in the company taking over Knight Ridder’s interactive media business, which McClatchy is utilizing to boost its online revenues. The Company also owns 49.5% of the voting stock and 70.6% of the nonvoting stock of the Seattle Times Company, 27% interest in Ponderay Newsprint Company and 33.3% interest in SP Newsprint Company.

McClatchy has aptly identified the opportunity to expand its presence across the Internet and leverage this platform to aggressively grow its online business. McClatchy Interactive division provides a host of services online. The Company has made equity investments in a handful of online companies poised to create value over the longer term.

These include 50% ownership in McClatchy Tribune Information Services, 15 % ownership of CareerBuilder, LLC, ShopLocal, LLC and TKG Internet Holdings (which owns 75 percent of Topix.net) and 25.6% of Classified Ventures, LLC (cars.com and apartments.com). There is talk of McClatchy forming a national ad buying network either with its CareerBuilder partners Gannett and Tribune or in collaboration with Yahoo.

McClatchy is positioning itself as a diverse media company having robust presence in print and online media. In addition to this the Company is integrating latest development in technology to provide high quality content for sites to attract traffic and create a substantial advertising inventory so as to rapidly grow its internet revenues. What will decide the success of this transition and the future growth of the company is how well McClatchy is able to roll up its online verticals and integrate Web 3.0, since by the time it gets its act together, Web 2.0 will be over.

To conclude, I also like the focus on local media. Yahoo and Google have been setting their eyes on the local web, and the Yellow Pages industry is fast moving online. It is McClatchy’s opportunity to capitalize on its deep local presence, and offer something unique online, thereby leveraging all the trends: Local, Verticals, and Web 3.0.

Note: You can read Maggie Wilderotter’s interview where she talks about McClatchy in one of the segments. Maggie sits on the Board of McClatchy.