Ladies and gentlemen, good afternoon, I’m Marshall Morton.
Forward Looking Statement - As a reminder, our comments will include forward looking
statements. These are subject to various risks and uncertainties and should be
understood in the context of the company’s publicly available reports filed with the SEC.
The company’s future performance could differ materially from our current expectations.
Media General has enjoyed considerable growth and success since we implemented our
mission of being the leading provider of high quality news, information and entertainment
in the Southeast in the mid-1990s. I am convinced that the best way to move forward
and enhance shareholder value is to continue to implement our business and growth
strategy as defined and guided by that mission.
This is an exciting time for Media General. The company is growing and performing
well. 2004 was a banner year. Our three divisions reported record revenues. The
Broadcast Division reported record profit, largely fueled by Political and Olympics
revenues. Our Publishing and Broadcast divisions both delivered revenue growth in the
upper tier of their respective industry peer groups.
We are delivering well on our core competency of providing excellent local journalism.
In addition to our local news coverage, we’ve proven our ability to break news of major
international significance. On December 21, a Media General news team from the
Richmond Times-Dispatch -- photographer Dean Hoffmeyer and reporter Jeremy
Redmon -- were the only journalists present in Mosul, Iraq, when a suicide bomber
struck an Army mess tent. Dean’s photos and Jeremy’s words were the only media link
the outside world had to that tragic event. For days, their work was featured prominently
all around the world, in print, on television and online.
We’ve started 2005 on a strong basis. Our divisions have established aggressive plans
for the year. These plans are based on new products and new revenues as well as on
controlling our expense levels. Our first-quarter results, we believe, are a good
harbinger of things to come. Consolidated revenues grew 4.7%. Income of $9.3 million,
or 39 cents per diluted share, increased 2.2% compared with last year’s first quarter.
Because of an SEC-required accounting change, we recognized a one-time, non-cash
charge in the first quarter of $325 million, related to the value of our FCC licenses. The
charge is fully explained in our earnings release and 10-Q, which are both posted on our
Publishing Division revenue growth of 5.7% in the first quarter was the primary driver
behind a 12.5% profit increase in this segment. Compared with last year’s first quarter,
newspaper advertising revenues increased 7.4%. This growth was driven mostly by
increased Classified advertising as well as solid gains in all categories. To date, the
revenue growth of our Publishing Division has been among the very best in the industry.
Publishing operating expenses in the first quarter increased 4.6%, primarily due to
higher newsprint, salary and benefits costs.
As expected, Broadcast operating income in the first quarter declined, principally due to
the near absence of Political revenues compared to last year. Aggressive sales
development initiatives drove strong Local time sales. National time sales declined in
the quarter, reflecting softer than expected advertising in the telecommunications and
department store categories. For the quarter, the Broadcast Division did, however,
outperform the industry averages for time sales. Broadcast expenses increased 7.3% in
the first quarter, due primarily to merit increases, higher sales commissions tied to local
sales growth, increased benefits expense, and sales-related costs including filling open
The Interactive Media Division had revenue growth of 51% in the first quarter and cut its
quarterly loss in half compared to last year. Online enterprises associated with our
largest newspapers, TBO.com in Tampa and timesdispatch.com in Richmond, have
posted several straight quarters of profitability. Several community newspaper Web
sites have begun to report a profit as well. At this time, I’d like to ask Reid to provide
further details about the performance of our three divisions.
Let me start with the Publishing Division, whose performance has been outstanding this
Year-to-date, total publishing revenues were up 5.2%. Our growth was at the top of the
industry for the period. Advertising revenues, in green, increased 6.8%, with healthy
growth in all categories. Our two largest newspapers, The Tampa Tribune and the
Richmond Times-Dispatch, reported advertising growth, respectively, of 9.3% and 5.7%.
Our Community newspaper group was up 5.8%. The Winston-Salem Journal, while not
up as strongly as other papers, was in positive territory. A recent announcement that
Dell Computer will build a major facility in the Winston-Salem market is good news for
us. We believe the Dell plant, and the suppliers it will attract, will give the local
economy a nice lift and contribute to our advertising growth.
Classified advertising increased 9.1% through May, due chiefly to strong growth in
employment advertising. Momentum in this category has slowed somewhat due to lower
automotive advertising. We believe this trend will improve, as factories kick off more
aggressive incentives, which should lead to better sales for the dealers and more
business for us. Recruitment and real estate advertising remain strong. Last year, our
Classified growth topped every peer company but one, and in the first quarter of this
year we topped them all. We are achieving these results not just because our markets
are strong, but because we are doing the things necessary to foster growth.
We’ve promoted a seasoned classified executive into a new position that oversees
interdivisional Classified advertising. She is leading a number of initiatives in the
Classified area. Starting with the fundamentals, we’re making sure that all of our
newspapers are using the best practices in Classified. That alone has created
We’re developing dynamic new Classified sections for our Web sites. Newspapers still
bring us the bulk of the listings, but you can do more with them online. Online classified
advertising revenue continues to grow at a rapid pace. Liner advertising accounts for
about 50% of our online Classifieds, and we have been very pleased with the growth of
new products and features. Most of our newspaper Classifed advertisers are delighted
to pay a little more to run their ad online. The sell-through rate consistently ranges from
80-85%. Online Classified advertising typically draws more page views than anything
beyond the home page. Moreover, Classified is especially attractive to those elusive
Including online Classified advertising, in green, total Classified revenues increased
almost 11% through May.
One of the many ways we are bridging our print and online media is to let people
compose their own ads online. This is convenient for the customer and has the added
benefit of enhancing revenues. That’s because people tend to use more words when
they write their own ads.
We’ve found some profitable opportunities to extend our Classified services beyond our
primary markets. For example, in Fredericksburg, Virginia, we don’t have a newspaper
or television station, but the market is surrounded on all sides by Media General
newspapers. Based on a concept we pioneered in Florida two years ago, we launched
Northern Virginia Career Seeker in print and online last year, and it is doing very well.
The advertising is sold by our surrounding newspapers. In the first quarter, we launched
a similar offering in the Greensboro/High Point, North Carolina area. We believe this
concept will work in other markets as well.
Now, let’s look at Retail advertising revenues, which were up 4% through May.
The Tampa market has been especially strong this year. A few years ago, when we saw
traditional department stores reducing their schedules, our advertising staffs began to
focus on smaller local retailers. Today most of our growth is among small and midsize
advertisers. More recently, advertising growth from major accounts has turned positive
National advertising revenues year-to-date are up 11.9%. The first quarter was very
strong and reflected gains in the telecommunications and travel categories. In April and
May, national revenues softened considerably, due to lower revenues from
telecommunications, travel and automotive clients. While this category can be volatile,
we expect telecommunications advertising to remain solid and national automotive to
improve based on incentives being put in place. Travel advertising should return as we
enter the busy vacation season.
Another reason we believe our revenue growth is above average is the cross-selling
strategy we’ve implemented among our newspapers. This opportunity is an important
advantage of our regional focus. Our newspapers are organized in seven clusters. The
original intent was to share equipment and staff, which we do quite effectively. An
additional benefit that we implemented a few years ago is cross selling. A few years
ago, we discovered in Tampa that we could leverage the relationships of The Tampa
Tribune to sell national advertising into its associated community newspapers. Now,
we’re cross-selling across the entire newspaper enterprise and we’ve added systems for
Classifieds and Retail ads as well. Through May, cross-selling contributed $6 million to
our total Publishing revenues and represented a 31% increase over last year.
To make cross-selling more efficient, we’re installing a new advertising system that will
connect all our newspapers and Web sites. When complete, we’ll be able to serve
customers with one order and one bill. We’ll make up one ad and place it in as many
publications as the advertiser desires. The system will manage all accounts receivable,
paginate our Classifieds, build and track all types of advertising. It will support future
enhancements such as consolidated call centers. We’ll invest $10.5 million in this
project over four years, starting with The Tampa Tribune in January.
Now, let’s discuss Circulation. While this is an unpleasant story for many newspaper
companies right now, there are many positive Circulation developments at Media
General. For the March ABC Publisher’s Statement, our newspapers continued to
outperform the industry overall. Daily circulation industry-wide declined almost 2%
compared with a decline of about 1% for us. For Sunday, the industry was down 2.5%,
compared with 0.9% for us. Our Circulation revenues, as reported, were down 2.9%
through May, due mostly to a change in wholesale rates to independent carriers in
several markets. Excluding that impact, circulation revenues were down just 0.7%.
In addition, three Media General newspapers reported Daily circulation increases, and
four did so for Sunday.
The Tampa Tribune reported some of the strongest circulation gains of any newspaper
in America for the prior four reporting periods. This period, The Tribune’s results were
basically even for both Daily and Sunday – a much better performance than many large-
market newspapers. The very good news is that The Tribune once again far
outperformed its leading competitor, The St. Petersburg Times, which was down 3.2%
Daily and 2.3% Sunday.
We’ve challenged all of our newspapers in 2005 to increase circulation by 1% Daily and
0.8% Sunday. This is a stretch goal, but it reflects our determination to regain
momentum. A new Vice President for Circulation is leading our effort. We’ve raised the
performance bar for all our circulation managers, and we’ve replaced personnel where
necessary. We’re revitalizing single copy sales and focusing our sales efforts on quality
starts and subscriber retention.
Growing circulation requires teamwork across a newspaper. Using market research,
we’re identifying the topics that most interest each of our communities, and we’ve tasked
every newspaper with prioritizing coverage of those topics. We’re also redesigning our
newspapers to make them easier to navigate and read. And, we’re developing new
products for niche audiences.
A strong, positive brand can also help drive readership, so we’re enhancing our
approach to marketing and promotion. Last year, our two largest newspapers launched
new branding campaigns. We’re proud that both of these campaigns have been
recognized with a number of national marketing and advertising awards. The Tampa
Tribune promotes its deep local roots and community-centered content with the theme,
“Life. Printed Daily.”
The Richmond Times-Dispatch promotes its utility with the theme “You Need to Know
Stuff.” I’d like to show some of the TV commercials that are part of these two branding
Not a bad new revenue source for broadcasters, either!
We’re building new production facilities for the Bristol Herald Courier, the News &
Advance in Lynchburg, and the Opelika-Auburn News. When complete, these projects
will improve the quality and speed of our printing operations, we will be able to run more
color, and we will have more flexibility to configure our newspapers.
Now, let’s turn to the Broadcast Division.
Coming off a record-breaking year would be a challenge for anyone. We’re proud of our
folks for doing a good job outperforming the industry this year. According to the
Television Bureau of Advertising’s Group Survey, year-to-date industry time sales have
declined 3.6% while ours improved 1%.
Year-to-date, total Broadcast revenues increased 1.4%. We’ve made up a loss of $6
million in Political revenues and have done so in a much softer selling environment than
we expected. Total revenue growth reflected gains in outside equipment sales and
revenues from satellite subscribers, joint sales agreements and other sources, partially
offset by lower network compensation. In addition, gross time sales, in green, increased
0.6% through May. Local transactional sales led the growth, and new business
development has been the key. We’ve also received some unexpected Political
revenues from Social Security and education issues. Virginia will elect a new governor
this fall and that will benefit two of our television stations.
Local time sales through May grew 8%, the result of aggressive business development
and strong growth in the furniture, services and entertainment categories.
New business development initiatives that have proven successful for us include:
-- A new program that provides affordable packages to local advertisers who’ve
not used TV before,
-- A program to capture co-op funds available to retailers from manufacturers,
-- Travel incentives, which encourage larger shares of advertisers’ spending,
while providing us the opportunity to strengthen client relationships.
In addition, we’re simply doing a good job on the fundamentals. We’ve invested
significantly in sales training, we’re putting the right people on the street matched to the
right accounts, and we’re assigning the right managers to manage. Our Central Traffic
Operation, located in Tampa, enables us to manage our fixed amount of inventory to
National time sales through May increased 1.4%. Categories showing gains include
corporate and hardware/home improvement, partially offset by declines in the
telecommunications and department stores sectors. We view the National category not
just as a commodity business, but one that can be managed -- and we’re doing so as
aggressively as possible.
Most of our stations are number 1 or 2 in their market, an advantageous position for
revenue growth. In the February Nielsen rating period, 22 of our 26 stations were rated
either number 1 or number 2 from sign-on to sign-off. We do not yet have all of our May
ratings books, but we’re confident that we will maintain our strong market positions.
Morning News has become an important daypart for growth, and we’re taking full
advantage of it. About a year ago, we completed a comprehensive study of morning
viewer habits. We found that people want news, weather and traffic – useful information
to help them start their day – and not the soft stuff. As a result, we have revamped our
morning program content. We’ve also updated sets, enhanced on-air talent, and, in
some markets, added new half-hour segments. We expect these changes to produce
meaningful improvement in ratings and revenue share.
We’re on schedule to meet the FCC deadline to broadcast a full-power digital signal.
For our stations in top 100 markets, the deadline is July 1. For stations in 100-plus
markets, we have until July 2006. Our capital investment to date is $23 million and we
expect to spend an additional $30 million to complete the transition.
Another major accomplishment last year was the completion of our central Master
Control facility. We can now monitor and switch the on-air signal for 10 CBS stations
plus our UPN affiliate from WSPA in Spartanburg, South Carolina. The new system
quickly achieved its goals of saving on labor while reducing errors.
Now, let’s talk about our Interactive Media Division.
Since the division was created in January 2001, its primary goal has been to develop
online revenue streams – and that’s just what we’ve done. Annual revenues have grown
from $2.5 million in 2000 to $14 million in 2004. Monthly growth continues at a robust
pace and is up nearly 48% year-to-date.
Over the period of its existence, our Interactive Media group has produced the strongest
online growth of any company in the industry, with a compound annual growth rate of
63.2%, versus an industry average of 34%.
At this time, most of the division’s revenues come from arrangements with newspaper
Web sites. This year, we launched a full-scale effort to realize the full potential of our
television Web sites. Classified advertising accounted for 69% of online revenues
through May and was up 52% over last year. Local banner and retail advertising, the
next largest category, increased 73% year-to-date. We continue to develop the National
and other online revenue categories, interactive games, and applications for PDAs and
Other goals for the Interactive Media Division are to build high-quality, dynamic Web
sites and to grow traffic. Year-to-date, page views and visits continued their strong
growth. Both increased by about a third.
We’ve launched Web site registration in 13 markets. With registration, we know who’s
visiting. We can observe the content that each visitor explores and serve up advertising,
as well as related content, that matches his or her interests.
People expect interactivity on the Web, so we’re inviting visitors to attach comments to
selected stories with our “Reader Reaction” feature.
Future enhancements to our Web sites will include embedded video, new classified
advertising functions, offerings based on site registration, and a product search across
all advertising categories. I’d like to summarize my portion of the presentation by
underscoring our excitement about the many initiatives and innovations under way at
Media General. We intend to continue our growth by serving more people better – in
print, on television and online – across the Southeast.
Let me begin by confirming the second-quarter earnings guidance we provided last
week. Analyst estimates currently range from 77-to-84 cents per share, and we expect
our results to be within that range. In addition, as previously announced, in January
MediaNews exercised its Call Option to purchase our 20% share of the Denver Post.
On May 19, the sales price was set at $45.85 million through independent appraisal of
Denver’s fair market value. For the second quarter, we will report a gain of
approximately 78 cents per share from this sale. Proceeds were used to repay debt.
Media General earned 78 cents per share in last year’s second quarter, and we plan to
announce our second-quarter results on July 12.
Now let me update you on the outlook for each of our three divisions.
Based on strong growth in the first five months of the year, the Publishing Division has
increased its revenue growth projection to 4.5-to-5.5% for the year, up from 4-4.5% at
the beginning of the year. Advertising revenue growth is projected to be in the range of
6-to-7%. Publishing expenses, are projected to increase 5.5-6%, mostly due to salary
increases and higher benefits and newsprint costs.
Newsprint expense for the Publishing Division is expected to increase 14-15% for the
year. A $50 price increase on September 1, 2004 settled in at about $30 per short ton
during the first quarter. Another $30 per short ton increase in February of this year will
mostly factor in sometime in the third quarter. Vendors have announced another
estimated $30 per short ton increase effective June 1. At this point, we have not
factored that increase into our numbers until October 1. Further analysis from our
vendors over the next few weeks will allow us to firm up our newsprint price projections.
As the result of softer-than-expected market conditions so far this year, the Broadcast
Division has revised its revenue outlook for the year from minus 1% to minus 3%. This
change in outlook is due primarily to lower-than-expected spending by automotive,
department stores and telecommunications advertisers. Partially offsetting the additional
revenue decline is an initiative the Division has introduced to reduce discretionary
spending through the balance of the year. Broadcast expenses are now expected to
increase 5% for the year, down from a forecast of 6% at the beginning of the year.
The Interactive Media Division expects 43% revenue growth for the year. As revenues
continue to grow, and expense growth flattens out, the division will continue on its
mission to become cash flow positive. Site visits in 2005 are expected to be up 11%.
Interest expense is expected to decrease 6% this year as a result of lower debt levels,
including the recent debt repayment from the sale of our interest in the Denver Post.
Corporate expense is projected to increase 6%, due to higher health and retirement
costs, increased legal fees and higher consulting expenses. SP Newsprint is projecting
two price increases in 2005. If the high end of their expected price realization occurs,
our equity income could increase by as much as $6-8 million year-over-year. As you
know, Media General is a net beneficiary of higher newsprint pricing. A $1 change in the
price of newsprint has an after-tax impact to us of approximately $130,000. Income tax
rates will decrease to 36.5%, compared with 37% last year.
Our capital spending for this year is now projected to be $91 million. This reduction from
earlier plans mostly reflects spending that will be deferred into next year. The Publishing
Division now expects capital spending this year of $45 million. The Bristol press project
is proceeding as expected, with press installation expected in September. The Alabama
press project has moved more slowly than anticipated, due to a shortage of engineering
talent, but we have now hired the needed personnel and are moving forward with the
design and bid phase. Plans for the Lynchburg project had been delayed by land
purchase issues and are now being finalized. Our spending plans for the Broadcast
Division have decreased as well, and are now at $40 million. The reduction is primarily
due to deferring the costs of our full-power digital conversions into 2006 for those
stations that have until July 1 of next year to meet the new standard. The Interactive
Media Division is expected to spend approximately $3 million this year. The funds are
earmarked mostly for infrastructure. And, our Corporate capital spending should be
around $3 million, principally for information technology needs.
On March 14, we amended our $1 billion revolving credit agreement with a syndicate of
banks. The new agreement, which has a term of 5-1/2 years, provides more favorable
pricing and covenants. We also have a universal shelf registration that allows us to
issue debt and equity totaling $1.2 billion. Total debt at the end of the first quarter was
$539 million and represented 38% of total capital. Currently, total debt is approximately
$490 million, mostly reflecting the Denver proceeds. .
Our commitment moving forward is to make sure that we continue to increase
shareholder value. We’re moving ahead on a basis that builds on the strengths we’ve
developed over the years. Media General has done a good job demonstrating that we
understand our customers and can deliver information and services to them whenever
and however they need them. We’re making the right investments for growth now, such
as for our new printing presses and the new advertising system. We’re operating very
efficiently with our clustered newspapers and with our centralized broadcast operations
for traffic and master control. Our greatest challenge is constantly changing customers
and technology. Our success resides in being a consequential force in our varied
markets. We need to remain THE place customers come for the information they need
and want. To accomplish this, we have to maintain a close understanding of the needs
of our customers – advertisers, readers and viewers – and we must evolve with them in
the face of rapid change.
One of the most exciting innovations at Media General is our effort to serve customers
through multiple media in a single market, in other words, “Convergence.” In Tampa, we
have a unique opportunity. We are grandfathered in that market under the FCC cross-
ownership rule so that we are allowed to own both a newspaper and a television station.
Since the year 2000, our newspaper, The Tampa Tribune, and our television station,
WFLA, have been housed under one roof. A third medium, their common Web site,
TBO.com, also operates at our News Center. We have had a great experience
developing ways for these market-leading properties to collaborate and serve customers
better and with more complete products than any one of them could provide on its own.
Our properties have a strong advantage over the competition in being able to share
resources and information in covering the news. We fortify the position of each medium
through cross promotion. On a combined basis, we reach 75% of all homes every week.
We are convinced that Convergence makes already strong operations even stronger. As
you just heard, The Tampa Tribune’s circulation performance has far outpaced its
principal competitor across the bay. WFLA has been Tampa Bay’s top-rated station for
a number of years, even as the competition has increased in numbers and strength.
TBO.com is the most visited local Web site in the market.
We’re also experimenting with Convergence in markets where the properties are not
under one roof. For example, in the Tri-Cities market in Southwest Virginia and upper
east Tennessee, our Television station WJHL and the Bristol Herald Courier are 20
miles apart. Still, Convergence is working. Last year, we installed a fiber optic cable
that links the two newsrooms, and we put a TV production set in the Herald Courier’s
newsroom for live reports. In Central Virginia, our television station in Roanoke is linked
with the Lynchburg News & Advance and the Danville Register and Bee. And we have
Convergence partnerships in the Florence/Myrtle Beach market and between our
Auburn-Opelika newspaper in Alabama and our CBS affiliate across the state line in
Columbus, Georgia. In every market, there is no question that access to added
resources provides our properties with strong competitive advantages.
We want to expand the number of communities where we’re able to practice
Convergence. It will help if the FCC, which now is considering media ownership on
remand from the Third Circuit Court of Appeals, promptly updates its record and sends a
new decision back to the court. We will actively pursue a new rule. In doing so, we will
stress that consumers in markets of all sizes should be allowed to benefit from the better
local news and content that already has been shown to flow from the common
ownership of television stations and newspapers.
Internally, we are working now to ensure that we are well positioned to serve our
customers with the products and services they want and need. We have begun our
planning for 2006, and, as part of that process, we have asked our divisions to think
about new ways to grow. We’ve challenged ourselves to:
Maintain or increase revenue share every year at each one of our properties.
Every Media General market is unique, and we must ensure that we get the most out of
Continue to exceed their peer group averages in revenue growth at the division
level every year. Our Publishing and Broadcast divisions have done an outstanding
job over the past several years demonstrating that they are capable of this
accomplishment, and we must continue to deliver that kind of growth.
Derive at least 5% of total revenue profitably from new products and services at
the division level. We have an exciting and energizing process under way to
brainstorm ideas for new products and services. We’re now identifying the ideas with
the greatest potential for profitable growth and establishing plans for their
One of the primary benefits of accomplishing these growth objectives should be
to overcome the biennial swing in broadcast results. We hope to achieve this
through basic growth that comes from increasing overall revenue and operating profit in
odd years as well as in even years.
As we develop new products, we are very focused on attracting young audiences.
These include a variety of entertainment guides that appeal to the young and the young-
at-heart. We’re also targeting particular audiences, such as the university population at
Auburn University, with a new product called The Corner that appears both online and in
In Tampa, we’re producing a dynamic local television entertainment show for young
adults. It airs weekly right after Saturday Night Live and is repeated on Sunday at
midnight. The ratings are consistently #1.
We are also developing new products and services for Spanish language customers.
Media General markets with significant Hispanic populations include Tampa, Northern
Virginia and Wichita, Kansas. In Tampa, we just hired our first General Manager of
Hispanic Initiatives to lead the development of new Spanish language print, broadcast
and online products. In Northern Virginia, we have a prototype newspaper ready to test
with Hispanic readers.
Executing our growth goals, combined with our core strategies of Southeast Focus,
Clustering and Convergence, we believe, is the best way to ensure that we stay close to
the needs and desires of our customers and deliver the kind of growth and value that our
shareholders expect. Growth, wherever derived, requires financial resources and
financial flexibility. Media General is in good shape on both fronts. Our cash flow from
operations is strong. And, now, we will be pleased to take your questions.