Lee Enterprises Thinks Locally

We at the Fool recently had the opportunity to interview Lee Enterprises (NYSE: LEE  ) CEO Mary Junck. Housing a mix of daily and weekly newspapers that focus on midsized markets, Lee Enterprises has been affected by the same negative trends that others in its industry have experienced, including New York Times (NYSE: NYT  ) and McClatchy (NYSE: MNI  ) . Several prominent media entities that are feeling the industry's woes, including Tribune (NYSE: TRB  ) and Dow Jones (NYSE: DJ  ) , are in the process of going private or consolidating. How does Junck plan to address these industry challenges and strengthen Lee's business in this challenging climate? Read on to find out.

The Motley Fool: For those not familiar with Lee Enterprises, can you please give a thumbnail sketch of the company?

Mary Junck: Lee Enterprises is a premier provider of local news, information, and advertising in primarily mid-sized markets, with 51 daily newspapers and a joint interest in five others, rapidly growing online sites, and more than 300 weekly newspapers and specialty publications in 23 states.

Lee's newspapers have circulation of 1.7 million daily and 1.9 million Sunday, reaching more than 4 million readers daily. Lee's online sites attract more than 11 million visits monthly, and Lee's weekly publications are distributed to more than 4.5 million households.

Our 55 newspaper markets include St. Louis; Lincoln, Neb.; Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.; Tucson, Ariz.; and Napa, Calif.

TMF: Who are your biggest competitors, and how does Lee Enterprises differentiate itself from the competition?

Junck: We maintain massive, unrivaled reach in our markets, often greater than all of our competitors combined. Our newspapers and online sites attract an overwhelming two-thirds of the adults in our markets.

Our newspapers alone reach six out of 10 adults, with significant appeal to all age groups. Niche publications further extend our reach. Our online sites continue to grow rapidly and provide greater local audiences than most -- and often all -- broadcast competitors in their very best time slots.

Although we enjoy the bulk of local market share, we do, of course, have many competitors, ranging from television and radio to small start-up online sites and niche publications to direct mail.

TMF: Can you describe Lee Online University? How does that initiative help drive news and sales?

Junck: Lee Online University is a comprehensive, ongoing training program with separate curriculums for news staffs and sales forces. In the rollout this past spring, we trained 500 news and salespeople in five two-and-a-half-day sessions. Participants took home cutting-edge tools and playbooks with best practices, to help them continue moving our online sites and sales to higher levels.

More sessions with updated content are planned for the coming year, including an advanced video storytelling course scheduled for September. The training is being archived for all employees in an internal, interactive format available though our intranet.

TMF: Will political advertising provide any relief to offset other areas that have an advertising slowdown -- such as real estate, department stores, and automobiles? How well are you positioned to gain such political ads compared with your rivals? 

Junck: Our newspapers and online sites offer tremendous opportunities for candidates, and we think we've put ourselves in a good position to capture political ad revenue in 2008. We've had one of our top sellers working full-time on political advertising for several years, building national contacts and helping with local initiatives, including conducting seminars for candidates.

At the moment, I'm glancing at a 16-page newspaper-size promotional section that just came off the press here in Davenport. It's called "Iowa Newspapers Deliver Voters," developed by our political advertising specialist in conjunction with our five newspapers in Iowa. Articles recount the impact of newspaper advertising in our Rapid City Journal during the South Dakota elections in 2004, along with page after page of compelling statistics on the current reach of our newspapers and online sites in Iowa. We're developing similar sales campaigns elsewhere.

We're also currently creating an online political resource center that our newspapers can use to fortify their individual websites, expanding our ability to provide multimedia advertising for both local and national candidates.

TMF: Where do you see the company in three to five years?

Junck: I think you will find this opinion shared broadly throughout Lee: We see a strong future for both our company and our industry. No competitor can match our news and information, the results we deliver to advertisers, or the deep commitment we make to our communities -- and this is true online as well as in print.

While our strength in print remains solid and unrivaled, we're now able to reach even larger and more targeted audiences. Currently, online sales account for roughly 8% of our advertising revenue, and we expect that number to continue growing at a fairly brisk pace. Even so, fully 50% of the adults in our markets prefer to read only a newspaper that they can hold in their hands, and another 11% like to read the printed page as well as visit our online sites. So we see a long and strong future in print as well.

TMF: Any final takeaways you'd like to leave with investors?

Junck: Even in the currently soft advertising environment, our publishing business is one of the most profitable in the industry, which has allowed us to continue to generate strong cash flow to reduce net debt by about $110 million in the first nine months this year, on top of the $179 million we repaid in 2006.

At the moment, however, we're working hard to confront two challenges.

The first challenge is that, even though our advertising revenue has been significantly stronger than that of our peers, it's been nonetheless down modestly compared with a year ago. Real estate is in a down cycle all over the country, taking retail home improvement and furniture store advertising with it. National advertising is also in a trough. At the same time, some of our bigger department-store customers are working through competitive and branding issues, and the auto industry is undergoing structural changes. With the exception of auto, we see much of this as largely cyclical -- which means, we believe, that the ad environment eventually will improve.

The advertising slowdown across the industry has misled some people into believing that the Internet is eating our lunch -- and that's the second challenge. Media pundits, some analysts, and even some journalists have latched onto the misperception that our industry is in a tailspin. We disagree -- completely. The naysayers need to understand that the printed newspaper remains very, very strong among people of all ages, and that we've developed our online sites into local market leaders as well.

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Lee Enterprises and New York Times are both former Motley Fool Income Investor recommendations. The Motley Fool has a disclosure policy that flourishes in print and online.


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