PALO ALTO, Calif. (CNN/Money) -
As the financial world digests the results of media giant AOL Time Warner, parent of CNN/Money, it pays almost no attention to a predictable, reliable, profitable -- and, dare I say, boring -- competitor: McGraw-Hill.
That's too bad. Had investors in big media been following stodgy McGraw-Hill (MHP: up $0.59 to $62.90, Research, Estimates) they might actually have made some money in the market these past few years.
McGraw-Hill's third-quarter financial results (revenues up 3 percent, year over year; earnings up 15 percent) were shoehorned into a one-paragraph hole on p. C13 of my edition of Thursday's Wall Street Journal. Ho-hum.
Tiny McGraw-Hill -- publisher of BusinessWeek, owner of Standard & Poor's, purveyor of debt-market analysis -- isn't headline news. Okay, try this then. Its stock is up about 4 percent this year, compared with a 17 percent decline for the stocks in McGraw-Hill's S&P 500 index.
And that's just this year. According to data compiled by McGraw-Hill in its 2001 annual report, since 1995 its total return to shareholders was 21.2 percent, compared with 12.7 percent for the S&P 500 and 15.4 percent for its peer group of media companies. Of course, it pays a dividend, $1.02 per share annually. That yields an unexciting 1.6 percent at the moment. Unimpressed? Check out AOL's dividend. (Hint: There isn't one to check out.)
Reading McGraw-Hill's financial filings are a good replacement for a potent sleeping pill. It's a huge publisher of educational textbooks, especially for primary and secondary education. At a time when even mighty BusinessWeek is suffering advertising declines, however, textbooks are the ultimate counter-cyclical of the publishing industry.
Even a good chunk of the company's media business isn't advertising-related. For example, Platts, the company's authoritative news service on the energy industry, gets almost all of its revenues from subscriptions, not ads.
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According to a McGraw-Hill spokesman, the company's diversified portfolio is part of a conscious strategy to diminish its reliance on advertising. It has steadily jettisoned even successful magazines -- titles like Chemical Engineering, Modern Plastics and BYTE -- in order to take the cyclicality out of its financial performance. Ads account for just 10 percent of overall sales, compared with 60 percent 15 years ago.
One reason McGraw-Hill flies under the radar screen of major media companies, perhaps, is that a McGraw (fourth-generation CEO Terry McGraw) is at the helm, making McGraw-Hill seem like a quasi-private company. It isn't. Family members still own 18 percent of the stock, says the spokesman, but not as a single voting block. Institutions own about 70 percent of the shares.
Old Media Part II
Having sung the virtues of old media, note one tidbit from today's news that shows how "new" media continues to rock the boat. Read carefully the statements the New York Times (NYT: down $0.02 to $49.88, Research, Estimates), and Washington Post (WPO: up $11.40 to $718.00, Research, Estimates), have made about their jointly owned International Herald Tribune newspaper.
One reason the venerable publication faces tough challenges is that it's awfully easy for U.S. expatriates, whether they live in Paris or Karachi, to call up www.nytimes.com and www.washingtonpost.com if they want news and features from home. Local papers and targeted magazines still may have an edge over the Internet in many ways. The Macy's ad and the passed-around copy of Widgets Today remain in demand. But day-old news becomes less and less valuable when it's so easy to get electronically.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at email@example.com.
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