EXHIBIT 99.1
Remarks of
Peter Kann, Chairman and Chief Executive Officer
Dow Jones & Company
Mid-Year Media Review
June 18, 2001
Good morning. It's a pleasure to be here today.
As others surely will observe this morning, the publishing business has
a strong cyclical component. At Dow Jones, we capitalized on the
upside of this reality in the last five years to produce compounded
revenue gains of 7% per year and EBITDA gains of 18% per year. Last
year those numbers were 10% and 22%.
But now, of course, we are managing through the downside of the cycle,
along with the rest of the industry.
This means that we have to be, and have been, vigilant and disciplined
on costs, ensuring that we will navigate our way as profitably as
feasible through the downturn.
At the same time, we remain committed to our vision for sustained value
creation from our company's unparalleled brands, products, and content.
For example, we will expand the use of color in The Wall Street Journal
beginning early next year, as we triple our color page capacity. That
will benefit us next year - and long into our future.
In addition, as our company renews its long-range plan this year, we
are aggressively exploring new markets and new customer segments.
These are the two principal themes that we would like to address this
morning. First, the short-term challenge, and our response to the
cycle. Second, our outlook for distinctive value creation, based on
unique assets.
On the advertising front, the standard year-over-year comparisons have
only magnified current weakness, as we compare this year to the very
strong up-cycle of a year ago.
This is especially true for The Wall Street Journal, which, as you
know, is a newspaper in form and frequency, but competes with magazines
as a national and global advertising medium.
At the Journal, advertising linage, or volume, up an extraordinary 39%
per issue over the first five months of 2000, is down 34% through May
of this year. Those declines generally track those of business and
other magazines.
With the benefit of hindsight, May of 2000 marked the end of 20-to-40%
year-over-year growth and the conclusion of an unsustainable twelve-
month growth spurt in key technology and finance sector advertising.
The Journal is the number one advertising vehicle in both the
technology and finance sectors. Together, technology and finance
comprised half of the Journal's advertising volume last year. Some ad
categories - such as personal computers, computer hardware, and luxury
autos -- remain healthy this year. But let's focus on the two biggest
that are not.
Today, the technology sector is retrenching. Business-to-consumer
dot.com advertising, while never a big part of our ad base, is
essentially gone. The business-to-business component is down, as
technology capital spending has been broadly reduced from a year ago.
In total, through the first five months of the year, technology linage,
which rose 143% last year, has declined 49% in 2001.
In the financial sector, tombstone/IPO activity has fallen from record
levels a year ago. More generally, financial advertising volume, after
rising 39% in the first five months of 2000, is down 35% so far this
year. Again, as most of you know, some important components of
financial advertising are unique to the Journal. When they exist, we
get them; when they don't, we don't.
As you also know, our business has pronounced operating leverage. As
we reported in April, first quarter earnings were well down from the
level of a year ago. That will be true in the second quarter as well.
With two weeks to go in the quarter, and in light of the expense
reductions we undertook in the first quarter, as well as some
additional cost savings this quarter, we still hope to meet the
earnings consensus of 50 cents.
But while we hope to hit that number, I must tell you that we have seen
no improvement in advertising volume in June, despite some easing of
comparisons, and have no visibility, at this point, to when improvement
will begin. Consequently, we are not, at this time, going to provide
earnings guidance for the third quarter or the balance of the year.
I would emphasize, however, that the current challenge is short-term -
cyclical, not secular, in nature.
There are no advertising sectors I would rather dominate, as a
foundation for long-term growth in the U.S. and worldwide, than
technology and finance.
Nonetheless this leg of the cycle does require a strong response. With
the significant cost reductions we put in place early in the second
quarter, as we have said, we will deliver $90 million of cost savings
this fiscal year, and nearly $120 million on an annual basis. These are
fixed costs, not variable, and most are permanently out of our cost
base. Rich will have more to say about this in a moment.
And so, when the economic recovery comes, we are better positioned as a
stronger and leaner company, to take advantage of the upside.
In the meantime, it's worth pointing out that not all of our businesses
track the Journal's cycle. Our business-to-business electronic
services, Dow Jones Newswires and Factiva, don't depend on advertising.
And our Ottaway community newspapers have dominant franchises in
markets which have been much more stable this year.
We will be prepared to detail our strategic plan for 2002-2004, and to
share it with you, in December. But for now, I can say, generally,
that we will follow a four-tiered growth strategy for sustained value
creation.
The strategic vision will remain essentially the same. Dow Jones
publishes the world's most vital business and financial news and
information. We create value by fully leveraging the leading global
brands in our sector, and by aggressively employing the "chemistry of
publishing," of which our people are masters.
The four tiers of our new growth strategy, enabling us to continue
executing this vision, are as follows:
First, we will pursue the organic growth opportunities arising directly
from existing businesses. Historically, this has taken such forms as
our expanded and redesigned international editions of the Journal, as
well as Weekend Journal, our very successful Friday fourth Journal
section, that has been a success with readers and that has broadened
our advertising base in upscale consumer categories.
Next year, we'll deploy the added color page capacity we've been
building for the Journal since 1998. We're particularly enthusiastic
about this because, even in the current advertising environment, color
pages in May were at the same level of a year ago, with strength
continuing in June.
Second, we will also seek to develop business opportunities that
leverage our brands and competencies in business news and information
in new areas, and with new products and services. The Wall Street
Journal Online, with more than 575,000 paid subscribers, is the largest
paid site on the web. The Wall Street Journal Sunday, at almost 9
million circulation, is the largest personal finance print vehicle in
the United States. These are but two examples of what I mean by such
opportunities. One focus of our planning process is to leverage our
brands in this way even more systematically than in the past.
Third, we will pursue strategic acquisitions and partnerships that,
again, leverage our brands and core competencies. I don't mean to say
that anything material is imminent in this regard; it isn't. I do mean
to say that we regard acquisitions and alliances as one of four primary
pathways to growth. As Rich will note, we are prepared to assume a
somewhat higher level of debt than we have in recent years, if that
should prove necessary to pursue such opportunities, while, of course,
still maintaining our high credit quality standards.
Alliances would follow on such initiatives in recent years as Factiva,
our joint venture in the desktop market with Reuters. Factiva was
founded in July 1999. Last summer, we launched Factiva Publisher,
which integrates Factiva's archive and search capabilities with
corporate intranets. The launch was accomplished on-time and Publisher
has received strong endorsement in the marketplace. While it is still
early days for Factiva, the business turned sustainably EBITDA positive
last year.
We were very pleased last week to announce the launch of Factiva.com,
the next in our new suite of Factiva-branded products. Factiva.com is
the successor product to both Dow Jones Interactive and Reuters
Business Briefing, and we'll be migrating our customers off those
legacy products.
Other alliances include our exchange of equity stakes in The Wall
Street Journal Europe and Handelsblatt with the von Holtzbrinck group,
and our global alliance with NBC in CNBC.
But outright acquisitions in areas of core competence are also
something we're open to-considerably more so than when values were more
inflated than they are today.
Finally, the fourth leg of our growth strategy will build on our strong
record of share repurchase. In the current business climate, it is
worth noting that, even in tough times, Dow Jones consistently has
generated cash flow over and above our dividends and capital
investment. Consistent and direct return to our owners in the form of
share repurchase, and the related compounding of earnings per share
over time, will continue, so long as it remains among the highest-
return use of our cash flow.
Before I close, there is one other, somewhat broader, subject I'd like
to address.
While short-term shortfalls do require some short-term response-and
while we have responded, and will respond-I want to ask you to join me
for a minute in taking a longer view. Or at least to understand why my
colleagues and I take a longer view.
Let me place the present situation in some context and remind you about
steps we did not take last year. I also want to talk about things we
won't be doing this year.
We did not ramp up spending last year as if the dot-com advertising
boom was permanent, and so we won't be indiscriminately slashing
spending this year - as opposed to making prudent targeted cuts.
While we've invested, during the last six years, in creating and
growing The Wall Street Journal Online, we've limited total losses to
less than some pretenders to the same web space lost last year alone.
And, unlike some, we didn't let online losses swamp offline profits.
So, while we'll be trimming our costs this year, we won't be doing so
at the expense of the essential quality of the product, or of its
continuing growth.
We didn't, last year, abandon our belief that our content has value,
and that readers will pay value for value, even on the web. So we
don't have to figure out how to change our business model this year-
because we already have the business model others are now seeking to
create.
We didn't seek to ration scarce advertising space in the Journal last
year by raising prices to profiteering levels, as some urged at the
time, and so can stick to our pricing even through this downturn. By
the same token, we won't be discounting off the rate-card in this
environment, as some now suggest, so that we'll be able to raise
prices, and get those prices, when the economic climate improves.
We didn't bifurcate our equity last year with securities premised on
economic theories that made no sense. And so we remain intent, this
year and every year, on building shareholder value for all of our
shareholders.
We avoided those fads - and we'll avoid this year's as well.
We recognize that everyone whose revenues depend in large measure on
advertising is in a cyclical business. We didn't deny that last year,
and we won't try to bull our way past it this year.
Advertising is in a down cycle. That means expenses must be tightly
controlled. But, having put such controls in place, it also means that
profits and profit margins will be down this year. We won't attempt to
preserve those margins in this environment by eating our seed corn, by
stopping the development of new or improved products.
And we certainly won't waver-today, tomorrow, or ever-- in our
commitment to the quality of our journalism, and in providing our
journalists with the resources necessary to sustain that quality. We
remain very much aware that the essentiality, authority and integrity
of our products and services, are the way we create and grow
shareholder value.
Now, Rich Zannino, who joined our company as chief financial officer in
February, has some remarks that will expand on some of the points I've
mentioned. After that, we will be pleased to take your questions.
SLIDES FROM PRESENTATION
(Slide 1)
Dow Jones
Mid-Year Media Review
June 18, 2001
Dow Jones
(Slide 2)
Dow Jones
Mid-Year Media Review
Peter Kann
Chairman & Chief Executive Officer
Dow Jones
(Slide 3)
Capitalizing On a Strong Environment
1996 thru 3000 ($ Millions)
Graph: Revenue
$ Millions
Year Revenue
1996 $1,665
1997 1,797
1998 1,872
1999 2,002
2000 2,203
CAGR 7.3%
<FN>
Note: Excludes Telerate, one-time Index fees and non-recurring items
Graph: EBITDA
$ Millions
Year EBITDA
1996 $312
1997 412
1998 417
1999 496
2000 606
CAGR 18.1%
<FN>
Note: Excludes Telerate, one-time Index fees and non-recurring items
Dow Jones
(Slide 4)
Today's Topics
Two principal themes
- Short-term challenge and response
- Outlook for distinctive value creation based on unique assets
Dow Jones
(Slide 5)
The Wall Street Journal Linage Growth
Graph
Recent cyclical decline follows strong 5-year growth
Index 1995 = 100
Year Linage
1995 100
1996 114
1997 130
1998 128
1999 151
2000 172
Dow Jones
(Slide 6)
Cyclical Downturn
- - Journal advertising led down by technology and financial categories
- - Challenge is cyclical not secular
- - Delivering significant cost reductions
- - Subscription-based businesses remain strong
Dow Jones Newswires - News to profit by.
Factiva
Dow Jones Indexes - The markets' measure.
- - Ottaway community newspapers relatively stable
Dow Jones
(Slide 7)
Four Tiered Growth Strategy
1. Pursue organic growth opportunities
(Pictures of print advertisements and a front page of Weekend Journal)
Dow Jones
(Slide 8)
Four Tiered Growth Strategy
1. Pursue organic growth opportunities
2. Develop new business opportunities that leverage our brands and core
competencies in business news and information
(Pictures of WSJ.com home page and The Wall Street Journal Sunday)
Dow Jones
(Slide 9)
Four Tiered Growth Strategy
1. Pursue organic growth opportunities
2. Develop new business opportunities that leverage our brands and core
competencies in business news and information
3. Pursue strategic acquisitions and partnerships that leverage our
brands and core competencies
(Logos for Factiva; CNBC - a Service of NBC and Dow Jones;
Handelsblatt)
Dow Jones
(Slide 10)
Four Tiered Growth Strategy
1. Pursue organic growth opportunities
2. Develop new business opportunities that leverage our brands and core
competencies in business news and information
3. Pursue strategic acquisitions and partnerships that leverage our
brands and core competencies
4. Continue share repurchases
Dow Jones
(Slide 11)
Sensible Operating Strategies
- - Committed to a rational internet business
- - Committed to advertising price integrity
- - Committed to profitable investment for the long-term
- - Committed to strategic vision
Dow Jones
(Slide 12)
A Virtuous Circle
- - Publish the world's most vital business and financial news and
information
- - Quality journalism is the engine of success
- - Journalistic success increases shareholder value
Dow Jones
Information Relating To Forward-Looking Statements
This transcript contains forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially
from those anticipated. Such risks and uncertainties include, but are
not limited to, business, economic and stock market conditions that are
impacting the volume of advertising (in particular IPO, dot-com,
technology and financial advertising) sales and sales of the company's
products and services; the company's ability to reduce costs without
harming long term growth prospects; business conditions (growth or
consolidation) in the financial services industry, and the tendency of
consolidation to negatively impact the market for the company's
products and services and advertising; the difficult comparisons the
company will face in 2001 in light of the high level of advertising
sales revenue achieved at The Wall Street Journal in 2000; the extent
to which the company is called upon to perform under the guarantee to
Cantor Fitzgerald Securities and Market Data Corporation, and the
extent to which Bridge would perform under its agreement to indemnify
the company in that event; with respect to Dow Jones Newswires, the
extent and impact of delays and difficulties that would be encountered
in a migration process if Bridge was unable to serve its customers; the
intense competition the company's products and services face in the
markets for financial news and information and advertising revenues
from newspapers, specialized magazines, free and paid Internet
publications and services, financial television programming and other
new media; the company's ability to increase its circulation and
advertising revenues from its international print publications, given
competition from local publications and from other international
publications; with respect to Newswires, the rate of addition of new
subscribers, particularly, outside the U.S., and cancellations of
Telerate and Bridge terminals; the company's ability to achieve and
maintain a diversified advertising base for its print publications;
increased competition in the market for electronic business information
and research services and Factiva's ability to increase its market
share and revenues in the face of competition from local providers with
more local content and from other international providers; WSJ.com's
ability to increase its revenues in light of its paid subscription
model; the amount of user traffic on the company's Internet sites and
the pricing of advertising on Internet sites generally; adverse
developments relating to the company's commitments, contingencies and
equity investments; potential delays in expanding the company's
newspaper page and color printing capacity; potential increased
regulation of on-line businesses; the cost of newsprint; and such other
risk factors as may have been or may be included from time to time in
the company's reports filed with the Securities and Exchange
Commission.