The McClatchy Company Discusses Online Advertising and Search Engine Keyword Management

Includes: AUTO, MNI, MWW
by: David Jackson

Excerpt from McClatchy's earnings conference call; CEO Gary B. Pruitt is speaking; remember that CareerBuilder competes with Monster Worldwide (NASDAQ:MNST), and competes with (ABTL):

While we have included -- online results were included in those results we just discussed, but we wanted to give you a sense of how we are doing on the online advertising, broken out separately.

On a pro forma basis, online advertising increased 16.3%, and would have been up roughly 26% but for the purchase price accounting treatment that affected prepaid CareerBuilder advertising. Our pro forma employment online advertising grew at a reported 4.7% and would have been about 23% in the quarter if not for that issue.

We believe the run rate in online advertising is more in line with our first-half growth rate of 30%-plus than the reported pro forma third quarter rate.

Interactive advertising revenues continued to grow in importance. They were 8.2% of total advertising revenues in the third quarter and on a year-to-date pro forma basis.

The interactive assets we have added in the Knight Ridder acquisition, along with an already successful interactive operation at McClatchy, position us well for greater growth in interactive revenues and product offerings at the new McClatchy going forward.

And later in the Q&A:

Lauren Fine - Merrill Lynch

Thanks. Then, I am just wondering in terms of online, beyond classified and traditional retail, what other areas are you seeing any promise?

Gary B. Pruitt

I am sorry, Lauren?

Lauren Fine - Merrill Lynch

Beside traditional classified and retail online, what other areas are you seeing any promise in online?

Gary B. Pruitt

Okay. I will turn it over to Chris.

Chris Hendricks

As Gary had mentioned earlier, the retail sector is showing a significant growth for us, but inside the retail category, there is one which is the management of keyword and search engine management for smaller businesses. We are finding that the small business are very interested in keywords. They do not have the management capacity to go ahead and constantly monitor those keywords, so we are actually selling services through a company called Web Visible that allows us to manage that for them. So far, we are seeing bright results. In one market, we are averaging 30,000 a month, and it is growing steadily, and just managing the relationships with Yahoo!, our own local search initiatives, Google, and other search engines that are out there for people managing the keywords on those sites.

We believe we are bullish there. We believe that next year, we will see significant gains there.

Beyond that, the retail space is really booming as a result of collapsing into a local retail marketplace. We are seeing banner increases, significant banner increases, keyword search increases, ROP conversions and directory space.

On the volume side, the volume growth was definitely led by banners, followed by ROP conversions and keyword directory type things, but on the percentage gain basis, although some of these are small gains, the keyword search would definitely be the largest categories, followed by ROP conversions and also banner advertising.

Lauren Fine - Merrill Lynch

Great, thank you.

...Christa Sober Quarles - Thomas Weisel Partners

Hi, just a couple. First, could you give us what the shares were at the end of the quarter? Then, I think both you and Gannett had online help wanted numbers that were a bit worse than CareerBuilder overall. I was just wondering if you could highlight if the direct to online market is significantly stronger than the combo. Then, just looking at the overall help wanted, or just the overall circulation figures, is it your plan anyway, or do you think it is possible to try and stabilize that by the end of 2007 in terms of the volume declines? Thanks.

...Chris Hendricks

Help wanted is up approximately 30% year-to-date when you back out the issues we had with some of the online sales from CareerBuilder, as Gary noted. We have seen some slowing slightly throughout the year as a result of the print side slowing, as you say, the combo buys. We still have strength there in pricing. We have strength there in the volume, and versus the direct sales, which would be online only, it is definitely slower than that. We are seeing significant growth in the direct sales side, both from our sales and from CB with the online only portion of our business being up about 140%. However, that is only about 12% of the business, so the lion’s share of the business continues to come from the combo buy, but yes, we are seeing some slowing there.

...Thomas Russo - Gardner, Russo & Gardner

Chris, my last question, in the numbers such as the auto advertising, down 9.4%, what is the offset to the Internet advertising in the auto category, because I know that you combine -- it suggests a substantially sharper decline off of the print side versus what you report as the auto classified in general.

Chris Hendricks

In the third quarter, online automotive was up 20% year over year. Year-to-date, it is up about 31.6%. There is an offset --

Patrick J. Talamantes

Year-to-date it is up 21.4%.

Chris Hendricks

Excuse me, 21.4%, that is correct. That 31.6% number was wrong, but it is up year-to-date 21.4%. If we look at print only, the print only automotive classification during the third quarter was down 12.2% and year-to-date down 14.3%.

Thomas Russo - Gardner, Russo & Gardner

What is the interaction between the two? Anything developing that is different than before, or is it just either combined or either a direct purchase online? Any interesting developments, just as the category auto works with dealers versus the --

Chris Hendricks

Well, we are still seeing a significant growth in the online only piece of that business. It is now about 40% of the online business is online only. It is not the combination buys and that is solution, so we are still gaining significant traction there.

In fact, the online only piece of the online business is up 51% year over year, so I guess that would be the story within that context, is that our solutions are being purchased at a rapid pace, and we continue to get penetration in the marketplace with them.

Right now, at we have 1,412 dealers participating in across the McClatchy papers, and that growth is up 16% year over year.

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