Freefall

August 3, 2006
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From Jim Metrock:
Channel One’s collapse continues. Years of mismanagement haunt this sad company. The mismanagement obviously is continuing. It looks as if PRIMEDIA, Inc. realizes that Channel One News is unsalable. Why they don’t simply shut down Channel One and donate the pathetically old TV equipment to schools remains a mystery.

In the spring of 2005, Channel One hired Judy Harris, an executive that had no experience with turning around troubled businesses. There was much talk of how she was going to grow revenue. What she has done is shrunk revenue. She has been in charge for four full quarters and she has brought in lower revenue each quarter than the comparable quarter the year before. (see chart below) That is no simple feat. It takes effort to lose this much money this quickly. Not only that, the declines in revenue have been simply staggering. There is no reason to believe the company will make any significant positive change. It doesn’t take a MBA to look at the figures and see that the marketplace wants Channel One News to go out of business. It seems exploiting schoolchildren isn’t a sure ticket to wealth anymore.

 

From the earnings statement released today:

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Education (Includes Channel One, Films Media Group, and PRIMEDIA Healthcare)

2006
2005
Percent Change
First six months
Percent Change
Advertising Revenue
$5.9
9.4
-37.2%
13.3
19.6
-32.1%

($ millions) All advertising revenue comes from Channel One News.

Channel One’s decline in advertising revenue is mainly attributable to the ongoing impact of large reductions in advertising from a few advertisers in late 2005 and a decrease in sales from the entertainment category. Channel One’s strategy is to broaden its revenue base beyond traditional advertising through creative sponsorships and the Internet, and to target organizational support for its public affairs programming.

During 2006, Channel One added sales staff to cover the critical New York and Chicago geographies, and expects to bolster West Coast sales coverage through a new hire late in the third quarter. As this is the first full advertising season for the new sales management, Channel One expects to begin to realize benefits in the fourth quarter. Channel One also expects to receive initial funding from certain public affairs organizations that are targeting teens by the end of 2006.

Channel One recently moved the production of its programming from Los Angeles to its new state-of-the-art Washington, D.C. newsroom–a move that puts the network at the hub of news and public affairs, significantly reduces operating costs, and adds efficiencies into the production and content generation process. Expenses related to the move have been realized in the second quarter while the positive impact on expenses are expected to be realized beginning in the third quarter with full benefit in 2007. Annual cost savings are estimated to be over $2 million.

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Here is an overview of Channel One’s revenue for the past few years. Keep in mind that the figures for 2003 were much lower than previous years. Before 2003, PRIMEDIA did not break out Channel One’s revenue. What we do know is in 1996 Channel One had $70 million in gross revenue for the year (twice as much as 2005).

Channel One Network Advertising Revenue
Year
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
2006
7.4
5.9
2005
10.2
9.4
4.2
10.7
2004
10.0
9.2
6.8
13.1
2003
11.6
11.6
6.5
14.9