Lee Enterprises eyes digital growth, refinancing

Lee Enterprises faces two critical near-term challenges: Building digital revenues to offset the decline in print revenue and restructuring the rest of its debt.

Lee chairman and CEO Mary Junck offered brief overview of the company’s strategies during Lee’s annual stockholders meeting in Davenport, Iowa. Shannon Duffy and Jeff Gordon attended the meeting on behalf of the United Media Guild and also visited with various Lee executives and stockholders.

“As we recently reported, Lee is off to a solid start in 2014,” Junck said during her presentation. “We grew digital revenue and audiences at a double-digit pace, continued to reduce expenses, again posted strong cash flow, reduced our debt further and announced a commitment for a favorable refinancing of our second lien debt. Those reasons reinforce our upbeat outlook.”

Here were some of the takeaways, in broad strokes:

The company is refinancing the smaller chunk of its debt, lowering its interest rates and extending the term of second-lien debt to 2022. Soon it hopes to do something similar with the first-lien debt, which matures next year. Lee paid down nearly $100 million in debt last year but still owes more than $800 million.

The company will roll out a new  “full access” subscription model, starting in April in the bigger Lee markets. The company expects to generate new revenue from the content viewed on desktop computers, laptop computers and various mobile devices.

Will these pay walls shrink the traffic on the website and mobile apps? Will this new model cut into the digital advertising revenues our salespeople are delivering under intense pressure?

(In their most recent Post-Dispatch plans, some of our top salespeople lost 25 percent of their print advertising earnings after failing to meet aggressive digital goals. Basically the company fined them. This punitive action prompted a large number of journalists to rally behind frustrated salespeople during their group meeting with P-D management.)

During the Q and A portion of the meeting, the UMG asked chief operating officer Kevin Mowbray to address the possible impact of “full-access” subscriptions on the digital audience.

Mowbray said Lee was researching the pricing options with the help of Mather Economics, a firm that works with various companies on this issue. Mowbray expressed confidence that the “full access” subscription would not cause Lee to suffer a long-term loss of share.

Junck added that Lee has been monitoring the impact of such subscription models in Gannett and other media companies. Digital audiences have remained strong in those companies.

Cost-cutting will continue as Lee tries to maximize its cash flow. Look for more centralization and outsourcing. Chief financial officer Carl Schmidt predicted operating cost reductions of 1.5 percent to 2.5 percent for the coming year.

The positive cash flow and digital revenue development has helped boost the performance of  Lee stock, which reached a 52-week high of $4.65 Wednesday afternoon.


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