Published: Friday, 30 Oct 2009 | 12:36 PM ET

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These days in the newspaper industry, you can't expect positive news to come from an ad increase - the only upside is when cost-cutting works. Though Washington Post Company

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[WPO  Loading...      ()   ] shares dropped this morning along with the market, journalists in its newsroom must have sighed with relief that the buyouts and streamlining should let up a bit. Cost-cutting at the Post's newspapers worked, helping increase the company's net income 69 percent in the third quarter. That improvement in the newspaper business plus continued strong performance from the Post's Kaplan education business and its cable TV channels yielded earnings of $1.81 per share, up from $1.08 in the year-ago quarter on two percent higher revenue of $1.15 billion.

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The newspaper division is still facing serious headwinds: advertising at the Post company's namesake paper plunged 28 percent in the quarter, compared to a 20 percent drop in the prior quarter. This drop is in line with the advertising declines the New York Times Company

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[NYT  Loading...      ()   ] and Gannett

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[GCI  Loading...      ()   ] reported with their earnings over the past few weeks. But unlike the Times, where declines seem to be moderating, at the Post it looks like things are getting worse.

The Post has put a big push behind revamping its website, but ads there dropped 18 percent this quarter, double the percentage decline in the previous quarter. Considering the fact that new circulation numbers reveal that more people than ever are cancelling their print subscriptions to read the newspaper for free online, this news is particularly grim. And Newsweek, which launched a redesigned look in May, suffered a 48 percent drop in ad revenue in the quarter.

The Washington Post Company doesn't hold an earnings call or give any guidance to analysts, but one thing seems clear: the Kaplan and cable divisions will continue to be the company's growth drivers. Kaplan revenue grew 14 percent, accounting for sixty percent of the company's total revenue, while its operating income fell 10 percent on a one-time accounting charge. Cable revenue grew four percent and operating income dropped three percent.

It's telling about the state of the publishing industry that this iconic newspaper company is now more about selling education services than it is about selling papers or ads. The Post Company is smart and lucky to have the growing education services business to grow on. While ad declines may be moderating at the New York Times Co., no other publisher has the kind of diversification that the Post does.

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