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The publishing area is a great place to find investment opportunities. Many of these companies, especially those in the newspaper business, enjoy mo­nopolies in their respective markets. This monopoly status gives these companies the power to raise prices without the fear of large customer defections. The companies can then use these monopoly profits to move into other geographical areas, expanding their profits and increasing the value of their shareholders' investments. At the beginning of 2003, for example, Gannett published almost IOO newspapers, and as the company's 2OO2 annual report stated, "most of the company's newspapers do not have daily newspaper competitors that are published in the same city." Gannett's free cash flow margins (free cash flow as a percentage of revenue) are consistently above 10 percent, which makes it an extremely profitable business.

Companies In the publishing business also benefit from economies of scale, which result from the largely fixed nature of the industry's cost structure. As more volume gets pushed through an existing production system, profitability will naturally improve. The publishing business relies on very expensive production equipment (presses) and distribution systems. It doesn't cost much more to print 1,000,001 books than it does to print I,OOO,OOO, so most of the revenue from that i,OOO,OOist book turns into profit, increasing the company's profit margins.

Because of this characteristic, most of the companies in the publishing arena are continually looking for acquisitions that will increase market share and boost profitability. The larger the scale, the greater the advantage over rivals. Companies that build scale in a conservative and deliberate manner tend to do very well over time, both In terms of profits and shareholder returns. McGraw-Hill, for example, has become one of the most important players in the publishing industry by slowly acquiring competitors, boosting profitability along the way. Between 1993 and 2OO2, McGraw-Hill acquired about 60 companies, most of them in publishing. During this same period, the company's operating profit margins increased from 16 percent to 21 percent, largely due to a huge jump in the profitability of the publishing business from 7 percent to 14 percent.

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