Gannett’s good earnings report could signal a turning point for newspaper organizations

It has been a while since any newspaper-related company has talked about “strong financial results” when reporting quarterly earnings. Gannett did so Monday and had the numbers to back up the claim.

Revenues were up by 3 percent from the third quarter of 2011! Profits were higher by a third!

Let’s break down the results with the aim of answering two questions: Are the gains sustainable for Gannett? And are they indicative of what to expect from the rest of the industry as more third quarter reports follow in coming weeks?

Yes to both, with some qualifiers.

Gannett executives were clear that the revenue and profit growth were driven by huge gains of both, up 36 percent and 73 percent respectively, in their broadcasting division. Those, in turn, are attributable to Olympics and political advertising. (Gannett’s portfolio of stations includes three in Florida and one each in Ohio and D.C.)

That sweet combination of two big revenue drivers comes for just one quarter every four years. Political advertising will continue for six weeks into the fourth quarter but then fall back to a much more modest level.

Even without the windfall, though, the local TV business is on a solid footing. Auto ads, the stations’ single biggest category, have been strong for more than a year, and the stations now also are earning healthy retransmission fees, paid by cable systems.

Other public newspaper companies like the Washington Post Co. and E.W. Scripps are in the local television business and benefit from the Olympics-political boost. But those with only newspaper and digital operations like McClatchy, New York Times Co. and Lee Enterprises will not be getting that bump.

A second headline on Gannett’s growth was highly encouraging as well. As metered pay systems and bundled subscriptions are phased in at the company’s 80 community newspapers, circulation revenues were up 10 percent year to year.

Besides creating the paywalls, Gannett has initiated big single-copy and subscription rate increases for print. The company reports 30,000 new digital-only subscriptions to date but does not, at this point, break down the much higher revenue from hybrid print-digital subscriptions. Also the rate structure is recent enough that most new subscribers are on short-term, discounted offers.

Nonetheless CEO Gracia Martore said in a conference call with analysts that the company remains on track for its promise that the initiatives will increase circulation revenues 25 percent and add $100 million of operating profit by the time they have all been in place for a year at the end of 2013.

She did concede, under questioning by an analyst, that circulation numbers (as opposed to revenues) were down 10 percent daily and “a little bit” more on Sunday.

There is one other plus to the circulation revenue growth. With an assortment of freestanding digital businesses as well, Gannett is moving gradually away from lopsided dependence on print advertising. That fell 6.6 percent compared to the same quarter in 2011. The decline was even steeper in the first and second quarters so the result is a small improvement.

I have written a number of times about the industry’s difficulty generating enough digital advertising gains to cover print losses. The ratio was 10 to 1 in 2011 and 25 to 1 in the first half of this year.

Gannett, using a somewhat different measure, made excellent progress closing that gap in the third quarter. Publishing revenues were down $39 million year-to-year, but circulation and digital together gained about $23 million. So the print losses exceeded the new revenues by a ratio of about 1.5 to 1.

Gannett’s way of doing the numbers seems to me a better methodology than simply comparing print ad losses to digital ad gains. It is not written in stone that print losses must be replaced with digital ad revenue gains. Any mix of digital circulation revenue, revenue from non-advertising digital ventures like social media marketing services or non-digital activities like events or contract printing will do.

Most of the industry is diversifying in just this fashion, and let’s hope industry-wide measures catch up before long.

Gannett, by the way, bought two more digital businesses in the third quarter — BLiNQ Media, which designs social media campaigns, and Mobstream Media, whose main offering is the Key Ring loyalty program app for smartphones. Digital ventures including CareerBuilder, Point Roll and Deal Chicken accounted for 14 percent of Gannett’s total revenue for the quarter.

Wall Street had anticipated the good results and Gannett shares were flat for the day at $17.85 — up more than 60 percent from a year ago.

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  • http://www.znakit.com/ Greg Golebiewski @znakit

    Dear Julie,
    I did not pitch any story about Znak it! I pointed out to
    a study done by us in cooperation with five publishers, and already
    made public, that supports perhaps even explains Google’s decision to re-visit
    micropayments for quality websites. I was expecting that you would cover Google’s initiative as more publishers find micropayments to work better for them than any sub plan would. You did not cover Google. That is your call.

    At the same time, however, Poynter continues to report on mostly unsubstantiated successes of paywalls, including one-person opinions with no data to support them and a press release by your business partner Press+ with questionable data. It begs a question, then, are you impartial in your coverage of the various business models available to publishers? Are you a source of verifiable information or a tuba for one model you clearly prefer?

  • http://www.znakit.com/ Greg Golebiewski @znakit

    Dear Julie,
    I did not pitch any story about Znak it! I pointed out to
    a study done by us in cooperation with five publishers, and already
    made public, that supports perhaps even explains Google’s decision to re-visit
    micropayments for quality websites. I was expecting that you would cover Google’s initiative as more publishers find micropayments to work better for them than any sub plan would. You did not cover Google. That is your call.

    At the same time, however, Poynter continues to report on mostly unsubstantiated successes of paywalls, including one-person opinions with no data to support them and a press release by your business partner Press+ with questionable data. It begs a question, then, are you impartial in your coverage of the various business models available to publishers? Are you a source of verifiable information or a tuba for one model you clearly prefer?

  • http://www.poynter.org Poynter

    Greg, as you accurately point out, we are a Press+ client, which we have reported. However, we do not use a paywall, we request donations. There is no barrier to reading our content and no requirement to pay for it, simply a request that loyal users help support the Institute’s work financially.

    We report on other business models, I simply declined to run the story you pitched about Znakit because, as I told you, I cannot get enough information about the data to confirm its applicability to our readers.

    Julie Moos, Director of Poynter Online

  • http://www.znakit.com/ Greg Golebiewski @znakit

    One has to point out that Poynter is Press+ client and it uses a paywall — thus, it so eagerly reports on any, even only perceived, success of that approach (and refuses to report on any other workable models).

    The 30,000 new digital-only subscribers Rick mentioned cannot “turn the ship” or the whole armada, as Gannett has over 70 titles behind the paywall now.

  • http://www.znakit.com/ Greg Golebiewski @znakit

    One has to point out that Poynter is Press+ client and it uses a paywall — thus, it so eagerly reports on any, even only perceived, success of that approach (and refuses to report on any other workable models).

    The 30,000 new digital-only subscribers Rick mentioned cannot “turn the ship” or the whole armada, as Gannett has over 70 titles behind the paywall now.

  • Anonymous

    Dan and Mike:

    Good points, and thank you for writing. I’m not certain that the trend is up or even stable from here, but a big ship turns around slowly, and I’m trying to be alert to a change of direction.

    Mike, I agree that smaller reporting and editing staffs and a 10 percent circulation numbers reduction could hurt the brand and reduce the appeal to advertisers.

    On the positive side, it seems likely that there is more to come in revenues for digital circ and circ bundles for at least five more quarters. I’m also encouraged that Gannett is still finding the investment resources to experiment with multiple digital ventures (not all of which work BTW).

    Blaming ad declines on the recession went out of style a while back, but a more solid recovery in 2013 would nudge up advertising revenues on all platforms and might get the company (and industry) closer to covering continued losses with digital and other gains.

  • http://twitter.com/mikedonatello Mike Donatello

    In judging sustainability of profit, I think you’re also missing a key item: long-term brand health. How much of this strong showing is due to product cuts which may take additional time to manifest their negative impact? A similar question can be asked of paywalls: Is the short-term gain in revenue maintainable once the full impact of decreased audience is manifest?

    I don’t know the answers to the questions I’m posing, but I agree with Dan that the analysis here is not fleshed out fully.

  • http://twitter.com/mikedonatello Mike Donatello

    In judging sustainability of profit, I think you’re also missing a key item: long-term brand health. How much of this strong showing is due to product cuts which may take additional time to manifest their negative impact? A similar question can be asked of paywalls: Is the short-term gain in revenue maintainable once the full impact of decreased audience is manifest?

    I don’t know the answers to the questions I’m posing, but I agree with Dan that the analysis here is not fleshed out fully.

  • http://twitter.com/dancow Dan Nguyen

    How does the content of this piece justify the headline? The increase in revenue is directly attributable to the Olympics and presidential election, a combo that happens only once every 16 quarters. And Gannett itself reports a $39M revenue loss in publishing compared to $23M in digital ads + circulation (is that circ. revenue include print circ?). That doesn’t sound like a turning point at all.