October 27, 2016

On a day Gannett reported worse than expected third quarter results, New Media Investment Group, which operates 121 dailies in the GateHouse chain, had mostly good financial news.

The contrasting tale of two companies was reflected in market reaction, with Gannett stock down more than 13 percent in early afternoon trading and New Media up roughly 5 percent.

Gannett recorded a rare net operating loss of $24.2 million for the quarter on revenues of $772.3 million, though that was partly explained by costs of absorbing recent acquisitions.

CEO Bob Dickey acknowledged punishing national advertising losses — down 30.6 percent on a same property basis compared to the period a year ago — and preprinted inserts down 19.6 percent.

Various digital operations including marketing service ventures are growing well — but not enough to offset the print and preprint declines.

Also Gannett has long owned a group of regional papers (NewsQuest) in the UK. Its financials have been dragged down with the weakened pound and advertiser caution post-Brexit.

Over at New Media, growth in digital marketing and subscription revenues mostly covered ad revenue losses. National advertising is not as big a factor as at Gannett, but CEO Mike Reed said that preprints took a hit, down year-to-year by nearly 10 percent.

New Media’s mix of properties is mostly small and mid-sized, and Reed said that its two biggest papers, the Columbus Dispatch and Providence Journal, are faring worse than the rest in ad declines.

The company has made more than $100 million in acquisitions so far this year, most recently the Fayetteville Observer and Columbia (Missouri) Daily Tribune. It also has added a few business-to-business papers and two digital business service companies.

Reed said that New Media still has $94.5 million in cash and a credit line available to buy more.

The company raised its quarterly dividend to 35 cents a share — an annualized return of more than 9 percent at the current share price of about $15.

In Gannett’s conference call with analysts, the company’s high-profile takeover bid for Tronc did not come up. The analysts did not ask directly and CEO Dickey merely commented that more acquisitions remain in prospect “but only if they are accretive to shareholder value. We are not going to add properties just for the sake of adding properties.” The company now has more than 100 regional papers.

Part of the call was devoted to Gannett’s new weekly virtual reality show, “VRTually There,” launched earlier this month. Beyond providing users a regular dose of news in the hot medium, the show has a premium sponsor (Toyota), executives said, and prospects for meaningful revenue growth in coming  years.

Dickey also spoke briefly about a recently announced 2 percent trim of staff and expenses, being implemented this week. These include “some streamlining at the management level” by putting multiple papers under one president/publisher. He added “the focus (of cuts) is on non-reporting resources” to keep up editorial quality.

News is trickling in from the field of how this is playing out. Larry Fuller, a retired Gannett publisher, wrote me that his hometown Sioux Falls (South Dakota) Argus, lost its publisher as did the St. Cloud (Minnesota) Times.

Fuller described the impact this way in an email:

Newspaper publishers typically are part of the community leadership, and that certainly was the case in Sioux Falls with publisher Bill Albrecht. He was visible across the business community, particularly the Chamber of Commerce, and held the paper together internally though a lot of turmoil.
One community leader wrote to me yesterday:


‘I am very disappointed for Bill personally and professionally in that they would essentially eliminate such an important community leadership position…particularly in this type of market where relationships remain important.’

At the Indianapolis Star, one of Gannett’s largest papers, the company is negotiating with a union to move copy-editing to a regional center in Louisville, which already does print and digital layout for the Star.

Neither the layout/copy editing centers nor the move to regional publishers is new or unique to Gannett. But critics see both cost-saving techniques eroding the local profile of papers whose focus is news and advertising in their home communities.

The non-news on a Tronc-Gannett merger had a market impact as well.  Analyst Ken Doctor reported this morning that Tronc’s board cancelled a special meeting Wednesday, pushing any potential deal weeks or months forward.

Shares of Tronc, which will release its third quarter results Tuesday, were off 9.5 percent in early afternoon trading.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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