February 20, 2018

Gannett reported disappointing fourth quarter results today as gains in its digital businesses fell far short of covering deep declines in advertising and wobbly circulation revenues as well.

The largest U.S. publisher — with 110 dailies — posted a loss of $13.6 million, though that could be attributed to an unusual tax expense of $42.8 million as laws changed. The company remains comfortably profitable as measured by EBITDA (earnings before interest, taxes, depreciation and amortization).

But there was little cause for cheer in publishing fundamentals. Comparing only properties Gannett already owned in 2016, revenues were down 10 percent year-to-year. Print advertising declined 18.5 percent — almost identical to an 18.7 percent print ad decline McClatchy reported last Friday.

Same-store circulation revenues fell too — by 6.7 percent.  Gannett has been raising subscription prices aggressively and saw circulation volume fall 12 percent year-to-year at those properties.

CEO Bob Dickey pointed to digital revenues as a bright spot.  For the full year Gannett had total digital revenue of about $1 billion, almost a third of its total. Digital-only advertising and subscription revenue grew year to year. Digital marketing subsidiary, ReachLocal, had revenues up 34.9 percent compared to the same quarter in 2016.

The company sold property it owns in Nashville for $38 million in net proceeds and applied that to paying down debt.

These results crystallize the financial dilemma regional chains or individual metros face as they attempt to manage and accelerate print-to-digital transformation. Digital may be growing but not nearly as fast as print is declining.

Gannett, like others, is emphasizing paid digital subscriptions and raised its total to 341,000, a 49 percent increase year-to-year. But that kind of paid digital growth typically depends on low introductory offers and other deep discounting. So declines in higher-priced print subscriptions translate to a net revenue loss on the audience side of the business.

The company gains some breathing room from expense cuts — 10 percent year-to-year on a same property basis, executives said, Digital subscriptions cost almost nothing to deliver, and some forms of digital advertising are less expensive to sell. And Gannett is making newsroom cuts and consolidating business operations. But those reductions also are not enough to offset print revenue declines.

Neither Gannett nor McClatchy is forecasting improvements on the print side for the balance of the year. That suggests to me that the waves of newsroom cuts through the industry will continue in 2018.

Privately-held BH Media said Tuesday that it is eliminating 250 positions at the flagship Omaha World-Herald, Tulsa World and other smaller papers.

I wonder if print ads continue to be down year-to-year by a percentage in the high teens whether a seven-day-a-week print frequency is sustainable for long.

Dickey told me years ago that he believed in keeping a seven-day-a-week schedule, even if a couple of days had little advertising, because that is a publishing rhythm loyal subscribers expect. The exception, he added, might be very small papers that had trouble generating enough content for daily publication.

But my sense is that we are only a year or two away from many mid-sized papers and even some metros considering four- or three-day-a week schedules. For magazines, decreased frequency with more pages in the issues that remain is becoming the norm. That points readers to digital sites for additional content and timely updates.

Nearly three years ago when Gannett publishing separated from its TV properties (now TEGNA), it announced plans to acquire more papers and run them efficiently thanks to savings from scale.  It bought the Scripps chain and several individual papers.

But Dickey sounded cool to more acquisitions in that vein in a conference call with analysts, saying that he is now more interested in adding digital ad tech or digital content businesses.

Wall Street reacted negatively to the Gannett earnings report, with shares trading down 11.5 percent for the day.

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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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