February 19, 2019

A new chapter in the continuing tale of financial distress for the newspaper industry opens Wednesday as Gannett reports its results for the fourth quarter of 2018 and forecasts prospects for this year.

A reasonably good earnings report would be for revenues and profits to “sequentially improve” — in other words, still declining but not by as much as in the third quarter (a 9.4 percent drop year-to-year in publishing revenue and a 2 percent profit margin).

As the first of the large publicly traded regional chains to report for the period, Gannett’s results should be a bellwether for others yet to come.

But there is also a potent context beyond the dry numbers:

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  • Gannett and many other chains and individual newspapers have instituted new rounds of staff reductions already this year. McClatchy recently offered buyouts to 450 — about 10 percent of its workforce.
  • Gannett has a takeover bid on the table from Digital First and its hedge fund backer Alden Global Capital. So far, Gannett has just said no to the offer of $12 a share — a premium of 23 percent from its stock price at the beginning of the year but only 6 percent more than current trading value. Of course, either Alden or another bidder could come up with a higher offer.
  • Rumors of a possible McClatchy/Tribune Publishing merger have been circulating for months. The New York Post’s well-sourced media columnist Keith J. Kelly wrote Monday that serious talks, cut off earlier, are back on again. In the middle of February, as best I can tell, neither McClatchy nor Tribune Publishing still have even scheduled their earnings reports. That is a long time to add up the numbers and a strong hint that talks remain in progress.
  • Gannett has a leadership vacuum. Longtime CEO Robert Dickey has announced that he plans to retire by May 7 and thus is a lame duck. So the board and its chairman, a financial services executive named John Jeffry Louis, are key players in trying to fend off the takeover. It is not clear who a successor will be or whether that person will continue Dickey’s strategy of investing in free-standing digital ventures. That is doubly so since the architect of the expansion, Sharon Rowlands, quietly left the company in January, presumably miffed that she was not getting the top job.

I am loathe to speculate on how all this will shake out and how soon, but here are two takes I gleaned in conversations over the last month.  

A knowledgeable industry source, speaking on background, suggested that while each of the four prospective merger partners now has engaged a banker/adviser, “there really is no money behind them … So what you are hearing is 90 percent talk and bluster.”

Not to say a deal simply won’t happen, but in the near run, the possible pairings may not materialize.

I also spoke with Dean Singleton, who five years after retiring remains a close and well-informed observer of the industry. The company he built,  Media News, makes up the largest part of Digital First.

Singleton was highly critical of the deep cuts Digital First made to his hometown Denver Post newsroom last fall. But he is not as bearish as some on the bid for Gannett.

He said, “$12 a share is not such a bad price for Gannett. That’s five times EBITDA (earnings before interest, taxes, depreciation and amortization), and the going rate lately has been three or four times.”

Also, Alden could put its hands on the needed capital if it is determined to do the deal, he believes.

Singleton has mellowed, too, on the damage the cuts did to the Post. He praised editor Lee Ann Colacioppo. “She’s doing a great job, even with a newsroom of 70.”

Singleton long advocated and practiced consolidation. He expects more of it. An optimist, too, he offered a mildly positive take on the current unpleasant state of the industry: “A diminished Denver Post is better than no Denver Post; a diminished Miami Herald is better than no Miami Herald.”


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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…
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