The juxtaposition was striking.
Wednesday, The New York Times Co. reported typical net growth in its various digital subscription offerings of 180,000 and an operating profit for the second quarter of $76 million.
Thursday morning, Gannett, whose holdings include USA Today and more than 200 regional outlets, reported digital gains of its own – 120,000 more paid digital-only subscribers than the previous quarter. But it posted an operating loss of $54 million. Wall Street responded by taking the value of Gannett’s already battered stock down by roughly a quarter Thursday and Friday.
The companies are roughly the same size – Gannett actually somewhat larger with $749 million in revenues for the second quarter compared to the Times’ $556 million. So why the diverging fortunes?
Of course the Times has a national and international market, reachable by readers in digital format with no paper or delivery expense. CEO Meredith Kopit Levien likes to say that the Times “addressable” market of English speakers totals 135 million.
In the Trump era, the national news cycle was hot. But the company also regularly showed six-figure quarterly gains in paid digital before that and continues to do so. Its supplementary offerings like Games and Cooking cover in slower periods.
Gannett also serves a national audience. But look at expenses.
The New York Times, with its mammoth 1,800-plus newsroom can produce a single news report for all its customers. Gannett needs to turn out more than 200 reports daily. The company probably has at least double the news staff, but it is no secret that at its smallest papers, the daily reports have become thinner than thin, in extreme cases produced with just one-full-time reporter and a remote editor.
Together with the elimination of Saturday print papers and a challenging economy, Gannett CEO Mike Reed conceded Thursday that an unexpected number of current and potential customers have decided that they can do without.
A second factor is debt. The New York Times has none and has maintained a nice cash kitty to buy or develop new products – the Wirecutter product recommendation site, a successful podcast group, homegrown Cooking and Games sites – supplemented by acquiring the wildly popular Wordle puzzle in January. The Times also has taken on an expensive fixer-upper in buying the money-losing Athletic.
Gannett, by contrast, is working off the debt added when GateHouse bought the company in the fall of 2019 (retaining the Gannett name). Every quarter, Gannett needs to apply a good chunk of incoming cash to interest and paying down principal on that debt, currently $1.34 billion.
The Times has a third big advantage: a 15-year running start on the arduous work of building a paid digital-only subscription base. Gannett ramped up that effort at the regionals several years ago but only a year ago began putting USA Today content, some of it, behind a paywall.
A Gannett editor, who I speak with frequently (and who requests anonymity), told me over the weekend of a recent internal memo with a devastating data point: for all Gannett management’s talk of digital transformation, 88 percent of subscription revenue still comes from print.
A fourth factor is a combination of the other three. The New York Times once owned a leading metro paper (The Boston Globe) and a collection of 16 smaller regionals. These holdings were deemed wise diversification during the print era.
Gannett/GateHouse has been all about adding regional titles. Already growing steadily, GateHouse kicked into a higher gear in the late 2010’s with a $1 billion acquisition program that brought in titles including the Austin American-Statesman, The Columbus Dispatch and The Palm Beach Post. Then it bought the much bigger Gannett, which itself had added tiles like The Record of Bergen County (New Jersey).
So as the New York Times was exiting the very challenging local news business, Gannett was doubling down, then doubling down again.
That sets the stage this week for the first of what CEO Reed promised Thursday would be a quick and major cost control initiative. My editor source told me that total salary reductions of 10% or more are being established at many properties and that the first of the pink slips are tentatively scheduled for Friday.
For Gannett to weather this downturn and get back on a path of financial success on its own terms does not require outdoing The New York Times (currently valued by Wall Street at 10 times as much). However, it will mean Gannett digging itself out of a deep hole – and maintaining news products still worth paying for — after yet another round of cuts.
Clarification: This story has been updated to reflect the chronology of Gannett’s acquisition of regional papers, including The Palm Beach Post and the Record of Bergen County.