The Gannett-Tronc bidding war showed us why people are still investing in legacy media
Arguably the biggest newspaper business story of 2016 was Gannett's failed (for now) bid to take over Tronc. What the broken deal says about the industry, however, is more than a little ambiguous.
For starters, consider that 2016 was a particularly hard year financially, with advertising revenue losses that started bad and got even worse in the fall. Both Gannett and Tronc are profitable on a cash basis but barely so as earnings are fully stated.
Why then were both sides willing to push hundreds of millions of dollars on the table in the fight?
For Gannett, the bid was all about scale — adding two major market newspapers and nine others to its USA Today Network of 110. The prize would infuse strong journalism into the company and create a broader audience for the network's national investigations like one earlier this month into toxic drinking water.
Then there are cost-savings — eliminating duplicative corporate functions, combining tech systems and sales efforts and running newsrooms and other local functions leanly in the Gannett tradition.
For those benefits, Gannett offered a 60 percent premium on the market valuation of Tronc (then Tribune Publishing) in its initial bid in late April. Gannett was reported to have raised its offer to more than $1 billion by October.
That's a whole lot to pay for a collection of properties whose revenues are headed the wrong way.
In turn, Tronc Executive Chairman Michael Ferro and his co-investor Patrick Soon-Shiong together put more than $100 million into the company earlier in the year, and each upped his stake modestly again in November.
That buys the pair effective control of the company and a chance to carry out a futuristic vision of where news is headed — heavy on video production, much of that reliant on assembly by artificial intelligence.
I remain a skeptic. But despite ridicule of the Tronc name and the company's promotional video seeking to explain the idea, it's not a ludicrous proposition.
On a recent week-long Poynter Innovation Tour, we saw the Associated Press upping its investment in machine-produced company earnings and sports game stories. And all the big players (not to mention Facebook) are urgently looking for more news video, while dancing with the potential of virtual reality and other exotic formats.
To the extent Tronc can incubate the idea and begin to show promising results in 2017, it will have created something new of value for the company should it stay intact — or useful to Gannett or another bidder.
In short, both Gannett and Tronc, for different reasons, see hundreds of millions of dollars value in legacy news organizations.
And they are not alone. Publicly traded New Media Investment Group and privately held Digital First Media have done versions of the growth-by-acquisition strategy.
Plus, newspaper properties continue to attract rich individuals like Ferro and Soon-Shiong. The Adelson family in Las Vegas and the Huntsman family in Salt Lake City joined the billionaire owners' club over the last year.
I suppose the outcome of the Gannett-Tronc bid represents a less bullish take on the industry. Bankers backed away after third-quarter financial reports suggested continue difficult times for the rest of this year and all of next.
Both Gannett and New Media Investment Group shares are trading down for the year. Other companies pursuing a slower, more organic growth strategy — The New York Times, McClatchy and A.H. Belo are up some (though way below their peak stock price of a decade ago).
This was a year that high-traffic digital only sites like The Huffington Post and BuzzFeed experienced hiccups of their own, exposed to ad competition from the platform giants and ad blocking the same as everyone else.
And by December, even Facebook seemed to be coming around to the idea that it needs journalists if it is going to provide much of the world a primary news feed.
Also, consider the subscription surge The New York Times and other serious news stalwarts have experienced since the election. Not sure that will stick, but there appears to be a wave of nervous citizens ready to pay for a daily dose of aggressive reporting on all things Trump.
Does all that argue that news and editorial capacity is coming back in fashion as a strategic skill?
Despite another discouraging round of newsroom cuts, I hope so, as newspaper organizations continue to battle the clock and are showing progress in getting organized as digital journalism enterprises and finding fresh revenue streams.