Gannett's good earnings report could signal a turning point for newspaper organizations

It has been a while since any newspaper-related company has talked about "strong financial results" when reporting quarterly earnings. Gannett did so Monday and had the numbers to back up the claim.

Revenues were up by 3 percent from the third quarter of 2011! Profits were higher by a third!

Let's break down the results with the aim of answering two questions: Are the gains sustainable for Gannett? And are they indicative of what to expect from the rest of the industry as more third quarter reports follow in coming weeks?

Yes to both, with some qualifiers.

Gannett executives were clear that the revenue and profit growth were driven by huge gains of both, up 36 percent and 73 percent respectively, in their broadcasting division. Those, in turn, are attributable to Olympics and political advertising. (Gannett's portfolio of stations includes three in Florida and one each in Ohio and D.C.)

That sweet combination of two big revenue drivers comes for just one quarter every four years. Political advertising will continue for six weeks into the fourth quarter but then fall back to a much more modest level.

Even without the windfall, though, the local TV business is on a solid footing. Auto ads, the stations' single biggest category, have been strong for more than a year, and the stations now also are earning healthy retransmission fees, paid by cable systems.

Other public newspaper companies like the Washington Post Co. and E.W. Scripps are in the local television business and benefit from the Olympics-political boost. But those with only newspaper and digital operations like McClatchy, New York Times Co. and Lee Enterprises will not be getting that bump.

A second headline on Gannett's growth was highly encouraging as well. As metered pay systems and bundled subscriptions are phased in at the company's 80 community newspapers, circulation revenues were up 10 percent year to year.

Besides creating the paywalls, Gannett has initiated big single-copy and subscription rate increases for print. The company reports 30,000 new digital-only subscriptions to date but does not, at this point, break down the much higher revenue from hybrid print-digital subscriptions. Also the rate structure is recent enough that most new subscribers are on short-term, discounted offers.

Nonetheless CEO Gracia Martore said in a conference call with analysts that the company remains on track for its promise that the initiatives will increase circulation revenues 25 percent and add $100 million of operating profit by the time they have all been in place for a year at the end of 2013.

She did concede, under questioning by an analyst, that circulation numbers (as opposed to revenues) were down 10 percent daily and "a little bit" more on Sunday.

There is one other plus to the circulation revenue growth. With an assortment of freestanding digital businesses as well, Gannett is moving gradually away from lopsided dependence on print advertising. That fell 6.6 percent compared to the same quarter in 2011. The decline was even steeper in the first and second quarters so the result is a small improvement.

I have written a number of times about the industry's difficulty generating enough digital advertising gains to cover print losses. The ratio was 10 to 1 in 2011 and 25 to 1 in the first half of this year.

Gannett, using a somewhat different measure, made excellent progress closing that gap in the third quarter. Publishing revenues were down $39 million year-to-year, but circulation and digital together gained about $23 million. So the print losses exceeded the new revenues by a ratio of about 1.5 to 1.

Gannett's way of doing the numbers seems to me a better methodology than simply comparing print ad losses to digital ad gains. It is not written in stone that print losses must be replaced with digital ad revenue gains. Any mix of digital circulation revenue, revenue from non-advertising digital ventures like social media marketing services or non-digital activities like events or contract printing will do.

Most of the industry is diversifying in just this fashion, and let's hope industry-wide measures catch up before long.

Gannett, by the way, bought two more digital businesses in the third quarter -- BLiNQ Media, which designs social media campaigns, and Mobstream Media, whose main offering is the Key Ring loyalty program app for smartphones. Digital ventures including CareerBuilder, Point Roll and Deal Chicken accounted for 14 percent of Gannett's total revenue for the quarter.

Wall Street had anticipated the good results and Gannett shares were flat for the day at $17.85 -- up more than 60 percent from a year ago.


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