February 4, 2014

By virtue of tough expense control and the acquisition of Belo Corp. TV stations, Gannett reported decent fourth quarter and full-year financial results yesterday. Its share price was off .06 percent for the day.

But the report included some dicey details for the company’s newspaper operations, suggesting challenges ahead for Gannett and the industry in 2014.

Circulation revenues were up for the year (1.1 percent) but down for the fourth quarter (-1.6 percent) compared to the same period in 2012. CEO Gracia Martore explained in a conference call to analysts that the company has now “cycled through” the lucrative introduction of paywalls together with bundled print + digital subscriptions at its 80 community newspapers.

This raises the concern that capturing revenue from new digital subscribers and pairing “all access” print/digital bundles with a big price increase could be a one-time revenue event. Gannett not only failed to continue gaining circulation revenue at the end of the last year, it lost a little, as these subscriptions came up for renewal.

Gannett does have a strategy to get the figure headed back up this year, said Martore and Bob Dickey, head of community publishing. The company has begun including a section of USA Today news as an enhancement at four of its papers and plans to roll that out to most of the rest in 2014. By the middle of the year, Martore said, the expanded content could provide the rationale for another round of price increases.

But even if further improvement is not forthcoming, Gannett counts the paywall initiative as a success. Martore said the company had made good its promise that the move would increase operating income by $100 million.

As I reported in October, 2013 turned into yet another year of big print advertising losses and small digital ad gains at Gannett and the rest of the industry. The fourth quarter was even worse.

Gannett said that overall publishing ad revenue was down more than 10 percent year-to-year compared to the same period in 2012. While the shortened holiday shopping season may have been a factor, Martore said she sensed that economic optimism among advertisers building in the middle of the year “kind of petered out” by the last quarter. Companies were skittish about expanding and adding new employees, she said.

The miserable weather so far this year is not helping. “If there is two feet of snow, or three inches of ice on the ground,” she said, “you can’t get to the dealership to buy a car,” so dealers have pulled back advertising.

Gannett continues to show healthy growth in digital advertising at its newspaper organizations and at its independent digital operations. But for the newspapers, the gains continue not to offset the losses.

This led an analyst to ask whether Gannett might follow the lead of News Corp and Tribune and spin off its newspaper operations, becoming a television and digital company. In essence, Martore’s answer was not now, but maybe later. She said the company would have its hands full this year completing the integration of Belo’s TV stations with its own and could not take on another strategic initiative as big as splitting the company.

More news on second generation paywall challenges and the temperature of the print advertising business can be expected when the New York Times Co. reports results Thursday and McClatchy follows on Thursday, Feb. 13.

The Times and privately held Morris Communications are now headed into their fourth year with paywalls. McClatchy and Scripps, among others, were still adding them through 2013. So Gannett faces the transition challenge at its toughest.

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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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