October 8, 2015

For three different reasons, Gannett’s surprise acquisition Wednesday of Journal Media Group (the former Scripps papers and the Milwaukee Journal-Sentinel) makes a lot of sense:

— In the era of digital transformation, bigger is better. A larger audience translates to better prospects for digital ad sales. The combined operations will have 100 million monthly uniques, according to the press release announcing the deal.

— Any such merger brings efficiency as corporate offices combine and shrink. Gannett said that it expects $35 million in savings and may have other cost-cutting initiatives at the ready.  Smaller newsrooms are a possibility but not a certainty.

— Gannett has a suite of centralized programs — news feeds from USA Today, a common content management system, events and digital marketing services capacity — that will pay off the more markets they touch.

Gannett CEO Bob Dickey was not available for an interview today. But when I asked him in late June how Gannett can improve the performance of properties it acquires, his e-mail response touched on all three of these themes:

First, let’s be clear that we’re acquiring markets. Much like our recent acquisition (of 11 Digital First titles) viable markets further deepen our local-to-national footprint – which is one of the broadest and deepest in the country. We’ve also created a network-wide platform that allows us to quickly roll new markets on and scale to seamlessly to share content and operate as one. The USA TODAY Local Edition, which is already integrated into 35 Gannett markets and a dozen non-Gannett markets, provides immediate value for consumers with more brand-named content and advertising opportunities for businesses.

I’ll add that acquisition is one of the key pillars in our growth strategy, so we’ll look at key markets, but also other types of digital platforms and businesses with synergies on other fronts, like our quickly growing consumer events experiences.

Mizell Stewart, managing director, content, for Journal Media, offered a similar view in a brief phone interview. “This level of consolidation is not unexpected,” he said, “and I’ve long talked about scale as a challenge for our industry.”

None of the Gannett growth strategy is brand new or a secret. The company announced, as it was being spun off from the television and digital part of the business (now TEGNA) this summer that it would be looking for acquisitions. The company even specified a preference for markets the size of many in the Journal stable of 15 dailies and a first-year kitty of $200-$250 million — somewhat less than yesterday’s $280 million sale.

Several years ago Gannett began offering print sections to its largest papers drawn from USA Today (and USA Today digital content as well). That frees local staff to focus on local matters and creates a huge print distribution for national advertisers. Gannett put the program in place at 35 of its original titles and now sells it to other unaffiliated companies (10 at my last count).

Markets like Milwaukee, Memphis, Knoxville and Naples can expect to see additional USA Today content in their papers and websites soon.

Gannett also invested a lot of time and money over several years in developing a common content management system. That’s an important advantage as smaller companies or independent operations must continue to pick among vendors and wrestle to display well over multiple platforms — including the special challenges of smart phones.

Opportunities vary by market, but Gannett also provides a centralized structure for building new revenue streams like selling digital marketing services to local businesses or organizing events.

And bigger audiences — both print and digital — at least earn a seat at the table pitching to national advertisers, who are moving budgets to tap into the massive and targeted reach of the digital giants like Google and Facebook or youth-oriented sites like BuzzFeed and Vice.

The small universe of publicly-traded newspaper companies includes two others committed to growth by acquisitions (with roughly the same rationale) — Tribune Publishing and New Media Investment Group (formerly GateHouse).

Tribune has bought the San Diego Union Tribune and some suburban Chicago properties in its year-plus existence as a spun-off-company. NMHI has picked up the former Halifax papers, the Dow-Jones local media group, Stephens Media, the Providence Journal and the Columbus Dispatch.

All three could buy more — but there’s a qualifier. Big acquisitions typically take the better part of a year to digest so their stomachs may be full for right now. Tribune Publishing may also be preoccupied by weak financial performance and the insurrection brewing over its stewardship of the Los Angeles Times.

The New York Times Co and Dow Jones/News Corp both have exited the regional paper business. A.H. Belo also disposed of its two papers outside the Dallas area. Lee and McClatchy are not strong enough financially to be probable acquirers and appear committed to staying intact as companies.

However, that doesn’t exhaust the field of merger candidates. Digital First’s 75 papers were on the market for more than a year,  and the 64 left may be again. Other privately held companies with attractive assets include Hearst, Cox, Landmark, Community Newspaper Holdings Inc., Morris and Warren Buffett’s BHNI group.

I couldn’t begin to guess who might marry whom. But I would be willing to bet not all these players will be single a year from now.

As for the Gannett-Journal match, let’s save the question of how the acquired papers may fare in journalism capacity for another day — or another year. The deal will not close until early 2016.

I would bet on eventual newsroom cuts — as have happened at many Gannett newsrooms reorienting to what the company is calling digital “newsrooms of the future.” But Gannett also maintains a stated commitment to watchdog and investigative journalism — often with pooled local reporting — and would be smart to draw on the Journal-Sentinel’s expertise in that area.

Financially, the merger appears a good deal for both sides. Gannett stock recorded a modest 2.5 percent gain for the day. Journal Media stockholders went to bed with their shares trading at $8.30 and woke up with a 40 percent-plus gain — as the market nearly matched the Gannett offer of $12 a share.

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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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