Evan Vitale Consulting: Gannett Plans to Split Up Its Print and Broadcast Businesses

Latest post from Evan Vitale Consulting -

Credit CNBC

Updated, 8:45 p.m. | The splintering of print and television companies in the media industry continued unabated on Tuesday when the Gannett Company announced that it would spin off its newspaper division, which includes USA Today, into a separate company next year.

It was the latest in a series of reorganizations at media companies that highlight the widening profit gap between television stations and other properties and the newspapers that drag on their performance. In a conference call to discuss the spinoff, analysts peppered Gannett’s top executives with questions about its far more lucrative television division and digital assets like CareerBuilder and the newly acquired Cars.com; the future of the company’s 81 newspapers, once a cornerstone of the business, almost seemed like an afterthought.

Related Links

The planned separation comes after similar moves by News Corporation, Time Warner and Tribune Company, all of which determined that their entertainment and broadcast properties could perform better, and remain more attractive to Wall Street, without the burden of propping up the print division.

The deal left many media industry experts and analysts asking how Gannett’s print company planned to grow and generate profits. “It makes it a more risky portfolio because they don’t have a digital segment to fall back on or TV stations to fall back on,” said Craig Huber, an independent research analyst at Huber Research Partners. “They are probably going to feel more pressure as a stand-alone newspaper company.”

Photo

The split will separate Gannett’s newspaper division, which includes USA Today, into a separate company next year.Credit Daniel Rosenbaum for The New York Times

Gannett’s publishing division has clearly been struggling. Ken Doctor, a media analyst, said that although the publishing division generated the most revenue for Gannett because of its large size, it had not experienced any year-over-year revenue growth since 2006. In the second quarter of this year, the publishing unit experienced a 37.5 percent decline in operating income, to $53.2 million from $85 million, compared with the same quarter a year ago. The operating income for the broadcast unit, which includes 46 television stations, like 20 acquired from Belo Corporation in 2013, jumped 74.7 percent in the quarter.

Gannett’s plan to improve circulation revenue by raising subscription prices has also faltered. Circulation revenues declined to $277 million in the second quarter, from $279 million in the same period a year earlier.

“This is about managing decline,” Mr. Doctor said. “It’s not a long-term strategy to manage decline. You’ve got to find growth.”

But Gracia C. Martore, Gannett’s chief executive, said that the new company would start out with no debt, in contrast to other newly formed print companies like Time Inc. ($1.3 billion in debt) and Tribune ($350 million). The company’s lack of debt, coupled with its split from the broadcasting division, opens it up to acquiring new media outlets that it could not previously pursue because of regulatory restrictions.

“It has been difficult for us to look at certain acquisition opportunities,” Ms. Martore said of the existing structure. “We now have two companies that are unfettered.”

She added that those investments could include buying other media outlets in the markets where the company already owns newspapers.

“We can now do smart, accretive acquisitions of community newspapers in an unlevered company where they can create tremendous synergies,” said Ms. Martore, who will lead the broadcast and digital company.

Ms. Martore said that the publishing company, which would retain the Gannett name and also include the British news company Newsquest, would continue to manage its expenses, but Mr. Huber said that the company had already trimmed a lot of fat. It reduced its head count by 31 percent to 33,850 in 2013, from 46,100 in 2007 — and the newspaper division cut costs by about 36 percent during that same period.

Photo

Gracia Martore, the chief executive of Gannett, will lead the broadcasting and digital company.Credit Carlo Allegri/Reuters

“It’s going to get tougher and tougher to take costs out,” Mr. Huber said.

Some analysts also expressed disappointment that Gannett paired its lucrative digital sites, Cars.com and CareerBuilder, the huge online job website, with its new broadcasting company, rather than its publishing division. Gannett announced that as part of the spinoff, it would buy out the 73 percent of Cars.com that it does not already own, in a deal that values the auto sales website at about $2.5 billion. Those divisions have been a revenue driver for Gannett.

“They took the strongest digital advertising vehicle ever put together by America’s newspapers and they’re taking that away,” said Alan D. Mutter, a newspaper consultant who writes a blog called Reflections of a Newsosaur.

The performance of the new publishing company will depend partly on the approach taken by its new chief executive, Robert J. Dickey, a longtime Gannett employee who has been serving as president of the company’s United States community publishing division.

“They have extremely well-known brands and they have powerful presence in the communities that they serve,” Mr. Mutter said. “Brand awareness is probably higher in most communities than BuzzFeed, Upworthy, even The Huffington Post.”

The fate of Gannett’s television stations also remains uncertain. Gannett said its broadcasting and digital company, which has yet to be named, would be the biggest independent group of television stations in the top 25 markets, with 46 stations that it will own or service. The company will be the biggest affiliate group for both NBC and CBS. Gannett has moved to expand its broadcasting business in recent years, notably by buying the Belo Corporation for $1.5 billion last year to nearly double the number of stations it owns.

Analysts are still more concerned about the future of the newspaper unit.

“I’m very skeptical that in the long term you are going to have a hard copy daily newspaper in each market,” Mr. Huber said.

This entry passed through the Full-Text RSS service — if this is your content and you’re reading it on someone else’s site, please read the FAQ at http://ift.tt/jcXqJW.

Source