Monday, January 08, 2007

Gannett Moves Into the Future

By David Lee Smith
The Motley Fool
December 2006

How shall I accomplish my task, which is to relate to you the observations that I took away from a presentation by Gannett (NYSE: GCI) management at last week's Credit Suisse Media and Telcom Week?

My difficulty lies with the difference between what I know Gannett to be today, on the one hand, and management's detailing of the company's future -- or the expectation thereof -- on the other. Admittedly, newspaper and broadcasting companies are struggling to maintain, or nearly maintain, prior levels in such key metrics as revenue from continuing operations, operating cash flow, net income, and the all-important earnings per share. And with the eyeballs of their erstwhile readers and viewers shifting to online sites for their daily -- or perhaps hourly -- dose of news and information, advertisers logically are tending to follow along. The result more and more frequently has been declines in advertising revenues, such as the double-digit level reported for October at New York Times' (NYSE: NYT)Boston Globe newspaper.

The reality
Many participants in the publishing and broadcasting portion of the media -- the traditional media companies -- are throwing themselves headlong into achieving a metamorphosis into an increasingly digitized state. Gannett is no exception, nor should it be. But I nevertheless found the Gannett presentation to Media Week attendees, rendered by a five-person team of the company's executives, to be somewhat long on the anticipated end-product of that metamorphosis and short on current reality.

The company actually has achieved a meaningful presence in the Web world. But for now it still is, first and foremost, a newspaper-publishing behemoth, with 90 U.S. daily newspapers, about 1,000 non-daily publications, and 300 additional titles in the United Kingdom. It also operates 21 television stations with a potential audience of 20 million U.S. households. Unlike Tribune (NYSE: TRB ), the proud owner of the Chicago Cubs baseball team, Gannett is now out of the baseball business, having sold its interest in the Cincinnati Reds.

As with most members of the newspaper group, Gannett's third-quarter results were lower than those of a year ago. The company was affected in the quarter by a year-ago asset exchange with Knight Ridder, whose own newspapers were later acquired by McClatchy (NYSE: MNI), and by the weak advertising environment for newspapers.

The expectation
As such, I believe that the Gannett presentation touched too lightly on the hard, slug-it-out reality of the current climate for newspapers and broadcasting entities. Instead, much of the focus was on the expectation of change to a world of "multiplatforms," "information-center initiatives," and "hyper local data." To his credit, Chairman, President, and CEO Craig Dubow did state early on, "Number one, we would enhance and support our core businesses, newspapers, and television stations. They are our strength . and certainly a significant source of our revenues."

But the daily newspaper, that atrophying vestige of yesteryear, was accorded something of a shot by Sue Clark-Johnson, the president of Gannett's own newspaper division, who said that the company is positioning its print product for "those audiences most comfortable with print." She went on to specify, "That is primarily a 45-plus, middle- to upper-income post-high-school-educated segment." While she didn't include denture-adhesive-using in categorizing newspaper readers, it nevertheless becomes progressively clearer that the product of Horace Greeley and Benjamin Franklin may be on borrowed time.

Dubow also predicted, "We would enrich and expand our digital operations into a major international business." In that context, he described Gannett's recent increase in its ownership percentage in CareerBuilder, which, he indicated, "is number one in virtually all the key metrics in the online career space." He also mentioned the acquisitions of PointRoll, a producer of online advertising, and Planet Discovery, an online educational-enhancement site.

But he also introduced the company's "information-center initiative," which he said "is the newsroom of the future." He described the (to me) still-amorphous center as a way to gather and disseminate that news and information "across all platforms on a 24/7 basis." And, he said, "It is designed to fulfill today's need for a more flexible, broad-based approach to the information gathering process, one that isn't focused so totally on producing the daily newspaper."

Still somewhat confused after viewing a video on the information-center initiative, I looked to Clark-Johnson for further elucidation on what it seems is essentially a newsgathering approach that will involve local, or "hyperlocal," communities in a sort of two-way -- or perhaps multi-way -- and multi-platform process. She did provide an example of the concept at work -- she described a Fort Myers, Fla., circumstance in which "the newspaper staff employed a First Amendment technique called crowd sourcing to investigate why residents were receiving bills to have sewer lines they didn't know about installed in their streets. Readers responded immediately . and the city called a moratorium on further building. And this is all before any coverage appeared in print."

Not quite certain how the example related to daily newspaper publication, I next heard Clark-Johnson tell me, "Think of it this way. We used to be a monologue; we now have a dialogue. In fact, we are now looking at a multilogue ." I did try to think of it that way, but I still felt like the questioner who asked at the conclusion of the presentation, "The new center you were talking about . I did not quite understand. At its core, what is it?"

More reality
Later in the presentation, Craig Moon, president and publisher of USA Today , discussed how the nation's largest circulation newspaper is adding other arrows to its quiver by "extending our brand by bringing USA Today 's features to cable networks through our Weight Loss Challenge [and] 'Soul of a Champion' [series]. We've built relationships with ideas like naming the seven new wonders of the world with Good Morning America," he said.

Next up was Roger Ogden, the president and CEO of Gannett Broadcasting, a unit that, like most television operations, watches its revenues ebb and flow on a biannual basis, depending on the occurrence of national elections and Olympic games. As in most even years, the company this year enjoyed $22.4 million in net billings from the Olympics alone. Ogden also waxed enthusiastic when he mentioned the 58% growth thus far this year in the company's digital business, which he defined as "online and the digital multi-channels."

The ultimate realist
The task of discussing the struggling U.K. operation, Newsquest, fell to Gracia Martore, the company's executive vice president and CFO. "Newsquest," according to Martore, "has had a challenging year but finds points of stabilization and perhaps a modest recovery." Martore, who also provided conference attendees with a look at expected 2006 corporate results, along with a glimpse at 2007, perhaps stole the show when she began, "Before I go any further, please note that Safe Harbor provision on the screen. It could be my most exciting slide."

After witnessing the Gannett presentation, I think management is doing an excellent job of thinking about a company already living in the new form envisioned for it. It will, however, take time for their publishing and broadcasting giant to follow their lead.

Fool contributor David Lee Smith remains an avid newspaper reader and does not own shares in any of the companies mentioned. He welcomes your comments or questions.

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