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February 20, 2018

Gannett Now a Broadcast Company, More or Less

Today, you’d rather be a broadcasting company than a newspaper company. For Gannett, the Belo purchase —$1.5 billion in cash (plus assuming debt of  $715 million) for 20 largely geographically complementary properties that makes it the fourth largest local broadcast company in the country — changes Wall Street’s perception of what kind of company it is. (Good USA Today map on station reach, here.) Early reaction attests to that: GCI is up 25% today. No longer is Gannett a newspaper company with broadcast and digital assets. It can now be thought of as a broadcast company with major newspaper and digital assets.

Consider Gannett’s purchase today of Belo’s broadcasting assets a part of the great rationalization of media assets.  Many newspaper companies are quickly becoming something more, or something less, than newspaper companies. More companies are rationalizing as they face new reckonings about the print business and the relative attractiveness of cousin media.

For Gannett, it is estimating that two-thirds of its operating income will now come from broadcast. That compares to 56% in 2012. The two numbers that tell you what’s behind the deal for Gannett: Newspaper operating income was down 23% in 2012;  broadcast was up 47 percent. So while a majority of its profits came last year from broadcast, its reliance on newspapers was seen as a liability. Hence, this deal.

The unspoken backdrop to the purchase: the acceleration of print ad decline in 2013, further cementing the sense that the print ad loss trajectory is increasingly uncertain and deeper than projected. That means print-centered projected operating income numbers are suspect. For Gannett, the big question has been: Where else is it going to get replacement profits?

Its digital and broadcast businesses are throwing off some, but it needed more.

Broadcast supplies that — for now. Revenues are more stable, though nothing to compare with digital media. Expect broadcast revenues to be flattish this year; good overview of TV fortunes at State of the Media. Broadcast advertising has been less disrupted than newspapers, but faces heightened digital competition over the next several years. Last year was a good one, but political/Olympics years always are for broadcasters and political advertising can generate as much as one in six dollars in those years. Think about how much digital targeting could take away political broadcast money by 2016. “P&O” spending is getting harder to calculate.

All that being true, another truism: The broadcast business is a maturing less quickly than the newspaper business. Gannett may have bought itself another three to five years or relative revenue stability.

It’s true that Gannett’s acquisition gives it some leverage in negotiating fees with cable and satellite distribution channels, yet longer-term we’ll see how much that landscape changes as well. Aereo (“The Newsonomics of Breakthrough Digital TV, from Aereo to Dyle and Mundo Fox to Google Fiber“) may be just the first major disruption in the station-cable/satellite-consumer cycle, and that could put a dent in those expected revenues.

More widely, look at the wide sweep of rationalization across newspaper companies:

  • Media General got out of newspapers entirely, becoming a broadcast company. Its newspapers are now buffered by Buffett’s wide embrace within Berkshire Hathaway.
  • Tribune (“The Newsonomics of Tribune’s Metro Agony“) is becoming a broadcast/entertainment company, as it prepares to exit the newspaper industry.
  • The New York Times Company is going the other way. It is becoming the purest play newspaper company — becoming the New York Times only — as it sells the Globe, the end of a long process of selling off assets, non-newspaper and newspaper.
  • News Corp becomes, well, News Corp, now officially on June 28. That’s another kind of rationalization, largely separating out its entertainment assets into 21st Century Fox, for reasons both financial and political.
  • Let’s also recall the previous rationalizations. Belo split itself into two companies in 2007 — with newspapers residing in A.H. Belo — which facilitated today’s sale of its broadcast holding. Scripps split off its fast-growing digital assets from its print and broadcast ones in the same year.

Consequently, over the last several years, most of the top ten U.S. “newspaper” companies have greatly reordered themselves. That’s the company consequence of the roiling change we’ve witnessed. Expect more.

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