Let’s Not Lose Sight Of The Positive Gannett News -- It’s Still Turning A Big Quarterly Profit, Just Not As Much As It Used To

Philip M. Stone July 18, 2008

It’s easy to focus on Gannett’s terrible Q2 results including that June in particular was disastrous, but even so the company still recorded a Q2 profit nearing one-quarter of a billion dollars. True, down 36% from the same quarter a year ago but in today’s economic climate not really too shabby.

Investors, of course, show no mercy when worse results come out, and they sold first and asked questions afterwards with the shares going down more than 16% at one point before recovering to close down 4.5% on Wednesday and it recovered again Thursday, up 4.22% to close at $17.27, just eight cents lower than before the results were announced.  Even so, in just one month the Gannett shares have dropped by one-third.

Adding also to Gannett’s problems is a report by Moodys that it is considering lowering its debt rating citing "concern that the company's revenue-enhancement initiatives and cost reduction actions may not be sufficient to prevent continued erosion in free cash flow over the next 12-18 months." Currently Moody's rates Gannett "A3," the seventh highest investment grade – at least it is investment grade which cannot be said for some other big newspaper companies – but it also means further borrowings will cost more.

And newspaper investors won’t be mollified by the Media-General results that came out Thursday – that company actually turned in a Q2 loss of $129,000 compared to the $5.1 million profit the year before. With just those two companies reporting thus far, investors no doubt believe the bad news will continue with further Q2 announcements next week – The New York Times Company July 23 and McClatchy July 24 – and one can only imagine what will happen to those shares if the news is really bad.

Newspaper CEOs, of course, will tell you that the share price really has no  relationship these days to how newspapers are doing – Gannett CEO Craig Dubow just one month ago, “I can’t state strongly enough my belief that our current stock price does not accurately reflect the true value of our company or its potential”.

Revenues and profits may be down but not near as much as the value of newspaper shares.  Take four examples – the New York Times Company closed Thursday at $13.19 – that’s a 43% fall in one year; McClatchy closed at $4.89, an 81% fall; Lee at $3.58, down 80%; and Gannett at $17.27, down 67%.

There seems to be a great divide between how Wall Street sees newspapers and how the public does for while advertising monies are leaving newspapers in ever-higher numbers, the same cannot be said for readers themselves. The Readership Institute at Northwestern University recently reported that while  readership of the local newspaper is down since the last survey two years ago, it is only a “little down” As Mary Nesbitt of the Institute wrote, “Why aren’t (the figures) much worse, when the imminent demise of newspapers seems to be all we ever hear about? The short answer is that reading customers aren’t deserting newspapers at anything approaching the rate that advertising customers are…Make no mistake, lots of people still want it and lots are paying attention to the local newspaper.”

With that in mind, there’s a fascinating interview in the New York Observer with Katharine Weymouth, the new (six months), young (42) publisher of one of the country’s largest “local” newspapers – The Washington Post. Among her recent moves was to banish upstairs the old (66) Leonard Downie as editor and replace him with young (47) Marcus Brauchli, formerly top editor at the Wall Street Journal who was pushed out by the new Murdoch crew. The Post’s reporters may have some of the best local beats in the US but that hasn’t stopped the newspaper’s circulation and revenue slide to such an extent that the company’s educational business now brings in more revenues than do publications.

Weymouth said she took a group of executives to a Harvard Business School executive leadership training course and she remembered pointedly the one question that newspaper CEOs should really mull, “If your business went away tomorrow, who would miss you and what would they miss?”

That’s worth thinking about because when you have answered it then you truly know your newspaper’s role in the community. Then your actions and business models can be aimed at reinforcing that your community knows exactly the services you perform and what they would miss if you were gone.

“You have to figure out what the value is to your content and why people come to you,” Weymouth said in the interview. “I think people come to us because we own Washington. We own politics and Washington. By own – there are lots of other people who do it very well -- but I think the Washington Post does have a good value proposition. And that’s judged every day by more than a million people who read us every single day. That’s a lot of people! So I think we do have a value proposition. But obviously the world is changing. Will there be a print edition in five years? I don’t know the answer to that.”

ftm can take some pleasure in reading that because it has been a theme we have been repeating over and over again in our four years of existence – that newspapers need to stake out their territories and then take the steps necessary to “own” that territory. In that light it may be useful to reprint one way of doing that that we wrote a couple of years back:

In Los Angeles and its surrounding counties the Times competes against 16 local daily newspapers. With such a monster as the Times in their territory those local newspapers prosper at doing what the Times cannot do – a blanket coverage of their local communities. The Times cannot really compete on a truly “local” basis but rather it can improve its regional approach.

Newspapers have really known for years that local works. For instance when this writer was a young reporter on The Daily Report in Ontario, a newspaper about 50 miles (80kms) from Los Angeles with the Times as the primary competitor, it would cover the local high school sports as if it was major league. Lots of stories and pictures of the high school heroes preparing for the twice-a-week games, long stories covering the games, plenty of sidebars, etc. etc. In the Times the only coverage was one agate line giving the game result. 

That local sports coverage, incidentally, got the attention of the young – aren’t they the ones who aren’t reading newspapers these days? -- who wanted to read about their friends and see their pictures, and it gave the local newspaper an edge over the monolith 50 miles (80kms) down the road. Going one step further, the newspaper even hired local high school newspaper reporters at a paltry 10-cents-a-word and no travel expense account to cover the games (and yes, that is how this author first broke into professional journalism; he was also the one who phoned the score into The Times!)

As the UPI salesman in Indiana in the 1980s it was always amazing to note how many small local communities supported a daily newspaper and a local radio station. But read the newspaper, listen to the radio and it was obvious how they commercially prospered -- they covered mostly local or regional news and they emphasized that news with which all the family could identify – the schools.

And the news agencies understood that, too. In the US it was the state news wires that were the bread and butter of media subscribers. Back in the ‘80s, if the UPI Indiana wire did not have complete high school sports coverage then it would not have sold. And that comes from the guy who sold it!

Indeed, one reason why Reuters declined to buy UPI when it had the opportunity in the 1980s – and thus gave up on becoming a true competitor to the Associated Press on its own turf – was because Reuters feared it would become mired in what it called parochial coverage. And it would have been.

Ask a property salesman what the three most important criteria are for a sale and the answer will be, “location, location, location.” Ask a regional or local newspaper editor today what the three criteria are for stopping the circulation slide and getting the young, and women and the older men back to the newspaper, and the answer should  be “local, local, local.”

So have you answered the Harvard question yet? If your traditional media business did disappear tomorrow would people miss you? How you answer, and what you do about it, could well determine your future.