By: Rob Tornoe
If you’ve ever driven along the busy Northeast corridor, no doubt you’ve been stuck in traffic on the 10-mile stretch of Interstate 95 in tiny Delaware. While you were sitting motionless, you might have caught a glimpse of the offices of The News Journal, Gannett’s 100,000-plus circulation daily that serves as Delaware’s only statewide news source.
The News Journal was one of the first properties to initiate Gannett’s all-access business model, launching its paywall in February 2012. After facing some initial blowback from a vocal minority angered about having to pay for the news online, the News Journal has seen tremendous growth in circulation revenue with a minimal decline in overall pageviews. It has also signed up more than 2,000 digital-only subscribers with little to no marketing, which, according to executive editor David Ledford, is a testament to the newspaper’s reputation as the state’s watchdog.
“Watchdog reporting has always been our commitment,” Ledford said, “but it’s clear that readers value it so much they’re willing to support it with their wallets.”
The success at the News Journal is a microcosm of Gannett as a whole. The all-access paywall strategy the company rolled out in 2012, paired with tremendous gains in broadcast advertising revenue thanks to the Olympics and the presidential election, have helped Gannett achieve its first year-over-year increase in company-wide revenue since 2006.
“Our strategy is gaining momentum, our investments are bearing fruit and we are achieving the results we expected,” said Gannett president and chief executive officer Gracia Martore. “I am pleased with the progress thus far, but, again, we are only in the early innings.”
Circulation revenue way up
During 2012, Gannett introduced paywalls across all 81 properties in its U.S. community newspaper division (USA Today is not a part of that division and continues to be free online). Some came online early, like the News Journal’s paywall, which was activated in February. Others, like the Arizona Republic and Indianapolis Star, didn’t become active until September.
The overall effect was a dramatic increase in circulation revenue, which rose 17 percent in the fourth quarter alone, when paywalls were in place across all properties. It also marks the third consecutive quarter of circulation revenue growth.
“We feel that we have a good model,” said Gannett digital news chief Maribel Perez Wadsworth. “We’ve had great retention of our existing customers, good inroads in acquisition of digital subscribers, and we have what we feel is a winning strategy.”
But this added revenue did come at a cost. An increase in subscription rates by an average of 25 percent caused circulation volume to drop 11 percent. It appears many customers simply rejected the higher cost. However, Martore said the decrease was about half of what they projected.
At last year’s Newspaper Association of America mediaXchange conference, Gannett community newspaper president Bob Dickey predicted the company’s paid digital subscriptions would be worth $100 million by 2013.
Ken Doctor, the news industry analyst behind the popular Newsonomics blog, said he thinks the addition of 250,000–300,000 digital-only subscribers by the end of 2013 is possible, given the number of unique visitors currently taking advantage of Gannett’s many properties.
But Doctor also said the number of subscribers isn’t all that important.
“The number that is important is circulation revenue,” Doctor said. “The money isn’t mainly coming from digital-only subscriptions; it’s coming mainly from going to print subscriptions and increasing the pricing.”
If you look at the numbers, the majority of circulation revenue growth came in the form of increased subscription costs to current subscribers. Essentially, Gannett raised the price for current print subscribers while giving them free access to the news in any form they want — print, Web, or mobile. What’s more, Dickey said there was no evidence that a significant number of people dropped their seven-day-a-week print subscription as a result of the rate hike, even though four-day or Sunday-only options were available that would still allow them digital access.
Doctor said because of that level of loyalty among readers, there is plenty of room to increase the cost for current print subscribers moving forward, a sentiment echoed by Wadsworth.
“I don’t know of many consumer products that keep products static in perpetuity,” Wadsworth said. “Our plan is to be evaluating it regularly and keeping up with the full pricing potential and the value of our products.”
Circulation and the company’s all-access subscription model weren’t the only sources of digital revenue growth for Gannett.
Digital operating revenues grew to $187 million in 2012, pushed mainly by revenue growth at job site CareerBuilder. Across the entire company, digital revenue was up 29 percent year-over-year and accounted for a quarter of the company’s total revenue.
One thing Gannett is banking on is Gannett Digital Marketing Services, which allows the company to offer local businesses a one-stop shop of marketing services ranging from digital ad production to search engine optimization and social media marketing. And most of it can be done at the local level, with small businesses that know and trust their local newspaper properties.
“We have deep local market knowledge,” Martore said. “We are a known and trusted media partner, and through our digital marketing services business we offer a broad suite of digital products and services to these local businesses.”
All told, Gannett expects this digital marketing arm of its business to generate $275 million to $350 million in annual revenue by 2015 and has supported its growth with key acquisitions, such as social media tech companies Ripple6 and BLiNQ, and digital circular company ShopLocal.
While Gannett’s success story with paywalls seems to point to a revenue-bolstering trend, a large part of Gannett’s success in 2012 was based on two items it won’t see in 2013: the Olympics and the presidential election.
Revenue growth at Gannett’s 23 television stations was up a staggering 46 percent. The Supreme Court’s 2010 Citizens United ruling opened the campaign-spending floodgates for independent corporations and unions, and both President Barack Obama and Republican challenger Mitt Romney benefited from millions of dollars in private expenditures. Most of that spending went to television ad buys, ironic considering most of Gannett’s opinion page editors are against the type of unlimited campaign donations and spending from which the chain so greatly benefited. Campaign spending at Gannett TV stations weighed in at $91.2 million in the fourth quarter alone.
“During the fourth quarter and for the full year, our broadcasting business delivered record revenue and profitability,” Martore said. “Our television stations significantly increased market share this year, reflecting the value of their content and format in gaining new viewers while retaining their loyal base.”
The Olympics also played a large role in that revenue spike. Roughly 12 of Gannett’s 23 television stations are NBC affiliates, which benefited greatly from the revenue boost from 2012’s London Olympics. By the same token, Gannett’s first quarter results in 2013 will be hampered somewhat by the shift of the Super Bowl to CBS, where Gannett has just six CBS TV stations.
Jim Hopkins, a former USA Today editor who runs the popular Gannett Blog (no official affiliation with the company), said that what was good for Gannett in 2012 won’t be so good in 2013.
“Even if car dealers and furniture dealers increase their ad spending in 2013, it’s not going to be anywhere near what came from political and Olympics (advertising) in 2012,” Hopkins said.
Gannett forecasts that total television revenue will grow by high-single digits in the first quarter of 2013, but that’s still a slowdown from the 45.7 percent growth the company saw in the fourth quarter of 2012. Hopkins said the trouble will come for Gannett in the third quarter of 2013.
“Starting around this summer, Gannett is going to start experiencing bad comps (comparisons),” Hopkins predicted. “Which means come third quarter, their numbers when compared against the numbers of 2012 aren’t going to look so good.”
Print ad declines narrow
Continuing a well-known trend, Gannett’s print advertising revenue — the company’s single largest source of revenue — fell 2 percent in the fourth quarter of 2012 to $658 million, down from $671 million a year ago. However, this was the smallest print advertising decline for Gannett over its last eight quarters. For the year, print advertising revenue was down 6.2 percent to $2.36 billion.
Gannett is far from alone in this decline. According to the NAA, print advertising revenue for all U.S. newspapers dropped in the third quarter of 2012 by 6.4 percent to $4.5 billion. “A lot of the strength (in the fourth) quarter was from television, and that was really driven by political advertising, which won’t be around next year,” Doug Arthur, a media analyst with Evercore Partners, told Bloomberg News. “Newspaper profitability was a little disappointing relative to trends and expectations.”
Gannett seems to be weathering the decline in print advertising better than many of its competitors and is growing revenue along multiple digital streams, rather than depending on digital ad sales to make up for the loss. Still, considering publishing ad revenues make up the largest portion of the company’s total revenue, there is room for concern if the company can’t grow other areas of digital growth to match or exceed the loss in print advertising revenue. The shift toward digital is most noticeable in the percent of the company’s revenue coming from print advertising and circulation. According to numbers provided by Hopkins, print advertising and circulation accounted for 83 percent of Gannett’s total revenue back in 2006. In 2012, print advertising and circulation accounted for only 65 percent of total revenue.
USA Today continues to be the company’s most popular news site, averaging more than 26 million unique visitors a month. USA Today also has one of the top news apps, with 17.4 million downloads across mobile devices. But both the website and app are free, and it’s been a challenge for Gannett to monetize the USA Today brand outside of national print advertising, a market that is quickly moving toward digital opportunities that can reach customers in a more targeted way than USA Today’s display print ads can provide.
Unlike The New York Times or The Wall Street Journal, USA Today won’t be propping up a paywall anytime soon.
“I don’t want to charge (online) for USA Today right now; I don’t think it is the right thing to do, and there is so much national news out there,” said Larry Kramer, president and publisher of USA Today, who joined Gannett in May 2012. “I think we would lose more than we would gain.”
One thing that has been a success for Gannett’s beleaguered core product is its unique website, redesigned in 2012 to give users a more tablet-like experience. According to Wadsworth, the site is getting high marks from readers, and plans are under way to roll out a similar template across all of Gannett’s newspaper websites.
“While it may not be exactly what you see on USA Today’s template, I wouldn’t be surprised if it’s close,” Wadsworth said.
One way the company is attempting to leverage USA Today’s popularity into a new revenue stream is USA Today Sports Media Group. Established in August 2010 and run as a separate entity, the group pools all the sports content created by USA Today with all the local content produced by Gannett’s community newspaper properties and 23 broadcast stations, as well as digital properties such as highschoolsports.net and mmajunkie.com. The group also made strategic acquisitions to help grow revenue in recent years, purchasing Big Lead Sports in January 2012 and sports photography syndicate US Presswire, which became USA Today Sports Images in December 2012.
All this in the hopes of leveraging a huge audience, nearly 23 million unique monthly users, to advertisers looking to reach sports enthusiasts at scale.
Gannett predicts that by 2015, USA Today Sports Media Group will be among the top five sports media companies in the country with more than $300 million in revenue, an expectation that Hopkins called “jaw-dropping.”
“I can think of only three (Gannett) properties that generate more than $300 million in annual revenue,” Hopkins said. “USA Today itself, the Arizona Republic, and CareerBuilder. And that’s counting all CareerBuilder’s revenue, even though Gannett only owns 53 percent of the company.” Doctor said Gannett’s drive toward a third major revenue source, whether it’s USA Today Sports Media Group or its digital marketing services, will determine the company’s long-term success.
“If you’ve got ad revenue declines and circulation revenue increases meeting at zero, you’re still going to need a third or fourth strong business to get to the goal of sustainable revenue growth,” Doctor said. “They’ve got to find that top-line revenue growth, and that’s the key to Gannett.”
Rob Tornoe is a cartoonist and columnist for Editor & Publisher and can be reached at [email protected].