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WIKI ANALYSIS
Gannett (NYSE:GCI) is a media company that publishes USA Today, the nation's largest newspaper by circulation, along with 101 other daily newspapers in the US and UK. Although the company owns various Web sites and 23 television stations, newspaper advertising accounted for two-thirds of its revenue in 2007.
Gannett's circulation numbers and attendant advertising revenues have been declining - a trend shared by many of the company's competitors, who are losing ad dollars to the internet and other media. Classified ads, which made up 40% of Gannett's print advertising revenues in 2007, are at particular risk from online job boards and websites such as Craigslist. Gannett's advertising revenues declined 6% from 2006 to 2007, while internet advertising grew at double digit percentage during the same period.[1] Additionally, GCI's print advertising decreased 22.7% during Q4 2008 because of slumping advertising demand amidst the economic downturn as well as the shift of advertisers to the Internet.[2]
In an attempt to capitalize on internet advertising revenue, Gannett has built websites for its publications, and has acquired, built, or partnered with a number of websites. In 2006, Gannett generated over $400 million in revenue from online ad sales, nearly twice the online revenues of The New York Times Company (NYT) and Dow Jones (DJ). However, Gannett is a much larger company, and these online sales represent only 5% of its total revenue, compared to 10% and 8% for Dow Jones and The New York Times.
Despite Gannett's national footprint, most of the company's advertising revenue is local, and therefore subject to local economic conditions in the markets in which Gannett operates. In 2007, local and classified advertising made up 84% of Gannett's total print advertising revenues.[3]
Business Overview
Gannett is a media conglomerate that operates three businesses: publishing, digital, and broadcasting.[4] GCI's publishing division, which includes its primary USA Today newspaper, is the company's largest segment in terms of revenue as it accounts for 84.4% of the company's 2008 revenue.[5] In 2008, GCI earned $6.8 billion in revenue.[5]
Publishing (84.4% of Revenue)
Gannett is the largest newspaper publisher in the U.S. by circulation.[6] GCI publishes 85 daily newspapers including the USA Today and about 850 non-daily publications as well as affiliated websites.[6] GCI also owns publication operations in the United Kingdom, with 17 daily newspapers and more than 200 weekly publications.[6] The company's U.S. publications reach about 14 million readers every weekday and 12.6 million readers every Sunday.[7]
The publishing segment depends greatly on advertising revenues to run its businesses- advertising represented 73% of the segment's 2008 revenue.[8] GCI's publications also earn revenue through circuIation fees and commercial printing.[8] 2008, GCI's publications division earned $5.7 billion in revenue, a 13% drop from 2007, primarily because of a 16% drop in advertising sales in 2008.[8] Moving forward, the company expects that its publication revenues will be further threatened by the global recession in 2009 as advertisers continue to slash advertising expenditures.[8]
Digital (4.2% of Revenue)
In 2008, GCI created its digital segment, which includes its online businesses like CareerBuilder.com and ShopLocal.[9] CareerBuilder.com is primarily based in North America- the website is the largest online recruitment and career advancement source for employees, recruiters, and job seekers.[10] GCI's digital segment earned $281 million in revenue in 2008.[9] In 2009, the company expects its digital business to grow following expansion of its CareerBuilder.com website to Europe and Asia.[10]
Broadcasting (11.4% of Revenue)
GCI's broadcasting segment includes 23 television stations and affiliated websites in markets with a total of 20.8 million households reaching 18% of the U.S. population.[10] Like its other segments, GCI's broadcasting business earns revenue primarily through advertising sales.[10] In 2008, the broadcasting segment earned $773 million in revenue, a 2% decrease from a year earlier because of drops in advertising sales.[10] However, the segment's online revenues increased by 13% in 2008 as the company attempts to transition its television broadcasting to the Internet.[10] In 2009, GCI expects its broadcasting revenue to decline further because of a weakening advertising market.[10]
Business Drivers
Advertising
Gannet generates most of its revenue from advertising, which includes both print and online channels. Like most newspaper companies, Gannett has suffered declines in print advertising revenue due in large part to the increasing popularity of the Internet and online advertising. Gannett has responded to the challenges of the print industry by increasing its own online presence. Despite rapid growth in its online advertising revenue, overall advertising declined by 6.3% from 2006 to 2007.
Print Advertising
Several areas of print advertising have been particularly affected by economic conditions and the shift towards the Internet. Local papers' real estate classified ad sales decreased by 11.2% in the first quarter of 2007 compared to the same time last year. This precipitous decline can be attributed both to the weakening real estate market as well as to the increasing availability of advertising real estate online. A major reason for the shift of advertising from print to online is the ability to target a specific audience on the Internet and measure activity. Newspaper are more limited in their targeting abilities, although Gannett has made efforts to better understand its offline reader audience. In Q4 2008, GCI's print advertising decreased 22.7% as a result of both weaker advertising spending and a move towards Internet Advertising.[2]
Online Advertising
A company's online advertising revenue is very much dependent on its ability to attract traffic. Gannett has worked to increase its online competitiveness and created the Gannett Digital group in 2006 to focus on these efforts. Its online initiatives have focused around developing Web sites for its existing newspapers and television networks. In theory, the company will be able to leverage its existing user base while gaining a better understanding of its audience through registration and measuring behavior online. Online revenue for the Web sites of its local newspapers increased by 24% in 2006.
In addition to its efforts to improve the online components of its existing publications, Gannett has also made strategic partnerships to bring in revenue from other Web sites. Specifically, Gannett has invested jointly in these advertising Web sites.
- Careerbuilder: a job search Web site, which draws in employer advertisers and is now the leading Web site of its sort, having surpassed Monster.com.
- Point Roll: a site to provide advertisers with media for their ads.
- Classified Ventures: a web site for automobile and real estate classified advertising.
- Shearmanstravel: a website for travel planning.
- Topix.net: a news Web site, which brings together a variety of news services.
- ShopLocal: a broad website for local, regional and national advertisers..
In August 2006, Gannett increased its investment in CareerBuilder, ShopLocal and Topix.net by $155 million, and the company currently holds a 43% equity interest in CareerBuilder and ShopLocal and a 32% interest in Topix.net.
Gannett efforts have significantly increased its penetration into the online channel. As of December 2005, Gannett's sites attracted almost 21 million unique visitors, or about 13.5% of the total Internet audience at the time. In 2006, Gannett averaged more than 45 million page views per month.
Circulation
Though the age of the Internet has diminished the importance of the circulation of print newspapers, it nevertheless remains an essential factor to newspapers’ profitability. This includes both newspapers sold on newsstands as well as subscriptions. USA Today is the paid newspaper with the largest circulation in the country and Gannett has the highest total circulation numbers of any newspaper company.
Similar to the decline in print advertising, Gannett has suffered from ongoing decreases in circulation. The company's average weekday circulation fell by over 6% from 2006 to 2007.
Broadcasting
In 2007, Gannett's 23 television networks reached about 18% of American homes, and revenue from broadcasting comprised about 11% of the company's total revenue. [12]
Gannett earns the majority of broadcast revenue through local and national advertising and to a lesser extent. Several other revenue sources include:
- Ads on the stations' Web sites
- Broadcasting fees paid by cable and satellite companies
- Captivate, a service which projects ads on screens in office and hotel elevators
Broadcast revenues increased by 16% between 2005 and 2006 and online revenue from the network websites increased by 50% during this time period. However, a large part of this growth can be attributed to the 2006 Winter Olympics and may not reflect on the company's long-term broadcasting success. Subsequently, the company's revenue in this area declined in 2007.
U.K. Newsquest
Gannett operates in the United Kingdom through its Newsquest division, which is that country's second largest regional newspaper company and includes approximately 300 publications. In 2007, the division generated about $1.09 billion in revenue--around 16% of the company's overall revenue. Like its American counterpart, Newsquest depends heavily on advertising--86% of revenue--and to a lesser extent, circulation--14% of revenue.
Newsquest has made efforts to increase its online offerings much in the same way as Gannett's domestic operations. The company has focused on improving the content for its newspaper Web sites (including adding video content) and the Newsquest reached around 3.3 million unique viewers in 2006. Newsquest also owns 25% of Fish4, the UK's most popular employment recruiting Web site.
Printing Costs
Newsprint prices are a significant cost for any newspaper, and consolidation among suppliers has increased prices for newsprint - Gannett's costs went up 9% from 2005 to 2006.
Gannett has been more aggressive than its competitors to minimize these costs, however. In 2007, the company reduced the width of all but one of it presses, and the company says it plans additional page size reductions for 30 newspapers in 2008.[13] The company has started using cheaper, lighter weight newsprint for some of its publications.
Competition
Gannett's competition is twofold: other newspapers chains, and increasingly, Internet properties. In the chart below depicting advertising spend, newspapers saw a compound annual growth rate of -1% from 2000 to 2006 while Internet advertising grew by 12% annually during that same period.
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Gannett's national print competitors include New York Times Company (NYT)--publishers of the iconic namesake newspaper--and Dow Jones (DJ)--publishers of the Wall Street Journal. It also competes with countless local newspapers such as The Washington Post, in different geographies.
| Company | Circulation, MM | % Internet Revenue | Revenue, $MM |
| Gannett | 7.9 | 5.0% | 8,033 |
| Dow Jones | 2.8 | 10.2% | 2,036 |
| New York Times | 2.3 | 8.3% | 3,290 |
Source: Company Reports.
Online
One reason the Internet has dramatically affected the newspaper industry is because it has become cheaper to reach audiences. In 2006, the average newspaper advertising CPM (or cost per thousand viewers) was around $25, while the comparable metric for websites was around $5. In addition, Internet advertising companies such as Google (GOOG) and Yahoo! (YHOO) have implemented performance-based business models allowing advertisers to pay only when a viewer activates a desirable action (such as clicking).
Gannett has responded to serious Internet competition for advertising revenue with its joint investments in Web sites and development of online sites around its existing offline properties. In 2006, Gannett's Internet revenue rose by 24 percent but it trails both Dow Jones and New York Times in terms of the portion of revenue coming from online.
Gannett has recently launched a new effort at uniting its print, online and broadcast holdings. Called the Information Center [1], it is envisioned as a 24-hour news desk that streamlines the process of reporting and editing. Reporters will be asked to have print, online and television skills and editors will be expected to be able to shape multi-platform content. This is broadly conceived as a way to take Gannett into the information and Internet age.
References
- ↑ Gannett 2007 10-K page 25.
- ↑ 2.0 2.1 "Gannett 4Q earnings fall on weak ad revenue" The Associated Press 1/30/2009
- ↑ Gannett 2007 10-K page 25
- ↑ GCI 2008 10-K, Item 1, pg. 4
- ↑ 5.0 5.1 GCI 2008 10-K, pg. 67
- ↑ 6.0 6.1 6.2
- ↑ GCI 2008 10-K, Item 1, pg. 5
- ↑ 8.0 8.1 8.2 8.3 GCI 2008 10-K, Item 7, pg. 30
- ↑ 9.0 9.1 GCI 2008 10-K, Item 7, pg. 32
- ↑ 10.0 10.1 10.2 10.3 10.4 10.5 10.6 GCI 2008 10-K, Item 7, pg. 33
- ↑ GCI 2008 10-K, pg. 66
- ↑ GCI 2007 10-K, Item 1, page 9
- ↑ Gannett 2007 10-K page 8
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