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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 85 other daily newspapers in the U.S.[1] Additionally, GCI publishes 17 daily newspapers in the as well as more than 200 weekly newspapers in the United Kingdom, which together account for 84% of GCI's revenue.[2] Apart from publishing, Gannett also earns revenue through its digital and broadcasting segments.[1]
Gannett's circulation numbers and attendant advertising revenues have been declining - a trend shared by many of the company's competitors, who are losing advertising dollars to the internet and other media. This spells doom for Gannett's publications as 73% of GCI's publishing revenues are earned through advertising sales.[3] Classified ads, which accounted for 36% of Gannett's print advertising revenues in 2008, are at particular risk from online job boards and websites such as Craigslist.[3] Overall, GCI's publication advertising revenues dropped by 16% in 2008, spurring the segment's 13% overall decline.[3] In Q2 2009, advertising revenues fell 32% year-over-year, leading to the company's 18% drop in overall revenue during the quarter.[4]
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 like its CareerBuilder.com. The company's online advertising revenues increased by 72% in 2008 as the company continues to expand its online presence.[5] However, the company's declines in traditional print and broadcasting advertising revenue contributed to GCI's 9% decrease in overall revenue during 2008.[2]
Business Overview
Gannett is a media conglomerate that operates three businesses: publishing, digital, and broadcasting.[6] 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.[2] In 2008, GCI earned $6.8 billion in revenue.[2]
Publishing (84.4% of Revenue)
Gannett is the largest newspaper publisher in the U.S. by circulation.[1] GCI publishes 85 daily newspapers including its flaghship USA Today and about 850 non-daily publications as well as affiliated websites.[1] GCI also owns publication operations in the United Kingdom, with 17 daily newspapers and more than 200 weekly publications.[1] The company's U.S. publications reach about 14 million readers every weekday and 12.6 million readers every Sunday, with the USA Today reaching about 2.25 million readers daily.[7][8] In October of 2009, Gannett reported that USA Today was posting a 17% drop in circulation, the largest decline in its 27-year history. This drop is a direct result of the growth in online news and the struggles of the travel industry due to the economy's struggles, and should threaten the publication's number 1 position among U.S. dailies.[9]
The publishing segment depends greatly on advertising revenues to run its businesses- advertising represented 73% of the segment's 2008 revenue.[3] GCI's publications also earn revenue through circuIation fees and commercial printing.[3] 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.[3] 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.[3] In Q2 2009 for example, the company's ad woes contributed to a 25.8% drop in publishing revenue year-over-year.[4]
Digital (4.2% of Revenue)
In 2008, GCI created its digital segment, which includes its online businesses like CareerBuilder.com and ShopLocal.[10] 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.[11] GCI's digital segment earned $281 million in revenue in 2008.[10] In 2009, the company expects its digital business to grow following expansion of its CareerBuilder.com website to Europe and Asia.[11] In Q2 2009, for example, the digital segment earned $142.4 million in revenue compared to $20 million in Q2 2008- however, this figure is about 18.5% lower than pro forma estimates because of lower employment revenue from CareerBuilder.[4]
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.[11] Like its other segments, GCI's broadcasting business earns revenue primarily through advertising sales.[11] In 2008, the broadcasting segment earned $773 million in revenue, a 2% decrease from a year earlier because of drops in advertising sales.[11] However, the segment's online revenues increased by 13% in 2008 as the company attempts to transition its television broadcasting to the Internet.[11] In 2009, GCI expects its broadcasting revenue to decline further because of a weakening advertising market.[11] In Q2 2009, the revenue in the broadcasting segment declined 12.9% because of slumping ad sales.[4]
Financial Analysis
Gannett earned $6.8 billion in revenue in 2008, representing a 9% drop from 2007 because of weaker performance in its publishing and broadcasting divisions.[13] In particular, GCI's publishing segment decreased 13% in revenue in 2008 because of declines in advertising sales associated with the global economic crisis.[13]
GCI incurred operating expenses of $13.5 billion in 2008 primarily because one-time non-cash imparirment charges of $8.35 billion regarding some of the company's publications.[13] Operating expenses excluding the non-impairment charges declined 3% in 2008 representing lower newsprint expenses.[11] As a result of the non-cash impairment charges, GCI reported a net loss of $6.65 billion in 2008.[13] However, apart from these one-time costs, the company's net income still would have declined 27% during the year because of slumping revenues in its publishing and broadcasting divisions.[11]
In Q2 2009, advertising revenues fell 32% year-over-year, leading to the company's 18% drop in overall revenue during the quarter. However, the company's significant cost cutting initiatives during the first two quarters of 2009 helped the company beat the average earnings estimates of 37 cents per share- in Q2 the company earned 46 cents per share.[4]
Trends and Forces
Slumping Advertising Expenditures Leads to Lower Revenues
Gannet generates most of its revenue from advertising, which includes both print and online channels. For example, in 2008, GCI earned 73% of its publishing revenue from advertising sales.[3] 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, but is still failing to stem its decreases in advertising sales in its publishing and broadcasting businesses.
Several areas of print advertising have been particularly affected by economic conditions and the shift towards the Internet. GCI's publications rely primarily on automotive, retail, and classified advertising to earn revenue. In 2008, retail and classified advertising sales fell by 10% and 25%, respectively.[3] As a result, advertising revenue dropped 16% overall in the publishing segment.[3] Furthermore, Gannett's broadcasting revenue fell by 2% in 2008 because of slumping advertising expenditures.[10] Additionally, GCI's publishing ad revenue declined by 34% and broadcasting revenue decreased by 15.7% in Q1 2009, spurring a 60% drop in GCI's quarterly profit.[14] Moving forward, GCI expects that its publishing segment will be hit hard in 2009 as advertisers continue to cut their advertising expenditures because of the global recession.[3] In Q2 2009, advertising revenues fell 32% year-over-year, leading to the company's 18% drop in overall revenue during the quarter.
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. The number of visitors to GCI's websites rose 6.2% and revenues from online advertisements grew 72% in 2008[15] as the company seeks to expand its online presence.
Declining Circulation Compounds Revenue Woes
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, averaging about 6.6 million in daily paid circulation.[1]
Similar to the decline in advertising, Gannett has suffered from ongoing decreases in circulation as readers transition to the Internet for their news. In 2008 for example, GCI's newspaper circulation revenue declined by $36 million, or 3% from 2007.[16] Excluding sales of its flagship USA Today newspaper, circulation revenue decreased 6% during 2008.[16]
Vulnerable to Newsprint Prices
Newsprint prices are a significant cost for any newspaper, and consolidation among suppliers has increased prices for newsprint - Gannett's newsprint prices went up 9% in 2008.[13] 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.[17] Because of these measures, GCI reduced its consumption of newsprint by 16% in 2008, leading to an overall 9% decline in newsprint expenditures.[13] In 2009, GCI expects slight decreases in newsprint prices which should ease the pressure on their publishing operations.[13]
Competition
Gannett's competition is twofold: other newspapers chains, and increasingly, Internet websites. Gannett's national print competitors include New York Times Company (NYT)-publisher of the iconic namesake newspaper--and News Corporation (NWS)-publisher of the Wall Street Journal. It also competes with countless local newspapers such as the The Washington Post, and Hearst-Argyle Television (HTV)'s San Francisco Chronicle.
| Company | Total Revenue (Millions) | Advertising Revenue (Millions) | Average Weekday Circulation (Millions) |
| New York Times[18] | $2,948.9 | $1,759 | 1.03 |
| News Corporation (NWS) | $32,996[19] | $6,248 (Publishing Revenue)[20] | 1.7 (Wall Street Journal)[21] |
| Gannett (GCI) | $6,767.7 | $4,145.6 | 2.25 (USA Today) |
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References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5
- ↑ 2.0 2.1 2.2 2.3 GCI 2008 10-K, pg. 67
- ↑ 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 GCI 2008 10-K, Item 7, pg. 30
- ↑ 4.0 4.1 4.2 4.3 4.4 "Gannett Co., Inc. Reports Second Quarter Results" StreetInsider.com 7/15/2009
- ↑ GCI 2008 10-K, Item 1, pg. 10
- ↑ GCI 2008 10-K, Item 1, pg. 4
- ↑ GCI 2008 10-K, Item 1, pg. 5
- ↑ GCI 2008 10-K, Item 7, pg. 31
- ↑ ABC: USA Today has 17 percent drop in circulation
- ↑ 10.0 10.1 10.2 GCI 2008 10-K, Item 7, pg. 32
- ↑ 11.0 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 GCI 2008 10-K, Item 7, pg. 33
- ↑ 12.0 12.1 GCI 2008 10-K, pg. 66
- ↑ 13.0 13.1 13.2 13.3 13.4 13.5 13.6 GCI 2008 10-K, Item 7, pg. 25
- ↑ "Gannett profit tumbles on ad declines, shares up" Reuters.com 4/16/2009
- ↑ GCI 2008 10-K, Item 1, pg. 7
- ↑ 16.0 16.1 GCI 2008 10-K, Item 7, pg. 31
- ↑ Gannett 2007 10-K page 8
- ↑ NYT Wikinvest Page
- ↑ NWS 2008 10-K, Item 7, pg. 53
- ↑ NWS 2008 10-K, Item 7, pg. 56
- ↑ NWS 2008 10-K, Item 1, pg. 16
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