Gannett recorded a financially regrettable second quarterthe company reported Thursday: major revenue streams dropped, costs increased and a loss of $54 million on revenue of $749 million.
Strong cost-cutting moves are taking place. Media Division Chief Maribel Perez Wadsworth, in a memo to staff, warned of impending layoffs. “In the coming days,” he wrote, “…we will be making necessary but painful staff reductions, eliminating some open positions and roles that will affect valued colleagues.”
Gannett shares, already down about 45% for the year, fell another 28.5% by mid-morning, indicating that Wall Street wasn’t expecting such bad results.
Chief Executive Officer Mike Reed said on a conference call with analysts that the company’s long-term strategy of developing paid digital subscriptions and digital advertising remains sound. But he made no effort to sugarcoat what happened last quarter and is expected for the rest of 2022.
Among the negative factors he cited:
Digital advertising fell short of expectations as companies cut back their hours. Programmatic advertising, priced according to digital traffic rather than subscriptions, was a particular sticking point. Both print circulation and print advertising were off more than expected. Reed said that, in effect, projected losses in the next few years have already been pushed forward to 2022. With consumers pinched, the company is seeing some customers drop out of print because of the high converted into the subscription price. On the cost side, labor shortages and expenses are rising, making it increasingly difficult to deliver printing papers to your home. The cost of newsprint has increased by 31% compared to a year ago. Overall costs showed a small year-on-year increase. Inflationary pressures, economic uncertainty and a possible recession are forecast for the rest of the year, so the operating climate is not expected to improve in the near term.
Among the positives, Reed cited continued growth in the number of paid digital-only subscriptions and the revenue they generate, both up 35% year-on-year. And Gannett’s digital marketing services subsidiary continues to grow.
However, Reed also acknowledged (as he had heard from an informant) that he did exclusive ballyhooed sports betting association with Germany-based Tipico, announced a year ago, has not worked.
Tipico is only licensed to accept wagers on games in two states, Reed said, and the agreement has been amended to allow ventures with other sportsbook companies.
In addition to operating cuts, Reed said, the company hopes to accelerate the sale of real estate assets for the rest of the year and apply the proceeds to pay down debt.
Gannett is one of the few regional newspaper companies (the others being Lee and the Dallas Morning News) that remain public and therefore required to report financial results.
I wondered how representative their issues are of the industry as a whole and asked David Chavern, CEO of the News/Media Alliance, to comment. He answered:
“Advertising is very dependent on GDP, and you’re seeing the effects of our economic slowdown across the media landscape. News publishers are by no means alone in this. I think, however, that we’re better placed than many because the industry already it has strong cost discipline. I haven’t heard anyone panicking. What you’re mainly seeing is an acceleration of the pre-existing transition from print to digital.
“Long term, I think people in the industry still feel good about having more readers than ever. You can build solid businesses around that. In fact, I think we really are come in from many other legacy media industries to figure out how to build successful digital content businesses.
“We need better terms of trade with our dominant digital retailers (especially Google). … There also needs to be things like more evolution of digital product offerings. But at the end of the day, I still feel a lot of focus and energy in the industry”.
My opinion is less optimistic. Except at major national titles like the New York Times, new digital revenue has yet to pick up pace to fully offset print revenue losses. So the last thing the industry needs, after the economic shock of COVID, is another round of revenue impacts and cost pressure.Except for hedge funds, investors have largely lost interest in the regional part of the newspaper industry. In the section of Gannett’s Tuesday conference call set aside for analyst questions, there were none.
The company publishes USA Today and more than 200 regional newspapers. Ironically, these papers just had big hits, as Reed pointed out: The Austin American-Statesman publishing a video about law enforcement delays in the Uvalde shooting and its Columbus and Indianapolis outlets documenting the case of a 10-year-old rape victim who needed to go out of state for an abortion.