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Gannett’s Belo buy: Q&A with analysts

As reported yesterday (13 June), Gannett Co. has nearly doubled its television business with its purchase of competitor Belo Corp. for $2.2 billion. The deal will expand Gannett stations’ reach to nearly a third of U.S. households.

by Nick Tjaardstra nick.tjaardstra@wan-ifra.org | June 14, 2013

Gannett owns USA Today and 81 other U.S. daily newspapers, as well as Newsquest in the U.K. Before the accquisition it owned 23 television stations. Belo owns and operates 20 television stations.

We asked three leading U.S.-based media analysts for their views of the acquisition. They are:

  • Ken Doctor, a consumer media analyst for Outsell, a US-based company that covers the global information industry.
  • Rick Edmonds, media business analyst for The Poynter Institute.
  • Alan Mutter, consultant to leading media and technology companies.
From left: Ken Doctor, Rick Edmonds, and Alan MutterFrom left: Ken Doctor, Rick Edmonds, and Alan Mutter

WAN-IFRA: What are the main advantages for Gannett in acquiring Belo – is this a good deal for Gannett?

Ken Doctor: Steadier operating income flow for next four years. Project through 2016, the golden fourth year for US broadcasters given both the Presidential/general elections and the Olympics, and Gannett just bought itself a more projectable stream of profit. Its $128 million in 2012 publishing operating income becomes iffier as print newspaper ad loss accelerates. Expect the industry as a whole to be down 9% (its 2012 print loss) or more. So Gannett needed more assured sources of income.

On the broadcast level, we’re seeing a consolidation of players as expense control becomes more important in a revenue-flattening time. Becoming the fourth largest company with a footprint in 21 of the top 25 markets gives it: 1) better ability to reduce corporate and some other overhead; 2) better national TV and digital sales coverage; 3) better ability to negotiate retransmissions fees from cable and satellite companies.

Rick Edmonds: Lots of consolidation among local broacast companies lately. Bigger is better since there can be savings by combining corporate functions, and broader reach helps sell more national ads. The big current plus is that larger companies have more clout in negotiating “retransmission fees” from cable operators. (The law changed a few years back from “must carry” but for free to requiring the stations be paid a fee as well). This has been a huge windfall for the business.

Alan Mutter: GCI is trying to de-emphasize the heavy concentration of newspapers in its portfolio, because it is a shrinking and increasingly unprofitable business and, therefore, bad for its stock. TV is comparatively more robust (for the time being) and helps balance the weakness of print.

WAN-IFRA: Gannett notes in its press release that it anticipates that “the transaction will generate approximately $175 million in annual run-rate synergies within three years after closing.” Does that amount sound reasonable to you?

Ken Doctor: It’s possible. Corporate overhead is the easiest part to take out, but that only gets Gannett part way. It is planning on higher retransmission fees, due to its scale, and that will be challenged as terrestrial TV gets tested by Barry Diller’s Aereo and other digital disruptors.

Rick Edmonds: I don’t really have an opinion on this one – but Gannett has a reputation, especially with Gracia Martore (a finance person) at the helm of only making financial promises it is confident it can keep.

Alan Mutter: I don’t know what they plan to do and really can’t comment.

WAN-IFRA: What effect, if any, do you expect this to have on Gannett’s newspapers? Does Gannett have much synergy between its current broadcast and newspaper holdings?

Ken Doctor: The synergies will be hard to achieve. Multi-platform, multi-media publishing sounds great, but has been tough for anyone to execute. The cultures and processes of newspapers and TV are so different that operating synergies have yet to be harnessed on any kind of meaningful scale. For the newspapers, the deal provides a little more time for their digital transition, buffered by profits in other parts of the business.

Rick Edmonds: Not a lot of synergy, though its digital ad/marketing products work on both newspaper and TV sites. As Ken Doctor and others are noting, this makes Gannett essentially a broadcasting company with some newspapers rather than vice versa. I suppose that there is also an outside chance that newspapers could be spun off into a separate company, but I would bet not.

Alan Mutter: There is little overlap between the two sides of the business, and each will continue to be operated as an independent profit center. If the TV acquisition did not work out as well as hoped, it is possible that newspapers would be tasked with saving more expenses to contribute more to the over-all bottom line. More likely, however, the TV stations would be on their own to meet their own sales and profit goals.

WAN-IFRA: Isn’t this investment a bit short-sighted, seeing as the broadcast television model is on its way to extinction?

Ken Doctor: Extinction is too strong a word. Broadcast is certainly mature, but has more staying power than newspapers at this point. I don’t look at it as a 20-year ROI, but a 3-5 year one, and that tells you something about the media timeline at this point.

Rick Edmonds: That’s conjectural. Local broadcasting is holding up well and likely to do so for another five years – which is about the outer limit of how far investors and Gannett management think ahead.

Alan Mutter: Yup. You took the words right out of my mouth.

(See also Ken Doctor’s blog post at http://newsonomics.com/gannett-now-a-broadcast-company-more-or-less.)

WAN-IFRA Senior Editor Brian Veseling assisted with this post.