Gannett (GCI) Spinoff: Death Knell For Print Newspapers Or Sensible Separation?

It would make a great headline to shout from a street corner -- if only there were any newsboys left to shout it: Gannett Co. Inc. (NYSE:GCI), owner of USA Today and more than 80 local newspapers, wants to get out of the newspaper business. The McLean, Virginia, company said Tuesday it plans to spin off its publishing segment into a separately traded public company.

The move is expected to shield Gannett’s robust television and digital business from the sagging fortunes of its print properties. It follows in the now-familiar footsteps of numerous media conglomerates, most recently the Tribune Co. (NYSE:TPUB), Time Warner Inc. (NYSE:TWX) and Rupert Murdoch’s 21st Century Inc. (NASDAQ:FOXA).

In a statement, Gracia Martore, Gannett’s president and chief executive, attempted to paint the separation in the best possible light, referring to “bold actions” that will sharpen management focus and create a stronger growth profile for each company. But the rhetoric fooled pretty much no one.

“This is another death knell for newspapers,” Ken Wisnefski, founder of the Internet marketing firm WebiMax, told International Business Times. “The drop in newspaper print editions has obviously been well-documented, but I think this move -- when you’re talking about a publication like USA Today -- it really shows the focus, and the need to build upon digital assets as opposed to traditional media.”

Liang Feng, an analyst with Morningstar, was a little more optimistic, saying the separation makes sense for two industries -- print and television -- that have very different needs. “There is some hope that, as a more focused company, the publishing operations will be able to perform better that way,” he said. “Gannett’s publishing operations are still profitable, although like the rest of the industry, they’re facing significant headwinds.”

That the separation was announced at the height of the media industry’s earnings season helps put the future of Gannett’s publishing business into perspective -- whatever future is left, that is. Everywhere you look, print-based properties are showing signs of buckling under the weight of their century-old business models. This includes Gannett’s own publishing segment, which reported a 5.7 percent decline in advertising revenue during the company’s most recent quarterly earnings.

It was a similar story at the New York Times Co. (NYSE:NYT), which last week reported a 6.6 percent decline in print advertising and a staggering 55 percent drop in net income. And the bad news continued Tuesday with the first-ever earnings report from Time Inc. (NYSE:TIME), the magazine company that spun off from Time Warner earlier this year. Hit with declines in both subscription and newsstand sales, Time’s quarterly revenue fell 1.6 percent.

Taken together, the companies’ declining fortunes are enough to dampen the wave of optimism that swept through the industry last year when it looked as if online paywalls might be the savior for which newspaper companies were looking. The New York Times, Wall Street Journal and Gannett have all ramped up their paywall strategies in the last few years, but the added revenue stream has not been enough to make up for the decline of print advertising, which now generates only 45 percent of what it did eight years ago, according to the most recent “State of the Media” report from Pew Research.

As readers have migrated from paper to screens in the last 25 years, marketers have done their part to try to convince advertisers to follow, but the results have been mixed at best. For one thing, most consumers consider online ads “annoying,” a 2012 study from Adobe Systems Inc. (NASDAQ:ADBE) found. And who can blame them? Pop-ups, autoplay videos, expandable banners -- these are distractions, not diversions.

And things aren’t much better on mobile devices: One study found some 40 percent of mobile ads are either clicked by fraud or accident, GigaOM reported. Then there’s native advertising -- sponsored content dressed up to look like editorial content. Touted by marketers as long-awaited messiah of advertising, the segment mushroomed 77 percent last year to become a $2.4 billion industry. And yet no one is sure if native ads even work. A study from Chartbeat found only 24 percent of readers scroll through sponsored posts, and while leaner, digital-native companies like BuzzFeed are probably better at achieving advertiser-sponsored virality, the Old Guard is left to navigate unfamiliar territory with one hand while maximizing its dwindling-but-still-profitable print products with the other.

Gannett did not say when it expects its separation to be complete. The publishing company will retain the name Gannett, while the television and digital business will take a new, yet-to-be decided name. Despite the many challenges ahead, Feng said investors may still consider the spun-off Gannett a worthy stock if the price is right.

“From an investor’s perspective, when you’re looking at the newspaper side of the business, it’s all about the price that you pay, and how much cash flow it’s generating,” he said. “You’re obviously not expecting that much growth.”

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