Gannett Co is expanding its DealChicken daily deals service, which will be in more than 50 cities by the end of year, as the top U.S. newspaper chain tries to capitalize on the online coupon craze.

The company is entering a crowded market dominated by Groupon and LivingSocial. There are also a host of other new entrants, including Google, Facebook and AT&T.

Gannett began the program in Phoenix in September and has expanded it to nine other markets, including St. Louis and Detroit.

So far, the company said the service has done well, since it already has a built-in local sales force for its newspaper and broadcast properties. Groupon, for instance, has spent heavily to shore up its sales force.

We have local boots on the ground in markets working with merchants creating a sustainable strategy, said Gannett Chief Digital Officer David Payne.

DealChicken is similar to other online daily deals. People sign up to get a daily email that alert them to specific discounted deals for area retailers or restaurants.

The discounts are then activated based on the number of subscribers who purchased the coupon. Gannett takes roughly half the revenue -- although it varies -- and gives the rest to the merchant.

The company also has an advantage in that it can back up deals with advertising on its TV stations and in the pages of its newspapers, said Peter Krasilovsky, vice president at research and consulting firm BIA/Kelsey.

Gannett needs to make sure the deals are fun and really master the social media aspect, he said.

Bret Pont, the owner of Hobe Meats in Phoenix, said the DealChicken special he ran about three months ago resulted in more customer retention than his Groupon promotion. Of the 1,700 people who bought a DealChicken discount, about 30 percent are repeat customers, he said.

A lot of Groupon customers are just looking for a one-time deal, Pont said.

With DealChicken, Gannett is trying to diversify its revenue base beyond print advertising. The publisher of USA Today and 81 other U.S. daily newspapers has been battered by a downturn that has been particularly tough on its industry.

In the second quarter, Gannett reported lower revenue and profit mainly because of an almost 7 percent drop in newspaper ad revenue.

DealChicken, said Gannett's Payne, is step one of many for the company to really start solving problems for local merchants.

(Reporting by Jennifer Saba; Editing by Lisa Von Ahn)

Marketing