The $1.5 billion acquisition by Gannett Co., Inc. (NYSE: GCI) of Belo Corp. (NYSE:BLC), announced on Thursday, could be considered the latest in broadcast expansion efforts by newspapers as they struggle to diversify and fend off falling revenues.
Gannett, which owns USA Today and many major local newspapers, hailed the deal as progress on its goal of becoming a “broadcast ‘Super Group,’” according to a company press release.
If the deal is approved by regulators, Gannett will become the fourth-largest owner of television stations affiliated with the major networks in the U.S., with a reach into a third of all U.S. households.
“No longer is Gannett a newspaper company with broadcast and digital assets,” media analyst Ken Doctor wrote in his Newsonomics blog. “It can now be thought of as a broadcast company with major newspaper and digital assets.”
Gannett forecast that, after the merger, its broadcast business will make up more than half of its gross earnings. The firm’s digital and broadcast arms together will contribute more than two thirds of these earnings, Gannett said.
According to its latest annual report, for 2012, revenues from Gannett’s publishing division fell 3 percent from 2011, while broadcast and digital revenues grew 25 percent and 19 percent.
Doctor cites additional figures, saying that Gannett’s newspaper operating income declined 23 percent in 2012, while broadcast grew 47 percent.
“So while a majority of its profits came last year from broadcast, its reliance on newspapers was seen as a liability,” Doctor wrote. “Hence, this deal.”
Joscelyn MacKay, a Morningstar media analyst, told the International Business Times that the deal makes sense as an easy strategic foray, since broadcast ad revenue far outstrips declining income from newspaper ads.
“I think it’s interesting, in a way, that different newspaper companies are diversifying away from their core print media business, which is a declining business,” MacKay said.
The Gannett deal is part of a wider trend of “rationalization” across newspaper companies, as they seek stable income and reorganize assets, Doctor wrote.
He cited Media General, Inc. (NYSE:MEG) and Tribune Company (OTCMKTS:TRBAA) as two former newspaper companies who quit the print business entirely and rebranded themselves as broadcast firms.
He also mentioned reorganizations at News Corp (NASDAQ:NWSA) and the E.W. Scripps Company (NYSE:SSP), designed to separate print, digital and broadcast holdings.
Belo, too, formerly owned the Dallas Morning News but chose to spin off its newspaper business in 2007, creating the A.H. Belo Corporation (NYSE:AHC), which saw a 4.6 decline in net operating revenue in 2012. Broadcaster Belo saw a 9.9 percent growth in net operating revenue in 2012, according to SEC filings.
Still, you could see Gannett’s move as merely combining print and broadcast assets, which is nothing new, investor and media specialist Hal Vogel, of Vogel Capital Management, said.
The New York Times, too, has bucked this trend by divesting its other businesses to refocus on its flagship paper, MacKay pointed out. She said that strategy works best when papers have a weighty reputation, like the Times, and may not fare so well for papers like USA Today or regional papers.
“Broadcast properties or assets and newspapers have long been combined,” Vogel said. “It’s an indication that there’s a need at Gannett for some diversification. ... Beyond that, I can’t see any major signal [for the media industry] coming from this.”
But Vogel added that tapping into broadcast revenues, particularly lucrative retransmission fees, is a common and smart strategy for struggling newspapers.
“It makes sense from that point of view,” said Vogel, who added that the easy sharing of content across TV, websites and newspapers is an important plus. “It’s a more efficient use of resources and expansion, and it’s a diversification to a degree against the decline of newspaper profitability.”
He warned, however, that the diversification comes with risks. Since broadcast operations also rely heavily on ad revenue, a media company doubles its exposure to volatile ad markets, suffering twice as much when they decline.
Nonetheless, both Gannett and Belo shareholders apparently welcomed the news. Gannett shares google.com/finance?q=gannett&ei=8CC6UbjdPLS70AGjuQE rose 33 percent, with Belo up by 27 percent following the news.
In an email to Gannett employees published by media expert Jim Romenesko, Gannett CEO Gracia Martore reminded employees that “this deal is about more than broadcast,” outlining Gannett’s new position as the largest U.S. employer of journalists.
Romenesko, too, has a few words to add.
“This is a move that print-hating Gannett shareholders have been waiting for -- and I see that the company’s shares are up 25 percent today on the news,” Romenesko wrote in an email to the IBTimes.
“How times have changed! In 1989, Knight Ridder got rid of all its TV holdings and focused on newspapers, thinking, of course, that that was a brilliant move at the time,” he wrote.