New Media Investment Group and Gannett finalized their merger Tuesday, putting top executives in position to move ahead with plans they believe will transform the new company’s local and national news brands, including USA TODAY, into a reinvented digital media powerhouse.
The merger creates the largest U.S. media company by print circulation and one that will vie for the nation’s biggest online news and information audience.
The new company’s CEOs – Mike Reed, who will lead the overall public entity under the name Gannett Co., and Paul Bascobert, who will lead an operating company called Gannett Media Corp. – told USA TODAY in a joint interview that they have a compelling opportunity to reinvent the business and expand digital revenue. Both said the company will continue to focus on its journalistic mission.
“Our mission is to connect, protect and celebrate our local communities,” Bascobert said. “Great journalism really is the core of that mission. The question really becomes, what’s the sustainable and exciting business model that powers that mission?”
The company faces significant challenges – namely how to counteract the news industry’s severe print revenue decline with new sources of digital dollars.
The more than 250 daily publications that are part of the new Gannett – such as the Detroit Free Press, The Columbus Dispatch, The Arizona Republic and the Austin American-Statesman – and several hundred weekly publications have cultivated online brands in local markets. Now, Gannett needs to find ways to turn those connections into more revenue.
Outlining a strategy
Bascobert outlined a strategy based on lead generation in local markets – similar, he said, to the approach taken by home services site Angie’s List and Yelp, a reviews and directory service.
Need a plumber, for example? A Gannett publication could help you find one and then earn a fee for helping make that connection.
“This is really us beginning this pivot toward more of what I would call a software-based business model” rather than “an advertising-based business model,” said Bascobert, who pursued a similar model while president of XO Group, owner of wedding planning site The Knot.
His vision would represent a significant overhaul. In the first nine months of 2019, more than 51% of the combined company’s revenue came from advertising and marketing services.
But a wholesale reinvention is necessary because of “the collapse of the newspaper advertising model,” which is “the most fundamental business problem facing local news,” said Jim Friedlich, CEO of the Lenfest Institute for Journalism, a nonprofit that promotes local journalism innovation and owns The Philadelphia Inquirer.
The new Gannett, which offers digital marketing services through brands such as ThriveHive, ReachLocal and WordStream, will need to continue down the path of becoming a sophisticated digital marketing provider, Friedlich said.
When local businesses need help reaching potential customers, Gannett’s representatives need to be able to help them. Otherwise, they’ll go to Google, Facebook, other online giants or other service providers.
“Building a new local marketplace business at scale requires a long-term commitment of expertise and financial resources,” Friedlich said in an email. “None of this will be easy,” he added, but if Gannett can generate sizable revenue from local marketers, “it will benefit not only their news properties but the industry as a whole.”
Shedding overlapping costs
In the short term, though, the success of the merger is linked to the company’s plan to shed $275 million to $300 million in overlapping costs on an annual basis within 18 to 24 months. That’s crucial to paying off a $1.8 billion loan from private equity firm Apollo Global Management that New Media used to help finance the acquisition.
Those cost savings will come from a wide variety of areas, including corporate functions, news operations and what Reed called “centralized” services where there is significant duplication.
He said the overall cost savings goal is “very, very reachable,” in part because it’s only 7.5% to 8.5% of the combined company’s total revenue, compared with 10% to 15% in a typical corporate merger.
Concern about further cuts
Journalism advocates fear heavy-handed layoffs in already strapped newsrooms, which provide the content that drives readership, fuels digital ads and attracts paid subscriptions online and in print.
Jeff Gordon, a regional vice president for The NewsGuild, whose region represents journalists at four GateHouse newsrooms, expressed concern last week that the deal would lead to further stress on newsrooms that already have faced budget reductions. GateHouse, the operating division of New Media, ran the company’s publications.
“The obvious concern the Guild has expressed is all the debt incurred in the merger, which creates pressure to drive cash flow and could result in further cuts,” said Gordon, whose region includes Colorado, Illinois and other states in the Midwest and Great Plains.
Reed said he’s confident the company can achieve its cost-savings goals “without deep newsroom cuts.”
Bascobert said the new Gannett is “committed to delivering great quality journalism,” including investigative work and meaningful local reporting.
“Those are the things that people subscribe for, and we believe we deliver that,” he said.
Michael Silberman, senior vice president of strategy at subscription commerce and tech provider Piano, which has counted New Media as a client, said the new Gannett needs to cut unnecessary costs while investing in journalism to boost subscriptions.
In the third quarter, Gannett’s digital subscriptions rose 27% to 607,000 compared with the same period a year earlier. New Media’s subscriptions rose 65% to 217,000 over the same stretch.
“Our fundamental belief is that even in a small community there’s an opportunity to create value in terms of a subscription and get people to pay,” Silberman said in an interview last week before shareholders approved the merger. “In some ways, that’s the basis of the merger.”
As print circulation and advertising continue to decline across the industry, the future of physical newspapers is shrouded in doubt. But Bascobert said “print is a good business today” and generates profits for Gannett.
Could the company, which will be based in McLean, Virginia, cut unprofitable print days at some of its publications, as has been done elsewhere in the industry?
“We constantly look at different versions of frequency of delivery or alternative delivery methods, but at this point, it’s a good product,” Bascobert said. “There’s nothing we’re looking at right now to change any of those variables.”
Sarah Taddeo of the Rochester (N.Y.) Democrat & Chronicle contributed to this story.