Millions of People Will Be Blindsided in 2022. Will You Be One of Them?

On December 7, Louis Navellier, Eric Fry & Luke Lango will reveal the major events that will rock the markets in 2022. Will your money be safe?

Tue, December 7 at 7:00PM ET

What’s Next for Gannett?

Media company Gannett (GCI) — which until yesterday was best known as the publisher of USA TODAY — has clearly signaled that it sees its future in television thanks to its $1.5 billion acquisition of Belo Corp. (BLC).

The acquisition will make the McLean, Va.-headquartered company the fourth-largest owner of network affiliate television stations, adding more than 20 locations in markets such as Houston, Portland and Phoenix.

It also was a celebrated one, sending GCI shares up 34% on Thursday, followed by a nearly 6% pullback as of this afternoon.

Indeed, Gannett CEO Gracia Martore told Bloomberg News that her company wants to transform itself into a “a more diversified multimedia company.” That will certainly happen — after the acquisition closes, Gannett will get two-thirds of its operating income from broadcasting. In 2012, that figure was 56%.

Given that financial profile, pressure from Wall Street is going to intensify to buy more television stations. Gannett might fine-tune its newspaper holdings, shedding some and adding others in markets where it holds television stations and websites. However, a wholesale exit from newspapers — which generated more than $1 billion in digital revenue last year — seems unlikely.

“They want to insulate themselves a bit more,” said Gordon Borrell, head of Borrell Associates, which tracks local advertising. “Newspapers are fairly stable and profitable businesses to be in. I don’t think they would jettison any of their papers unless they are going to trade newspapers in markets where they have television station.”

Interestingly, the Belo acquisition didn’t include Belo’s newspapers, which include the Dallas Morning News and Providence Journal and which are part of a separate company called A.H. Belo. It’s a good thing, too, since these papers have struggled for years and lost money in the most recent quarter.

Gannett might follow Belo’s lead and split its slow-growing papers from its faster-growing broadcast business. Rupert Murdoch’s News Corp (NWSA) media empire is going down this path as well. News Corp will become the publishing arm, while 20th Century Fox will be the home of cash cows such as Fox News Channel.

About the best Gannett can hope for its newspaper business is for things to be less bad. Right now, though, that’s not a crazy hope.

Print remains a huge business and is proving to be surprisingly resilient. It’s even attracting buyers such as Warren Buffett and potentially the Koch Brothers.

Total industry revenue was $38.6 billion last year, according to data from the Newspaper Association of America. Given the state of the economy, that performance isn’t too bad. The industry is lessening its dependence on print, albeit at a painfully slow rate. Newspaper revenue dropped 2% last year to $38.6 billion, according to the Newspaper Association of America. About 49% of that revenue — $18.9 billion — came from print advertising. A year earlier, print ads accounted for 52% of total industry revenue.

Still, television is a much better bet for Gannett than newspapers. During the last quarter, Gannett’s broadcasting business generated $191.6 million in revenue, an improvement of 8.5%, fueled by double-digit gains in retransmission fees. Operating income rose 15.2% to $83.7 million. Meanwhile, revenue in the company’s core publishing business fell 0.3% to $871.2 million while operating income dropped 3.1% to $60.1 million.

According to SNL Kagan, U.S. retransmission fees will soar from about $2.4 billion now to $6 billion in 2018. Local television advertising revenue is expected to rise 12.5% to $21.5 billion to 2017 from $19.2 billion at the end of this year, according to Media Post. BIA/Kelsey forecast that digital ad revenue alone will jump to $1.1 billion in four years.

The one flaw in Gannett’s strategy is that other publishers are in the same boat, which might drive up station prices. The Washington Post Co. (WPO), for instance, owns six television stations in addition the Kaplan for-profit education business, which has been squeezed by tougher regulations. Journal Communications (JRN), owner of the Milwaukee Journal-Sentinel, owns 15 television and 34 radio stations in 12 states. E.W. Scripps (SSP) owns 14 TV stations in addition to papers such as Memphis’ Commercial Appeal.

The other is that the future of television is far from certain, given technologies such as Aero, a service backed by tycoon Barry Diller that lets people watch network television over the Internet. Media companies are fighting Aero because it does not pay retransmission fees, but so far, the courts have sided with the upstart service.

Nonetheless, acquiring Belo is the smartest thing Gannett has done in years, even if success is far from assured.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2021 InvestorPlace Media, LLC