It comes as no surprise that the business model for newspapers is in critical condition. What shocked me is that two media startups in Vermont are pointing the way to a future for the news industry.
A look at one traditional newspaper holding company — Gannett (which was formed in November 2019 through a merger with NewMedia) — reveals an intriguing possibility: it could some day free itself of its heavy debt burden.
But questions remain: Does it have the potential to enjoy accelerating revenues? Could it adopt the strategies of these growing Vermont media outlets? Could it become a profitable business? At about $3 a share, is Gannett stock a bargain?
My answers: There is a small chance it could accelerate revenues; it is unlikely to adopt what’s working for these Vermont startups; and it would be difficult for it to become profitable. Its stock is a lottery ticket that it could kickstart revenue growth and become profitable.
Gannett’s Wrestles With Debt And A Legacy Business Model
Gannett — the parent of USA Today and 260 other daily publications — is recovering from the worst of the pandemic. Earlier in December, it announced the termination of an agreement in which Fortress Investment Group received millions in fees to manage Gannett. However, cost reductions and debt repayment remain critical imperatives for Gannett.
In the most recently completed quarter, Gannett posted faster than expected revenue growth and a lower than expected loss. According to MarketWatch, on November 3, Gannett’s third quarter revenue of $814.5 million was 5% more than the FactSet consensus and 116% more than its result from the year before — when it did not include Gannett and New Media’s assets. Its loss of $31.3 million — or 24 cents a share — compared favorably to the consensus 43 cents a share loss.
Gannett exceeded a million digital subscriptions in the quarter, up 31% from a year ago. The company also sold $100 million of non-core assets and real estate — 6.1% of its outstanding debt. As CEO Michael Reed said, “We’ll apply the net proceeds of these sales to reduce our total debt outstanding to $1.633 billion. We are targeting another $100 million of debt repayment by early next year and remain focused on refinancing our credit agreement during the first half of 2021.” reported MarketWatch.
Last November, Gannett agreed with Fortress Investment Group (FIG) to a contract that would pay FIG millions to manage the company until 2021. On December 22, USA Today reported that the deal — which paid FIG $16.3 million in management fees and $2.6 million in incentive fees in the first nine months of 2020 — would be terminated at the end of 2020 in exchange for a one-time fee of $30.3 million.
Reed expressed gratitude for FIG’s help and said ending the agreement early would help Gannett cut its 2021 costs. He also disclosed on December 22 that Gannett has “seen continued improvement in [Gannett’s] revenue trends throughout the fourth quarter.”
Gannett still faces an enormous debt load and pressure to reduce costs. Its 2019 merger with New Media was financed in part by a $1.8 billion loan at an 11.5% interest rate. Boston Business Journal (BBJ) reported that in the third quarter Gannett had cut $115 million in costs, expected to save another $60 million to $65 million in the fourth quarter, and aimed to slash costs by $300 million in 2021.
These cost cuts reduce the number of journalists at Gannett’s publications. BBJ noted that about 500 of Gannett’s 21,000 employees had taken the buyouts — including some 60 editors, 19 photojournalists, seven managing editors, three executive editors and 124 reporters. There were widespread layoffs in the spring of 2020. In 2019, before the merger with Gannett, GateHouse Media cut 20% of its newsroom staff — including my position at the Worcester Telegram & Gazette.
Vermont Media Startups Point The Way To A Brighter Future
Gannett’s survival appears to depend on its ability to continue producing content that subscribers will pay for — even as it keeps slashing the people who produce the content to reduce its debt burden.
Newspapers are expensive to produce compared to online content. As I wrote in my new book, Goliath Strikes Back, print subscriptions and advertising have declined thanks to the success of Google
While the last four years have emphasized the critical role that journalism plays in the survival and success of democracy, they have done little to illuminate the question of how to make money by telling truth to power.
All those journalists losing their jobs still have the skills needed to do that. However, like just about everyone, they have bills to pay. Unless someone is willing to pay them, that journalism — particularly at the local level — will continue to fade away.
Two Vermont news startups — VTDigger and Seven Days — are pointing the way to a brighter future for local reporting that tells truth to power. The two have different financial models — VTDigger — loses money on its operations but has successfully attracted money from donors to keep paying its bills. Seven Days appears to be getting by thanks to advertising from local businesses.
VTDigger — founded by Anne Galloway, who in January 2009 lost her job as Sunday editor of the Barre-Montpelier Times Argus — now averages 700,000 monthly readers, according to the Boston Globe. Galloway’s VTDigger has grown by producing daily dispatches from the Vermont State House beginning in 2010.
VTDigger made its name with a “2015 exposé involving developers and a Ponzi-like scheme at Jay Peak Resort in northern Vermont,” noted the Globe. It survives thanks to donations from readers — including a $1 million “growth fund” from Lyman Orton, whose family owns The Vermont Country Store, and his partner Janice Izzi.
Now producing eight to 10 stories a day, VTDigger has raised a total of $3 million — most recently a $900,000 January 2020 grant from the American Journalism Project that should cover its costs for the next three years.
Seven Days was cofounded in 1995 by publisher Paula Routly and Pamela Polston as a for-profit alt-weekly. It now operates as a weekly newspaper that takes advertising revenue and some reader donations — including some “super-readers” who contribute about $8,000 a month. As of December 2020, its print readership was 108,000 and 104,200 read its weekly digital version, noted the Globe.
While Gannett has been shedding reporters, Seven Days has been hiring. The Globe notes that it has 12 reporters — including three full-time food writers — and it is doing more investigative stories — including “a prize-winning 2019 series with Vermont Public Radio about elder care” in Vermont.
Seven Days is demonstrating its creativity in partnering with advertisers as well. It created a parenting magazine, dining and student guides, and it sponsors events such as “Vermont Tech Jam and Vermont Restaurant Week,” noted the Globe.
Gannett’s stock market value has plunged 50% so far in 2020 — a far worse investment than the S&P 500 which has increased about 14.4% as of December 29.
Investors are growing less gloomy about Gannett. While 9.6% of its shares were sold short as of December 15 — that was an 8.9% decline from the month before, according to Morningstar.
Were Gannett’s local newspapers to adopt some of the practices followed by VTDigger and Seven Days, they might enjoy similar growth which would bode well for investors in Gannett stock.
However, its local news people are likely to find themselves on the chopping block as Gannett slowly chips away at its $1.6 billion in 11.5% rate debt. Yet if Reed is able to report faster than expected revenue growth for the fourth quarter, buying Gannett stock could be a rewarding bet.