paidContent - As Gannett's Newspapers Suffer, Digital Side Sees Growth, More Hiring And Acquisitions

This story was written by David Kaplan.
As Gannett (NYSE: GCI) continues to be roiled with huge debt problems, an absent CEO, and hundreds more layoffs across its community newspapers, its digital division appears to be a sea of calm. In fact, to hear Josh Resnik (pictured), Gannett Digital’s VP and GM of the Gannett Digital Media Network, PointRoll CEO Jason Tafler and Ripple6 CEO Sang Kim, tell it, things are going just fine on their respective ends. As Gannett prepares for its Q2 earnings report next Wednesday morning, the digital unit faces a question left over from the previous quarter: do they represent a meaningful strength amid the company’s general weakness?

The digital mirage: None of the executives would offer specifics on Q2 numbers, claiming only that digital ad sales are holding up. Certainly, as Gannett’s Q1 revenues fell 21.4 percent and net income dropped 60 percent, the McLean, VA.-based publisher’s interactive businesses saw $143.2 million in Q1 compared with just $13.9 million.

But Gannett’s digital oasis is also something of a mirage. The Q1 results were skewed by the addition of its increased stakes in both CareerBuilder (to 50.8 percent from 40.8 percent) and ShopLocal (100 percent from 42.5 percent). On a pro forma basis, digitals operating revenues were 13.1 percent lower in Q1. That’s not to say that Gannett’s digital revenues are significantly under performing—and the incremental revenue from the online side keeps an ugly picture from looking even worse. Most importantly, as Gannett is expected to resemble a very different company by next year because of its debt woes, the digital business will ultimately take on greater prominence.

Growth mode: In essence, the execs told paidContent that despite the economic pressures, Gannett’s digital businesses are still in “growth and building mode” and all three are actively adding staff and looking for acquisitions. For example, since Gannett acquired its initial stake in rich media ads provider PointRoll in Jan. 2005 (it bought the remaining stake in March ‘08— the unit’s staffing levels have risen to 350 from 60 within that period. As for Ripple6, which was acquired in November, the company has doubled its staff to roughly 40 today. “The economy tends to help us, accelerating marketers’ decision to shift more of their ad budgets online, and that continues to support our growth plans,” Resnik said.

Integration: Kim and afler say that Gannett has allowed them to maintain their companies’ respective independence, as Kim notes that, “Gannett has kept us insulated from the layoffs” that have been spread throughout its community newspaper division. That said, while the two are expected to grow their businesses and attract outside clients, a bigger part of their job is shoring up Gannett’s own social media properties across its papers. In particular, PointRoll has been working with another Gannett digital property, ShopLocal on what Tafler said involves adapting traditional newspaper inserts for online. “About $10 billion is spent on the print circular business, but that area is starting to decline as well,” Tafler said. “We’re working with Gannett on launching its Circular Central product across 100 of its sites. That’s just one of the ways we’re trying to drive more revenue on the digital side.”

Hope down the line: While Gannett’s digital side isn’t likely to capture a significant amount of those $10 billion print circular revenues anytime soon, and the results on the company’s Q2 are likely to remain skewed, Gannett appears to be doing the right things when it comes to its digital properties. While the acquisitions looked questionable last year, as Gannett’s downward slide become more precipitous, Gannett is likely to look a lot different next year as it wrestles with its debt problems and the changes affecting the newspaper business overall. The focus on building local moms sites for the network with Ripple6 is widely considered to be a growth area in terms of users and ad revenue. So although these efforts are too small to have any real offsetting impact for Gannett, it does give the company a solid platform to build over the next few years, assuming it can bring the rest of the company in for a soft landing.


By David Kaplan