Two years ago this month, Gannett unveiled what it called the newsroom of the future: the Information Center, a strategic shift designed to bolster readership and advertising sales by emphasizing digital over traditional print distribution.
"Breaking news on the Web and updating for the newspaper draws more people to both those media,'' CEO Craig Dubow told employees at the time. "Appealing to more and different readers helps bring us more and different advertisers."
Now, new data show, Dubow's Information Center strategy is failing to turn around Gannett's biggest and most troubled business: the community newspaper division; its 84 dailies plus USA Today account for nearly 80% of revenue, and 65% of GCI's 46,000 employees.
For the first time, Dubow is conceding that online advertising sales are now falling across those newspapers, following months of increasingly narrow gains. Online sales fell 7% in the third quarter from a year ago, Dubow told Wall Street media stock analysts in a Friday teleconference.
It was Dubow's starkest concession that a cornerstone of his strategic plan was not delivering the goods, raising troubling questions about Gannett's viability as the 102-year-old newspaper publisher steams into uncharted waters.
Newspaper losses accelerate
The fall in newspaper online revenue came despite higher website traffic, company documents show. Gannett captured 15.6% of the U.S. Internet audience last month, up from 15% in September 2006, according to Nielsen//NetRatings.
What's more, the online revenue decline comes as newspaper advertising losses accelerate: Ad sales plunged $210.6 million, or 18%, in the third quarter from a year ago -- the single-biggest drop since sales started falling early last year.
Meanwhile, Gannett's purely digital businesses aren't making up the difference, other data show. Digital sales totaled $77.6 million, up from $17.2 million in last year's third quarter. This newly created revenue category comprises jobs site CareerBuilder, ad services company PointRoll, plus other ventures.
Tweak vs. fatal flaw
The bottom line: Gannett's profit plunged 32% in the third quarter on a 9% decline in operating revenue, shaking investor conference, and guaranteeing another round of job reductions by year's end, Chief Financial Officer Gracia Martore told the Friday teleconference.
Advocates of the Information Center model might argue that the newspaper division's revenue losses would have been even worse without a big change in how Gannett gathers and distributes news. Rather than abandoning it, they've begun revising the concept.
But a mere tweaking will not address the Information Center's fatal flaw: It was to be launched while Gannett simultaneously reduced employment in the newspaper division. Dubow didn't make that clear in his original Information Center memo. It became obvious over the past two months, as GCI cut more than 1,000 newspaper jobs through layoffs and other means.
You cannot do this simultaneously and succeed: build an innovative digital start-up (the websites, moms microsites, Metromix, etc.) while also putting out 85 traditional daily newspapers -- all at Internet speed, but with fewer employees, shoveling as much cash as possible to investors.
Gannett is now spreading the Information Center strategy to its TV stations and U.K. newspapers, even as the company plans more job cuts amid a likely global economic downturn. In Friday's earnings statement, Dubow made clear he won't turn away from that strategy. "While our results this quarter reflect the difficult and volatile economy both here and in the U.K., they also highlight our determination to move forward with our strategic plan," he said.
And, yet: Is it determination -- or desperation?
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[Image: yesterday's News-Press in Fort Myers, Fla., Newseum. The paper was one of the test sites for the information center concept]