Tuesday, April 19, 2011

USAT | Why we care about the tail wagging the dog

Although Gannett publishes nearly 100 daily newspapers, Wall Street focused on the financial health of only one -- USA Today -- during a much-anticipated conference call with top management yesterday, after the release of a weak first-quarter earnings report.

No wonder. The information management shared about USAT -- and unexpectedly withheld -- is of great interest to tens of thousands of employee shareholders. And it explains why Publisher Dave Hunke is feeling extra pressure to make the latest reorganization succeed.

USAT has typically accounted for 10% of GCI's overall publishing revenue -- that's advertising and circulation -- according to Edward Atorino, a newspaper industry analyst at Benchmark Co.; he gave that estimate to an Associated Press reporter late last month. In print advertising alone, USAT accounted for perhaps 7% of GCI's $2.7 billion in publishing advertising last year, according to information I've obtained.

COO Gracia Martore alluded to USAT's outsized role in the company's finances during the question-and-answer session of yesterday's conference call. But she and CEO Craig Dubow were nonetheless cagey in their responses.

Few companies relish sharing bad news with investors. And the U.S. Securities and Exchange Commission gives companies latitude on what to disclose. Yet, Corporate is moving toward even more opacity, leaving investors even more in the dark about GCI's biggest property.

Don't ask, don't tell
For example, analyst Douglas Arthur of Evercore Partners yesterday asked for the number of USAT's advertising pages during the quarter vs. a year ago. In a departure from long-standing practice, Martore said she would no longer provide those figures.

"They really don't reflect the totality of the platforms that USA Today has,'' she said, according to Seeking Alpha's transcript. "USA Today is not just a print product; it is a combination of print, web, mobile, iPad -- a lot of different devices. And so I think we will, in the future, just be reporting on their total results rather than giving out just pages, which is only one part of their distribution."

It's hardly surprising Martore wouldn't want to discuss USAT's ad pages. Last year, they totaled 2,299, down from 2,327 in 2009 and 3,158 in 2008, according to SEC filings. Martore also doesn't want to disclose advertising revenue at the company's top daily: Without explanation or warning, she stopped reporting such details in last year's second quarter.

Martore concedes only that USAT, more than the community dailies and the U.K.'s Newsquest division, had a slightly bigger role in dragging down GCI's overall first-quarter results.

She says the paper is still being "impacted" by weak spending in one of its bread-and-butter categories -- travel -- even though that market has "seemingly bottomed out." Higher fuel prices won't help. And she told the conference call the paper is doing a "very good job" in trying to wring more dollars from its travel "vertical," a website devoted to business and leisure travel information.

Numbers: iPadding them?
Meanwhile, USAT's iPad application continues to do "a good job in attracting advertising,'' she said in a response to a question. She offered no further details, however, and added: "That's something that's under constant review here."

Dubow's response wasn't very illuminating, either. "The numbers that are moving toward that and continuing to stay with the iPad, I think are going to be very interesting as we move forward," he said. "It's a very positive environment and with a number of awards and other things that month-by-month we seem to be winning on that. People seem quite satisfied with the offering and that's just going to continue to grow. So we're really excited by that."

As for any other of the total USAT results Martore promised, the earnings statement offered a handful of clues.

"National advertising declined 10.5% in the quarter, reflecting softer advertising demand at USA Today that, although lower overall, was volatile within the quarter," the statement said. "There was strong growth in the telecommunications and credit card categories in the quarter for USA Today, while several key categories including the entertainment, travel and technology categories declined compared to last year."

In response to a question, Martore said travel was "several percentage points of their total revenues." Indeed, it was in the neighborhood of 10% toward the end of last year, well down from around 17% in 2008.

On the other hand, USAT's digital revenues were 19.2% higher -- better than the companywide 12% during the quarter, the statement said.

'Big steps' -- and risks
In 2010, after a round of layoffs, USAT made money -- but just barely. The paper "squeezed out a profit last year because of the cost cutting,'' the March 23 Associated Press story said, citing an interview with Hunke, who wouldn't provide specifics.

Hunke, 58, was named publisher two years ago this month, arriving as the paper's circulation began a steep slide, dropping to 1.8 million from 2.3 million. In his interview with the Associated Press, he predicted USAT this year would boost revenue and circulation. That would be the first time both categories have gained in four years, the AP said.

"The idea that you can take incremental steps in the media business is over," Hunke told the news service. "You have to take some big steps and you have to take some risks."

GCI's shares have been drifting down since mid-February; they closed today at $15.17, off 1.4%, after a 4% jump yesterday. They closed at $17.18 on Feb. 10. (Historical prices over the past 12 months.)

Arthur, the Evercore Partners analyst, remains concerned about GCI's prospects after what he says was a surprisingly weak first quarter. USAT is one of his worries, according to a new MarketWatch story today.

Gannett’s management, he told clients, “did not specifically address the substantial declines in the U.K. as well as the lack of traction at USA Today," according to MarketWatch. "It’s hard to see the stock topping our $17 target price in convincing fashion without any clarity on how these two critical properties might improve."

More than ever, clarity is in short supply.

Earlier: My live-blogged post of yesterday's conference call.

[Image: today's paper, Newseum]


  1. Nice post, Jim.

  2. Jim, you should never use the phrase "tail wagging the dog" for obvious reasons. Just saying.

  3. Amazing. I just wondered recently whether the homophobe who thinks he's funny had crawled back permanently under the rock. Just saying.

  4. Enough side stepping the numbers. Lets compare the print revenue dollars to the digital revenue dollars. Apples to apples and not apples to digital's trumped-up percentages. Then let's see where the real revenue is coming from with USA Today.

  5. 5:37, I am just helping Jim with his vernacular. He needs to know when he looks like a fool with his phrasing.

  6. We have become a company that counts on accounting gimmics to get around telling the truth. The only figure that counts to me is overall revenue, since that is very difficult to shift around or tinker with.

  7. Furloughed Fury4/20/2011 9:30 AM

    Why isn't there an iPhone app for all Gannett papers? Shouldn't we be forward looking and show the world (and our potential advertisers and customers) that the company is looking forward to the future? The company should be doing everything it can to enhance the digital product and get it out there. Seriously!

  8. Clarity about financials is certainly not something G A N N E T T strives for these days.

    Between Martore flatly refusing to answer questions from an analyst, and Dubow gobblygooking his way into a verbal oblivion, I CAN'T UNDERSTAND WHY ANYONE WOULD INVEST IN THIS COMPANY!

  9. Too many tools at this company to count. They will axe as many underlings as needed to ensure their own thriveival. And the cuts are definitely coming. When its all said and done, only they and their moon eyed, know nothing kool aide drinkers will be left.


Jim says: "Proceed with caution; this is a free-for-all comment zone. I try to correct or clarify incorrect information. But I can't catch everything. Please keep your posts focused on Gannett and media-related subjects. Note that I occasionally review comments in advance, to reject inappropriate ones. And I ignore hostile posters, and recommend you do, too."

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