When the company held its first "upfront" for marketers this week, national sales chief Mary Murcko told potential advertisers that Gannett was a vastly changed enterprise.
"We are not the media company -- the 100-year-old newspaper company -- people still think we are," she told AdAge before Tuesday's show in New York City. "The point of the upfront is to tell our story; 25% of our revenue comes from digital."
Corporate's been emphasizing that metric more and more as proof that GCI's weaning itself from print. Murcko's 25% was in the fourth quarter, when overall revenue was $1.5 billion. A year before, digital was barely 21% of $1.4 billion, according to new U.S. Securities and Exchange Commission filings.
What's driving it higher? Surprisingly, it's not the Digital Segment of standalone companies, mostly employment site CareerBuilder and advertising services subsidiary PointRoll. The segment's fourth-quarter revenue grew just 3%, to $187 million, from a year before. That's a reflection, I suspect, of a weaker PointRoll amid management turbulence there.
Instead, digital revenue growth was fueled by everything else -- including, notably, the U.S. community dailies, the most traditional end of the company. Revenue from those sources grew a whopping 73% during the quarter, to $188 million. And that followed rising rates all year: 13% in the first quarter, 28% in the second, and 55% in the third.
Paywalls really a factor?
The Digital Segment's declining role is just as stark when you look at full-year results for 2012. Company-wide digital revenue rose $200 million last year, to $1.3 billion. Of that, the segment accounted for only $32 million.
In its earnings statements for the quarter and year, GCI said the company-wide digital increase "was driven primarily by the impact of the all access content subscription model as well as higher revenue associated with digital advertising and marketing solutions across all segments."
The reference to the all access model -- longhand for the paywalls -- is puzzling, however. Launched across the U.S. newspaper division throughout the year, the paywalls produced just 46,000 digital-only subscribers by year's end, worth perhaps only $550,000 in additional monthly revenue.
Virtually all of last year's circulation revenue growth came from double-digit print subscription rate hikes that accompanied the paywalls. To be sure, that could change this year if Corporate delivers on a forecast of adding up to 250,000 more digital-only subscribers. [Updated at 12:54 p.m. ET on March 9. See the comment thread in this post for more details.]
That leaves digital advertising and marketing solutions, a new area of focus advising small and midsize companies on Web campaigns and social media such as Facebook and Twitter. Last year, Corporate forecast such services would generate between $275 million and $350 million in additional revenue by 2015.
It's still about newspapers
To be sure, GCI remains an analog-centric company. The flip side of Murcko's pitch is that 75% of overall revenue isn't digital. And the lion's share, 65%, is still from print ads and circulation -- even after print ad revenue fell 6.2% last year. In other words, GCI is still very much a century-old newspaper publisher.
But digital's share is rising, and that's clearly a good thing for employees, and for shareholders. The company's stock is up (along with a more buoyant stock market overall, of course). Only this afternoon, GCI closed at $21.59, up 50 cents, for a 52-week high.
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| Murcko |
Corporate's been emphasizing that metric more and more as proof that GCI's weaning itself from print. Murcko's 25% was in the fourth quarter, when overall revenue was $1.5 billion. A year before, digital was barely 21% of $1.4 billion, according to new U.S. Securities and Exchange Commission filings.
What's driving it higher? Surprisingly, it's not the Digital Segment of standalone companies, mostly employment site CareerBuilder and advertising services subsidiary PointRoll. The segment's fourth-quarter revenue grew just 3%, to $187 million, from a year before. That's a reflection, I suspect, of a weaker PointRoll amid management turbulence there.
Instead, digital revenue growth was fueled by everything else -- including, notably, the U.S. community dailies, the most traditional end of the company. Revenue from those sources grew a whopping 73% during the quarter, to $188 million. And that followed rising rates all year: 13% in the first quarter, 28% in the second, and 55% in the third.
Paywalls really a factor?
The Digital Segment's declining role is just as stark when you look at full-year results for 2012. Company-wide digital revenue rose $200 million last year, to $1.3 billion. Of that, the segment accounted for only $32 million.
In its earnings statements for the quarter and year, GCI said the company-wide digital increase "was driven primarily by the impact of the all access content subscription model as well as higher revenue associated with digital advertising and marketing solutions across all segments."
The reference to the all access model -- longhand for the paywalls -- is puzzling, however. Launched across the U.S. newspaper division throughout the year, the paywalls produced just 46,000 digital-only subscribers by year's end, worth perhaps only $550,000 in additional monthly revenue.
Virtually all of last year's circulation revenue growth came from double-digit print subscription rate hikes that accompanied the paywalls. To be sure, that could change this year if Corporate delivers on a forecast of adding up to 250,000 more digital-only subscribers. [Updated at 12:54 p.m. ET on March 9. See the comment thread in this post for more details.]
That leaves digital advertising and marketing solutions, a new area of focus advising small and midsize companies on Web campaigns and social media such as Facebook and Twitter. Last year, Corporate forecast such services would generate between $275 million and $350 million in additional revenue by 2015.
It's still about newspapers
To be sure, GCI remains an analog-centric company. The flip side of Murcko's pitch is that 75% of overall revenue isn't digital. And the lion's share, 65%, is still from print ads and circulation -- even after print ad revenue fell 6.2% last year. In other words, GCI is still very much a century-old newspaper publisher.
But digital's share is rising, and that's clearly a good thing for employees, and for shareholders. The company's stock is up (along with a more buoyant stock market overall, of course). Only this afternoon, GCI closed at $21.59, up 50 cents, for a 52-week high.
It is about the print and Gannett should have known that before cutting service and letting employees go. The small gains in Digital only fail to justify the cutting cost by out sourcing employment at the locals.
ReplyDeleteI sure hope Corporate isn't counting some of that print subscription revenue increase as somehow being digital revenue.
ReplyDeleteI sure hope you have a clue the next time you guess about something.
DeleteI'm reporting what Corporate said. But I've never been 100% confident about how it apportions digital vs. print on the books.
DeleteBingo. That is exactly what is being done. The bulk of the increased subscription rates are being booked as digital revenue. That is the secret to the Full Access business model.
DeleteThat would explain why the digital revenue increases coincided with the rollout of the paywalls across the newspaper division, quarter by quarter.
DeleteBut it makes the digital revenue increase less meaningful. Take The Des Moines Register as an example.
A digital-only subscription now costs $10 a month. A seven-day-a-week print subscription costs $23 a month and includes digital access.
With the introduction of paywalls, print subscriptions were increased an average 25%.
Let's say the average 25% hike applied to Des Moines. That would mean the previous seven-day rate was about $18.50 a month. The 25% increase raised the price $4.63 a month.
Did Corporate then treat that $4.63 as the embedded cost of digital access?
If so, it's misleading because subscribers can't opt out of digital access; it's imposed upon them.
I've now reviewed the transcript of the third-quarter earnings conference call with Wall Street analysts. There was this exchange:
DeleteAlexia Quadrani of JPMorgan Chase & Co. asked about the dollar value of digital subscription revenue during the quarter.
Martore said: "Frankly at this point, we're not breaking that out specifically, because we're looking really at it as total circulation revenue rather than bifurcating it between digital and print."
In fact, though, Corporate was breaking out digital circulation revenue from print internally; it just wasn't making that data public.
Even before reading these comments, my first reaction was that somehow the community subscription price increases must be showing as digital income... a huge stretch, if so. If that is the case, subsequent quarters will show stagnant or declining digital revenue as subscribers drop off, presuming there are no more sudden, huge subscription price increases like last year.
ReplyDeleteThis comment has been removed by a blog administrator.
DeleteAt the very least, you would see digital revenue flatten out as the full effect of the subscription price increases cycle through their first year. That should start around the third quarter.
DeleteI've just reviewed the most recent quarterly conference call. CEO Gracia Martore, responding to a question from an analyst, said circulation revenue growth will peak sometime between the second and third quarters.
DeleteThat would then end the boost to digital from circulation -- unless the company is successful in growing digital-only subscribers close to the net 200,000-250,000 that Martore forecast. At $12 each, if Corporate hits that 250,000, it would produce an additional $3 million in monthly digital revenue, or $9 million per quarter.
To put that in perspective, digital revenue in the fourth quarter grew $41 million.
Stock was up again today!!! 401k looks great! Thanks Mary and National Sales team!
ReplyDeleteThis Girl is NOT on fire.
ReplyDeleteI know around here there's a big push for circulation. New places that have no business having papers, higher draws like that's going to increase sales, stuffing more different products being pushed into stores that don't have the shelf space. Everything BUT what they need to do to increase sales.
ReplyDeleteBut wait...that's right. Digital will save all. Right.
FOLKS: when you are putting together a bundled package, you set the determination of allocation - what is print, what is digital....that level of detail is not part of the financials but the strategy of what goes into the financials.....
ReplyDeleteBingo.
DeleteAccounting plays have been inflating digital sales for years. That is unless all think Gannett could sell subscriptions to sites that relied on zero newspaper generated content. Hint: It can’t.
All of which goes back to the point that it wasn't the girls who were on fire, it was their pants!
These moves are similar to when accounting used to slide USA Today expenses (both editorial and circulation) to the local papers in the early days to make USA Today look stronger.
DeleteAh, that's how we'll succeed in the next 30 years....stupid accounting tricks. Anyone tell Banikarim or Murcko?
DeleteThey state that 25 percent of revenue comes from digital. What percentage of expenditure goes into digital? There's your unsustainability problem.
ReplyDeleteWithout the newspapers, you could not afford the sales force necessary to sell digital as a side. This is incremental revenue threatened by the top revenue decline of newspapers. Keeping profits high means short changing print expenses to keep the sales force number up. Tipping point, here we come.
ReplyDeleteSo they're reporting better results in digital, but the growth is coming from allocating a percentage of increased newspaper circulation revenue to digital. Am I understanding that correctly?
ReplyDeleteIf that's the case, then obviously digital can't grow any further in that way unless they continue to boost circ rates. And that's not a sustainable strategy long-term because they're disinvesting in the newspapers whose rates would have to go up.
The boost from the bundled paywall is a one-time deal.
Yes, John. I now believe that's what's going on. The reality is that the paywall strategy relies heavily on milking the established base of print subscribers -- an increasingly older, and smaller group as they die off.
DeleteThat's why it's so important to increase the number of digital-only subscribers to the 250,000 to 300,000 target Martore mentioned -- and then well beyond. If the profit on those subscribers doesn't eventually equal that for print, the company will lose a now increasingly important source of income.
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DeleteI don't think paywalls are a one time shot. Each year the company can increase the cut that goes to digital from subscription payments.
DeleteSure, they can do the bookkeeping in a way that gives digital a bigger piece of the pie. But the pie isn't going to grow -- or at least, it won't grow fast enough to give Gannett the kind of margins it's used to.
DeleteThink about it. If you subscribe to a middling Gannett paper, and you've already signed up for a bundled print/digital package that costs more than your existing print subscription did -- how likely is it that you'll put up with steadily increasing rates on that package?
Particularly if the paper is constantly cutting back resources and coverage.
The bundling was a nice one-time move to grab some dollars, but they can't keep pulling that rabbit out of the hat. If they're relying on the bundle to drive significant revenue increases in the future, it won't happen.
So, as Jim points out, the other option is to grow digital-only subscriptions. And that won't work if the digital product is crap.
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ReplyDeleteFor those confused about digital revenue.
ReplyDeleteCampaign money spent online pushed prices up like TV.
Digital revenue bombs the months after election.
Now you know where to put your puts.
Well I sincerely enjoyed reading it. This tip procured by you is very helpful for good planning.
ReplyDeleteGet Instagram Followers
Once they cycle the 33 percent print-HD increases, you'll see overall revenue growth end.
ReplyDeleteMessing with the numbers is Gannett's only game left. Sure, as print falls, digital will get a larger proportion. Whoop-dee-doo.
ReplyDeleteThe one and only number that matters to the market is earnings. And cutting staff, dumbing down content, and fiddling about with all the other dials does not grow earnings.
What these top people at Gannett will do for money is just disgusting.