Digital Divide | Along a journey to transformation, an aging publisher stumbles at a critical crossroads

Gannett's website markets newspapers and other subsidiaries as consumer brands.

In late October, when CEO Gracia Martore briefed Wall Street stock analysts on Gannett's latest quarterly report, she drew a bright line under another rise in digital revenue -- fresh evidence, she said, the company was successfully weaning itself from its legacy newspaper business.

This wasn't the first time Martore had swung the spotlight toward digital. Three months before, she said it had grown to 30% of all company-wide revenue, adding: "We are accelerating our transformation into the 'New Gannett' every day."

In fact, the nation's top newspaper publisher started aggressively retailing this new image last winter during the advertising industry's "upfront" market, where traditional print media jockeyed with TV networks for ad dollars. The chief of national sales, Mary Murcko, told the trade publication AdAge: "We are not the media company -- the 100-year-old newspaper company -- people still think we are."

This was a Madison Avenue milestone, the debut of a made-over publisher long dismissed as a relic sidelined by Internet and mobile technologies. Now it was a "media and marketing solutions company" pitching a portfolio of consumer brands. Gannett was finally running with the big dogs.

But behind the scenes, hundreds of pages of newly examined company documents tell a different story, one sharply at odds with Gannett's energetic public relations campaign to burnish its old school profile.

Although digital revenue did rise last quarter, regulatory documents show the growth rate has been retreating all year. It was 29% in the first quarter, 20% in the second, and 12% in the third. It will narrow even more in the current quarter, Gannett warned investors Nov. 6 in a U.S. Securities and Exchange Commission filing.

After jumping when Gannett started launching 78 newspaper paywalls two years ago, digital’s contribution rate to company-wide results only clung to 30% last quarter because overall revenue fell, SEC documents show.

Here's why: The paywalls are now running on fumes. They brought double-digit subscription price hikes, forcing readers to pay for digital access whether they wanted it or not. That ginned up untold millions in new digital revenue. But those more costly subscriptions are now fully in force; without another across-the-board price increase, paywall revenue growth could grind to a halt as soon as this quarter. No such increase is in the works.

Martore

A forecast boom in digital-only subscriptions aimed at a key audience, younger readers, has become a stunning bust. In the Oct. 21 quarterly earnings teleconference with Wall Street analysts, Martore conceded Gannett had sold fewer than 100,000 nationwide vs. a forecast 250,000 to 300,000 by year's end. If sales remain tepid, the company will be saddled with three million aging subscribers and no clear path to replacing them.

Revenue from Gannett's freestanding digital businesses -- chiefly, the big employment site CareerBuilder -- has been growing at only low single-digit rates after peaking at 13% in 2011. Year to date, it's up just 4% from a year ago, SEC documents show.

The digital squeeze is all the more worrisome because it comes amid an accelerating decline in the company's still-biggest source of revenue, newspaper advertising, which fell 6% in the last quarter. To be sure, revenue growth pulls back as any company's financial base fattens. Nonetheless, a plateau this soon raises concerns about Gannett's drive to become a digital powerhouse amid bruising competition from more fleet-footed publishers like Facebook and Twitter.

It also underscores the importance of Gannett’s takeover of Dallas TV company Belo. The $2.2 billion tie-up, which could close any time now, is crucial to boosting revenue and earnings -- and holding impatient investors at bay. Indeed, analysts are already asking whether Gannett should spin off its fading newspapers into a separate company after Belo is absorbed, essentially sending them to the corporate equivalent of a nursing home. That question may easily resurface Wednesday when Martore's team meets with analysts at an industry conference in New York.

Frank Gannett

How Gannett arrived at this crossroads is a story about a business Frank Gannett founded in 1906 with a single newspaper in Elmira, N.Y., battling for survival in a 21st century economy. The outcome, closely watched by other publishers, is of keen interest to a global constituency: 30,000 employees, 8,000 shareholders, and millions of others served by Gannett's 100 U.S. and U.K. dailies, 23 TV stations and more than 700 other media businesses.

The story is also about an entrenched board of directors, the opportunity they missed at a fateful moment, and two executives who led the company to a financial precipice -- only to pull it back before it tipped into oblivion.

Transforming vs. tweaking
There's little doubt Gannett has taken major strides toward its goal of becoming a more digital enterprise. Seven years ago, before digital got pushed to the fore, it was only 5% of annual revenue. Since then, it’s grown by $900 million, to last year's $1.3 billion. That came as the company reported its first annual increase in full-year revenue, $5.4 billion, since 2006.

Gannett has also reduced its reliance on newspapers; their advertising and circulation tumbled to 65% of all company-wide revenue last year vs. 83% in 2006.

The Belo takeover will almost double the number of TV stations to 43, transforming Gannett into a broadcasting company with a side business in newspapers. It will become the nation's fourth-largest owner of big network affiliates, with a bigger footprint in lucrative markets like Texas and the Pacific Northwest. Under the deal, which includes $1.5 billion in cash and assumption of $715 million in debt, broadcasting will eventually account for more than half of earnings, according to the company. Announced in June, the Belo purchase is a major reason Gannett's stock has surged during this year's second half.

From the depths of the recession, when shares fell below $2 as competitors went bust, Gannett is now trading in the mid-$20s; it closed Friday at $25.55. Year to date, it's up 42% vs. a much smaller 27% gain in the S&P 500 index. To be sure, shares were treading water all year before the Belo deal. And other publishers' stocks also have jumped during what's been a sizzling bull market.

The board of directors has boosted the dividend twice since slashing it 90% four years ago. The company has repaid billions in once-crippling debt. And Martore has pledged to return $1.3 billion to stockholders by 2015 through dividends and share repurchases.

But Gannett still faces enormous challenges.

The company remains heavily dependent on its most troubled division, newspapers. Their ad sales have fallen every year since 2006, with no end in sight. That includes digital advertising, too. Indeed, after nearly leveling off the end of 2012, losses have grown in percentage terms during each of the past three quarters.

Paton

Paywalls are on track to generate $100 million in new earnings. But that's fueled by the big subscription price increases in 2012 that aren't set to be repeated; Gannett says only that it's now selectively raising prices in some markets. The company's publishing partner in Detroit and elsewhere just announced similar paywall plans, but with little enthusiasm. "Let's be clear," John Paton, CEO of Digital First Media wrote last month. "Paid digital subscriptions are not a long-term strategy. They don't transform anything; they tweak. At best, they are a short-term tactic."

Although Gannett's TV stations contributed mightily to last year's year-over-year revenue increase, that stemmed from record political and summer Olympics ads on the core NBC affiliates. That's a revenue roller coaster only occurring every other year. Meanwhile, broadcasters are just steps behind newspapers in losing ads to rival publishers like Google and Tumblr, says media consultant Ken Doctor.

"Think about how much digital targeting could take away political broadcast money by 2016," he wrote when the Belo deal was announced. At best, "Gannett may have bought itself another three to five years of relative revenue stability."

In any case, it will be well into next year before Belo's operations are fully integrated. And it could then take as long as three years to achieve all the forecast savings by slashing overhead and negotiating more lucrative retransmission agreements to hit earnings targets, according to Gannett.

Digital weapons in Gannett's arsenal are in jeopardy, or are too new to make meaningful contributions.

USA Today's iPad app is still free.

The USA Today Sports Media Group underwent a shakeup when its founding president, Tom Beusse, resigned unexpectedly in October -- casting doubts on his promise to deliver more than $300 million in new revenue by 2015. USA Today, the company's most famous brand, has failed to attract a big enough audience willing to pay for digital access. Publisher Larry Kramer says only that paywalls are being studied.

Gannett is redesigning all its U.S. news websites and digital apps to boost readership and ads. But more than two years in, only USA Today and a handful of others have made the switch. That's despite a recent forecast they'd be installed in the top 35 markets by year's end. Indeed, at one point, Gannett said all 105 sites would be relaunched as soon as this past February.

The newly christened G/O Digital marketing services unit, which advises small businesses on using social media, is forecast to generate up to $350 million in new sales, but also not until 2015. Revenue there grew 90% in the second quarter and a smaller 70% in the third. Martore has declined to divulge dollar amounts when pressed by analysts.

To be certain, Martore has made no secret of the fact Gannett's strategy will produce uneven results. "It was never meant to be a quick or immediate fix," she said in July. "Our transformation plan is a complex and multifaceted process, and we do not expect linear growth each quarter."

Gannett's corporate communications department did not respond to my questions for this story.

Barbarians at the gate
Gannett's digital push began in earnest in 2005 when the board of directors was casting about for a new CEO to replace Doug McCorkindale. An attorney with no journalism background, McCorkindale had been a company executive 34 years. He was only the fifth CEO since Gannett's start a century before, one in an uninterrupted line of insiders at the core of an insular corporate culture.

Barron's not long before had put McCorkindale on the cover under the headline, "Gannett's Good News." Wall Street's must-read weekly gushed over his empire building. "I'm potentially interested in buying anything in the news, information, advertising and entertainment businesses," he said. "If the Pearson group wanted to sell the Financial Times, I'd look at it very closely. Dow Jones & Co. is a great franchise, and if it ever came into play, I'd be very interested."

And why not? Gannett had the requisite war chest: Annual revenue was headed for a record $8 billion. Earnings would hit $4.90 a share, just three cents shy of a record. From coast to coast, in Guam, and the U.K., Gannett employed 53,000 at hundreds of daily and weekly publications, magazines and the several dozen TV stations.

Zuckerberg

But time was running out. Publishers and broadcasters were finally facing real competition from a rising number of new, nimble start-ups. Only one year before, 2004, Google launched its IPO, and Mark Zuckerberg started Facebook from a Harvard dorm room. YouTube was brand new.

In 2006, Twitter fired off the first tweet; its recent initial public offering values the microblogging service at $24.5 billion vs. Gannett's $5.8 billion. Instagram would not start until 2010, only to be bought by Facebook two years later for $1 billion cash. (And it had only 13 employees.)

Against that backdrop, Gannett's board might have ignored precedent and hired an outsider with real digital chops as the sixth chief executive. But under McCorkindale, who also chaired the board, directors played it safe. They promoted Craig Dubow, 50, from broadcasting president to lead a company still dominated by newspapers. A University of Texas graduate, Dubow had been an employee 24 years, starting at Denver station KUSA.

Years later, after Gannett's battered stock had plunged to less than five bucks a share, an anonymous Gannett Blog reader recalled Dubow's ascension memorably:

"A myopic board of directors placed a man, a great, very likable man, with a brilliant broadcasting career, but a man that had not spent a minute of his professional life inside a newspaper, in charge of a company with 100 or so newspapers at the worst time in the history for print newspapers. It is like putting at the helm of Titanic a great producer of wheat from Indiana, who had never been at sea before. He could sink the ship even without icebergs."

But McCorkindale, announcing Dubow's promotion in spring 2005, thought otherwise: "Craig has all the skills a 21st century media CEO should have, from highly successful management experience and broad-based knowledge of the digital world to the vision and energy of a top-notch leader."

Dubow got a big raise: His first year's pay soared to $2.4 million from $1 million as head of broadcasting, according to SEC documents. Martore, chief financial officer at the time, became Gannett's No. 2 executive. They would work in lockstep when the company entered free fall.

That Wednesday afternoon, Gannett's stock closed at $75 a share.

Charting digital's new course
Dubow immediately set a new strategic plan focused on digital. Newsrooms were now "Information Centers," reorganized to favor websites over print in a bid to ratchet up traffic and ad revenue. Digital ventures would be nurtured within, starting with a "moms" site aimed at female consumers.

Dubow in 2006

Dubow launched the company's first R&D lab and a Gannett Digital division with this goal, according to his 2006 annual letter to shareholders:

"To move Gannett from a newspaper and television company with affiliated websites to a digital powerhouse, capable of capturing a growing share of what pundits believe will be a pool of Internet advertising dollars in excess of $20 billion by 2008."

Of course, Dubow hadn't inherited an analog dinosaur. The company already had that $400 million in digital revenue -- 5% of all. He closed his letter with a prediction: "With our employees, our discipline and our plan, I am confident 2007 will be as transformative as 2006."

He was right, although surely not as he'd imagined.

Financial panic erupts
The housing bubble floating the economy burst. Gannett was badly exposed in four states among the first to be hit hard: Arizona, California, Florida and Nevada. Combined, they accounted for 40% of the decline in the company's U.S. ad revenue.

The real estate bust spawned a global credit crisis and the Great Recession, slamming Gannett. Complicating matters, the company had accumulated $3.8 billion in long-term debt just as the recession deepened, sapping revenue needed to service it. Some of the debt stemmed from $1.8 billion in Gannett stock buybacks during 2005-2008 at prices averaging $64 a share, according to SEC documents. Most of those buybacks -- $1.3 billion -- were in 2005 alone, the year Dubow took over as CEO and Martore entered her third year as chief financial officer. (Based on Friday's $25.55 closing price, those shares are now worth well less than half as much: $726 million, excluding dividend savings.)

Certainly, other publishers -- the New York Times Co., McClatchy, Lee Enterprises -- had made similar blunders during an industry-wide spending orgy.

In the recession years 2007-2009, Gannett's annual revenue plunged 25%, to $5.6 billion. Dubow and Martore, by now his heir apparent, responded with draconian cost-cutting to stave off creditors: Massive layoffs. Furloughs. Wage cuts. A frozen pension plan. A tattered dividend. With newspaper values collapsing everywhere, Gannett wrote off $8.4 billion worth of its assets in 2008 alone.

To be sure, management took big hits, too. Dubow's annual pay fell to $4.7 million in 2009 vs. $7.5 million in 2007. Still, infuriating employees, the board of directors continued awarding large cash bonuses. In SEC documents covering those years, they cited a long list of accomplishments that specifically included whacking 11,000 jobs.

Dubow doubled down on his digital plan, hiring Gannett's first chief digital officer, Chris Saridakis. Gannett expanded the Moms Like Me network, entertainment site Metromix, and other non-print ventures.

Zell

But perhaps most important, that fall Dubow wrested razor-thin majority control of employment classifieds site CareerBuilder from Tribune Co.'s pugnacious CEO, Sam Zell. Dubow had an edge over Zell because Tribune was headed for bankruptcy.

With the $135 million CareerBuilder deal, Gannett made a big change in financial reports to Wall Street. It created a digital-only line consolidating all revenues from CareerBuilder and other standalone businesses.

Significantly, CareerBuilder meant Martore could book 100% of its revenue even though Gannett barely owned 51%. The very next quarter, the digital-only line surged to $170 million from $24 million a year before. In the years that followed, the accounting shift helped Gannett sell itself as more of a digital company, and less about paper and ink.

But it wasn't enough.

Just as the recession eased, some of the most high-profile digital efforts started fraying. In spring 2010, Saridakis quit as chief digital officer after only two years, complaining about the Dubow team's indecisiveness. In a prescient parting letter, he ripped paywall plans. Dubow took a full year to replace him with David Payne.

Payne shuttered the once-celebrated Moms Like Me consumer network after concluding further investment would be a waste. Entertainment site Metromix slumped. Other digital ventures collapsed. The ad services subsidiary PointRoll started churning through CEOs, threatening its hugely profitable pipeline. More recently, an online coupons site, DealChicken, has been retrenching.

A new Crystal Palace chief
In October 2011, with revenue still falling and plagued by back problems, Dubow quit. Reviled for the slash-and-burn tactics that ultimately cost 20,000 jobs on his watch, he retired with an estimated $32 million payout. The board promoted Martore, then 60 years old, to become Gannett's first female CEO.

Like Dubow, she also was an insider, always working at the corporate offices now housed in a glittering complex outside Washington that employees call the Crystal Palace. Martore arrived in 1985 as assistant treasurer, later rising to chief financial officer in 2003. Her bio reads like a classic American bootstrapper story, according to The Washington Post.

"Granddaughter of Italian immigrants," wrote Post correspondent Paul Farhi. "Father died when she was a kid. Held down three jobs to get through Wellesley College. Learned a skill and worked like the dickens."

The much-hated "Blue Ball" sculpture.

Martore quickly sought a less imperious image before employees traumatized by waves of layoffs. She ended reserved parking for top executives. And she ditched an executive suite sculpture dubbed the Blue Ball of Death for its role in the infamous firing of three USA Today employees in 2001. A big Red Sox fan, Martore soon enlivened dry analyst meetings with sports metaphors and even jokes.

One of her first, most important jobs was shepherding eagerly awaited newspaper paywalls into 2012. With newspaper ad sales still falling, milking circulation was a must. Management forecast those $100 million in additional annual earnings by 2013 with the paywalls and new apps. With relatively little investment in hiring and marketing, it was like found money.

By then, Gannett had been testing paywalls for two years. Dubow had said early data showed "very interesting results," although he was never more specific. Based on how the company eventually marketed them, however, the pilot tests didn't uncover much demand among the company's bread-and-butter customers: predominantly older, less technology-driven print subscribers.

Gannett gave its paywalls an ungainly name, all-access content subscription model, and sold them in just two flavors: a print subscription including Web and app access for up to around $25 a month. Or digital-only for $12-$15 monthly. Using a "metered" approach, non-subscribers could read a limited number of articles for free before getting prompted to pay.

But the paywalls arrived with an unpleasant surprise: those double-digit subscription price hikes at renewal. Trying to spin the bad news, Gannett said the substantially higher prices included digital access, ignoring the obvious: until then, digital had always been free anyway.

'Free is better than not free'
The roll out revealed a sobering truth. The only way Gannett could really ramp up digital circulation revenue was to force it on three million legacy readers as an embedded cost in their print subscriptions. The vaunted paywalls boiled down to an old-fashioned price increase with a digital veneer. No surprise to Paton, the Digital First CEO, who wrote early this year: "Most paywalls in the U.S. are simply initiatives in subscription price hikes -- bundling digital with print with no clear path for sustainable growth."

Yesterday's Register, Newseum.

Whatever their future, Gannett's jacked-up subscriptions didn't sit well with readers at papers like The Des Moines Register.

In June 2012, they groused during an online chat when Publisher Laura Hollingsworth tried to justify them. "My team and I are prepared to stand by our value and ask our communities to invest in the best news and information and reporting that can be offered," she said.

One reader's quick comeback: "Actually, free is a better value than not free."

Then another: "While I support the paper's move to a paywall for digital content, I calculated my increase at over 40%. It seems that the paper is punishing its print subscribers. Will the Register offer a print-only subscription?"

Hollingsworth said no.

To be sure, paywalls created a second, especially attractive revenue stream: digital-only subscribers. They skewed younger, the very market advertisers covet because they spend lots on electronics, dining, entertainment and home furnishings. Plus, digital subscribers were nearly Gannett's only hope to replace those millions of aging print customers.

At first, Gannett relied almost entirely on word-of-mouth sales. Early results were promising. "The good news," said Bob Dickey, the newspaper division's president, "is our new digital subscribers index younger, male, married with children and more affluent than we first realized, filling an important audience gap for us."

Crawling out on a limb
At the start of this year, Gannett had sold 46,000 digital subscribers across 78 markets. Then in early February, Martore made a strategic mistake: She forecast 250,000 to 300,000 by the end of this year, once Gannett started spending a "not inconsequential" amount on promotion. To be sure, it was a modest goal, averaging fewer than 4,000 per market. Plus, the company already had that running start.

Martore said: "Our focus is to take on new digital-only subscribers, and that's where our focus is going to be in 2013."

The campaign has bombed. By the end of September, the company had netted only 80,000, after some upgraded to print -- leaving Gannett far short of the forecast. All but abandoning the year-end goal, Martore tried moving the goal posts to the number of print readers who had activated digital accounts included with their print subscriptions: 1.5 million, about half of all.

She has called them "paying digital subscribers," comparable to The New York Times' 730,000 digital-only subscriptions sold after erecting its paywall in 2011. Inexplicably, Martore calls that an "apples-to-apples" comparison. (The number of Times digital subscribers has yet to plateau, soaring 28% in this year's third quarter alone.)

Pivoting 180 degrees, Martore dismissed young digital subscribers as barely consequential to measuring paywall success. "Frankly," she told the stock analysts Oct. 21, "that's probably one of the least significant and important metrics that we have used."

But analyst Craig Huber of Huber Research Partners pressed her to confirm Gannett had sold so few. Martore's reply: "If you're just specifically looking at that one small metric, yes, that's exactly what I'm saying."

As these typically deferential meetings go, this was close to taking off the gloves. And it may not be the last time.

Pushing for Gannett's breakup
Wall Street has started nudging Martore to spin off the newspaper business from broadcasting post-Belo. This would create two publicly traded companies, freeing the more nimble TV business plus the CareerBuilder stake and other purely digital businesses from the sluggish publishing division. USA Today and the U.K. Newsquest division, with 17 dailies plus hundreds of weeklies, could be sold separately.

Current shareholders would get stock in the new standalone newspaper company, allowing them to better gauge the relative worth of one business over the other. (In the argot of Wall Street, it's called unlocking shareholder value.) In an alternate scenario, Gannett could sell the papers piecemeal, but that would be a more drawn-out process subject to the vagaries of regional and local markets. In any case, the newspapers, unmoored from the financial resources but also the bureaucracy of a larger enterprise, would need to provide for themselves.

This has been done before. Belo itself split newspapers and TV stations in 2008. News Corp. did the same last July with The Wall Street Journal and dozens of other papers. Tribune Co., also bulking up on TV, has similar plans for the Los Angeles Times and seven others.

Martore isn't sold on the idea. Gannett's U.S. dailies and TV stations occupy a combined 111 markets, offering economies of scale no one else can match, she says. Still, if newspapers become an even bigger drag on growth, analysts will surely push harder for a breakup. Their next scheduled meeting with Martore's team is Wednesday morning at the annual UBS media conference in New York.

Even as she demurs, Martore leaves herself wiggle room, as she always does when analysts ask about future strategy. She and her fellow board members will never say never, she said in October: "We're always looking at different alternatives. . . . What we're in this business to do is to create additional shareholder value. And that's what we're focused on doing."

This much is certain: Martore now has fewer than three years to see her strategy to fruition; she faces mandatory retirement age when she turns 65 in September 2016. The president of the broadcasting division, Dave Lougee, is a logical successor. He's 54 and came to Gannett six years ago from Belo after a long TV career, a professional pedigree that doesn't show tremendous interest in newspapers.

Martore's October analyst teleconference ended, the meeting's mood far less ebullient than the one last March when Gannett mounted its spirited push to sell Madison Avenue on the "New Gannett."

Marketing chief Banikarim, right, with Kennedy at the "upfront."

The public relations campaign unfolded in midtown Manhattan with an elaborately orchestrated presentation to ad agencies and marketers during Gannett's first-ever upfront sales meeting. The venue was an auditorium at the AXA Equitable Center where Gannett staged a mock TV talk show it videotaped before an audience of 400.

The company's chief marketing officer, Maryam Banikarim, kicked off the meeting, where Gannett introduced itself as a company not just about newspaper brands, but also social media, video and leading-edge "rich media" ad services. At 44 years old, Banikarim is the more youthful face of the refashioned company, a job she got in 2011 as the first-ever marketing chief. (Martore, scheduled to be there, was home with the flu.)

On stage, the host-for-hire, comedian Andrew Kennedy, threw one of many scripted softball questions: "I thought Gannett was a newspaper company?"

Banikarim feigned a gasp. "Well," she said, "a lot of people think that. There's lots of interesting things about Gannett people don't know."

The Oracle of Omaha
Soon, she told the audience about Warren Buffett's just-published annual letter to Berkshire Hathaway shareholders, where the Nebraska industrialist talked up newspapers in the digital age.

There are good reasons to quote him. As one of the world's top investors, the "Oracle of Omaha" has snapped up more than 65 dailies and weeklies. In his letter, Buffett painted a rosy portrait of the industry's future. (This was before Berkshire dumped all its Gannett stock five months later.)

"My favorite line," Banikarim told the audience, "is where he says, 'wherever there's a pervasive sense of community, a paper with a viable Internet strategy . . . serves the special informational interests of that community and will be indispensable."

She added: "It's like I wrote it myself."

Buffett

Not quite. Here's a key passage Banikarim left aside:

"We do not believe," Buffett wrote, "that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities -- while it may improve profits in the short term -- seems certain to diminish the papers’ relevance over time."

And: "Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet."

*  *  *

A postscript
Two months ago, Gannett tore a page from Buffett's playbook, starting a closely watched pilot test of the Butterfly Project. It has restored hundreds of pages of weekly news drained in recent years from four newspapers in New York, Florida, Indiana and Wisconsin. The test includes a new daily local edition of USA Today.

Gannett hopes it will shore up advertising and print circulation when digital subscriptions have failed to gain traction. In the months ahead, it appears likely the initiative will extend to about three dozen of the company's biggest U.S. newspapers. Their combined circulation exceeds 2.3 million weekdays and 3.5 million Sundays.

USA Today, still recovering from a steep dive in ads and circulation, could claim an enormous increase in circulation as well.

It is a huge, surprising bet on print, a sharp turn even as Gannett continues its journey to a digital future that's anything but assured.

As Freedom Forum posted another $48M deficit, non-profit paid retired CEO Overby nearly $1M; new documents disclose a comical money trail

A just-opened Newsroom exhibit tied to a new comedy stretches the free press mission.

Four months ago, Freedom Forum CEO James Duff raised hope for long-needed financial reform at the troubled charitable foundation after years of overspending on construction and sky-high salaries under predecessor Charles "Peanut" Overby, the chief executive for more than two decades.

Duff

There were ample reasons to move quickly. Freedom Forum's money-losing Newseum about news history in Washington had gnawed away at the foundation's crucial income-generating endowment. That spurred deep program cuts -- and an occasionally antic search for more revenue, like the museum's just-opened exhibit promoting Paramount's sequel to Anchorman: The Legend of Ron Burgandy.

Duff was named CEO two years ago -- only the second in the non-profit's history after Overby eased into retirement (or so it seemed) at age 65. He and Al Neuharth had turned the original Gannett Foundation into a refashioned Freedom Forum when the legendary jet-setting chairman retired from the Gannett Co. media giant in 1989. The move has cost Gannett communities nationwide hundreds of millions in lost charitable support, however.

In July, after another round of job cuts, Duff told the Associated Press: "We’ve certainly worked on tightening up on expenditures. I think we’re making good progress. And certainly our numbers are very, very encouraging."

But now, newly released public documents show foundation finances grew even more precarious last year after Overby got a 55% pay raise and Neuharth's compensation hit a record high, jaw-dropping expenditures even for Freedom Forum.

For the seventh consecutive year, Freedom Forum racked up another, enormous deficit: $48 million, according to its annual Internal Revenue Service tax return. Total overspending has now reached $410 million during 2006-2012 alone, the period when the museum moved to new quarters costing nearly twice initial estimates.

By the end of last year, the endowment's value dropped to $351 million, a record low, according to an examination of hundreds of pages of tax returns. In 2000, before the museum buildup, it topped $914 million -- $1.2 billion in today's dollars.

Overby

A contributing factor comes as a surprise. Although Overby ostensibly retired in 2011, the foundation paid him $987,000 in 2012 as chairman of the namesake Overby Center for Southern Journalism & Politics at his Ole Miss University alma mater -- a position previously undisclosed in tax returns. Last year's pay was way up from $638,000 in 2011.

Overby's pay, which included $480,000 in deferred retirement benefits and a $207,000 expense account, was his third highest on record, exceeded only in 2005, when the foundation paid him $1.3 million, and just barely in 2008, when he got $991,000, according to tax returns.

By contrast, the Knight journalism foundation's highest-paid employee in 2012 was CEO Alberto Ibarguen, who got $742,000. With $2.1 billion in assets, Knight is three times bigger than Freedom Forum, even when real estate is included. The Miami-based charity donated $25 million to help open the museum's new home. Ibarguen is a former museum trustee. Knight is now represented on the board by former Gannett executive Michael Maness.

Overby's total: $9.2M
Last year, Overby was once more Freedom Forum's highest-paid employee, bringing to $9.2 million his total compensation since 2000, tax returns show. But he certainly wasn't the only Freedom Forum employee pulling down big bucks in 2012:

Neuharth was paid $602,000 as founder, the most he's ever received in a single year. It included a record $303,000 expense account. Neuharth died last spring at age 89.

Ken Paulson, former CEO of the foundation's First Amendment Center, also got $602,000 -- a record for him, too. That included a $367,000 salary plus $186,000 for his retirement account. In July, he became dean at the College of Mass Communications at Middle Tennessee State University. A former top USA Today editor, Paulson had once been a sure bet to replace Overby.

Finally, Duff earned $514,000, most of which was his $445,000 salary. To be sure, that was far less than in 2011, when he got $1.6 million, almost entirely in deferred retirement pay.

Those fat paydays were followed by another round of cost-cutting early this year. Duff slashed dozens of foundation and museum jobs, sources told me, hitting the First Amendment Center and Diversity Institute in Nashville especially hard. Freedom Forum also canceled the Crazy Horse Journalism Workshop, an annual event encouraging young Native Americans to enter the profession.

Whether Duff has made more progress stabilizing the foundation this year likely won't become clear until late 2014, when the foundation files its next tax return. I obtained a copy of the most recent one on Friday under open records law. They're the only comprehensive source of financial information non-profits are required to make public.

Neuharth

Neuharth's compensation and duties remain a mystery. Freedom Forum has repeatedly refused to detail his job responsibilities whenever I've asked. The tax return only says the late octogenarian media mogul averaged 40 hours a week in his role as founder -- an average $289 an hour.

His $303,000 expense account suggests he traveled a lot, two years after double knee replacement surgery left him riding an adult-sized tricycle near his seaside estate in Cocoa Beach, Fla. He died in April after sustaining injuries following a fall at home.

His 12-page will signed in 2009 included detailed plans for three memorial services, but no bequests to Freedom Forum or the museum. However, he did order their names chiseled on his headstone. And the Neuharth family is listed among donors of $100,000 or more to the museum.

Meet the boss: his daughter
Freedom Forum's latest deficit came during Neuharth daughter Jan Neuharth's first full year chairing the 11-member board of trustees. She replaced Overby. The foundation paid her $50,000 last year.

Jan Neuharth

There is considerable overlap between Freedom Forum's trustees and the museum's, which is a legally separate entity. Many are long-time close associates of Al Neuharth.

Duff is on both boards. So is Neuharth's Cocoa Beach attorney, Malcolm Kirschenbaum, and the former Gannett newspaper publisher Mike Coleman. One of the more high-profile trustees is PBS NewsHour co-anchor Judy Woodruff.

Over the years, Freedom Forum and the museum have become a popular way station to retirement for many other top Gannett executives, including Peter Prichard, chairman of the museum board and another editor of the paper Neuharth founded, USA Today. As a Freedom Forum trustee, Prichard was paid $44,000 last year.

That the foundation and museum have been run by former newspaper editors, rather than trained professionals with experience in the field, suggests a major reason why both entities have become such financial boondoggles.

Duff, 60, is an attorney who came to his job without any discernible experience in museum or foundation work. He was chief administrator of the sprawling U.S. court system, with 35,000 employees and a $7 billion budget. Before that, he was managing partner of the Washington office of Baker, Donelson, Bearman, Caldwell & Berkowitz.

The office, which did legal work for the foundation, was founded by Howard Baker Jr., former majority leader of the U.S. Senate for Tennessee. Freedom Forum's tax return says he's a trustee and secretary, but the foundation's website says only that he's trustee emeritus. Overby, Paulson and the foundation also have deep Tennessee ties.

Overby lives in upscale Franklin, Tenn., which draws country music stars from nearby Nashville. In addition to his Freedom Forum pay last year, he also earned $200,000 as a director at for-profit prison operator Corrections Corp. of America in Nashville. He's been on the board 12 years, piling up 89,000 CCA shares, mostly options, with a gross value of $3.2 million, according to U.S. Securities and Exchange Commission filings.

Screenshot from retirement video.

(In court, CCA is at odds with Freedom Forum's free press and free speech mission. It has unsuccessfully opposed Tennessee open-records laws, arguing it shouldn't be required to disclose public documents about lawsuits against the company. CCA is a major government contractor. Overby has contributed $25,000 to its political action committee since 2009, according to the non-partisan Center for Responsive Politics.)

From Franklin, it's a four-hour drive to the Ole Miss campus' Overby journalism center. The center got its name after Freedom Forum donated $5 million to the school, one of a slew of eyebrow-raising grants. It's unclear whether it will continue paying him a six-figure salary as the center's chairman. On his retirement as foundation CEO, the university hosted a testimonial dinner that included a breathtakingly hagiographic video called Charles Overby: A Journey of Courage. It describes the $450 million museum as his "bold idea."

$27 million for museum
Whatever Duff accomplishes in belt-tightening, he won't immediately escape Freedom Forum's biggest ongoing obligation: the museum, which had 374 employees and a $68 million budget last year. The foundation gave the museum $27 million vs. $30 million in 2011. Freedom Forum's total 2012 spending last year was $56 million vs. $55 million. It generated only $8 million in revenue, producing the enormous deficit. The largest operating expenditures were employee pensions, salaries and wages.

The museum has fought for a Washington audience where many must-see attractions are free. It charges $22 for adults, although tickets are sometimes discounted. Admission revenue has barely budged since it opened in 2008. Last year's $7 million was virtually unchanged from 2011.

Newseum's Washington exterior.

As with many cultural institutions, it derives most of its revenue from contributions, facilities rental and concessions: $13 million in 2012, according to the tax return.

Its collection is eclectic, reflecting the breadth of its First Amendment mission: three-ton chunks of the Berlin Wall, newspaper comics and cartoons, and perhaps its most visible exhibit, an online collection of newspaper front pages from around the world.

But as the news industry grows more diffuse in the Twitter age, the museum has stretched the bounds of what might advance the foundation's free press ideals. The newest display -- Anchorman: The Exhibit -- is as much a promotion for Paramount's latest comedy as it is about journalism. The museum says the exhibit explores sexism in 1970s newsrooms. Its perhaps unintentionally arch Twitter hashtag: #stayclassynewseum.

Presley got star treatment in 2010.

The exhibit includes props, costumes and footage from 2004's Anchorman: The Legend of Ron Burgundy, starring Will Ferrell. Organized with Paramount, it opened Thursday, ahead of Dec. 20's debut of the sequel Anchorman 2: The Legend Continues. The foundation's website features a trailer for the movie. Paramount didn't make any payments to the museum, according to The New York Times.

To be sure, the exhibit isn't the first devoted to an entertainer; in 2010 the subject was Tennessee's adopted son, Elvis Presley.

A $650 million start
Neuharth, after retiring as Gannett's controversial CEO and chairman, held onto the company's philanthropic arm and installed Overby as chief executive. Founder Frank E. Gannett originally established the Gannett Foundation in 1935 for the benefit of Red Cross chapters and other needy causes in communities where the newspaper publisher did business.

Frank Gannett

Neuharth pressured Gannett to buy back $650 million in company stock that was the entirety of the foundation's endowment, then gave it a new name and mission, transforming it into a global journalism charity.

But in 2000, he and Overby shifted gears, focusing the foundation's money on one project: the museum. A promoter of the First Amendment, the museum also was to be a lasting physical legacy of Neuharth's life and career. Housed in a mammoth 643,000-square foot complex on a $100 million Pennsylvania Avenue parcel in Washington, it also is home to Freedom Forum's headquarters.

Opened years late for a whopping $450 million -- nearly twice initial estimates -- the museum now accounts for virtually all the foundation's annual gifts to non-profits. It wasn't Freedom Forum's first experience with runaway construction spending, however.

In 1994, Overby negotiated a 17-page settlement with New York's attorney general when the foundation was still incorporated in New York. Overby and Neuharth agreed to curtail what the attorney general called excessive spending on Freedom Forum's first headquarters, such as a $40,000 desk for Neuharth's office. Its provisions effectively remained in force only three years, however.

Neuharth and the other trustees paid $175,000 in restitution to the foundation. He later called the payments "utter nonsense," made simply to avoid a costly court case, according to Editor & Publisher. "Darts and arrows like this go with the territory for any action-oriented organization," he said.

A "font-tastic" t-shirt.

Under the settlement, Neuharth gave the Gannett Foundation name back to the company, which launched a new one under the same name. It has never returned to its former financial clout. Its most recently released tax return, for 2011, says it made $5.4 million in grants. Administrative overhead totaled only $194,000, however.

Where the original Gannett foundation supported untold numbers of community groups, Freedom Forum is spending down its endowment while the museum's gift shop sells $20 gag t-shirts and bangle bracelets. The foundation's administrative costs hit $28 million last year -- not including another $28 million for the museum.

But what about Elmira?
The museum's website features a by-the-numbers breakdown of its operations, such as the weight in pounds of the artifacts moved in for the 2008 reopening (145,460), the height in feet of the building's tallest point (137) and the number of TV studios (2).

Here are some numbers for last year that didn't get mentioned:

• The museum's operating expenses: $185,850 per day.
• Admissions revenue: $19,672 per day.
• Foundation grants to the U.S. Equestrian Team (Jan Neuharth is a horse enthusiast): $1,000.
• Overby's compensation: $475 per hour.
• Grants to non-profit groups in Elmira, N.Y., where in 1906 Frank Gannett started his company: $0.

Related: Read and download Freedom Forum's 2012 tax return and the Newseum's. Plus: See this spreadsheet showing foundation financial data for 2000-2012. And: Can Ron Burgandy save the Newseum?

Please post your replies in the comments section, below. To e-mail confidentially, write jimhopkins[at]gmail[dot-com]; see Tipsters Anonymous Policy in the rail, upper right.

Corporate has just filed its quarterly 10-Q report

Filed late this afternoon with the U.S. Securities and Exchange Commission, the third-quarter 10-Q is the more detailed version of the earnings press release Corporate issued on Oct. 21.

In a new interview, news chief Marymont discusses everything about Design Studios -- expect for this

Three years after expressing concerns in an open letter about Gannett's plans for five page production design hubs, the Society for News Design has swung back with a new interview with the chief of Corporate's News Department, Kate Marymont.

Marymont

In 2010, SND worried cost cutting would crush creativity, a concern Marymont addressed at the time in a Q&A with the professional association.

In the latest interview conducted by email, Marymont offered a detailed update on how the transition worked and lessons learned. But there was one question of especially high interest to employees that she still wouldn't answer:

SND: In your original interview with SND, you said: "We don’t know how many jobs might be eliminated. We are just beginning this project and a first step is to survey and analyze the work done at each site." Now that we are three years into the process, how many jobs were eliminated in the transition to the studio system?

Marymont: Gannett’s policy is that we don’t provide details on personnel or staffing matters. However, we certainly found savings as we introduced efficient ways to produce commodity information and refine workflows. We took some of those savings to build a management team at each studio to recruit and continue to train great staffs. We also are investing hours in building digital skills at the studios.

What the record shows
In fact, Gannett does detail staffing information, although generally when those figures are favorable to the company's image -- a tactic common across Corporate America.

For example, when the design hubs were announced, The Courier-Journal said in a story that it would add 75-100 jobs at its hub in Louisville, Ky. The Des Moines Register expected to hire 35 to 60; and The Tennessean planned up to 70 jobs in Nashville.

But in their hiring accounts, the papers and Corporate did not say how many jobs would be eliminated at the papers served by the hubs.

Gannett has detailed staffing elsewhere, sometimes at the most microscopic level, as when newspaper division President Bob Dickey told Wall Street the paper in Lafayette, Ind., had added two newsroom jobs in 2012. Those were among 60 other local news hires with plans for as many as 240 total, he said.

On another occasion, Corporate told Wall Street Gannett employed more than 300 local sports reporters and 50-plus sports columnists. Also, executives regularly mention the company employs 5,000 journalists companywide out of a global employment of about 30,000.

In new med plan, a worker named Maria suffers; little-publicized shift hurts the most vulnerable

As employees dig deeper into Gannett's new health insurance plan, it's become clear the sweeping changes will have potentially devastating financial consequences for many of the company's 31,000 employees and thousands more retirees.

To be sure, some may benefit. For example: younger workers earning $35,000 or less with no dependents and few if any health problems. Under the plan, they could build tax-free health savings accounts with $500 annual contributions from Corporate. They'll own those HSAs outright, and can take the accounts with them if they leave the company.

But for most, last week's plan will significantly boost medical costs in just three months, after it goes into effect Jan. 1.

We already know about a particular glitch in Obamacare, one that affects Gannett families in certain income brackets. Now, here's another significant wrinkle in the company plan that many people may have missed.

Under the current one, monthly premiums are based partly on how much an employee is paid. Those earning less, pay less. Those earning more, pay more. It's a feature similar to our system of progressive income tax rates.

But in the new plan, that feature goes away. (It's disclosed on Page 8 of this FAQ.) And that will be brutal for many thousands of lower-income workers. They'll soon spend a far higher percentage of their pay on premiums compared to better-paid colleagues. Here's an example, using employees I'll call Maria and Phil.

A clerk and her boss
Maria is a TV station ad sales clerk earning $10 an hour, or $20,800 a year. Her boss, Phil, is the station's ad sales director, making $120,000 a year. They both have employee-only coverage.

Under the current plan, Maria's monthly premium for the same benefits would be lower than Phil's because she earns less. But in the new plan, they'd both pay the same premium: $90 a month, or $1,080 a year.

For Phil, that's less than 1% of his annual income. But for Maria, it's more than 5%.

And it gets worse, because that doesn't reflect the impact of the new deductibles. Under the current plan, employees are only responsible for co-pays when they visit doctors. But in the new plan, co-pays go away. That means employees will be on the hook to pay hundreds and even thousands of dollars in up-front medical expenses right out of their pocket before any coverage kicks in.

In employee-only plans, the deductible is $1,500 a year. For lower-income employees like Maria, who earn $35,000 or less, Gannett covers the first $500.

Big bite, little bite
Even so, Maria would have to spend at least $1,000 of her own money before her plan starts covering any of her doctor's visits or prescription drugs. That would eat nearly 5% more of her pay, bringing the total bite to almost 10% of her annual income.

Gannett doesn't cover any of the deductible for employees making more than $70,000 -- like Phil. He'd be responsible for the full $1,500. Still, that would cost him only about 1.3% more of his annual pay. So, his total bite will be just about 2.2% of his annual pay.

To recap: Maria barely makes $21,000. Phil earns $120,000. But unlike under the current insurance plan, they'll soon pay the same monthly premium.

Lougee

Now, let's carry this up to Gannett's highest echelons. Dave Lougee, president of the TV broadcasting division, got paid $1.1 million cash in salary and bonus last year. (That doesn't include another $1 million in stock awards, pension gains and other pay.)

Under the new plan, Lougee would pay the same monthly premium as one of the lowest-paid employees in his division. (And it's doubtful he pays even a dime.)

To be sure, employees with more skills and responsibilities have always done better financially than those with fewer. That's true at every company across the country. It's a bedrock on which Corporate America was built. But at least Gannett's health plan recognized the special hardships for frontline workers like Maria as costs soared into the stratosphere. The new plan takes that away.

Martore signs off
CEO Gracia Martore announced the new plan in a letter to employees last week. I doubt she wrote the letter herself. These crucial communications are drafted by many people, including especially attorneys.

Still, the letter doesn't offer so much as a hint of the enormous new medical costs she's shifting to the backs of employees -- many of whom have received only tiny raises in recent years, if they've gotten any at all. It's a strange omission for a woman whose childhood was marked by hardship.

Indeed, Martore doesn't express a whit of remorse for what she's decided to do. In fact, the way she closes her letter is worse than if she'd said nothing at all.

It's signed, "Best regards, Gracia."

Related: Here's the company's FAQ about the new employee health insurance plans. And here's a document showing examples of how the plan will work for individuals and families. They are stored on Google Docs, where you can download copies anonymously at no cost.

Got a personal healthcare story to share? Please post your replies in the comments section, below. To e-mail confidentially, write jimhopkins[at]gmail[dot.com]; see Tipsters Anonymous Policy in the green rail, upper right.

Here's the red carpet medical care top execs get

At Gannett, VIP stands for very important perquisites.

As Gannett ratchets up the cost of health insurance for regular workers, it pays for generous extra medical benefits for the most senior executives and their families during and after employment -- and in some cases, even after they die, company documents show.

That's hardly surprising. Across Corporate America, executives get all manner of platinum perquisites once they're promoted to the sunniest corner offices. But they're controversial because many corporate governance experts say seven-figure paychecks ought to be enough.

As at other companies, Gannett's board of directors argues these perqs are more than necessary. In company documents, the board says they "help minimize distractions from important initiatives" and "attract and retain the best management talent."

Here's a rundown of the executives' benefits, according to annual proxy statements to shareholders.

Cash for mortgages
Gannett pays for supplemental medical coverage for at least CEO Gracia Martore, newspaper division President Bob Dickey, and broadcasting President Dave Lougee.

Dickey

Supplemental generally pays cash for essentials not included in your regular plan, including your mortgage, groceries, childcare, and a private hospital room.

How much does supplemental care cost the company? It's not detailed, but instead is lumped into a category called "other compensation." That also includes costly life insurance premiums and such extra perqs as personal use of the company jet. Last year, other compensation totaled $117,283 for Martore; $125,612 for Dickey, and $131,030 for Lougee. (This table shows total pay last year.)

Supplemental continues after retirement, when it also extends to covering family members. The reports doesn't say how long the benefit lasts, suggesting it's at least as long as the executive is alive.

And if they keel over at their Crystal Palace desk? Family dependents not only continue to get regular medical coverage, but also the supplemental coverage for the rest of their lives. That supplemental insurance costs the company about $10,000 a year.

Top executives swing these benefits thanks to an entire industry of lawyers and other financial consultants who are experts in brass-knuckle negotiating.

Paying to pay even more
And in one of the ultimate perqs, Corporate provides legal and financial advice at company expense. In other words, the company pays attorneys who can help executives wrangle these very benefits.

The report doesn't say how much that expert advice costs the company. But the 2012 proxy report suggests it's worth as much as $25,000 a year, in a section detailing former CEO Craig Dubow's post-retirement bennies.

Earlier: Tell us how much more you'll pay next year for medical coverage.

Related: Here's the company's FAQ about the new employee health insurance plans. And here's a document showing examples of how the plan will work for individuals and families. They are stored on Google Docs, where you can download copies anonymously at no cost.