Thursday, January 27, 2011

Mail | Profit 'expected, required and rewarded'

[A Gannett stock certificate. GCI closed today at $15.04]

Regarding the disposition of money saved during the current round of furloughs, Anonymous@1:55 p.m. writes today about Gannett's history as a publicly traded company. (Note: GCI was founded in 1906. It went public in 1967, when its second CEO, Paul Miller, was in charge. GCI's more than 237 million outstanding shares of common stock are held by about 8,800 shareholders in all 50 states and several foreign countries.) Here's 1:55's comment:

The root of all evil, so to speak, came years ago when we agreed to be a publicly held company. When we did this, the stockholders, and returning maximum value to stockholders, became our No. 1 focus.

When times were good and margins large, we could serve the shareholders and still do good journalism, public service, rich content and the like. As margins dropped, and with our No. 1 focus (and, truly, our duty) being to maintain and grew shareholder value to the best of our ability, we had to cut the quality.

I have sat around the table with a group president and heard this executive say, to paraphrase, "Stop talking about readers and audience and quality. I really don't care about that. Start talking about how we can move our numbers." Now, it was said with a smile and intended to be sarcastic. But, sadly, in this setting, it was more truth than humor. Content is often seen as an expense, rather than the element of what we do that makes us special. Of course, if we can manage to do good content with reduced resources, we will give lip-service to its value and worth. But little more.

Our chairman/CEO, our president, our division president and, most important, our board of directors are first and foremost charged and required to do everything in their power to maximize shareholder value. Everything else is secondary. So, while a private company might be willing to say, "Let's settle with an XX-percent margin because I know first-hand the good we are doing for our communities," our corporate, publicly held structure renders such notions as quaint, nostalgic and, frankly, irresponsible to our shareholders who want a return from their investment right now, not a few years down the road.

We're not a non-profit. We're not a not-for-profit. We're not owned by a benevolent billionaire who sees us a public resource. We are a profit organization.

More profit, or at least the most profit we can get, is expected, required and rewarded.

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.


  1. Yet for all the "maximizing" of profits, shareholders will ultimately hold stock worth nothing, as Gannett is only a position to chase an ever shrinking piece of pie. It's not good for shareholders.

  2. If this were all true, how come it doesn't have the same impact on the executives who run the New York Times, or on Rupert Murdoch, who runs a public company? Murdoch, in particular, has used this recession to expand dramatically his operations, buying the WSJ, doling out $30 million to start up the Daily, a local-oriented Web publication, plus his other operations. The NYT used this recession to scrap plans to sell the Boston paper, and has consolidated its holdings.
    There are ways of maximizing shareholder value that do not involve cuts that are causing a death spiral. Taking the company down cut by cut does nothing to maximize shareholder value. What does is investing in ways the company can grow in the future. We have seen this week the initial public offering of Demand Media, whose copy we have all read at a value of $1.3 billion. Why could not have Gannett done something like this. It has the copy in its archives, and a distribution network. It could have had that $1.3 billion itself, but the company didn't have the vision.
    If you want to move the numbers, then you have to give shareholders something to hold out for in the future. Cuts followed on cuts is not the answer. Start another USA Today, or do something else that is creative. But DO SOMETHING.

  3. "Everything else is secondary." The last time I heard that being in a gutter was secondary was in the movie "Little Big Man."

  4. This comment has been removed by a blog administrator.

  5. Maximize shareholder value? The stock has gone from $80 to currently $15 under this leadership and its vision-less approach to running Gannett.

  6. If the CEO, etc. are all supposed to be looking after the shareholders, what were they thinking when they borrowed more than a billion bucks to buy back stock that plunged to near oblivion?

    That was one heck of a gamble that obviously didn't pan out.

    And now Martore, the CFO at the time, is headed toward the CEO chair? Shareholders should be outraged!

    The biggest mistake Gannett made was not going public, but instilling a culture of greedy, ass-kissing management that quashed innovation at every turn.

  7. The big wigs didn't do what was necessary to serve either the stockholders or the readers. They did what was necessary to serve themselves.
    Nothing else. And that obviously continues to this day and probably will into the foreseeable future.

  8. In the scenario outlined by the poster, no consideration is given to the fact that this strategy is certain to reduce revenue. Stockholders pay as close attention to revenue statements as they do to profit statements. The sweet spot is a company that is both growing revenues and growing profits. A company that is growing profits but not revenues is a declining company, and that will be reflected in the stocks because no broker will recommend the stock until there is a prospect of revenues recovering.

  9. As the Dylan song says, you gotta serve somebody, so it's foolish to rail at Wall Street or heap all the problems Gannett faces on it being a public company. The alternative is family ownership or an oligarchy, which can be just as perverse as we have seen as second and third generation owners have blown up their father's/grandfather's company.
    Wall Street ownernship has the advantage of giving market discipline to what a company is doing. Newspapers are not in favor as an industrial category right now, and I don't have to tell you why that is. Don't kill the messenger because you don't like the news.

  10. 7:16, agreed with the rest of your post, but companies generally buy back stock in order to save the cost of paying quarterly dividends. Its all about the cost of borrowing now vs cash outflows in perpetuity.

  11. 5:45 PM
    Thank you for the excellent post. The most intelligent posting I have seen in a while.

  12. The difference between Gannett and basically all other media companies, (i.e. News Corportation, Disney, etc.) is that Gannett never has had any "real" innovators or any "real" business people running the company since Neuharth. Gannett did well in the past because all newspaper companies did well in the past, leadership quite frankly was optional and a monkey's ass could run the company. Look at Disney and Michael Eisner.... Eisner brought Disney back from the edge of near bankruptcy and turned it into the huge media empire it is today; however, when Eisner could no longer produce he was let go....(something Gannett's board refuses to do with its executives as if nothing is ever their fault). If it wasn't the economy the executives would be blaming something else for revenue decline, that's all they do is blame, blame, blame with no real plan EVER. No real business leader will ever come to Gannett because there is ZERO upside in doing so, any top executive worthy their salt would need $100 million up front and complete authority to fire all the board members and anybody else from the old regime..... obviously that will never happen. They praise Dubow for what he has managed to do in this economy.... but lets not forget he was the 4th person they went to; to run the company when the first three declined one of them being Mel Karmizin. The real problem now is that Gannett really has nothing left of value to market, they are surviving on people who still read newspapers and that will continue to decline and their revenues will continue to reflect that statistic. Gannett will probably still survive quite a few more years as long as their revenues don't sink to quickly for them to keep up with their debt payments. If they do survive long enough to payoff the debt, Gannett will be a shriveled little shadow of itself and disappear into a division on another media company or simply cease to exist. Having worked inside Gannett for many years (I no longer work there) I always found it amazing how Wall Street can't see through the smoke and mirrors of this company....

  13. 9:04 AM - You are definitely mistaken when you say, "but companies generally buy back stock in order to save the cost of paying quarterly dividends. Its all about the cost of borrowing now vs cash outflows in perpetuity." While that may be a true result under some circumstances, it is never the reason... Their are only 2 real reasons a company ever buys back its own stock 1) They want to reduce the shares on the open market to potentially drive up price per share and 2) They see no other better investment at the time than to buy their own shares. The fact that they bought the quantity of shares and at the cost that they purchases those shares at (while EVERYONE in the market was selling Gannett) shows how completely inept and fiscally irresponsible the management team and ultimately Dubow and the Board of Directors are......

  14. Some thoughts:
    * I wonder if our "transformation" will eventually resemble what Kodak has/is going through. When film was king, they employed 70k-plus in Rochester and beyond. They invented the digital camera, yet almost threw it away because the money was still in film and leadership couldn't fathom people preferring this quick, easy and evolving technology over tried, true and dependable film. In the end, they are a sixth of their former employee strength and are trying like mad to become a digital image company. Odds are they will survive, perhaps thrive, but they will not ever be what they once were. This may be our future.
    * I wonder: As mad as Big Al is and was, you must give him credit for creating USA TODAY. It was bold, risky, started during a downturn in the economy. He took an enormous risk, bolding declaring that the idea won't turn a profit for years and committing the resources of other properties (talent and dollars) to lay the foundation and support its development. Does our leadership now have the vision, courage and ability to be so bold again? Would the Board, and the Street, let them be so bold?

    If they think we're in the midst of what they consider to be the Big Al ah-ha move of their generation, why can't they lay it out there -- like Big Al and Kodak did -- and give us all something to understand and perhaps believe in again. I think we would all like to know where we're going -- even if it means many or most of us will lose our jobs -- if only to know that the pain we feel will perhaps lead to something that could endure.

    And, I'm not talking about a mission statement or other puffery. Look us in the eye -- via webcast even -- and tell us that we're going to be a company of XX size that does XX things. Have the courage to say, upfront, that our small community newspapers no longer warrant our attention and support and, in the words of Jim, will become "flying gascans" or storefronts that feed to larger operations. Show us, in real terms, how our "Kodak" will look in five years, 10 years.

    Last point, to amplify another point by Jim: Why in the world isn't Robin doing a pro-Gannett blog, a companion to this one, that puts the company/leadership spin on things? In the absence of communications leadership, Jim is setting the tone and narrative for Gannett. Don't kid yourself, folks. This ain't just a site visited by disgruntled current and former staffers (although that's a big part of the audience); it's frequented by media analysts, reporters covering the media, politicians and in-the-know community leaders in the towns with Gannett operations and the like. Shoot, I know of one group president who begins and ends the day with a review of this site; I bet this Gannett executive is not alone in such habits.

    Jim would likely quote and site Robin's blog for balance and information. I bet others would, too.

  15. There is much that's good and correct in this thread, starting with the comment by 1:55 p.m. that gave birth to it. It is, indeed, management's legal responsibility to maximize shareholder value, as 1:55 p.m. well describes. Clearly there is a conflict inherent here with news values. Some are better at it than others. I've worked in Gannett, Knight Ridder and Lee newsrooms. Where would I rank Gannett? Last.

    But those who point at GCI's fall from an $80 stock to today's $15 stock as evidence of management failure are no more than partly correct and being a bit dishonest in not providing the context of a) the secular decline of the industry, which has hurt all newspaper stocks and b) the market crash of 2008. It ain't just GCI.

    Those who say that cuts are not a strategy may well be correct. Then again, what if the company is envisioning a complete redo? Something as transformative as the change made by the former Thomson newspaper chain, which basically got out of the newspaper biz in 2000 and now exists as Thomson Reuters, a very different kind of company. We don't know what we don't know. The driver of a car who leans out the window shouting "Pig!" appears to be insulting us. Until we round the curve and encounter a pig in the middle of the road.

    Continuous layoffs are, indeed, a death spiral if being a trusted and valuable news outlet is your 10-year goal. And if that's management's goal here, then Gannett is insulting its shareholders like a driver who calls you a pig. If not, then maybe not.

  16. 1:09, the reason why there isn't a pro-Gannett blog is that they don't have any good news to trumpet. It would be a blog full of useless drivel like "transformation", "verticals", "diversity" and other corporate gobbledygook.

  17. Thank you, OP, I have been preaching this for years. Wall Street has become a very fickle, demanding and ugly mistress.

  18. 1:09 and 1:21 Indeed, I would quote from and link to a blog produced by Corporate. In fact, it may be that the rumored redesign of Corporate's website will include an official Corporate blog.

    Another blog about Gannett doesn't have to be "pro" in the very traditional sense. It could simply offer a different view from this one. The trick, however, is to find 1) Someone willing to devote time to the effort, and 2) A large-enough audience to justify the work. That's not easy.

  19. I've been passionate about journalism for 20 years and loyal to this company for 10. For the first time in my career, during which I've fought to remain optimistic, I'm starting to lose hope on both fronts.

    Btw, Jim, I've been a near-daily reader of yours for years and this is my first comment on your blog. Thank you for the watchdog service you provide.

  20. In theory, a Pro-Gannett blog would be interesting to read, but in reality, it won't happen.

    Wouldn't work, mainly because honesty and integrity are not characteristics of the company and leadership. This company manages through fear and intimidation, and it's not open to differing ideas.

    If a Pro-Gannett blog gets created, readers/employees will see it for what it is, and regard it as such, because those behind it will make it as such.

    It would still be a pig, regardless the color of lipstick.

  21. What would a pro-Gannett blog do? Would it not permit comments on layoffs the company doesn't acknowledge are happening? Would it permit scathing criticisms of the board of directors and company leadership. Would it permit puff pieces on Dubow and Gracia, detailing their greatness and contributions to journalism.

  22. Several of us analysts do read this blog and are keenly aware of Gannett's problems. Thank you to Mr. Hopkins and all the employees that contribute to this blog as it is very helpful for our analysts to triangulate information we receive from Mr. Heinze, Ms. Martore and Mr. Dubow.

    Please keep it up.

  23. I suspect 9:47 meant Jeffrey HEINZ, director of investor relations.

  24. Forgive me if i'm wrong Jim, but isn't the job of the CEO, COO, CFO, and Board to increase shareholder value? What has this group of "clowns" done for Gannett since they took over? How come they haven't been fired yet? I only see Gannett going downhill and fast. The Journal News in NY gets smaller and smaller each week, with little advertising. USAT, where I worked for a year, has no clue what they are doing. Their Alt-Delivery feel through on the West Coast because of bad oversight. The Detroit partnership is going well because of the leadership of the Controller in Cincinnati, but the leadership pats themselves on the back at USAT Circ Department, when they can't even get the contractor adjustments right. In my humble opinion it might be time to replace each and everyone of them, one at a time and hire capable people to do the job, because none of these fools can do it, obviously!!!!


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