Since last July, Gannett has announced two big dividend increases,
set jaw-dropping goals for digital initiatives like USA Today Sports Media Group, and launched paywalls that are already producing results.
Wall Street's reaction: Until early this week,
GCI's stock had climbed only 2% from last summer.
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| Murdoch |
Instead, it took News Corp. splitting its entertainment and publishing businesses to send GCI soaring: Shares are up more than 9% over the past two days alone, when reports first emerged about internal discussions at the
Rupert Murdoch-controlled conglomerate. NWS
announced the deal moments ago.
Now, the question becomes: What can CEO
Gracia Martore do to unlock any hidden value and keep GCI shares up, once the
NWS-driven hallo effect fades across the rest of the industry?
At NWS, publishing, including its flagship
Wall Street Journal, generates lower profit margins than its TV and entertainment portfolio, best known for Fox News and 20th Century Fox studios.
Separating the two would presumably hand the entertainment division more valuable shares to make more deals. But it would leave the publishing side weakened without entertainment to bolster its results. "That has been the perception,'' an unidentified
WSJ reporter told
The New York Times for
a story today. "You’re part of something a whole lot bigger so you’re going to be O.K."
A glance at GCI's
most recent quarterly report shows a similar profit divide.
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| Martore |
The publishing segment, which includes
USA Today and about 80 U.S. community papers, generated 72% of the company's $1.2 billion in overall first-quarter revenue. But it accounted for just 46% of the $136 million in operating income.
Broadcasting leads
The 23-station broadcasting division, on the other hand, produced only 15% of revenue, yet fully 54% of income. This year, especially, will be a gangbuster one for broadcasting because of political advertising during the national elections and the summer Olympics on its 12 NBC affiliates.
Only last week, the
WSJ's influential "Heard on the Street" column
noted that, despite the past seven especially difficult years, GCI's profit margins were still 18.3% in 2011. But, the report said, that's a far cry from 29.6% in 2005.
"Analysts are skeptical that small-market customers will pay for content," the
WSJ says, although GCI "has expressed early optimism about its paywall rollout, which it expects to extend to all newspapers by year-end."
And despite financier
Warren Buffett's recent spate of newspaper buying, there's little on the horizon to show GCI and other publishers can reverse plunging ad sales.
Wall Street has
bid up virtually all newspaper publisher shares this week amid the NWS speculation, suggesting investors may be anticipating an industry-wide restructuring.
GCI closed yesterday at $14.41, up 2.6%.
Stay-whole strategy
There's been no hint that Corporate will pursue any strategy as aggressive as that at NWS. Throughout the past years of industry turmoil, Corporate has rebuffed Wall Street's calls to, for example, sell the U.K. newspaper division Newsquest.
Instead, it has taken the more conservative path: keeping the company whole while pursuing investments in digital businesses such as online coupon site DealChicken and the Sports Media Group. It's now launching paywalls across the U.S. newspapers that it forecasts will generate an additional $100 million in profits starting next year.
Wall Street, however, has greeted those initiatives with a yawn. Corporate's
presentation to media stock analysts a week ago revealed details on existing projects, but nothing dramatically new.
The board at NWS announced its approval of the split this morning. Completing the deal will take about a year, the
WSJ says.
During those 12 months, what will Martore and the rest of GCI's
board of directors do?
