Media company Gannett announced Tuesday it plans to split in two.
Its newspaper and publishing arm – including USA Today – will split off to become one company, retaining the name Gannett. Its broadcast and digital arm, which has yet to be named, will become its own company. That company also, and not coincidentally, just bought up Cars.com.
It’s the latest example of a decade-old scramble to figure out what to do with newspapers.
In some ways, Gannett is spinning off its publishing side, but you could also say it’s ditching it.
“They’re doing it for the simple reason that newspapers are in a downward spiral that’s irreversible,” says Porter Bibb, managing partner at Media Tech Capital Partners.
The idea is that newspapers drag down earnings, stock prices, and even investment from the broadcast and digital side of the company. Those companies could excel, ostensibly without needing to subsidize their ailing brother.
“The latest number showed that while 70 percent of [Gannett’s] revenues were coming from newspapers, already 60 percent of profits were coming from broadcast,” says Ken Doctor, media analyst at Newsonomics.
Even though digital ad spending for newspapers is expected to increase 4.3 percent this year to $3.64 billion, traditional print newspaper ad spending is expected to drop 4 percent to $16.73 billion. That brings the total ad spending down 2.6 percent from last year, according to eMarketer.
The decline of newspapers is intimately tied to why the broadcast and digital side of Gannett will buy Cars.com. Auto advertising used to be the hand that fed newspapers. Now that hand is feeding someone else.
“Print media’s lost billions in ad revenue in the last decade, and a large part of that is from auto dealerships who have shifted spending from print classifieds over to digital,” says Mike Hudson, an analyst with eMarketer.
The broadcast and digital side of Gannett followed the money and it's leaving publishing and newspapers behind in what has become a popular strategy. Time Warner spun out Time Inc. and News Corp split off from 21st Century Fox.
It’s not necessarily leaving print behind to die, just to fend for itself.
“Essentially, the theory goes if you spin off the print piece, the print can have the freedom to focus on the business of print itself,” says Hudson.
There are often crossovers – relationships between TV and print remain. In Gannett’s case, the print company would very likely continue to provide news services to the broadcast side.
But to the extent these spinoffs are independent, they are also vulnerable.
“The companies are left as standalone companies, that means they operate now without a safety net,” Doctor says.
So far the print spinoffs aren’t looking great, either.
“All these publishing companies are still negative on revenue year over year, and for most of them they haven’t grown revenue for seven years really since the recession,” Doctor says. “So we don’t know about the long-term impact of it.”
The broadcast companies appear to be doing better in terms of earnings and stock prices, but that doesn't prove spinning off is a good strategy. Broadcasters have their own battles to fight – think about cable TV and its battles with Aereo and Netflix.
So while the spinoff is a popular move, it’s also a new and unproven one.
Graphic by Shea Huffman/Marketplace