When it was created this past spring, the Journal Media Group (JMG) hinted it would be looking for acquisitions in “additional attractive markets.” In fact, the new company, which combined E. W. Scripps’s 14 dailies with Journal Communications’ flagship Milwaukee Journal Sentinel, was set up to make the financing of acquisitions relatively easy. New stock to buy properties could be issued by the board of directors “without stockholder approval.” Conversely, as the pre-merger JMG prospectus to stockholders said, “Our board of directors could adopt a rights plan which could ensure continuity of management by rendering it more difficult for a potential acquirer to obtain control of us.”
Lo and behold, barely six months after JMG went into business on April 1, a would-be acquirer — Gannett, itself a new publishing spinoff — came to town and the boards of the two corporations reached agreement — awaiting very likely ratification by JMG stockholders — without much difficulty.
What was behind this strategic turnaround at JMG?
Two things that Gannett has that JMG couldn’t match: 1) The proven ability to consistently wring substantial cost savings out of expansion, and 2) a new digital ad strategy that holds the promise of making everybody — advertisers, audiences, and stockholders — happy.
Gannett, which has been steadily cutting operational costs at its newspapers in the face of print’s decade-long disappearing act, says the JMG acquisition would result in an immediate $10 million gain in EBITDA (earnings before interest, taxes, depreciation, and amortization) and that $25 million more in EBITDA would come from operational reductions over two years. Overall, that would give JMG an enviable EBITDA margin of 15 percent, which is where Gannett is right now with its 92 local dailies (before the acquisition of JMG takes effect).
That kind of performance by JMG would make Gannett’s $280 million offer price for the chain’s 15 dailies and 18 weeklies — a 50 percent premium on JMG’s pre-announcement stock value of about $8 — a bargain. No one ever accused the business folks at Gannett of not knowing how to count beans.
What intrigues me even more than Gannett’s EBITDA magic wand is what the publisher has been doing in digital advertising, especially video, the digital platform to which ad dollars everywhere are rapidly migrating.
Gannett recently introduced a new video ad product called Gravity — first on desktops and, more recently, on mobile. I dislike many conventional pre-roll video ads because they’re often clumsily produced and are automatically repeated two, three, four, and more times on a user’s desktop or mobile platform in a single day or even during one session. Like many digital viewers, I am primed to skip such video ads after the obligatory four seconds, or whatever is the minimal required viewing time.
Gannett’s Gravity ads are a much better experience for four reasons: 1) They’re generally much better produced than the average pre-roll, with emphasis on the visual over audio, 2) they’re an immersive full-screen experience, 3) they let you toggle to the news instantly and then back to the video ad, and 4) you’re served a particular Gravity ad only once in 24 hours. Here’s one for the History Channel’s new “Houdini” miniseries.
- An average consumer in-view time of 57 seconds (vs. an industry benchmark of 20 seconds)
- An 83% in-view rate (vs. a 48% industry benchmark)
- A 63% interaction rate (vs. 2.7% benchmark)
- 88% attention quality (vs. 28% benchmark)
Journal Media Group does not have the resources to come up with innovations like Gravity, and that’s one important reason it agreed to be acquired by Gannett. Gravity ad products will be immediately available to former JMG papers when the acquisition is made final in Q1 2016, and you can be sure those acquired dailies will be using them.
JMG saw its digital ad revenue decline 5.3 percent in Q2 2015 — all the more reason for the company to shift its strategy 180 degrees from expansion to acquisition. As CEO Tim Stautberg told me: “Joining Gannett will provide access to a stronger portfolio of digital solutions to help local advertisers reach current and prospective customers.”
The larger question is how the Gannett acquisition will affect JMG’s editorial content, especially at the highly regarded Milwaukee Journal Sentinel. Journalistic observers have often criticized Gannett for making deep budget cuts in editorial resources as the revenue of its print products continued to shrink. The decade-long reductions have trivialized the 92 Gannett local papers’ editorial content, critics say. With that in mind, I asked Stautberg two specific questions about editorial quality:
When the acquisition was announced, Milwaukee Journal Sentinel publisher and president Betsy Brenner said: “We’re still here. We make our decisions and run our newsrooms out of Milwaukee, not anywhere else. We serve our advertisers and subscribers out of Milwaukee, not anywhere else. And we support causes that are important to our community from this building. So all of that, it’s not going to change.” Now, corporate control will no longer be in Milwaukee but at Gannett headquarters in McLean, V.A. What does this mean to local control, especially in editorial and advertising?
Betsy’s comments are consistent with the value the new Gannett places on local news and decisions being made by those working in the local market.
Will JMG papers be running USA Today local content in their print and digital products, and, if so, how will this affect what publisher Brenner says about “we run our newsrooms out of Milwaukee.”
We have not had any specific discussions with Gannett about how our local markets might use content from the USA Today Media Network, but today Journal Media Group provides shared national content pages to our local markets for their use in print and on digital platforms. Milwaukee Journal Sentinel publisher Betsy Brenner and editor George Stanley will continue to be able to decide what’s best for the readers in the Milwaukee market.
I don’t think there’s much question that the Journal Media Group’s bottom line will benefit significantly from Gannett’s operational cost-cutting and digital ad know-how. I’m not quite as certain how JMG’s 15 dailies — most especially the Milwaukee Journal Sentinel — will fare editorially when Gannett takes corporate control.
For the second time since the original launch in 2008, Gannett is promoting its “newsroom of the future” as proof of its recommitment to quality editorial and community service. The digital transformation I watched a year ago at one Gannett daily, the once-sliding Asheville (N.C.) Citizen-Times, left me encouraged. I hope there’s room for the Milwaukee Journal Sentinel’s community-centered editorial excellence in that newsroom of the future.
Tom Grubisich (@TomGrubisich) writes “The New News” column for Street Fight. He is editorial director of hyperlocal news network Local America, and is also working on a book about the history, present, and future of Charleston, S.C.