After the strike, the D&C’s dilemma remains

Print More
Photo by Paul Ericson

The Democrat and Chronicle newsroom employees who went on strike April 6 have been working without a contract since 2019. For the D&C’s parent company, that year also is notable for another reason: the merger that created the “new Gannett.”

The deal brought together Gannett, the nation’s largest newspaper chain, and second-ranked GateHouse Media. In the transaction, valued at $1.4 billion when it was announced in August 2019, GateHouse parent New Media Investment Group acquired the D&C’s owner but kept the Gannett name.

At the time of the merger, NMIG said the two companies “believe that a digital transformation of the newspaper industry is vital to the preservation of journalism, and the merger will accelerate the combined company’s digital transformation.”

But in the nearly five years since then, that transformation has proved difficult to accomplish. Meanwhile, Gannett has lost nearly $1 billion as both circulation and advertising revenues have continued to fall.

Gannett sees an “inflection point” on the near horizon, when its topline will turn from decline to growth, but digital revenues would still account for less than half of the total. And the trendlines for Gannett’s U.S. newspaper operations generally continue downward.

Investors have been skeptical too. Gannett’s stock midweek was trading around $2.40 a share, near the midpoint of its 52-week range but down more than 60 percent from its price when the merger was completed in November 2019.

Last Wednesday, the Newspaper Guild of Rochester negotiators thought they had a deal with Gannett, but they said it came undone after they discovered changes to agreed-upon text. The following day, the striking employees went back to work—without a new contract.

“It became apparent to us that Gannett’s top priority was not to come to any particular terms but rather to string us out for as long as possible,” says Justin Murphy, a D&C reporter and Guild vice chair. “And we determined that it was not in the best interest of us or the community to stay out with no immediate prospect of any kind of fruitful resolution. Instead, we thought the faster way to get what we deserve was to bring the fight into the newsroom, apply a different set of pressure tactics to try to get the company to the table.”

Lark-Marie Antón, Gannett chief communications officer and spokesperson for the D&C, said in a statement that the company was “pleased our Democrat and Chronicle colleagues are back to work focused on serving the Rochester community.”

She added: “When Guild leaders come to the table focused on serious negotiation rather than creating a circus of false narratives, our local management is always prepared to negotiate in good faith. You can see that in cities across the country where we have reached agreements.”

But are Gannett’s uncertain prospects also a factor in why the company has been unwilling to reach a new deal with the local Newspaper Guild?

Merging with GateHouse

Unlike the century-old Gannett, GateHouse was an industry upstart—younger than the internet itself. After private equity firm Fortress Investment Group acquired Liberty Group Publishing’s newspapers in 2005, the company—renamed GateHouse—bought the Rochester-area Messenger Post Newspapers and moved its headquarters to the Rochester suburbs.

By the time NMIG, a Fortress private equity unit, acquired Gannett in 2019, it also owned the Rochester Business Journal and the Daily Record. (The Business Journal joined the Daily Record as part of NMIG’s BridgeTower Media unit, which later was sold to another private equity firm, Transom Capital Group.)

GateHouse’s early growth was fueled by debt, a strategy that led to its 2013 bankruptcy filing. A Chapter 11 restructuring put the chain under NMIG’s wing and brought an infusion of private-equity cash, resulting in another series of acquisitions. To buy Gannett, NMIG opted for more debt, borrowing $1.8 billion.

To sell investors on the merger, the combined companies outlined $275 million to $300 million in cost-saving synergies they believed could be achieved. At least $115 million would come from newspaper operations. In fact, Gannett’s total operating expenses have declined, from more than $3.8 billion in 2020 (the first full year after the merger) to less than $2.6 billion in 2023.

The company’s revenues, however, have followed the same trajectory. In 2020, they totaled $3.4 billion; last year, revenues were less than $2.7 billion, a 28 percent drop.

Operating costs don’t include interest expense, which for Gannett totaled more than $228 million in 2020 and have topped $100 million each year since then. Bottom line, Gannett has lost money year after year, though the total has declined from $672 million in 2020 to roughly $28 million last year.

All newspaper businesses have two primary sources of revenue: advertising and circulation. For Gannett, advertising accounts for slightly more than half of revenues for its U.S. publishing segment, Gannett Domestic Media. Since 2020, the segment’s total revenues have fallen by nearly one-third, with advertising/marketing sales declining by roughly the same amount. Print advertising is the biggest category, and it also has suffered the largest drop: 44 percent. Digital advertising/marketing has fared better since the merger, but those revenues also have declined, by 17 percent.

On the circulation side, the digital push has produced better results. Since 2020, digital-only circulation revenues have doubled. However, by 2023 they still represented a small share of total circulation revenues—and print circulation revenues, the lion’s share, had plummeted by 47 percent. As a result, total circulation revenues had dropped 39 percent.

“I don’t think Gannett is at all atypical,” says Rick Edmonds, media business analyst and leader of news transformation at the Poynter Institute, a nonprofit devoted to the professional development of journalists and local news sustainability. Like all newspaper companies, he says, Gannett must adapt to the “steep decline in subscriptions and readership, (and) getting to the far side of that, not to mention all the challenges of making money on digital, both ads and audience. So, it’s a very tough road.”

Murphy, who has worked at the D&C for more than a decade, says the company has not changed fundamentally.

“It’s difficult for those of us in the newsroom to differentiate the ‘new Gannett’ from the ‘old Gannett’—the Gannett which has always been, which is unfailingly rapacious and venal and blind to the needs of its communities,” he says. “And the part that’s particularly galling for us is that they can do it because they know that the journalists that they employ are dedicated to their community enough to ignore all of this offensive behavior.

“We don’t ask for much; we don’t ask for exorbitant pay or exorbitant benefits,” he adds. “We have been willing to put up with a huge amount of disrespect from the company in order to serve the community, which is ultimately who we view as who we work for.”

A diminished daily

Gannett does not report revenues or expenses for its individual newspapers. Its latest annual report, however, does include 2023 and 2022 circulation figures for the D&C and other key newspapers. It shows the Rochester paper last year had daily and Sunday circulation of 18,520 and 28,336, respectively; both were down 19 percent compared with the year before. Digital-only circulation was 23,623 versus 25,337 in 2022. That means a key metric for its digital transformation declined 7 percent year over year.

The company has not been consistent in how it reports papers’ circulation. Previously, it provided daily and Sunday combined averages; for the D&C, both dropped by more than 40 percent from 2020 to 2022. (Antón said Gannett last year updated its reporting methodology for daily and Sunday circulation to reflect reported subscription volumes, and numbers from years prior to 2022 are not comparable. Other than what’s reported in the annual report, Gannett does not release circulation figures for individual papers.)

Another source of circulation data is the Alliance for Audited Media, which compiles unaudited figures from U.S. publications. It provided me the most recent statement for the D&C, for the six-month period ended last September, and the fourth-quarter 2019 report, the last one before the merger. (The data are averages for the period.) The statements show a 54 percent decline in average Monday-Friday circulation, from 50,881 to 23,501, and an almost identical (53 percent) drop in Sunday circulation, from 64,096 to 31,597. Digital-replica subscriptions, which remain a far smaller share of the total than print, also declined sharply.

It’s hard to say with any certainty how these circulation figures translate to dollars. The D&C routinely offers discounted rates to attract and retain readers. On its website, the offers include $1 for six months of digital only and $2.99 per week for the first three months of full digital plus Monday-Sunday print delivery. After the introductory offers expire, steep price increases—to $80 or more per month for a print subscription—kick in. The company often tries to keep readers, or lure back those who cancel, with more deep discounting.

The D&C’s sharp circulation declines did not start after the 2019 merger; the downward trend began long before that. As the Beacon reported in early 2023, AAM figures for 2014 show the D&C’s Monday-Friday circulation at that time averaged 92,443, while Sunday circulation averaged 127,783. A decade earlier, the D&C’s Monday-Friday circulation was 169,262 and Sunday circulation was 228,514. Compared to the latest AAM numbers, both have plunged 85 percent or more.

So, the D&C’s woes cannot be blamed entirely on decisions by Gannett’s post-merger management. Still, it’s fair to ask, why has Gannett—like many other newspaper companies—struggled to find a profitable digital-era business model?

Digital disruption

This question is hardly new. In the nearly 30 years since the internet began to disrupt the news business, it has been asked repeatedly. The answer has always been much the same: Newspaper companies still have not figured out how to solve some fundamental problems—and as a result, their businesses have eroded dramatically.

Daily and Sunday circulation for local newspapers nationwide peaked in the early 1980s at more than 60 million. By 2022, combined circulation was barely 20 million, Pew Research Center data shows. Advertising revenue, traditionally the biggest source of U.S. newspaper revenues, has declined even more sharply and now trails circulation revenue industrywide.

In an attempt to retain their traditional profitability, newspaper publishers have slashed expenses—in particular, payroll costs. From 2008 to 2020, the number of newsroom staffers at U.S. newspapers plunged from 71,000 to 31,000.

The industry’s downward spiral continues, however. In November, a study from researchers at Northwestern’s Medill School of Journalism found the decline of local newspapers is accelerating and predicted one-third of U.S. newspapers that existed in 2005 will be gone by the end of this year.

“Digital first” has been an industry mantra for years, but it has been a money-losing strategy for most newspapers. A 2012 study by Pew Research Center’s Project for Excellence in Journalism estimated that for every $1 of digital gain, newspapers were losing $7 in print revenue. “(One) executive told us bluntly, “‘There’s no doubt we’re going out of business right now.’”

Or as H. Iris Chyi put it in “Trial and Error: U.S. Newspapers’ Digital Struggles toward Inferiority,” a book published in 2015: “The vast majority of U.S. newspapers have found no viable business models for any of their digital offerings.” Chyi outlined a number of reasons why this is so. Among them: the oversupply of digital news sources and the fact many people are not willing to pay at all for online news. (A Pew study released a few months before the 2019 Gannett merger announcement found that only 14 percent of Americans had paid for local news—online or print—in the previous 12 months. In Rochester, the number was 13 percent.)

Chyi also cited the explosion of alternative digital media options. For many Americans, social media has become a key source of news. Another Pew study showed that since 2020, if not earlier, half of Americans were often or sometimes getting news from social media.

And she pointed to the mediocre design and functionality of many newspaper websites. “Even among those who are interested in the content,” she wrote, “many perceive the digital format as inferior, like fast food or ramen noodles.”

Her most provocative assertion was that across all age groups, newspaper readers still preferred the print edition. As she wrote, “the ‘dead-tree’ format is what most newspaper readers use, prefer, and are willing to pay (for).”

“Trial and Error” was published nearly a decade ago, but Chyi’s take on the newspaper industry has not changed. In a paper she co-authored early this year, Chyi writes that the circulation gap between print and digital narrowed during the pandemic, when many readers sought the immediacy of online news, but the print product still accounts for most circulation and advertising revenues.

Both readers and advertisers remain reluctant to pay much for digital offerings. Chyi cites research showing now it takes four digital subscribers to generate the same amount of revenue as a single print subscriber.

Gannett closely tracks digital average revenue per user, a metric it defines as “digital-only subscription average monthly revenues divided by the average digital-only paid subscriptions within the respective period.” The figure was $6.46 in full-year 2023, edging up to $7.05 in the fourth quarter. Both are roughly two-thirds off the D&C’s undiscounted digital-only rate—and a fraction of a print subscription with no discount.

For Gannett’s U.S. newspapers, digital-only still represents less than 18 percent of total circulation revenue. Total digital revenues for Domestic Gannett Media—including those from digital syndication, affiliate, production and licensing deals—is still less than one-third of total revenues for the segment.

For many years, Edmonds says, publicly traded newspaper companies touted their digital efforts during earnings calls. “But there was a degree of lip service to it. In some ways it was just too hard.” In the last several years, he says, “they’ve really meant it and they are doing a variety of things that would get them there faster rather than more slowly.”

Yet, he adds, “the revenue part of it is still a big challenge.”

In Chyi’s view, newspaper publishers need to confront this question: How should they approach digital transformation “when the outcome would further weaken the industry?”

‘Creating joyful experiences’

Mike Reed

If Gannett chairman and CEO Mike Reed harbors doubts about the company’s strategy to become a predominantly digital media company, he hides them well. In remarks when Gannett reported its fourth-quarter earnings, Reed described 2023 as “a year marked by innovation, resilience, and collaborative efforts,” in which the company delivered “meaningful improvement in our key metrics.” Over the 12-month period, “we made excellent progress executing on our strategy to drive our digital transformation.”

Central to Gannett’s efforts, he told analysts during a conference call, “is our commitment to expanding our audience and their engagement through our renewed content strategy focused on creating joyful experiences.” Audience growth, Chief Content Officer Kristin Roberts added, “creates the foundation expected to maximize monetization across increasingly diverse revenue streams.”

Looking ahead, Reed said the company believes digital revenues will account for more than 45 percent of total revenues by the end of 2024, growing approximately 10 percent compared with 2023 and beginning to “outpace the declines we see in our legacy revenue streams.” As a result, Gannett expects the “inflection point”—when “revenue flips from declining to growing”—to arrive toward the end of 2024.

Its first-quarter results, released this morning, showed another decline in total revenues and a net loss of nearly $85 million, including a roughly $46 million impairment charge related to the exit from its leased space in McLean, Va. The company highlighted the fact that its U.S. newspapers’ digital-only subscription revenues of $43.5 million grew 21 percent year-over-year and digital-only average revenue per user increased to $7.22 from $5.88 a year ago, both new highs, though digital-only paid subscriptions declined 2 percent. Investors responded favorably: In early trading today, Gannett’s stock price jumped to more than $3 a share.

Even with a return to revenue growth, helped in part by its non-newspaper Digital Marketing Solutions segment, profitability could remain out of reach. While Gannett posted operating income in two of the four years since the merger, with annual interest expense on its debt ranging from around $112 million to more than $228 million, its string of net losses has been unbroken.

The $1.8 billion Gannett borrowed to finance the merger came with 11.5 percent interest. Two years later, it refinanced $1 billion of the debt, with new notes due in 2026; the company said the move would save it $90 million in interest payments in 2021.

At the end of 2023, Gannett still had roughly $1.1 billion in outstanding net debt. “Debt repayment remains our primary use of capital allocation and we will continue to focus on reducing our overall leverage,” Reed said. The company in late March announced a repurchase of some first-lien notes due in 2026 and said it expects to repay at least $110 million in 2024.

Gannett says “non-strategic asset dispositions” will help improve its capital structure. In 2023, real estate and other non-strategic asset sales totaled $85.3 million. Another $45 million to $50 million in sale proceeds are expected this year. (After the 2019 merger, Gannett moved its headquarters from Pittsford to the leased space in McLean. Effective March 31, the headquarters relocated to New York City; the company continues to lease some 7,000 square feet of office space in Pittsford under an agreement terminating in December 2026.)

Burdensome debt and relentless cost cutting are hallmarks of acquisitions driven by private-equity firms like Fortress Investment Group, Transom Capital and Alden Global Capital. In 2002, private-equity firms accounted for 5 percent of U.S. newspaper ownership; that figure has increased to nearly 25 percent.

Some observers think these firms are culpable for much of the industry’s decline over the last few decades. In a book published in January titled “Hedged: How Private Investment Funds Helped Destroy American Newspapers and Undermine Democracy,” Margot Susca, an assistant professor of journalism at American University, writes: “I don’t wish to minimize the impact of the internet transition or the loss of revenue as factors upending the industry. But newspaper companies beholden to private investment funds and the financial industry itself should get more of the blame over what has transpired in these years.”

Newsroom strike

The Newspaper Guild employees at the D&C who went on strike have several contract demands, and not all are monetary. As Guild vice chair Justin Murphy explained in a Beacon guest opinion piece, they want to bar the reassignment of reporters to different beats or geographical areas without consent as well as assurance that artificial intelligence and other technological advances will not supplant the work of experienced journalists. (“We’re using [AI] tools to reduce costs, increase efficiencies, and to drive revenue. … we’re not using these tools to replace journalists or to publish content,” Reed told analysts.)

But the D&C newsroom staffers also want an end to “shameful compensation” and protections against furloughs. During a Jan. 9 online “town hall” event, the Guild said Gannett had proposed a starting salary of $48,000 for reporters and photographers—below the “living wage” for a family of two adults and two children in the Rochester area. Based on the latest negotiations, Murphy says he thinks the union would achieve a salary floor of about $50,000, with a median raise of 14 percent over two years. According to a Gannett filing, median employee compensation across the company in 2023 was $50,856, down slightly from the year before and 1/76th of the more than $3.8 million Reed earned.

The Guild also says unionized newsroom employment at the D&C had dropped nearly three-quarters since 2011, from 86 to 25. Two decades ago, the D&C had more than 150 newsroom staffers. Since the merger, layoffs and some divestments have reduced Gannett’s companywide employment to about 10,000 from 21,255, filings show.

Gannett employees in recent years also have been on the receiving end of a number of cost-reduction moves including layoffs, unpaid leave and suspension of the company’s contributions to employees’ 401(k) accounts.

Justin Murphy
(Photo: Jamie Germano)

“The company’s business model since I’ve been here and, I think, since Frank Gannett bought his first printing press (in the early 20th century) has been to reduce and cut corners at every turn in hopes of squeezing out marginal profit,” Murphy says. “If that were going to work, it would have worked by now. It doesn’t work. It’s a pattern of disinvestment in the products and fundamental disrespect for both the journalists in the company and the news consumers in the community.”

The Guild understands the challenges Gannett faces, Murphy notes.

“We recognize that it’s a difficult time for the news industry,” he says. “Part of what we hope our strike accomplishes is forcing the company to realize that it is only through investing in its product and in its employees that it has any hope of continuing into the 21st century and being the news source that Rochester and other communities across the country need it to be.”

The Guild has emphasized the community impact of staff cuts, saying “coverage overall has been decimated.” The paper has no reporters dedicated to covering business, higher education and other key areas. At the town hall event, former Mayor Bill Johnson Jr. said: “The problem with today’s (D&C) is there is no reason for you to subscribe to it.” When the paper raised his subscription rate to $60 a month, Johnson said, he wouldn’t pay it; the paper then cut it to $6 a month, but “there’s nothing to read.”

During the strike, Mayor Malik Evans and a number of other elected officials spoke out and joined picket lines in support of the D&C journalists. “It is important to have a strong free press, and in order for that, you need people who know what they’re doing,” said Evans. City Council President Miguel Meléndez Jr. said, “I hope that you get the compensation and benefits you deserve based on your hard work and dedication.”

The union expressed appreciation for community support. By the time the strike ended, a GoFundMe campaign had received nearly 580 donations and raised over $41,000. Yet at the minimum starting salary Gannett has offered in negotiations, that would not pay even one annual salary.

For all journalists, public expressions of support for quality news coverage are heartening. But what may be needed more is a business model for daily newspapers in the digital era that truly works.

Paul Ericson is Rochester Beacon executive editor. He was editor of the Rochester Business Journal from 1987 to 2017, including five months under GateHouse Media ownership.

The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]

4 thoughts on “After the strike, the D&C’s dilemma remains

  1. There is a Gallup Poll or Pew Poll which concluded that only 14% of the public have good confidence in newspaper reporting. In part, this is attributed to misinformation and disinformation which newspapers print daily.

    • May we have some examples of that alleged newspaper misinformation/disinformation which you claim exists? Since you believe that it occurs daily, you should be able to post 15 or 20 examples in short order.

  2. There is way to much information here to comment on without writing a book. That said, a couple of comments.
    1) When the communications officer, Lark-Marie Anton, accuses the staff of “creating a circus of false narratives”, you have just widened the gap towards a settlement. I would fire her on the spot. While she is ‘communicating’ she is creating more disenchantment and maybe even hatred that will lead to what? I don’t know if the word ‘uncommunicating’ exists, but that is precisely what she has accomplished.
    2) They need to change the direction and the mission of the paper. We get enough national/world news from every direction the moment it occurs. Writing or reporting that in the papar is a waste of time. As a matter of fact it is history by the time it is in print. Deep dive the local news. I mean deep dive. Politically, educationally and business. There is enough news in Rochester to report on. When it pertains to home, it has meaning, purpose and is informative. (note Beacon success)
    3) Don’t be a liberal nor a conservative paper. Be neutral in your reporting. Be fair and impartial. I know that’s difficult because I see the bashing that is obvious in some of the writing.
    4) To the management; realize that the reporter, the writer, is the foundation in producing the paper. Make that known with meetings and start treating those on the front line as well as back room (printing) with appreciation. Create a team. Right now you have nothing but hate and discontent. And that, folks, ought to be the mission of management…CREATE A TEAM! As the saying goes, there aint no “I” in team.
    Semper Fi.

  3. Aside from the general decline in newspaper readership as people move over to digital media, the Democrat and Chronicle suffers from its own attempts to reduce costs by printing more and more material written elsewhere and continually reducing local staff. At first, local content was replaced by state and regional stories from AP. Later, much of the content came from USA today (in the “local” section, not just the USA Today supplement) . For someone who wanted local news, it was increasingly hard to find in the D&C.

    The M-P weeklies had followed the same path, continually reducing staff and replacing original stories and photos with material from the D&C. Local emphasis decreased as editions were combined, and eventually, the paper could not even be given away. I see the same fate for the the D&C. We will need to get our local news from soundbites on TV, and thankfully, at least some from the Beacon.

Leave a Reply

Your email address will not be published. Required fields are marked *