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Shareholder wealth return plan and growth strategy
The print and broadcasting landscape is changing and the way we consume media today is different from just 5 years ago. Or even 2 years ago. Beyond just internet, mobile is now a large and growing market with smart phones and tablets becoming more ubiquitous. As the mobile segment has grown, it has become possible for the consumers to demand more “local” information. Media has evolved a fine blend of local, national and international coverage over the decades that serve specific markets but now it is possible for the media companies to go beyond just news coverage and offer a broader set of services that serves these markets.
Gannett’s (GCI) new growth strategy recognizes these trends and is focused around 3 key areas
1. Grow Revenues – Key to this is to stabilize their bread and butter publishing. They plan to do this by reorganizing their news gathering processes to be more “local” and closer to the customers. They also plan to grow their revenues by charging for content online. Pay walls are set to go up in the 80 newspaper markets they serve across the US by end of this year. While the content prices are going to vary by the market, they expect overall to generate $100 m in incremental earnings in steady state by increasing their subscription revenues by greater than 25%.
The marquee USA Today.com site is exempt from the paywall. The company aims to improve the web site experience by focusing on the key audience engagement metrics (like time spent on the site, # of visitors, etc). One of the ways they are doing this is by pushing out new tablet apps for iPad and Kindle Fire. Since the print USA Today has about 89% market share in the hotels (guest room delivery), eventually the company plans to leverage these relationships in the travel industry and offer localized and topical news/information to the travelers in print and digital formats.
On the broadcast front, Gannett has negotiated a 13% increase in retransmission fees for its network affiliates. This is a $10 million improvement over 2011 and 100% of it goes to the bottom line. Additionally, 2012 should turn out to be a great year for broadcasting revenues due to the Elections and the Summer Olympics.
The company also plans to launch over 100 new websites in 2012 targeting different niches. Additionally, the company wants to leverage its existing brand advertiser relationships in the local markets and offer further digital marketing services to the local advertisers – these include search marketing with partnership with Yahoo and others. I think this is a smart play as Gannett can bundle marketing services on their own platforms (print, broadcast, desktop, mobile, tablets, etc) as well as search. Gannett also owns the deals site ShopLocal.com as well as dealchicken.com.
2. Optimize current assets – This includes reorganizing the way the news is gathered, and processed before publication/broadcast. Some of the key initiatives are simplifying and standardizing the content management systems across the enterprise. They are also working on consolidating print operations for their newspapers to leverage scale and bring in greater cost efficiencies.
3. Return more wealth to the shareholders – Their plan calls for returning 1.3 Billion or more to the shareholders by 2015. They started the process by increasing their dividend 150% to $0.8/share (5.25% yield). They have also authorized $300 million in share repurchases, which is approximately 8% of the market cap. In addition, the company will continue to pay down cash. The company plans to be able to do all of this from their free cash flow, which amounted to about $775 million in 2011. Please note, that with the current market value at $3.2 Billion, a 1.3B shareholder return by 2015 equates to a 40% return to the shareholder, just via dividends and share buybacks, by 2015.
In Part 3 of the analysis on Gannett, we will tie all these up, look at the numbers behind the strategy, consider the likely outcomes and ascribe a valuation to the Gannett stock.