GateHouse maximizes cash flow at the expense of news products

May 1, 2014 by

New Media Investment Group, the parent company of GateHouse Media newspapers, announced year-over-year revenue declines for the first quarter of 2014.

But CEO Michael Reed still painted a rosy picture of industry analysts during New Media’s first quarter earnings call.

Here is what our members at the Peoria Journal Star, State Journal-Register of Springfield, Pekin Daily Times, Rockford Register Star and Freeport Journal-Standard need to know:

  • Revenues declined 2.8 percent from last year. The rate of decline has been shrinking from quarter to quarter, prompting Reed to characterize revenues as stabilizing.
  • Print advertising declined 8 percent from the previous year. Reed noted that the decline is expected to continue — but that print advertising would become a smaller and smaller piece of the total revenue pie moving forward.
  • Circulation revenue, representing about one-third of the total revenue, remained stable.
  • Commercial printing revenue enjoyed double-digit growth.
  • Digital revenue grew. Reed hoped for double-digit revenue gains in this area in the near future.
  • Propel Marketing revenue grew, but it represents less than 2 percent of the total revenue. It has less than 1 percent penetration with the small businesses in target markets. Reed touted its growth potential.
  • The company generated strong cash flow. It expects to use 40 to 50 percent of “free cash flow” to pay healthy dividends.
  • The company will buy additional properties through value shopping, using cash on hand and revolving credit. It expects the new properties to add to the strong cash flow.

So what does that mean for our members? Here is the Cliff Notes version:

  • New Media’s business model calls for extreme cost controls to ensure maximum cash flow and healthy dividends. The company has slashed newsrooms to a fraction of their former size. And it is not eager to give raises to those surviving journalists.
  • The newspapers must maintain their standing as THE source of local information so it can grow the digital advertising side. It is counting on the enduring credibility of its product. But the investment in the product has declined sharply under GateHouse.
  • The company is depending on stable circulation revenue. It has offset circulation decline by jacking up newspaper prices and growing digital subscription revenue. How long can these newspapers maintain steady circulation revenue given all the cuts in the news-gathering operation?
  • Because the company has mostly small newspapers, the print advertising decline is accelerating later than it did for other publicly traded newspaper companies. This threatens the diminish cash flow. This is also a potential red flag for stock analysts, who judge companies against industry standards.

The UMG is currently negotiating a second contract in Pekin and first contracts in Springfield and Rockford. We already have public campaigns underway in Springfield, Pekin and Rockford.

Thus far labor leaders, community activists and consumers have been eager to learn more about the state of their local newspaper. The tenor of negotiations will dictate the tone and the range of these campaigns.

 

 

 

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