Gannett Lets Its Stations Speak For Themselves

Craig Dubow is the exact opposite of a high-profile media executive. But the president and CEO of Gannett Broadcasting is very much like Gannett itself. For a company whose motto is "A world of different voices where freedom speaks," it doesn't say much.

Keeping the company under the radar is a conscious decision, says Dubow in a rare interview. "We are a results-oriented company. We concentrate on achieving our objectives, and, if we're quiet about it, well, people can see the results."

That they can. Gannett is the largest newspaper publisher in the country, with 101 daily U.S. newspapers, including USA Today. It also has been quietly snapping up properties in the U.K.

But the company also owns 22 TV stations in 19 markets around the country; in 18 of those markets, its station finished first or second in late news in the February sweeps. (The company has 13 NBC, six CBS, and three ABC affiliates.) That makes it the nation's eighth-largest broadcaster, between Univision and Hearst-Argyle on B&C's annual ranking of station groups.

Additionally, its margin basis is among the tops in the industry. (The company's overall operating margins averaged 29% over the past decade while its peers averaged 17%, according to one study.) With $720 million in 2003 revenues, Gannett looks forward to an election-and-Olympics year in which, according to Barrington Research analyst Jim Goss, it may top $818 million in revenue. Operating income in 2003 was a healthy $330 million.

"Our portfolio is in great shape," Dubow says, though acknowledging that he "worries regularly about all the fragmentation in the local markets."

Gannett corporate culture is about more than just staying out of the limelight: "We are all about localism, and we believe in autonomy," he says, "and that allows us to achieve our goals."

Goss notes that broadcasting is not as large a part of Gannett as, say, of Tribune but Gannett, whose stations cover 17.63% of the country, is still a substantial player. Gannett is "a good acquirer and exceptional operator. They know how to read information so well and spread it around the country; they understand the economy from a grassroots level."

Bear Stearns' Kevin Gruneich concurs: "They are very successful and in very good shape. They're one of the best-run broadcast organizations out there, and Dubow is highly thought of in the broadcast field."

On some level, that's a way of celebrating Gannett's renowned thriftiness, which is also a central part of the company's culture. Although TV revenue was down last year, the company managed to respond by lowering costs 3% for 2003 and 7% in the fourth quarter.

Gannett's reputation for stinginess doesn't even particularly hurt. The company is big enough to provide plenty of opportunity in the hierarchy while, for employees who do flee, "there are always five people waiting to take that job," Goss says, adding, "Turnover isn't always bad. You don't want things to be totally volatile, but new blood is good."

This year, with an influx of political advertising and the summer Olympics in Athens, Gannett expects a significant jump in revenue—especially because 13 of its stations are NBC affiliates. (Two years ago, the company grabbed an extra $100 million, and that was with the less-attractive Winter Games.)

While the Olympics are a sure thing, the company is still eagerly awaiting decisions on crossownership of newspapers and TV stations in a single market and new rules on duopolies. A Philadelphia federal appeals court is reviewing a basket of FCC rules, and some industry observers say that the market is in neutral while the justices deliberate. Gannett CEO Douglas H. McCorkindale has pushed for deregulation in company reports and, when speaking with analysts, derides the old system as "antiquated." New rules, he says, "will bring the government into the 21st century and spur more dynamic changes in our industry."

But opponents believe deregulation will damage democracy by consolidating control of the news. Andrew Jay Schwartzman, president and chief executive of Media Access Project, a not-for-profit public-interest law firm, says that, while Gannett "has spent a lot of time designing business models to leverage local crossownership and they are clearly anxious to go at it, the rule change would offer the opportunity for excessive local political control and a stranglehold on local advertising."

Dubow obviously disagrees with that assessment. Confident that the prohibition against crossownership will be lifted, he predicts that, "when the rules change" (note he's not saying "if"), there'll be "significant opportunities for Gannett Broadcasting."

The company's first move to take advantage of such opportunities will likely be to acquire newspapers in markets where it already owns stations. Indeed, McCorkindale has publicly stated that desire. Dubow, though, declares "a keen interest in appropriate broadcast expansion, especially in the top 30 markets."

Duopolies (like the one Gannett has in Jacksonville, Fla.) are especially interesting to the company, Dubow adds, since, as McCorkindale has publicly stated, the economies are easier to measure tangibly.

But don't expect Gannett to rush into any deals just because they're there for the taking. "They're very prudent and patient," says Schwartzman. Indeed, the one thing analysts like Goss say about Gannett is that it will never overpay; the company buys only when the price is right.

"Gannett does not do dumb deals," Dubow agrees. "We don't rush into things." Neither will many other broadcasters, he says. He predicts "very measured" actions, not a buying and selling frenzy.

So do others. Says Yankee Group senior analyst Michael Goodman, "These [deregulation rules] are never as good as the proponents think it's going to be and never as bad as the naysayers think. In theory, crossownership has potential to be extremely beneficial. But, in reality, convergence is exceptionally difficult to take advantage of. For instance, just because you want to charge a premium for the two properties doesn't mean the advertisers will see things that way."

Thanks to a waiver, Gannett has a living experiment with the Arizona Republic and NBC affiliate KPNX. Gruneich says there have been no major synergies or economies of scale there.

Dubow makes a distinction about duopolies. Gannett doesn't necessarily see the value of synergies; he wants to create duopolies in markets where the station purchase is just a smart buy in its own right.

But, on the editorial side in Phoenix, where the station and newspaper have collaborated on everything from wildfire coverage to a school-system investigation, he says, "there have been great opportunities, and the breadth of information we have provided to our customers is far more substantial." That might not tie in directly to the bottom line but could be a long-term boon in terms of branding and loyalty.

Although crossownership synergies aren't enough to justify new purchases economically, Goss points out, a rule change would mean the company could buy companies and keep or sell off pieces on its own terms. That flexibility might enable it to diversify its holdings a bit. That's crucial, since Gannett no longer has the widespread holdings in cable, radio, and outdoor advertising it once held. (It did recently buy Captivate, a company that provides programming and advertising inside elevators.)

Gannett's close ties with NBC depend, figuratively, on the way the wind blows. "If a company is going to be out of balance," says Goss, "tilting toward the strongest network [NBC] is not a bad thing."

But, says Gruneich, "the wind may not be at NBC's back much longer." While there's no urgency, he would expect future purchases to help Gannett diversify.

Dubow has eyes, too. He likes the "tremendous run" NBC has had and the fact that it controls the Olympics through 2012.

But CBS, he notes, has been on a roll of late.

Not everything Gannett touches turns to gold, of course. An attempt in 2002 and 2003 to launch America Today, a national digital cable channel that would re-transmit local newscasts mixed with national USA Today-branded segments quietly disappeared for lack of interest.

But perhaps that makes sense: Gannett's strength has always been its localism, not its national reach. And the company has continued pushing innovation on a local level. Gannett has been an HDTV leader in Denver and recently started a 7 p.m. in-depth newscast for late commuters in Washington and Tampa, Fla.

WBIR Knoxville, Tenn., debuted local lifestyle show Style, replacing The Oprah Winfrey Show with "tremendous results," says Dubow. Style may get duplicated at other Gannett stations, but he says he'd be the first one to pull the plug if he thought it didn't fit.

"We stay close in touch with what each community tells us. They know the market there better than anybody," Dubow says.

He adds: "That's an important part of the Gannett culture."