Gannett Co Earnings Call Nuggets: Circulation Revenues and Publishing Side

Gannett Co. (NYSE:GCI) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Circulation Revenues

William Bird – Lazard: Question on circulation. Gracia, if we adjust out the extra week in Q4, it looks like your circulation revenues in Q4 were above Q1. Can you just help us understand, I guess, how and why this is and how you see circulation revenues developing going forward? Thank you.

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Gracia C. Martore – President and CEO: Well, let me start and I have the good fortune of having Bob Dickey here with us as well as Dave Lougee, but let me start and then Bob is there’s anything else you want to add. When I look at circulation revenue adjusted in the fourth quarter for the extra week compared to circulation revenue in our local community publishing, which is really where the full access content model impacts. Actually revenues were up about 15% in the fourth quarter and are up again a similar level in this quarter and I think with respect to circulation revenue in the first quarter this year versus last year, I think the slight difference may be in Newsquest there’s obviously some currency drag from the lower currency rate in the first quarter versus the fourth quarter last year, and then at USA Today as they are transitioning more of their model, especially with some of the hotels like Hilton from (upshore) print model to a digital access and a digital portal as we’re doing with Hilton’s through the point, and that’s gaining a lot, a lot of traction. It’s in over 3,000 hotels. They are seeing some slippage obviously on the print side, which is planned slippage, given the combination that we’re getting with the digital access in some of those hotels and the portals that we’re doing.

William Bird – Lazard: Let me ask you in a simpler way, because it sounds like I didn’t ask the question very well. If I take that $313 million of circulation revenues from the December quarter and I take ($13 million, $14 million) off it, I get about $290 million in circulation revenues. And then if I look at Q1, it looks like you were at $285 million, so I’m looking at kind of the absolute number and the run rate, and just trying to understand why it would have ticked down?

Gracia C. Martore – President and CEO: Right and again as I said, you are looking at a total circulation number for the entire company. I’ve just been dissecting the pieces of it, which would suggest that Bob’s number in fact is doing what we had hoped it would do. Newsquest is impacted a bit by the currency being weaker in the first quarter, so therefore, even on a same basis of revenue in pounds, it would be less in dollars. And then as I said on USA Today we are managing a transition there with some of our hotel partners like Hilton where it was simply a print-only solution we were providing the hotels. There is a diminishment in the print number but there is an addition of a digital portal that’s been offered in 3000 plus Hilton hotels. And so when you take the combination of all of those factors that I think addresses the issue that you raised.

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William Bird – Lazard: So, clearly there are some puts and takes. And then I’m just curious where are you at in terms of the number of paying digital subs?

Gracia C. Martore – President and CEO: On a digital-only basis, Bob is here, just a quick comment. What I think that we are very pleased about on the digital-only subs is the fact that we’re seeing folks who are beginning with digital-only, then upselling them to digital plus of Sunday newspaper. So really the digital-only number now is a net of all of those upsells that we are attaining and I think we are in the 50,000 plus range, Bob but.

Robert J. Dickey – President, U.S. Community Publishing: Yes, when you take into consideration that a number we have upgraded that started as digital-only that’s right around 54,000 digital subs, about 50,000 today are digital only, so we’ve upgraded just over 4,000 actually, that’s about 8% conversion rate. At this point, we’re doing a number of, as Gracia pointed out, we have a number of new sales channels that are new to us because of its new approach to business and we’re doing (AV testing), introductory offers, the number of things to see how we can best resonate with these new younger consumers, and we’re very happy that about half of them right now to-date are under 45 years old.

William Bird – Lazard: Just one final question, can you give us the absolute number for retrans in the quarter?

Gracia C. Martore – President and CEO: The absolute number for retrans in the quarter I think was around $36 million or $37 million.

Publishing Side

Kannan Venkateshwar – Barclays: I have a couple of questions. First is on the publishing front. Obviously, you have the benefit from the price increase last year, but with 50,000 digital-only subs, and that’s clearly not an additional source of revenue. It’s not new revenue line that you are adding as the price increase cycles through into late this year and early next year. We should expect the effect to wear off. So what’s the longer term plan on the publishing side once the price increase wears off?

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Gracia C. Martore – President and CEO: Perhaps, we haven’t explained it as fully as we should. Those digital-only subscribers are paying subscribers, so they are incremental to – in 2012 we spent all of our time frankly rolling out 78 locations, simply moving them to the full access content models. As we said at the end of 2012, we really didn’t focus on digital only picking up new digital only subscribers. We were first and foremost in 2012 focused on taking the existing subscribers we had and moving them to this new model. We have subsequently gained an additional 50,000 – actually, a net 50,000 because we’ve gained more than that because some of those folks have been new digital-only start and then converted to digital-only plus Sunday. So those are incrementally new subscribers. And as I said in our prepared remarks, our plan is that we are going to see that number increase five to sevenfold by the end of 2013. So those are all brand-new subscribers.

Kannan Venkateshwar – Barclays: That’s true Gracia but the broader question is you’re still losing subscribers on the print side. So overall when you look across the whole subscriber base, the 50,000, and even if that continues to grow, is not enough to offset what you’re losing on the print side. So to that extent we should expect I guess to some extent the effect to wear off next year?

Gracia C. Martore – President and CEO: Well, if you assume that the only thing we are doing around our subscribers is the price increases that we did last year that would obviously be the case, because you would cycle those pricing increases. But there are a number of additional new platforms – and Bob why don’t you talk a little bit about that – that we are introducing and we see more opportunities to impact pricing with new ways and additional content that we’re going to provide, but Bob why don’t you…?

Robert J. Dickey – President, U.S. Community Publishing: Certainly, and that’s very important because as noted earlier, we have just over 1.3 million digital active subscribers well after the 50,000 that are digital-only. So our current subscribers are clearly performing and using our content across all the various platforms. Midyear we will be launching native iPhone app followed by Android and iPad. We believe that product enhancement will be very well received by our subscribers. Later in the year, we will be relaunching a new desktop experience for all of our subscribers, another opportunity. And we have gone through extensive training with our editors to create new content following a broadcast model of really day-parting and day-parting that content against the various platform taking in mind how the consumer uses those various devices. And we are seeing a number of product improvements on existing products across all of our markets. That is a major focus. So the combination of all of those will lead us to an opportunity to look at what pricing leverage that will bring to us later in this year and certainly early in 2014.

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Kannan Venkateshwar – Barclays: And I have one more question which is on the digital side. It looks like, I mean if I just look at the trend over the last eight or so quarters, it’s been consistent and the growth rates have been consistently coming down year-over-year. Just wanted to get some clarity on what’s driving that?

Gracia C. Martore – President and CEO: Well, I think, number one, obviously we are comparing against higher and higher base number. It also depends on the mix of digital revenues. You maybe just looking at our digital segment only rather than the totality of our digital revenues across the Company, because in fact, those digital revenues across the Company have accelerated in their growth pattern over the last two to three quarters rather than diminish over the last two, three quarters.

Kannan Venkateshwar – Barclays: It’s just the digital segment.

Gracia C. Martore – President and CEO: It’s just the digital segment (indiscernible) in that mix. That’s a substantial business. They have achieved strong growth rate, which are going to vary quarter-by-quarter depending on where employment opportunities are and employment numbers are combined with their new opportunities. So the digital segment only is just a small microcosm of all of the digital revenues around the Company that in fact where we are seeing accelerated growth over these last few quarters.

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