Newspaper giants Gatehouse, Gannett likely to seek cost savings after merger

America’s two largest newspaper publishers plan to merge in an effort to combat declining circulation and plunging advertising revenue, but will still face pressure to cut costs at hundreds of already cash-strapped publications around the country.

The $1.4 billion purchase of McLean, Virginia-based Gannett by GateHouse Media, based in Pittsford, New York, will create a conglomerate that will own more than 250 daily newspapers and hundreds of weekly and community papers. The new company will retain the Gannett name and will have publications in 47 states, reaching more than 145 million unique visitors each month.

The combined company will also enjoy an expanded digital platform that executives are expected to pitch as an attraction to advertisers. GateHouse publishes 156 daily newspapers and 464 community newspapers, reaching more than 22 million people each week.

Gannett remains the country’s largest publisher by circulation, led by its flagship USA Today and publications including the Arizona Republic, Indianapolis Star and Louisville Courier-Journal.

Executives from both companies extolled the deal in a news release as an opportunity to slash up to $300 million in annual overhead costs within 24 months while “continuing to invest in newsrooms”—creating journalism they hope can attract more digital subscribers and advertisers at a time when America employs thousands of fewer journalists than it did a decade ago.

But the efficiencies wrought by the merger might also result in publications that rely less on local reporters and more on USA Today-type stories produced or edited remotely and published in dozens of the company’s publications. Journalists across the country fretted over whether the deal would mean a wave of layoffs.

Andrew Pantazi, a reporter for the Florida Times-Union and president of the newspaper’s guild, said journalists in his newsroom were anxious about any cuts, particularly the elimination of editor roles. Pantazi said some publications have lost editors because their newsrooms were reorganized into hubs.

“We’re afraid of that big number: $300 million,” Pantazi said. “We’re afraid of what happens when you have fewer journalists working in the state of Florida.”

In a memo Gannett sent to employees Monday that was acquired by The Washington Post, management noted employees’ concerns about possible layoffs. The memo said Gannett expects there will be “some duplication and overlap in roles” and that in coming months, executives will review “how the operations of our organizations will come together.”

The deal may also mobilize other newspaper chains, including McClatchy and Tribune, to pursue their own mergers in a battle for big advertising dollars.

Rick Edmonds, a media business analyst at the Poynter Institute, said other media companies will be looking to cut costs and consolidate. Edmonds specifically noted talk of deals between McClatchy and Tribune Company. “Even if it’s a tough climb, you’re better off with more scale and particularly with some of the savings of not having to do human resources and all of that in two separate companies,” Edmonds said.

GateHouse’s parent, New Media Investment Group, will purchase Gannett for $12.06 in cash and stock per share. Media executive Paul Bascobert has been named chief executive of the combined company. Gannett’s board unanimously approved the deal, which is expected to close by the end of the year.

“Uniting our talented employees and complementary portfolios will enable us to expand our comprehensive, hyperlocal coverage for consumers, deepen our product offering for local businesses, and accelerate our shift from print-centric to dynamic multimedia operations,” said Michael Reed, chairman and chief executive of GateHouse’s parent company, in a statement.

The deal will be financed by line of credit from Apollo Global Management. Executives on an investor call said they have requested approval from federal regulators and that it is also subject to approval from shareholders.

Analysts say the combined company could generate hundreds of millions of dollars in savings from reduced overhead and more efficient printing and distribution, which could help stave off the effects of an industry in deep decline.

“Bigger is better if you’re going after digital reach,” said Doug Arthur, an analyst at Huber Research. “So there will be a lengthy conversation around how this is going to be a digital powerhouse.”

Greater digital ambitions aren’t likely to spare more short-term newsroom cuts, which have already ravaged the local news industry in recent years. Whatever the ownership structure of newspapers, so many of them have closed in recent years that there are at least 1,800 fewer newspapers in America than there were 2004, according to a study by the University of North Carolina.

Employment in the newspaper industry fell about 47 percent between 2008 and 2018, a decline worse than coal mining over roughly the same period.

Most recently, the Youngstown Vindicator, a locally owned Ohio paper, closed for good shortly after its 150th anniversary. Its owners said they had lost money in 20 of the previous 22 years. A number of other once-daily papers have reduced their print schedules to four or even three days per week in an effort to save money.

Aside from national brands such as The Washington Post, The New York Times and the Wall Street Journal—which have sold millions of digital subscriptions—no newspaper owners have been immune to the need to cut costs in the face of declining subscriptions and advertising rates.

The Gannett-Gatehouse merger could well put more pressure on other chains to consolidate, said Michael Kupinski, an analyst at Noble Financial. As of the start of 2018, daily newspapers in the U.S. numbered 1,277 with a circulation of 29.2 million, according to the latest data book from Editor & Publisher.

“The newspaper industry is going to have to consolidate,” Kupinski said. “You need scale to transition to the digital future, and so cutting out costs through consolidation of facilities and distribution facilities is very important.”

Jane Hall, a professor of journalism and media studies at American University, said she worried about the viability of local newspapers whose parent companies respond to stockholders’ wishes, even at the risk letting competitive journalism slip by the wayside.

“The business model is under duress, and the urge to consolidate and the pressure to consolidate and only look at the bottom line in a very short-sided way is growing,” Hall said. “I find this depressing.”

Gannett recently fended off a hostile acquisition attempt from Digital First Media, the hedge-fund-backed chain that sells off newspapers’ real estate and cuts newsroom jobs more aggressively than most other owners. Digital First argued that Gannett ought to ditch its efforts at growing its digital audience and prioritize cost savings. Gannett and GateHouse both instituted layoffs earlier this year and have indicated in public filings that cost savings will be an ongoing focus.

Most newspapers still derive the majority of their revenue from printed ads and print subscriptions, both of which have been in decline for years. Digital ads remain a minority of the revenue pie, primarily because the competition for advertising is dominated by tech giants such as Google and Facebook and because digital ads sell for mere fractions of the cost of the print kind.

Proposed solutions to the problems – generally focused on cost-cutting – have sometimes worsened them by turning off readers. The weaker newspapers get, the more readers and advertisers abandon newspapers, leading to the next round of cuts. It has also complicated publishers’ efforts to sell digital subscriptions: With weakened newsrooms, digital newspapers often offer less to justify the cost of paying for the news.

Ever since Gannett spun off from Tegna, its broadcasting arm, four years ago, it has been looking to grow through mergers or acquisitions, with little to show for it.

“I think Gannett is looking for some sort of solution to its future,” said Arthur. He said he could see a few hundred million dollars in cost savings up front by eliminating duplicate management and back-office positions, in departments such as human resources, technology, finance and accounting.

In some cases, the companies could save money by printing their newspapers at one facility instead of two, and by combining and centralizing copy editing, design and daily print layout functions. Further savings might result from volume discounts on the company’s massive purchases of paper and ink.

But newspaper companies have been employing similar corporate machinations in search of a solution for local news for more than a decade, with no end to the industry’s problems—particularly in small-town and rural America—in sight.

“If you’re not The Washington Post, the New York Times, hopefully the L.A. Times and to a lesser extent the Dallas Morning News or the Chicago Tribune, this has become sort of a death spiral,” Arthur said.