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Gannett Co., Inc. (GCI): Traditional Publishing Sector Demands Solutions

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Gannett Co., Inc. (NYSE:GCI) has taken measures to reduce its exposure to the declining newspaper publishing industry. The publisher agreed to buy Belo, a broadcasting company that owns 20 television stations and two regional cable news channels, for about $1.5 billion. This move comes during a time when traditional media, especially the publishing sub-sector, is experiencing tough times amid a consumption slowdown.

Gannett Co., Inc. (NYSE:GCI)

Giant broadcasting company

The deal will position Gannett Co., Inc. (NYSE:GCI) as the U.S.’s fourth-largest owner of major network affiliates, which translates into a reaching power of nearly one-third of U.S. households. This could give the company stronger bargaining power when licensing fees are renegotiated, and will considerably improve profits if the target is integrated correctly.

Gannett Co., Inc. (NYSE:GCI) has taken proper measures to address the poor figures in revenue from its publishing segment. Publishing advertising revenue decreased 4.5% to $527 million, whereas the broadcasting one surged 8.7% to $192 million for the first quarter of 2013 compared to the same quarter last year. Another positive aspect is given by political advertising, as some stations still benefit from this, although politicians are leaning more toward social media in their campaigns. Apart from the $175 million in annual synergies the company expects to achieve with the Belo transaction in the coming years, geographic diversification will also be a plus.

High M&A activity in the broadcasting sector

On June 6, Media General, Inc. (NYSE:MEG) announced its merger with New Young Broadcasting, a broadcasting and digital media company. The combined entity will have 30 stations operating in 27 markets and reaching approximately 14% of U.S. households. This follows the trend of consolidation in the broadcasting industry that has been giving good growth results. As well as Gannett Co., Inc. (NYSE:GCI)’s deal, Media General, Inc. (NYSE:MEG) will enjoy an increased U.S. footprint, which will enable the company to enter the re-transmission business and take a bigger bite of national and digital advertising.

Media General, Inc. (NYSE:MEG) has posted mixed results for the first quarter of 2013. The company’s operating income rose 28% to $5.8 million compared to the same quarter the prior year, but it is still in the red zone as it had a net loss of $17.7 million this quarter from a year ago same-quarter loss of $34.4 million. The merger with New Young could help Media General continue improving its cash flow in the broadcasting segment, which resulted in $19.4 million the first quarter of 2013.

More proves of the publishing decadence

News Corp (NASDAQ:NWSA) resolution on its publishing assets spin-off is another indicator of the industry’s struggle to stay afloat. The publishing company is expected to include The Wall Street Journal and The New York Post, among other assets, and this new broadcasting company will probably be renamed 21st Century Fox. It will contain broadcasting and cable networks, which seem to be the most profitable nowadays. Currently, News Corp (NASDAQ:NWSA) is the leading broadcaster in the U.S. with 27 stations including the Fox network.

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