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Newsonomics: In Memphis’ unexpected news war, The Daily Memphian’s model demands attention
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Nov. 17, 2014, 12:18 p.m.
LINK: ww2.cfo.com  ➚   |   Posted by: Joshua Benton   |   November 17, 2014

CFO magazine has an interview with Victoria Harker, the chief financial officer of Gannett, which is one of a number of news companies in various stages of splitting off its print properties (newspapers, mostly) from its broadcast and digital ones. The positive spin is that it’ll let each type of company pursue the best approach without strategy tax; the negative spin is that it’s sending print off onto an ice floe where its continued decline will no longer infect the other side of the business. This question would seem to position Gannett as a candidate for the newspaper industry rollup (or mop-up) many have been anticipating (emphasis mine):

Q: Some people praise Gannett because it isn’t burdening the newspaper spin-off with debt, as other media companies have done. Others criticize Gannett for not including, say, Cars.com in the spin-off to provide more advertising revenue. How do you respond to these views?

A: Relative to the debt, we felt very strongly that the publishing segment — which has its own digital properties, by the way — needed to have the kind of capital structure that will enable them to be a consolidator in the industry, should that be the strategic decision they make. They have produced a very efficient model for running the newsroom of today and tomorrow. So we didn’t want to saddle them with a lot of debt. We wanted to enable a good revenue stream, a good cost structure, and good cash production, so they can do the kinds of things they need to do to create longevity within that business.

Relative to Cars.com, we will have affiliation agreements with the publishing business for five years after the deal closes. In our way of thinking it’s the best of both worlds, in that Cars.com will live in the broadcast and digital company, where it will have the right type of capital structure and investment, while the publishing side will continue to be able to leverage that relationship.

You know, we spent a lot of time with investors during the last 10 days, and a number of them asked how they can become an investor on both sides of the house once we spin. So it’s not that everybody wants to go into growth and be in broadcast and digital. We have a number of investors saying, “We’re very interested in publishing, this is an interesting story for the value side of our investment house.” And it’s a dividend-producing entity, which is very attractive to them.

Getting external capital for that sort of move will likely only get tougher, so flexibility on the balance sheet is important.

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