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New Media buys Gannett for $1.4 billion to form local news giant

The merged entity would be a local news giant that owns more than one-sixth of all daily newspapers in the country, including USA Today, and reaches nearly 9 million print readers.

New Media Investment Group Inc. agreed to acquire Gannett Co. in a $1.38 billion deal that unites the two biggest U.S. daily newspaper chains. This photo shows the floor of the New York Stock Exchange in 2014. (AP Photo/Richard Drew, File)
New Media Investment Group Inc. agreed to acquire Gannett Co. in a $1.38 billion deal that unites the two biggest U.S. daily newspaper chains. This photo shows the floor of the New York Stock Exchange in 2014. (AP Photo/Richard Drew, File)Read moreRichard Drew / AP

America’s two largest newspaper publishers will 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 combination of McLean, Va.-based Gannett and GateHouse Media, based in Pittsford, N.Y., will create a conglomerate that will own more than 250 daily newspapers and hundreds of weekly and community papers.

GateHouse’s parent, New Media Investment Group, will purchase Gannett for $12.06 in cash and stock per share, or about $1.4 billion. Paul Bascobert, former chief marketing officer of Dow Jones, has been named chief executive of the combined company.

“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.

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.

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 big-city publications including the Indianapolis Star and Louisville Courier-Journal. It owns the Courier Post in Cherry Hill, and in Wilmington.

New Media newspapers include the Burlington County Times, the Bucks County Courier Times, and the Doylestown Intelligencer.

“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% 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, including the Pittsburgh Post-Gazette, have reduced their print schedules to four or even three days a 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.

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 such tech giants 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 that 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,” Arthur said. 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.

The newspaper industry has been in a downward spiral for years as the internet has upended its business model. Readers have moved online and get their news from social media, eroding print advertising sales. Much of the online ad market, meanwhile, is being gobbled up by Facebook and Google. And many newspapers have eroded their quality by ordering deep cuts to their newsrooms, making it increasingly difficult to convince readers to pay for online subscriptions.

Newspaper executives see few options other than combining with each other to cut even more costs, from sharing printing operations to eliminating local copy editors and designers. The number of newspaper newsroom employees dropped by 47% between 2008 and 2018, from about 71,000 workers to 38,000, according to Pew Research Center.