Coverage: Gannett looking to expand

Media companies have been expanding past the news business for years. Several of the most successful companies, such as Bloomberg, get most of their earnings from sources other than reporting the news. And now, struggling Gannett is looking to do the same by purchasing Cars.com. What’s interesting about this sale is that media companies are the current owners.

Gillian Tan and Jeffrey A. Trachtenberg had these details in their story for The Wall Street Journal:

Gannett Co. has agreed to pay $1.8 billion for the 73% stake of online ad-listings firm Cars.com that it doesn’t own in a deal that could be announced as soon as Tuesday, according to people familiar with the situation.

The business was put up for sale earlier this year, with hopes of generating a sale price of as much as $3 billion. The final deal values the site at $2.5 billion.

Cars.com is owned by the Classified Ventures publishers consortium. Aside from Gannett, other investors include Dallas Morning News publisher A.H. Belo Corp., Miami Herald owner McClatchy Co., Graham Holdings Co., the former owner of the Washington Post, and Tribune Media Co., which until Monday was part of the same company as Los Angeles Times publisher Tribune Publishing Co. Classified Ventures was founded in 1997 as a way for newspaper publishers to compete in the online auto and rental classifieds businesses. Earlier this year, Classified Ventures agreed to sell its other major holding, apartments.com, to CoStar Group Inc. for $585 million.

One person familiar with Cars.com earlier this year estimated that it generates about $400 million to $500 million in revenue a year.

Bloomberg reported in a story by Alex Sherman that the four media companies backing Cars.com are looking to capitalize on their investment:

Cars.com, which was started in 1998, lets users check prices, compare models and read reviews of auto dealers. Classified Ventures is backed by four media companies in addition to Gannett: McClatchy Co. (MNI), Tribune Media Co., AH Belo Corp. (AHC) and Graham Holdings Co. (GHC)

Gannett rose 4.4 percent to $34.32 today, giving it a market value of about $7.7 billion. The shares advanced as much as 9 percent in after-hours trading. Shares of McClatchy gained as much as 21 percent to $5.50 in late trading, while AH Belo added about 3.8 percent. Tribune and Graham holdings were unchanged.

As part of the deal, the four owners other than Gannett will have five-year agreements with Cars.com in which they will continue to sell advertising in their respective regions, the person said. Those agreements will continue to provide profits to those companies, resulting in a lower valuation for the deal, the person said, from an inital target of about $3 billion.

Newspapers have steadily lost money and readership since hitting a sales peak in 2005. Classifieds advertising has been hardest hit, dropping by more than half between 2000 and 2008 to $9.9 billion, according to the Pew Research Center.

Now, seeking to capitalize on the market for online listings, newspaper companies are selling off businesses started while they were in better financial shape. Classified Ventures, the joint venture, sold another listings site, Apartments.com, for about $585 million this year.

And it’s always interesting to see how reporters cover their own companies. Writing for Gannett-owned USA Today, Roger Yu said the move would move Gannett away from print and more into digital:

For Gannett, acquiring Cars.com would fill some of the holes left by diminished revenues from classified advertising in its print publications. Gannett also holds a majority stake in a venture with Tribune, McClatchy and Microsoft that owns job-hunting site CareerBuilder.

“CareerBuilder and Cars.com, being a digital version of classified advertising, (are) a key component of the publishing business,” says James Goss, managing director Barrington Research Associates in Chicago. “It does fit in very well.”

Although he cautioned that he had no direct knowledge of the deal, Goss says it shows again that Gannett plans to stand by the publishing business and grow it where it can.

“It hasn’t been looking to abandon publishing,” he says. “It looks to be stabilizing it and growing the areas that can be grown.”

However, Craig Huber, an independent media analyst with Huber Research Partners, says “it moves (Gannett) much more in the digital direction.”

Earlier Monday, Tribune Co. completed a corporate reorganization that spun off its publishing unit — including the Chicago Tribune — into a business named Tribune Publishing Company. Tribune Co. renamed itself Tribune Media and will continue to operate the remaining TV stations and digital ventures. It owns 27.8% of Classified Ventures.

It’s obvious that many media companies are still struggling with making money. All of the purchasing and selling of assets is also a distraction from innovating. Consumers are increasingly shifting to mobile devices and getting information there. Those who capture their usage habits now are likely to come out ahead. If traditional media companies are still focusing on old revenue models, they’ll have even more ground to make up.