Gannett Co., the Virginia-based newspaper giant that is the parent company of the Detroit Free Press and other media outlets in Michigan, is attracting attention from industry observers for distinctly negative reasons.

The experts have focused on the paywalls Gannett has erected at many of its papers -- though not at the Free Press -- as the company's papers struggle to remain profitable at a time of decline in the newspaper industry. They say Gannett is paying for its layoffs and the "poor quality" of its newsgathering and foresee changes ahead for both Gannett and other American newspaper chains, which have been battered for years by the growth of digital journalism.

In a story headlined "Gannett’s print-focused paywalls flounder" in the Columbia Journalism Review, Ryan Chittum writes:

Gannett’s fourth-quarter newspaper results, announced (last) Tuesday, were basically miserable.

Revenue at its publishing segment dropped 4.6 percent in the fourth quarter from last year (excluding 2012’s extra week), with advertising dropping 5.9 percent and circulation falling 1.6 percent.

The last figure is key. As Rick Edmonds writes, “Gannett earnings report hints at a coming problem with paywalls.” Indeed it does, though it’s not an unforeseen problem. 

Edmonds, in "Gannett earnings report hints at a coming problem with paywalls" on the website of the Poynter Institute, observes:

By virtue of tough expense control and the acquisition of Belo Corp. TV stations, Gannett reported decent fourth quarter and full-year financial results yesterday. Its share price was off .06 percent for the day.

But the report included some dicey details for the company’s newspaper operations, suggesting challenges ahead for Gannett and the industry in 2014.

• Circulation revenues were up for the year (1.1 percent) but down for the fourth quarter (-1.6 percent) compared to the same period in 2012. CEO Gracia Martore explained in a conference call to analysts that the company has now “cycled through” the lucrative introduction of paywalls together with bundled print + digital subscriptions at its 80 community newspapers.

This raises the concern that capturing revenue from new digital subscribers and pairing “all access” print/digital bundles with a big price increase could be a one-time revenue event. Gannett not only failed to continue gaining circulation revenue at the end of the last year, it lost a little, as these subscriptions came up for renewal.

Chittum notes:

"The issue is one that will particularly affect newspapers like Gannett’s that have leaned on large print price increases as part of their paywall strategies. For lower-quality publishers like Gannett, which has squeezed profits out of its newspapers for decades, the paywall money has been in print, not digital. Gannett was particularly aggressive with its print price increases.

Chittum writes imposing a paywall means the paper must have a strong newsgathering operation to justify charging online in the first place.

Gannett, though, has a well-earned and long-established reputation for high margins and poor quality. Last year it generated 22 percent operating cashflow margins, paid out $183 million in dividends, and laid off hundreds of journalists.

In addition to the Free Press, Gannett's Michigan's properties are the Battle Creek Enquirer; the Lansing State Journal; the Daily Press & Argus, Livingston County; the Observer & Eccentric Newspapers, Livonia; the Times Herald, Port Huron; and WZZM-TV, Grand Rapids-Kalamazoo-Battle Creek.