In 1982, Gannett Corporation faced a decision of whether to grow its business by creating a general interest national newspaper. Gannett Corporation was the largest newspaper company in the United States. Gannett’s growth strategy to this point had mostly consistent of acquiring regional newspapers. However, in the early 80’s, Gannett faced regulatory policies and the non-availability of more small newspapers, limiting its growth options. Al Neuharth, president of Gannett, came up with the idea of creating a national newspaper, USA Today, as the most viable profit expansion strategy. Other growth options included expansion into television, radio, magazines, and other media outlets. However, Gannett’s expertise was more limited in these other areas.

USA Today would add no value from a content perspective because most local papers covered national news as well as local news. It would not provide significant additional content or provide deeper coverage as the New York Times. Also USA Today would not focus on special interests, as did the Wall Street Journal. The differentiating aspect of USA Today would be its visual appeal and presentation of the news.

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Some issues facing Gannett included determining the market for a national paper and accessing the value of differentiating factors, namely color and presentation.

Another issue was estimating revenues. Newspaper revenues came from circulation and advertising. Reduction in expenditures on newspaper ads by advertisers in favor of television, drove the competition for advertising dollars. USA Today also would derive more revenue from circulation than advertising, the reverse of the historical trend.

Review of the Newspaper Industry

In 1980, there were approximately 1,750 daily newspapers in the United States, and 10,000 weekly or monthly newspapers. Newspapers were gradually coming under the control of newspaper groups, with the number of such groups growing from 31 (with 7.5% of dailies owned by groups) in 1923 to 154 in 1980 (with 65.3% of dailies group owned).

Revenue in the industry came primarily from advertising and circulation. Advertising provided 70-75% of total revenue, and circulation 25-30%. Circulation consisted of subscriptions (75-80%) and single-issue sales (20-25%). Circulation and advertising were correlated as the higher the circulation, the more interest from advertisers in placement. So the key to revenues was to achieve high subscription rates, and sign on advertisers.

Several problems faced the newspaper industry. Circulation of newspapers had slowed down, not growing as fast as the general population. One reason was the threat to print news from the availability of other forms of media. Competition from television was certain to increase as cable television, in particular CNN, founded around this time, proliferated into households. Newspapers would be competing for the same advertising dollars and have to contend with advertisers growing allotment of budget on television. Exhibit A highlights the general trend of growing advertising expenditures on television, and decreasing spending on newspapers.

Another issue facing the newspaper industry was the drop in national advertisements in local papers. (Exhibit B). Local advertising and classifieds made up the bulk of advertisements. National advertisers had reacted negatively to higher rates, the varying mechanical requirements between regional papers, poor reproduction quality, and unfavorable ad placement.

The major newspaper and magazine competitors in 1981 were Knight-Ridder Newspapers, the New York Times Company, Dow Jones and Company, Washington Post Company, Time Inc, and Gannett Corporation.

Gannett Competitors/Incumbents

The New York Times and Wall Street Journal had already established national newspapers and were the incumbents in the national newspaper niche. The Wall Street Journal, created in 1889, was a well-recognized brand. The Wall Street Journal had also pioneered the use of satellite transmission of paper, a technology critical to the success of a national paper. The Journal also had a wide distribution and printing network across the United States as well as mature relationships with national advertisers. However, the Journal’s parent company, Dow Jones Company, primarily focused on financials so there was low probability in it creating a general-interest national paper.

The New York Times had just launched a national edition of its paper in 1980. Like the Wall Street Journal, it utilized satellite and printing technology. With a very limited national presence, the Times had invested heavily in printing and distribution. So extra capacity in producing another new newspaper was relatively inexpensive. However, it did not necessarily have the labor resources to create such a paper. So while the Times eventually built the infrastructure necessary to compete with Gannett, it was unlikely to launch yet another paper so soon.

Rumors circulated of the Washington Post’s exploration of a national newspaper. While inexperienced in creating and managing a newspaper at a national level, the Post certainly had related experience from its Newsweek magazine offering, and general newspaper experience with the Washington Post. So the Post could conceivably combine its expertise in the two areas and pose as a formidable challenger. However, the Post would incur significant capital costs as it did not have newspaper production facilities across the nation. So its fixed cost of entry was rather high.

Gannett did not yet have all the necessary elements in place in 1982 to carry out USA Today. Exhibit C summarizes these elements for the various companies. In short, the New York Times Company and Dow Jones Company looked like the strongest competitors, having the advertising contacts and satellite experience, not yet achieved by Gannett. While Gannett owned newspapers all over the country, the papers were local and likewise so were advertisers. Furthermore, Gannett had a learning curve to overcome in satellite transmission and in mastering the added complexity of color.

These other companies could have decided to leverage their own resources and create a newspaper offering similar to that of USA Today in order to capture part of the new market targeted by Gannett. (This new market is described later.) However, the more likely consideration had to do with advertising dollars. Since advertising budgets were limited and dwindling for newspapers, the possibility always existed that any of these companies could lose advertising money if Gannett entered the national market. So even if they chose not to create a similar offering, and take that new identified market for themselves, the incumbents could still lose advertising money if Gannett drew from that same limited pool of advertising dollars. Therefore, Gannett competed for advertising revenue in an indirect way

Therefore, the companies would still have an interest in keeping Gannett out of the national market even though USA Today was a differentiated product and had a different target audience. As a result, these competitors could have decided to incur the cost to create a national paper with the same features as Gannett, and thus deter Gannett’s entrance. Or they could have decided it was not worth the cost and accommodate, possibly losing some advertising revenue.

Gannett’s Competitive Strategy

Gannett identified a new market for a national newspaper. This market consisted of several segments, the primary one, mobile users, such as airport travelers and hotel patrons. Smaller segments included people who had a desire to supplement their local paper with a national one, occasional or infrequent readers, and those who had recently relocated.

When considering the target market, Gannett had to analyze the differentiating aspects of USA Today from the other papers already on the market. USA Today could almost be seen as a new entrant in a market that was still not saturated, nor fully established, and which still had room to grow. Gannett did not target USA Today at the same markets as New York Times and Wall Street Journal. Furthermore, it did not even cover the same material as either of those two papers. The Journal was more business oriented, while the Times had deeper, more insightful coverage.

Gannett did not intend for USA Today to be a “deep” newspaper. So USA Today did not add significant value from a content perspective. Perhaps it provided additional editorials, but there was not much added from a strict content perspective when compared to competitors. However, from a presentation side USA Today would add value. This value was a more comprehensive format, an eye appealing, flashier design utilizing color. Among all the newspaper groups, Gannett appeared to be the only who saw value in investing in color technology. So overall, the paper would be very visually oriented through color, use of charts and less text. So readers of USA Today would likely be different than those of the other two papers.

Since the same paper was distributed to all cities, Gannett locked out local advertisers as a possible advertising source. As described above, historically in the newspaper industry, most advertising revenues came from local advertisers and more and more from classifieds, not national advertisers. One difficulty in securing national advertisers had to do with mechanical differences of copy between local papers. This would be a non-issue for USA Today since the same newspaper was distributed across the nation. So this point could potentially be an excellent pitch to national advertisers. It may have been too much of a pain to advertise in many local papers. Now advertisers could place ads in one paper, and still reach a national audience. Similarly, advertisers’ tendency had been to advertise in only 1 paper in a particular region even if multiple local papers existed. So Gannett had the potential to reverse or buck the trend of falling national advertisements in newspapers. So this behavior jives with the USA Today pitch as long as Gannett is the only market player.

Gannett had several advantages that helped with this new venture. Its company leaders were highly experienced, its board comprised of veterans including a former president of the Associated Press. In addition, it could draw from its wide network of local papers for expertise. Gannett already had the equipment and a distribution network in place to produce the paper. This would help with fixed costs and capital investments.

There were not too many barriers to entry for Gannett. Gannett already had the capital structure in place for this endeavor. Furthermore, no one entity had control over essential resources. On the other hand, while Gannett owned many papers across the nation, it did not have an individual paper distributed on a national level. So this would require investment in resources. In addition, Gannett did not associate its name with its regional papers. Therefore, Gannett was at some disadvantage of not having any brand recognition. Even readers who did not read the New York Times or the Washington Post, recognized the name and would likely be familiar with the longevity of these papers. Specifically, The New York Times Company also used the same name for its paper. Dow Jones Company was in a similar boat as Gannett, while it achieved brand awareness with the Wall Street Journal, this awareness did not extend to the company.

Quantitative Analysis

Gannett made assumptions of sales of 200,000 issues in 1992, going up to 2.3 million in 1987. This estimate may have been too high. For example, it estimated 100 million relocaters every year. To assume that this group will not simply adopt the paper of their new home or would buy two newspapers with overlapping information was somewhat far reaching. The market of airport and hotel patrons, mobile readers, seems like a very reasonable target segment. However, Gannett did not conduct market research to see how many people in this select group would likely purchase the paper. Other hard to quantify estimates include the number of readers purchasing a newspaper as a supplement to their local paper. Finally, considering that the New York Times had a circulation of 901,000, achieving 2 million in single-issue sales seemed optimistic.

Exhibit D shows the varying NPV calculations for different circulation estimates. The circulation estimates can vary by almost 60% before the NPV starts to go negative. So there is some wiggle room for circulation variation. Even with Gannett’s high circulation estimate, should it not meet the estimate, there is still potential for a positive NPV.

Gannett has also made generous assumptions about CPM. Gannett assumed that CPM rates would start low and increase dramatically from 14.5 to 25.18 (74% increase) for black and white ads, and 18.2 to 32.94 (80% increase) for color. Gannett predicted that as USA Today became mainstream and a recognized brand, advertisers would be willing to pay a higher CPM. Gannett’s estimate for this premium is very high. This increase puts USA Today in close range with CPM estimates of Business Week, a specialized magazine. Exhibit E shows the NPV changes with varying increases in the percentage of CPM increase from 1983 to 1984. It can be seen that even only a 20% increase for both black and white and color ads will result in a positive NPV. So once again, there is room for variance in CPM rates.

As shown in Exhibit F, the CPM charged for different publications, varied quite a bit. Some of the higher CPM rates for example, the Wall Street Journal, may have been due to reputation of that paper. The Journal was a reputable and well known paper having started in 1889. Also at the high end were Business Week and Sports Illustrated, magazines, which unlike US News and USA Today, consisted of content tailored to specific interest groups. Advertisers may have been willing to pay more for placements since these magazines directly reached target market segments, while USA today would get distributed to a wide variety of people. Another reason for higher CPM in some magazines may have been the higher paper quality.

The CPM for US News and World Report and Time, magazines similar in content to USA Today, were much lower. So Gannett’s CPM rates seem high and perhaps should be set closer to that of US News and World Report. Exhibit G shows NPV for varying CPM rates in 1982 and 1983 with rates growing by the inflation rate of 10%. These numbers are more alarming as it shows that NPV can sink when CPM estimates are more conservative, and if Gannett does not attain the CPM rate premium increase in 1984. So it is critical that Gannett build relationships and a reputation with its advertisers, and most importantly reach a competitive circulation.


The bottom line is revenues, which in the newspaper industry, had mainly come through advertising. The challenge in attracting advertisers to a national paper is that advertising cannot be tailored to specific locations. For example, a diamond company may not include residents in certain states as part of its target market segment. However, since the paper is national, the same advertisement goes to all parts of the country. An advertiser could see itself ‘paying’ for an area that it had no interest in advertising to.

As mentioned earlier, Gannett could end up fighting for a limited pool of advertising dollars. It also would not generate sales with local advertisers and had no experience in selling national advertising while its competitors did have established relationships. So Gannett may have had a hard time finding advertisers. So Gannett had to convince advertisers that the concept of USA Today was something new, exciting, and worth investing in.

One of the biggest risks in the Gannett strategy was the assumption that single copy purchasing would drive circulation. USA Today relied more on circulation revenues than advertising. Yet, historically advertising had been the greater source of advertising revenues. Gannett assumed that it would probably not sell that many advertising pages to begin with. This was probably a fair assumption given that it may have taken time to build loyalty with advertisers. Advertisers may have needed to see significant growth and reader loyalty for few years before deciding that USA Today would survive.

Another risk was that Gannett had identified a new market and there was little data about the target market segments for this market. Gannett relied heavily on market research and may have had difficulty gauging the accuracy of the findings. Gannett could have potentially hit a gold mine with an underserved market, but the preferences of this target were relatively unknown.

Other risks included upgrading local printing facilities. Gannett had a plan to use the downtime at its local plants to produce USA Today. However, the increased use of machinery may have led to higher maintenance costs. Gannett was also new to satellite transmissions and would have to transmit color, a slower process than transmitting black and white. Furthermore, Gannett would be the first company to use color transmission at a high volume output level. So there was a learning curve to overcome. Gannett would also face higher distribution costs, with delivery to remote areas. Also it would have to hire additional labor for production and distribution.


Gannett does not face overwhelming competition. The Dow Jones Company is unlikely to diverge from its financial related offerings. The New York Times has recently launched a national edition and would unlikely be able to ramp up on another paper too quickly. The Washington Post lacked the infrastructure for a national paper.

Gannett’s success in reaching a new target market, a segment who values color and presentation, or in finding advertisers who would rather use color, could possibly spur incumbents to take action in using this technology in new or existing newspapers. So it is critical for Gannett to successfully create and launch a compelling product, and attain a first mover advantage, creating brand awareness and enabling it to hold on to some of the profits.

Gannett has clearly identified a new market segment in newspaper readership. It has created a differentiated product with USA Today to serve this market. As mobile readers and hotel patrons will likely comprise a fair number of the readers, more market research should be performed on this group. In addition to added value for readers, Gannett also offers added value for advertisers. USA Today is able to overcome many of the limiting factors that discouraged national advertisers away from newspapers. Gannett should also conduct research to see if advertisers would be willing to increase spending on newspaper ads as a result. Assuming, the research is positive, Gannett should proceed with the launch of USA Today.


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