CBS Corporation (CBS), Gannett Co., Inc. (GCI): This Content War Is About Costs

Of the pair, Gannett Co., Inc. (NYSE:GCI) is more appropriate for income investors looking for a solid turnaround play. The company is retrenching as the newspaper industry declines. While other newspaper companies have been mired in red ink, or gone through bankruptcy court like Tribune, Gannett Co., Inc. (NYSE:GCI) has only lost money once in the last decade. It earned $1.80 or so a share in 2012 and has been increasing its dividend again.

The newspaper business is facing material headwinds, but Gannett Co., Inc. (NYSE:GCI) is positioning itself well for a video world. Its P/E is about 13, above its historical average but low relative to CBS. Although Gannett Co., Inc. (NYSE:GCI) doesn’t have the production assets of the media giant, its changing business suggests that a higher multiple is probably reasonable over the long term.

Euphoria about the station purchase pushed the shares quickly higher. They have cooled off some since then. Patient investors should take a look.

Tribune is a higher risk situation. Although bankruptcy helped get the company back on its feet, it had $10 billion in debt and negative shareholder equity at the end of the first quarter. The TV deal is a good move, but the company has a lot to prove and very little historical data go on right now. Only the most aggressive investors should jump aboard Tribune as it tries to reshape itself outside of bankruptcy court.

More fights to come

There’s going to be plenty more battles over content in the years ahead. The industry’s players are clearly getting ready for the fight. Look for CBS to win more than a few rounds. Gannett and Tribune are stuck in the middle, to some degree, lacking content creation businesses. Increasing scale, however, should allow them to fight to control content costs and ask for more money from cable companies, aiding their turnaround efforts. Gannett is better of the two options.

The article This Content War Is About Costs originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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