Short Term Losses, Long Term Profits   

After years in the red, USA Today turns out to be a wise investment.

When Gannett announced creation of USA Today, I noted that launching a national daily newspaper sounded like a good way to lose a lot of money in a hurry. That proved to be true, but it has not turned out to be the whole story.

USA Today recently became Gannett's largest single profit center in terms of dollars earned. Last year, its advertising revenue grew 30 percent, compared with a newspaper-industry average of just under 6 percent.

USA Today's average daily circulation of more than 1.6 million, as counted by the Audit Bureau of Circulations, makes the paper second in size only to the Wall Street Journal's 1.8 million. And if you count as well the bulk circulation sold at a discount to airlines, hotels and the like (as Gannett does), its circulation reaches nearly 2.2 million and is growing (see "USA Today Grows Up," page 18).

While these performance numbers are impressive, the most important fact about USA Today's 15-year life is this: The newspaper clearly stands out as the most significant innovation in the newspaper business since the invention of the rotary press in the 19th century.

Consider this legacy of USA Today's relatively short life:

• Almost all daily newspapers today look better – a direct result of the sudden appearance of USA Today alongside what were then generally drab local newspapers. The industry was spurred by USA Today's example to spend billions on offset presses and other technology to close the gap in print quality between USA Today and almost
everything else. These investments brought high-quality color printing, like that so notably a part of USA Today, making local dailies more attractive to advertisers drawn to the color of television and mailed advertising inserts.

• Newspapers are no longer haphazard in the way they present the news. They have followed USA Today's example of carefully organizing sections by subject matter. Some newspapers were doing this before USA Today, but now virtually all do.

• High story counts and tighter writing are now common in U.S. dailies, which plays to the public's growing desire for more information. USA Today may not have been the first newspaper to capitalize on this, but it certainly established a ubiquitous example.

• And most notable of all, USA Today created a profitable publication reaching a market niche previously unrecognized and unserved. It takes vision to sense this kind of opportunity, to break away from conventional newspapering, and Gannett's chief executive when USA Today was founded, Al Neuharth, clearly had it.

Not all of USA Today's influence on other newspapers in the early years was commendable. The paper initially was overloaded with lightweight treatment of celebrities and other folderol, and some newspapers for a time followed suit as though the way to reach more readers was to become a print version of television news.

Most of this influence has waned, thankfully, and USA Today has turned to deeper, more serious journalism. Many journalists were harsh critics of USA Today's journalism in the early years, but that has changed as the paper has changed.

As for losing money, USA Today certainly did that. "A History of Gannett, 1906-1993," published by the company, acknowledged operating losses of more than $800 million as of early 1993, when USA Today was finally approaching profitability.

That is a huge amount of money, but if viewed as an investment, as Gannett does, the losses are paying off handsomely. The after-tax impact of the losses would be about half a billion dollars. For that, Gannett has a newspaper with about the same annual revenue as the Boston Globe, which commanded a sales price of $1.1 billion four years ago.

There are few opportunities to acquire a newspaper of the revenue level of USA Today, and they are much more costly than starting up a new newspaper. But creating a local daily to compete in a market already served by an established newspaper is foolish, given the doleful history of such efforts.

It is Gannett's singular achievement that it identified a market not being served, one that included the heavily traveling business and professional class. And USA Today's recent emphasis on enterprise reporting and hard news has expanded the franchise to the political world as well. By now, it is obvious that losing a lot of money in a hurry was a smart thing to do.

Addendum: In a recent column mentioning Harte-Hanks' decision to sell its newspapers, I remarked that I never thought I would see Ed Harte giving up his beloved Corpus Christi Caller-Times. Harte informs me that he voted against the sale as a company director and then made a serious effort to buy the papers himself, but could not raise enough money.