Dying for business: GCI and SCI turn to ‘clustering’

[Clustering Inc.: Actor Michael Hall as Fisher family member]

Gannett and funeral home chain giant Service Corporation International have more in common than nearly identical stock trading symbols (GCI vs. SCI). As portrayed in the hit HBO dramatic series about the struggling Fisher family mortuary, Six Feet Under, they share similar business models, too.

The Houston funeral corporation grew by snapping up small, family-owned funeral homes clustered near each other. SCI would then strip the newly purchased mortuaries of most of their assets. Excess hearses and limousines would be sold; instead, one fleet would serve all the homes in the cluster. A single family member would be retained on contract as a figurehead manager, to create the impression nothing had changed. But virtually everyone else — embalmers, cosmeticians, etc. — were laid off. A single embalmer could handle the work at several homes; ditto for limo and hearse drivers, too. With its growing size, SCI could negotiate better deals on coffins, embalming fluid, advertising and other supplies.

Substitute publisher for mortuary manager; newsprint and ink for coffins and embalming fluid, and you’ve now got Gannett’s newly emerging business model: clustering. Group newspapers near each other, then drive down costs — and shore up profits — by combining operations. A single publisher oversees multiple newspapers. Ditto for advertising, IT and production directors. The latest example of that strategy: The elimination of the publisher’s job at The Leaf-Chronicle in Clarksville, Tenn., which until a week ago was held by Gene Washer, the paper’s long-serving top executive.

In business lingo, this is called a rollup — as in rolling up many small ventures into a single big one. How has this strategy worked for SCI? Not so well; the chain overpaid for too many mortuaries in order to establish a dominant market position. The company’s shareholders paid the price from the late 1990s until just recently.

Earlier: Documents reveal value of dumped newspaper

Related: Big business can’t swallow these little fish

Please post your replies in the comments section, below. To e-mail confidentially, write gannettblog[at]gmail[dot-com]; see Tipsters Anonymous Policy in the green sidebar, upper right.

[Image: yesterday’s Leaf-Chronicle front page, Newseum]

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22 Responses to “Dying for business: GCI and SCI turn to ‘clustering’”

  1. Anonymous Says:

    Clearly Jim you have nothing to write about. What a silly post. I hope you did not spend too much of your time researching funeral homes.

  2. Jim Hopkins Says:

    6:01 am: Help me improve this blog: What would YOU like me to write about?

  3. Anonymous Says:

    I rather enjoyed reading the post. Nice job.

  4. Anonymous Says:

    This recession is going to push clustering, and a lot of other ideas. Difficulty is that Media News and Gatehouse experience shows it doesn’t work. Media News did it big time in the San Francisco area with something called BANG, and the result is horrible. They merged newsrooms, leaving small satellite operations in communities where newspapers were formerly based, and merged production, distribution. Saved oodles of money, but at the cost of community newspapers as readers and advertisers rebelled at the loss of their community voices. Gatehouse also in economic problems with its clusters, for similar reasons.

  5. Anonymous Says:

    Consolidation is being forced by the economic downturn, so the future of consolidation depends on what you see for the future of the economy. I am no seer, but I see only more down, which for GCI means more consolidation of the community papers to cut costs, and, I think, dramatic cutbacks in the flagship USA Today on a scale that we have not yet seen. Remember, this is not a recession, yet.

  6. Anonymous Says:

    Read the papers. The economists predict into second quarter for the economic rebound.
    The big category to watch is automotive. If that comes back and starts spending on advertising again, you will see an uptick in ad revenue.

  7. Anonymous Says:

    Auto ads gone. Look at the paper. Traditionally, this has been a big money-making quarter. Certainly not looking that way this year, which is not good at all.

  8. Anonymous Says:

    9:23 a.m. – Why the heck would auto dealers return to advertising in the newspaper? Online models have proven to be far more cost-effective. If you’re seriously pegging the future of newspaper ad revenue to the car dollars coming back, get your head examined. Newspapers lost that game a long time ago. What you may see is an uptick of retail advertising, but even that is pretty questionable.

  9. Anonymous Says:

    “Clearly Jim you have nothing to write about. What a silly post. I hope you did not spend too much of your time researching funeral homes.”

    Thanks for stopping by, Craig!

  10. Anonymous Says:

    I believe the Courier News Bridgewater site will soon go to a satellite once their building is sold. Squeezing the remaining folks into the East Brunswick site. It will be interesting to see how the community views the move.

  11. Anonymous Says:

    I’m 10:27
    I was being sarcastic.
    The people in middle management actually know how to put out a newspaper. There is no need for them.
    Do you think the members of the OC would go after each other? Not until they get done slaughtering the lower ranks…then they will turn the evil eye upon each other. It will be a glorious blood bath. I can’t wait!

  12. Anonymous Says:

    I loved your analogy of Gannett as the cost-embalming funeral chain. It’s very much on the mark. Gannett is doing everything it can to prop up its unsustainable chain model, itself a rollup. But by doing away with the assets and functions of its individual newspapers and TV stations, it could impair their value when Gannett throws in the towel and puts them up for sale. A buyer of one of Gannett’s papers would get a cheaper price, but would have to restore some of the functions that Gannett outsourced, like finance and customer service. Any buyer of a Gannett newspaper/station would find that it has downsized and outsourced its way into an entity whose local connections are pure lip service.

  13. Page Turner Says:

    How about some content analysis to go with the not-terribly-original insight? After all, Gannett did this years ago when it rolled up a dozen or so Westchester-Rockland newspapers into the Journal-News. Perhaps somebody was there and has an opinion. I would be most interested in hearing whether the readers are better served now by one biggish newspaper or in the past by a dozen little quasi-independents all doing the same thing. (My presumption is based on the judgment that the little old papers were uniformly terrible.)

  14. mike.t@funeral-tips.com Says:

    I am a CPA and financial planner that helps families save money when planning a funeral.

    I always warn my clients about this kind of stuff.

    These big funeral corporations (several of their officers draw SEVEN figure salaries) but a local funeral, keep the same name on the door, sometimes keep the same employeees, increase their buying power, and then RAISE prices by about 50%.

    They certainly enjoy greater economies of scale when it comes to purchasing power, but they don’t pass the savings on to familes.

  15. Anonymous Says:

    2:15: You are right, they were uniformly terrible. But the bigger one now is worse. It changes it’s identity every two years. After every change comes massive loss of readers.

  16. Anonymous Says:

    The homoginazation of Gannett continues.

  17. Anonymous Says:

    Re: auto advertising and advertising dollars in general. Cars.com is owned by Gannett. However, online advertising is much cheaper than print advertising. Gannett’s current “model” is basically feeding the online with the print. At the same time, they continue rolling out print “package pricing” which degrades the per column inch rate of the core daily paper product; not to mention pricey direct mailed weekly papers. Result? A lot less ad revenue, as we have seen. Add in the crummy economy, recycling news content, falling circulation – which, hello, whatever happened to marketing? – it’s all just a mess.

  18. Anonymous Says:

    GCI needs to decide what it wants to do: run Web sites or run newspapers. Web sites like Cars.com and metromix are siphoning off ads from newspapers, plumping up profits for Internet operations, while taking them away from newspapers. This looks wildly profitable on paper because it costs nothing to distribute metromix and cars.com, and the ad revenue just rolls in. Business love the sites because the ads cost a fraction of a newspaper ad, and click-through data shows how many people read their ads which is not possible with newspapers. What’s worse is that metromix requires staff input for the copy it needs, draining reporter resources. I’m sure some Wharton graduate is doing the Excel sheets, pointing out how much revenue increases are coming from the Internet, while pointing out the down line for newspapers. BUt it is really a case of robbing Peter to pay Paul.

  19. Anonymous Says:

    Finance/Economics Drop-Out Here.
    FOLLOWING FACTORS (and their interelated feedback loops) indicate current newspaper conglonerate (especially debt-financed) model is destined to fail:
    1) Raw Material – to Finished Delivered Product Chain is highly energy ineffiecient and unsustainable;
    2) Home Delivery part of the chain is about to break because on little or no Net Profit (relative to minimum wage)
    3) Size & Profits of Internet Portion of business WILL NOT (even with 20%+ Growth Rate) OVERCOME the contraction in the Newspaper Portion of the business.
    4) National & Global Debt-Induced Economic Contraction will accelerate the decline of this industry.

  20. Anonymous Says:

    I’m financially ignorant.

    Would someone please explain to me how clicks equal dollars?

    I think I get the basics—how sales people can tell potential advertisers X people visited the site and Y people clicked on this and that ad.

    But I’m still confused about so much.
    -When, say, 500 readers of the ficticious Mississippi Message newspaper visit ShopLocal and click on, say, the national Catfish Corner business in the same month 300 readers from a paper in Florida click on that same thing, how many clicks do the local sales people claim?
    -I’ve got the same kind of questions about CareerBuilder. (Seems like they have a huge sales staff from the number of jobs posted.) If I click on CareerBuilders to check out jobs, how does that make Gannett money? Say the site gets 2 billion clicks
    this month. Can Gannett and CareerBuilders sales staffs both boast about that number?

    I just don’t get it. All this has me wondering if maybe a bunch of different companies are claiming overlapping Internet traffic. Is that possible?

  21. Anonymous Says:

    Easy. Click on a Web site, and someone pays cents to the Web site owner for looking at their ad. Cents add up, as the old days of penny press journalism showed.

  22. Anonymous Says:

    “Do you think the members of the OC would go after each other? Not until they get done slaughtering the lower ranks…then they will turn the evil eye upon each other. It will be a glorious blood bath. I can’t wait! …”
    ———————————

    In all honesty, I believe this is the ridiculous and mean-spirited attitude of many folks posting on this blog. These kinds of comments add nothing but spite and hate to the conversation.

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