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From Poynter Institute:
USA Today Co. blames AI for its revenue woes. It also sees AI as a solution.
Traffic and digital revenue have declined thanks to changes in search behavior, CEO Mike Reed said
USA Today Co. — the largest newspaper chain in the country — reported a lackluster third-quarter performance Thursday, including a net loss, declining revenue and setbacks in the company’s goals.
The chain, which includes titles like The Arizona Republic and The Indianapolis Star, ended the quarter with a net loss of $4.6 million. While that was a noticeable improvement on the $39.2 million loss the company suffered during the same period last year, it meant that after two consecutive profitable quarters, USA Today Co. was once again in the red. Revenue was also down, falling 7.4% year-over-year to $519.2 million.
The issue was artificial intelligence. Changes in search behavior, along with “some inflationary pressures,” hurt digital revenue, CEO Mike Reed said on an earnings call. Like many media outlets, USA Today Co. lost traffic as news consumers read AI-generated summaries served up by Google and other platforms and failed to click through.
Though Reed stressed that declines were concentrated in a small part of digital advertising revenue — one that makes up less than 5% of the company’s total business — he acknowledged later in the call that the changes in search had had an “outsized impact” on USA Today Co.’s financial statements for the past couple of quarters.
That impact has led USA Today Co. to revise its expectations. The company now predicts a steeper decline in same-store revenue next quarter and full-year declines in adjusted EBITDA and free cash flow. Instead of hitting its goal of 50% of total revenue from digital this year, USA Today Co. hopes to reach that milestone next year.
“While these pressures have delayed our return to overall revenue growth, we believe we are building a foundation for improved performance,” chief financial officer Trisha Gosser said.
To build that foundation, USA Today Co. is cutting costs and leaning on AI. One of those initiatives is its controversial partnership with technology company Palantir, which USA Today Co. first announced in August. That deal has allowed the company to use AI-powered tools from Palantir to analyze data from customers and readers and identify ways to monetize them. Though unions at dozens of USA Today Co. newspapers have decried the partnership, Reed said the first “products” are now live and starting to scale.
USA Today Co. is also using AI to expand its video offerings, allowing it to grow video advertising, said Reed. The company aims to make all of its content available in video as well as text. It has also started creating branded advertising content on its platform that is AI-discoverable.
“Because there’s so much crap and untrusted content out there on the AI platforms, it’s a real opportunity for us to partner with brands to create trusted messaging and to make that discoverable on AI platforms,” Reed said.
Before the end of the year, USA Today Co. plans to announce “at least one, possibly two” more content licensing deals with AI companies — another source of revenue, Reed said.
The company is also cutting costs. USA Today Co. executives revealed that the company had made $100 million in cuts in late September, including layoffs. The scope of those layoffs is still unclear, though many sports journalists were affected. The audience team was also reorganized.
USA Today Co. will continue to make cuts in the coming year, Gosser said in response to an investor’s question.
“We’ve already identified opportunities where we can lower our vendor spend through things like consolidating systems or our technology platforms next year,” Gosser said. “We’ll continue to optimize our outsourcing agreements. We’ll continue to optimize and streamline our print operations as that business evolves.”
