Gannett (GCI) Q3 2025: Digital Revenue Mix Hits 47% as AI Licensing Accelerates
Gannett’s digital transformation reached a new inflection, with digital revenue mix climbing to 47% and management signaling momentum in AI licensing and cost takeout ahead of a pivotal Q4. Large client spend shifts and incremental restructuring costs clouded Q3 optics, but the full benefit of $100 million in annualized cost reductions and several delayed digital campaigns are set to land in Q4, positioning Gannett for a stronger close to the year. Management’s confidence is underpinned by new AI licensing deals, a favorable legal milestone against Google, and a growing digital subscriber base with record ARPU, all reinforcing the durability of its evolving business model.
Summary
- AI Licensing Turns Material: New Microsoft and Perplexity deals signal emerging monetization for proprietary content.
- Cost Program Fully Realized: $100 million expense reduction to drive Q4 margin expansion and cash flow.
- Digital Portfolio Diversifies: Digital-only ARPU and audience engagement reach new highs, supporting long-term digital mix growth.
Performance Analysis
Gannett’s third quarter results reflected the growing pains and potential of its digital pivot. Total revenue declined year-over-year, impacted by several large digital advertising and licensing deals shifting from Q3 into Q4, including the Perplexity AI partnership. Digital revenues represented 47% of total company revenue, a record high, and management expects to cross the 50% threshold in 2026. Digital advertising posted another quarter of year-over-year growth, while digital-only subscription revenue returned to sequential growth, buoyed by a new high in digital-only ARPU at $8.80, up 8% year-over-year.
Cost structure shifted materially as the $100 million cost reduction program was fully implemented, but one-off restructuring and benefit expenses were pulled into Q3, pressuring reported EBITDA. The company’s DMS (Digital Marketing Solutions) segment showed stabilization, with core platform ARPU near record levels and customer count growing. Free cash flow generation and debt paydown continued, with net debt dropping below $1 billion for the first time since the 2019 merger—a milestone for balance sheet repair.
- Digital Revenue Mix Expansion: Digital revenues at 47% of total, up from prior periods, and on track to surpass 50% in 2026.
- Delayed Revenue Recognition: Major digital and AI licensing deals shifted into Q4, clouding Q3 comparability but setting up a strong Q4.
- Cost Actions Drive Margin Upside: Full impact of cost reductions to be realized in Q4, supporting robust year-over-year EBITDA growth.
Segment performance was mixed: NewsQuest posted its second straight quarter of revenue growth and margin expansion, while the domestic media segment reflected ongoing portfolio reshaping. The DMS platform is increasingly focused on its ideal customer profile, with larger advertisers transitioned to the media segment to protect platform economics.
Executive Commentary
"We accomplished a significant milestone within the quarter with our total debt falling below $1 billion for the first time since our merger in late 2019. And we are nearing another milestone with total digital revenues growing to 47% of total company revenues in the quarter, an all time high. And we believe that we'll close in on 50% in the fourth quarter."
Mike Reed, Chairman and Chief Executive Officer
"Despite the static revenue trends in Q3, we expect notable improvement in the fourth quarter, which is driven by a more significant impact from AI licensing revenue and larger digital advertising campaigns, along with targeted subscription pricing adjustments and platform enhancements."
Tricia Gosser, Chief Financial Officer
Strategic Positioning
1. Digital Monetization and AI Licensing
Gannett’s strategy is converging on monetizing proprietary content through direct AI licensing partnerships with platforms like Microsoft and Perplexity. These deals are structured with a mix of licensing fees and revenue sharing, and management expects additional partnerships ahead. The company is also actively blocking non-licensed AI bots—over 99% of attempts, with 75 million bots blocked in September alone—to reinforce content value and negotiating leverage. Traffic from AI platforms is negligible, so licensing is the core monetization lever for AI-related content usage.
2. Digital Subscriber Economics and Product Diversification
Digital-only ARPU hit a record $8.80, up 8% year-over-year, reflecting a deliberate focus on high-value acquisition and retention. Initiatives like Play, a new digital gaming hub, and verticals such as sports and pet content, are designed to deepen engagement and open incremental revenue streams via both advertising and subscriptions. Management quantifies the upside, noting that even a 1% increase in gaming participation could yield $10 million in annual revenue.
3. Cost Discipline and Portfolio Optimization
The $100 million cost reduction program is now fully implemented, with most restructuring charges absorbed in Q3. The company is also transitioning large, multi-location DMS clients into the media segment to optimize platform ROI and maintain attractive unit economics. With most real estate monetization complete, future debt paydown will be increasingly driven by free cash flow from operations.
4. Legal and Regulatory Tailwinds
A favorable partial summary judgment in Gannett’s case against Google establishes liability for monopolistic practices in digital advertising, shifting the focus to damages and remedies. Management expects this legal progress to accelerate resolution and potentially reshape digital ad market dynamics in Gannett’s favor.
Key Considerations
Gannett’s Q3 was shaped by both operational execution and market timing, with several strategic levers poised to drive Q4 and 2026 performance.
Key Considerations:
- AI Licensing Monetization Model: The ultimate revenue model for AI content licensing is still evolving; Gannett is participating early to help shape industry standards and ensure long-term upside is not traded away.
- Digital Mix Durability: Management expects digital revenue to surpass 50% of total mix in 2026, supported by a diversified portfolio of advertising, subscriptions, and licensing streams.
- Cost Structure Reset: Full realization of cost actions will support margin expansion and free cash flow, but ongoing discipline will be needed to offset print revenue declines.
- Legal Progress as Value Catalyst: The Google litigation milestone could accelerate compensation and level the digital ad playing field, with implications for both Gannett and sector peers.
Risks
Key risks include the pace of digital revenue growth versus legacy print declines, uncertainty around the long-term economics of AI licensing, and potential volatility in advertising demand. Legal outcomes, while trending positive, remain subject to judicial timelines and appeals. Management’s cost actions are largely complete, but any execution missteps could pressure margin expansion and cash flow targets.
Forward Outlook
For Q4 2025, Gannett guided to:
- Significant year-over-year adjusted EBITDA growth, as full impact of cost reductions and delayed digital revenue land in the quarter
- Low single-digit growth in digital revenue for Q4, reversing prior year declines
For full-year 2025, management maintained guidance:
- Adjusted EBITDA growth for the third consecutive year
- 30% growth in free cash flow
Management highlighted several factors that will drive results:
- AI licensing revenue and large digital ad campaigns that shifted into Q4
- Continued cost discipline and digital product expansion
Takeaways
Gannett’s digital inflection is accelerating, with AI licensing emerging as a credible revenue stream and digital audience engagement at new highs. Cost structure reset and favorable legal momentum provide further tailwinds, but the durability of digital growth and the ultimate economics of AI content deals remain key watchpoints for investors.
- Digital Mix Surges: Digital now drives nearly half of total revenue, with growth levers in AI licensing, subscription ARPU, and new engagement verticals.
- Cost and Legal Levers: Full realization of $100 million in cost actions and a favorable Google ruling position Gannett for margin and cash flow gains.
- 2026 Focus: Investors should watch the ramp of AI licensing, digital subscriber growth, and further legal developments as key catalysts for sustained value creation.
Conclusion
Gannett’s Q3 marked a transition quarter, with digital revenue and AI licensing momentum setting the stage for a much stronger Q4 and a structurally improved business mix in 2026. The company’s balance sheet repair and operational discipline are clear, but the next phase will depend on executing digital growth and capturing the full value of its proprietary content in the AI era.
Industry Read-Through
Gannett’s experience shows that AI licensing is rapidly becoming a material revenue stream for content publishers, but also highlights that direct traffic from AI search platforms is minimal—making licensing, not referral, the economic battleground. The company’s aggressive blocking of non-licensed AI bots and early participation in shaping marketplace models with Microsoft and Perplexity provide a template for other publishers. The partial legal win against Google signals that regulatory and judicial momentum may be shifting in favor of publishers in the digital ad market, with implications for industry economics and competitive dynamics in both media and digital marketing sectors.