Sam Zell's Deal from Hell

The turnaround maven should have seen the problems ahead in the newspaper industry. His blind side may cost Tribune Co. its very life

by Emily Thornton, Michael Arndt and Ronald Grover
Business Week

"It's the deal from hell," says Sam Zell, never one to mince words. "And it will continue to be the deal from hell until we turn it around." Zell is talking, of course, about his $8.5 billion purchase of Tribune Co. in December 2007, a transaction that's shaping up to be one of the most disastrous the media world has ever seen. Zell is a real estate tycoon, and his plush office reflects his decades of success: Giant even by CEO standards, it brims with paintings and statues and looks out on a private garden above the Chicago River. One item that stands out among the clutter is an upside-down map of the world, a prop presumably intended to convince visitors that they're in the presence of an iconoclast. Zell, 66 and fiercely devoted to blue jeans, has burnished that image carefully over the years.

Were it not for the Tribune debacle, there would be no reason to question Zell's brilliance as a businessman. He describes himself, immodestly, as a "grave dancer" who buys properties at fire-sale prices and resells them for a profit. His biggest coup came in late 2006, when he orchestrated a bidding war for his real estate trust, Equity Office Properties. EOP eventually went to Blackstone Group (BX) for $39 billion, in what was then the biggest leveraged buyout in history. Weeks later he thumbed his nose at the dealmaking world with a satirical song, posted on the Web, that predicted the credit crunch soon to sweep the globe. It seemed he could do no wrong.

Then Zell bought Tribune and stumbled into a calamity of plunging sales and rising costs. He had expected only single-digit declines in newspaper ad revenue. Turns out he was off by a factor of two or three. "If current trends in advertising are permanent," he says, "we have a really serious problem."

He should have seen it coming. Tribune comprises eight newspapers, including the Chicago Tribune, Los Angeles Times, and Baltimore Sun, which together generate 76% of the company's revenues; more than 50 Web sites; 25 television stations, including superstation WGN America; a 31% share of the Food Network; the Chicago Cubs baseball team; and real estate and other holdings. Tribune had been slumping for years, courting buyers for more than 18 months before Zell ambled onto the scene in early 2007. Against that bleak backdrop, he loaded the already strapped company with more than $8 billion in fresh debt to pay for the deal, leveraging Tribune to within an inch of its life.

The payments, $1.4 billion by June 2009 alone, have proven crippling. Tribune's junk-level credit rating has fallen since Zell took over, and some of its bonds are fetching 35¢ on the dollar. Zell has been forced to cut costs far more than he anticipated. It may not be enough to avoid a default. "The colossal debt Zell piled on is forcing Tribune to take more and more desperate actions," says media consultant Alan D. Mutter.

On paper, Zell's plan looked great. He would quickly sell the Chicago Cubs, Wrigley Field, and a 25% stake in Comcast SportsNet Chicago to pay off debt, and focus on making Tribune's newspapers zippier and more ad-friendly. The strategy was based on an innovative financing scheme that used Tribune's tax-exempt employee stock ownership plan as the vehicle through which to fund the transaction. That would allow Tribune to save big on taxes: It paid $245 million annually on average over the past three years. Zell's financing arrangement required the billionaire to pony up just $315 million of his own cash to wrest control of the company, with a warrant to buy 40% more for as little as $500 million. What's more, Zell turned Tribune into a so-called S corporation, a designation usually reserved for small businesses. That could allow Tribune to sell assets in 10 years without having to pay capital-gains taxes.

Zell doesn't need Tribune to thrive; merely keeping it alive could earn him an astronomical return when it comes time to sell. That has always been the goal. "When we first undertook this project, we viewed Tribune as 60 ways to get lucky," Zell says. But amid the credit crunch, the quick asset sales haven't panned out. With the newspaper business deteriorating, his seemingly clever strategy has thrown the whole Tribune enterprise into jeopardy.

The question for the company's 18,500 employees is whether Sam Zell is the guy to save it. Although he owned a radio company called Jacor Communications that was acquired by Clear Channel Communications (CCU) in 1999 and spends his weekends in Malibu, Zell is no media mogul and hasn't mixed well in that world thus far. Early on, he told Tribune executives he would "cut off their ties" if he caught them looking so formal at future meetings. Prone to off-color jokes and profanity, he's more like "that guy you see on the Mexican beer commercial," says Jeff Peterson, owner of Geoffrey's Malibu, a restaurant frequented by Zell and his wife, Helen. "He just seems like a down-to-earth guy's guy."

Many staffers are alarmed by Zell's open disdain for the newspaper business. "The industry has lost its credibility" because of biased, boring, and self-indulgent articles, says Zell. For that matter, he doesn't much care for baseball, either, says Chicago White Sox majority owner and longtime friend Jerry Reinsdorf: "He actually dislikes it." Most dealmakers, by contrast, lionize the companies they own to pump up sale prices. "If you have a lemonade stand, you don't try to sell the lemonade by saying it's terrible," says Myron Levin, a reporter for 23 years at the Los Angeles Times who took a buyout in March.

Adding to the uncertainty, Zell has tapped some quirky characters with no newspaper experience to run key elements of the Tribune empire. Randy Michaels, the chief operating officer, is a former Clear Channel executive and onetime "shock jock" who worked for Zell at Jacor. Michaels has installed jukeboxes, pinball machines, and a sculpture of a six-legged man running in circles called "The Bureaucratic Shuffle" in the Tribune Tower in Chicago. Marc Chase, president of Tribune Interactive, is another Clear Channel alum and former DJ. Robert J. Gremillion, Tribune's executive vice-president and interim publisher of the Chicago Tribune, hails from the broadcasting division. Gerald Spector, the chief administrative officer who's overseeing the Los Angeles Times, is a Zell acolyte from the real estate business with a penchant for sweaters emblazoned with cartoon characters.

Tribune's new chief innovation officer, Lee Abrams, a former XM Satellite Radio Holdings (XMSR) programmer, has raised eyebrows, too. In March he began firing off 5,000-word e-mails suggesting employees peruse his 108 blog posts on what's wrong with the media. "While my background is steeped in rock 'n' roll," he wrote in his first e-mail, "I strongly believe that News and Information is the NEW rock 'n' roll…The NEW rock 'n' roll isn't about Elvis or James Dean, but it IS about re-inventing media with the exact same moxie that the fathers of rock 'n' roll had. The Tribune has the choice of doing to News/Information/Entertainment what rock 'n' roll did to music."

Empty Promises

With the newspaper industry in free fall, Zell's new survival plan is to build out Tribune's broadcasting and Internet groups, which represent 24% of revenues, and slash costs in the newspaper group. "It's a smart move," says Hale Holden, a debt analyst at Barclays Capital (BCS) who follows Tribune. Broadcast companies are commanding valuations double what newspaper companies enjoy. "We think it's one of the few options he has available," Holden says.

That grim assessment stands in stark contrast to the jubilation that greeted Zell last Dec. 20, his first day as CEO, as he strode triumphantly into the Chicago Tribune offices, smiled broadly at his new comrades, and announced: "You own this company now!" He promised no cuts.

Even then, most observers knew the industry was being buffeted by falling revenues. "We started out saying, 'big Christmas, slow January,'" Zell says of the typically booming fourth quarter and anemic first quarter for ad sales. "Then we started seeing trends we didn't expect." Companies were abandoning newspaper ads at an accelerating pace because of a souring economy and cheaper alternatives online. "It's going to get worse, and it's going to go on a lot longer," says New York Daily News owner Mortimer Zuckerman, who has known Zell for 15 years and considers him a "business genius."

As ad sales nosedived, Zell rushed to enact a turnaround plan originally scheduled for 2010. It called for cost cuts and an immediate redesign of Tribune's six smallest dailies to make them leaner and more attractive to advertisers. Zell told employees, whom he addressed as "fellow investors," that they had to start acting like owners. The new mantra was "AFDI," an abbreviation for a crude slogan that was later sanitized to mean "Actually Frigging Doing It."

The first round of cuts came in the form of buyouts intended to slice 2% of Tribune's workforce. Zell suggested in a Feb. 13 memo that the moves reflected "the reality of our significant debt levels" and other problems. Tribune publishers sent memos hinting that future packages wouldn't be as lucrative. Profits were falling so fast that Tribune looked likely to violate loan agreements requiring it to keep new debt no higher than nine times operating earnings. (The ratio now stands at 8.1.) In March, Standard & Poor's (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP)) cut Tribune's credit rating to B-, from B. Says analyst Emile Courtney, who wrote the report: "That reflects the concern that Tribune might violate [loan agreements] in the near term…as early as December."

Operating chief Michaels conferred with publishers to find out how many pages Tribune could afford to print without breaking its debt provisions. In June he ordered that the ratio of ads to news shift to 50-50 instead of the usual 60% reserved for articles—meaning the so-called news hole had to shrink by 17%. The Baltimore Sun killed its stand-alone daily business section. The Orlando Sentinel ditched its stock tables. The Los Angeles Times announced it was merging sections devoted to books, opinion, real estate, autos, and a weekend calendar.

To Michaels, the moves are a matter of survival. "An animal with his leg caught in a trap will chew it off," he explains. "At the moment, we're doing some leg-chewing." Zell, meanwhile, has no patience for what he views as the pomposity of journalists casting their profession as some kind of sacred trust. "If you want to tell people what they should want, become a professor," he says. "But if you're in the newspaper business—and I emphasize the word business—then you have to respond to what your customer wants."

Zell and Michaels also shook up the sales side. They started placing calls to big advertisers, paying sales reps on commission only, and arming them with new types of ads, including ones in the middle of stories. "We want to incent them like hell to be greedy," says EVP Gremillion. Even if advertisers didn't want to be in the paper, Zell suggested, they could buy space on delivery trucks and printing plants.

As newspaper bosses were cutting jobs and pages, Zell's lieutenants sought to crank up broadcast profits, which had fallen 10% in 2007 because 13 Tribune stations were affiliated with the struggling CW Network. Michaels pressured CW to lower the estimated $72 million a year Tribune pays for its programs. He also complained about its core audience of young women, saying they tend not to watch local news. Local newscasts are the most lucrative programs because 100% of the ad revenue flows to the station, without network or syndicator middlemen.

The More Urgent Problem

Internally, Michaels unleashed radical changes designed to double the number of hours of local news on Tribune's stations. In Fort Lauderdale, Tribune is building a local TV news station inside the newsroom of the South Florida Sun-Sentinel to feed hours of content to Miami's WSFL-TV station. It also plans to launch a four-hour local morning show in January. In Chicago the company is planning a 24-hour breaking news center in the Tribune's newsroom to provide content for television, radio, cell phones, and newspapers. "What we're doing could really change the business not only for television but also for print," says Ed Wilson, Tribune's head of broadcasting. One top executive at a major network has doubts: "Michaels doesn't know this business and hasn't taken the time to learn it. He's still a radio guy playing a TV executive."

None of the moves address the more urgent problem: Tribune's need for cash. It raised $630 million on July 29 by selling New York's Newsday, one of its most profitable newspapers, to Cablevision Systems (CVC) (Zell smartly kept a 3% stake to avoid taxes.) The price was less than what analysts estimate Zell paid for it last year, but it covered a big chunk of debt. In June, Zell put Tribune's headquarters and the Los Angeles Times' property on the market. On July 3, Tribune signed a $300 million asset-backed commercial paper deal with Barclays, in essence borrowing against money it expects to collect in the future.

And so the layoffs will keep coming. Tribune has axed 1,100 people thus far, with newspapers bearing the brunt. On July 2 the Los Angeles Times scrambled to cut 150 people, or 17% of its staff. It happened so fast that one editor said he didn't know whether to nod sadly or smile to his own staff members in the hallway because he couldn't recall who was on the list.

One wonders what might have happened had someone else bought Tribune. Zell and his team have limited flexibility, but a different buyer might not have taken on so much debt. Zell says the casualties will be "significantly greater" by year end, and he's unapologetic about that. "I knew that I needed to act as both the grenade thrower and the bomb deflector if we were going to get from here to there," he says. Getting "there," of course, would mean a big payday for Sam Zell.

With Susan Zegel in New York

Talking bylines with new Chicago Tribune editor

Posted by: Robert MacMillan Reuters Blogs
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Tags: Mediafile, Sam Zell, Tribune


Tribune Co is keeping media reporters and headline writers busy these days with news of how the company is trying to turn around its newspaper business and stay afloat under billions of dollars in debt - all while creating a culture that, as Chicago real estate tycoon and newly minted press baron Sam Zell says, does not take itself too seriously.

That is growing more difficult as the company embarks on another round of job cuts at its papers, sparking fear and loathing among employees, and launches an ambitious plan to redo the papers’ sizes and looks. Tribune also set journalism types’ tongues a-wagging with its plan to review reporter productivity as a possible condition for staying on board. That might not sound so controversial, except that many people have interpreted that as saying it’s not about the quality of your stories, it’s about the quantity.

Gerould Kern, Tribune’s vice president of editorial and the successor to departing Chicago Tribune editor Ann Marie Lipinski, addressed some of these topics in a phone interview with Reuters.

Q: What is your immediate task as the new editor of the Chicago Tribune?

A: As we report almost daily, the newspaper business is in a crisis. And I want to do everything I can in my power to save it. And you know, the Chicago Tribune has played a huge role in the history of the nation and the city, and I know it and I’m proud of it and I want that history to stretch far into the future. So I’m optimistic that we can solve these economic problems, the economic dislocation that faces us and that we’re not only going to survive but thrive in the future.

Q: How do you make the business thrive with fewer people?

A: I think it becomes a lot harder and that’s going to force us to be a lot more innovative and entrepreneurial and resourceful than we’ve ever been before. There’s been a lot of misinformation and confusion about productivity as a topic. I think the idea’s fairly simple. Let’s turn over every stone, let’s do every smart thing we can to stretch the resources, to use them to serve people and build our audiences and bring in revenue to support journalism.

It means our full-time professional staff is going to get smaller. And that’s been happening to newspapers all over the country. And yet we’re having to support more local media channels than ever before. … At the end of the day we still will have the largest newsgathering organization in this city by far. And if we are really smart and resourceful about using them we will be able to a fabulous job for consumers in whatever channel they choose.

Q: What do you say to the reporters who say they’re scandalized by the idea of being judged on how many stories they produce, rather than the quality of individual stories?

A: I think it is unfortunate that this has been focused on in this way. I understand it based on some comments that [Tribune Chief Operating Officer] Randy [Michaels] made on the middle of that call. Let me just say this: I talked in a broader sense about productivity, which frankly is the way I’m looking at it. What can the whole organization do that’s smart, that‘s strategic, that’s resourceful.

But on bylines: All of our newspapers are looking at all kinds of information to see what is valuable in making some of these tough choices… Some of our newspapers in some departments have been doing byline counts over the years. It’s not the first time that anybody’s ever done that. From the beginning, we made it clear that this should be viewed as just one data point and, frankly, probably not the most valuable and that it had to be combined with other information. … Everybody knows for instance that you have to evaluate investigative reporters differently than other kinds of reporters. Because reporting takes a long time… And everyone was aware of that.

In the end, the information and the judgment calls [were] left strictly up to editors in the newsroom and that’s where it will remain. So, I think much more is being made of it than really is there.

Randy Michaels built a radio empire, but does he have a plan for newspapers?

By Carol Eisenberg

The latest wave of departures among Tribune top brass - Los Angeles Times Publisher David Hiller and longtime Chicago Tribune Editor Ann Marie Lipinski resigned this week - cast a pall over already-demoralized newsrooms, in part because they were not about anyone falling on their swords.

Hiller had just signed off on 250 layoffs at the Los Angeles Times, but appears to have been tossed under the bus despite his willingness to do the dirty work. Lipinski, who has been handing out dozens of pink slips herself at the Chicago Tribune, reportedly made her own choice to leave. “This position is not the fit it once was,” she told staff.

So where is all this heading? Does the brash Michaels have any vision of where he is taking the company - beyond bailing as fast as he can to stave off potential bankruptcy in the face of a $13-billion debt incurred by Sam Zell’s purchase last year?

Considered a genius by his admirers and a madman by critics, Michaels is a former radio executive and shock jock (who reportedly resorted to farting on air and fake-pureeing a frog to boost ratings), who was handpicked to run the Tribune by its new owner Sam Zell.

Like his boss, Michaels affects a profane, tough-guy style. He announced the arrival of the new regime to Newsday staff last January by saying, “The difference between then and now is we’re not having another meeting. . . . We’re Actually Fucking Doing It.”

Zell, nicknamed the “grave dancer” for his knack for pulling value from dying businesses, has been a true believer in Michaels since buying a string of radio stations called Jacor Communications in 1993, then headed by Michaels.

Michaels impressed Zell as an empire builder, riding the wave of government deregulation to make tons of money for Jacor and then, San Antonio-based Clear Channel Communications Inc. He took Jacor from 13 stations to 230 in five years, and helped engineer a merger with Clear Channel in 1999, according to a profile in Chicago Business. At Clear Channel, he led a strategy that made the company the biggest radio operator in history.

But despite his financial success, Michaels “became the poster child for what people didn’t like about corporate radio,” Sean Ross of Edison Media Research told TVNewsday.

Among his innovations was “voice tracking” in which ‘local’ radio shows were produced hundreds of miles away, eliminating the need for many jobs and homogenizing play lists across the nation.

And then there were stories about his pranks, like the day he roamed the halls at Jacor wearing a rubber penis around his neck, accosting female employees, according to allegations aired on ABC’s “20/20,” by former Florida disc jockey Liz Richards who sued the company, including Michaels, for sex discrimination. Richards’ suit was settled out of court in 1995, and the terms were never disclosed.

“Looking for classy radio programming?” wrote Eric Boehlert in a withering 2001 Salon profile. “Don’t look here. The company is known for allowing animals to be killed live on the air, severing longstanding ties with community and charity events, laying off thousands of workers, homogenizing play lists and a corporate culture in which dirty tricks are a way of life.”

Michaels has always insisted such criticisms were unfair, attributing them to resistance to change in a rapidly consolidating industry.

Regardless, the reception he got from Tribune employees earlier this year was hopeful in many quarters, especially when he seemed so emphatic that the solution to the industry’s woes was not further cost-cutting, but creating entirely new streams of revenue. “You think Amazon is worrying about selling ads? You think eBay is worried about selling ads?” he said in his remarks at Newsday. “In the interactive world, that’s the icing on the cake. Media companies have their head where it doesn’t smell good.”

Except that it hasn’t worked out that way. However paltry those advertising revenues may have seemed then, they have nose-dived since. And with new income streams yet to materialize, the company’s steep debt payments began to seem more and more onerous.

Despite Zell’s insistence that he planned to keep intact the company’s 11 newspapers and nearly two dozen television stations, the company sold off Newsday, one of its most profitable papers, borrowed $300 million against future earnings and began exploring the sale or lease of the landmark properties owned by the Chicago and Los Angeles papers.

By June, Michaels was assuring worried investors: “We are actively pursuing a program to right-size our newspapers.”

The definition of ‘right-sizing - was not spelled out.

“Sounds better than ‘panicking,’” suggested media consultant Ken Doctor on his blog. “To describe the current round of staff cuts, though, there’s a better word: Frightsizing.”

Another tip-off to the future was suggested earlier this week by Lipinski’s successor at the Chicago Tribune, Gerould W. Kern, who was the one who introduced metrics to measure reporters’ productivity. In an interview with his own paper, Kern said he planned to work closely with Los Angeles Times Editor Russ Stanton to see where resources could be shared.

The scope of that sharing was not spelled out, but that too might signal a page out of Michael’s playbook at Clear Channel.

“If Randy repeats what he’s done in radio, we’ll see a lot of newsrooms eliminated,” media consultant John Gorman told Chicago Business. Gorman, who remembered hearing a Clear channel DJ mispronounce the name of the Cleveland suburb from which he was purporting to broadcast, predicted a scenario in which local TV newscasts would be ‘video-tracked’ from a central studio to save money.

To be fair, no one else has hit on the solution to print media’s declining fortunes either. Nor has anyone else beat their chest in quite the same way as Michaels or Zell.

“The dearth of decent ideas designed to save newspapers - or reinvent them for the digital age in ways that preserve their crucial democratic functions - is curious and depressing,” wrote Eric Alterman in The Nation. “It’s curious because some of the smartest, most ambitious and most civic-minded people in America are deeply engaged with the problem. It is depressing because the only ones with the self-confidence to undertake radical measures appear to be completely off their respective rockers.”

As Michaels himself promised Tribune employees in January: It’s going to be a wild ride.

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Tribune Company - SWOT Analysis

www.companiesandmarkets.com adds new report

www.companiesandmarkets.com/Summary-Company-Profile/Tribune-Comp ..


Tribune Company - SWOT Analysis company profile is the essential source for top-level company data and information. The report examines the company’s key business structure and operations, history and products, and provides summary analysis of its key revenue lines and strategy.


Tribune Company (Tribune) is engaged in newspaper publishing, television, and radio broadcasting and entertainment. Tribune became a private employee owned company in December 2007 and Sam Zell, a real estate player, holds 40% common equity of the company on fully diluted basis.

The company primarily operates in the US. It is headquartered in Chicago, Illinois and employs about 19,600 people.

The company recorded revenues of $5,063 million during the fiscal year ended December 2007, a decrease of 7% over 2006.

The operating profit of the company was $633.9 million during fiscal year 2007, a decrease of 41.6% over 2006.

The net profit was $86.9 million in fiscal year 2007, a decrease of 85.4% over 2006.


Scope of the Report

- Provides all the crucial company information required for business and competitor intelligence needs

- Contains a study of the major internal and external factors affecting the company in the form of a SWOT analysis as well as a breakdown and examination of leading product revenue streams

- Data is supplemented with details on the company’s history, key executives, business description, locations and subsidiaries as well as a list of products and services and the latest available company statement

BREAKING NEWS: LAT to Begin Laying Off 150 People Today

From Russ Stanton:

Colleagues:

Earlier this month, I promised to give you details of the job cuts when I had them. Here they are:

Today, editors will begin notifying most of the 150 people who will be leaving us, and we hope to complete that process within a matter of days. Some of our co-workers will be leaving today, many at the end of this week, others in the weeks to come.

Those leaving will be given detailed information about the severance package they will receive, which includes one week of pay for every six months of service, up to one year. All of those directly affected by this cutback will have departed by Friday, Aug. 29.

The days and weeks ahead will be difficult ones, filled with pain, anger and sadness. All of us need to respect the feelings of those who are leaving us, and the editors who are being asked to handle duties they did not seek.

As I've said before, I deeply regret that these cost-saving moves will result in the loss of work for the many people who have served this company well. The best way we can honor them, and to show our readers and our peers that the Los Angeles Times will continue to produce first-rate journalism, is to stay focused on our work.

Russ Stanton
Editor

Chicago Tribune to cut 80 newsroom positions

By Phil Rosenthal |Tribune media columnist


The Chicago Tribune began informing staff Tuesday it will eliminate around 80 of its current 578 newsroom positions by the end of August and reduce the number of pages it publishes by 13 percent to 14 percent each week.


There also will be a reduction of jobs in other Chicago Tribune departments, but that number was not immediately available. A paper spokesman declined comment.


Because some newsroom jobs have been left unfilled in recent months, the actual number of staffers to exit the paper is expected to be between 55 and 58.


"Like many newspapers, we're feeling financial pressures," Hanke Gratteau, the Chicago Tribune's managing editor for news, said.


These reductions are the paper's fourth since late 2005, when its newsroom had around 670 positions. They have been expected since Randy Michaels, chief operating officer of Chicago Tribune parent Tribune Co., said last month in a conference call with lenders that all the company's papers would be cutting staff and the number of pages by mid-September in response to steep declines in publishing revenue so far this year.

These industrywide trends, the result of online advertising revenue growth unable to offset print advertising declines, are resonating in similar fashion at nearly every U.S. newspaper company, including the New York Times and Washington Post.

The Los Angeles Times, Tribune Co.'s largest newspaper, announced last week it planned to reduce the number of pages it publishes each week by 15 percent and eliminate roughly 150 jobs--or about 17 percent--from its newsroom by Labor Day, and had already made progress toward reduction of another 100 positions from its other departments. Coupled with other cuts over the years, the Times' newsroom now is a little more than half the size it was at its peak in the 1990s.

At Tribune Co., industry troubles are compounded by the debt load the company took on late last year in going private, an $8.2 billion transaction engineered by real estate billionaire Sam Zell, who became the company's chairman and chief executive.

There are also major obligations due this year and next. Zell has said this year should be covered through Cablevision Systems Corp.'s $650 million deal to acquire control of Newsday, Tribune Co.'s paper in Long Island, N.Y., as well as through new credit arrangements finalized last week.

Additionally, Tribune Co. reached agreement today to sell its 42.5 percent share of online shopping Web site ShopLocal.com to partner Gannett Co. for around $22 million.

The anticipated sale of the Chicago Cubs and Wrigley Field is expected to help cover next year's obligation.

Scott C. Smith, the Chicago Tribune's publisher, retired last week, leaving Tribune Co. after more than 30 years. Bob Gremillion, Tribune Co.'s executive vice president for publishing, has assumed oversight of the paper temporarily until Smith's successor is named.

Besides the cutbacks, Tribune Co. papers are all redesigning their formats. The Orlando Sentinel already has introduced its new look and the others, including the Chicago Tribune, will unveil their overhauls by the end of September.

philrosenthal@tribune.com

Tribune to cut 80 newsroom jobs

BY DAVID ROEDER droeder@suntimes.com

Sam Zell took his first bite out of the Chicago Tribune newsroom Tuesday, disclosing plans to lay off about 15 percent of its staff.

And the bite may be followed by more. Tribune employees said they have heard the reductions in the paper’s 570-person editorial department could total from 150 to 200.

Employees said department heads told them 80 positions will be cut by the end of August. They said the total includes 20 positions that are unfilled.

The timing of the announcement is unusual because an internal Tribune review was not expected to produce recommendations on job cuts until mid-August. Staffers speculate more cuts will come as Tribune editors complete plans for eliminating sections and reducing the space devoted to news and features.

The paper is acting on a mandate from Zell and Randy Michaels, chief operating officer of Tribune Co., to slash expenses in response to declines in advertising and circulation revenue. The industrywide recession is hitting Zell especially hard because he swallowed $13 billion in debt last December when he took control of Tribune Co., converting it from stockholder to employee ownership.

A Tribune spokesman was not immediately available for comment.

Sources said the laid-off workers will receive two weeks’ severance for each year of service. They said managers did not explain whether the layoffs will be decided based on salary levels, productivity, job category or other factors.

The cuts are in line with the job losses announced for other Tribune-owned newspapers. The Los Angeles Times, for example, is losing 17 percent of its news staff, or 150 people.

Others include the Hartford Courant, which has outlined news layoffs involving 25 percent of its staff, and the Baltimore Sun, which is eliminating about 7 percent of jobs across all departments.

Related Blog Posts

More Tribune layoffs coming? Not yet.

Andy Martin launches a campaign to 'Save the Chicago Tribune'

ANDY MARTIN Executive Editor ContrarianCommentary.com


Martin says that asset stripper Sam Zell is systematically destroying the Chicago Tribune and may be looting the company's assets. Andy suggests Tribune employees have a legal right to protect their savings in the company's ESOP.


Andy Martin asks: can the Chicago Tribune be saved? Can the Tribune Company newspapers in Los Angeles, Hartford (where he used to be a carrier boy), Baltimore, Orlando and Fort Lauderdale be rescued? Can American journalism survive? Martin believes a tragedy is unfolding in Chicago: an ignorant, arrogant, incompetent swindler has gained control of the Tribune Company and is systematically destroying the company's assets, particularly its newspapers.

'The barbarians are not at the gate, they are inside the gate,' says Martin. 'The Chicago Tribune is a great asset; the Los Angeles Times, Hartford Courant, Baltimore Sun and other Tribune newspapers have always been highly professional.


Now an ignoramus has taken over with a 2% down payment and claims he knows more about journalism than the entire newspaper industry. He has decided that what people want is less news, lower quality news, more pretty pictures and less substance. So Zell is cutting news coverage, dumbing down the product and adding more advertising.


Who is going to be left holding the bag? Why Tribune Company employees, of course; they are the majority owners of the post-public company. Zell only has a few hundred million dollars invested in a $13 billion enterprise. He can walk away at any time, leaving the employees with the results of his destructive policies.


'This week I am going to focus on the future of American journalism. Can it be saved? From itself? Through a series of news conferences and performance art we are going to try to get the public to focus on Zell's acts of urban vandalism. Proud, profitable institutions across America are being destroyed by Zell's larceny and infamy.


'There is no surprise that Zell is seeking to ‘strip' the Tribune Company's assets, no doubt with a healthy percentage being placed in his own family's hands. I predicted this over a year ago. Zell has leased his daughter space in the Tribune Tower. Is she paying a market rent? Doubtful. Zell may be stealing from his own employees.


'Zell acts as though he owns the Tribune outright. But he doesn't. The company is now owned by an employee ESOP, or employ stock ownership plan. Zell has an option to purchase a significant share of the company but employees are still the majority owners. Employees are being raped and robbed by Zell and his crew of pirates.


'Newspapers are undeniably facing a challenge. Marginal companies such as Knight-Ridder have been absorbed. But newspaper managements are largely the architects of their own demise. If you check what the Tribune charges for a classified ad, they want hundreds of dollars for something that others are giving away.


The choice is no longer between a reasonably priced Tribune ad and a competitor, but between an outrageously overpriced Tribune classified ad and competitors offering similar products at lower prices. Right across the newspaper industry classified advertising rates have become a delusional operation in which papers are forfeiting revenue because they still charge monopoly prices for a competitive product.


'Long after their monopolies have dissolved, newspaper managers continue to believe they are entitled to a monopoly rate of return. That is no longer the case. Newspaper media dominance is dissolving.


'What solution do newspaper managements and asset strippers such as Zell propose? They constantly cut staff, cut the quality of the news they are providing, and cry about poor results when papers are still stuffed with ads. At a time when they should be rebuilding they are destroying. How long before Zell ‘discovers' readers don't want foreign news, and fires the Tribune's foreign correspondents? Not long I suspect. Zell makes all kinds of ‘discoveries,' and all of them are designed to cheapen his product and chase readers away.


'Today we launch a campaign to alert the good citizens of Chicago to the threat facing their media. I may not like the odd Trib employee but I have no hesitation in declaring that the company's newspapers are outstanding products. Now that Gerald Spector, the quality-cutter-in-chief, has demanded that Tribune employees cut back on paper and paper clips, the time is right to sound the alarm. Spector's actions are ridiculous, a parody of a Gilbert & Sullivan operetta. His save-the-clips memo is cut straight from Dilbert.


'I am launching ‘Save the Chicago Tribune, Stop Sam Zell' week. We kick off the campaign with Tuesday's news conference, and Wednesday and Thursday's performance art.


'What's the bottom line? If Zell is not stopped, the Tribune Company's newspapers are gong to be destroyed. The destruction will not be long in coming. The public will abandon the deracinated remnants of Tribune products. Ironically, by virtue of his destruction Zell will claim a new mandate to keep cutting until the Tribune suspends publication or goes bankrupt.


'Reports that Zell is now using receivables financing are a warning sign of impending bankruptcy. Zell's ‘asset-backed commercial paper' borrowing confirms in my mind that he is driving the company into the grave. His receivables ‘factoring' is recourse to a desperate form of borrowing that is usually a refuge for endangered enterprises.


'There is a world of difference between redirecting a strong institution facing temporary challenges and stripping a moribund enterprise. Zell is treating the Tribune Company as dead meat. His actions will ensure its demise. But that's what the old buzzard has done his whole life, eat what he kills. He obviously knows nothing about journalism. Journ students take notice: journalism schools are an endangered species if Zell succeeds. Northwestern University's decision to rename its journ school may be a harbinger.


'Mr. Zell and his confederates may yet get their comeuppance. He is still a fiduciary. He owes the shareholders-his own employees-a fiduciary duty. He owes his employees, whose own lifetime savings are the bulk of the company's capital, a fiduciary duty not to slash away at a successful company. The fiduciary duty he owes his employees is a legal duty, one that is enforceable by his employees in a court of law. He can be prevented from stripping away the company's assets and transferring them to his own wolf pack of real estate speculators.


'Right now I am fighting this campaign alone. But Tribune employees need to wake up. The stench emanating for Zell's abattoir is overwhelming. He has brought with him a bunch of small bore asset strippers to dismember the Tribune company. The Trib is a complex communications conglomerate that needed more focused management. But the company will surely perish from the depredations of Zell and his predators.


'In my characteristic way, composed partly of legal arguments and plenty of tongue-in-cheek activity, maybe more cheek and less tongue, I am focusing attention on Zell's vandalism of the Chicago Tribune and, by implication, on the endangered future of American journalism. If Zell is not stopped, and if incompetent newspaper management is not replaced, the bell will toll for the First Amendment; newspapers and journalism as we know them will cease to exist' Martin says.

Tribune sells stake in ShopLocal

By James P. Miller |Tribune staff reporter


Gannett Co. said Tuesday that, through separate transactions with joint owners Tribune Co. and McClatchy Co., it has acquired full ownership of the retail marketing and database services provider ShopLocal LLC.


The McLean, Va.-based newspaper publishing concern didn't disclose terms of its purchase either of Tribune's 42.5 percent stake in the venture, or of McClatchy's 15 percent.


The two companies remain partners with Gannett in other ventures, including joint holdings in operations such as CareerBuilder, Classified Ventures and Topix.net. Gannett noted that it and closely held Tribune Co. jointly own a network of local entertainment websites known as Metromix.


In a statement to employees, a Tribune official said the company "sold our interest to Gannett simply because we no longer viewed ShopLocal as a longterm strategic asset and felt that now was a good time to monetize our investment." The official added that the company wants "to be more engaged in developing new products in the interactive space that we alone manage and from which we can reap a larger share of the profits."

Tribune, a media holding company based in Chicago, saddled itself with a heavy burden of debt late last year, when it went private through a leveraged buyout engineered by real estate magnate Sam Zell.

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ASSUMPTIONS, CHANGES AND THE GREAT 21st CENTURY MEDIA WAR

Enterprise: Into the Red, Newspapers Face Collapse

by Erik Sass, MediaDailyNews

Virtually all the nation's major newspaper publishers--Tribune, McClatchy, PMH--are in financial trouble, stuck in a morass of debt with barely enough cash to make scheduled payments. In fact, some have already missed payments--but even for those that remain solvent, a disturbing scenario lies ahead. With revenue declines accelerating, once-serviceable levels of debt may suddenly become crushing.


Right now, all eyes are on Tribune Co., which carries a vast debt of almost $12.8 billion, about two-thirds incurred through its recent acquisition by Sam Zell. Servicing the debt requires payments of around $1 billion in 2008, and so far, Zell has made ends meet through asset sales and an aggressive cost-cutting strategy.

This year, the company has raised $121 million with the sale of a Hollywood studio and $650 million with the sale of Newsday to Cablevision; the Chicago Cubs baseball team and historic Tribune Tower in downtown Chicago are also on the block. On the cost-cutting side, management announced a new 50-50 policy, whereby its newspapers will contain no more than 50% editorial content, allowing significant staff reductions.

But even stringent measures will prove futile if the situation worsens. According to Ken Doctor, an analyst with Outsell Inc., the schedule for Tribune's debt payments was drawn up in 2007 in accordance with forecasts that looked reasonable at the time, but turned out to be too optimistic now. "We're really seeing a couple trends coming together," Doctor explained: "Circulation began falling at a faster rate of 2% to 3% a year back in 2004-2005; now, over the last year, we've begun to see revenues migrating from print to online at an even faster rate, and the real coup de grace, delivered in the last nine to 12 months, is the economic downturn as a result of normal cyclical activity."


Selling the Farm?

Indeed, Zell told employees of The Baltimore Sun that his team originally assumed an overall revenue decline of 2% to 3% for 2008, but in the first quarter of 2008, total revenues fell 8% to $1.1 billion. And it doesn't help that Tribune's previous management apparently overestimated cash flow in 2007 by up to 20%, skewing any forecast for 2008 based on year-to-year comparisons.

At this rate, Tribune may default on its debt sometime in 2009, according to financial analysts with Goldman Sachs and Fitch Ratings. Default could be declared even earlier than that, per the terms of its bond covenant, which requires the company to maintain a ratio of cash flow to debt no less than 1-to-9. That means it must generate cash flow of about $1.1 billion in 2008, but this goal looks increasingly unrealistic, considering that cash flow in the first quarter of 2008 fell 16% to $200 million.If the rest of the year goes the same way, the company will generate total cash flow of just $970 million.

But these asset sales raise a natural question: is selling revenue-producing properties really the best way to pay off debt? The question is most pressing at Tribune, where the financial situation is most dire, and Zell finds himself having to sell key assets he never intended to part with. As recently as December 2007, he vowed not to sell the Chicago Cubs and Wrigley Field, but accelerating losses in publishing revenues have forced him to retreat.

While praising some of Zell's moves so far, including the sale of Newsday to Cablevision at a premium, Doctor said further sales could sacrifice Tribune's core business in exchange for short-term security. Here Doctor noted that the Los Angeles Times is widely considered a prime candidate for sale, as its poor financial performance has been a drag on Tribune's profits in recent years. But "the newspaper still produces a significant percentage of cash flow of Tribune, and if they do manage to sell it, that's going to fall off the table."

Looking to the future, Doctor said that "selling the Food Network, the Los Angeles Times, the Chicago Cubs, would buy them a certain number of months in each case--but it doesn't provide a long-term strategy." Bottom line: when an industry continues to lose market share and lose revenue, it's tough to pay off debt.

Bad News Business Decisions

By Dick Ahles

In the Land of Steady Habits, the 243-year-old Hartford Courant had been among the steadiest-until the Tribune Co. came along to make the paper's fourth century its most difficult.

Under pressure from a debt-ridden owner and declining circulation and advertising revenues, the state's largest newspaper is now being forced by its owner, the Tribune Co., to decrease its newsroom staff and the amount of news it produces every day by 25 percent. By the end of July, the news staff will be reduced from 232 to 175, down from 400 in the mid 1990s. The news content will be cut in September.

The only glimmer of hope is in Tribune owner Sam Zell's need to sell assets to pay his crippling debt. This gives the Courant the chance to be sold.

The Tribune, which owns 13 newspapers, including the Chicago Tribune, Los Angeles Times and Baltimore Sun, 26 television stations and other media, is being run by an owner whose background is in real estate deals and a chief operating officer who comes from the radio industry. Neither has any newspaper experience.

The radio guy, Randy Michaels, became an object of some richly deserved derision in news circles when he observed that a newspaper's productivity and value to its owner can be measured by how many pages of news each reporter produces in a year.

In the view of this journalistic innovator, “you can eliminate a fair number of people while not eliminating very much content.” They must really love this guy in newsrooms from Hartford to LA.

John Morton, one of the newspaper industry's leading analysts, said he worries “whenever somebody who has no background or fundamental understanding of the newspaper business takes over a newspaper company” and that is why he worries about the Tribune Co.

Quality doesn't seem to figure in the Tribune's desire to achieve what it cutely calls its effort to “right-size” its newspapers. Zell and Michaels ordered the Courant and the Tribune's other properties to give readers what they want. What they want, according Michaels, is smaller papers with shorter stories and more graphs, maps, lists and greater emphasis on local news, which is fine if you read another paper.

And what's wrong with giving readers what they want? Plenty. The newspaper doesn't exist just to sell groceries or automobiles or drugs you should ask your doctor about. It's in business to provide information the reader needs and when it decides to make its first priority giving readers what they want, the danger is that it will give them less of what they need.

I know this is so because I spent most of my career in television news and that is precisely what happened when news consultants convinced TV stations that viewers wanted more weather, fires, murders, dog stories, medical breakthroughs and consumer advice and fewer stories on government, politics, education and economics. The result is the TV news many no longer watch.

“When you fool with people's habits,” added analyst Morton, “when it comes to newspapers, you take a risk.” And in a land known for the steadiness of those habits, an even greater risk.

Dick Ahles is a retired journalist from Simsbury. E-mail him at dahles@hotmail.com

Media Death March: LATimes to Cut 150 Editorial Jobs

By John C Abell WIRED

he Los Angeles Times announced it was cutting 150 editorial jobs -- in both print and online -- and cutting the number of pages it publishes by 15% per week.

The good news, if there is any, is that as part of the shrinking process the LATimes will finally merge the print and online staffs. There probably are still some other significant non-converged newspaper newsrooms out there but the LA Times is the nation's second-largest metropolitan daily -- it must have occurred to someone high up there a while ago that there is no sane rationale for this divide, which is almost an accident of internet news history.

The reason for the cuts? The usual suspects: readers and advertisers are flocking to online and while the readers may in the main remain loyal the advertisers, with a zillion more choices, are not. And -- oh yeah -- the lousy California housing economy is also blamed, according to a memo to staff.

You all know the paradox we find ourselves in: Thanks to the Internet, we have more readers for our great journalism than at any time in our history. But also thanks to the Internet, our advertisers have more choices, and we have less money. Add to that a poor economy, particularly for us in the California housing market, and you quickly see why a wave of cutbacks has swept through newsrooms this year from New York to Santa Ana.

We are not immune. As David Hiller mentioned in his memo last week we are embarking on another round of cost cutting. I deeply regret to report we will be reducing the size of our editorial staff, both print and Web, by a total of 150 positions, and reducing the number of pages we publish each week, by about 15%.

These moves will be difficult and painful. But it is absolutely crucial that as we move through this process, we must maintain our ambition and our determination to produce the highest-quality journalism in print and online, every day.

Through all of our changes, we continue to give readers terrific coverage, whether it's the continuing collapse of the housing market, public pools that have been taken over by gangs, or the controversy surrounding liver transplants at one of our most prestigious hospitals. We've provided insight into the historic presidential campaign, and we've delivered exclusive, on-the-scene looks at the brutal repression in Zimbabwe and the continuing war in Iraq. The future of The Times, in print and on the Web, depends on that kind of journalism -- exclusive, original, excellent. We will not retreat from that commitment.

I don't yet have all the details on the reductions to come, but we expect to complete these moves by Labor Day. We'll provide more information, including the severance terms, as soon as we can. As part of this process, we will be combining the print and Web staffs into a single operation with a unified budget.

I appreciate your patience, understanding and cooperation during this difficult time. John, Davan and I, and the rest of the senior editing team, will be available to answer your questions. With more than 700 people, we will remain one of the largest and best newsrooms in the country. And we will continue to be a strong and formidable presence in the business we so dearly love.

Russ Stanton
Editor
Los Angeles Times

Even after this round of cuts the LATimes will still have about 700 editorial staff, one of the largest contingents in the nation, it says. No explanation on how "great journalism" perseveres with fewer reporters. But owner Sam Zell had a very testy exchange in February with a reporter at another one of his papers who asked then about editorial policy.

See also:

• The Los Angeles Times reports on itself
• The staff memo, per Editor & Publisher

_________
Excerpts from LA Times

The newspaper cites falling ad revenue in economic slowdown.

LA Times Publisher David Hiller said the goal of the cuts was to "get to where we need to be for the long term. We want to get ahead of the economy that's been rolling down on us and get to a size that will be sustainable."

Hiller said the size of the reductions was predicated on the expectation that the economy would "bottom out and reach equilibrium" early next year. The editorial staff cuts will be among 250 positions cut across all departments of The Times, including circulation, marketing and advertising, Hiller said. Company wide employment will be about 3,000 after the reductions, he said.

The editorial staff cuts, which amount to roughly 17%, will be spread between the print newsroom and The Times' Web operations and are to be completed by Labor Day. The two operations employ about 876 people, meaning that the editorial staff will remain above 700. The paper would continue to have one of the largest corps of editors and reporters in the country. Details on the reductions, including severance terms, will be forthcoming.

Hiller said he expected that the severance terms would match those of earlier staff buyouts at The Times, including payment equivalent to two weeks' salary for every year of service, up to a maximum of 52 weeks, to be paid into the employee's retirement account. One issue still under study, Hiller said, is whether the reductions trigger the California Worker Adjustment and Retaining Notification Act, or WARN, which requires 60 days' notice of impending layoffs under certain circumstances.

As part of the reduction process, Stanton said, The Times will be combining its print and Web staffs into a single operation with a unified budget.

"These moves will be difficult and painful," Stanton said in his memo. "But it is absolutely crucial that as we move through this process, we must maintain our ambition and our determination to produce the highest-quality journalism in print and online, every day."

The cuts are the latest, and among the most severe, in a series of reductions that have pared The Times' editorial staff down from its 2001 level of nearly 1,200. The most recent reductions, announced in February, involved the elimination of more than 100 jobs in all Times departments, including more than 40 in the newsroom.

The reductions have come amid considerable management turmoil: In 2006, then-Publisher Jeffrey M. Johnson and Editor Dean Baquet publicly refused to make cuts requested by management at Tribune Co., owner of The Times. Both eventually left the newspaper. Tribune was then a publicly traded company, but it has since been taken private in a buyout led by Chicago entrepreneur Sam Zell.

Johnson was succeeded by Hiller. Baquet was replaced by James O'Shea, then the managing editor of the Chicago Tribune; O'Shea departed in January, also after objecting to planned cuts in the newsroom budget. Stanton, a 10-year veteran of The Times, was named editor three weeks later.

Announcements of hundreds of reductions were issued only last week by dailies in Boston, San Jose, Detroit and elsewhere. Among Tribune newspapers, the Baltimore Sun said it would cut about 100 positions by early August and the Hartford Courant announced plans to cut about 50 newsroom positions. The New York Times and the Washington Post both instituted layoffs or buyouts to reduce their staffs this year.

Besides the changes in the newspaper industry, Tribune carries the burden of about $1 billion in annual payments on its debt, much of which it took on to finance the $8.2-billion buyout.

Since the buyout, which became effective at the end of December, Zell has moved to reduce the debt through asset sales. A $650-million sale of the suburban New York daily Newsday is pending, and the sale of the Chicago Cubs along with the baseball team's iconic Wrigley Field ballpark and related properties is expected to bring in $1 billion or more when it is completed, probably this year.

Zell said last month that the Newsday sale and new credit arrangements would ensure that the company would meet its interest and principal obligations this year and would remain in compliance with its loan agreements.

"Even with the reductions, this is one amazing place with great people and great customers," Hiller said, "and we're going to keep doing amazing work for them."

michael.hiltzik@latimes.com