Tribune Sale May Be a Tipping Point for US News Industry
INSIGHTS WILL BE BACK ON 2 JANUARY 2008. A VERY MERRY CHRISTMAS AND A HAPPY NEW YEAR TO ALL OUR READERS
Important Details: Back in the spring, the Tribune Company, responding to shareholder pressure, acceded to a complex, $8.2 billion going-private process. Buyout artist Sam Zell, who’s made fortunes in real estate and radio, emerged as the financial engineer who could offer the company a fresh start, albeit a complicated one. The new private Tribune is an ESOP, an employee stock ownership plan-owned company. Employees are becoming the owners over time as future retirement contributions help to fund the new company. The new Tribune faces two immediate realities:
- about $13 billion in debt, with payments of about $1 billion in interest due annually and a principal payment of $1.4 billion due by June 2009;
- Zell as new chairman and CEO of the company, with authority to make significant change. Zell says no decision is off the table and saying his formula is simple and one he’s applied across a range of companies he’s run: “return on capital”.
The decisions in front of Zell and the new Tribune include:
- How to keep core editorial and advertiser operations running well (and better) as it figures out how to meet debt obligations that is about equal to its 2007 current cash flow;
- How to improve the Tribune’s revenue performance, which (with newspaper revenues down 7% in the third quarter) has underperformed a badly struggling industry.
- How to take advantage of the waivers that the Federal Communications Commission (FCC) recently granted (see Insights 6 November 2007, FCC Cross-Ownership Debate Presages Local News Multimedia Future), allowing ownership of both newspapers and TV stations in top markets. In Chicago, it owns more top-ranking media than any other company in any other US city — the Chicago Tribune, high-ranking WGN-TV and WGN radio, the CLTV area cable news network and Chicago magazine.
- Which assets to keep and which to sell. Zell has already said that the Chicago Cubs baseball team, its historic Wrigley Field home and the company’s 25% share in the local Comcast sports cable network are as good as gone to the highest bidders. Tribune’s assets oveall include eight major daily newspapers and 23 local TV stations. The company also has important stakes in internet ventures, including the CareerBuilder recruitment site, the auto- and apartment-oriented Classified Ventures, and the Topix.com community site enabler. In addition, it operates the expanding Metromix entertainment website network, syndicator Tribune Media Services and shares ownership of the leading feature/photo wire McClatchy Tribune Wire Service.
- Whether to go forward with partner Gannett on a national online ad network, or whether to join other newspaper companies that have signed on to the Yahoo consortium
Implications: The Tribune has occupied a disproportionately central role in the US newspaper industry’s online odysseys. It was an early and eager investor and came to dominate the classified businesses it built with partners Gannett and Knight Ridder. When McClatchy bought Knight Ridder and became a junior partner in the troika, Tribune’s power both grew and shrunk. On paper, it owned more of the growing classified companies, but soon what had been the industry’s leading network took second place to the burgeoning Yahoo!/newspaper consortium, led by upstart MediaNews and now counting 21 companies with close to 400 titles in tow.
So what Sam Zell keeps and what he sells, and with whom he does deals, will certainly further reshape the landscape. Given his non-newspaper roots, Zell will bring new thinking to an old-line business. He’s already said he’s bringing in a radio guy, one-time Jacor exec Randy Michaels, to help run the new company. So Zell and his new people will go back to the Tribune Tower whiteboard and ask the fundamental questions: “What businesses are we now in? What businesses should we be in? Content-producing company? Content- and ad-distributing company? Ad-selling company? Production company? A set of newspaper, TV, radio and internet companies…or a media company?” In the past, those questions would all be answered with a “yes,” but tough times force tough choices, and plainly the debt-ridden, performance-impaired Tribune has plenty of them to make.
For the industry, Zell’s answers will further reshape the humming landscape. If New Tribune strengthens its partnerships with Gannett and brings in new players (search aggregators, broadcasters), the counterweight affect to the Yahoo! consortium could be strong. If it eases out of that partnership, the balance of power may move more strongly to the consortium. Look for changes in the newswire landscape (as Tribune decides what it wants to do about the future of the McClatchy Tribune wire) and in the news syndicate landscape as Tribune Media Services’ future is weighed. Both areas are ripe for more industry consolidation.
With classified revenues plunging (partner Gannett just announced November sales were down 28.4% in real estate and 23.5% in help-wanted), Zell may move to merge his online classified ventures with other top-tier players, Monster or Yahoo! among them.
As 2008 approaches, all bets are off — except on the status quo staying in place.