Tronc Turmoil: Beyond the Public Quiet, Pressure Builds in Delaware Courts, Gannett HQ and Tribune Tower Itself
After noisily consuming much of the news industry oxygen during the first half of 2016, the quiet currently emanating from tronc HQ seems almost unsettling. There have been no tronc announcements since the big news of Tribune Publishing re-naming on June 20. Gannett hasn’t made a peep since June 7. Yet, behind the scenes, there is movement.
Consider three pressure points: Delaware, the suburbs outside Washington D.C. and in the Tribune Tower in Chicago. Will they combine to force new movement in the Gannett/tronc standoff by fall?
First published at POLITICO Media
Follow Newsonomics on Twitter @kdoctor
Certainly, the new tronc stands on uneasy footing. On multiple counts, it’s an unstable company, yet the pure unpredictability of its major domo, chairman Michael Ferro means all bets on timelines – and resolutions – are off.
It is in Dover, Delaware that the pressure may well increase. There, the two shareholder lawsuits against tronc have been consolidated into one in the Chancery Court there. The complaints have enumerated a set of alleged corporate wrongs, and make the basic charge: the tronc board isn’t performing its legal, fiduciary responsibility by refusing to engage in negotiations to sell America’s fourth largest daily publisher to Gannett, the largest U.S. publisher. Yet, the complaints have been filed on behalf of two smallish shareholders.
It is a lawsuit that hasn’t yet been filed that Michael Ferro pits his strategy against.
Oaktree Capital Management, once Tribune Publishing’s largest shareholder and now its third largest, awaits documents – expected to be delivered still this month — from tronc that could well lead to a new suit.
One month ago, Oaktree demanded paperwork from tronc, and made its objective publicly clear: deciding “whether to initiate a derivative suit.”
The L.A.-based investment management firm asked for lots of financials. Those include tronc’s own banker advisers’ (Goldman Sachs, Lazard Freres) assessment of the company’s actual market value and much of the detail surrounding the company’s pricing and sale of shares to L.A. businessman Patrick Soon-Shiong in May and to Ferro himself in January. Feeling taken to the cleaners by the Ferro regime, Oaktree wants to see if it can outfit itself sufficiently to back up its own lawsuit against the tronc board.
When Ferro pulled a rabbit out of his spacious hat, selling $70.5M in new shares to Soon-Shiong, that trick helped fend off the hostile interest of Gannett. The Soon-Shiong transaction is already the target of one of the two suits already filed. More interestingly, Oaktree could legally target what it considers the original sin in this corporate soap opera: selling $44 million in new shares to Ferro – diluting all then-current shareholders – and giving him effective control of the company with a 16.5 percent stake. The price: about $8.00 per share.
What could be the impact if Oaktree were to win an action?
Oaktree could challenge the original sale to Ferro, and ask it to be voided.
Of course, such an eventuality could force an unraveling of all the many changes Ferro has brought in his tumultuous six months of completely changing out top leadership, eliminating independent publishers, proclaiming artificial intelligence as the news business’ savior and renaming legendary Tribune with a Popsicle- colored tronc logo. Finally, tronc iced its new cake with the release of promotional videos that have met near-universal ridicule.
What’s the timeline on a possible Oaktree challenge? If there is one, expect it this summer. Also some time this summer or early fall, the Delaware courts may rule on the first lawsuit filed. Though such complaints often get expedited 90-day handling, already one extension has been granted in this action.
If a judge finds for the plaintiffs, he could order the tronc board to sit down with Gannett and negotiate within the squishy bounds of “good faith.”
Meanwhile, pressure point two sits on a dormant volcano.
Gannett waits in the weeds: Pressure point two
In McLean, Virginia, Gannett has regrouped in its quest to buy the nine tronc papers. It saw its share price drop 12% in June, apparently tronc woe-related. Officially, Gannett had said it would take a breather, after it found Michael Ferro’s bob-and-weave spring defense [“Tribune’s anti-Gannett strategy: Tronc, the Lagos Gambit and stalling”] exhausting. In June, Gannett said it would await Tribune’s second-quarter financial release, so that it could further assess how – and at what price – to pursue its prey.
Tronc has not yet announced a date for its second-quarter release and conference call. Recently, it’s been among the last in the industry to report, and we’d expect an early to mid-August filing, at this point. That report will likely parallel the further-down 2016 fortunes of metro newspaper companies, which have all experienced a deeper-than-expected print ad decline.
That likely unhappy report may only increase the pressure within the Tribune Tower (the building itself in the final stages of sale for condo/hotel rehab by its owner, Tribune Media). Splitting their time between the Tower and their L.A. Times HQ, Ferro, CEO Justin Dearborn as well as their board must now assess the reality of the operating year ahead.
The reality of operating a newspaper company: Pressure point three
In the quieter month since the war of words with Gannett has died down, tronc’s technology-centric strategy has begun to emerge. As I reported (“Welcome to the tronc widgeteria“) it began deploying click-candy widgets, produced by SNT Media.
Now, we begin to see more numerous, quick-manufactured videos deployed across all tronc sites.
Those quick videos offer 45-second to two-minute Cliff’s Notes mash-ups on big news events, like the Hillary Clinton email inquiry report or the shooting of Philandro Castile. They feature some music, big factoid headlines, some video and some stills, the visuals licensed from Reuters, the Associated Press and Getty.
These videos – produced by start-ups like Wochit and Wibbitz (well-described by John Herrman of the New York Times) – intend to provide lots more video ad-selling opportunities for publishers. (Wibbitz has received investment from Nant Technologies, owned by new tronc vice-chairman Patrick Soon-Shiong, but tronc says that it is not currently doing business with Wibbitz.)
More recently, chairman Ferro has been talking up the merits of buying a user-generated content company to aid in the same strategy.
The overall tronc “artificial intelligence” strategy, now publicly crystallizing: Create large amounts of new content, especially visual and video content, very cheaply and sell the hell out of it in digital advertising.
That’s a familiar strategy to anyone who’s been in the digital business game. Yet, it is likely better suited to an earlier web era, one in which sheer volume of page views was sufficiently rewarded with advertising.
Even the biggest digital news start-ups have begun to concentrate less on audience- growth-at-any-cost and more on making money sooner than later.
Further, the unexpected demise last week of Examiner.com – a flagship of the fleet of sites that believed that tons of low-cost content would create a profitable business – proves the point boldly.
Reducing the cost of the content is a good idea, as I wrote about five years ago, looking at what I called the new news cost pyramid. Yet, it’s but a piece of the puzzle, with news quality and distinctiveness becoming an increasingly attractive differentiator for readers and advertisers.
Piecemeal reports on the current effectiveness of the kinds of cost-lowering, tech-aided content production are mixed.
Confidentially, publishers have told me that those SNT widgets can indeed produce significant new traffic.
Wochit executives say that they can point to impressive sharing increases in videos they have produced for European publishers, and to other “key performance indicators.” In the U.S, another publisher, experienced with Wochit-produced automated videos, reports that “they were more trouble than they were worth. They produced a marginal boost in traffic, but were offset by issues with quality and cumbersome production.”
Ferro’s turnaround platform has been based, in strong part, on the headline notion of creating 2000 videos a day. Creation, even cheaper creation, is one thing. Getting that great influx of videos watched by viewers is something else again. In fact, we can see that if automated videos do begin to populate tronc and other sites, they’ll likely commoditize video, taking those high-cost-per-thousand ad rates down to what they are for text stories.
Add it all up, and any reasonable assessment of the strategy will say, it would be – at best – a slow build to substantial new digital revenue.
Combine the three pressure points – lawsuit, Gannett’s ambition and tronc’s business challenge – and you’d think that the man who troncked Tribune might be re-considering his options.
Indeed, sources tell me, he is. It could be his own assessment of an end game, or it could be the whispers or louder that he is hearing from his highly paid bankers. Or he could be tired of the several reporters nosily poking into his personal life and work history, working current and former associates, or of Internet trollers questioning the credentials of some his own top execs. Ferro could point to so many reasons to simply accept Gannett’s offer – which would more than double the $44M price his group paid for the Tribune stake – and walk away.
Yes, even the entrepreneur who is used to having it his own way [“Can Gannett pry Michael Ferro from Tribune chair?”] is doing some contingency planning, as we await the next explosion of the powder keg that tronc has become.
