Los Angeles Times Resists Cost-cutting Measures
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JEFFREY BROWN: These are tense times at the Los Angeles
Times, one of the nation’s leading newspapers, winner of 13 Pulitzer Prizes in
just the last five years. The paper’s top editor and its publisher have
resisted the latest demands of its corporate parent, the Tribune Company, to
make further significant cuts from the newsroom, which now numbers 940.
Over the last six years, the Times has lost 200 editorial
jobs, all in service of one goal: maximizing the paper’s profitability.
Dean Baquet, the editor, in a story last week in his own
paper, said, “I am not averse to making cuts, but you can go too far, and
I don’t plan to do that. I just have a difference of opinion with the owners of
Tribune about what the size of the staff should be. To make substantial
reductions would significantly damage the quality of the paper.”
The Tribune Company has owned the L.A. Times for six years. Among
its other marquee newspapers are the Chicago Tribune, the Baltimore Sun, and
the Hartford Courant. In addition, the company owns television stations,
Internet properties, like CareerBuilder.com, and baseball’s Chicago Cubs.
Despite the breadth and quality of its holdings, Tribune’s
stock price has been in a five-year slump, and its board of directors met today
in Chicago to
discuss the company’s situation.
Protecting the paper
JEFFREY BROWN: And now, two people who know the Los Angeles and industrysituations well. John Carroll is a former editor of the Los Angeles Times. Heleft the paper last year. A longtime reporter and editor, including at theBaltimore Sun, he's now the Knight visiting lecturer at the Shorenstein Centeron the Press, Politics and Public Policy at Harvard University.
Charles Bobrinskoy is vice chairman of Ariel CapitalManagement. Among its many media-related holdings, Ariel currently has 6percent of the Tribune Company's stock -- roughly 15 million shares -- in itsportfolio.
John Carroll, starting with you, how unusual is it to see aneditor and publisher lead a kind of mutiny at a major paper like this?
JOHN CARROLL, Former Editor, Los Angeles Times: I don'trecall ever seeing it before. It's very unusual.
JEFFREY BROWN: So what's going on?
JOHN CARROLL: Well, I think every good editor has a pointwhich he has to define for himself, at which he must quit or resist, ratherthan damage the paper further. And that's where I believe my friend, DeanBaquet, is at this moment.
I hope it can be worked out, but he wants to be editor of afirst-rate paper. And I think he's afraid that that dream is being dashed.
JEFFREY BROWN: Staying with you, you gave a speech earlierthis year called, "What will become of newspapers?", in which youaddressed, quote, "the conflict between those who serve the reader andthose who serve the shareholder." Now, is that what you see going on in Los Angeles?
JOHN CARROLL: It is. You know, there used to be a unity ofpurpose on the part of people who owned newspapers. They served severalmasters. They served the counting house. Making money was important, but it wasalso important to serve the community that gave roots to the paper and also toserve journalism, to uphold high standards.
It seems to me -- I've been in the business a lot of years-- that, in this era of publicly owned newspaper chains, the money part hasovershadowed all else. And obligations to journalism, obligations to thecommunity have fallen by the wayside to a considerable extent, and that isreally the tension that's causing this problem.
Remaining a strong company
JEFFREY BROWN: All right. Let me bring in Mr. Bobrinskoy. Howdo you see it? Do you want the value this company to rise? How do you seewhat's going on in Los Angeles and in Chicago?
CHARLES BOBRINSKOY, Ariel Capital Management: We don't thinkthis is unusual, as maybe others have suggested. It's very common for a boss toask a division manager to cut costs and to have to take people out. It's verycommon for that division manager to push back.
I ran a division of Citigroup for 10 years, and I'd get acall about every other year asking me to cut people, and I always pushed back. That'spart of the nature of business.
What's unusual here is this has gotten into the press, andthat's unfortunate, because it has called into question almost an insubordinaterole of the editors in Los Angeles.At this point, the board of the Tribune may be questioning whether it makessense to stay public and have all of this dirty laundry aired.
JEFFREY BROWN: What is the problem at the Tribune and in theindustry in general? What do you see? Why is the value down?
CHARLES BOBRINSKOY: The market, which has been very positiveabout newspapers for a long, long time -- the market has always loved thestrong cash flow, the lack of new competitors -- the market has gotten veryconcerned about the threat of Internet and, in our judgment, has overreacted.
The stocks of all newspaper companies have declined forabout five years. In our estimation, the market is not properly evaluating theInternet growth that the newspapers have. Most of these companies have Internetgrowth of 20 percent-plus a year, but the market has focused on concerns aboutdeclining circulation.
JEFFREY BROWN: And it's often pointed out that the L.A.Times itself makes about 20 percent a year in operating profits. Now, in many industries,that would be pretty darn good.
CHARLES BOBRINSKOY: Right. It's not the profit margin thatcounts; it's the direction of profits. And right now, those profits have beenflat. A lot of people think they've been declining. They actually haven't been.They've been flat, not growing the way we, as shareholders, would like them to,but the cash flow has been very good and the profits have been stable.
What people are concerned about is the future. Will theInternet take away readers and produce pressure on earnings in the future?
Profits vs. progress
JEFFREY BROWN: Now, Mr. Carroll, does all of this suggest toyou that the publicly owned corporate ownership model in some ways conflictswith the public interest role that you were talking about for newspapers?
JOHN CARROLL: It does. And if I could add to something thatCharles said, we are in a difficult position with the Internet and vastlyincreased rivalries for advertising. So the business has some clouds over it,yet it is remaining at a 20-percent profit margin, which is a very handsomemargin by the standards of most industry.
I can tell you from my experience at the Los Angeles Timesthat you cannot sustain a 20-percent margin at that paper without diminishingits quality year after year. If I could wave a magic wand and change thecircumstances under which our corporate leaders operate, I would try to see ifthey could get away with reducing the profit margin to 10 percent.
I can almost promise you that, if they could cut it to 10percent, the circulation would stop dropping. It would probably start gaining. Andwe would be able to invest very heavily in the Web, which is crucial to thepaper's future. At a 20-percent margin, I feel strongly that we are cashing inthe paper's future in favor of current earnings.
JEFFREY BROWN: So, Mr. Bobrinskoy, there you hear it. Imean, if the people at the paper -- and Mr. Carroll is speaking along the linesthey speak -- if they say the quality is hurt to try to keep up those profitmargins, how much consideration is that due for shareholders?
CHARLES BOBRINSKOY: You can imagine we're not going to beenthusiastic about cutting the profitability of the L.A. Times in half. Infact, the 20-percent margin is actually below industry averages and below wherethe L.A. Times used to earn during times when it won many Pulitzer Prizes andhad a very good reputation for journalistic excellence, which it still has.
By the way, I'd point out the L.A. Times has more reportersthan the Washington Post.
So the bottom line here is we think there can be awonderful, happy medium where everybody gets along. The quality of the L.A.Times can remain strong; the profits can be strong, with growing Internettraffic. What may change is how the L.A. Times is owned. All of the Tribune maybecome a private company, where the company doesn't have to worry about thesequarterly fluctuations in earnings.
The option of privatizing
JEFFREY BROWN: Well, what do you think about that, Mr.Carroll? Because you know there is talk in Los Angeles of several prominent, wealthycitizens who might want to buy it. We did a story ourselves in Philadelphia recently where that happened. Isthat a new model? And would that be a good one?
JOHN CARROLL: Taking it private would be something new forthis company, and it might or might not be a good thing, depending on who'srunning it. Taking it to local owners again might or might not be good. We'vehad local owners in the past, some of them are superior, and some of them aremediocre, and some are awful. So it's kind of a crapshoot.
But I feel that the way the paper is going under its currentstructure and under its current leadership is almost certain to take it down. Andby down, the first step of down is that we'll fall from the top tier ofAmerican papers, which in my judgment consists of four papers, the Los AngelesTimes, the New York Times, Washington Post, and the Wall Street Journal. Itcannot stay at that level.
And for the second-largest metropolitan area in the country,which Los Angelesis, it should aspire to be, not only at that level, but towards the top of thatlevel.
JEFFREY BROWN: Mr. Bobrinskoy, we just have 30 seconds orso. Do you see, back to Los Angeleshere -- there is speculation about the editor and publisher being fired -- doyou think that will happen?
CHARLES BOBRINSKOY: I really don't. Again, as I emphasizedup front, it's very common for somebody who runs a business to push back on hisboss who's calling for job cuts. That happens in every business every week. What'sunusual is the scrutiny that this has gotten.
We think this will be worked out. And we think the board ofthe company is taking a hard look at all of these issues right now. We've gotevery confidence that they're going to come to a good conclusion.
JEFFREY BROWN: All right, Charles Bobrinskoy and JohnCarroll, thank you both very much.
CHARLES BOBRINSKOY: Pleasure to be here.