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Media Giant Tribune Co. Files for Bankruptcy Protection

December 8, 2008 at 6:45 PM EST
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Media conglomerate Tribune Co. filed for federal bankruptcy protection Monday, as the owner of the Chicago Tribune, the Los Angeles Times, the Chicago Cubs and several other newspapers and TV stations tries to restructure its debt of $13 billion. Three analysts discuss the company's future.
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JEFFREY BROWN: Today’s bankruptcy filing by media giant Tribune is the latest cataclysm for an industry that finds itself with deepening troubles.

The Chicago-based company owns media outlets around the nation: newspapers, including the Chicago Tribune, Los Angeles Times, and Baltimore Sun; and television stations, such as cable super-station WGN. It also owns other properties, including the Chicago Cubs baseball team, which are not part of today’s bankruptcy filing.

Real estate mogul Sam Zell bought Tribune last year in a transaction that took the company private, but took on $13 billion in debt.

In a memo to employees today, Zell called the company’s troubles a perfect storm. “A precipitous decline in revenue and a tough economy,” he wrote, “have coupled with a credit crisis, making it extremely difficult to support our debt. All of our major advertising categories have been dramatically impacted.”

The news about newspapers, already bleak, has continued to worsen even in recent days. Last week, the Rocky Mountain News, Colorado’s oldest paper, was put up for sale after owner E.W. Scripps Company said it had lost about $11 million on the operation in the first nine months of this year.

Also last week, Gannett, the largest U.S. newspaper publisher, began previously announced layoffs of about 10 percent of its workforce.

And now the Miami Herald is reportedly for sale. The paper is owned by McClatchy, the third-largest newspaper chain, which has seen its stock price lose 90 percent of its value since 2006.

And joining us now, Jon Fine, media columnist for BusinessWeek magazine; Karen Dunlap, president of the Poynter Institute, a training and professional development center for journalists; and James O’Shea, former editor of the Los Angeles Times and former managing editor of the Chicago Tribune.

Debt overwhelms Tribune company

JEFFREY BROWN: Well, Jon Fine, you heard what Sam Zell said. What would you say drove Tribune into bankruptcy?

JON FINE, BusinessWeek magazine: Well, what drove Tribune into bankruptcy is that it turns out it's a bad idea to do a deal that leaves a company with $13 billion worth of debt when that the businesses that that company is in are headed in one direction: straight down.

You know, Sam Zell can claim that this is a perfect storm as if he didn't see it, but, I mean, his deal closed slightly less than a year ago. I mean, no one was dancing in the streets about the prospects of newspapers and also local TV stations, which is the other big driver of Tribune revenue.

JEFFREY BROWN: James O'Shea, you were part of this company for many, many years. What do you think happened?

JAMES O'SHEA, former editor, Los Angeles Times: Well, I think Jon's quite right. The debt levels were just too heavy.

I mean, I think that the Tribune and the newspaper industry generally for years had a revenue problem and that they were losing classified revenue from advertising slowdowns and people pulling out of it.

And they kept treating it, though, like it was a cost problem. And the more they treated it like a cost problem, with cutbacks and layoffs, the worse the revenue problem became.

And so you go into it with a revenue problem, and then you plop all this debt on top of it, and then you get a recession, and that really wasn't a surprise that this happened.

JEFFREY BROWN: But are you saying this was pretty well -- you could foresee it a year ago? Or did the economic downturn really turn -- really have an impact?

JAMES O'SHEA: Well, I think you could see that there was going to be a problem. I think what you could see is a huge risk. And, I mean, Mr. Zell is a risk-taker.

But you could see that it was a huge risk in going into this with all of this debt in what I felt like is you really had to figure out a way to increase revenue, that you couldn't just rely on cost cuts, because you couldn't cut your way out of it. You were going to have to increase revenues.

JEFFREY BROWN: Now, Karen Dunlap...

JON FINE: Jim brings a good...

JEFFREY BROWN: Oh, go ahead. Go ahead, Jon.

Tribune woes mirror industry trends

JON FINE: I'm sorry. Jim brings up an excellent point, except it's not like -- I don't think that the cost-cutting is leading to the revenue losses. The revenue losses are there.

The revenue losses are there for every newspaper, whether they're going through severe cutbacks, like, say, Gannett newspapers, or places like the New York Times and the Wall Street Journal, which aren't.

I mean, I just don't see -- this breaks my heart to say this, because I love newspapers, despite all the terrible things I've written about them. I don't see a way to grow revenue here. I mean, I don't see a way to fix this problem.

I mean, Sam Zell is just the latest guy who's tried and failed. He just happened to fail in a much more spectacular way because he went so much further out on a limb than anyone else did.

JEFFREY BROWN: All right, let me bring Karen Dunlap in, as we move to this kind of larger picture here. Karen, do you see the Tribune Company as a special case with all its debt? Or to what degree does it stand for all these other problems that we're seeing in the industry?

KAREN DUNLAP, the Poynter Institute:  Well, they do mirror the other problems in the industry. Now, one thing, it's such a large company and such an influential company, and the debt was so large that it stands out. And you think about the newspapers that are part of that company, they are so important.

But other than that, it is dealing with the same problems that much of the other industry is dealing with. I think a debt and downturn, as was pointed out, are the major problems that faced it.

And I want to add one other thing. I don't think that Zell improved the core business, which is the journalism. In cutting and cutting, the journalism did not get better.

JEFFREY BROWN: And you could see that in the papers?

KAREN DUNLAP: I think you could see it in the papers. You could see it in the -- there was still good work done, but, overall, quality journalists were leaving, were being cut, and you didn't see some of the enthusiasm of journalism that had been there in the past.

JEFFREY BROWN: Well, James O'Shea, weigh in there. From the inside, what did you see? Could you see the impact on the journalism itself?

JAMES O'SHEA: Yes, I think you could, but I want to go back to a point that Jon made. I don't agree that this is something that's impossible to turn around.

We've gone through downturns in our business before. And revenue -- we dealt with them by helping increase revenue by increasing just different tactics of how you present the news, in creating new sections and things that drew advertisers.

So I don't think that you can say that it's impossible. It's also possible to charge more for a newspaper.

I mean, that -- at some point, somebody has got to realize that you're going to have to pay for the content because it costs money to gather news. And it costs more money to be -- to bring quality journalism to your readers.

And if you really want that, you may have to pay a little bit more for it, and it's really not that much.

JEFFREY BROWN: Well, let me -- before...

JAMES O'SHEA: That's the difference.

Looking to alternative models

JEFFREY BROWN: Before I let Jon jump in, do you see, James O'Shea, do you see, besides that example of paying a bit more, do you see other experiments out there, other business models being tried that might help the industry going forward?

JAMES O'SHEA: I think that, if you begin looking at, OK, I have an idea, I think that if you could do a smaller, more targeted newspaper that you charge more for, and you geared it to an audience that really wanted the news and was interested and didn't even have any advertising in it, you could charge enough for it, and you could figure out a way to make it work.

So I just don't think that it's just, you know, newspapers are dead. I think that the Tribune is a part -- is a symbol of a bigger, and a larger, and a more significant problem in how it's a vital institution. Newspapers remain vital institutions in how people get their news, and this is -- that's an important segment of democracy.

So you really have to figure this out, because the newspapers I think still remain the infrastructure of the news. And they provide the vital coverage of courts and legislatures and things like that that people may not say, "That's what I want to read," but that's what's important, and that's what they have to deliver.

JEFFREY BROWN: OK. Jon Fine, go ahead.

JON FINE: Well, no one's denying that newspapers are important. I mean, I would -- I didn't get a Sunday New York Times yesterday for a few hours and I had withdrawal symptoms.

But the idea that this is a downturn like any other downturn is just plainly wrong.

The overall revenues for newspapers have gone down, I believe, three years in a row. They're going to go down again double digits next year. That's never happened, never, ever.

Real estate ads have gone to the Internet. We know what's going on with the car companies. We know what's going on with retail. There is nothing to brighten the revenue picture on a basic side.

It breaks my heart that journalists are losing their jobs. It breaks my heart when newspapers shrink. But someone has got to a pay for this stuff.

And the blunt, brute fact -- and this is very difficult for myself to accept as a journalist -- is that great journalism doesn't necessarily drive huge sales.

You know, the big stories that we as journalists adore in the New York Times, that's probably not the stuff that gets read the most. That's not the stuff that gets picked up on line. That's not the stuff that drives people to pick up the paper.

There probably is some solution here. I don't think it's a newspaper solution. I think it's a broader solution. You have individual news sites. You have small online-only things. And you have some kind of networking bringing them together.

That's what I would place my bets on, because, frankly, you know, the newspaper business is an industrial business. You're grinding up trees; you're shipping them all over. There's costs everywhere. And it just plain -- unfortunately -- does not work anywhere near like it used to and maybe not at all anymore.

JEFFREY BROWN: All right, let's let Karen Dunlap respond to that one. Do you see newspapers trying things? Do you see ways out? Is it a newspaper problem or something larger, the way Jon Fine defines it?

KAREN DUNLAP: Newspapers are trying things. This is not a cyclical change. It is a major structural change for news organizations. Things are different now.

The number of experiments are interesting. They are small. Part of the problem is things are not happening quickly enough. Newspapers are in major trouble and need to change quickly. It's not happening quickly enough.

I think that I keep hearing the word "small." And, unfortunately, I'd have to agree.

I think the next steps for newspapers is that they will be smaller in almost every way: fewer newspapers, smaller staffs, the newspaper themselves dimensionally smaller, maybe even fewer days a week. There's a lot of discussions about fewer days a week.

So smaller, yes, but I think newspapers will survive.

More bankruptcies on the horizon

JEFFREY BROWN: And, Karen, just to stay with you for another question here about consumers, I mean, is there any evidence about whether consumers are so used to getting the information for free now that they're turning away from newspapers for good? Have they noticed when something like this happens with Tribune or when their local paper might cut back or is even lost?

KAREN DUNLAP: I'm not sure. I think the question is still out of whether they're turning away for good.

The Internet has shown that you can get information and news for free, and so that's making people turn to free news, but I think the minute people still turn a newspaper -- and the case is still out about whether they will turn back to newspaper.

Of course, a good answer would be for newspapers to find a new model on the Internet. And that's been difficult. And it's been pretty much shown that the revenue generated on the Internet won't match what's been generated in the old models.

But people are still -- they're looking at the news.

JEFFREY BROWN: All right.

And, James O'Shea, what do you say about the -- from the consumer side, that is?

JAMES O'SHEA: Well, I think that you can -- you know, everybody talks about a newspaper getting smaller. But if you had a 36-page three-section newspaper in Chicago, Illinois, today, with all news, and you charge more for it, you'd have more news than you get in Chicago Tribune today.

So, I mean, I think you can -- there are solutions that people haven't even started examining. And we're just stuck on an old model.

And I agree: This is not like a regular downturn. This problem is more severe. And I think you're going to see more newspaper bankruptcies in the coming year.

But I think there are solutions out there, because I think people want news. I think people deserve news. And I think they have to have good, solid, edited news, because that is what our country operates on. And if you don't have that, you aren't going to really have a very effective democracy.

JEFFREY BROWN: Jon, one last thing before we go, Jon Fine. What happens to these companies, the Tribune companies, while the company, the larger company's in bankruptcy? And do you expect to see more bankruptcies in the coming year?

JON FINE: Well, I'm glad you brought that up. I made a column of media predictions for 2009 in my last column at BusinessWeek.

Sam Zell already proved me wrong, because I said it wasn't going to be until 2009 that there was going to be at least one major media bankruptcy, so thanks, Sam.

You know, more seriously, you know, I think there will be more bankruptcies. There's no question about that. As for what the future can bring, I mean, I just don't see a way to get consumers to pay more. I think news is essentially free.

And I think if news -- the news function goes away from newspapers, that may not be the worst thing in the world. I mean, if there are different ways to do it on the Internet with new organizations, different cost structures, you know, different people and maybe not even, quote, unquote, you know, "newspaper journalists," you know, there are some bloggers that are clearly as credible, if not more so, than, you know, journalists who are working at newspapers that I read every day.

JEFFREY BROWN: All right. Well, on that provocative thought, we'll end and we'll keep watching.

Jon Fine, Karen Dunlap, and James O'Shea, thank you all very much.

JAMES O'SHEA: Thank you.