Leading with the turmoil at the intrigue-wracked Tribune Co. for the second day running, the Wall Street Journal reported yesterday that Tribune’s board has since January “been seriously considering a restructuring that would include a spinoff of the company’s broadcasting group and could pave the way for the eventual sale of the rest of the company.”
The Journal reported that “all parties” — including the Chandler family trusts and the three Chandler-nominated board members who voted against the Tribune stock buyback plan announced last week — “appear to agree on exploring a broadcast spinoff. ”
Deep into the story, the Journal raised an even more intriguing possibility, writing that this week’s revelation of the Chandlers’ dissent “could prove a catalyst for other shareholders to move more aggressively on a breakup or sale” of the whole company.
Today’s papers reinforce that possibility, with the Chicago Tribune itself reporting that the volatility of the company’s stock — it rose 4 percent yesterday on speculation of a large restructuring to come — “threatened to disrupt the buyback plan and put the company in play.” The New York Times reports that three private equity firms have inquired recently “about buying the Chandlers’ 12 percent stake or joining with them to mount a takeover of the company.”
Meantime, the McClatchy Co. announced Wednesday that it had sold five more of the papers it purchased from Knight Ridder to four different buyers, all of them relatively small operators — meaning that within a few short months Tony Ridder’s cherished newspaper empire has essentially splintered into seven different parts, with the lonely Wilkes-Barre (Pa.) Times Leader still looking for a buyer. McClatchy has been able to sell the Knight Ridder papers that it doesn’t want for a higher multiple of their cash flows than it paid for them in bulk.
There are about 17 different ways that this could all break, but we can’t help but note that, with the dispersal of the Knight Ridder papers and Tribune’s possible breakup, we may be witnessing the beginnings of a decentralization of American journalism.
That may seem presumptuous, but consider the big picture, as pretty much every major newspaper company struggles against a flagging stock price, circulation fleeing to the Internet and advertising following only in fits and starts. Wall Street can’t figure out how anyone is going to make much money out of this over the next five or 10 years, which has caused the convulsions that beset first Knight Ridder and now the Tribune Co. — and which may eventually reveal new models for ownership of public trusts like America’s handful of truly enterprising newspapers.
Purely public companies — forced to satisfy the inherently conflicting demands of earning higher revenues each and every quarter while producing appealing and sustaining journalism — increasingly seem like a lose-lose proposition, and as journalism transitions to a new paradigm, smaller might be better.
The issue is not Tribune’s profits (in 2005 its profit margin was 20.5 percent), but its anticipated rate of growth. And after years of cost cuts, with more “cost savings” and efficiencies on the way, Tribune’s newspapers have all but abandoned “growth” as a target, and the company’s revenues are stagnant. Jim Cramer is hardly a journalism sage, but he made a compelling point last week on RealMoney.com following Tribune’s announcement that it would buy back a quarter of its shares by borrowing about $2 billion, sell $500 million in non-core assets, and cut costs by $200 million:
I look at this move and I think: Hold up here; Tribune’s been cutting costs for years. If it hadn’t, its cash flow would be downright ugly — and now it is borrowing cash to buy stock? Does the company really feel its stock is undervalued? Does anyone think its stock is undervalued?
We buy stocks for growth, not for self-tenders and not for cost cuts. There’s no growth here.
Others on the Street saw opportunity, however, and immediately after the stock buyback plan was revealed on Tuesday, the company’s stock, which had fallen nearly 40 percent over the past two years, shot up 7 percent. CEO Dennis FitzSimons presented the plan as a vote of confidence in Tribune’s future and its long-term value. It was widely viewed as an effort to preempt a Knight Ridder-like shareholder rebellion, and — in effect if not intent — helped to make the company less appealing to outside suitors by sending its credit ratings toward junk levels and by ensuring that Tribune’s debt would rise to nearly $6 billion.
But now the buyback plan has revealed a major rift on the Tribune board, creating the sort of uncertainty the plan was supposed to prevent. And by agreeing to make public the Chandlers’ disagreement through a SEC filing, Tribune has opened the floodgates to major press coverage about that rift, while the ensuing market speculation increases its stock price but decreases its control of the situation.
Tribune, for now, continues to insist that it is going ahead with the plan.
But a major reason given for the Chandlers’ dissent is instructive. As the New York Times put it yesterday, the three Chandler board members dissented from the buyback plan “because the move would not address the fundamental challenges facing the company,” adding that they “believed that Tribune first needed a strategy to create value before it took on significant debt, which they worried could limit the company’s options.”
Indeed, absent “a major shift in corporate strategy,” as Deutsche Bank analyst Paul Ginocchio wrote last week, the buyback “might have been the last arrow in the quiver.”
“I was struck by the fact that they didn’t lay out a very specific strategic plan associated with this,” said Tom Rosenstiel, director of the Project for Excellence in Journalism. “That, to me, stood out more than that they were doing it.”
Without a clear, broader vision for where Tribune Co. is headed, things get more problematic. Phil Rosenthal’s Tribune column last Sunday, “Bold strategy to shape Tribune chief’s legacy,” tried to put a happy face on all this; describing the buyback plan and its accompanying sale of non-core assets and cost cuts, Rosenthal wrote, “This strategy … is easily Tribune’s boldest move since FitzSimons took its top job in 2003 and the best evidence to date of his vision of and for the company.”
But listening to the statements FitzSimons has made since the buyback was announced, that vision seems muddled. In an email to employees Wednesday, FitzSimons said the buyback would allow Tribune “to continue moving forward on our long-term strategy to grow revenue at our newspapers and television stations, expand our interactive businesses and divest non-core assets.” But the revenue growth will be driven by interactive assets like CareerBuilder.com, which is where “Overall resources will be redeployed,” while Tribune’s core publishing businesses cut costs some more and strive for greater efficiency. FitzSimons has reiterated that Tribune is “a major-market media company,” but seemingly non-core assets like the Chicago Cubs and the Food Network will be kept. “It’s not this bright line,” Tribune Publishing President Scott Smith has said.
The problem? There is no vision, only piecemeal strategies — no reassuring explanation of how Tribune will navigate journalism’s rocky transition and emerge from it triumphant.
Meantime, the vision guiding Tribune since it bought Times Mirror Co. in 2000 — of “a local-media conglomerate with a stable of TV stations complementing one of the nation’s finest collections of newspaper titles,” as the Journal put it, “is now widely perceived as a failure.”
The hoped-for advantages in synergy and national print advertising haven’t paid off, a former company executive told CJR Daily, leaving serious cost-cutting in the former Times Mirror papers to pick up the slack. For the Times Mirror papers, said the former executive, “it’s been a journalistic catastrophe these past five or six years.”
“What’s happened at Baltimore and what’s happened at Newsday in terms of the bleeding of talent is staggering,” the executive said. “It’s like a purge of journalistic talent that’s gone on in Tribune Co. It’s really an amazing thing.”
Most of the new $200 million in cuts will come from publishing, Tribune’s Smith said last week. Asked in a call with analysts whether they would “involve any significant headcount reductions,” FitzSimons responded, “Yes, and we would attempt to accomplish as much of that as possible by attrition, but there would be additional position eliminations where we cannot accomplish it by attrition.”
The buyback plan’s impact on Tribune’s journalism has received little attention, but the promise of further cuts has caused some apprehension among Tribune journalists. “Obviously we’re concerned,” said Baltimore Sun reporter Michael Hill. “You can’t cut your way to profitability, and I wish these people would realize that. We’ve been through it before.”
“No one is surprised,” Hill added. “Everyone is pretty cynical about Tribune here.”
“People think, what’s going to happen to my newspaper or to my department or to me personally? You know, Tribune is largely in the communications business, and they’re not so good at communicating what’s actually going on,” said a Tribune Co. editor, adding that “cutting 200 million dollars is probably not a good sign. It’s not good for anyone’s newsroom budget.”
The editor likened FitzSimons’ mention of new cuts to having “locusts buzzing in the background for a long time, and the buzzing’s [just] gotten louder.”
The way things are going, the buzzing will only get louder still.
Jon Fine of Business Week put it this way this morning: “Those with long media memories may recall that a reluctance [on the part of Tribune Co.] to invest, coupled with poor union strategies, led to the near-suffocation of New York City’s Daily News back in the 1980s and early ’90s when the … paper was the country’s biggest. But set that aside for now. Tribune today may best illustrate the limitations of simply buying big brands and squeezing out costs. Here’s a crazy idea: a conglomerate tries investing in its properties instead of hacking at costs. If quality is the last argument traditional media can offer, slashing staff is a strange way to get there.”
But that — “investing” instead of “hacking” — seems unlikely to happen at Tribune Co., or, for that matter, at almost any media conglomerate.
In this case, “The Known,” as philosophers call it, is pretty dreary. Us, we can’t help but cheer for an “Unknown” — like, say, Tribune Co. splitting off into its component parts, with each going its own way and in charge of its own fate. Whatever that might produce, it could hardly do more damage to journalism than the current fiasco of one chief executive officer after another frozen at the wheel, as the future hurtles toward us.
Edward B. Colby was a writer at CJR Daily.