Tribune’s Firing Of The Los Angeles Times Publisher Is Getting All The Media Attention, But It’s A Red Herring – Look Instead To How The New CW Television Network Is Doing. On That Hinges The Company’s Fate And So Far The New Season Is A Flop!

Philip M. Stone October 9, 2006

The media has given blanket coverage to Tribune’s firing of its Los Angeles Times publisher last week for publicly supporting his editor who had refused Chicago’s demand to fire more reporters, but the editor failed to back his publisher and did not fall on his sword. Much more important, however, are the new CW television network ratings, for the future of the broadcast division may rest on how well the 15 Tribune CW affiliates do.
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He chose to fall on the sword...

...but he did not!

It’s only two weeks into CW’s launch, but its Fall season is already pretty much a disaster. The network, formed by the merger of the old WB and UPN networks, has ratings below what WB and UPN had at last Fall’s season debut, and that’s in spite of a huge marketing effort before this season began.

The network is now busy rescheduling shows – many of which had long lives on the former networks, -- and some shows have yet to begin their new seasons –so while it’s still early days the prognosis is not good for the network to be the instant hit Chicago needs. And that is going to cause major headaches – as if there were not enough already – at Tribune Tower.

This summer, with its share price hovering in the mid $20s, Tribune spent around $2.4 billion buying back some 75 million of its own shares at around $32.50 each, pushing it debt rating into junk status, in an effort to improve shareholder value. Since then, even though the Dow had its best third quarter in years, Tribune’s shares still closed Friday at only $32.87, just a few cents above the buyback. Which indicates the buyback produced a single blip up rise but that’s it.

Tribune is servicing the buyback debt through recurring revenues, selling around $500 million in various entities (it has so far sold three TV stations) and by instituting more cost-cutting.

With newspapers experiencing declining revenues, the pressure was on the broadcast division to produce higher profits. This is, after all, a mid-term election year so political advertising will boost revenues until the November election, but the real hope for higher revenues was put on the CW network.

But with the network not doing well, the increased advertising spend may not be there, at least not this year, and means putting  more reliance on asset sales and cost-cutting.

Tribune recently made peace with its largest shareholder, the Chandler family, the former owners of the Los Angeles Times and the Times-Mirror Company that Tribune bought in 2000.  They had opposed and did not participate in the share buyback. The peace treaty means that various entities can be sold without dire tax consequences, and that gave the board the green light to examine whether part or all of the company should be sold-off. The company hired Merrill Lynch and Citigroup as financial advisers to help explore "strategic alternatives”.

The financial wizards will not report until the end of the year, however, and with broadcasting not producing their hoped-for revenues then Tribune has to readjust its game plan and look for even more cost savings. And that is what basically caused the ruckus over the summer at the Los Angeles Times.

For all the problems at The Times over the past years – circulation now down to under 900,000 – it is still very much of a cash cow with 20% plus margins, and it provides around 20% of Tribune’s entire revenue. No wonder Tribune CEO Dennis FitzSimons keeps telling groups of Los Angeles investors that he has no interest in returning The Times to local ownership (although that will now be included within the Merrill Lynch-Citigroup project.)

The Times is a proud newspaper that has not experienced its cutbacks willingly. It has seen its newsroom staff cut by around 20% since Tribune bought the paper in 2000. One editor resigned last year when asked to make more cuts. But now Tribune apparently has asked for another reduction of 400, reducing the newsroom to around 800. Editor Dean Baquet first said no privately to Tribune bosses and then he went public in his own newspaper.

But what really surprised everyone was that publisher Jeffrery Johnson, a Chicago appointee in 2004, also publicly supported his editor.

Back in Chicago all hell broke loose. It was one thing for executives to privately discuss what needs to be done going forward, and there is always room for good debate, but as the saying goes, “You don’t wash your dirty laundry in public.” And that is what the Los Angeles people did and they did it at an especially sensitive time when civic leaders in Los Angeles were corresponding with Tribune about taking the newspaper local and complaining that Tribune was not treating it right.

As FTM wrote at the time, if Tribune were to fire both the editor and the publisher for such a public revolt then Tribune would probably risk a revolution within the Los Angeles newsroom, but more importantly the Los Angles community as a whole would lose faith with the newspaper.

Last week Chicago made its move. It asked publisher Jeffrey Johnson to resign, which he did, but the editor, Dean Baquet, after a coffee meeting with the newly appointed publisher from Chicago, decided he would stay on and see how things went.

So for the time being Tribune defused the situation. A lot of people in the newsroom said they were glad Baquet stayed around and they felt real bad for Johnson. Indeed a lot of people had sympathy for Johnson but he seems to be the big loser here, although no doubt he’ll walk with a big severance packet, and who knows – if the Times does revert back to local ownership maybe he’ll even end up again in the publisher’s chair. But there’s probably a lesson in this  for publishers who work for groups.

But outside the newsroom in Los Angeles there is a seething anger that Baquet did not fall on his sword.  It would have been a golden opportunity for the revolution to begin that could have driven a Tribune capitulation and brought in local ownership. But Baquet did not quit, and the language used in discussing that is not polite.

One of the most respected journalists in Los Angeles/Hollywood is Nikki Finke who writes for LAWeekly and DeadlineHollywood.com . She has all the right sources in all the right places when it comes to what Southern California moguls are up to in the media/entertainment field.  – she was the first journalist, for instance, to break the story last year that the movie studios were going to cut way back on their newspaper advertising and she was spot-on.

And she really lays into Baquet. “What an incredible gutless wonder,” she wrote. “Shame on him! Really, Baquet’s seeming decision just shows he cares only about his own ass. Because clearly he’s still going to have to fire all those staff asses. Unless, of course, he’s looking to stage some dramatic ‘pang of conscience’ moment in the very near future for maximum publicity value. At least now journalism can stop characterizing him as “Dean of Arc” and start referring to him as he really is” ‘Cover-Your-Backside Baquet’”.

Tribune really needs some calm in Los Angeles and no doubt a face-saving compromise on the newsroom levels will be found, but that does not resolve the big issue – the success of the CW Network. .

If it doesn’t get its rating up, quickly, then where does Tribune look to get in the money to service its junk debt? The broadcast division’s very fate may rest on getting those ratings up. And quickly.

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Former LA Times Publishers Now Working For One of The Billionaires Bidding For the Newspaper - March 19, 2007

Jeffrey M. Johnson, whom the Tribune Company bounced as publisher of the Los Angeles Times when he had the audacity to back his editor who said enough job cutting was enough, has ended up, as FTM had predicted, in an executive position with Yucaipa Companies, the private investment firm run by billionaire Ron Burkle who has a bid in for Tribune.

Yucaipa officials said the Johnson job was not related to the Tribune bid which, from all accounts thus far, is dead in the water. A company statement said Johnson would “lead efforts to explore additional media investment opportunities.”

Johnson and Burkle first met when Johnson was publisher at. The Times.

Tribune Broadcast Division Cash flow drops 15% In 3rd Quarter - October 21, 2006

Tribune needed a good performance from its broadcast division if it was to avoid further drastic cost-cutting in order to service its junk debt. And it didn’t get it in the third quarter.

Operating cash flow dropped by 15% to $108 million even though this is an election year and political advertising should have spiked the numbers up.

The company has confirmed that its review of business activities is underway which could lead to a sale of part or all of the company.

Tribune Is Safe From McClatchy – October 18, 2006

McClatchy is still digesting the 20 Knight-Ridder newspapers it kept plus it has a huge income tax bill to pay and says it therefore has no interest in the Tribune Co., which might put various assets up for sale following a review expected at the end of the year.

McClatchy CEO Gary Pruitt told financial analysts, “We’re not in the acquisition hunt right now. We are not looking at Tribune …That’s really not our focus right now.”

McClatchy’s focus actually is to pay a giant income tax bill related to the purchase of the 32 Knight Ridder newspapers and then the onward sale of 12 of them, plus the sale of some land. Pruitt said McClatchy would spend all its available cash and also draw down on its credit facility by the end of the year to pay the bill.