“We’re Looking At Some Of The Worst Advertising Numbers In The History Of The World” – Sam Zell

Philip M. Stone July 24, 2008

These are not happy days at Tribune newspapers with all deep into redesign plans, cutting news pages so there is a 50-50 editorial/advertising ratio instead of the previous 60-40, and firing hundreds of reporters, but the way the boss sees it, he’s a hero for saving the jobs of those who survive the ordeal.

Zell held a conference call this week with Tribune reporters across the country that was also relayed on the company’s Intranet, and Zell, known for not mincing words, told it the way he really sees it. “The reality is, what’s my choice? Do I try and create a business that can be viable and preserve two-thirds of the jobs? Or do I let all 100% of them go by the wayside because I’m not willing to confront the realities of the environment?”

And he made clear that what he told staff at The Hartford Courant  six months ago that “I do not believe that anybody can grow a business by reducing the number of employees”  is now absolutely out of the window because  revenue has fallen  by about 20%, far more than the  5-7% in his business plan. “I don’t believe it’s fair to hold me to the sentence that I expressed six months ago. I don’t know that anybody has a frame of reference on advertising revenue destruction that, in effect, is as bad as this, going all the way back to the Depression. So I think the circumstances are dramatically worse than anyone could have possibly predicted.”

He repeatedly made the point that he wasn’t cutting people just to increase profits; it’s all about survivability; being able to make the debt payments. The original business plan called for a few asset sales – primarily the Chicago Cubs baseball team and its Wrigley Park where home games are played -- and cash flow was to take care of the rest. But cash flow is way down and he had to sell Newsday, albeit at a very good $650 million in this economy and he says that deal should close next week.

“We’re looking at some of the worst advertising numbers in the history of the world,” he told his reporters. I have a responsibility to keep this business alive when cash flow has eroded at a prodigious level. We went through every one of our organizations with a goal of getting efficient numbers up and head counts down so we can survive to live another day.”

And he has come to the realization that it’s not just newspaper advertising habits that are changing, the very role of a newspaper in society is changing, too. “It is very clear …the role of the newspaper is changing and we need to size our organization, and our newspapers to reflect the realities of the marketplace.”

And while he hoped that the current round of layoffs would be it, he could offer no such guarantees, perhaps having being burned by that statement in Hartford six months ago.  “We’re not interested in trial by torture, not interested in dying by a thousand cuts. We’re doing everything we can to make this downsizing happen as quickly and as painlessly as possible.”

The cutbacks have been savage. At the Los Angeles Times, for instance, there currently is no publisher, there is a brand new editor, there is no advertising director, no foreign editor, no editor overlooking the editorial pages, the UN bureau chief is gone, as are another 150 editors,  reporters, designers, photographers and the like. Bock review and opinion sections are disappearing. At the flagship Chicago Tribune, the publisher and editor both went, and 14% of the newsroom will be cut for a newly designed, smaller newspaper. The Morning Call in Pennsylvania announced it was cutting 25% of the newsroom, the Courant in Hartford is cutting around 25% of its newsroom and the list goes on for all the other newspaper properties.

But once the reality of current circumstances was out of the way, Zell had Randy Michaels, his chief operating officer, give a glimpse to some ideas on how things are going to work in the future once all the new redesigns are taken care of.

In those cities where the company has multiple media outlets – (Los Angeles with The Times and KTLA-TV; Chicago with the Tribune and WGN-TV and elsewhere) Michaels wants to build “breaking news sites” that would soon become the news site anyone would go to in that city to get breaking local news.  He said that radio, TV and cable news networks have taken what was once the domain of newspapers – breaking news – and he sees no reason why, with the editorial resources  of Tribune print and broadcast working together, that Tribune should not earn the reputation of being the place to go for breaking local news.

If it’s done right, and there is no “competition” between the co-owned newspaper and broadcaster and whatever they dig up really does get to that news site first then Michaels could well be on to something. His goal is for Tribune across the country  to “become recognized as the place for breaking local news.” The doubters will question whether the newsrooms haven’t been so gutted that there are just not enough reporters left  to fulfill such a goal, although Michaels says that even with all the cuts, Tribune in its cities still has more reporters on the ground  than anyone else.

What didn’t sound so grand was the idea of producing  centrally designed  world and national news pages. “I don’t think we need to start from scratch in each of our markets with every story,” he said. Are Orlando and Los Angeles going to present the same looking news?

Zell took the company private last December in an $8.2 billion transaction that was almost all debt. Coupled with Tribune’s already existing debt from a share buyback program earlier that year, Tribune now is being strangled by total debt of some $13 billion and therein lays the tragedy of this whole mess. The problem is not that the Tribune newspapers are not generating good cash flow; rather it’s just not as much as before and it’s not enough now to pay off that debt, and Tribune is not the only newspaper group having to deal with that scenario.

The one question his reporters didn’t ask Zell on which we would love to know the answer – “if you knew then what you know now just seven months later, would you still have gone ahead with the deal?”