Tribune Empire Could Crumble
Recent Stock Slide Leads to Boardroom Battles, Fuels Anxiety Among Investors, Newsrooms

By Frank Ahrens
Washington Post Staff Writer
Tuesday, September 26, 2006

Imagine buying the most expensive house on a good-looking block that appears to be on the upswing. Within three years, the neighborhood craters, your oldest kid starts backtalking and your spouse pesters you to sell the house and get out. Meanwhile, you're stuck with a fat mortgage.

That's pretty much what life is like at the Tribune Co. these days.

A boardroom fight over the company's limping stock price has caused anxiety in Tribune newsrooms around the country, from an open revolt by the top editor in Los Angeles to "fear and loathing" about potential job cuts among reporters and editors at some of the company's Washington bureaus, according to staffers there.

Dissident board members have lost confidence in Tribune management and seek to break up the company to boost stock price. At a board meeting last week, they forced the rest of the board to explore restructuring and divestiture plans, setting a quick Dec. 31 deadline for options. Tribune has 11 newspapers and 26 television stations; the stations appear the most vulnerable to sale.

Chairman and chief executive Dennis FitzSimons is scheduled to visit Tribune's local paper, the Baltimore Sun, for an all-hands staff meeting today. He arrives after delivering a less-than-reassuring statement to employees after last week's board meeting: "Everything is on the table."

The same problem has been plaguing the nation's other iconic nameplates of the print industry over the past few years. Slumping Knight Ridder Inc. was forced to sell out to McClatchy Co., which dismantled the venerable chain. The New York Times Co. just reported August revenue numbers, company executives have taken a pay cut, and the company dumped its television stations to raise cash.

The hard times have been toughest on large newspapers, where readers have a variety of sources for their news and advertising. Some papers in smaller markets are actually growing.

For nearly a century, newspapers were unrivaled in their ability to deliver news and sell advertising. News staffs grew fat as hiring decisions were made on coverage needs rather than bottom lines.

Now, as newspapers lose readers and advertising to other media and struggle to transition to Internet and other digital forms of delivery -- while attempting to maintain profit margins of more than 20 percent and mollify Wall Street's need for growth -- cuts in jobs and newsroom budgets are coming fast and deep.

All those factors alone would make things tough enough on Tribune. But, like an unlucky home buyer, Tribune purchased a group of newspapers at the height of the market only to watch the market nose-dive.

In 2000, Tribune paid $8.3 billion for the Times Mirror papers, gaining the L.A. Times, Newsday, the Sun, the Hartford Courant and others. It became a media giant whose goal was to own the biggest newspaper and television station in several large cities, saving costs, sharing content and boosting stock price.

Six years later: Newspaper circulation is down across the industry. Advertising revenue is still recovering from a 2001 depression and moving to the Internet, which Tribune has not fully exploited. Increased cable television viewership is undercutting the value of local television stations. Federal regulators have not eased restrictions on media ownership, stalling Tribune's newspaper-television strategy. Finally, Tribune's stock price is stuck around $35 a share since hitting $60 at the time of the merger. Wall Street rating houses have cut the bond status to "junk."

"The Wall Street angle has got everybody uptight, of course," said Pulitzer prize-winning Tribune columnist Clarence Page. "Even though the paper is making healthy profits, Wall Street doesn't think we have a future."

How did it get to this point at Tribune, and where will it go from here?

For 159 years, Tribune has towered over much of the newspaper industry like its headquarters, the gothic Tribune Tower in Chicago. The storied Tribune is the voice of the Midwest. It was the broad-shouldered sparring partner of Mayor Richard Daley's political machine and the home of name writers such as Mike Royko, Gene Siskel and Bob Greene. Tribune's ownership hold on Chicagoland includes radio and television stations WGN and even the Cubs. It was a solid, mid-size media company before its 2000 purchase of Times Mirror.

But along with the Times Mirror papers came the Chandler family, longtime owners of the L.A. Times.

Former publisher Otis Chandler, who died in February at 78, was credited with turning the underachieving paper into a national powerhouse by expanding its staff and increasing its quality. The 2000 merger with Tribune put three Chandlers on the board and gave them 15 percent ownership. In June, upset over Tribune's stock slide and the value of their investment, the Chandlers wrote a letter to the board urging a sell-off.

These Chandlers, said one newspaper analyst, do not share Otis Chandler's values.

"They're not folks that necessarily have any feeling about the journalistic history of their papers," said analyst John Morton. "What they want is their money, and that's what they've always wanted." A spokesman for the Chandler family declined to comment.

Much speculation has swirled about potential celebrity buyers for the L.A. Times, including entertainment mogul David Geffen, but the tax burden of selling off big, high-value papers one-by-one would make such a sale too costly to execute, industry experts said.

One possible scenario, advanced by an industry insider who asked not to be identified because the Tribune process is ongoing, plays out like this: Tribune keeps WGN television as a legacy property and groups its remaining stations in one package, selling them in a tax-efficient way. The source said Tribune floated such a proposal in the spring, which roused interest, pulling it back when the Chandler crisis emerged in the summer.

Then, Tribune buys the outstanding public stock and goes private, the source speculated, allowing the Chandlers to cash out or remain invested in the new private company with more cash in their pockets.