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Zell Wants End to Web's Free Ride

By Frank Ahrens and Karl Vick
Washington Post Staff Writers
Saturday, April 7, 2007

It's time for newspapers to stop giving away their stories to popular search engines such as Google, according to Samuel Zell, the real estate magnate whose bid for Tribune Co. was accepted this week.

In conversations before and after a speech Zell delivered Thursday night at Stanford Law School in Palo Alto, Calif., the billionaire said newspapers could not economically sustain the practice of allowing their articles, photos and other content to be used free by other Internet news aggregators.

"If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be?" Zell said during the question period after his speech. "Not very."

Newspapers have allowed Google to use their articles in exchange for a small cut of advertising revenue, but search engines also help to distribute their content to wider online audiences. Google and Yahoo have financial arrangements with wire services, such as the Associated Press, to provide news stories and photos. Yesterday, Google settled a copyright-infringement lawsuit with Agence France-Presse, which had alleged that Google posted news summaries, headlines and photos without permission.

Tribune owns 16 newspapers, including the Los Angeles Times, Chicago Tribune and Baltimore Sun, in addition to 26 radio and television stations and other properties. The company's newspaper Web sites have made little economic impact. In December, Times management called the paper's Web site a "feeble online presence."

On Monday, Tribune accepted Zell's bid -- slightly more than $13 billion, including debt -- to buy Tribune and take the company private with the aid of an employee stock-ownership plan. Zell's bid loads the troubled company with a debt 10 times greater than its 2007 anticipated cash flow, nearly twice that of the most highly leveraged newspaper companies.

As a consequence, Zell may be forced to sell Tribune properties or take on partners to reduce debt. He already has spoken to entertainment mogul David Geffen, who wants to buy the Los Angeles Times or enter into a joint-venture partnership with Zell for control of the paper.

Zell said the current arrangement between newspapers and search engines "can last for a short time," but not longer. "We're going to see new formulas in the immediate [future] that reflect the cost benefit," he said.

At a reception before the speech, Zell appeared uncomfortable when asked about reports that he was talking with Geffen. He said he had met Geffen only once, and that was socially. (Both own Malibu beach houses.) When a reporter observed that he appeared disinclined to say more, Zell said, "You think so? Or do I have to say it for you re-a-l-l-y slow?"

But he nodded solemnly when it was observed that the situation at the Times, which has bristled under Tribune management, appears serious. "I know it is," he said, and his manner changed to indicate that the matter had his attention. Last fall, Tribune leadership ousted the Times' editor and publisher, inflaming newsroom enmity toward Chicago.

Zell said Tribune has "suffered a lot over the last three or four years" because of "internecine" warfare between the Times and its Chicago overseers. "That will dramatically change," he said.

Zell was asked whether he regarded the news business as carrying a level of public trust not necessarily found in rail cars or container leasing, prior business ventures of Zell's. He nodded emphatically in agreement.

"It's a trade-off," he said. "Total freedom for the newsroom and total discipline everywhere else" in the company.

In a related matter, Tribune filed its proxy with the Securities and Exchange Commission yesterday, showing that the company paid chief executive Dennis J. FitzSimons $6.3 million last year. In addition to a salary of $999,000, FitzSimons received a $1.4 million bonus, $3.8 million in stock options and other perquisites.

Vick reported from Palo Alto, Calif.

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