If You Want to Save Journalism

Busy year for Michael Ferro. Bought Tribune Publishing. Renamed it tronc. Endured ridicule. Tried to sell to Gannett. Failed. Up next: Figure out how to make money in newspapers.

By Felix Gillette and Gerry Smith | November 2, 2016

In April 2012, Lupe Fiasco was on tour in Detroit when he got a phone call from a revved-up businessman named Michael Ferro. Ferro said he was the new owner of the Chicago Sun-Times and was recruiting local talent to write “celebrity-produced content.” Payment would be a $1,000 donation per column, to the charity of the celebrity’s choice. Fiasco, a Grammy-winning rapper who grew up on Chicago’s West Side, loved the idea.

Over the following year, Fiasco wrote five pieces for the Sun-Times—poetic riffs on race-car road trips and ghetto ghost stories. Somewhere along the way, Ferro gave Fiasco a tour of the Sun-Times headquarters, and the rapper asked the businessman for some advice. Instead, Ferro offered him a job at his health-care startup, Higi, which shared offices with the newspaper. In between concerts, Fiasco started showing up at the Sun-Times building, reporting for duty as Higi’s “creative director.”

“That’s the title they give celebrities,” says Fiasco. “Because you don’t really know what you’re doing.”

He spent time with the engineers, the sales team, and the marketers. Sometimes he sat in on management meetings, where he watched Ferro up close. Ferro, who declined to be interviewed for this story, began his career as an entrepreneur, launching companies in the 1980s and ’90s, including a software startup. By the time he met Fiasco, Ferro had long since transitioned from creating businesses to buying them—especially ones in financial trouble. And for an investor in distressed companies, few industries have targets as numerous and tempting as newspapers.

Ferro’s career had made him famous in Chicago, especially after he bought the Sun-Times, but he never attracted much notice in the rest of the country. That changed this February, when his private equity fund, Merrick Ventures, invested $44 million for a controlling stake in Tribune Publishing, one of the biggest newspaper chains in the U.S., with holdings that include the Chicago Tribune and Los Angeles Times. In a series of press interviews, Ferro said he was motivated by a lofty purpose: to save journalism.

If anyone believed he was going to succeed, the feeling didn’t last long. The Ferro era at Tribune has quickly become one of the more baffling chapters in media history. Within eight months, Team Ferro has rejected one purchase offer, angering shareholders; promised to unveil a “content monetization engine” that would unleash newspapers’ true potential as a “rock star business”; posted a want ad for an employee to assist “news content harvesting robots”; rejected another, more lucrative purchase offer; rebranded Tribune as Tronc, or tronc, as the company insists; and split and re-rebranded tronc into troncM, for media, and troncX, for exchange.

The media industry has struggled to classify Ferro in the taxonomy of rich guys who buy newspapers: He’s not as despised as Sam Zell, the real estate magnate and ex-owner of Tribune, and certainly not as respected as Jeff Bezos, the founder and Washington Post owner. The consensus seems to be that Ferro is ridiculous—a model-train-loving, celebrity-obsessed, self-described technologist who’s semi-fluent in Silicon Valley disrupter-speak. On HBO, John Oliver skewered him. On CNBC, Jim Cramer placed him on his Wall of Shame. His corporate renaming ignited extended spasms of #tronc mockery on social media. Sample tweet: “WHAT YOU GONNA DO WITH ALL THAT JONC ALL THAT JONC INSIDE YOUR TRONC.”

Michael Ferro.
Photographer: Ryan Lowry

And yet, until recently, Ferro was on the verge of laughing all the way to the bonc, as it were. In October, Ferro reached a handshake agreement to sell tronc to Gannett for about $18.75 a share. Ferro and his investors were about to make more than $50 million in profit. But the deal fell apart, a source told Bloomberg News, when the banks financing the takeover backed out over concerns that the price was too high. On Nov. 1, after weeks of delay, Gannett announced it was officially ending its pursuit, sending tronc’s and Gannett’s shares tumbling.

So now the spotlight is back on Ferro and his vision for saving journalism. His supporters think he’s up to it. Fiasco points out that distressed companies often require radical thinking. “When he’s bringing companies back from the brink, Michael does some things, like, holy shit,” Fiasco says. “But there’s a method to his madness.”

Ferro is 50 and looks like the biz dev guy at the airport sports bar who talks your ear off during Monday Night Football. He was raised in Merrick, N.Y., on the south shore of Long Island. While he was in high school, his family moved to Naperville, Ill., an affluent suburb of Chicago. During his college years at the University of Illinois at Chicago, Ferro started a roofing company, called Chem-Roof, which he sold after graduation for an undisclosed sum.

A few years later, Ferro got his first taste of public acclaim. In 1996 he founded a company called Click Interactive, which made internet software for inventory management and other office functions. Silicon Valley was then lionizing many of its young tech entrepreneurs, and Chicago was looking to crown a hometown champion. Ferro, who was in his early 30s, played the part with gusto. He moved into Playboy founder Hugh Hefner’s former office at the top of the Palmolive Building on North Michigan Avenue. Along with a lifelong love of model trains, he’s an aficionado of classic video games who could often be found in Click’s arcade room, according to a former employee. When a reporter for the Chicago Tribune came by for a visit, Ferro showed off a secret cabinet where Hefner once stashed a movie projector for impromptu screenings. “Our time has come,” Ferro boasted. “We’re the hip company now.”

In the summer of 2000, Click went public on the Nasdaq. But as the air went out of the dot-com bubble, the company faltered, cutting costs and struggling to turn a profit. In the third quarter of 2002, it lost $2.2 million on $3.5 million of revenue. Ferro nonetheless talked his way into a sizable payday. In 2006 he sold Click to one of its clients, Illinois Tool Works, a publicly traded global company that manufactured things like auto parts and food-services equipment, for $292 million. Ferro took home roughly $65 million. Two years later, ITW wrote down the value of the unit by $97 million. “They really botched that deal,” John Kearney, an analyst with Morningstar, concluded at the time.

Ferro’s next business was Merrick Ventures, a private equity and venture capital firm that invests in Chicago-area tech companies. Talia Mashiach, founder of Eved, a local startup that makes software to help companies track spending on meetings and events, says Ferro was the preeminent supporter of the Chicago tech scene. “He’s got such a big personality,” says Mashiach. “People who are entrepreneurs really appreciate getting in a room with him. He’ll throw out a whole bunch of different things that no one else would think of.”

In 2008, Merrick spent $20 million for a controlling stake in Merge Healthcare, a medical software company in the suburbs of Milwaukee that was reeling from an accounting scandal. Ferro took over as chairman and moved the headquarters to Chicago. A few years later, amid shrinking revenue, widening losses, and a sinking share price, Merge’s CEO resigned and was replaced by Justin Dearborn, Ferro’s former general manager at Click. Ferro publicly apologized to shareholders for the company’s lackluster performance and stepped down as chairman. But eventually he engineered another lucrative exit: Last year, IBM acquired Merge for $1 billion.

"We want to be credible, colorful, and charitable."

In 2011, Ferro got a call from John Canning, the founder of Madison Dearborn Partners, a private equity firm in Chicago. Canning told Ferro he was putting together a group of investors to save the financially troubled Chicago Sun-Times, the city’s perennially second-place daily paper, known for its crime reporting and scoops from City Hall.

Ferro agreed to lead the rescue effort, kicking in $24 million of the $60 million raised, according to Chicago magazine, and taking over as chairman of a new holding company, named Wrapports. In December 2011, Wrapports bought the Sun-Times and a portfolio of websites and suburban papers for roughly $20 million. Shortly thereafter, Ferro showed up at a going-away party for the outgoing editor-in-chief, Donald Hayner, at Chicago Chop House, a sepia-toned steakhouse with photos of politicians and gangsters on its walls. Curious Sun-Times employees wandered over to meet their new patron. According to one person who was there, Ferro said he wanted the Sun-Times to increase its celebrity coverage and make its website more like that of Rupert Murdoch’s New York Post.

In May 2012, Ferro revealed similar ambitions in a speech at the City Club of Chicago. His goal, he explained, was to improve the paper’s technology and pump up its celebrity wattage. He wanted to increase the paper’s audience by 100,000 Sunday subscribers. The key, he said, would be the three c’s: “We want to be credible, colorful, and charitable.”

Under Ferro’s guidance, the Sun-Times revamped its offices, adding an arcade and a candy room. To try and attract more weekend subscribers, he proposed creating four new magazines, which would be published on Sundays on a rotating basis. The lineup would include Grid, covering business; Splash, covering celebrities; Higi, on health care; and High School Cube, on sports. The latter two would share their names with Ferro-backed startups to cross-promote the brands. According to a former employee, Ferro believed the paper could “gamify” the magazines online, designing in competitive elements to make the products more compelling. One of his ideas for Grid, says the source, was to create a tool whereby businesspeople could enter their frequent-flier points and compete with one another to see who flew more miles. (Through a spokesman, Ferro says he has no recollection of proposing such a game.)

At the same time, Wrapports tech people started working on a website and an iPad app for the Sun-Times, as well as a homegrown content management system named Hermes, after the Greek messenger of the gods. Executives believed they could eventually license Hermes to other publishers (as Jeff Bezos’s Washington Post is now doing with its content management system, Arc Publishing). Wrapports and the Sun-Times employed only a small staff of coders, however, and before long the development team was struggling to keep up with the myriad demands placed on them. The company’s strategy often shifted faster than products could be built and tested. In the end, according to three sources who were then at the paper, the iPad app, which had been costly to develop, failed to attract many readers. Higi, the health-care magazine, was mocked up and then abandoned. High School Cube never materialized. Grid ran for a year, then was shuttered. Hermes was rife with problems and was eventually shut down. Frustrated employees had taken to calling it “herpes.”

"Instead of playing golf and doing stuff, this is my project: journalism."

Ferro took a hands-off approach with most of the day-to-day journalism at the Sun-Times, say two former employees, but sporadically got involved in editorial decisions—such as recommending profiles of business associates, friends, and celebrities. Ferro’s 100,000 new Sunday subscribers failed to turn up. In fact, circulation plummeted. In March 2012, the Sun-Times was selling 416,805 papers on Sundays, according to the Alliance for Audited Media; two years later, Sunday readership was 139,754 (falling along with many other newspapers’ circulation). Ferro left the editorial decisions up to the journalists and eliminated the paper’s debt, according to Ferro spokesman Dennis Culloton. “It continues to be a vibrant, independent big-city newspaper while others have been folded or been swallowed by big chains,” he says.

As the Sun-Times’ readership declined, so did its journalistic credibility, at least in the eyes of some of its staff. In January 2012, the Sun-Times had announced that for the first time in its 71-year history, it would stop making political endorsements. But a year and a half later, Bruce Rauner, a wealthy Republican businessman who had invested in both Wrapports and Merge, announced he would run for governor in 2014 against the incumbent Democrat, Pat Quinn. Ferro’s wife, Jacqueline, gave $5,300 to Rauner’s campaign, and on the eve of the election—after sitting out several years’ worth of political cycles—the Sun-Times endorsed Rauner. He won.

Several days after the endorsement, Dave McKinney, the paper’s Springfield bureau chief, resigned. In a letter addressed to Ferro, he expressed concerns that the paper’s management was interfering with his coverage of the candidate. “I’m convinced this newspaper no longer has the backs of reporters like me,” McKinney wrote. The Sun-Times responded by denying it acted inappropriately. (Jim Kirk, the newspaper’s editor-in-chief and publisher, declined to comment for this article.)

Undeterred, Ferro kept coming up with ideas about how to pay for digital journalism. In early 2014, according to Josh Metnick, former chief technology officer at Wrapports, Ferro got excited about a new product, which he wanted to name tronc—borrowing a word that dates back to the early 20th century, when hotel and restaurant workers would collect service fees in a “tronc,” a fund that would later be communally distributed. The idea, Metnick says, was to create a kind of digital “tronc box,” whereby newspapers would be able to collect micropayments from the readers they were serving far and wide across the web. At around the same time, in February 2014, the Sun-Times became the first major newspaper in the country to accept bitcoin in exchange for access to its pay-walled stories. The cryptocurrency experiment was short-lived, and the cyber tronc box never got off the ground. Even so, Ferro held on to the tronc name, which he would later repurpose to much commotion.

Ferro at the Chicago Sun-Times.
Photographer: Ryan Lowry

Meanwhile, he kept pushing ahead with various digital journalism ventures, often working with Aggrego, a Chicago-based startup backed by Wrapports. In the fall of 2014, Wrapports and Aggrego launched the Sun Times Network, a constellation of websites aggregating local news in 70 U.S. cities. The sites used a breezy style, designed for hasty consumption on smartphones and tablets, which Wrapports executives compared to BuzzFeed and Deadspin. Ferro stepped in as chairman. But despite $14 million in initial funding, the venture sputtered. Last year, Sam Stecklow, a former Sun Times Network journalist, wrote a piece for the Awl in which he portrayed Ferro’s brainchild as a slipshod content factory, powered by inexperienced staffers cranking out voluminous posts about places they’d never been. This past summer, the network shut down.

Although a pall hung over the Sun-Times, Ferro still seemed to be having fun. He recruited former Playboy Playmate Jenny McCarthy to join the paper as an advice columnist. One of his startups hired Ashley Bond, a former Miss Illinois USA and Chicago Bulls dancer, to work as a social media manager. (Neither Bond nor McCarthy responded to interview requests.) In 2013, Chicago magazine revealed that some Sun-Times staffers had begun referring to Ferro’s short-skirt-wearing assistants as “Ferro’s Angels.”

Celebrities roamed the offices. Jim Belushi, who was also named a columnist, came in and pitched an idea for a sketch-comedy channel in the vein of Funny or Die that would star his son, Robert. The channel never materialized. At one point, according to two staffers, Ferro approached the Sun-Times’ entertainment columnist, Bill Zwecker, to see if he could procure tickets for Ferro to the Academy Awards ceremony in Los Angeles. As it turned out, the paper didn’t have any tickets. Through a spokesman, Ferro says the incident never happened.

Every summer, Ferro threw himself a lavish birthday party, attended by a mix of local politicians, business executives, and celebrities. One year every guest received an Apple Watch. Another time, McCarthy sang Happy Birthday.

In the fall of 2013, Ferro’s wife co-chaired the Sun-Times Foundation’s inaugural Halloween Ball to raise money for charity. Alongside a DJ booth in the shape of a cauldron, masked men and women in formalwear mingled with magicians, fortunetellers, and McCarthy. “I don’t know anybody in the city of Chicago who does more civic things,” says Tom Ricketts, owner of the Chicago Cubs. “He and Jacky are on every committee, every fundraiser, every civic institution.”

John McCarter, former head of the Field Museum, says Ferro stands out among Chicago’s aging crowd of philanthropists because of his relative youth and achievements. “I loved going into his office [at Merge Healthcare] and looking at all his patents,” says McCarter. “My goodness. He’s got a whole bunch of them up on the wall.”

Eventually, Ferro’s eye began to wander to a new media property to save. In the summer of 2014, following a prolonged bankruptcy triggered by the many missteps of its erstwhile owner, Zell, the media conglomerate formerly known as the Tribune Co. was split into Tribune Publishing, made up largely of newspaper brands, and Tribune Media, composed largely of TV assets. Tribune Publishing emerged from the spinoff owning a portfolio of papers including the Los Angeles Times, Chicago Tribune, and Baltimore Sun. It was carrying $350 million in debt and facing a bleak environment for daily newspapers. In February, Merrick Ventures bought its controlling stake.

Ferro’s firm paid $8.50 a share for a 16.5 percent stake, which made it Tribune Publishing’s largest shareholder. Ferro promptly stepped down as chairman of Wrapports and took over as Tribune’s non-executive chairman. During an interview with the Chicago Tribune in March, he said he wanted to finish what he’d started at the Sun-Times, on a much larger scale. “Instead of playing golf and doing stuff, this is my project: journalism,” he said. “We all want to do something great in life. Just because you made money, is that what your kids are going to remember you for? Journalism is important to save right now.”

"It's not how you start. It's how you finish."

Ferro quickly reconfigured the company’s management. Jack Griffin, an industry veteran, was replaced as CEO by, once again, Dearborn. In March, during an earnings call, Dearborn laid out the new strategy. Tribune, he said, would focus on the four c’s (one more “c” than the Sun-Times): “content, culture, commerce, and community.”

Ferro bought a house in Los Angeles, and Dearborn soon followed him there. According to U.S. Securities and Exchange Commission filings, Tribune Publishing picked up the bill for Dearborn’s move, providing $262,000 plus a rental car and a leased house for up to four months. The company also began paying for the Bombardier jet that Ferro was using to crisscross the country at a cost of $8,500 per flight hour.

It didn’t take long for Ferro’s presence at the L.A. Times to touch off a flap in the newsroom. In late February, on the eve of the Oscars, the entertainment staff sent a blistering e-mail, first reported by Politico’s Ken Doctor, complaining to management that Ferro, Dearborn, and other executives had grabbed all six of the paper’s tickets to the awards ceremony. “To fail to send a single reporter on a year when the Oscars are at the center of a cultural debate over diversity is not only embarrassing, it’s bad journalism,” they wrote.

The paper’s management eventually relented, and two reporters attended. So too did Ferro and Dearborn—who only went, according to Ferro’s spokesman, Culloton, at the insistence of the newspaper’s editor and publisher. “Michael is famous among his friends,” he says, “for eschewing late-night events, ceremonies, and parties.”

While Ferro was networking in Hollywood, a new suitor was circling. In April, Gannett, the publisher of USA Today, sent a letter to Tribune Publishing’s board, making an unsolicited offer to acquire the company for about $815 million in cash, at $12.25 a share—63 percent above its share price at the time. Already the largest newspaper chain in the U.S. by circulation, Gannett, under CEO Bob Dickey, was aggressively snapping up papers across the country. Two weeks later, without a clear answer from Tribune, Gannett went public with its bid. In a letter to shareholders, it argued that combining operations with Tribune would result in $50 million of annual “synergies.” In early May, Tribune’s board unanimously rejected the offer. Tensions escalated. “I want to reiterate that Gannett’s repeated claims that our board did not take this proposal seriously are misleading and disingenuous,” Dearborn said on a call with analysts. He went on to say that sometime later in 2016, Tribune would be opening seven foreign news bureaus, from Lagos to Mumbai.

In the meantime, the company acquired the Sunday celebrity magazine Splash from the Sun-Times and relaunched the Chicago Tribune’s long-dormant celebrity-gossip column. It’s also working on a content-sharing partnership with Aggrego, which since the collapse of the Sun Times Network has been retooling its aggregation strategy and raising more money.

On May 16, Gannett increased its bid to $15 a share. Again, Tribune’s board spurned the offer. In a letter to Tribune shareholders, Gannett alleged that Ferro was acting in his own interest, not theirs. Ferro brushed off the criticism and countered with a surprise maneuver. Tribune announced it was selling 4.7 million newly issued shares, at $15, to Nant Capital, an investment company controlled by Dr. Patrick Soon-Shiong, a billionaire surgeon-turned-investor, whose daughter had recently interned at the L.A. Times. Soon-Shiong joined the board as vice chairman, clearly aligned with Ferro. He told Bloomberg News that “machine vision” technology could help transform the experience of reading a print newspaper, turning static images into moving pictures. “You’d be bringing to life whatever you see on the newspaper,” he said.

Some of Ferro’s fellow investors weren’t impressed. By summer, Tribune faced at least two ­lawsuits filed by ­shareholders upset that Gannett’s offers had been rejected. In May, when CNBC’s Cramer named Ferro to his Mad Money Wall of Shame, a “rogue gallery of incompetent, value-destroying” leaders, he said: “We’re entering crazy-town territory, people.”

The following month, Tribune Publishing issued a press release announcing that it would henceforth be called tronc, a “content curation and monetization company focused on creating and distributing premium, verified content across all channels.” Twitter pounced, as it usually does with a delectable new object of ridicule. A Washington Post headline called the announcement the “worst press release in the history of journalism.”

Shortly thereafter, tronc released a promotional video starring Chief Technology Officer Malcolm CasSelle and Chief Digital Officer Anne Vasquez. Tronc, they explained, would “harness the power” of the company’s local journalism and “feed it into a funnel,” to reach the biggest global audience possible. On HBO, Oliver mocked the clip. “They’re going to feed journalism into a funnel?” he said. “‘Oh, we’re just going to take content and simply cram it down your throat like you’re an abused goose.’ ”

On CNBC in June, Ferro suggested that tronc would ramp up its production of mechanized news. “There’s all these really new, fun features we’re going to be able to do with artificial intelligence and content to make videos faster,” said Ferro. “Right now we’re doing a couple hundred videos a day; we think we need to be doing 2,000 videos a day.” Los Angeles Times employees began passing around a job listing from tronc’s website that called for a “content specialist.” The posting noted that among other duties, the employee would support “our news content harvesting robots.”

On Nov. 1, hours after the Gannett deal officially imploded, tronc held an earnings call. The results weren’t pretty. Third quarter revenue was off 7 percent from a year ago, dragged down by an 11 percent decline in ad revenue. Dearborn said that the company was “disappointed” in Gannett’s “unilaterally terminating” the deal and blamed the extensive negotiations for delaying many of tronc’s turnaround plans. Even so, said Dearborn, the company’s newsrooms were doing great work. He praised the Chicago Tribune for creating more than 200 Cubs-related videos in October. By the end of the day, tronc’s stock price was down 12 percent, but the future of the company, Dearborn said, was looking up. “It’s not how you start,” as Ferro told the Tribune in March. “It’s how you finish.”

(Corrects the university Michael Ferro attended in the tenth paragraph.)

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