Wrestling With Trib Co.'s Demons
Dennis J. Fitzsimons has had better months. First, the normally genial chief executive of Tribune Co. (TRB ) had to explain troubling staff cuts at the Los Angeles Times, where a clutch of Pulitzer Prizes couldn't stave off an unexpected slump in ad growth. Then came the nasty circulation scandal at the company's fast-growing Spanish-language national tabloid, Hoy, and Long Island-based Newsday. Finally, a Philadelphia appeals court tossed into limbo the right of FitzSimons' company to own both TV stations and newspapers in such crucial spots as Los Angeles and New York. And all that was just in June.
Eighteen months into his job as CEO of Tribune, the 54-year-old former TV advertising salesman is taking a stoic view of the toughest challenges he has faced yet in a 22-year career at the Chicago outfit. He's hanging tough even as the stock languishes below 45, off 15% from its recent high in February. "Sometimes these things come your way," says FitzSimons. "And it's how you deal with them that determines your success or failure." Putting a sharper edge on it, A.G. Edwards & Sons (AGE ) analyst Michael A. Kupinski says it's crunch time for FitzSimons, noting that he'll have to "really show his leadership."
The embattled FitzSimons is moving fast. To wrestle down the most nettlesome problem, circulation woes, he is setting up new audit systems at all 14 of the company's daily newspapers, including requirements that circulation executives sign off on periodic reports, much as CEOs do now under Sarbanes-Oxley. With 80% of Tribune's revenues coming from advertisers, he says, he cannot permit the overstatements to cast doubt on Tribune's honesty.
The inflated numbers, which advertisers relied on to buy ad space, are anything but trivial. Even as Tribune investigates the misstatements -- with one circulation executive already put on leave -- Newsday has sliced 40,000 copies a day off its reported daily circulation, about 7% of the total for last year. It also cut 60,000 copies, or 9%, of its Sunday papers. Hoy has slashed 15,000 daily and 4,000 Sunday copies, 16% and 12% of the tabloid's numbers, respectively. Now advertisers will likely want to be made good for overpayments based on the false numbers. At Newspaper Services of America, a media buying firm, CEO S. Scott Harding gives FitzSimons high marks so far, but he is still holding the CEO's feet to the fire. Says Harding: "The final litmus test will be the resolution to the advertisers."
Lately advertisers are a big worry for FitzSimons. Based on a sudden hiccup in ad growth, mainly because of weakness in the struggling Southern California economy, he's now warning Wall Street that Tribune's prediction of 6% revenue growth this year, from 2003's $5.6 billion, was too optimistic by at least two percentage points. Newspapers account for more than two-thirds of Tribune's revenues, with 30% of that from the Los Angeles Times alone. Sales "hit the wall" there in May, says Tribune Publishing unit President Jack Fuller, dragging down the others.
FitzSimons can point to fresh signs of life in ad sales in Los Angeles, but he is still cutting costs in the wake of a change in ad-buying patterns after a spate of retailer consolidation in Southern California. He has eliminated roughly 200 jobs -- 60 from the newsroom -- cuts that have gone down hard since they came just months after the paper had won five Pulitzer Prizes.
Despite the skimpier profitability, FitzSimons insists that Tribune remains committed to newspapers, even if the the company's 26 TV stations are much more lucrative. The newspaper division reports margins of 22%, vs. 34% for the broadcasting and entertainment group, despite the fat salaries commanded by players such as Sammy Sosa at the Tribune-owned Chicago Cubs and the costs of such new programming as Sex and the City reruns. Unlike TV viewers or Web surfers, newspaper readers want to see advertising, says FitzSimons. And he insists the recent woes should not stir new doubts about Tribune's 2000 acquisition of Times Mirror Co., which brought it the Los Angeles Times and Newsday. "Having scale is an advantage," the CEO argues.
But broadcast is crucial for Tribune. FitzSimons, craving more stations, is frustrated by a June 24 decision by the U.S. Court of Appeals in Philadelphia. The court said that the FCC could let companies own both TV stations and newspapers in single markets, as Tribune does in New York, Los Angeles, Miami, and Hartford. But the judges want the FCC to draw up new rules, which they want to review. For FitzSimons it's an unwanted delay, and he vows to go to the Supreme Court, if needed, to get the so-called cross-ownership rules set.
Perhaps luckily for FitzSimons, buying is not on his immediate agenda. Citing high prices for TV stations, he plans to use spare cash to buy back more Tribune stock -- $750 million worth or more over time, which could give the share price a much-needed boost (chart).
The financial payoff of Tribune's newspaper-TV consolidation drive seems a long way off, much as in other big-media mergers. And now, FitzSimons has the extra burden of repairing Tribune's damaged reputation along with shoring up revenues and profits. Those are headlines no one in the news business wants to be making.
By Joseph Weber in Chicago