Dog-Bites-Man Thinking

Tribune's strategy is predictable: Slash and burn

Let's go back to another time. It is just before the peak of the dot-com boom. A prominent media player unveils a surprise deal that will reshape the company and, it insists, uniquely position it to capture elusive synergies. No, it's not Time Warner (TWX ) teaming up with AOL. It's Tribune Co. (TRB ) buying Times Mirror Co.

At the time, Tribune's management was beloved by Wall Street and had a proven track record with acquisitions, unlike Time Warner, including a string of TV deals in the mid-1990s that more than doubled its station holdings. (After a just-announced sale of one station is completed, it will have 25.) It also invested in tech companies, notably in a new service called America Online in 1991. All this burnished its rep as a smart, steady conglomerate. In a media world heavily concentrated on the coasts, the Chicago-based Tribune won kudos for managing with Midwestern common sense. (I wrote as much myself, briefly forgetting that Chicago isn't Peoria.) Then, in March, 2000, came the $8.3 billion deal for Times Mirror, publisher of the Los Angeles Times and Long Island's Newsday, which definitively made Tribune a large-market company. All of which helps explain why Tribune announced on May 31 that it will borrow billions in order to buy back about one-fourth of its shares -- a deal opposed by Times Mirror's founding family, the Chandlers, who control 12% of Tribune's shares. Tribune has been beset by problems, some self-inflicted, some not. But Midwestern common sense clearly did not prevent some bad bets.

THE TIMES MIRROR DEAL INCREASED Tribune's dependence on newspapers, which, rightly or wrongly, Wall Street now abhors. (Today, 73% of its revenue comes from newspapers and 27% from broadcasting; previously the split was 55/45.) It shows in the company's stock, which in recent years has underperformed many publishing peers. More important, Tribune bet on strategies that now look shaky. Buying Times Mirror was predicated on synergies flowing from newly created TV-newspaper duopolies in markets such as Los Angeles and extracting extra juice from advertisers with its new national footprint. In 2001, then-CEO John Madigan told BusinessWeek he expected Tribune Media Net -- a unit created to sell cross-platform and cross-property ad packages -- to lure an incremental $200 million in national advertising in 2005. In 2004 the company netted an incremental $85 million from such sales -- and has since stopped quantifying Tribune Media Net's performance, says a spokesman. The spokesman said executives could not comment during a quiet period.

Nor has broadcasting buoyed the company. While Tribune never got cash flow from its 22.5% stake in the WB Network, most of its stations were affiliates. This was great when the WB was hot but not when its ratings started tanking in 2003. A circulation-overstatement scandal at Newsday and Spanish-language Hoy last year crimped results and tarnished a squeaky-clean image. Business malaise and a flat top line continue at the Los Angeles Times, the company's largest single asset, accounting for almost 20% of total revenues.

Tribune still banks on its big-market strategies, current CEO Dennis FitzSimons has said. And it continues to follow a traditional playbook. When Tribune bought the Los Angeles Times, the paper had around 1,200 newsroom employees; today it has 950. The flagship Chicago Tribune -- which, unlike the Times, has growing revenues -- also went through layoffs last year. In May the company promised an additional $200 million in cost reductions and even more job cuts.

Those with long media memories may recall that a reluctance to invest, coupled with poor union strategies, led to the near-suffocation of New York City's Daily News back in the 1980s and early '90s when the then-Tribune-owned paper was the country's biggest. But set that aside for now. Tribune today may best illustrate the limitations of simply buying big brands and squeezing out costs. Here's a crazy idea: a conglomerate tries investing in its properties instead of hacking at costs. If quality is the last argument traditional media can offer, slashing staff is a strange way to get there.

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By Jon Fine

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