Published December 31, 2012
Tribune Co, which started by publishing the Chicago Tribune on a hand press in 1847, sees a future in broadcasting, one not likely to include the major newspapers that made it a force in the news business.
Now that it has formally emerged from a four-year bankruptcy, Tribune is expected to concentrate on its WGN America cable network and a 23-station TV group it tried to fashion into its own broadcast network in the mid-1990s.
Toward that end, Reuters reported earlier in December, the company, whose board has been stocked with former TV executives, will soon begin the process of selling off its eight major market papers.
Tribune's controlling owners, which include JPMorgan Chase & Co and hedge funds Oaktree Capital Management and Angelo, Gordon & Co, intend to sell most, if not all, of the newspapers. Tribune has already received expressions of interest in the Los Angeles Times, the Orlando Sentinel and others
Oaktree is the biggest Tribune shareholder, owning about 23 percent of the company, while Angelo, Gordon and JPMorgan each hold a 9 percent stake.
Tribune's papers have been at the epicenter of the newspaper industry's declining fortunes in recent years. And their problems intensified after real estate magnate Sam Zell took Tribune Co private in an $8.2 billion leveraged buyout five years ago.
Over that period, plummeting advertising and circulation have hit the newspaper industry hard. The industry's ad revenue fell by nearly half to $24 billion, and daily circulation fell 10 percent to roughly 40 million copies, according to the Newspaper Association of America.
"What we have seen in the Tribune in the Zell tenure is a reflection of the demise of the American metro newspaper and its uncertain prospects going forward," said Ken Doctor, an analyst with Outsell Research, a consultancy based in Burlingame, California.
Still, the newspaper industry could be reshaped as moguls like Warren Buffett and Rupert Murdoch seek to build newspaper chains in the United States, even as storied publishers like Tribune and Knight Ridder exit the sector.
Murdoch, Orange County Register owner Aaron Kushner and the San Diego Union-Tribune publisher Doug Manchester are interested in Tribune's publishing assets, sources told Reuters.
Buffett recently said he is interested in adding The Morning Call, a Tribune paper in Allentown, Pennsylvania, to his growing stable of papers.
Tribune's newspapers remain profitable despite the falloff in readers and advertising. Veteran newspaper analyst John Morton said the Los Angeles Times could fetch $130 million at an auction, while the Chicago Tribune could garner $86 million.
But with the industry still struggling to find its footing, and depending on the number of bidders, those prices could fluctuate wildly, Morton said. Newspapers in general have lost roughly two-thirds of their value over the past five years, he said.
"Even though the profitability of newspapers is low, if the price gets low enough it becomes an attractive investment," said Morton.
"The important thing about the Tribune's newspapers are that they are iconic brands in America even though they are struggling financially. They have a lot of cultural and political power," Doctor said.
NEW OWNERS TO FOCUS ON BROADCAST
Peter Liguori, a member of Tribune's newly created board who formerly held top jobs at Discovery Communications and News Corp, is expected to be named chief executive.
Liguori, who has a solid track record in TV programming, is the kind of executive who should be able to improve WGN's ratings and perhaps help the network command higher carriage fees, said Horizon media analyst Brad Adgate.
The company likely will fashion a strategy around WGN America, a national feed of Tribune's Chicago TV stations that Tribune repackages as a super-station and distributes through cable and satellite to more than 76 million homes.
Adgate said that WGN America is not "a must buy network right now," for cable and satellite operators to carry but it has the potential to reach another 20 million to 25 million homes if it adds original programming to its lineup.
"If WGN puts on original shows, whether its reality or scripted, the chance of getting a spike in ratings is higher," Adgate said.
WGN America collects 19 cents a month for each cable or satellite home in which it appears, more than Viacom's VHI and BET channels, according to consultants SNL Kagan. WGN can also sell high priced national ads.
Adgate said WGN already has some programming that is attractive to advertisers, especially its live broadcasts of professional sports in Chicago such as Chicago Cubs baseball and Chicago Bulls basketball.
Tribune also has built digital channel Antenna TV. It now has 71 affiliates, including TV stations owned by Gannett and Media General, and delivers broadcasts of old shows like "Leave it to Beaver," "Barney Miller" and "Alfred Hitchcock Presents" that Tribune says reaches more than 61 percent of the country.
Its TV assets include local stations in the nation's three largest markets, New York, Chicago and Los Angeles, which advertisers covet. The station group reaches 80 percent of U.S. households, according to its website. In 1995, Tribune tried to use its local station to create its own TV network.
Tribune's TV operations are estimated to account for $2.85 billion of the company's $7 billion valuation, while its publishing assets are estimated to represent $623 million, according to report by its financial adviser Lazard. The rest of its value resides in other assets, including its 30 percent stake in the Food Network and its cash balance.
THE DEAL FROM HELL
Tribune was forced into bankruptcy in 2008 not because of the flagging fortunes of its newspapers, but because Zell saddled the company with too much debt just as the industry was hitting a downturn, Morton says.
Zell stunned the media industry when he took the company private in 2007 in an $8.2 billion leveraged buyout that burdened the company with debt and that many observers warned would be disastrous.
In a memo to employees after the company filed for bankruptcy, Zell wrote: "It has been, to say the least, the perfect storm. A precipitous decline in revenue and a tough economy have coupled with a credit crisis, making it extremely difficult to support our debt."
The bankruptcy was an especially messy one. The "deal from hell," as Zell eventually described the leveraged buyout, became a quagmire of lawsuits over who was to blame for the bankruptcy and Tribune's $13 billion of debt.
Zell's tenure had some positives, say some outside the company.
Outsell analyst Doctor said that under Zell the company created a centralized hub in Chicago for its national editorial coverage and made its advertising production more efficient.
However the four-year bankruptcy proceeding distracted the company, holding back innovation due to the uncertainty of its outcome, according to Doctor.
(Reporting By Jennifer Saba and Liana Baker in New York; Edited by Ronald Grover in Los Angeles, and Alwyn Scott and Steve Orlofsky in New York)