Tribune's collapse rings alarm bells for newspaper industry

Roy Greenslade
10 Dec 2008

Sam Zell is hugely wealthy. With a reputed $5 billion personal fortune, he is ranked as America's 68th richest man. He is also recognised as an astute wheeler and dealer, having created from nothing a real estate and investment empire. Yet it proved beyond his fiscal talents to save US media conglomerate the Tribune Company from financial collapse, and it announced on Monday that it had filed for protection from bankruptcy.

Now the future looks grim for the company's 12 newspapers, two of which are regarded as among America's most important titles, the Los Angeles Times and the Chicago Tribune. Not that it hasn't been grim for a while.

In order to stave off a seemingly inevitable financial meltdown, Zell hacked away at the papers' staffs, hoping to slim them down to reduce losses. He and his managers were heavily criticised for doing so, but the journalists who attacked him seemed unable to offer a viable alternative to cost-cutting.

The problem, as with many US newspapers, is that the business model has been in crisis for a couple of years due to the flight of advertising to the internet. Then came the recession and the already-falling ad revenues suddenly tumbled as if from a cliff. Tribune was in no state to batten down the hatches and wait for better economic times because of its massive debt burden, assumed when Zell gained control of the group last year and took it private in a deal costing more than $8 billion (£5.4 billion).

Those debts have now ballooned to more than $12 billion, and Zell realised that there was no hope of meeting repayments. The game was up. The fact of the bankruptcy move is hardly a surprise. But it will send shivers through many other desperate US media organisations that are coping with fast-falling revenues at their newspapers. And I mean desperate.

Across the States, several companies are trying to sell off their titles but cannot find buyers. The EW Scripps Company has threatened to close its famous Colorado paper, the Rocky Mountain News, next month unless someone comes forward to buy it. Even its joint publishing partner, Media News, seems uninterested in a deal.

A company in Virginia, Landmark Communications, tried to sell off nine daily papers earlier this year but could not attract buyers. The fate of the papers remains uncertain. Georgia-based Cox Enterprises has been unsuccessful in trying to dispose of its newspapers in Texas, North Carolina and Colorado. A publisher in California, Copley Press, has been trying to sell its flagship San Diego Union-Tribune since July without attracting a genuine bid. Last week it put another paper, the Borrego Sun, up for sale. None of this bodes well for the New York Times, which today said it was considering "potetntial asset sales".

A Pennsylvania outfit, the Journal Register Company, has announced it will close up to 13 of its papers in Connecticut unless it can find a buyer. The possible disappearance of the titles has so alarmed the state governor that he has even discussed the possibility of shoring them up with taxpayers' money.

Voters may well have a different view, however. There have been similar suggestions that the US government might be prepared to bail out the Chicago Tribune. This idea gained some traction because Barack Obama's senior adviser, David Axelrod, was once the Tribune's chief political writer. But he left the paper in 1984 and is said to have disliked the paper's heavy-handed editors.

So the notion may be no more than wishful thinking by worried journalists. They are all aware that losing their jobs could mark the end of their careers. It is estimated that 9000 US journalists' jobs have vanished in a year, and more announcements of redundancies happen every passing week as publishers seek to compensate for dramatic falls in income.

Papers are getting smaller too. A week ago, it emerged that the total US demand for newsprint has fallen by 20% in a year. Naturally, the question haunting the British newspaper industry is whether we will soon have our own Tribune drama here. As with the States, all of our largest newspaper publishers have been carrying out a series of increasingly painful cuts due to plunging revenues.

The crisis has drawn rival publishers together as never before as they discuss together about ways to survive the coming year, which is generally expected to be worse than this one. But it is uncertain what practical steps they can take that would make much difference. Cutting costs, while prudent, could also lead to a diminution in the quality of the product. That might hit sales, reducing revenue still further.

It is something of a tightrope walk without a safety net. In the regions, there have been much more dramatic cuts, with several titles being closed or merged. Some of the owners also appear to be in peril, though it should be said that all of them are profitable at present. That does not seem to have influenced sceptical investors to be more positive.

Unsurprisingly, they are unwilling in the current climate to take unnecessary risks. I have a hunch that early next year at least one large British newspaper company will have to take the same drastic action as the Tribune Company. But which will be the first to go into administration?