Prepare to be Mushroomed

What a Corporate Buyout Can Mean to You “Watching Celebrities Self-Destruct” was an account of the gratuitous racist-sexist slur of the Rutgers championship women’s basketball team by morning “shock-jock” Don Imus. Seven out

April 2007 By Denny Hatch

singlepage

The massive leveraged buyout of the Tribune Company by Chicago real estate magnate Sam Zell—the 65th richest man in America according to Forbes, with a personal fortune of $4.5 billion—is in the beginning stages. My bet is that it will result in a tsunami of layoffs, buyouts, firings, and wrecked careers and lives.

According to the Jan. 25, 2007 Newstrack, the media industry slashed 17,809 jobs in 2006, an 88% increase over the 9,452 jobs lost the prior year.

Last year, we watched The Philadelphia Inquirer and Daily News fall into the hands of a local consortium of investors that has neither newspaper experience nor deep pockets. The carnage has not been pretty.

I am reminded of a long, liquid lunch that I had many years ago with my first book publisher, a taciturn, rotund Vermonter named Paul S. Eriksson. He was the proprietor of a tiny business on West 58th Street with just two employees—himself and his wife, Peggy.

At one point I asked, “Paul, why don’t you get bought?”

“Huh? What do you mean?”

“RCA just bought Random House and CBS has acquired Holt. Why don’t you find a nice rich investor to buy you, pump some financial juice into your operation, so that you can publish more books and become a real player?”

Paul thought a moment. “Nah,” he said. “You know what happens to the CEO of a small company that gets bought? They mushroom the guy.”

“What do you mean ‘mushroom the guy?’”

“What do you think it means?”

“I don’t know. Something like this?” I drew a mushroom shape in the air with my two forefingers.

“No,” he said. “When you mushroom a guy, you keep him in the dark for a long time, you feed him a lot shit and then you can him.”

The Newspaper Business
I am a dinosaur. For this e-zine, over pre-dawn coffee, I read three newspapers a day in hard copy that are delivered to me daily—The New York Times, The Wall Street Journal and The Philadelphia Inquirer. I make notes of the stories I want to download and then hit the computer and capture them.

The cost of these three papers in hard copy is in excess of $800 a year.

I then hit 15 other Web sites around the country and in the United Kingdom, vacuuming up, filing and cross-indexing stories for possible future use. With the exception of The Financial Times and the extra online fee charged by The Wall Street Journal, these vast treasure troves of information are free—paid for by advertisers.

Last week, the Newspaper Association of America reported a 13.7% increase in total newspaper audience for adults 25-to-34—all of them online readers. In other words, young people—who grew up with computers and are in debt up to their eyeballs paying off college loans and credit cards—choose to get their news online for free and pay cash at Starbucks.

Not only are readers defecting to the Internet, but also many advertisers are finding it a sexier medium. One reason is that they can see the results of their investments in real time—measured by eyeballs, click-throughs or transactions. Everyone loves instant gratification.

Meanwhile, ink, paper, printing and delivery of newspapers in hard copy is horrendously expensive, especially with circulation declining, which, in turn, raises costs because the economies of scale decline.

A Look at The Philadelphia Inquirer—Known in the Business as “Inky”
Last year, a local syndicate of investors—headed by an ambitious PR flack named Brian Tierney—bought The Philadelphia Inquirer and Daily News from Knight Ridder for $562 million.

When the deal was consummated, Tierney hired the Philadelphia Eagles cheerleaders and gave out hoagies in celebration.

In a May 28, 2006 editorial titled, “We’ll help this experiment succeed,” Inky Editor in Chief Amanda Bennett wrote:

The great experiment begins.

Can local owners—influential, successful, deeply engaged in their community—harness their passion and expertise to help their hometown newspaper thrive, while resisting the temptation to misuse the press to serve personal agendas?

I believe I speak for just about every one of my colleagues in saying that we will do everything we can to help this paper prosper.

Six months later, Bennett was gone.

Canned.

On July 30, 2006, Joe Natoli, publisher of the Inquirer, quit to become CFO for the University of Miami.

“We don’t need a Jerusalem bureau,” Tierney told Howard Kurtz of The Washington Post. “We need more people in the South Jersey bureau.” He told Kurtz, “I don’t see us sending 24 people to do me-too coverage of Katrina. I can get what’s going on in Iraq online. What I can’t get is what’s happening in this region.”

At its peak, the Inquirer—which garnered 18 Pulitzer Prizes between 1975 and 1997—had a staff of 500 with 15 foreign and domestic bureaus and a healthy circulation of 470,000.

At the beginning of the year, it had one foreign bureau, 100 fewer employees and 140,000 fewer daily circulation. Seventy-one employees—roughly 17% of the staff—were laid off.

Canned.

Brian Tierney blamed it on a sudden, unexpected drop in advertising. Whereupon less than a week later, 35 advertising positions—including 16 part-timers—were eliminated.

Canned.

Gail Shister’s Lament
One of Inky’s marquee columnists is Gail Shister, who for 28 years covered television and had a national audience—in and out of the broadcasting business. Under the new management, she was stripped of her column and reassigned. This past Monday, Shister wrote:

We no longer have the bodies to cover every beat as we did in the past.

To this reporter, it means The Inquirer doesn’t have the luxury of a daily, staff-written column about TV. Other areas are hurting, too, and their need for reporters is even more dire.

Think of it as a media ER. All emergencies are important, but they must be triaged by immediacy and threat to life. Eventually, everyone is treated, but not always in a timely fashion or by the physician of her choice.

Finally, the company froze pensions and will not make future contributions to employee 401(k) plans.

In the course of the changeover, Brian Tierney said two truly astonishing things:

* “It was a really poorly run company in a really challenging business. I just did what I had to do. I’m trying to save a company.”

* “We don’t know enough about our customers,” he told Brian Steinberg of The Wall Street Journal. “We are just beginning the process of learning more about who our customers are, why they enjoy our product and what we can do to expand that customer base.”

Quite simply, a guy with shallow pockets and no experience in an industry undergoing upheaval who discovers that the company he just bought was “really poorly run” and doesn’t “know enough about [its] customers” is on a collision course with catastrophe.

The Tribune Buyout
The Inquirer deal involved only two papers. Chicago real estate mogul Sam Zell—another William Randolph Hearst wannabe with no media experience—is buying 16 papers including the flagship Chicago Tribune, The Los Angeles Times, New York Newsday and The Baltimore Sun, along with 24 television stations and two radio stations and several other properties.

In 2000, the Tribune Company bought Times Mirror and its flagship paper, The Los Angeles Times. In 2002, the new owners started a serious cost-cutting campaign.

In 2005, The Chicago Tribune slashed close to 100 jobs, and The Los Angeles Times axed 85 newsroom employees.

Canned.

In addition, three of the Tribune’s major papers have been embroiled in major circulation and editorial convulsions that have seriously hurt their reputations and employee morale.

* Newsday. In March 2006, former Circulation VP Robert Brennan admitted to circulation fraud—inflating the paper’s circulation by up to 98,000 copies a day between 2002 and 2004. Brennan also pleaded guilty to mail fraud and income-tax evasion for a $30,000 kickback from a subcontractor. In addition, the Newsday editorial department is in turmoil. In December 2006, three dozen of the news staff sent a blistering letter to Tribune Chairman Dennis FitzSimmons:

In the newsroom and bureaus of Newsday, we watch with growing dismay the Tribune Company’s stewardship of our newspaper. In its six years of ownership, Tribune has significantly damaged Newsday as an instrument of public information and accountability in Long Island and New York City.

In its pursuit of maximum profits, Tribune has cut Newsday’s news staff by 33 percent and slashed our Washington bureau. Amid wars and crises abroad, it has ordered our foreign bureaus closed. It has halved our staffs covering national news, and health and science. It has forced us to curtail coverage even of New York City and Long Island and has made other cuts that fail our readers.

Our reduced staff is spread too thin; we’re missing stories we should have gotten. Too often, when we see news important to our readers, we are told there is no space for it.

Tribune is throttling Newsday’s individuality by forcing us to replace much of our own journalism with wire copy, by dictating the layout of our Web site and insisting that we promote our local news coverage at the expense of all else. Newsday doesn’t need Tribune to tell us to cover Long Island—local news has always been this paper’s core. But we deplore the parochial idea that readers are interested only in what happens within their zip codes. New Yorkers understand all too well that events in Hamburg, Beijing or Beirut affect us at home.

This hardly squares with FitzSimmons’s September 2006 e-mail to Tribune employees which said: “Whether it’s The Los Angeles Times or any other Tribune newspaper, our commitment to great journalism will not [waver].”

* The Los Angeles Times and The Chicago Tribune. In July 2005, LA Times Editor John Carroll resigned and was replaced by Managing Editor Dean Baquet.

“My goal is simple,” Baquet said. “I want The Los Angeles Times to be the best paper in America.”

In May 2006, LA Times Publisher Jeff Johnson was ordered by Tribune HQ in Chicago to cut $45 million from his 2007 budget, an amount equal to the prior year’s cuts and roughly twice what The Chicago Tribune was told to slash. Johnson and Dean Baquet publicly announced that they flatly opposed the budget cuts.

Later that year, Jeff Johnson was fired.

Canned.

So was Dean Baquet.

Canned.

With this kind of infighting in the three flagship papers, one can only imagine the turmoil in the rest of the sprawling organization that Sam Zell acquired.

My prediction: Expect a bloodbath.