• by Diane Mermigas , December 29, 2010

Peel back the layers of contentious bankruptcy, scandalous management and Sam Zell's 2007 leveraged buyout-gone-bad at the Tribune Co., and there is an intriguing story about media survival and the larger reinvention beginning to resonate within the beleaguered publishing industry.

That the Tribune Co. now refers to itself as a media and business services company that happens to publish a few newspapers underscores its shift from print to digital and from conventional news headlines to activist hyperlocal journalism, all of which positions it for a change in ownership in 2011. The new guard could include former Walt Disney CEO Michael Eisner, who has been buying the private media company's debt, perhaps to endear himself to angry creditors and be able to step in when Zell walks away post-bankruptcy. "I don't envision having any role going forward," says Zell. "I'll turn it over to whoever the creditors decide they want to run it."

Uncertainty crippled the company when all of Tribune Co.'s businesses, including the flagship Chicago Tribune, cut about 30 percent from their budgets and some 4,200 jobs companywide. But in the past 19 months, there have been no layoffs at the Chicago Tribune Media Group, which has increased staff 12 percent, adding nearly 60 jobs to its investigative units, and its universal digital-media-on-demand newsroom manages at least 25 percent of the feature news for the Tribune Co.'s seven other cash-flow positive newspapers. The 75 percent of the editing and production mechanics CTMG does for Tribune's Newport Daily News is the shape of things to come.

The Media on Demand module production already saves about $10 million in costs annually across the newspaper group. It's just one example of how ctmg is executing not just a survival but a growth plan that is making it less dependent on its core newspapers and traditional advertising revenues. About 40 percent of ctmg's overall revenues are generated by digital, non-print products and services. Although Chicago Tribune readership has declined, the media group's overall Chicago area audience reach has increased to nearly 70 percent from the implementation of more diversified digital products, such as breaking-news Web sites for sports and business, foreign-language papers like Spanish-speaking Vivelo Hoy and youth-skewing papers such as Redeye.

As a result, the CTMG will have cash flow in excess of $100 million this year. Tribune Co.'s consolidated operating cash flow is projected to be $617 million in 2010, up from $492 million last year, industry experts say. The $120 million consolidated increase is largely attributed to the CTMG reorganization.

"The fact that most people don't know how profitable we are, and about the growth that is occurring in our audience, and about our innovation and diversification at the company has been lost in some of the noise," CTMG publisher Tony Hunter says, referring to Tribune's high profile on bankruptcy and management-related scandal. "Diversification of our media group is why we're still thriving," Hunter says. CTMG's total operating cash flow will once again exceed $100 million this year as a result of developing new revenue streams rather than as a consequence of hefty cost reductions or gradual improvement in advertising. The Tribune and the ctmg will continue to move toward a 50/50 split of revenue from print and non-print sources that will increasingly involve live events featuring the company's editorial contributors, premium specialized content and mobile and online transactions.

Overall, the Tribune Co. is hammering out a sustainable new business model for imploding big city newspapers. The CTMG in particular - admittedly still stuck in "Zell hell" - is finding salvation in daily doses of roll-up-your-sleeves investigative journalism and community activism on steroids. The Dec. 9, 2008 "epiphany" was when the company filed for bankruptcy and the Chicago Tribune's front page was an exclusive about then-Illinois-governor Rod Blagojevich allegedly seeking to "sell" the U.S. Senate seat vacated by President-elect Barack Obama. Every day since, the Chicago Tribune's watchdog journalism has exposed the pay-to-play political culture of Illinois.

"A near-death experience can really motivate you," says Gerould Kern, whose 26-month tenure as Chicago Tribune editor ("but who's counting," he quips) has been devoted to calling out political corruption in a state where two governors are behind bars and a third is appealing his conviction. "The two Dec. 9 events galvanized us," Kern says.

Even as the Chicago Tribune's daily investigations have uncovered state college admission-, nursing home-, pension fund- and other government fraud, the company's reputation was "shamefully" damaged by the sexist, bawdy bad-boy behavior of recently resigned Zell-appointed CEO Randy Michaels, says Kern. Kern penned one of his now-famous open letters to readers about the scandal.

A four-man committee overseeing Tribune Co. includes Tony Hunter, Los Angeles Times publisher Eddy Hartenstein (former Directv ceo) and two Zell reorganization appointees. Potential CEO candidates besides Hunter and Hartenstein include Sirius XM Radio CEO Mel Karmazin, Comcast executive Jeff Shell, former CBS CFO Fred Reynolds, and former News Corp. president and COO Peter Chernin, according to press speculation.

Despite being a 19-year Tribune veteran, Kern has been a lightning rod for the public pain and angst that has scarred the company's besieged legions. Critics complain Kern stood up to Michaels' shenanigans only after the scathing New York Times story about the frat house reign that forced his departure. Kern also was caught in the crosshairs of the Chicago Headline Club's public outrage over the culture of offensiveness "that has marginalized women" under Michaels and other Zell cronies. Chicago Tribune staffers in particular say they resent the Times' story and the Headline Club's painting the entire company with the same broad brush.

"The episode with Randy Michaels took its toll ... all we want to do is the journalism we came here to create," says Kern, sounding like his stoic heroes (Churchill, Truman and FDR) whose shelved biographies flank his office desk along with a framed copy of the infamous Tribune front page that prematurely and erroneously declared "Dewey Defeats Truman."

The performance of the company as a whole, once you strip away the Randy Michaels saga, "has smartly improved its financial and future position," Kern now says. The worst time, according to Kern, came in April 2009, "when we had to stop the bleeding."

After spending the previous two years in a corporate Tribune job focused on creating new business models, Kern was tasked to "zero-base the newsroom" and reallocate resources over six weeks. He accomplished the reorganization in one day. "Analyzing the economics of the news business, I recognized that there was no way the traditional economic model would work. That meant we had to make do with fewer dollars and fewer people, and that we had to use them differently," he says. "No one wanted to cut jobs, but I knew we would be forced to, so it became an issue of what was the smartest way to do things and to refocus it with a new blueprint."

When Tribune market studies showed readers were emotionally unattached to the newspaper, regarding it more as "a utility company," Kern decided to rebrand the Tribune as a local crusader. "When you pick it up, you know where you are, you know who it is written for, and you know what the mission is," he says.

The Chicago Tribune Media Group's digital audience is approaching 2 million (of a more than 5 million audience base). Sequential improvement in print advertising revenues is eclipsed by 30 percent increases in digital revenues over last year. ctmg publisher Hunter says the biggest breakthrough has been "the supply-chain mentality to news and information" across the enterprise represented by the Chicago Tribune's Media On Demand news module production. The just-launched chicagoshopping.com foray into online transactions, thriving direct mail and the release of targeted verticals (sources say books and groceries are next up) underscore "there is not one big idea - but many ideas - to reinvent media," Hunter says. Perhaps the most unique approach the company is taking is revenue-generating live events. Tribune's massive Freedom Center production center in downtown Chicago is suddenly playing host to music concerts and Second City satiric news reviews, and has a $300,000 deal to stage a holiday off-Broadway production of Peter Pan.

CTMG also is luring advertisers into the social media world with its new digital agency, 435digital.com, offering self-service or supported online networking strategy and monitoring, Web site design and development, search engine optimization, and ad placement.

The Tribune Co. has been startled by its own digital catch-up. The Chicago Tribune brand continues to be a powerful draw with its new breakingsports.com, breakingbusiness.com and chicagonow.com blog network, each generating 15 to 17 million online page views that didn't exist 18 months ago. "Using our online media as a way to gather target audiences and funnel them toward more transactional channels like chicagoshopping.com and new mobile applications on devices like the iPad is a way to bring the cable television business model to print," Kern says.

Emerging from bankruptcy early in 2011 could put the Tribune Co. on a path to a change of ownership that keeps it private or takes it public again. There is an outside chance that Tribune assets could eventually be split and sold to appease contentious creditors who have ensnarled the company, some of its former key executives, and Sam Zell in lawsuits. Although the bankruptcy proceedings have cost more than $135 million so far, the presiding judge recently approved $40 million in bonuses to top company executives. Zell brought only $315 million in financing to his $8.5 billion acquisition of the Tribune Co., which ultimately smothered the company with $13 billion in debt.

"I am very optimistic about the future. In the midst of chaos and crisis, there is huge opportunity," says Kern, who keeps a poster of the guiding principles he created for the new Tribune posted in the glass panels of his office - facing outward to the digital newsroom.

"I still believe the best ideas win. Ultimately, owners come and owners go, but the institution - and what it does and what it stands for - is something that lasts," he says. "People in the journalism world believe in the right things, but they have not been willing to be entrepreneurial, to change, to experiment and try new things. Remaining in the preservation mode hurt all of us."

Postscript 

Changes have come swiftly, even in the time since this story first printed in OMMA: the Tribune Co. has signed on as a contributor to Reuters America, an AP rival news service launched by Thomson Reuters. Tribune will use the new service to market its ready-made news pages and modules which it produces for a number of other publishing companies and newspapers. The modules represent a substantial new revenue source for Tribune and a way for newspaper clients to minimize news production costs and reduce their dependence on AP.

In a move to fortify its subscrption-based entertainment and information database services, Tribune Media Services (TMS) has acquired CastTV, a leading provider in video search and indexing. These are the latest moves to make Tribune more profitable and fiscally independent of advertising despite its prolonged bankruptcy and contentious ownership of real estate magnate Sam Zell.

As December closed, long-time Zell crony Gerry Spector resigned as Tribune COO.

The move was anticipated in the aftermath of Randy Michaels' October resignation as Tribune CEO. The four-member executive committee that replaced Michaels last week issued an updated code of conduct to all employees banning the controversial "frat boy" behavior that prevailed since Zell's highly leveraged buyout of Tribune in December 2007.The "Tribune Co.'s frat house of doom" was singled out by Gawker of one of the top 10 media scandals of 2010.