New LA Times Publisher Upbeat, But Watch Out
Meeting with Los Angeles Times employees, Hartenstein touted his local roots, asserting that "to be publisher here in L.A., you need a local, and I am a local." He implicitly compared himself with previous publishers who came from other parts of the country. He also noted his relationships with local advertisers and content owners, including KTLA-TV Channel 5, another Tribune property.
But the newspaper's problems are not local in origin. Virtually every big metro daily is seeing revenues decline as advertisers shift their print budgets to the Internet. Like Tribune's previous management, Zell's Chicago-based team seems ambivalent about the Los Angeles Times, at once prizing it as one of the company's biggest revenue producers and wringing their hands over its high costs and declining profitability.
In Tribune's first-quarter conference call with creditors, Chief Operating Officer Randy Michaels acidly observed that "the average journalist in Los Angeles does about 51 pages a year, but the average journalist in Hartford or Baltimore does over 300 pages a year. And then, when you get the individuals, you will find out that you can eliminate a fair number of people while eliminating not very much content."
Zell faces the daunting task of paying down Tribune's $7.6 billion debt on schedule, as economic conditions deteriorate and newspaper revenues decline far more rapidly than he anticipated. In March, Zell told the Baltimore Sun's newsroom that prior to the buyout, his team projected that revenue would be off 3% to 4% at the company's newspapers in 2008. In fact, revenues fell 8% in the first quarter and 6% in the second. These declines have squeezed the company's operating cash flow, increasing the likelihood that it will default under the terms of debt covenants that require it to maintain a 9-to-1 ratio between debt and cash flow.
Tribune is also running out of cash: Having raised $650 million with the sale of Newsday to Cablevision, Zell was forced to tap a $300 million trade receivables debt securitization facility--essentially an emergency line of credit--to make a scheduled payment of $807 million in June. Another $593 million payment is due next year.
In short, Tribune will remain under tremendous financial pressure for at least the next year and a half; it will scarcely be able to avoid more drastic measures at one of its biggest properties. That basically means it has two options: cutting more Los Angeles Times employees, or selling the newspaper.
Regarding the first option, Zell may have promised Hartenstein he would not have to make further personnel cuts; his brief history as Tribune boss suggests that such promises should be taken with a grain of salt. Speaking to the Chicago Tribune newsroom in April 2007, Zell made comments that were widely interpreted as a promise not to make job cuts. Zell simply sidestepped the issue, saying it wasn't his responsibility to order layoffs: "My focus is not to look at this thing ... I don't know anything about job cuts. I don't, and I think that's all in the realm of the CEO."
In June, Tribune instituted a 50-50 policy dictating that its newspapers' print editions will consist of no less than half advertising by volume; with ad linage shrinking, this policy cuts printing and distribution and also allows it to shed reporters. It completed the first round of "right-sizing," introducing smaller print editions for a number of newspapers while cutting a hundred positions across the company.
But if advertising linage continues to contract, the 50-50 policy calls for more cuts in editorial content--and therefore, it would seem, newsroom staff as well. Between the first half of 2007 and the first half of 2008, the company's total advertising inches fell 14% to 13,764. That compounds an 11% decline between first half 2006-2007.
In regard to a possible sale of the Los Angeles Times, newspaper analyst Ken Doctor said that Zell will remain focused on selling the Chicago Cubs, which should take care of debt issues in the short term. Looking ahead, however, Doctor said that Hartenstein's appointment could well be a preamble to selling the paper. "Making the Los Angeles Times a different kind of property--one that thinks differently, tries out new products, puts together new distribution partnerships--something the new publisher brings in his experience--all makes it a more desirable property, if and when a buyer emerges."
Doctor also pointed out that the LA Times building sits atop valuable property and may be sold separately from the newspaper itself. Although the residential real estate market in Southern California has fallen sharply, the commercial market has not suffered as much. Zell put the LA Times building up for sale in June, along with the Tribune Co.'s historic headquarters in Chicago.