Commentary

The Falling Knife Of Tribune

by Dave Morgan , Featured Contributor, December 11, 2008

As we all know, the Tribune Company filed for bankruptcy this week. With $13+ billion of debt, less than $9 billion of assets, mounting debt payments, revenues falling through the floor, a financially engineered capital structure that made even complex debt swaps and sub-prime derivatives look simple, and a novice ownership team that was still trying to learn the newspaper business, it was only a matter of time.

Many believe that the Tribune bankruptcy filing represents just the first domino in an inevitable series of sweeping announcements and events involving traditional media companies. I agree with that notion. I think that much more will follow, and follow quickly. Here is what I expect:

More newspaper bankruptcies. Very few in corporate America like to lead, particularly in the newspaper business. While other newspaper companies don't have the same extreme circumstances of Tribune, a number of others are also heavily laden with debt. Some of them will soon follow. Tribune's filing will give them cover, just as the Lehman Bros. bankruptcy made it much easier for the rest of the financial sector to admit how bad their balance sheets were and accept government intervention (yes, I understand that the inter-dependencies of the financial sector created additional pressures quite different than the newspaper industry).

Newspapers fall more out of favor with investors. Like it or not, the sins of Tribune will be foisted on the entire industry. Over the past year or two, virtually every major investment bank has ceased analyst coverage of the newspaper industry. Investors have moved on, and many newspaper companies are trading for little more than their real estate value. This is bad for newspapers that need more financial support, but good for those needing cover from short-term, profit-engrossed investors as they embark on transformational business model changes.

Advertisers follow investors. Many advertisers buy newspapers only grudgingly. They were always must-buys for local promotion and budgets were frequently kept in place by reasons of history and loyalty. But as we saw with classifieds, once offered a better and much lower cost alternative with Internet services like Craigslist and Google, advertisers will abandon ship. Unfortunately for newspapers, I think that the Tribune event and the pressure of this recession will finally break the inertia that has kept many local advertisers loyal. The notion that the local newspaper will always be there -- no matter what -- is no more.

Local broadcasters benefit. Local broadcast television and radio are in tough places too, but the cost structures of those businesses are much more variable (and shrinkable) than newspapers. These folks could benefit as local newspapers dramatically reduce their products and coverage to stay alive.

Many newspaper companies transform. While it may be too late for many, it's not too late for most. The Tribune bankruptcy will finally spur a number of newspaper companies (and other analog media companies as well) to take dramatic actions to insure their survival, in some form or another. We will see many publications drop daily frequency. We will see many go "online only." We will see disaggregation of vertical publishing business models (less ownership of everything from "trees to trucks") and more and more outsourcing of functions.

I think that we will see more transformational action out of the newspaper industry over the next year than we have seen over the past 15. Tribune's bankruptcy won't be the cause of it, but it will be a significant trigger. What do you think?

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8 comments about "The Falling Knife Of Tribune ".

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Richard Bagnall from Metrica, December 11, 2008 at 11:33 a.m.
Great post, and I think you're absolutely right. Metrica recently hosted a poll on our blog asking our readers what they thought the future of the media industry was. Although the poll is now closed, the findings are discussed here: http://www.metrica.net/MeasurementMatters/post/2008/12/03/Future-of-the-news-poll-The-results!.aspx
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Kip Cassino from Borrell Associates, December 11, 2008 at 11:46 a.m.

The big lesson from all of this is the failure of chain ownership to provide any multiplier to newspaper value. The chains called for their papers to provide one thing only: steadily climbing margins. So, even through the '90's (when things were relatively good), newspapers had already started cutting staff and capabilities. Now, when things are bad, there is very little left to chop -- except the muscle, bone and brains of the organization.
Other media should take note of this failure. Bigger is not necessarily better, unless the whole is bigger than the parts.
Newspapers have reinvented themselves twice before in the past 100 years, and they will be back. Ad revenues will begin climbing during the last part of '09, and increase steadily through 2010. They may never reach the heights enjoyed by papers in the last century, but they will remain a noticeably large part of the media landscape. They will be more locally owned, more locally focused, and more a part of the communities they serve.

Brian Siatkowski, December 11, 2008 at 12:03 p.m.

Dave,

We have recently had several advertisers come back to our classifieds section after using Craigslist because it still doesn't reach the number of jobseekers that we can reach in this market.

Might we consider the internet and "new media" as an addiational outlet like when t.v. was added to the mix as opposed to an end all for all other media outlets?

I think, with smart and targeted editorial and a cache of local events, the print media can withstand new media. The best thing a newspaper can do is to embrace this and stregthen their online portfolio's.

I agree. The daily newspaper business model no longer works. I think this is going to stregthen the nation's alternative weeklies (www.aan.org)

And the history that some of the newspaper industry has means nothing. True.

The onus falls on newspaper management to adapt to the new media and to find new ways to keep a connection with their readers.

Advertisers, like investors, jump on board with new media but look at the online immersion - there's hundreds of job boards and online marketplace billboards. Websites for real estate. Websites for automotive. But they are scattered and unorganized and the readership is low.

Credibility drops as the accessability increases. Too many people take advantage of the anonymity and abuse the sites. Readers are taking comfort in the trust that local papers have built.

Just because somebody reaches part of the market on Craigslist shouldn't mean they don't compliment that with other advertising. Times are tough but, up to this point, we still have a 1/4 million people picking up our the editorial and the advertsiing so I'm not jumping ship just yet but, then again, I've been told I'm partial.

Brian Siatkowski
Classified Advertising Manager
Orlando Weekly
(407) 377-0400 xt. 211
www.orlandoweekly.com
Orlando's largest weekly with 267,700 readers every Thursday in print and online

Cindy Mironovich from Family Publications, December 11, 2008 at 12:28 p.m.

Perfect timing. Just got my AdAge in the mail and the outside wrap advertisement is for the Tribune: "Now more than ever, trusted brands matter." ouch!

Dan Ortega from Hyperdyme Systems, December 11, 2008 at 12:32 p.m.

Frankly, considering that the press has been adamant about putting the most negative spin possible on every piece of economic news, and in the process making a bad situation far worse than it needs to be, this is total karma. Serves them right.

Larry Everling from Grady Rose Digital, December 11, 2008 at 1:20 p.m.

Dave - well put, as always. But you have to love the denial that still exists. "Any day now, we expect those dollars to flow back to print." No they won't. Stop treating digital like the perpetual add-on when the readership has overwhelmingly chosen to go digital. Instead, strengthen your digital products first because the macro elements in place can't salvage the print side. Newspapers and magazines saw this wave coming for 15 years and did little more than nothing to embrace changes in content consumption preferences. Only wholesale DNA overhauls will save them.

Warren Lee from WHL Consulting, December 11, 2008 at 3:11 p.m.

Very insightful as always Dave. Heck, if it were not for local news coverage, I would have done away with the SF Chronicle a long time ago. I think that it is interesting to note that the economic gloom and doom that news establishment has used to sell papers has started putting nails in their coffins. With the demise of the industry, think about how many trees will be saved.

So Dave the only problem that needs to be solved now is what medium are we going to be reading the Sunday paper on, in bed, with the wife?

Paula Lynn from Who Else Unlimited, December 11, 2008 at 6:14 p.m.

Dave, you hit a sensitive nerve being dead on target. This is said with much sorrow. There are so many examples and reasons I could give about newspaper management that did not and will not bow to restructure that volumes could be written. How many profitable in your face easy profit situations from which they walked away would be startling to many.

As for local, this is tough and it's all about money. Local papers pay bubkas. Major papers have eliminated local reporting and sections therefore eliminating affordable local ad opportunities. The papers greedily turned away when the revenues were on the rise.