Sam Zell’s Tribune Newspaper Group Files For Bankruptcy, American Media Bites Nails

Print media continues to look squarely down the barrel of a gun with the news that Tribune, the US publishing company that owns some of America’s most venerable newspaper titles like the LA Times and Chicago Tribune, filed for bankruptcy protection yesterday. The group listed $7.6bn of assets against $13bn in debt, with $1bn in interest payments every year. 

It’s the by-now-familiar pattern of woe that has descended upon Tribune – declining circulation (down 25% in the last decade), declining ad revenue (classified advertising has all but dried up), cost-cutting through job losses (1200 positions a decade ago down to 660, with 250 in the last 12 months, at the LA Times) leading to stale, irrelevant product. What’s uniquely scary about this case though, is that the employees of Tribune stand to collectively lose millions of dollars in share losses.

Sam Zell, evil-sounding Chicago real estate magnate, bought the Tribune group last year for $8.2bn, with the vast majority of that sum paid not in stable cash but highly leveraged stocks bought by Tribune employees. Zell only invested $315m of his own money; he now stands to make much of that back. As part of the deal, the bits he owns are protected as unsecured creditors, and will be compensated ahead of shareholders in any bankruptcy hearings.

The shareholders however stand to lose from both a falling share price and a takeover of the company that would see it fall out of their hands. All this after the sale got the previous CEO (who to his credit knew a sinking ship when he saw one) $17m in severance pay and $23m from stock sales. Boo, hiss, etc.

According to Barbara Kiviat over at Time’s blogs, the fallout for employees won’t actually be that bad though:

“In the new regime, workers only get a 3% match into a hybrid pension/401(k)-style plan, with 5%  going into the ESOP [employee stock ownership plan]. If shareholders get wiped out, the stock held in the ESOP won’t do anyone much good, but it’s not like that 5% bonus based on profitability was adding up to much over the past year, anyway. Importantly, employees didn’t convert their existing retirement funds to the ESOP when it started. And since the ESOP hasn’t been around all that long, I’m guessing employees hadn’t yet really come to count on it as a core piece of their savings.” 

Well, good. But now the euphemistic business of “restructuring” begins, which no doubt equals job losses across the board as another bunch of titles spectacularly fails to “get” the internet, which, incidentally, Zell couldn’t have made a difference to in a year if he’d tried. While a paper news service is iconic and arguably still socially essential, it’s going to take some ingenious financing to keep it viable during a digitised recession.

But the number one business model must be quality content from talented journalists. If you’ve read the LA Times recently, you’ll note that its blend of occasional expensive, expansive, brilliant features with a sea of tediously reported SoCal non-stories isn’t going to drag people away from their RSS feeds anytime soon.

Posted by Ben Beaumont-Thomas in Creative Economy | December 9, 2008 1:25PM |