‘A Newspaper Is A Business. It Used To Be A Fabulous Business That Made Extraordinary Margins. It’s Now A Very Good Business With Appropriate Margins’ – Sam Zell

Philip Stone October 24, 2007

Sam Zell, the Chicago billionaire who hopes to take Tribune private by the end of the year in his $8.2 billion deal, has been elaborating on what he thinks about the newspaper business, on the one hand saying the industry must accept a lot of the blame for allowing other media to pull ahead, but also how important it is that a private Tribune can make long-term decisions rather than having to worry about the conflicting short term goals of Wall Street.

“Just by being private, the culture (at Tribune) will change. We won’t be forced to make decisions that are 90 days in relevance,” he told publishers and editors this week at the Inland Press Association annual meeting in Chicago. But he also recognizes that changing culture within an organization doesn’t come easy, and he is ready for the “kicking and screaming”.

And he was very vocal in telling the newspaper executives from around the country that one reason most of them are in the financial mess they are in is because they were just too complacent. “We have to fight for our market share. The newspaper industry has stood there and watched while other media enterprises have taken our bacon and run with it. It’s too much complacency,” he chided.

“I think there was somebody in Rome called Nero, who was once fiddling while Rome burned. I wonder whether the newspaper industry as a whole has been standing there and letting this happen while Rome burns,” he asked.

He believes in particular that newspapers have been slow to take up cross market selling between their newspaper and Internet properties.

Zell admits that back in April when the Tribune board approved his bid that apart from the Chicago Tribune he really was not familiar with the other newspapers within the group.  The day after the deal was agreed he said Donald Trump sent him a copy of Newsday (New York), the first copy of the newspaper he had ever seen.

But in the six months since he has been studying the portfolio, and although he still insists to people in the business that he really doesn’t know much about newspapers, he says he has a few ideas in mind, but he can’t talk about them for legal reasons until the deal actually closes.

He said he has been hearing from Tribune staff, including one bureau chief who wrote, “We know we need to change – but we don’t know how.”

But while he says he doesn’t know much about newspapers, the fact is that he has a considerable experience running a large media enterprise. When people think about Sam Zell they think of the billionaire property magnate who sold out high just a few months before the subprime credit crisis hit, but what not so many people remember is that Zell already does have experience building and running a very successful media business.

He and partners in 1993 paid $70 million for Jacor Communications, a radio business, and they then went on a spending spree turning it into the third largest US radio group with 230 stations in 55 markets and one TV station, plus the Premiere Radio Networks that syndicated leading radio shows with such hosts as Rush Limbaugh and Dr. Laura Schlessinger.  Zell, with his 26% holding via his Zell/Chillmark Fund, was the company’s chairman.

Just six years later he sold the company to Clear Channel Communications for $2.8 billion in Clear Channel shares.

So it is not that he doesn’t have successful experience running a media company, but not newspapers.

Zell says he is a long-term optimist for the newspaper business. He sees each of the Tribune newspapers and broadcast stations as individual entities, each an opportunity for success.

“When all is said and done, what must be remembered is a newspaper is a business. It used to be a fabulous business that made extraordinary margins. It is now a very good business with appropriate margins,” he says.

His goal is simple. “I want to do whatever I can to make Tribune and its various entities the powerful and dominant players they once were.”

And while he won’t speak specifics it’s pretty obvious digital figures into his plans.

He owns a house in Malibu where fires are raging.  He learned his house was okay, phoned the wife to tell her, but she told him she knew that information already by reading the web site of the Los Angeles Times.

“Now that’s what the newspaper business should be all about,” he said. “That’s making a difference. That’s providing unique local information that’s only available by virtue of who or what we are.”

There is no guarantee the Zell deal will go through. Waivers are needed to allow cross-ownership of properties in the same markets – for example, ownership of newspapers and television stations in Los Angeles and Chicago -- and whereas it was thought that wouldn’t be too difficult a problem it is now getting caught up in Presidential politics with democrats urging delays. If the waivers don’t come through by the end of the year the deal could fall through.

And there are still stories circulating Chicago that for financial reasons the deal still may not go through at $34 a share, although management is adamant it will. Tribune’s shares actually closed up 4.4% Tuesday at $27.55 because of an analyst upgrade saying the price was so low that a killing could be made if the deal does go through at $34. Even with Tuesday’s jump the shares are still 19% below the offer price, signaling uncertainty the deal will complete.

Although the deal is valued at $8.2 billion based on huge borrowings, Zell himself is only putting $315 million into the deal upfront.  For that he will have warrants that allow him to buy 40% of the company for between $500 to $600 million, with an employee stock ownership plan and Tribune management controlling the rest.

ftm Follow Up & Comments

Post your comment here