The Tribune Company bankruptcy is a sad thing, but it cannot be said to be a surprising thing. Sam Zell’s purchase of the company was a heavily leveraged deal — that means he borrowed a ton of money to pay the previous owners/shareholders and figured he’d pay off the debt with the profits of the newspapers. Only now those profits are tanking (although in fact we’re told that every single Tribune paper is still in the black for the moment) and the credit markets, as you may have heard, are suddenly much less, er, forgiving.
Of course, as some are speculating, Zell may have figured all along he’d end up needing to take this route, and he may not view it with horror. One of the things he can presumably do in Chapter 11 is renegotiate all the painful labor deals that newspaper owners have always chafed at. Bankruptcy can deal you a “get out of contracts free” card.
Still, it’s a mess, and one that can’t really be laid at the feet of the new-media iceberg that the entire newspaper industry is cruising towards, except in the broadest of ways. If you trace the lines of responsibility for this train-wreck you find they all point back to that sacred cow of the newspaper industry — the Caretaker Family.
In the newspaper biz there is a lot of mythology around family ownership. The idea is that the proprietors’ descendants understand the sacred trust that is journalism and will serve as a strong protection for both newspaper employees and the public that depends on quality news sources.
The problem is that these families are just normal human beings who like to earn money. Over the past decades many or most of them decided — accurately, at least in the short term — that they could make a lot more money by selling shares to the public than by running their firms as private companies. Many newspapers created a dual ownership structure, so that even though the public was buying shares, the families retained effective control of the companies through preferred stock with special voting privileges. That’s how, for instance, the families that owned both the New York Times and the Wall Street Journal set up their stock structures. But control turns out to be effective only when the money’s rolling in. When it slows or stops, the family members get restive.
The Bancrofts, who owned the Journal, sold out to Rupert Murdoch with barely a whimper the moment it looked like the Journal was no longer going to line their pockets. They proved faithless protectors of tradition. Of course, sometimes a family will make a smart (or lucky) move. Consider that, as I understand it, the Washington Post owes its relative financial stability to its purchase, in 1984, of the Stanley Kaplan SAT testing outfit, which — unlike the reporting of world and national news — turns out to be a pretty lucrative line of business.
In the case of Tribune, I don’t know how much of the company the family still owned by the time Zell acquired it. But if they weren’t directly responsible for selling to him, then they had bailed some time before. Either way, they hardly protected anything.
I took a look at the company’s proud corporate history here and found an account of an upward march of progress and profits under the wise stewardship of various McCormicks and Medills. Then in 1983 the company goes public and begins aggressive expansion, acquiring a bunch more broadcast outlets and boosting revenue to new heights. In 2000 Tribune acquires Times Mirror (another newspaper empire abandoned by another clan, the Chandlers). By 2002 Tribune has become a true Goliath, with more than $5 billion in revenue. Only here, strangely, the history goes nearly blank. A bland “Tribune returned to private ownership in December of 2007″ is the only mention of the firm’s recent troubles; its new private owner is not even named. Where were those McCormicks and Medills now?
Newspapers, as a business, are simply a huge mess today. For a long time they blamed TV, and now of course they blame the Web. Let us also not forget to blame the families.
I worked for an exemplar of those families myself once, and saw the good and the bad. Our publisher at the old Examiner was Will Hearst, scion of the Hearst clan. He was responsible for a wavering but heartfelt effort to shake some life into the old paper in the 1980s, when I joined it. But after a decade he’d had enough, and moved on (to Silicon Valley). Once he left, I knew it was time to jump ship too. The iceberg was visible enough then. So was the evidence that families were never going to save the newspaper industry.
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