Everyone knows newspaper ad revenues are down dramatically. But this trend didn’t happen overnight. Ad revenues started slumping way back in 2001. At the time most management blamed the recession. Then lack of recovery was blamed on a jobless recession. By 2004 it was clear that advertisers were increasingly looking to targeted advertising like the internet and cable TV, moving away from traditional print. By 2005 movie studios were telling media companies they never intended to use traditional advertising like they previously had, auto companies were shifting large portions of advertising to the web, and real estate companies (not yet into the doldrums they face today) were shifting more and more advertising to the internet instead of full page newspaper ads for which there was no evidence of value.
Simultaneously, by 2000 eBay had become America’s permanent garage sale, making the need to buy an expensive classified ad far less necessary. Not to mention the impact Vehix.com and Cars.com was having on used auto sales. Meanwhile Craigslist.com was demonstrating its ability to find buyers for apartment rentals, autos and all kinds of things. It was clear that classified ads were now facing competition like never before seen – and that competition was going to intensifiy, not lessen.
Newspapers reacted all through the decade by slashing staff and other costs. At Chicago’s Tribune Corporation management could see it had purchases the LA Times at a market top, and by 2004 the company had already made several rounds of cuts at all its properties. Into this declining market Sam Zell decided to buy Tribune Corporation using a little of his money and a lot of debt (OPM – or other people’s money).
Now, after a slew of additional cuts, Zell has told employees "it was unfair to hold him to previous forecasts." (see quote in Chicago Tribune article here). If you can’t hold the Chairman and CEO responsible for over-optimistic decisions leading the company to the brink of disaster – and causing cost slashes which jeapardize the product while leaving no money to invest in the emerging on-line media market – who do you hold responsible?
Every management team has the requirement to do scenario development. All businesses have to be managed to succeed in future markets against future competitors. To meet these challenges, they have to develop scenarios that assess all market forces – both good and bad. It may be OK to hope for the best, but for goodness sake isn’t it up to management to plan for the worst? But Sam Zell allowed himself to listen to outgoing management, the Tribune company sellers, and use historical revenues as the basis of his projections. As he said "his team predicted a 5 percent to 7 percent decline in 2008 revenue." Rather than look at the forces affecting The Chicago Tribune and other newspapers (as noted earlier), he simply took the current results and said "surely things won’t be worse than a 5 – 7 percent decline". WRONG! As they like to say in ads for mutual funds "past results are no indication of future performance." Or, maybe you could at least have the savvy to not believe everything you’re told by the salesman.
Chicago is one of America’s largest and greatest city. Its citizens deserve great news reporting. But the Chicago Sun-Times has been gutted by a previous owner who embezzled billions out of the company leaving it on the brink of failure. And now its largest newspaper, The Chicago Tribune, is getting smaller and containing less news as Mr. Zell shows his "toughness" by laying off thousands of employees and slashing the news and editorial staff. This has led to some of the best editors in the country walking out the revolving door installed in HR due to the declining quality of the product. But, Mr. Zell claims that when he loaded the company up with more debt than it could repay he should not be held responsible.
There was another option available to Tribune Company and Mr. Zell. The internet started to affect how people searched for and acquired information by the mid-1990s. Tribune reacted by doing some things right, such as its investment in Cars.com, CareerBuilder.com and Food Channel which bred FoodNetwork.com. But it never attempted to transition news to the internet. What the company could have done by the time it sold to Mr. Zell was move its investments into building the worlds best on-line environment. Dow Jones, for example, invested in Marketwatch.com which was moving fast to displace The Wall Street Journal. And the foresighted News Corporation moved heavily into not only cable television, but internet acquisitions such as MySpace (and now Marketwatch via its acquistion of Dow Jones).
Mr. Zell should have recognized that Tribune Company was not a big building he could hope to fill with new tenants and milk for cash. Overly optimistic assumptions are the result of rose-colored glasses, which no leader should wear when planning for the future. Tribune Company was largely a group of outdated properties facing far faster growing and more successful new competitors – with a few gems that needed much more investment. He was buying old freestanding Sears stores just when the competition was throwing up shopping malls. He needed to move fast not to leverage this property up and out of cash, but instead to invest into internet opportunities with which he could migrate the news and other information base within Chicago Tribune and LA Times. Mr. Zell and his management team needed to figure out how to deliver reader eyes to web sites, and thereby serve up an enticing audience for the internet ad buyers. Not hope for a planned recovery of print media advertising in the face of the internet tsunami.
Who are the losers because of Mr. Zell’s optimistic forecasts that he now wants to say aren’t his responsibility? Chicagoans to start wtih. We’re wondering in Chicago if Wrigley field will be bought by someone and renamed XYZ park – something Chicagoans dread. We’re now expecting the landmark, and historically important, Tribune Tower to be converted into condos. And we’re getting less and less news every day as the paper gets smaller and smaller – with no good replacement for the information people seek. The same thing is happening in LA, where business leaders are frantic over the value destruction wrought at their local paper under Tribune Company control. And of course there’s all those great researchers, writers and editors who instead of transitioning to new media are simply out of work. And who knows what will happen to the bond holders who trusted Mr. Zell to be far better at utilizing scenario planning to keep Tribune Company a viable and successful company.
