Corporate finance news

On March 14 this email dispatch, from Tribune Corporation CEO John Madigan and President/COO Dennis FitzSimons, was delivered to executives at Tribune's many far-flung outposts: the Chicago Tribune, the corporation's namesake; the Los Angeles Times, New York Newsday, and eight other major daily newspapers; and twenty-three television stations, including outlets in eight of the nation's top ten markets. In Hartford, where I live, Tribune's empire extends over the Hartford Courant, the region's only major daily; Fox affiliate WTIC and, in nearby Waterbury, WB affiliate WTXX; and even the "alternative" weekly, the Hartford Advocate, for which I am a staff reporter. Thus is my hometown a test lab for the hyper-concentration of media ownership. As this memo indicates, Tribune's "value"--i.e., its stock price--is largely dependent on its extending such local monopolies, which in turn relies on its fostering and strengthening a ®ulatory administration in Washington.

Despite the "difficult economic climate" of the last two years, shares of Tribune have far outpaced the S&P 500, and the company's operating profit margin has stood at 16 percent. One reason: most daily newspapers are already monopolies, and thus can often increase ad rates even during downturns. When these monopolies expand--as did the Courant's in 1999 through its purchase of the Advocate, the first-ever sale of a major alternative weekly to its local metro daily--so can the advertising rates of their acquirees. Since 2000 the Advocate has increased rates by 9 percent. (The acquisition sparked an antitrust lawsuit by a local car dealership and a disaffected reader; federal officials nevertheless approved the sale in two weeks.) Meanwhile, both publications reduced the dimensions of their pages in 2001, even as the Courant unveiled an ad campaign commanding readers to "Make Room for More"--meaning more light features on sports and food.

As a result of its merger with Times Mirror in 2000, Tribune currently owns both a daily newspaper and a television station in three markets, including Hartford. Such cross-ownership is forbidden by a 1975 FCC rule, which would--assuming it remains in effect force Tribune to sell either WTIC or the Courant by 2006. In the meantime, Tribune can enjoy the spoils of "convergence." WTIC now regularly promotes the Courant's news stories on the air, saving the TV news crew the trouble of doing its own reporting. Occasionally cross-promotion runs the other direction: in May 2001, the Courant put on its front page a joint "investigation" with WTIC revealing that over 350 licensed professionals among the state's 3 million residents were former felons. Together the two outlets can lure corporate advertisers with mammoth, cross-platform ad packages. Such sales by the Courant's advertising staff are expected to double this year, to $2 million.

Tribune's "opposition" has been far from passive. In 1997, after being ordered by the FCC to divest itself of Florida TV station WBZL, Tribune unsuccessfully fought the agency in court, but later received a waiver that allowed it to continue owning both the station and the South Florida Sun-Sentinel indefinitely. Since 1998, the company has spent more than $320,000 lobbying Congress and has donated more than $138,000 to federal campaigns. Whether Tribune's interest in deregulation has shaped its editorial coverage remains unclear. The Courant's editorial board--which in recent years has taken liberal stances on everything from abortion to oil drilling in Alaska--endorsed George W. Bush in 2000, startling readers and inviting speculation that Tribune had influenced the decision. The paper's editorial-page editor denied the existence of "marching orders" but noted that for endorsements "the final decision is left to the owners of the newspaper."

About the FCC's upcoming "decision" on the rule, Madigan and FitzSimons manage here to maintain an admirable poker face. In fact, the rule's reversal is all but guaranteed: new FCC chairman Michael Powell, son of Secretary of State Colin, has openly referred to such regulation as "the oppressor" and to corporations as "our clients." Once the newspaper/broadcast rule has been removed or relaxed, the way will be clear for even greater convergence; a future visible, perhaps, in Tampa, where the Tampa Tribune and NBC affiliate WFLA (both owned by the southern conglomerate Media General) now operate out of the same building, their newsrooms partially merged. Greater concentration of ownership within markets will inevitably lead to less competition, fewer reporters, and less news; and will lead, nationwide, to more tremendous mergers, and hence to fewer media owners, none of them local and all of them corporate.

Indeed, Tribune already is the subject of "takeover speculation," a revelation that may undercut somewhat the memo's contribution to esprit de corps. Since the merger two years ago, a hiring freeze and "targeted" layoffs have reduced Tribune's workforce by nearly 10 percent. Even to the executives who received this memo, such speculation is frightening: as the industry continues to consolidate, fewer VPs of finance, ad-sales directors, and group publishers are required. For morale's sake they are encouraged to ignore this fact, and a related corollary: Madigan and FitzSimons have a compensation plan that, in the event Tribune is acquired, guarantees them each a severance package of no less than three years' pay plus twice their "targeted bonus." For Madigan that would likely amount to $9 million, not including stock options; for FitzSimons, $4 million.

Thus is this, at least for the memo's authors, an undeniable fact.

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