The Chicago Tribune and its sister newspapers step out on their own Tuesday as a stand-alone print-media company, facing the harsh realities of more job-cutting, a big debt load and the need for more than one silver bullet to survive.
The move comes a year after parent company Tribune Media Co. decided to keep the Tribune Tower and the more valuable radio and television business and to spin off the new Tribune Publishing Co., including the Chicago Tribune, the Los Angeles Times, the Baltimore Sun and the Hartford (Conn.) Courant.
Tribune is not alone. Other media conglomerates are spinning off their print publications to satisfy a Wall Street that sees them as decaying assets: Time Warner and News Corp. did so already, and last week, E.W. Scripps Co. and Journal Communications, owner of the Milwaukee Journal Sentinel, said they would merge and split with their newspapers.
For Tribune, “it’s very tough,” said Ken Doctor, a media analyst who writes on newsonomics,a word he created to reflect a new discipline of how money flows within the print and broadcast transition to digital media.
“The business model still has not turned around, and the print revenue decline is sapping the new initiatives,” he said Monday.
The new Tribune Publishing Co., which will trade under the ticker symbol TPUB on the New York Stock Exchange, must cut $60 million to $65 million this year.
That means cuts of “dozens to hundreds” of jobs, Doctor said, declining to speculate how many editorial jobs could be jettisoned. The biggest job cuts may come at the Chicago Tribune because it has been cut less than its sister publications, he said.
After seven years of cutting, “there is no easy cutting left,” Doctor said.
“It’s all a matter of time and money,” he said. “They have two to three years to figure it out. The rest of the [print] media industry faces the exact same challenges.”
Tribune Publishing Co. faces other hurdles: The spinoff means the company must pay rent to stay in the Tribune Tower and it is saddled with $350 million in debt, of which $275 million goes toward paying its former parent company a special dividend.
Some experts say cuts of the same magnitude as this year could continue next year, especially as some financial analysts predict ongoing declines in earnings and revenues.
A longer-term possibility is that the Tribune Publishing Co. is itself sliced up, Doctor said.
The newspapers in bigger metropolitan markets — such as the Chicago Tribune, the Los Angeles Times and the Baltimore Sun — could find new, separate buyers, he said.
“It’s hard to see a clear single buyer,” he said.
Doctor wrote on the Nieman Journalism Lab site Monday that Tribune Publishing’s three major owners out of bankruptcy — Angelo, Gordon & Co., JP Morgan Chase, and Oaktree Capital Management — cannot sell their shares on the public market for six months in order to maintain the tax-free nature of the spinoff. But that wouldn’t preclude potential buyers from scooping up the 60 percent that is being publicly traded, he noted.
Numbers tell the story: The Tribune publishing business’s operating revenues have declined for five of the past six years. The latest quarterly results showed operating revenues down 5 percent, and fiscal 2013 revenues dropped 6 percent from the year earlier.
Rich Hummel, director of research for Columbus, Ind.-based investment advisers KirrMarbach & Co., said of the figures: “That’s the crux of it. In the newspaper business, sales have been in decline. They’ve cut a lot of costs, but at some point, you need to grow your business. The key is what will management do with its free-cash flow? Do they buy another large newspaper or local smaller newspapers? Do they redeploy it in other media? What makes the business work is management’s ability to reinvest the cash flow to offset the revenue declines being experienced in the newspaper business.”
“My inclination would be to pay down some of the debt and try to find some businesses I’m skilled at that I think can grow,” Hummel said.
Will Tribune Publishing’s new management find those silver bullets?
CEO Jack Griffin, who was unavailable for an interview Monday, has said he intends to redesign the newspapers’ websites, make smarter use of digital media and buy some smaller newspapers next to existing metro markets to attract national advertisers.
Doctor said the company must build up the revenues it gets from readers, including from subscriptions and “membership” fees, and boost its so-called marketing services, in which the company collects monthly revenues from clients to produce sponsored content, videos and websites. He said the New York Times gets 62 percent of its revenues from readers, compared with 30 percent for the Tribune, and that the Tribune should build its share up to at least 50 percent.
Newspapers already are working with retailers such as grocers, clothing stores and furniture stores to “tell their stories” for a monthly fee by creating ads, videos and Web pages, he said.
“The stability going forward is the key point,” said Doctor, who values the new Tribune company’s equity at $350 million to $400 million, compared with CRT Capital Group’s estimate on July 17 of $635 million, or $25 a share. There are 25.4 million outstanding shares.
Analysts’ valuations vary widely, up to $1.14 billion, or $44.75 a share, according to published reports.
Will the spinoff succeed?
Thomas Lys, an accounting professor at Northwestern University’s Kellogg School of Management, said Monday, “That’s not clear at all.”