The Zell Smell

Tribune Company's owner Sam Zell's ideas are so old and decaying that they are beginning to smell rancid. He's playing a hindsight blame game similar to another old, rich dinosaur, Rupert Murdoch, and to Internet guru Jeff Jarvis.

Recently Zell spoke with Condé Nast Portfolio editor-in-chief Joanne Lipman at Quadrangle Group's Foursquare media conference. The always outspoken Zell consistently puts in his foot in his mouth, and his interview with Lipman was no exception.

You remember Sam Zell, the real estate billionaire who bought the Tribune Company in what turned out to be the Brooklyn Bridge of media deals. For years radio stations, TV stations, and newspaper companies sold for escalating prices based on the greater fool theory. In April, 2007, when Zell bought the Tribune Company, he proved to be the greatest fool of all -- the mark the Tribune Company shareholders had been praying for.

The real estate mogul opens his mouth often but can't seem to find enough feet to fill the open gap. He has said that the newspaper business was "like any other business." He has said he said that he was skeptical of using staff reductions to increase profit and he told the Los Angeles Times, "I promise you I did not come here to be the captain of the Titanic." Of course, no sooner did he buy the paper than he started to fire people.

Here, among many other silly things, is what Zell said in the Lipman interview:

We did not have a single salesperson on commission. In other words, every single newspaper had a cadre of salaried salesman. Now, you know, I'm just a businessman, but I've never seen any kind of a sales force that was effective if, in fact, they had no incentives. Now, part of the reason is that historically, because it was a monopoly, newspapers heavily depended, and still do, on national advertising, where the salesman is an order taker. When the guy from Macy's calls and says, "We want six pages," you don't say to him, "Well, how about nine." You just say, "Yes, sir. Send me the check and we're on." But, among other things, what that led to was a massive abdication of potential advertisers within the local markets using zones, so that, in effect, the zone belongs to the salesman. Nobody else can go in there. Even if nobody has bought anything in that zone for 20 years, it's still his territory.

Recently Rupert Murdoch and Jeff Jarvis have blamed reporters and editors (journalists) for the demise of the newspaper industry, now Zell is blaming the salespeople. Who's next, circulation managers?

It's inconceivable to Zell that he was a fool to buy the Tribune Company in April of 2007 when anyone under the age of 45 (Zell was 66 at the time) could have told him the newspaper industry was toast because of the most disruptive of all technologies -- the Internet. He can't conceive of admitting, "I was a fool." He has to lash out and blame someone else -- common scapegoating behavior -- not himself.

What Zell is doing is relying on old business models and assumptions to run a media business, which he obviously knows nothing about, as evidenced by the above quote about salary-based newspaper salespeople and moronic, completely uninformed mumbo jumbo about "using zones." Similar to Murdoch and Jarvis, he's blaming horses for the decline in the sale of buggy whips instead of the invention of the automobile.

He's also using a dinosaur-like assumption about human nature -- that all salespeople (or anyone, for that matter) care about is money. He apparently believes money is the only motivator. Typical of this type of projection, he's saying, "Greed motivates me, so it must motivate everyone."

This assumption might have worked in the real estate business in the 1980s, but it doesn't today. Behavioral economists are now aware of the discovery of an altruism gene that sheds light on the nagging mystery of how generosity and cooperation evolved over the eons. Rather than the traditional economic thinking that people act only based on rational self-interest, behavioral economists realize that people will often behave and vote irrationally against their own self-interest and for the common, greater good.

Thus, president-elect Obama was supported by millions of people making over $250,000 a year who realized that their taxes were going to be raised. Why? Because Zell is wrong about human nature. Greed is not good. Because people can be altruistic and cooperative.

This is why Sam Zell and his attempted re-make of the Tribune Company newspapers and blaming of journalists and salespeople will fail. He doesn't understand his employees or his consumers. He thinks they are like he is -- dumb, self-interested, and greedy. And they're not.

Zell's ideas are so old and wrong that they smell.

Comments

[FoonTheElder]

"...and he told the Los Angeles Times, "I promise you I did not come here to be the captain of the Titanic."

Being the "Captain of The Titanic" meant something totally different at the beginning of the voyage when compared to the eventual end of the voyage. The "Captain of the Tribune" might end up with the same change of meaning.

[montemalone]

The Chicago Tribune should change it's name to the Macy's Tribute. Page after page of ads. An occasional business card sized story tucked in a corner.
Then there's this morning's full page open letter to the president elect to send his birth certificate and citizenship papers to some idiot so his forensics experts can examine their authenticity. Page 21.
I guess they have one guy still selling ads.

[CharlesWarner]

And that one guy selling ads name is Joe Macy.

[coribbean]

I just quit my job at Tribune precisely because I had no faith in what Zell and that other idiot, Abrams were doing to "repair" our industry.

What the newspaper industry really needs is to return to the pre-Zell assumptions that had kept it vibrant for 200 years: it's not supposed to be a money making business. It is a public service, and as such is also the only private industry mentioned in the U.S. Constitution to be singled out for special protections. Thirty years of Reaganomics created the idea that everything, including the newspaper business can be a profit center. Sometimes, there are exceptions to this assumption.

[DuPageDem]

The fact they were profitable is what kept newspapers going for centuries. The question is, how much? Robber barron owners squeezed 35% margins in the '80s and '90s, resulting in the shell newsrooms we see now. A few remaining family-owned flags are content with realistic 5-7% margins, which is why they're still in business. Consolidation and its associated debt have killed this industry -- as well as many others.

[srdon]

anyone who owns or has run a business will tell you there's nothing realistic about a 5-7% margin. margins that thin leave a company with nothing left to invest in new equipment, technology or even the ability to pay increases in salaries.

[CharlesWarner]

Hooray for you! You're right, the newspaper business is not like any other business; it's a public trust and can and will find a way to survive -- not as a "paper" but as a news service on the Web and on mobile phones.

[marshwood]

At face value, your blog seems on target except........ No one has ever wanted to sit across a table from Sam Zell without an army of lawyers, consultants, and accountants. It looks like you may be right for now, but I don't think anyone has ever made money taking the opposite side of Zell

Don't forget, the purchase price of the newspaper is bupkis against what he sold his real estate empire for at the top of the market.

[killmenow]

From what I can see, the newspapers are failing to recognize that there are no other outlets for in-depth coverage of local politics. My municipal government where I live gets no media coverage at all, so information is based on gossip and innuendo and one annoying blogger who attacks anything and everyone. Our communities need investigative reporting of the management of our local communities. The local weekly paper we have here contains articles masquerading as information when it's all advertising, so all of the articles are about some new business opening up or a new procedure available at the local eye clinic, and then there's a weekly editorial by the Mayor. Many newspapers are struggling because they are not supplying the news people need in a format that is not being provided otherwise. You gotta spend money to make money. Start investing in covering local politics so that communities can understand what's going on with their city councils and commissions.

[DuPageDem]

Bingo. Hacked staffs mean the community newspaper of record no longer exists. There's a huge opporunity for this kind of content on the Web. But the geniuses who own the industry are too busy circling the drain to notice.

[killmenow]

Too busy circling the drain to notice! Did you make that up? That's a good one!