All's Well That Ends Zell

Los Angeles Times owner Sam Zell didn't file for bankruptcy because the newspaper business is being battered by the recession or by online competition. He went into Chapter 11 because of the irresponsible and boneheaded deal he made to take over Tribune Co. in the first place.

Zell's own financial chickens are coming home to roost. Unfortunately, the people who are paying the price for his recklessness are the citizens of Los Angeles and the staff of their premier paper.

Zell only put up $315 million of his own money to buy the Times' owner, Tribune Co. The rest -- $8.2 billion -- was highly leveraged debt; the deal, which nearly tripled Tribune's debt load, turned on a fancy maneuver creating an Employee Stock Ownership Plan executed behind the backs of Tribune's actual employees. The sorry result: a debt service of $1 billion a year.

Even if advertising were not dropping, even if subscriptions were not falling, Zell would have had no chance to cover his monthly nut without the waves of cutbacks he ordered, which have devastated Times morale and decimated its content. And even with those cutbacks, the bankruptcy is now proof of how misbegotten his strategy was in the first place.

The economic meltdown the nation is now living through offers plenty of evidence of how the American people are at the mercy of casino gamblers posing as capitalism's finest. The billionaires who got us into this mess turn out to be not heroic entrepreneurs contributing to the country's prosperity, but unaccountable buccaneers who could care less about jobs and communities. Sam Zell's megalomania isn't unique; it's just our misfortune that Los Angeles' civic life has to bear the consequences of his financial swagger.

So what's next? The prospect of Zell's dumping Tribune assets at fire-sale prices has renewed speculation about the Los Angeles Times being returned to local ownership. As a strictly business proposition, it's hard to imagine a price low enough to make sense to a buyer, but maybe the bankruptcy will force Zell's hand. It's also hard to imagine a new owner taking over the Times, at any price, with illusions about acquiring a financial gusher. The paper has been profitable, but buying any newspaper at this moment in the history of journalism would be more of a statement about what a great city needs than a bet on making an easy buck.

Maybe David Geffen or Eli Broad or Dick Riordan still thinks that the Los Angeles Times brand is too good not to own at the right price (all three made overtures to buy the paper before Zell sealed his deal). But chances are, there is no business plan for the future of the Times that makes sense unless serving the public interest is considered to be as much a reward as a revenue stream. That's why it's tempting to think of what an unconventional ownership model would look like -- reorganizing the Times as a nonprofit entity, for example, either free-standing, or perhaps as part of another nonprofit, like a university or foundation.

It's also worth imagining Los Angeles without a newspaper of the Times' journalistic resources.

Maybe the notion of delivering a product made of dead trees to people's driveways early each morning is obsolete in an era when news is made and reported around the clock, and when digital delivery is cheap and immediate. Maybe the available sources of news are so abundant that the idea of a single authoritative source is hopelessly archaic. Maybe the fractionated megalopolis that Los Angeles has become makes it absurd to think that one paper can meet the needs of so many geographically far-flung and ethnically diverse subcommunities.

But if the Times doesn't make the effort to look for a common culture and to create a shared public space to fight about what a common culture is, what will?

Blogs and Web sites are swell, but they're silos, not connective tissue. Local television news believes that thoughtful coverage of local politics and public affairs is ratings poison. Community and special-interest and alternative papers perform a crucial service, but size matters; a million people sharing the same information every day makes a deeper impact than 10 readerships of a 100,000 once a week, no matter how ecumenical the content. Budgets matter, too: investigative journalism takes time and dough that smaller outlets, and local public television, don't have. The Times may be an imperfect mirror of what Los Angeles is, but without it, it's hard to know where the region goes to see itself whole, or even why people will think that's an effort worth making.

Sam Zell didn't cause the crisis in modern journalism, but he did turn a superb and profitable institution into a basket case. The people who work there, and the people who read it, deserve way better. Even the people who don't read the Times deserve a city that never stops searching for its soul. Sam Zell doesn't get that a great newspaper can give its community a public space to do that. Maybe it's time for him to sell it to someone who does.

(This is my column from The Jewish Journal of Greater Los Angeles, where you can e-mail me if you'd like.)

Follow Marty Kaplan on Twitter: www.twitter.com/martykaplan

Comments

[daddysboy]

This would be one major reason why common sense is no longer common anymore. American cities have been losing their sense of community for years. I wonder whether dying newspapers is a reflection of this, or newspapers being run into the ground is causing it. Nevertheless, the writing is on the wall for print and has been for a while whether anyone sees it's merits or not, as you mention, there are far too many easier, less expensive ways to communicate these days. Digital communication is only going to become more all-encompassing, not less. "But chances are, there is no business plan for the future of the Times that makes sense unless serving the public interest is considered to be as much a reward as a revenue stream." says everything I have ever been and am about really and that is the realization that greatness is less profitable monetarily, but the fringe benefits are well worth the sacrifice. I just hope that many more individual Americans come to this conclusion on the heels of so much destructive selfishness in our country.

[larry278]

Perhaps off thread: Mr Zell may have to sell the LAT after he's eviscerated it. What about other Trib papers. I live in a 1 paper town in the rust belt. The local blute, [ALLENTOWN] MORNING CALL, is as exciting as a cold mashed potato sandwitch. The MORNING CALL has property on the edge of Allentown's central business district. Before the meltdown the MC's A'twn property might have been sold for a profit. Now, who knows? Will Zell fold the MC, try selling it or keep publishing it? I have never been a regular MC reader. Saying that the MC is dull & biased would be a gross understatement. A'twn is near Easton, another dead rust belt town, & has a daily paper which is worse than the MC; I think that it's now owned by Newhouse, I think. If the 2 blutes merged, A'twn & Easton would share 1 beyond lousy blute. I wonder if somebody would buy the MC & merge it with the Easton blute & keep running their paper till the older, paper reading, public dies off? Whither the Tribs blutes in 1 paper towns?
Does anybody have a guess?

[PlanetKansas]

Good Piece Marty, which brings to mind the following thoughts...

With the inevitable decline of newspapers, what will become of the Pulitzer Prize and Journalism Schools?

Is the LA Times real estate and assets worth more than the business itself?

Being free of editors liberates a blogger to write their minds, but does it also frees them from fact checking, logic, principals and ethics. Then again, editors weren't a lot of help keeping us from invading Iraq.

[daddysboy]

I disagree, this frees the writers from FORCED fact checking, logic, principals and ethics. There is no reason that a responsible person can't continue to have values and write with those values in mind. Many editors are themselves great writers.

[riano]

Back in June when Zell released the memo about the potential sale of both Tribune Tower in Chicago and Times Mirror Square (I don't care how hard they try to scrub the "Times Mirror" from the granite, it will never be anything else) - or as he would put it, how to use the building for better revenue generation, the general feeling around Los Angeles was that the building wasn't worth much at all. Despite spending millions for seismic retrofitting, the building requires more work and apparently isn't suitable for mixed-use or conversion to condos. In one story at the time it was described as "virtually worthless" http://latimesblogs.latimes.com/lanow/2008/06/downtown-guru-c.html
Actually Tribune's attempt to take the "Times Mirror" logo off everything serves as a good metaphor. Very soon after they took over, they took down the Times Mirror name and logo from the stone side of the building next to the corporate entrance. They never replaced it with anything but all these years you can still see the clear imprint of what was there before.

[riano]

I blame them both. Also the members of the Chandler family who after generations of creating wealth in and from the extended Los Angeles community, decided getting out with a quick buck was more important that serving the community that had enriched them and honoring their family name with continued leadership of the newspaper that one Chandler, Otis, made great.. Tribune bought at the top and suffered dearly for it. I don't blame anyone who worked for Tribune then to be really mad about it. It diluted the value of their company and it never recovered. Sam Zell has blame, too. He's driving great businesses into the ground for a sake of a buck with little risk to his own investment. The investment banks who made millions blessing the deal - getting millions in fees but knowing the deal was so stinko they wouldn't invest in it.
No matter who lugs around the biggest chunk of blame, I agree with Mr Kaplan that we will all be the worse for it if lose the news collection, reporting and central forum for opinion that newspapers provide.

[EMESSYS]

A few random ideas for the survival of newspapers in these difficult times;

The Food Section should actually be edible

The Real Estate Section should fold up into a portable shelter (likewise for the Home Section)

And the papers should point out the obvious fact that they can be burned for warmth (try that with your computer).

[LASkeptic]

"...creating an Employee Stock Ownership Plan executed behind the backs of Tribune's actual employees. The sorry result: a debt service of $1 billion a year."

Absurd. I, like many Tribune employees, was a participant in an ESOP program long before Sam Zell came along. We were informed what was going to happen in taking the company private, and were paid for our shares held in the ESOP at the well published purchase price. Tribune's employees aren't stupid.

The blame for Tribune's mess goes back to the ill fated purchase of Times Mirror Company, with it's LA Times already in circulation decline, in 2000. It overpaid for the assets, gave board seats to a querulous Chandler Family Trust, and was surprised to find it had assumed a huge tax liability.

Sam Zell isn't the enemy. Blame John Madigan instead.

[Lemeritus]

Interesting that you refer to yourself as a Tribune employee, not as an LAT alumni. Just sayin'.

I think you should revisit how the ESOP was used to leverage Zell's "purchase" of Tribune (and maybe catch up on a couple Steve Lopez columns). This was not the old Times-Mirror ESOP, but a truly inventive new device.

[boing007]

Maybe David Geffen or Eli Broad or Dick Riordan still thinks that the Los Angeles Times brand is too good not to own at the right price (all three made overtures to buy the paper before Zell sealed his deal). But chances are, there is no business plan for the future of the Times that makes sense unless serving the public interest is considered to be as much a reward as a revenue stream. That's why it's tempting to think of what an unconventional ownership model would look like -- reorganizing the Times as a nonprofit entity, for example, either free-standing, or perhaps as part of another nonprofit, like a university or foundation.

Newspaper are not commodities to be traded up or down on the stock market. Make a profit, sure. But how much? As long as they are viable as a business then we should support all efforts to rescue them from oblivion.

[Lemeritus]

Fine point, boing007!

It is my understanding that before Mark Willis pandered the LAT out in the great Staples Center debacle, before the Chandlers bailed, and before Tribune "rescued" it (making the many-Pulitzered LAT the sad step-child of Chicago), the Los Angeles Times operated at a 20% profit margin. Zell's "corporatization" of the Times has erased even that.

You are spot on; newspapers are not commodities. They are, at their best, the commons of information -- without which our national dialogue will become hopelessly boutiqued and Balkanized.

[boing007]

The economic meltdown the nation is now living through offers plenty of evidence of how the American people are at the mercy of casino gamblers posing as capitalism's finest. The billionaires who got us into this mess turn out to be not heroic entrepreneurs contributing to the country's prosperity, but unaccountable buccaneers who could care less about jobs and communities. Sam Zell's megalomania isn't unique; it's just our misfortune that Los Angeles' civic life has to bear the consequences of his financial swagger.

That pretty much sums it up. Those Captains of Industry did a heckuva job.

[flatus]

From their point of view it's, "The entrepreneur giveth and the entrepreneur taketh away".

[daddysboy]

That's why the Declaration of Independence is a more important document than our US Constitution in many ways. The spirit of America has and should always be one of creating opportunity for all, not squeezing commoners for every last penny.

[Lemeritus]

Many thanks, Marty, for making as solid a case for print journalism and great newspapers as I've read in a while. The recent trend seems to canonize the blogosphere without crediting the fact that huge quantities of real news is still lifted from news organizations that pay the salaries and provide the expense accounts for reporters who work to get the stories that are supposed to keep us an informed electorate -- we will save the debate on whether they've served us well over the past eight years for another time.

More specifically, great newspapers (and the Los Angeles Time was once one) are not only national treasures, but the civic souls of the cities from which they spring, something that Sam Zell is, perhaps, congenitally incapable of appreciating. Anecdotal stories of Times' staffers pleading with David Geffen to buy the LAT (often within earshot of Zell himself) abound around town. Sadly, however, of the many pieces of the Tribune that Zell will probably be happy to jettison -- the Cubs, The Baltimore Sun and Orlando Sentinel -- the Chicago Tribune and Los Angeles Time will probably disappear, with Zell's reputation, into a black hole of ignominy since these papers, incredibly, still create something of a cash flow.

I'm not sure what the great papers can do to survive, but I do know that we will all be the worse for their passing.