Times Out of Joint

Last summer, I made the mistake of asking a Los Angeles Times reporter how he felt about life in a wholly owned subsidiary of the Tribune Company. He made a sour face and said he was worried about his pension. Dinner was ruined for a while.

Reporters are used to holding their breath at the Times, where the editorial staff has been cut from 1,200 souls to 940, a decrease of more than 20 percent, in the course of the six years since Tribune bought out Times Mirror, which owned the Times and several other major papers. To be a survivor at the L.A. Times is to be, well, resilient, says 28-year veteran staff writer Henry Weinstein, who specializes in legal affairs.

The Times has lurched from crisis to crisis for nearly a decade, since pre-Tribune CEO Mark Willes plunged the paper into an unseemly profit-sharing arrangement with the Staples Center arena. Willes, who lacked newspaper experience, did not win many reporter friends when he proposed to knock down the wall between the editorial and advertising departments. Publisher succeeded publisher, none of them enlarging the news hole or improving investigative or foreign reporting. One staff writer told me that the big difference between layoffs by the old owners, the Chandler family, and layoffs by Tribune is that the Chandlers used to rent space in a hotel, bus all the pink-slipped staff over there, and gave them advice on everything from post-employment health care to therapy -- a veritable out-of-a-job fair. Tribune, on the other hand, passed out the pink slips and told the departing to empty their desks by the end of the day.

Willes did triple the Times Mirror stock price while he was running the company, but was so widely excoriated that he exited, counting stock options. A few regimes later, the present-day Times staff stood proud of the paper's editor, Dean Baquet, who publicly refused to entertain any more staff cuts, causing employees to "take a lot of heart," in the words of the 34-year Times veteran, Tim Rutten, who writes a media column. The paper's publisher, Jeffrey M. Johnson, also refused to make further layoffs, and in October Tribune fired him for his pains. Then, on November 7 -- Election Day -- Tribune fired Baquet. Another round of layoffs is now virtually assured.

Rumors fly about who might be in the market for the Times, with or without the rest of the Tribune empire, which includes, in dead-tree country, Newsday, The Baltimore Sun, the Orlando Sentinel, the South Florida Sun-Sentinel, The Hartford Courant, as well as the flagship Chicago Tribune.

Tribune had profits of 18 percent in 2004, but (Ken Auletta reported in The New Yorker) board members wanted more. Why not the moon?

It's a truth universally acknowledged that newspapers are a business in trouble. But to comprehend the Times situation, a good starting point is to jettison some conventional wisdom about the declining fortunes of newspapers. The 13 top publicly traded newspaper companies earned an average pretax profit margin of 19 percent as recently as 2003. What is true is that, as circulation declines across the board and newspapers fail to figure out how to make money from readers who are migrating online, the clamor arises for new business plans that newspapers have yet to devise. Most papers are clueless about how to make money online. When in doubt, management tends to panic and cut costs.

Scenarios of decline and fall are all that matters to the predatory investors who hold large stakes in companies like Tribune and Knight Ridder -- the former Knight Ridder, that is, the chain that ranked second in circulation nationally last year and was forced to sell itself off in March because its profits languished in the low 20 percent range (far higher than the average firm's, but no matter).

This is how predatory investment works in the newspaper business these days. Go back one decade. In 1995, Wall Street saw Knight Ridder as an "underperformer." Company profits were estimated at 12.5 percent in 1994, its newspapers alone at 16.4 percent, but some were lagging -- notably The Philadelphia Inquirer and Daily News. Meanwhile, top-ranking Gannett was pulling in 21.3 percent.

Ten years later, the chain was making a profit upwards of 20 percent. Wall Street was still not impressed. Knight Ridder stock was in a hole. A $32 billion money management firm, Private Capital Management, which owned 19 percent of the company's shares and invested heavily in other newspaper chains, was grumpy, so much so as to issue an ultimatum -- sell the company right now and make us more money or we'll put new directors on the board who will do exactly that. Obediently, Knight Ridder sold itself off to the McClatchy chain, which proceeded to offload several papers.

Why are the profits of 15 percent that Wall Street considered desirable in the 1990s considered pathetic now? It is an exceedingly odd thing about newspapers in the age of the corporate chain ownership: the assumption, widely touted in the business press, that newspapers ought to be making upwards of 20 percent -- except when they do make those numbers, in which case the bar is raised. Where do such staggering goals come from? In 2006, the aerospace and defense sector of the Fortune 500 averaged 5.2 percent of revenue. In 2002, the figure for the top 10 drug companies -- the most profitable sector in the Fortune 500 -- was a sweet 17 percent. Even oil and gas industry profits in 2005 amounted to a mere 8.2 percent of the companies' revenues, according to ExxonMobil. So what gives? Why do investors consider newspapers holes drying up? Why don't they take the money and rest?

The most plausible explanation is that go-go investors are pursuing what newspaper consultants call a "harvest strategy." They assume that metropolitan newspapers are "mature" businesses facing dwindling growth, so that the best way to realize value is to pump up short-term profits. Some harvest -- it sounds more like scorched earth, or, more kindly, capitalizing on expectations of diminishing returns. If papers are dying, why not scrape profits out of them to the max? Only the family stockholders of The New York Times and The Washington Post, heirs who occupy an exclusive tier of stock ownership, can insulate their firms from such fierce market pressure -- sometimes, up to a point.

In general, investors are not in the resting game. They don't care when companies are in black ink. They want it blacker.

***

What's the result for the L.A. Times? Fewer pages of news, reported by fewer people who perforce spend less time on investigations because such work requires they be dislodged from daily beats for months of work that might, in the end, prove fruitless. There's no way the current depletions can be spun as improved service to those newspaper stakeholders known as readers. Henry Weinstein says, "A lot of people come to me with stories they'd like me to write about. It was certainly easier to lateral stories to other people when we had a bigger staff. Personally, I look around the newsroom and I see very few people who aren't working hard. The library staff is cut back. My view is, we're into bone."

A number of private figures have expressed interest in buying the Times if Tribune were willing to spin it off. (In early November, Tribune told prospective bidders that it might want to do exactly that.) Among them: Hollywood music tycoon David Geffen, supermarket king Ron Burkle, and financier Eli Broad. Anyone who would be satisfied with a lower profit margin, as Geffen has been reported to say he would be, can expect a hearty welcome from the staff. "We understand that the paper has to make money," Weinstein says. "Nobody's a socialist. At a 10 percent profit margin, the L.A. Times could be phenomenally better. It could boost local coverage, and foreign." However uneasy some insiders are about Geffen or other prospective local buyers who might have their own interests to protect, Weinstein adds, "I can't remember another instance where somebody said he would buy the company and be willing to make less money." On November 8, Broad's and Burkle's companies tendered an offer for the entire Tribune Company.

Tim Rutten sees some light at the end of the Web. "Somebody will find a way," he says, "to monetize Web readership. Human avarice is endlessly ingenious. Who knows? Advertisers may find that they're not getting what they want online. They may gravitate back to print. It may dawn on advertisers that the only sites they can find for large, broad audiences are broadcast television and newspapers."

Overall, Rutten thinks, "the long experiment with corporate ownership has pretty much run aground. Maybe the corporations know it now -- they can't figure out any way to square their obligations to communities as newspaper proprietors with their obligations to their stockholders. The newspaper business is a great business for people who want to make a lot of money over a long time. It's a lousy business for people who want to make more money than what their greediest stockholder wants to make next quarter."

"I don't have a Manichaean view," he adds. "I can't say that people at Tribune are bad people. They're caught between conflicting loyalties. They're trying to do the best job balancing they can. At the end of the day, I'm just not sure it can be done."

Todd Gitlin is a professor of journalism and sociology at Columbia University. His latest book is The Intellectuals and the Flag.

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