Sam Zell's House of Cards has fallen flat. Today's bankruptcy filing changes everything and nothing.
If we still have the capacity for amazement, after a year of subprime meltdown, worldwide recession and the election of Barack Obama, Tribune going banko would be stunning. Its filing reminds us that no news brand is sacred; that we really have no idea what the 2015 news landscape will look like. It's now more imaginable that Tribune papers, and the Tribune itself, can go away, like its former kissing cousin, Knight Ridder.
Still, the bankruptcy option looks to me like just another phase in the Sam Zell strategy. Julie Moos has a good chronology of the Tribune saga, on the Poynter site. I'd sum up his brief year of ownership in four plans:
Plan A: Assume you're smarter than the other guy. Sam Zell, aka the Grave Dancer, thought he was buying a distressed property in a not-unhealthy industry. In fact, he was buying a distressed property in a distressed industry. The normal bottom-feeder drill of buying low, cutting back significantly and then improving margins didn't work. His innovation efforts -- mostly embodied by redesigns that made no significant difference to circulation or advertising -- missed the point of how much the Internet has changed the news business. He tried applying '80s thinking to a generation-next opportunity. He under-estimated the 2008 newspaper economy, ignoring his own company's 2007 performance. Grade: D.
Plan B: Start selling assets. Zell gets his gold star here. He managed to set one of the few competitive newspaper auctions in recent memory, finally unloading Newsday for Cablevision for $650 million, after Rupert Murdoch and Mort Zuckerman bid up the property. He failed, though, to move on selling the L.A. Times to a very interested David Geffen. He delayed his own sale of the Cubs, by pursuing a misguided attempt to sell Wrigley Field to the State of Illinois. By the time he turned around, the credit market had frozen up, Mark Cuban found a new date with the SEC, and selling newspapers has become near-impossible, as a number of formerly high-value properties languish on the market. Further, he'd assessed selling the real estate in, around and under his newspaper properties. There, too, though the twin crashes of commercial real estate and credit foreclosed that possibility. Grade: C+
Plan C: Re-negotiate with lenders. Somehow Citibank, Bank of America, JP Morgan Chase and Merrill Lynch had bought into Zell's poor projections, and the new Tribune emerged with $13 billion in debt. Zell apparently tried reordering some of his debt, threatening today's bankruptcy filing. The filing tells us he was unsuccessful. Curiously, his brethren in the industry have had more success at that, probably due to their lesser leverage and greater confidence in their abilities to run news companies. Gannett, McClatchy, Lee, MediaNews and and others have all moved on debt restructuring, paying high interest rates in some cases, but gaining more flexibility. Grade: F
Plan D: Go bankrupt. We believe that employees' 2008 contributions to the phantom ESOP are all but history. We're unsure where Zell's own investment stands. We do know that bankruptcy will unleash all kinds of reassessment of Tribune holdings, and possibly allow altering of collective bargaining agreements. Short term, the bankruptcy won't be the kind of calamity it might have be for General Motors; newspaper advertisers and readers are making a short-term buying decision, not guessing whether their five-year warranty will still be backed up. Grade: A
You can look at each Plan, A-D, essentially as part of the larger plan of Buying Time. Sam Zell didn't expect to run through A, B, C and D, in less than a single year (He closed the Tribune deal on Dec. 21, 2007.) But the man knows how to move assets around to buy time. His problem is that he's had a weak endgame. Every time he sells an asset, he loses cash flow. Every time he loses cash flow, he's less able to meet debt. That's more a dead-end than an endgame, but he thought he could play it long, maybe past the 10 years it takes to get a good payout on an ESOP. The clock now says he'll have to think differently.
Buying time, though, is what everyone in the newspaper industry is doing. The New York Times did it today as well, mortgaging its landmark building for $225 million. Scripps is doing it by "selling'' the Rocky Mountain News. All the companies are doing it as they refinance their businesses with lenders.
Buying time for what, when? That's the bigger question. 2009 looks to be dismal, with ad projections down as much as 6% over 2008, as offered at today's UBS Media gathering. So all publishers can do is get their enterprises from the dismal today to an uncertain tomorrow. Strategy is one thing. Buying time is another, and that's what today's news is all about.