Sale of Chicago Tribune buoys hopes for US newspapers

Iconoclastic buyer sees profit potential in an industry that Wall Street shuns.

from the April 11, 2007 edition

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Still, not everyone agrees that the newspaper industry is dying, and some experts point out that Zell's deal isn't quite as unlikely an investment as it might first appear.

"Assuming it goes forward, he'll wind up taking charge of the second-largest newspaper company in the country by putting up only $315 million in cash – it's a financier's dream," says John Morton, a veteran newspaper analyst in Maryland. "With all the talk about the newspaper business, it's still immensely profitable. The average profit margin is almost 18 percent."

While Mr. Morton hopes that privatizing the company will free it up from the short-term profit demands that often drive staff cuts and layoffs, others note that private owners face the same tough market conditions as public ones. They point to Brian Tierney's recent buyout of The Philadelphia Inquirer and his subsequent struggles as a prime example.

Still, some Tribune employees are optimistic, in part because any change, at this point, seems like an improvement over the status quo.

"Death by 1,000 cuts was no answer. There's got to be somebody with a different pair of eyes and different imagination and perhaps with more nerve than [the current Tribune CEO and president] have," says one longtime manager at the Tribune Company. "It's time for a real change."

He says that many of the rank-and-file employees are concerned about the transition – what the ESOP means for their retirement plan, for instance, and whether there will be layoffs – and adds that he's aware of the perils of a real-estate magnate without journalism experience taking over. "But I also think this is a real smart guy who may see this as a bona fide challenge to prove the conventional wisdom wrong about the nature of the industry."

Zell himself has said that he wants to focus on raising revenue rather than making more cuts. And some hope that once he learns about the industry – which he admits he knows little about – he'll be as creative in publishing as he has been in real estate.

What's needed is someone who can find ways to put out a better product that will win an audience in a world with more choice, says John Lavine, dean of Northwestern's Medill School of Journalism in Evanston, Ill.

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