Feb. 13, 2006
By Jeremy Mullman
Street seeks turnaround for flagship — and fast
Tribune Co. Chairman and CEO Dennis J. FitzSimons faces no bigger task in reversing his company's long slide than repairing its flagship newspaper, the Los Angeles Times.
Circulation and advertising at the Times, which account for nearly 20% of the Chicago-based media conglomerate's total revenue, have fallen sharply since Tribune acquired it in 2000. Now, Mr. FitzSimons and his L.A. management team — the second Tribune has installed there since the $8-billion Times Mirror Co. merger — need to find a solution before Wall Street loses patience.
"They've been throwing anything they can think of at that paper and nothing seems to work," says media analyst Edward J. Atorino of New York-based Benchmark & Co. "Wall Street likes the company, and we love Dennis, but if results don't start improving . . . it's going to be merciless.
"For Tribune executives, the Los Angeles problem is "critical, and it's the most troubling kink in the turnaround story," says Eric McKissack, CEO of Chicago-based Channing Capital Management LLC, which holds more than 600,000 Tribune shares. "It'll be very difficult to turn the company around without turning the Times around.
"While the Chicago Tribune has suffered circulation and ad declines, its losses have been smaller. Total ad lineage at the Tribune was flat during 2005, and weekday circulation during the six months ended Sept. 30 dropped 2.5% compared to the year-earlier period.
A reversal of fortune at the Times, long regarded as an editorial heavyweight and financial laggard, has been the goal since long before Tribune bought it.
The paper traditionally has been the dominant local advertising player in L.A., one of the most affluent and desirable media markets in the nation. But it's also a complicated market to compete in.
Tribune Co. CEO Dennis FitzSimons is facing slumping circulation at the Los Angeles Times, which Tribune bought in 2000.
Unlike other cities, where daily newspapers can maintain monopoly-like perches, L.A.'s massive and far-flung suburbs sustain a handful of local dailies with the resources to compete effectively with the Times. The weekly and online rivals besieging newspapers everywhere are in especially abundant supply in L.A. And the area's burgeoning Hispanic population adds yet another wrinkle.
"When Tribune bought the Times, there was a sense that it was an underachieving paper that could be turned around with the right management," says James Goss, an analyst with Barrington Research Associates Inc. in Chicago. "Well, it's six years later, and I think they're beginning to understand why Times Mirror couldn't figure it out.
"In July, Tribune installed a new management team in L.A., headed by Publisher Jeffrey M. Johnson, a Tribune veteran. He has continued aggressive staff and cost cuts, reportedly lopping off 8% of editorial department jobs and replacing much of its ad sales staff. The paper also announced some key editorial changes, eliminating the critically acclaimed Outdoors section because of a lack of advertising and relaunching its Sunday magazine as an upscale title called West.
But those moves have yet to improve results — or even stem declines. On a recent conference call with Wall Street analysts, Tribune Publishing President Scott Smith said the pace of advertising revenue growth in L.A. slowed in the first nine months of 2005 and declined 3% during the fourth quarter, when total ad lineage dropped nearly 13%. (He didn't provide specific numbers.)
Mr. Smith blamed the declines on a few troubling categories, particularly movie advertising, which analysts estimate accounts for between 10% and 15% of the Times' total, compared with 6% for Tribune's entire newspaper group. Mr. Smith said new sales leadership is focused on addressing the category declines.
But competitors and local advertisers say the problems are more Times-specific than Tribune executives acknowledge, contending that turnover on the sales staff and a rigid approach to pricing have taken a toll on the results.
"Our ad revenues grew 8% last year and our movie category grew, too," says LA Weekly Publisher Beth Sestanovich, a former advertising director at the Times. "We've got a lot of advertisers defecting from (the Times) and sending a piece of what they were spending there to us."
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Ms. Sestanovich attributes the Times' advertising problems to ad rates that have become more expensive relative to the Times' sinking circulation.
Ad buyer Kathy Gardner of Santa Monica, Calif.-based Palisades Media Group shares those pricing concerns: "I don't think the circulation justifies what they charge.
The circulation story isn't much happier. The Times' declines have outpaced those seen at local rivals the Orange County Register and the Long Beach Press-Telegram. Weekday and Sunday circulation numbers at the Times have dropped about 9% since 2003, despite an industry-leading 10 Pulitzer Prizes during that time.
At least one analyst says he believes staff cuts threaten to undermine the Times' editorial prominence. "After four to five years of cutting costs . . . they are left largely cutting into the 'muscle' of their newspapers," Lehman Bros. analyst Craig Huber wrote recently.
A spokesman for the Times declines to comment for this story. A Tribune spokesman says: "The Los Angeles Times is our largest media business, responsible for more than $1 billion in annual revenue. It is the No. 1 metropolitan newspaper in the country, and its journalists do an outstanding job covering Los Angeles, Southern California, and national and international news. We have a great management team in place at the Times and we're looking forward to the future."
©2006 by Crain Communications Inc.