Wednesday, September 27, 2006

Hartford Courant Reporter Writes To His New Boss

September 18, 2006

TO: Stephen D. Carver, President, COO and Publisher-to-be
America’s Oldest Continuously Published Newspaper
The Hartford Courant

FROM: Rinker Buck, Staff Writer
The Hartford Courant

SUBJECT: The Tribune Company's Disinvestment in Connecticut


Mr. Carver:

Two weeks ago, what should have been a proud moment in the life of an historic institution -- the elevation of the popular and talented Cliff Teutsch to editor of the Courant -- was marred by fresh promises by Tribune to exact more job cuts. We can't even get through the choice of a new editor around here without the negative spin of Tribune's rote management default: gutting the very property it claims to be managing for shareholders. This is an open e-mail from a concerned and experienced newsman who isn't afraid to tell you that Tribune’s "cost center" mentality is alienating your workforce, driving readers away in droves and contributing to a loss of confidence among advertisers and the civic community.

Why would a newspaper that its owners say is still profitable commit commercial suicide like this?

Last week, we learned that Dean Baquet, the editor of Tribune's Los Angeles Times, is refusing to participate in the same rounds of cuts that you are demanding here. The publisher in Los Angeles, Jeffrey Johnson, has publicly backed his editor, saying, "Newspapers can't cut their way into the future." Tribune's management of its paper there has become so controversial and embarrassing that a group of prominent citizens, including a former secretary of state, have challenged the company to either begin reinvesting in its local property or sell it to an owner more worthy of media stewardship.

Both events raise an important issue that needs to be publicly aired before you commence another round of unpopular layoffs. In an increasingly desperate and headlong effort to stem costs associated with a string of regrettable business decisions, Tribune is bleeding its local properties to keep the corporate mother ship in Chicago above water. But this unique consumer product that we call a newspaper -- presented new to readers and advertisers every day -- isn't simply acutely sensitive to nuances of quality and threatened by these cuts. A newspaper is a public institution whose fortunes and élan are shared by all, a passionate presence in people’s lives. You can't make money at newspapering -- and there is still plenty of money to be made in newspapers -- by positioning the brand as a money-losing operation whose future depends on perpetual budget cutting and the concomitant erosion of quality. People don't want to buy a product that's inferior to the one they bought the day before. They want to buy a newspaper that is public-spirited, improves their lives and adapts to change by intelligently investing in the future.

We are not doing that anymore at The Hartford Courant. And the disconnect between these competing needs -- serving the community versus filling the corporate coffers -- is destroying the brand.

I don't think Tribune's leaders in Chicago perceive just how much their leadership has let us all down. So let's look at the record since Tribune bought the old Times Mirror properties in March 2000.

It is now generally agreed among business writers and Wall Street analysts that the $8.3 billion Tribune paid for the Times Mirror papers was hugely over-valued, by perhaps as much as $1 billion. That's a big mistake, but it was compounded by the fact that Tribune made its bet on the papers at the very moment when a historic but hardly fatal downturn in national advertising spending was challenging many print companies. In this environment, the debt Tribune piled up couldn't be easily retired by cash flow from the properties. This situation, of course, is made worse by the increasingly unrealistic and greedy expectations of shareholders and their Wall Street stock-pickers, whose quarterly mentality about earnings makes it difficult for any company to intelligently spend for the future.

It would be nice if America's CEO class had the courage to stare down Wall Street and say that certain businesses and certain companies are important to preserve and that we ought to expect more modest earnings during challenging times in their markets. Bet on us now while we’re investing in the future and we'll deliver solid returns, based on sound properties, in future years. But of course the obsequiousness of our business leaders toward financial analysts is too complete. It would never strike a media company to make a splash by challenging conventional wisdom.

Tribune compounded this common problem by assuming responsibility for a $1 billion tax break that Times Mirror claimed after it divested some print properties in 1998. Tribune executives went ahead with the deal even after attorneys informed them that keeping the tax advantage "was a difficult case in tax court." A year ago, a tax court ordered Tribune to pay its overdue bill, a decision now on appeal. In the third quarter last year, Tribune took a $125 million after-tax charge to cover the interest being assessed by the IRS, and has issued $780 million in bonds to help cover the payment of the tax bill should it lose on appeal. These are funds, of course, that can’t be used to reinvest in the local properties and at least partially have to be recovered by siphoning cash flow elsewhere.

In the annals of American business, billion-dollar judgment errors are rare, but Tribune didn’t stop there. The circulation scandal at the Spanish-language Hoy and Newsday forced the company to set aside another $90 million in charges against earnings and caused incalculable harm both to revenues and the company’s business reputation.

And let's not forget "convergence." Remember that word? This was the belief, heavily promoted by Tribune at the time of its Times Mirror acquisition, that the duopoly of cross-owned newspapers and television stations in the same market would offer profitable advantage to the newly merged empire. Tribune would be able to cut costs on newsgathering while enticing advertisers with joint print-broadcast packages. But that gamble, too, has flopped. Sources as various as Business Week, The Economist and even the Chicago Tribune's own business page have criticized the failed strategy as one that contributed to Tribune’s stagnant stock price. More expense and damage to Tribune's reputation has been incurred by the six-year losing effort of the company to amend the FCC rules barring cross-ownership, which two federal courts have now rejected. Even the executive-suite-friendly Bush administration can’t stomach Tribune’s attempt to bend the FCC rules. Last year the Justice Department announced that it is no longer supporting Tribune's FCC lawsuit.

From what we've seen in Hartford, convergence couldn't help but fail. Here, the Courant and its reputation for deep reporting and insightful writing were forced into an arranged marriage with Tribune's crossed-owned television station, the gaudy Fox 61. Aside from rewriting and then reading articles from the Courant on-air -- which, by the way, the Fox station was doing very well even before “convergence” was invented -- the experiment has led to nothing memorable, except that it is the frequent butt of jokes among the sources we have as reporters. (You can check the history of your insertion orders, Mr. Carver, to see if the Courant-Fox 61 menage has produced any advertising results.) Certainly Tribune has concluded as much itself. The staffer hired with much fanfare to coordinate Tribune's print-broadcast "convergence" in Hartford was let go in the last round of budget cuts. The equipment purchased to effect this synergy now sits idle most of the day.

Tribune executives regularly and fastidiously lecture us via e-mail on the importance of controlling costs. To this corporation, we are not reporters who love staying up all night getting a story done to beat the competition in Boston or New York. We are not writers who dream of the perfect sentence or winning awards. To Tribune, we're just cost-centers, constantly hectored from Chicago about the need to pinch pennies and reduce the burdens of our upkeep.

Perhaps then sir you wouldn't mind if I ask how much corporate Tribune has blown by its serial financial miscalculations? I only scored in the mid-600s on my math SATs, but it does seem to me that the dollar figure here has grown frightfully large. Okay, let's put aside for the moment the $1 billion over-valuation at the time of the Times-Mirror purchase. That's a subjective figure that can always be dismissed as simply the musings of stock analysts and short-sellers intent on running down Tribune's stock. Let's begin with the second $1 billion, for the tax liabilities Tribune probably will have to pay. The financial fallout from the Newsday and Hoy circulation has to come to at least $200 million. Payments to lawyers and lobbyists to sustain Tribune's long effort at changing the FCC rules, and fighting the tax case, must be at least in the $25 million range. I wouldn't be surprised if it's more like $50 million.

That's at least $1.2 billion in potential costs incurred by corporate malpractice. These potential losses, and the controversies swirling around them, as you know, have had a disastrous impact on Tribune's stock price.

Don't you think, before we undertake another round of demoralizing and quality-degrading layoffs and cuts, that the real problems of the company should be addressed? The Tribune Tower in Chicago is itself a massive cost-center and I see no evidence that anything is being done about that. Given this record, draining the properties in Hartford, Baltimore and Los Angeles of their cash is just pouring good money after bad and in no way improving our business prospects.

Now, let's take a look at the revenue side.

In their published reports, business writers and stock analysts who follow Tribune have consistently insisted that operating margins at the local papers are in the 20 percent range. This is well above the 10 to 12 percent achieved by most Fortune 500 companies. I can find no evidence of Tribune executives questioning these figures. It's possible, of course, that the 20 percent figure simply reflects selective leaks on the part of Tribune executives to assure a jittery stock market that the operating units of the company remain sound. So let's say that our margins are really closer to the national business norm of 10 percent.

Is it prudent for a business still that profitable to degrade its quality and shred the loyalty of its market by announcing further cuts? To do that seems an especially unwise decision when the local funds so desperately needed by Chicago will be used, at least in part, to cover the costs of past mistakes.

But we need to know, and our market needs to know. The personal sacrifice and damage to our reputation by additional cuts is simply not worth the cost unless we are really losing money and you can document that. If we're not losing money and the funds secured from more cuts are simply diverted to Chicago, what sort of message are we sending, and what business model are we pursuing? The only thing we are expressing by the current policy of alienating cash from Hartford is that the Tribune model for corporate ownership of local papers is not working. Moreover, ownership of local newspapers by publicly traded companies beholden to the financial analysts is also a model that deserves questioning.

So, I ask you:

What are the Courant's operating margins?

How much cash are we shipping, on a monthly and yearly basis, to Chicago?

Most likely, your Chicago masters will not allow you to divulge those figures. They don't want their Connecticut market to apprehend the level of Tribune’s local disinvestment.

However, if you can’t document our margins, or specify how much we are diverting to Chicago to support high corporate overhead, budget cuts at this time have no context. Nor can they be justified from either a business or a moral standpoint.

The predations of Tribune’s budget cuts here have already been substantial. Shuttering circulation offices, drastically reducing the size of our news hole, cutting staffing in local news bureaus and outsourcing our call center to a cheap-labor foreign country produce real, tangible difficulties for our readers. One of our most frequent reader complaints is that coverage of local towns -- once the heart of the Courant’s vaunted edition system -- has declined to the point where subscribers no longer see the value of taking the paper. Getting a circulation problem resolved can be worse than dealing with the Pentagon. Over the past few weeks, though I’m an award-winning writer, I've had to abandon reporting and writing at least two days a week because the section I write for is so short-staffed I have to copy-edit instead. I don't mind the work, and I'm more than willing to personally sacrifice to meet legitimate company goals. But the truth is that you are wasting your investment in me.

Our image suffers as well. The state senators I interview, or members of our Congressional delegation, regularly and bitterly complain about our reducing the size of our statehouse staff and the closing of our Washington bureau. We don't generate our own movie reviews any more, because Tribune considers it more "efficient" to run wire copy. But what an important and visible symbol of disinvestments that is. In one of the most sophisticated and wealthy markets in the country, with immensely prosperous suburbs, a dozen prominent colleges and prep schools and famous cultural outlets like The Hartford Stage and The Bushnell, The Courant no longer runs movie reviews by its own critics. That's pathetic and a telling symbol of the cultural mediocrity that Tribune ownership brings to our state.

And here's another thing that the readers always appreciate but that the chuckleheads at Tribune can't see. When there is a big regional story to cover and I'm competing against larger papers out of Boston or New York, we always win, we always out-report them, and my editors always demand that my copy is smarter, brighter. We regularly do this even when the Times or the Globe double-teams us with extra reporters. (God, how I enjoy doing it too.) But nobody at Tribune notices that because they can only measure newspapering in dollars and meeting budgets. But heart and soul are the qualities that a newspaper and its readers value. Tribune executives need to get hip, get off the golf links, and get down with some real people to understand this. It's heart and soul that you are selling to your customers. And the Tribune boys also need to curb their arrogance toward the journalists who work for them. You can demoralize, but you can never defeat a causally motivated person like me.

There's another deleterious result of the Tribune culture, a sad thing to watch. At Tribune, so much emphasis is placed on cost-cutting, and incessant talk of cost cutting, that the company's executives have completely forgotten the art of selling our strengths. The Courant still enjoys one of the highest pass-through rates in the country. Tireless teams of investigative reporters have recently toppled a corrupt Governor and made national headlines with a story about mentally ill soldiers being dispatched to Iraq. Our web site is receiving impressive numbers of page-reads and, over time, creative executives will learn how to sell that and promote the fact that we’re recovering readers that no longer rely on print. The Courant regularly wins more awards than any other paper in the country for its photographic and design excellence. Nobel Prize-winning writers, busy CEOs, and U.S. Senators always come to the phone when I tell them I'm from The Hartford Courant.

Are we selling that? No. We're selling a culture of layoffs and budget cuts, all to sustain the practice of diverting local profits to support corporate overhead in Chicago.

Tribune's strategy of cutting its way into profitability has another, obvious fault. We all know that eventually the management problems of the company have to be addressed and that one strong possibility is that we’ll follow the Knight Ridder model of dismantling the chain. Most of us would regard this as a positive development. In Connecticut there are any number of wealthy, public-spirited investors who would pool their funds to buy the Courant, and then operate the paper successfully for the public good and profit. But why degrade the property now with further cuts? We’d only be delivering into the hands of new owners a weaker franchise that would sell for a lower price.

I love the pulse and throb of being a newsman, the pleasure of working for a successful, moneymaking business. I rise in the morning excited about the stories I'm going to write and about working hard and late with other reporters when there’s a big event that we have to crash onto the pages. I enjoy beating other nationally ranked papers on the same story, proving to this tremendously sophisticated audience we have in Connecticut that the local writer really can be the smartest and the best. I love exposing self-importance and praising the noble and the brave. It’s a Whitmanesque love of country and landscape and freedom that I have. And the better publishers that I've worked with over the years could always promote that kind of elan. But you sure don't feel like old Walt when the only thing on your computer screen this morning is another Tribune diktat from Chicago obsessing all over again about the need to cut, cut, cut.

So, that’s the equation I am presenting to you, Mr. Carver. If you can’t prove to me that the Courant is losing money, executing additional layoffs and cuts cannot be defended. Connecticut doesn’t need any more layoffs. Your employees reject the strategy of publishing an inferior paper. And the practice of alienating profits from Hartford to pay for the mistakes of a distant corporate parent in Chicago is both an unwise business decision and deeply immoral.

And, over the coming days, I would hope that you would consider another question related to Tribune. It is one that your employees and your market in Hartford are asking.

Why does a company that owns so many newspapers detest them so?

Thanks for reading. I look forward to your reply.




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