April 8, 2007

The Tribune Company Sale: An Object Lesson in the Price of Biased Reporting?

OVERVIEW: I believe that the sale of The Tribune Company last week to investor Sam Zell is an unrecognized low-water mark in the newspaper publishing business. In fact, after subtracting the value of the Tribune’s non-newspaper properties from the deal, what little value remains indicates that the value of having access to a newspaper’s readers is a mind-boggling 70% less than it was a mere seven years ago.

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Is it possible that Tribune Company investors are paying the price of many years of relentless misreporting and biased reporting at its newspapers, especially those it acquired when it bought Times Mirror in 2000? While the numbers presented here of necessity involve a fair amount of approximation, it’s hard to avoid concluding that the answer is “yes.”

A chart of The Tribune Company’s stock performance during the past eight years shows that it has clearly been an underperformer:

TRBgraph1999to2007

That big dip you see in the graph above in early 2000 represents the market’s initial reaction, noted in this New York TimesSelect tease, to the Tribune’s Times Mirror acquisition announcement:

MULTIMEDIA DEAL: THE IMPACT; Investors Overreact to Deal, Analysts Say
March 14, 2000

Tribune Co’s agreement to buy Times Mirror Co spells bad news for Tribune shareholders; Tribune’s stock falls $6.375, more than 17 percent, to $30.8125, its lowest level in more than a year; but some big investors and stock analysts say worries that $6.45 billion deal will hurt Tribune’s profits were overdone …..

The stock recovered in the week that followed and restored the size of the deal to the $8 billion level. But it’s clear now in hindsight that the “overreactors” were on to something.

The fact is that the Los Angeles Times and the other newspapers acquired in the Times Mirror purchase have dragged down the Tribune Company ever since it acquired them for over $8 billion seven years ago.

Things appeared to go well at first. in June 2001, a bit over one year after the Times Mirror purchase, The Tribune Company’s 10K-A report to the SEC stated that the market value of the stock was just under $8.7 billion. Including dividends, this means that investors had achieved a pretty decent low double-digit return after the acquisition.

But by March 2007, having had six more years to take advantage of the Times Mirror’s four newspapers it had acquired (The Los Angeles Times, Hartford Courant, The Baltimore Sun, and Long Island’s Newsday), the Tribune Company had degraded to the point that it was worth about 6% less, or $8.2 billion, to investor Sam Zell.

Now consider that the Tribune’s Chicago Cubs baseball team, which Zell plans to sell, is estimated to be worth about $600 million, up from roughly $250 million in 2001.

Take the Cubs’ value out of both 2001 and 2007, and the rest of the company’s value went from $8.45 billion ($8.7 billion minus the Cubs’ $250 million) to $7.6 billion (Zell’s purchase price of $8.2 billion minus the Cubs’ $600 million) — a decline of 10%. Consider inflation during that time, and you’re looking at a meltdown in real value of well over 25%.

Next, look at the Tribune’s 23 television stations. What if the Chandler family, one of the others who looked at buying the company, are right in their belief, noted here, that those stations are worth $4.2 billion? That would leave the remainder of the company worth only $3.4 billion (the $7.6 billion taking out the Cubs minus the TV stations’ $4.2 billion).

The non-newspaper remainder of the Tribune Company includes:
- Superstation WGN.
- Chicago radio powerhouse WGN-AM.
- Tribune Entertainment, which owns 11 syndicated TV shows, the most famous of which are “Family Feud,” “South Park,” “Soul Train,” and “Candid Camera.”
- 24-hour news channel Chicagoland Television.
- Six other smaller properties.

It doesn’t seem like much of a stretch to assign a value of at least $1 billion to all of these (it could very well be much higher). This leaves a relatively paltry $2.4 billion to spread around to the newspapers, which include:
- The Chicago Tribune
- The four former Times Mirror properties noted above
- The Orlando Sentinel
- Nine other smaller papers.

How paltry is that $2.4 billion?

  • The Tribune company paid $8 billion for Times Mirror in 2000. This included “extensive magazine holdings” worth at most $1 billion, leaving $7 billion in value assigned to the then roughly 1.85 million reader circulation of the four Times Mirror newspapers. That’s a price per reader, if you will, of about $3,800.
  • Even if you assign no value to the company’s smaller newspapers, it appears that Sam Zell was just able to pay $2.4 billion to “buy” about 2.3 million readers at the company’s six major newspapers. That’s a price per reader of about $1,040 — a decline of over 70% in just seven years.

(Yes, I know that this ignores Sunday readership, but I am confident that if it were considered, the 70%-plus decline in the value of a newspaper reader would still hold. — Ed.)

Now let’s return to the question at the beginning of the post:

Is it possible that Tribune Company investors are paying the price of many years of relentless misreporting and biased reporting at its newspapers, especially those it acquired when it bought Times Mirror in 2000?

In the face of such a steep decline (and even though the Internet and other factors have surely been been partial contributors), how can anyone doubt it?

Cross-posted at NewsBusters.org.

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UPDATE: Zell’s comments on the availability of content (blogged on here, here, and here; HT Instapundit) indicate he actually thinks he can lock it up and charge for it. If that mythical ability went into his purchase calculations, he may have overpaid — by a lot.

UPDATE 2: I’m not clear on this myself, but I am told that Zell may not have bought the Cubs, and that the Trib is selling it separately. If so, that would mean that $3 billion in value would be spread over 2.3 million readers, resulting in per-reader value of about $1,300, making the per-reader value decline in 7 years “only” about 66%.

UPDATE 2A: On the other hand, you would think that the papers’ real estate holdings are a significant part of the deal, and that they would have increased significantly in value during the past seven years. This would probably at least offset the impact of the Cubs possibly not being part of the deal.

UPDATE 3: Thomas Lifson at American Thinker took note of this post. If there’s a better group blog than AT, I don’t know what it would be.

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14 Comments

  1. Oh, sure. Like newspaper readers actually *read* and care about what’s in the newspaper. /sarcasm off.

    Comment by JorgXMcKie — April 8, 2007 @ 10:09 pm

  2. [...] BWAHAHAHA. Posted in Ukraine | No Comments » [...]

    Pingback by Cyber Cossack » Blog Archive » Death Spiral of the Media — April 8, 2007 @ 10:11 pm

  3. [...] Another Leftist accomplice of Communist Genocide plummets in value. Posted in media | No Comments » [...]

    Pingback by Cyber Cossack » Blog Archive » Death Spiral of the Media. — April 8, 2007 @ 10:16 pm

  4. I think you are underestimating the impact that the internet has had on the entire publishing industry. As a full time RVer, I often see papers from around the country. The ones that seem to be most on point to me are the ones that push hard to cover local stories with excellence, such as the Naples (FL) Daily News. While the tribune properties are still making lots of money, their growth is unlikely. Bloggers have made some major wins, and classifieds are unable to compete effectively with Craig’s list. While there are still large numbers of interested people who don’t use the internet, their numbers are declining.

    Comment by Mahlon Stacy — April 8, 2007 @ 10:19 pm

  5. #4, it’s relevant, but I don’t think it accounts for a knockdown of 70% in value. The bias, being out of touch, and the obsession with PC (can’t call illegal aliens illegal, etc.) has taken a toll.

    Comment by TBlumer — April 8, 2007 @ 10:23 pm

  6. [...] BizzyBlog’s Tom Blumer says The Tribune Company Sale: An Object Lesson in the Price of Biased Reporting? I believe that the sale of The Tribune Company last week to investor Sam Zell is an unrecognized low-water mark in the newspaper publishing business. In fact, after subtracting the value of the Tribune’s non-newspaper properties from the deal, what little value remains indicates that the value of having access to a newspaper’s readers is a mind-boggling 70% less than it was a mere seven years ago. [...]

    Pingback by Pundit Review » Blog Archive » Weekend Links — April 8, 2007 @ 11:02 pm

  7. Biased reporting is critical to the erosion of local readers.

    LAT is notorious for ignoring politically incorrect crime, scandals, etc associated with illegal immigrants, inner city gangs, crime rates, etc.

    Comment by Jim Rockford — April 8, 2007 @ 11:21 pm

  8. …I’ve been telling people to cancel their subscriptions for years now, I’m glad financial control is being wrested from its negligent caretakers…only good things will happen when they start telling the truth, the whole truth, and nothing but the truth…

    …dream dram dream…

    a man can dream

    Comment by Orbit Rain — April 9, 2007 @ 1:23 am

  9. We are facing the same kind of decline in the UK – where the Independent and the Guardian have, as “National” newspapers roughly 250,000 and 340,000 daily sales on a Population of 60 million. They are chasing falling sales by moving further from the mainstream and pandering to the prejudices of their most vocal readers.

    The Independent especially is now effectively a specialist paper for the anti-war and climate change lobbies.

    I truly fear for what this wil mean for UK journalism in the long run.

    Similarly, the BBC news service is “chasing” a political agenda and becoming further and further seperated form its’ licence payers. I am no great fan of media subsidy, but it is very sad to see an organisation destroy itself because of the political views of its’ editorial staff.

    I think that the UK, like the US old media requires a heavy dose of market realism to end this sad decline.

    Comment by Chris Allen — April 9, 2007 @ 6:07 am

  10. #7, Patterico.com has made his reputation fisking the LA Times (he has so much to work with, and probably can’t get to half of what he could).

    #8, The wailing and gnashing of teeth will be entertaining.

    #9, sometimes I think the Beeb is morphing into the UK branch of Al Jazeera. I think that the TV subsidy should end, and the Beeb should be privatized.

    Comment by TBlumer — April 9, 2007 @ 6:53 am

  11. [...] Also see Bizzyblog’s indepth review of just what it was that Sam Zell bought, and how much he paid for the newspaper part of the business.  Answer?  Not very much. [...]

    Pingback by NixGuy.com » Explaining Google — April 9, 2007 @ 7:50 am

  12. [...] Tribune <b>Company</b> Sale: An Object Lesson in Old Media Decline [...]

    Pingback by wise-inc.info » Orchestrating Success: Improve Control of the Business with Sales & Operations Planning. — April 9, 2007 @ 10:47 am

  13. This is of course completely uninformative unless you include a comparison to how the industry as a whole (including supposedly non-biased elements) is doing. Newspapers everywhere (in America, at least) have been struggling, and 2000 is pretty good watershed year for when they went over the cliff. How well or poorly did other newspapers handle this transition?

    Oh, but then that might weaken your diatribe against “liberal media bias”. Whereas in reality, the bias exposed in this post is in fact confirmation bias — and it’s on the part of the poster.

    Comment by Bernard Gilroy — April 10, 2007 @ 6:55 pm

  14. #13, Yawn. OK:

    - NYT is down about 35% or so in 8 years, but they’re as biased as anyone can get.
    - Gannett appears to be up about 10% or so since a trough of July 2000. USA Today is tolerable, as are some of their other papers. Some aren’t. On balance, though, less biased and performing better.

    The better indicators are subscriber numbers. LAT has gone from about 900,000 to 775,000 in about 18 months or less. Losing a few % is understandable. Dropping in the neighborhood of 14% in a short time is an indicator that it’s more than just a glacial change in habits. OC Register and other local papers have not declined precipitously.

    The point about the Times dragging the Trib down is that the other papers haven’t suffered subscriber losses like LAT (though they have declined some), so it would be fair to ascribe a large portion of Trib’s deterioration to the LAT.

    Newspapers IN GENERAL are suffering from intractable bias, because journalists have set themselves apart and feel that certain topics, certain viewpoints, and covering certain events is beneath them. The pervasive attitudes in the entire industry have hastened their decline. Other forms of info and entertainment are filling the void they left wide open. It’s a comeuppance they’ve virtually been begging for.

    Comment by TBlumer — April 10, 2007 @ 10:27 pm

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