May 20, 2013

I’m not a fan of speculating who will buy newspapers that are on the block. But I’ll make an exception with some quick thoughts on Tribune Co.’s publishing group — currently attracting investor interest as expected but likely months away from actually being sold.

The buzz has gotten buzzier with reports that David and Charles Koch are interested bidders and would infuse the Los Angeles Times and Chicago Tribune with their conservative political agenda.

I don’t think that is very likely to happen for a simple reason. It would be a bad business move, running a high risk of alienating news staff, readers and advertisers. And say what you will about the Kochs’ big-money political offensives, these guys are supposed to be savvy businessmen, right?

Duke professor James T. Hamilton in his 2004 classic “All the News That’s Fit to Sell” applies economic theory to the industry and chose as his lead example the rise of nonpartisan newspapers in the late 19th century.

With new high-speed presses and the beginnings of a substantial advertising base, Hamilton explains, publishers figured out that they could add more readers and attract more brand advertisers by steering down the middle — moving away from open entanglement with political parties as had been the norm for the previous hundred years..

That still remains a sound business principle. Smart executives ranging from the late Al Neuharth to Warren Buffett get it and have said explicitly that they put their personal political views aside in running a chain of newspapers.  They let local publishers make the decisions on news coverage and editorial page endorsements.

Hamilton (using historical rather than contemporary data) identified a partial exemption to the non-partisan rule.  A Democrat or Republican paper could be successful if that matched the tilt of the community itself.

That would make Tribune papers a particularly poor match for the Koch brothers’ political activism. You would be hard-pressed to find two bluer cities than Los Angeles and Chicago.  Hartford, Baltimore and Fort Lauderdale are reliably Democratic as well.

If the Koch brothers have the newspaper bug, they would do better to try to acquire their hometown Wichita Eagle from McClatchy or make an offer for Lee Enterprises’ Wisconsin State Journal, the better to cheer on Gov. Scott Walker and Rep. Paul Ryan.

Tribune would be a very expensive megaphone. And making metros financially viable is plenty difficult without the added negative of perceived partisanship.

Another dynamic in the sale is that Tribune’s bank and investment fund owners have said they would prefer to sell the publishing group (or possibly the whole company) in a single transaction. However some of the potential buyers, particularly in Los Angeles, are much more interested in a single title.

Figuring out the best deal when firm bids are in may extend the auction process, which typically takes six to nine months in the best of circumstances, well into the fall.

And there is a little noticed glitch for wealthy locals who may be hoping to do a good deed by buying the hometown paper and keeping its coverage strong. Tribune over the last three years has become an even more highly centralized company than before.

It was a leader in consolidating copy-editing and design functions at an editing hub, for instance producing most pages of the Newport News Daily Press from an operation in Chicago.  Much the same goes on with traditional business functions and development of digital products and ad sales strategies.

So new owners of one or several Tribune papers could face the challenge of what analyst Ken Doctor has called “de-consolidating.”  Re-creating the editorial and business functions that have just been pooled would be a step backward in expense control.

Finally, the well-chronicled antics and misadventures of former owner salty Sam Zell and his CEO radio-guy Randy Michaels may leave an impression that the company is in shambles after its long slog through bankruptcy court.  That is no longer accurate in my view.

Actually, leadership has been stable for two-and-a-half years under top executives Eddie Hartenstein in L.A. and Tony Hunter in Chicago, still in place for now. Tribune has been a full participant in the paywall trend and other forays into new revenue as well as carrying out aggressive subscription price increases.

I have heard several execs from competing companies praise the Chicago Tribune strategy of running blank pages in advance of raising rates to indicate that more foreign coverage and other editorial enhancements were in the works.

Another positive sign is that five of the eight Tribune papers had either winning or finalist entries in the most recent round of Pulitzer Prizes, announced a month ago.

Tribune’s rudimentary financial statements do not break out results of the publishing division. But the company as a whole was profitable to the tune of 10 percent on a net basis and much more considering just cash flow  — results comparable to Gannett’s.

So I would not totally dismiss CEO Peter Ligouri’s comment last week that owners may look over the bids and decide to keep the papers instead. (Reconfiguring Tribune as a television company — with its local stations , WGN cable network and a 30 percent stake in the Food Network — still seems the more likely outcome).

Meanwhile, with Rupert Murdoch’s News Corp as well as the Koch brothers in the wings as a potential bidder, the auction makes for great spectator sport. And it legitimately has several thousand news staffers wondering who they will be working for by the end of the year.

In that respect a reporter at one of Tribune’s papers told me last week that he and colleagues are getting teased that they need to be readying a multi-part series on why CO2 emissions are good for you.

Good joke, unlikely scenario.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
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