Front page ads coming to LAT *

Folks,

As we move into the second half of our year, I wanted to update you on developments and the game plan for the rest of the year. There are some real positives:

The first half of the Zell/ESOP deal was completed, and we appear on track for completing the rest later this year, including getting all needed regulatory approvals. We are fully immersed in the “Times Change” process of reinventing our business to succeed in today’s marketplace. More to come on that, including acting on the recommendations of the just completed Reinvent Committee work, in the coming days and weeks.

The bad news is that we continue to face a most challenging revenue environment. Revenue was down 10% in the second quarter, and cash flow down a whopping 27%, making it one of the worst quarters ever experienced. Here again there were some bright spots, with good growth in movies, preprints, online and Hoy, but not enough to offset the ROP decreases in the core print business. Results were similar across Tribune, but overall Tribune was worse than most of the industry (not where we are used to being or want to be).

Fundamentally, the advertising business has changed dramatically. Newspapers, once nearly the only game in town for a lot of advertisers, now face competition like never before – a big part is the Internet, but also cable, cell phones, digital billboards, ads in computer games, you name it.

In paper (ROP) advertising has been especially hit hard, down nearly 20% over the last few years. This is a big issue since ROP advertising has been what historically has surrounded – and paid for – the editorial content in the paper. Moreover, research shows ROP ads are actually one of the big reasons readers buy and look at the paper (unlike most media). We (and our readers) don’t want the paper to turn into a wrap for ad inserts.

Plainly, business as usual in a drastically changed world isn’t cutting it. That’s what our “Times Change” efforts are all about. And for us to sustain ourselves financially, this change has to drive new revenue. We need improvement in the second half of ’07, and then carry it forward after we become a private company owned by ourselves and Zell.

Many things are already in or moving toward the market – the launch of Image (which is slated to go weekly in September), the re-design of Travel; Monday’s launch of Metromix.com; the planned October launch of our new Thursday Calendar tab and broadsheet sections and subsequent new Calendarlive website; and more new interactive product development (with the technology support to make it happen).

We’re looking at how our ad sales go to market and realigning our sales force accordingly, and adding new sales talent in key positions.

We are also looking at expanding the types and positioning of advertising we offer our clients. Here the opportunities include things that may really challenge established traditions, including putting ads on the paper’s front page. There has been a lot of focus on such ads, and I know there a real mix of views and emotions on this subject, so let me tell you what I think of them:

Front page ads will raise several million dollars in revenue, and make a meaningful contribution to improving current trends
We will make sure the revenue is additive, and not just switched from other pages
They will help pay for the content we create for readers, and for our investment in new growth opportunities
They are common at reputable papers across the U.S. and Europe, including in the Wall Street Journal’s much admired re-design
Space taken (1 ½” strip) and related design issues can be managed
We will have standards to ensure the ads look good, not schlocky
If we communicate well, reader reaction should be OK

Remember, one way or another we all impact our revenue business. Everybody who creates content for our readers and users, or manufactures or delivers, or sells to advertisers, handles customer service, or touches our customers in any of the millions of ways we do each day – all of us can and do have an impact.

As always, I am eager to hear your comments and suggestions. Transforming this great company for the future really rests on all our shoulders. It’s a cross-company effort and, more than ever, we need to pull together.

David