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Four more Clear Channel executives jumped to Tribune last week, and together with the radio and TV veterans that had already joined the Sam Zell team it suggests to the Wall Street Journal that Zell "may put more emphasis on the broadcasting side of Tribune, a side of the business that generates higher profit margins and doesn't face the same rapid falloff in advertising as the newspaper business." Tomorrow's WSJ also says:
The emphasis on television reflects its relatively healthy performance. The company's broadcasting and entertainment side -- including a chain of 23 broadcast TV stations -- already generates much higher profit margins than its newspapers, which include the L.A. Times, Chicago Tribune and Newsday of Long Island. Although the broadcasting side accounted for just over a quarter of the company's revenue in 2007, it produced nearly half the company's operating profit, according to a filing last month with the Securities and Exchange Commission.And while many newspapers across the industry have been posting sharper declines in ad revenue so far this year compared to the beginning of last year, analysts expect the local TV business to do better, in part because of the influx of political advertising tied to the presidential election.
As Tribune begins to sell major assets, broadcasting is likely to become even more important to the bottom line.
As Mark Lacter observed on Friday, market analysts are using words like default when talking about Zell's Tribune foray. "Sam Zell made an unfortunate bet, if you will, jumping into a business he knew nothing about," said newspaper analyst Miles Groves.
* Add more national press: Also on Monday, the New York Times reports that "analysts say Tribune probably needs to sell both the Cubs and another major asset like Newsday, and relatively soon, to remain solvent."
Of course, if this house is ablaze, Mr. Zell has supplied much of the kindling. Almost $8 billion of Tribune’s debt came from the highly leveraged deal, which he engineered, that took the company private. That borrowing now looms as the biggest threat to the company, at least in the short run....“This thing looked shaky from the start,” said Ken Doctor, lead analyst with Outsell. “It looked worse by the time the deal closed in December, and it’s gotten worse since then.”
Tribune is closer to the precipice than Zell expected:
Tribune’s papers fared worse yet, losing 10.5 percent of ad revenue last year. Even so, the company’s operating margins were healthy by industry standards. What sets Tribune apart is its debt burden. Its debt service bill this year is almost $1 billion, not including a $650 million balloon payment from the takeover financing that is due in December, and one for $750 million due in mid-2009.Last year, the company had earnings (before interest, tax, depreciation and amortization) of about $1.2 billion. But 2008 is expected to be more difficult, and the company’s bond covenants require it to have earnings around $1.1 billion or risk being declared in default — even if it has the cash to make its interest payments.
Tribune’s credit rating has slipped several notches below investment grade, and its bonds are trading far below their face value, signaling that the market sees a high risk of default. The company’s long-term, unsecured debt can be bought for less than 50 cents on the dollar.
Despite these problems, some of Mr. Zell’s strategic moves have been praised by some industry analysts. Tribune created a subsidiary to combine and streamline back-office operations of television stations, and sold Tribune’s Hollywood production studios and some related real estate for $125 million. It merged the online operations of a Miami television station, WSFL, and the Fort Lauderdale newspaper, The Sun-Sentinel.
The company shifted a San Diego station, KSWB, from the CW network to affiliation with the more lucrative Fox network, and gave The Baltimore Sun the go-ahead to start a youth-oriented tabloid. Several stations have new general managers, and The Orlando Sentinel has an interim publisher.
Tribune has replaced most of the company’s upper management, hiring some highly regarded television executives, and also some from the radio and music industries who have no experience in television or newspapers. One of the latter, Lee Abrams, the chief innovation officer, has already gained something of a reputation with long, rambling, excited e-mail messages to the staff, loaded with references to the history of rock ’n’ roll, that have left people scratching their heads.