The Deal from Hell

Table of Contents

 

 

 

To the journalists who made
the
Chicago Tribune
and the
Los Angeles Times
great newspapers

THIS IS NOT a book I wanted to write.

Soon after being fired as editor of the
Los Angeles Times
in early 2008, numerous friends called and told me I should write a book about my experiences over the years. I must confess that I had often thought about writing a book about the business I loved. I even kept a diary recording my experiences in Los Angeles in case I wanted to reconstruct some of the events for a book.

But I always thought my newspaper book would be a novel. In 2008, after several bruising years on the front lines of the newspaper wars, I had decided to put the whole thing behind me and try something else—maybe help with a political campaign or take various menial jobs to write a book about work in America. Or maybe resume my interest in photography or ride my bike from Belfast to Beirut.

Then I began thinking that no one had reported and written about the troubles confronting my craft from the perspective of a working journalist. And that's what this book is—a view of the media maelstrom from a journalist who worked in the trenches for more than three decades and loved every minute of it.

I make no apologies for my biases, and I make no excuses for the fact that I am first and foremost a reporter. As I began thinking about the disaster that has struck newspapers, I realized I really didn't know
what had happened, even though I had a front-row seat running the newsrooms of two major American newspapers, the
Chicago Tribune
and the
Los Angeles Times
. If we really don't know how we got into this mess, I wondered if anyone could ever figure a way out. So I set out to report and write exactly what happened, without fear or favor.

It would be easy to condemn the people who caused this modern tragedy as venal and evil. Thousands of friends and colleagues the world over have lost jobs because of the way the industry has been managed. Some were venal, all right. But most of the people who led newspapers to this point in history were smart and thoughtful. They thought they were doing the right thing, and that's what makes the story of what happened so terrifying. It shows this disaster could happen to anyone in any industry.

Please visit
thedealfromhell.com
for pictures, videos, author interview, and more information about
The Deal From Hell
.

I
n April 1999, John Madigan walked decisively into the lobby of the Hotel del Coronado. Tall, imposing, and impeccably dressed, the Tribune Company CEO arrived at the red-turreted hotel as a star-studded guest list of some 1,200 publishers, consultants, and experts gathered for the national Newspaper Association of America (NAA) annual meeting. Seasonably cool temperatures chilled San Diego, as Madigan, head of the company that published the
Chicago Tribune
, bypassed the parlors and lobbies where publishers traded industry scuttlebutt about the story of the day, the evolving coverage of two Littleton, Colorado, students who had opened fire on classmates at Columbine High School. But the Tribune chief hadn't flown to San Diego merely to gossip or to hear luminaries like former President Gerald Ford, talk-radio host Dr. Laura Schlessinger, or Sergio Zyman, Coca-Cola's marketing guru, speak to newspaper publishers. Madigan had set up a private meeting with Mark Hinckley Willes, the CEO of the Times Mirror Company.

At six-foot-five, well groomed, and trim, Madigan has a chiseled face that could be on Mount Rushmore. A
Tribune
columnist once introduced him as a man “who has never had a bad hair day.” Reared in Chicago, a town where even the choirboys are tough, Madigan arrived at Tribune in the 1970s from the world of investment banking. His goal was to whip the company into shape so its stock could be sold publicly. Reserved and sober, Madigan could be charming one moment and quite cold the next.

Madigan and his predecessor as CEO of the company, Charles Brumback, had created a corporate media powerhouse from the ashes of the old
Tribune
, a media icon made famous by the idiosyncratic Colonel Robert Rutherford McCormick, a colorful, rambunctious genius who had once tried to reinvent the English language to his eccentric taste. In the nineties, when Brumback was CEO, and Madigan the CFO, Wall Street and company insiders considered Brumback the visionary, and Madigan the financial market tactician. Brumback, a Korean War medal winner and accountant, was known for his combative personality. His embrace of new technology, and brutal, bottom-line mentality drew rave reviews from stock analysts. He overshadowed Madigan, a Marine Corps veteran who could be frank in private but highly insecure in public. After he seized the reins at Tribune, though, Madigan showed his true ambition and determination. He drove earnings into the stratosphere, cranking out a record 25 percent annual profit margin for the Tribune Company after only four years at the helm. Anyone who had bought 2,500 shares of Tribune stock in 1983 at the initial offering price of $26.75 had $1 million worth of stock in 1999. By the time Madigan entered the Hotel del Coronado, he was poised to make headlines that would shove Brumback and his legacy into the shadows. Just months before, he had challenged David Hiller, a lawyer turned newspaper executive in charge of the company's development arm, to come up with transformative ideas that would put the
Tribune
on the nation's major media map. He did not want one of those one-off TV station deals that had become standard fare at Tribune, but something big. Hiller's response: Buy Times Mirror.

Sitting upstairs in his room, above the din of the industry chatter, Willes had naïvely suspected nothing when he originally took the Tribune CEO's phone call and agreed to meet. With neatly groomed silver hair, an easy smile and melodious voice, Willes wore large wire-rimmed glasses and
GQ
attire. Evangelistic by nature and inclination, the devout Mormon brought to Times Mirror a mixture of William Randolph Hearst and Gordon Hinckley, Willes' uncle and the president and prophet who led the Mormon Church through a period of global expansion. Willes, who'd been recruited for the top job at Times Mirror by the legendary Chandler family in Los Angeles, could be both emotional and a tough corporate taskmaster.

Square, and proud of it, the Salt Lake City native had followed the stock market when he was in grade school and graduated from Columbia University with a PhD in economics while still in his twenties. At thirty-five, he'd been named president of the Federal Reserve Bank of Minneapolis, the youngest person the Fed governors had ever tapped to head a district bank. Willes spoke with ease and confidence to readers, newspaper executives, and Wall Street analysts alike. But he wasn't a newspaper careerist. After his tenure as a central banker at the Fed, Willes had spent 15 years at General Mills before landing his CEO job at Times Mirror. But Willes' lack of newspaper credentials meant little to the Chandlers; they had selected him to head the company founded by General Harrison Gray Otis for his ability to drive up the company's stock price. And he had delivered—fast.

As Willes and Madigan exchanged pleasantries in Willes' room and took the measure of one another, their respective companies were flourishing in an industry flush with cash. In response to competition from TV and radio, the industry had consolidated into huge corporate chains. The result? Thriving companies like Tribune and Times Mirror had far-flung operations comprising newspapers, television stations, and non-media assets that generated oodles of cash. In 1998, advertisers had pumped a record $44 billion into the coffers of American newspapers, adding muscle to the bottom lines of newspaper chains and the dwindling ranks of independently owned publishers. The gross
numbers told only part of the story; newspapers posted profit margins of 20 percent and more, making them virtual cash machines that Wall Street investors coveted.

But the sky-high stock prices and fat returns that Madigan and Willes delivered for Wall Street obscured an alarming trend. Newspaper classified advertising was sinking in quicksand as publishers across the nation struggled to gain and retain readers. For their part, the journalists turned a blind eye to problems in their own industry, thanks at least in part to the time-honored wall erected between newsrooms and the business side of newspapers to maintain the integrity of the news.

The impending collapse of the classified ad franchise would strike at the heart of the industry: Of the $44 billion in industry ad revenue, classified represented nearly half, or $18 billion. A decade later, people would marvel at the speedy decline of newspapers, but even in 1999, some industry insiders warned that complacency, arrogance, and greed could cripple the business of journalism, particularly in companies with heavy investments in newspapers. Robert Cauthorn, director of new technologies at the
Arizona Daily Star
, warned publishers in San Diego: “We cling too long to a dream in which we can do things as they've always been done even as the world is rapidly changing us. Our fat profit margins have lulled us into a complacency that is very dangerous. Interestingly, the economy is retooling and transforming faster than we have retooled and transformed our industry. What happens if we step entirely out of cycle because the fundamental nature of the cycle has changed?”

Meanwhile, the news industry's flailing response to the emerging Internet threat exposed an unwarranted self-confidence. In the early 1990s, Brumback tried to interest big publishers in the New Century Network, a consortium of America's top-nine newspaper companies that would create a national news and information network online, for which customers would pay. In return, the customer would have access to a full-range of national newspaper content and services online. But industry leaders tried to ignore the Internet, fearing it would
cause disproportionate damage to their existing business. Their internecine squabbles eventually destroyed the New Century initiative. Cindy Sease, a Sioux City classified ad director who also chaired the NAA's Classified Ad Federation, warned the publishers, “When we are up against huge software industry giants, we need to band together as an industry and stop worrying about knocking one another off.”