The Deal from Hell (36 page)

LA Observed
would have a field day.

Hiller had sent me an e-mail saying he might need my counsel about something. Then Wolinsky dropped by my office to report on the newsroom gossip mill. “I know this isn't your area, but somebody's got to do something,” Wolinsky said. Soon Nick Goldberg, Martinez's deputy, came into my office and implored me to intervene.

When I met with Hiller, I didn't have to raise the subject. He told me about Martinez and said he felt we could explain the situation in a note and publish the section. He asked me for my thoughts. I told him to kill it. Hiller was shocked. “You are the only one to suggest that,” he said. I told Hiller I had been a journalist for thirty years and I felt strongly that we'd be crucified for publishing Grazer's section, with or without a note.

The discussion went on for quite a while and spilled into the next day as Hiller called others seeking their views, a lawyerly tactic but one that also spread the story. Martinez was furious with me, and the blogs had a great time with it. But Hiller seemed far more worried about how Grazer would react. In the end, Hiller listened to me. He killed the section and the guest editor's project. Martinez resigned, a baffled Grazer was miffed, but Hiller got positive reviews from most observers.

More significantly, the incident seemed to bolster my credibility with Hiller in our ongoing wrangling over the budget. He was honest and would listen, but was vulnerable to adopting the position of the last person to get his ear. I learned with Hiller that I had to make sure that I was the last in line. Hiller had originally sought a budget number from the newsroom that would have required me to chop seventy-five to eighty people from the staff in addition to numerous space and expense cuts that were wrong for the paper and that would undermine my credibility. I reminded him of the agreement that I had struck with Smith and I argued for a less ham-handed approach.

Cutting staff is a horrible exercise under any circumstances, but it is particularly hard in journalism because many readers and sources in the community establish a bond with the reporters who cover
them. Every single item in a newspaper has a constituency, whether it's the bridge column, the comics, a star columnist, or sometimes even a secretary.

Just months after I arrived at the
Times
, I started preparing my senior editors for an imminent staff reduction. We crafted a list of people who should be canned for performance issues. That was easy. Then I announced an open-ended voluntary buyout in which anyone who wanted to leave would receive a week's pay for every six months of service up to a year's pay. We gave the staff a few weeks to think about their options, as my editors fanned out through the newsroom and advised people on the poor-performance list that they should agree to the buyout, lest they be fired and get nothing. The open-ended nature of the buyout was dangerous; people who you didn't want to leave might take it.

Accountants arrived at the number of jobs I needed to eliminate in a buyout by assigning an average salary to a job. If people with salaries higher than the average accepted the offer, I wouldn't have to eliminate as many jobs. In my case, fifty-seven people, some who I wanted to leave and many who I didn't, raised their hands, giving me far more in total salary than I needed to meet my goal. I convinced Hiller to let me use the excess dollars to hire back about twenty-five younger journalists who were cheaper than some who had left. The deal left me with a net reduction of only thirty-two journalists and allowed me to inject some fresh blood into the staff, which was always good for morale.

In keeping with my deal with Smith, I also began looking for opportunities to increase revenues at the
Times
. Scanning a Baquet memo about future plans, I noticed a proposal for a fashion news section for Los Angeles. All things being equal, I probably wouldn't have dedicated precious resources to coverage about Ferragamo and fedoras when rampant corruption and war plagued the nation and the city. But all things were not equal. Fashion, properly covered, was news to many people and reflected broader social trends. Plus the section could generate fresh revenue from new advertisers, money that would help me finance stories on budgets and battles. Working with
colleagues in the advertising department, John Montorio and his editors had proposed a brilliant section called Image that offered full-color, sophisticated coverage on a national scale.

We convinced Hiller to authorize the section and to approve an additional eight to ten hires to generate news that would result in revenue. Over a nine-month stretch, Montorio's editors produced thirty-eight sections to rave editorial reviews. Image attracted new advertisers, and while it generated more than $5.5 million in new revenues, it made more than $2 million in profit to prop up the paper's struggling cash flow. In effect, I had paid for the Baghdad bureau with coverage of shops, shoes, and Chanel.

By accident as much as design, I had started to achieve my goal of combining revenue enhancements with modest cost cuts to stabilize the newsroom and meet the budget. Sean Reily, an editor and a budget ace, proposed that we go through the entire paper and select sections where we could replicate our experience with Image.

The
Los Angeles Times
that I inherited was an excellent newspaper that regularly won Pulitzer Prizes. Consistent with Puerner's philosophy that paid content was a winning strategy, Carroll and Baquet had built exceptionally strong foreign and national news coverage, a vibrant Washington bureau competitive on major stories, and a stable of investigative reporters who regularly rooted out corruption and neglect with huge multipart stories. Under Montorio, the paper also had a collection of excellent feature sections, many of which Reily began to assess to determine whether they had the revenue potential of Image. But the paper had always had trouble crafting a strategy to cover the huge, sprawling city it called home. Anyone reading the
Los Angeles Times
didn't really get a good sense or feel for this fascinating, diverse city and region. I was determined to correct that imbalance and told everyone that metro was my highest priority in new hires and budgeting.

But the controversies kept coming. “Editors here have always had to live with controversy,” Reily told me one day. “But I don't think I've ever
seen anything like what's happening with you.” Controversies over the paper's content were raised left and right. When Frantz had a problem with a story about the Armenian genocide (the writer, of Armenian descent, had shown that he had an opinion on the issue and we had reassigned it to another writer), there was an uproar in the strong and impressively large Armenian community in Los Angeles. Unlike me, who had once run a newsroom under attack by the powerful Chicago Israeli community, Hiller had never been at the other end of a gun aimed by a special-interest group. And the Armenians knew how to attack: They flooded the company with complaints. At one point, my BlackBerry was immobilized by the number of e-mails I received from Armenians.

Meanwhile, the circle of investors hovering over Tribune Company in hopes of buying it became far more controversial when Chicago real estate billionaire Sam Zell joined its ranks. Then, just as I was telling the newsroom who had agreed to the buyout, Mike Oneal of the
Chicago Tribune
broke a story about huge bonuses being awarded to key executives in Chicago who had agreed to stay on until the company had been sold, making it appear as if managers like me were cutting budgets to finance huge bonuses. I was livid and drafted a memo to the staff announcing the buyouts but also addressing the bonuses, which I characterized as indefensible. The blogosphere had a field day, of course, and Hiller called early the next morning to say, “I just got off the phone with one pissed-off chairman.”

Gradually, though, the newsroom started to settle down. Some staffers privately said I spent too much time in my office and that I wasn't as open and charismatic as Baquet. Unfortunately, that was true. I didn't make time in Los Angeles to demonstrate my journalistic skills as an editor. That was my fault. But the newsroom had changed for the better under me. There was more hope in the air. The staff had removed most of the pictures of Baquet and Chandler and was busy getting back to work. I started hiring some new staff members and replacing others and the first Image section debuted.

About six months after I had arrived, FitzSimons came to Los Angeles for a visit. Over breakfast, we engaged in ritual chitchat. But
after a few minutes, FitzSimons' brow furrowed, and he pulled from his briefcase my original memo on the
Los Angeles Times
. “Well, Jim, it's been six months,” he said, “and I'm not too impressed.” He wondered why I hadn't done more, a sly reference to my failure to fire Wolinsky and others on my masthead, and why I criticized the bonuses in my statement about staff buyouts. “You didn't even know what those bonuses were about,” FitzSimons erroneously chided me, noting that the tone of my memo implied that I had an inflated view of myself and my role. “The day of the imperial CEO is over, Jim, and so is the day of the imperial editor.”

N
ot long after I had walked into the newsroom as editor of the
Los Angeles Times
, Todd Kaplan, a high-powered Merrill Lynch investment banker, placed a phone call to one of his longtime clients, Sam Zell, a billionaire deal junkie who had nicknamed himself “the grave dancer” for his ability to pick up distressed properties for a dime on the dollar. Zell had balked at bidding on Tribune Company when Wall Street started shopping the company around: The asking price was too high. But Kaplan, who was advising Tribune and had done dozens of deals with Zell, convinced him to take another look.

FitzSimons' $2 billion stock buyback effort had saddled Tribune Company with a lot of debt and had infuriated the Chandlers. In private, the Chandlers had hinted they might shop their stock around because they were at loggerheads with Tribune over the valuation and tax treatment of their family trusts. The Tribune's announcement that the company would launch the stock buyback was the last straw. Lawyer William Stinehart fired off his harsh letter, dramatically elevating the row by publicly accusing FitzSimons and the Tribune
board of incompetence and dismal performance, and of blindly pursuing a deeply flawed synergy strategy.

At the time, Tribune's revenues were declining, largely due to soft advertising in Los Angeles: As the subprime mortgage fiasco began to unfold, real estate ads were diminishing, and Hollywood movie studios, too, were drawing back on advertising. In the face of a declining market, traditional advertisers were exploring what options existed for them online. But things were not as bad as the Chandlers' sky-is-falling letter implied. Despite some rough patches, Tribune Company posted robust operating profit margins, earning about $1 billion in 2006, or profits equivalent to 18.5 percent of its revenues, down from the 20 percent level the year before, but still an enviable margin.

In his letter, Stinehart outlined a strategy for going forward and exploring “strategic alternatives,” which included: “breaking up and selling or disposing in tax-free spinoffs some or all of its newspaper properties and the possibility of an acquisition of Tribune as a whole at an attractive premium.” The Chandlers' outrage put enormous pressure on the board to sell the company, but before Tribune could be sold, it had to unwind the Chandler trusts. Shortly thereafter, FitzSimons and the Chandlers struck a compromise, and the Tribune board created a “Special Committee” of directors led by William Osborn, a respected Chicago banker from the Northern Trust Company, the Tribune Company's bank. The special board was established to explore strategic options, the financial market euphemism for a “For Sale” sign. The acrimony with the Chandlers didn't end there, though. By virtue of their large stockholdings, the Chandlers were not on the Special Committee composed of outside directors, a ploy to deny them the opportunity to leak board proceedings.

On Wall Street, the same investment banks that had sung Tribune's praises for its earnings and had pressured the company to keep posting sky-high cash flow margins had hammered its stock to about half of its all-time high per share. Analysts complained of soft ad markets, competition from the Internet, and, of course, declining circulations. The present may be okay, market analysts at places like Merrill Lynch
assessed, but the future was bleak. The Tribune's Special Committee hired Morgan Stanley as an adviser, while Tribune Company hired a collection of firms under the Citigroup banner and Merrill Lynch, their longtime investment banker. The two largest shareholders hired advisers, too. The Chandlers hired Tom Unterman's private equity firm, Rustic Canyon Partners; the McCormick Foundation hired the Blackstone Group. The race for solutions was on.