James O'Shea: "The Deal From Hell"

MR. TERENCE SMITH

11:06:55
Thanks for joining us, I'm Terence Smith sitting in for Diane Rehm. She'll be back tomorrow. James O'Shea spent decades as a reporter and editor. He ran the newsrooms at two of the nation's biggest newspapers, the Chicago Tribune and the Los Angeles Times. Then came a badly bungled merger that is still being sorted out in courtrooms today. A new book, his book, entitle "The Deal From Hell" tells the inside story.

MR. TERENCE SMITH

11:07:28
Author James O'Shea joins me in the studio. Welcome, Jim.

MR. JAMES O'SHEA

11:07:30
Thank you, Terry.

SMITH

11:07:33
It is a pleasure to have you here. The subtitle of the book which is...

O'SHEA

11:07:40
"How Moguls and Wall Street Plundered Great American Newspapers."

SMITH

11:07:47
Right. It seems to me actually more narrow than the scope of the book. The book is really nothing less than a contemporary history of the decline of modern American newspapers, is it not?

O'SHEA

11:08:05
That's true. Absolutely.

SMITH

11:08:07
And give us an outline of what you try to accomplish in it.

O'SHEA

11:08:12
Well, I tried to accomplish three things, really. One was to tell the story of the collapse of the Times -- Tribune/Times Mirror merger and the role, the impact that that had on two great American papers, the Chicago Tribune and the L.A. Times, plus the other papers that were owned, such as Newsday and the Baltimore Sun.

O'SHEA

11:08:38
The second story was how this merger, this kind of signature merger, fit into the overall collapse of newspapers. And then third was, you know, how did I get involved in it and how did I get a front row seat to that and I tried to (word?) those three in a narrative about, as you say, the contemporary decline of American newspapers, really starting in 1999 and progressing to 2009.

SMITH

11:09:04
And you argue that while the internet was a complicating factor and while newspapers and others in the news business were slow to appreciate it -- slow to appreciate its possibilities, it's not the whole story, by any means, of what has brought newspapers down to their current state.

O'SHEA

11:09:28
Yes, I think the -- it wasn't the internet or declining circulations, it was the way that people in the industry reacted to those forces, the steps that they took that made everything worse and it really led to the problems that we have today.

SMITH

11:09:43
And you use words like greed...

O'SHEA

11:09:46
Greed (laugh).

SMITH

11:09:47
...and incompetence and corruption, all those -- all those great things as factors.

O'SHEA

11:09:51
Well, I think part of it, you know, relates to the circulation scandals that really engulf Newsday more than in any other paper, but, I mean, I think when the when the newspapers began experiencing decline in circulations in the 1980s instead of sitting down and saying, what's wrong? Where -- is there something wrong with our content? Do we need to do more to make our content more valuable? The began -- first they changed the yardstick and said, oh, circulation doesn't matter, let's look at readership, which is a much more fuzzy concept.

O'SHEA

11:10:21
Then some papers did begin giving bogus numbers and Newsday was the more egregious and flagrant violation of that and then attracted attention from the U.S. Attorney's office in Brooklyn. But I did -- I looked at audits of 21 major newspapers throughout the country and these are not the statements that they base their press releases on, but actual internal audits available only to ABC members and my analysis and in my footnotes in the book suggest it was widespread.

O'SHEA

11:10:53
You know, most of the time, it was kind of -- it was pushing the limits on numbers and (unintelligible)...

SMITH

11:10:56
They were inflating the numbers...

O'SHEA

11:10:57
Right.

SMITH

11:11:00
...in order to claim a greater readership and charge more for their ads. So.

O'SHEA

11:11:03
Right. And I think was a -- you know, it was that overreliance on advertising and overreliance on circulation numbers that really hurt them when the internet came along because the internet destroyed the ad model.

SMITH

11:11:16
Now, there was, you said, an early effort...

O'SHEA

11:11:18
Yes.

SMITH

11:11:20
...to capitalize upon the internet, something called the New Century Initiative. What was that?

O'SHEA

11:11:28
Yes, the New Century Network. And actually, in 1989, Jim Squires was editor of the Chicago Tribune and he wrote a report called "Project Prosperity" and basically was advocating that you should invest more in content and actually walk away from the ABC numbers and walk away from such as heavy reliance on advertising.

SMITH

11:11:45
We should say that that ABC stands for Auto Bureau of Circulations.

O'SHEA

11:11:49
Auto Bureau of Circulations. And he was treated like a heretic and actually eventually was forced out of the company and the New Century Network was kind of chapter two of that and it was an idea that you would create this kind of huge national content warehouse and all of the big papers would contribute to the content to this warehouse and then they would be paid as people bought that content.

SMITH

11:12:11
That's the point, the customers would pay.

O'SHEA

11:12:14
The customers would pay and so you would begin reflecting in what you charge for content the cost of collecting it. And that didn't work because all of the big newspapers, there were nine big newspaper companies and they spent more time trying to see if they could shaft each other than actually really sit down and come up with a solution. They had a Silicon Valley investor, Kleiner Perkins, interesting in putting some money in this and it just -- it never went anywhere because of the infighting.

SMITH

11:12:40
Well, that goes to the management issue and you're tough on the management of not just the Chicago Tribune, the Los Angeles Times, but of many newspapers.

O'SHEA

11:12:53
Well, I think it did because I believe the newspaper, after looking at this, I see the newspaper as similar to the car companies when they just said, okay, we aren't going to go for new brakes because these brakes work and we're going to just stick with them and the Toyota Motor Companies of the world came along with new brake systems and cleaned their clock. And I think that's what's happening in many respects in newspapers.

SMITH

11:13:14
All right. Now, you then focus -- well into the book, you focus on "The Deal From Hell," as it was called, as your title suggests. Explain what was hellish about it and what the consequences were.

SMITH

11:13:29
Well, when it -- you know, I talk about two deals in the book, really. The first one is the Tribune/Times Mirror deal, which I basically say that they stopped in purgatory first and that was -- that was, at the time, the largest newspaper merger in history. And it forces...

SMITH

11:13:47
And that's in 2000, was it?

O'SHEA

11:13:48
Yes, that was in March of 2000.

SMITH

11:13:49
And in that, the Tribune Company...

O'SHEA

11:13:53
Right.

SMITH

11:13:55
...acquires the Times Mirror properties.

O'SHEA

11:13:58
All of the Times Mirror newspapers and the idea was to create this huge company.

SMITH

11:14:03
And what was the dollar sign on the deal?

O'SHEA

11:14:04
I believe that one was $8 billion.

SMITH

11:14:06
$8 billion, billion with a B.

O'SHEA

11:14:07
$8 billion and so it didn't work, for a lot of reasons. And so in 19 -- in 2006, as everybody's struggling with the -- with the declining fortunes of newspapers, as the Chandler family, which owned Times Mirror, became very disenchanted with the management of Tribune Company and the company was put up for sale. And no one really came up and wanted to buy it.

O'SHEA

11:14:35
And along comes Sam Zell, who is a real estate investor, he had called himself the Grave Dancer for his ability to buy properties for a dime on the dollar and he comes up with a actually kind of creative way of creating an employee stockownership plan that would -- but it saddled the Tribune Company with about $13 billion in debt.

SMITH

11:14:56
Just astronomical amount of debt for that size corporation. You're also quite critical of the 170 odd members of the Chandler family who had traditionally -- well, they'd owned and they'd built up the Los Angeles Times into by far the biggest and most powerful paper on the West coast, if not in the western half of the United States. And yet, they really wanted to clean up and get out.

O'SHEA

11:15:28
Well, they wanted out of there and there are a lot of memos and that that I site where they were heading for the exit and they wanted out fast.

SMITH

11:15:38
And of course, they got a lot of money.

O'SHEA

11:15:39
They certainly did.

SMITH

11:15:41
What, I mean, it's measured in the billions, is it not?

O'SHEA

11:15:42
Right. Right.

SMITH

11:15:44
Right. So they were compensated. You know, at the very time that perhaps the Chandlers and others were, as you say, becoming disenchanted with their products and the papers, there were other families, traditional journalistic owning families, such as the Grahams in Washington and the Sulzbergers in New York and other big companies, McClatchy News and Hearst and others who did not bleed their papers intentionally and yet they had to cut staff, too, and they've faced many of the same problems, so I guess you can't ascribe it all to management.

O'SHEA

11:16:33
Well, I think part of it, though, if you look beneath the surface, the same problems of overreliance on advertising, of not investing enough in -- I mean, they -- everybody invested in -- plenty in building up their ad base, but they didn't -- not on the journalism side. And so I think that the reaction to the internet and the overreliance on advertising and the reluctance to raise the price of their product is the same problem that all of them faced that and I think those are the real driving factors, not just some of the more egregious conduct that you saw in the Tribune case.

SMITH

11:17:11
And, of course, as they used to say about President George H.W. Bush, the vision thing.

O'SHEA

11:17:18
The vision thing.

SMITH

11:17:18
They had problems looking down the road.

O'SHEA

11:17:22
I think the whole industry needed someone who was more of a visionary who could say, okay, here's this huge force out here and how do we as newspapers fit into that force? How do we change and reform ourselves so that we become part of this new force here and we prosper. But we had a lot of people that were looking at it as a threat or weren't looking at it at all.

O'SHEA

11:17:45
And it's amazing 'cause I start my book in 1999 and there's a guy, Robert Cauthorn, from the Arizona Daily Star, he warned the whole industry in a speech at the NAA Convention in San Diego exactly what would happen. Basically he said, you know, we have to be careful if the economy transforms itself and we don't. And that's exactly what happened. So we had plenty of warning.

SMITH

11:18:08
Mm-hmm. And what year was that? And what year was that?

O'SHEA

11:18:10
1999.

SMITH

11:18:10
Exactly. And you say in the book that in 1998, advertisers had pumped a record $44 billion into the coffers of American newspapers, so as even Everett Dirksen would admit, that's real money.

O'SHEA

11:18:26
Yeah, so...

SMITH

11:18:26
And an extraordinary pot of money to be diminished as it has been over the years. Coming up, more about American newspapers, specifically "The Deal From Hell."

SMITH

11:20:05
Welcome back, I'm Terence Smith sitting in for Diane Rehm. I'm talking with James O'Shea, former editor-in-chief of the Los Angeles Times, former managing editor of the Chicago Tribune and the author of a new book, "The Deal From Hell," talking about the problems that have transpired with those two newspapers. Jim, we have a couple of comments from listeners on Facebook.

O'SHEA

11:20:35
Okay.

SMITH

11:20:35
And one, Lou Grantler (sp?) says, "All of the news I get on the internet is free. Why should I pay for it?" He says, "Mr. O'Shea sounds like sour grapes to me." All right. Now, before you answer that and John Ryer (sp?) says, "Craigslist killed the golden goose."

O'SHEA

11:20:54
Well, there's -- on the latter part, Craigslist did have a huge impact because it came along with free classified advertising, which was really -- accounted for nearly half of that $44 billion in 1998 in revenue. And as that went south and basically people began putting ads for free, it definitely hurt, but it wasn't the factor that killed it. It was just one of the things. And the way -- and we didn't really react very well to that.

O'SHEA

11:21:21
Secondly, on getting the news for free, most of the news you're getting on the internet emanates from a newspaper and you're really not getting it for free, basically. You may be not paying for it, but it costs to gather that news. The Committee for Excellence in Journalism did a study in Baltimore recently of how much of the news that was on the air and was on the internet stemmed from -- where did -- what was the source? And it traced the source back to major media in almost 80 to 90 percent of the cases. And a lot of it was from newspapers and those newspapers are diminished.

O'SHEA

11:21:57
So as newspapers continue to get diminished, what's going to happen when they don't have the content to put anymore? I'll tell you what they're going to do, they'll stall putting on press releases out of city hall and -- just for content and pretty soon you're going to be getting, you know, your government-sponsored news. And so this isn't sour grapes, I'm really concerned about the impact that this has on a democracy and the ability of citizens to make good decisions.

SMITH

11:22:19
And I must say, having read the book, that your belief in and dedication to the idea of serious journalism seriously funded taking on ambitious projects comes through.

O'SHEA

11:22:34
Thank you.

SMITH

11:22:34
It comes through in all the stories. Let's talk a little about the personalities involved here because when the Tribune Company made that $8 billion purchase of the Los Angeles Times, the Times Mirror properties, many of them, there was a clash of cultures. I mean, they were two different companies, two different styles. You had a character like John Madigan at the Chicago Tribune, you had the famous Mark Willes at the Los Angeles Times, so tell us about those two just briefly.

O'SHEA

11:23:09
Well, John Madigan was an investment banker. He came from an investment banking background and he was a financial guy. And Mark Willes also was from a business background at General Mills. And both of them were fairly sophisticated business guys who were really interested. Willes had a very strong dedication to newspapers and Madigan was more interested in expanding the scope and making money on it.

SMITH

11:23:37
And Willes was known as the Cereal Killer. What does that mean?

O'SHEA

11:23:42
Well, that's from his days when he was at General Mills. He was vice-chairman of General Mills. And when he came into the Los Angeles Times, the first thing he did is implement a lot of cost cuts, he laid off some people and he went out and shut down New York Newsday. Not the Newsday on Long Island, but the sister paper in New York City and laid off a lot of people. And I think he also shut down the Baltimore Evening Sun, which was an afternoon paper, which had already been -- the decision had already been made, he just implemented it.

O'SHEA

11:24:15
And as the -- you know, the L.A. Times Newsroom was wonderful at coming up with nicknames. I sometimes wonder if we would've been as good at all of our craft as making nicknames, we might not be in this trouble. But they gave him the nickname the Cereal Killer, spelling it cereal not S but with a C.

SMITH

11:24:33
Right. I almost hesitate to ask, what was your nickname?

O'SHEA

11:24:38
I have no idea (laugh).

SMITH

11:24:40
(laugh) Oh, it was that bad, they kept it secret from you, I guess. In any event, the Los Angeles Times goes on, it continues and the Tribune Company as a whole continues to make more than a billion dollars as late as 2006, so it's still a big business, it's still going on and yet the signs of real trouble are there.

O'SHEA

11:25:04
Yeah, you could see the trouble coming because we were losing revenue fast. I mean, you would lose -- in a single year, you'd lose 30, $40 million in cash flow. It was real serious revenue drain. And so you could see the problem coming.

SMITH

11:25:20
And I got a sense that at this point, the moneymen, the managers who, as you just said, in the cases of Madigan and Willes, were more businessmen than journalists.

O'SHEA

11:25:37
Right.

SMITH

11:25:38
More attuned to the bottom line and the journalistic goals. There's something fundamental had changed there.

O'SHEA

11:25:47
Yeah, I think so. I think, you know, the business -- the families that originally owned a lot of newspapers back in the '60s and '70s and that, they were business people, but, you know, they had a public service dimension and they were pretty committed to public service, so they felt like if you -- in the book, I quote Mike Coles, I think, as -- and he's saying, you know, if a business -- the newspaper business has to be bottomed on public respect. And if the public respects what you do, you'll have readers and if you have readers, you'll have advertisers.

O'SHEA

11:26:21
I think in the '80s that was flipped and we began thinking, well, if you don't have advertisers, you won't have money, you can't hire reporter, you won't have news, so advertising's what's important and I think that was a fundamental change.

SMITH

11:26:33
But it's interesting to me that these businessmen, with their eye on the bottom line, did not immediately conclude that they should charge for the content on the internet because that was a fundamental and critical decision taken by newspaper management in -- across the country, really, and they're still dealing with the aftermath.

O'SHEA

11:26:55
Yeah, well, you know, Charlie Brumback, who was the CEO at Tribune Company in the '90s, he was very early into the internet and he was the one behind the New Century Network and he wanted to charge online, but he would get all kinds of resistance from -- even within the newspaper in the circulation departments and other places. They did not want to start charging or link -- you know, increase the price in any way and so I think it was a huge mistake.

O'SHEA

11:27:21
I -- you know, I think what happened in 2006 at the Tribune and a lot of other papers is we had a revenue problem, but we kept treating it like it was a cost problem. And the more we treated it like a cost problem, the worse our revenue problem got. And nobody really focused on that until it was too late.

SMITH

11:27:37
All right. This is the lead up then to "The Deal from Hell," which introduces a new character into the story. And I use the word character advisedly, Sam Zell. Tell us about Sam Zell and what he did.

O'SHEA

11:27:51
Sam Zell was a big time real estate investor in Chicago. He had given himself the name Grave Dancer for picking up properties cheap. And he came along and decided that he wanted to buy the Tribune...

SMITH

11:28:06
Company.

O'SHEA

11:28:06
...Company, all the newspapers. And he really came along and said a lot of the right things. I mean, and everybody was really kind of tired of all of these budget cuts all the times. Every time you turned around, you're trying to figure out how to do more with less. And so here comes Sam and says, you know, you can't cut your way out of this, you gotta grow out of this.

O'SHEA

11:28:25
And everybody, all the journalists, you know, who normally are pretty skeptical people, this is what they wanted to here, so Sam Zell comes along, he's like a rock star and everybody's going, wow, maybe he can -- he can solve these problems that we've been wrestling with for years.

SMITH

11:28:38
He's a multi-billionaire.

O'SHEA

11:28:39
Right.

SMITH

11:28:40
But one who likes to dress in jeans, never wear a tie and I gather, his language was pretty rough.

O'SHEA

11:28:48
It was quite rough, (laugh) I would have to say. He was a colorful character and you never really knew what to expect when he started talking. He could either be -- his voice could be very soft and gentle and then suddenly turn into this tirade. And I think partially it was to disarm you, but it was pretty -- he was a pretty effective and a very powerful guy.

SMITH

11:29:12
So he launched The Deal from Hell. That's his quote, in fact, is it not?

O'SHEA

11:29:17
Right. He later took to calling it The Deal from Hell after it went bad on him.

SMITH

11:29:22
And yet he's still there dealing with it. As things got worse, eventually the company, Tribune Company, went into bankruptcy. It is in bankruptcy, correct?

O'SHEA

11:29:35
Right.

SMITH

11:29:36
And so Sam Zell, who I don't think ever had turned a bad deal in his career -- well, he must've I suppose at one time or another, but I mean, he had made 10s of billions of dollars in office properties and real estate. He had sort of the Midas touch. I assume he went into this to make money.

O'SHEA

11:29:57
I think he thought he was going to make a ton of money. In his view, the assets were worth maybe 18 -- 17 or $18 billion and he's only paying $13 billion and most of that with borrowed money. His imputed rate of return, in his mind, was somewhere in the 30 -- 25 to 35 percent. He really thought that this was going to work.

SMITH

11:30:22
And yet...

O'SHEA

11:30:22
And he was going to make a lot of money.

SMITH

11:30:24
...and yet -- and you thought so at the beginning.

O'SHEA

11:30:27
I thought it had a chance. It was a narrow chance and you could not tolerate a large revenue reduction. It would kill you. But I thought it had a chance, yes.

SMITH

11:30:40
And so you and some of the others who had been there for a long time, can I say, welcomed the notion of Sam Zell coming in and buying the company?

O'SHEA

11:30:50
I think that's fair. I think we all wanted to see something new. We all wanted to see somebody come along and help us solve the problems because most of us were really truly committed to journalism and we wanted to see our papers and our reporting survive.

SMITH

11:31:07
I'm Terence Smith, you're listening to "The Diane Rehm Show." If you'd like to join us, call us at 1-800-433-8850 or send an e-mail to drshow@wamu.org. Find us on Facebook, send us a tweet. We'd like to hear from you. In fact, we have a number of calls already waiting, Jim. Let's go to Beau in Raleigh, N.C. Beau, you're on the air. Go ahead, please.

BEAU

11:31:45
Hi. I've noticed that a lot of the internet, they use newspaper as sources and then they profit off of that, such as the Huffington Post. I was wondering if -- why would -- don't the newspapers all get together and either charge a fee for putting these things on the internet or try to charge a percentage of the ad revenue gained from these processes?

SMITH

11:32:08
Good question, Beau. Let -- let Jim O'Shea answer.

O'SHEA

11:32:11
Well, that was a little bit a part of when I was talking about the New Century Network that the newspapers were going to try to do back in the late '90s and -- but it didn't work because there was too much bickering between them. Also, there are anti-trust concerns and other issues that they have to deal with. But you're absolutely right, most of the content you see in a lot of aggregated news sites really is generated by newspaper reporters.

O'SHEA

11:32:38
I mean, they're still the ones that go out and cover the courthouse, they man city hall and police stations and they put the reports out and then the aggregators link to them and get the content free and there's no ad sharing.

SMITH

11:32:54
And they are the reporters who go to Bagdad and to Kabul and Libya when possible and into harm's way.

O'SHEA

11:33:03
That's absolutely right and it's very costly to do that and it costs an awful lot of money to be -- to man a bureau in Bagdad or particularly in dangerous hotspots where you have to pay for security and all the other issues, so it's a very costly endeavor and they're not getting paid back for that content.

SMITH

11:33:25
Right. Jamie in Horton, Mich. is asking basically the same question, "How can newspapers make a profit when they've given their product away for free for so long? Changing that is not easy, right?"

O'SHEA

11:33:39
No, it's not. And I sometimes wonder if, you know, the answer won't be in some new form of an organization that is going to be able to charge more easily. Part of the problem is people got hooked on getting this information for free or for a very small cost. The major cost for a newspaper is not the reporting, it is the delivery of a piece of paper to your doorstep every morning.

O'SHEA

11:34:07
That accounts for 70 -- in some cases, 70 to 80 percent of the cost of the process because you have trucks, you have gasoline, you have ink, you have print, you have printers, you have presses. You have all of this big expensive machinery you need to produce that paper and then deliver it to your doorstep the next morning. And so, you know, actually, the cost of a reporter and the cost of the journalism a lot of times is like 15 percent. And yet, you know, even now, the cost of most newspapers does not cover that 15 percent.

SMITH

11:34:40
Do you expect newspapers to continue to be printed on paper and delivered more or less the way they are now?

O'SHEA

11:34:48
I think you will have newspapers for a while, but I don't think they can afford to do what they're doing right now. It's a totally broken model. It costs too much. My fear, frankly, is that you will have newspapers and you will have good journalism, but it will be for people who can afford to pay for it. So if you're someone who's willing to pay $2 a day for The New York Times and $6 on Sunday or if you're someone who will want to pay 18 to $20,000 to get a machine from Bloomberg, you will get news, you will get better news than you ever got probably, but it's not the same as it was when a newspaper delivered the same news to everybody's doorstep for less than the price of a cup of coffee every day.

O'SHEA

11:35:35
And I think that's what's changing and that kind of is disturbing because all of a sudden, you're going to have news for the wealthy who can pay for it, but not for everybody and they'll be left to fend for themselves and then they'll get that free information, but I really kind of question the value of free information.

SMITH

11:35:50
All right. Here's another call we can take. John is in Dallas, Texas. John, welcome, you're on the air.

JOHN

11:35:58
Yes, sir. I've got an excellent alternative and an answer to all of his questions.

SMITH

11:36:04
Oh, good.

JOHN

11:36:05
Village Voice Media Holdings has throughout all the cities -- major cities in the United States, newspapers. Our local one is called the Observer. It's excellent journalistic investigative reporting on the part of Jim Schutz. It's got critical talent of -- or that examines music and film. It is absolutely chockfull of advertisements. It's not delivered to my door, but I don't get milk delivery anymore, either. I go out of my way to get this paper and it's free. And there's not a page that I am reading here that doesn't have an ad on it. This is a winning proposition.

SMITH

11:36:54
All right. Thank you, John. I'll let -- well, very briefly, if you can, Jim, this is part of a new phenomenon, the idea of giving it away.

O'SHEA

11:37:04
I -- you know, actually, I was on the board of Creative Loafing, which is a free newspaper company. I can guarantee you, they have problems. (laugh) It's not the solution.

SMITH

11:37:14
Well, it's an approach in any event.

O'SHEA

11:37:16
Right.

SMITH

11:37:17
And I gather in some areas, Palo Alto and San Mateo in California, for example, it's having some success and thriving, actually. All right. Coming up, there'll be more about newspapers and "The Deal from Hell." Stick with us.

SMITH

11:40:05
Welcome back, I'm Terence Smith sitting in for Diane Rehm and I'm talking with James O'Shea, who's the author of a new book, "The Deal From Hell: How Moguls and Wall Street Plundered Great American Newspapers." And he's talking about a saga that I think we have all seen over time.

SMITH

11:40:27
Jim, there's a question that has come in as an e-mail to us. I certainly don't know the answer. The question is, "Have the web and other forces had a similar effect on newspapers in the rest of the developed world? What about the papers in Europe, Canada and Japan? How are they responding?"

O'SHEA

11:40:47
I think they've -- it has had an impact on them, but to the degree that it has in America, in most cases. You still see in Europe challenges with younger readers not picking up newspapers and going to the Internet. But a significant difference occurs in many European countries and that is there is less home delivery, so the papers, they pick them up on their way into work or are at a newsstand.

O'SHEA

11:41:19
Secondly, they have a tendency to charge. Their revenue mix is different. It has -- they get more revenue from circulation and less from advertising and so they have a more diversified ad base. They've had challenges, but they've done a good job in some cases, like the Guardian, of really responding to the challenge, stepping up, investing in their content and so I think that it has had an impact, but not as bad as here.

SMITH

11:41:45
Bring us up to date on The Deal From Hell, on the merger that eventually turned into bankruptcy for the Tribune Company is still in bankruptcy, is it not?

O'SHEA

11:41:56
It's still in bankruptcy. I mean, the real people that -- you know, I mean, it -- this generated (laugh) an awful lot of money for investment bankers and lawyers. The legal bills on this bankruptcy are at about $250 million and probably will go to about $300 million. The investment banks got $280 million in fees for putting this deal together. So, you know, the -- but right now, it's -- there are two competing plans to how to get out of bankruptcy and there are two competing groups of creditors and they're suing each other or, you know, there's all kinds of litigation around with the employees have sued.

O'SHEA

11:42:34
The L.A. Times -- some of the L.A. Times employees who didn't -- whose pensions were suspended have filed a lawsuit against the Tribune Company. There's another class action, there's even a suit against some of the people who were in management positions, including myself, so there's a lot of litigation and the judge has not yet ruled on which creditor's plan that he will approve.

O'SHEA

11:42:58
He may not approve either of the plans and there -- he also asked an examiner to look into the charges, that there was a fraudulent transfer of assets here. And what that means is that in the second phase of The Deal From Hell, did the banks know that this debt would put the company under, but the company got a solvency opinion, which is kind of like a Good Housekeeping Seal of Approval for the deal.

O'SHEA

11:43:27
And was that -- was there some hanky-panky in the solvency opinion and the examiner ruled that it's likely, that if it goes before a jury, that charge may stick. So it's kind of unclear right now whether the judge is going to say, resolve the fraudulent transfer question or if he's going to approve one of these plans.

O'SHEA

11:43:47
So I don't see them getting out of bankruptcy anytime soon and frankly, they're probably -- the papers are probably better off in bankruptcy court now because once they're out, they will be owned by banks that don't want to be in the newspaper business and they're going to want their money back and that's going to mean more cuts.

SMITH

11:44:01
Is the Tribune Company making money as we speak?

O'SHEA

11:44:04
It might be making some money because they don't have to pay off this debt. So they may be in a positive cash flow. I'm not sure right now because it's private now and it's not -- those figures aren't publicly reported anymore.

SMITH

11:44:18
And that would an artificial profit anyway.

O'SHEA

11:44:19
Right. It would be, right.

SMITH

11:44:20
Right. Okay. Let's take another call. Robert is in Miami, Fla. Robert, welcome to "The Diane Rehm Show." You're on the air. Are you with us, Robert? He may well have given up after waiting a while. Instead, let's go then to Matt, in Janesville, Wis. Matt, go ahead, please. All right. Don't hear anything from Matt, either. All right. George in Aurora, Colo. George, tell me you're there. Okay. So I'm sorry. Okay. Let's keep going on with this. The significance of this merger and bankruptcy is not just the Tribune Company. It's much broader, is it not?

O'SHEA

11:45:28
Yes, it was because it was kind of signature -- this a microcosm of what's happening in the industry and the Tribune Company was known as really kind of a darling of Wall Street and a lot of times, a lot of people looked and said, wow, if that company can't make it, how can any make it?

O'SHEA

11:45:45
So it was a symbol, in a sense, of a successful media company that just hit a lot of trouble and when it hit a lot of trouble, everybody starting looking at other media companies with -- grimly and I think it had a huge impact on the whole industry because everybody began saying, if one of the best-run companies in this industry is hitting trouble like this, what's happening with the rest of them?

SMITH

11:46:12
Right. So an impact that is still being felt.

O'SHEA

11:46:14
Sure.

SMITH

11:46:15
All right. Let's try again on the phones. Matthew in Bethesda, Md., are you there?

MATTHEW

11:46:22
Yes, I am here and I'm sure that's some relief to you that I am here.

SMITH

11:46:25
Well, it's nice that somebody sticks around. Go ahead, Matthew. We're pleased to have you join us. What's your question?

MATTHEW

11:46:32
You know, perhaps slightly off topic in terms of I know the discussion's centered upon the business model part of the demise of newspaper, but I guess my question is more of, how do you feel -- the belief in the sense that there used to be a notion that there was objective reporting, that there was an institution called Fourth Estate and the public would look at the Fourth Estate and say, we're getting gatekeepers here that filter the news but give us an objective view.

MATTHEW

11:47:03
And that over time for, I guess, various political and ideological reasons, that that estate's been chipped away at and in a lot of ways, branded as an agent. An agent of liberals over the last -- and that there's such a thing as that mainstream media today, which is considered to be a player as opposed to being objective. How much of that also plays into the demise of the media today?

SMITH

11:47:27
Well, that's a very interesting question because there is -- there obviously has been a great rise in what you could call opinion journalism and you particularly see it, of course, in cable news -- television news, but Jim, what's your thought?

O'SHEA

11:47:43
I do think that has had more of an impact on the electronic and broadcast than it has in print. There are people who think The New York Times is extremely liberal. In the spirit of full disclosure, I'm in a partnership with The New York Times in Chicago, so but I have to say I don't think -- I think reading that paper you get a pretty straight view of what's going on. I think it's still a very objective paper.

SMITH

11:48:12
But going beyond The New York Times, is the question of objectivity, is it being preserved elsewhere in the country in the way it used to be?

O'SHEA

11:48:22
I think so, largely. I think a lot -- in the printed press. I don't think so in the television side of things. There's much more ideologically based TV, Fox News, MSNBC. Some people want that, some people like that, they think that's really true when you're really calling it like it is, but I think in terms of newspapers themselves, I believe it is much more -- there's still a lot of objectivity and a lot of balance.

SMITH

11:48:52
All right. Let's bring in Gary, from Gulf Breeze, Fla. Gary, if you're there, you have a thought on the ripple effect of the failure of newspapers?

GARY

11:49:04
I'm here and if you can hear me.

SMITH

11:49:07
We do, thank you.

GARY

11:49:08
Thank you, Terence and Jim. Yeah, the ripple effect, which to a certain extent, you've already addressed a little bit in the last few callers, but, for example, you addressed the free content issue, which is a very serious economic issue around, which I live in Gulf Breeze, Florida, it's a suburb of Pensacola, Fla. and we have had our newspaper essentially cut itself in half in size. It was bought several years ago, I believe, by USA, the Gannett Group and as a result, what has happened is two things.

GARY

11:49:45
One is that the amount of reporting just dwindled dramatically, in terms of the number of reporters we had out there trying to find stories and, you know, professionally trained reporters. And also, because of free content issues that you brought out before, that went out to radio stations, TV stations and everything else and so now, basically, they're doing exactly what you said, Mr. O'Shea, they are reporting from city hall, they're reporting from the police station and the fire department and a lot of stories are simply not getting covered.

GARY

11:50:24
That ripple effect in communities like ours is huge. In a big city, you probably have many, many, many more reporters who are out there, so on the quantity and quality aspect of it, the ripple effect is enormous out here.

SMITH

11:50:41
Well, Gary, Gary, let me...

GARY

11:50:42
(unintelligible).

SMITH

11:50:44
...let me ask you, just a moment. Let me ask you, Gary, right there. Do you -- you are concerned about this, I can tell that, but...

GARY

11:50:53
Very much.

SMITH

11:50:54
...people you talk to, your neighbors, are they, I mean, is this something that people observe and are concerned about in your experience?

GARY

11:51:04
Yes, they are, but actually, the second part of that question might be important. Is it's -- the only reason it's getting a little bit filled is because we've had a few very local newspapers pop up and those newspapers are now competing with the one major newspaper, The Pensacola News Journal, who has done a great job for years, but now doesn't have the money to do what it used to do, so they're being competed against by half a dozen really small newspapers and even those, they're doing the very best they can, but even those can't afford to do a lot of the things they think they should be doing.

SMITH

11:51:44
All right. Let Jim O'Shea respond to that because of course, this is not confined to the Pensacola area.

O'SHEA

11:51:51
No, it's...

GARY

11:51:51
No, sir, it's all over the country.

O'SHEA

11:51:53
Yes, and it's not -- in big cities, there the same thing is happening. Enormous cuts in staffs of the newspapers by 30, 40 percent, fewer reporters on the street. Other -- in Chicago, I created a the Chicago News Cooperation, which is basically what you talked about there, a local news organization that is trying to fill the gap created by the declines of The Chicago Tribune and The Chicago Sun Times, the financial declines that they're suffering. So what you're seeing in Pensacola, I see all over the country.

SMITH

11:52:28
I'm Terence Smith, you're listening to "The Diane Rehm Show." If you'd like to join us, call us at 1-800-433-8850 or send an e-mail to drshow@wamu.org. Find us on Facebook or send us a tweet. Is that non-profit model the future of serious journalism?

O'SHEA

11:52:54
I don't really think so. I think it might be a bridge to the future, but I don't believe that you can sustain -- you have to create a sustainable model for news. It can't be reliant on one source of revenue. It has to have, I think, a diversified stream of revenue. A little from advertising, some from memberships or subscriptions, some from maybe events, some from other sources, even some from philanthropy, but I don't think that foundations and people like that are just going to continue giving money so people can cover the news. You -- they will give you some money if they think you're moving towards some kind of a self-sustaining news organization and that's what I'm trying to do.

O'SHEA

11:53:43
But right now, I'm right now very, very reliant on contributions and -- both from readers and from foundations and others to kind of create communities of interest around the news so that people can -- I think it's also important for readers to engage in the news again because I think they've gotten away from that and really get engaged so you can talk to reporters, you can talk to editors, you can -- there's some interaction between the two forces and that's what we've been trying to do with the co-op, to try to get people involved in this so that they got a stake in the news and they have a stake in this and if they have a stake in it, they'll be much more willing to support it.

SMITH

11:54:18
Bill Carter in Harwood, Md. has raised the question, "What about the impact of the unions on the big newspapers and this period you're talking about? You don't deal a great with that in the book."

O'SHEA

11:54:31
No, I think -- but I think the unions have been severely weakened. I deal with it a little bit in the Charlie Brumback era where he broke the union in Chicago. He tried to do the same thing at The New York Daily News and it backfired on him, but the unions are really diminished in the newspaper side of things today. They're not as nearly as strong as they were and they see the handwriting on the wall. They're much more willing to compromise.

O'SHEA

11:54:54
They're much more willing to take -- give employers a break on contracts because they can see -- this current model of relying on so much on advertising and charging little or nothing for newspapers simply can't work. It will -- eventually, they'll all go under pursuing that.

SMITH

11:55:13
In fact, some in Detroit and elsewhere have reduced the number of days of the week that they actually produce a physical copy. Is that the future?

O'SHEA

11:55:25
I think so. I think the next thing you will see will be frequency of delivery. Newspapers will begin saying, we can only send it -- or they're going to say to you, if you want the newspaper delivered to your door every day, you're going to have to pay more because we can't continue to do this.

SMITH

11:55:38
Well, they already say that. In other words, the price of the product. Certainly in the case of The New York Times and elsewhere has gone up.

O'SHEA

11:55:46
Yes, and it's going to go up more because they aren't anywhere near covering the costs.

SMITH

11:55:49
So they're creating some sort of boutique product that only certain very interested, highly-motivated people will purchase?

O'SHEA

11:55:56
In some cases, people are doing that, but in other cases, they're just increasing the price of the paper and trying to even their revenue -- you know, their revenue streams, get them a little more diversified. But they -- you know, it's still you've got to go up a lot more before you're going to cover the costs of delivering that thing.

SMITH

11:56:13
And the Chicago Tribune and the Los Angeles Times, will they survive?

O'SHEA

11:56:16
I think so. The Chicago Tribune, I think, will have to get out of bankruptcy court and I don't know what will happen to them, to be honest with you, once the banks own them. The Los Angeles Times has not, I don't think, in my view of it, has not diminished its content has much as the Chicago Tribune did. The Chicago Tribune recently reversed itself and said, we have to start providing more and we have to start, you know, providing enhanced content.

O'SHEA

11:56:43
And the other shoe that will drop will be when they try to charge more for it and see if they can get away with that. But, you know, I think papers like that, they're going to be around, but they're going to be vastly different.

SMITH

11:56:55
All right. Well, thank you. James O'Shea, Jim O'Shea, is the author of "The Deal From Hell" and has been talking about newspapers and their plight. Thanks so much. I'm Terence Smith, it's been a pleasure to be with you.

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11:57:16
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