Bloomberg News

Tribune Spinoff Hastens Ending of Newspaper-Television Marriage

July 11, 2013

Tribune Co. (TRBAA:US)’s plan to spin off its newspapers from the company’s TV business follows similar moves by News Corp. and Time Warner Inc. (TWX:US) and heralds the end of an era when news broadcasting and publishing went hand in hand.

Companies with print-media roots had spent the past four decades snapping up television and film assets, betting in part that the two industries would help promote each other and boost efficiency. No longer. A seven-year decline in print advertising, a lack of synergy and looming costs from newspaper pensions have led to an industrywide divorce.

Over the past year investors have increased pressure to hive off publishing assets from faster-growing video businesses. News Corp. (NWSA:US) split the two entities last month, turning the largest U.S. newspaper publisher into a separately traded stock. Time Warner, meanwhile, plans to spin off its Time Inc. magazine empire later this year. That will let it focus on its growing cable networks that include HBO, TNT and TBS.

“What all these companies are saying is, ‘The newspaper and magazine assets are not going to grow, and we need to maximize the value of our core business and that no longer includes print media,’” said Ken Doctor, a media analyst at Burlingame, California-based research firm Outsell Inc.

Tribune’s proposed spinoff of its newspapers, announced yesterday, also puts the television business in a position for an initial public offering, Doctor said.

The company emerged from bankruptcy at the end of last year after an $8.3 billion takeover by billionaire real estate developer Sam Zell torpedoed it with debt. Tribune’s publishing group was valued at about $623 million in its bankruptcy filings last year, $300 million lower than a January 2011 estimate.

No Drag

“Tribune’s owners want to shine up the TV business and get it ready for an IPO or a sale event, and you don’t want the newspapers being a drag on that,” he said.

The company, led by Chief Executive Officer Peter Liguori, agreed this month to a $2.73 billion deal to buy 19 stations from Local TV Holdings LLC in the broadcast industry’s biggest transaction in six years. The acquisition gives the company 42 stations in 33 markets.

The newspapers industry reached a peak of more than $49 billion in ad sales in 2005, the last year of growth, according to the Newspaper Association of America. The revenue has declined by almost half since then, falling to about $25 billion in 2012.

Bygone Era

Newspaper publishers had been buying television stations since the dawn of the TV industry in the 1950s. Many newspaper companies, including Tribune, expanded their television holdings through the 1970s and 1980s as more audiences tuned in. Washington Post Co., Gannett Co. (GCI:US) and most other large newspaper chains all have fleets of stations.

In spinning off its newspapers, Tribune is backing away from seeking an immediate bidder for the business. The company had hired advisers to evaluate interest from buyers, according to people familiar with the process. Tribune could still sell its newspapers before the spinoff is complete, a person familiar with the company’s thinking said yesterday.

News Corp., meanwhile, serves as both a model for Tribune’s spinoff proposal and a potential buyer for some of its newspapers. Billionaire Rupert Murdoch split up his media empire into a new publishing company and an entertainment business last month. The newspaper side, which retained the News Corp. name, was given a war chest of $2.6 billion in cash to help foster the business. The other entity now goes by 21st Century Fox Inc.

Entertainment Coverage

Murdoch has expressed interest in the Los Angeles Times, people familiar with matter said earlier this year. The publication would add coverage of the entertainment business to a stable of papers that includes the Wall Street Journal, the New York Post and the U.K.’s Sun.

News Corp.’s spinoff went smoothly, which bodes well for Tribune, said Paul Sweeney, a media analyst for Bloomberg Industries.

“The News Corp. transaction was executed very well and was well received by the marketplace,” he said. “I suspect that Tribune, which has good assets on the publishing and broadcasting side, will also have a successful transaction.”

At Time Warner, CEO Jeff Bewkes has been shedding assets unrelated to its television-programming business since he took the reins in 2008. Time Warner Cable Inc., the second-largest U.S. cable company, became independent in March 2009. Time Warner spun off AOL Inc., the dialup Internet service that is remaking itself as a Web publisher, later that year.

Meredith Deal

The company moved to spin off Time Inc., the largest U.S. magazine publisher, after failed deal talks over a joint venture with Meredith Corp.

Tribune expects to spend the next nine to 12 months developing its separation plan. When the transaction is completed, each business will have its own management and directors. Shares in the newspaper business will be distributed to investors.

The Local TV deal this month will put Tribune in a better position to seek higher licensing fees from cable companies such as Comcast Corp. and Time Warner Cable (TWC:US), which purchase the rights to air local broadcasts. The company also owns superstation WGN America and Tribune Studios, as well as investments in real estate and websites such as CareerBuilder.

While sales at the newspaper unit are shrinking, it’s a profitable business and boasts some of the highest-profile publications in the U.S. In addition to the Los Angeles Times and the Chicago Tribune, its holdings include the Sun Sentinel, Orlando Sentinel, Hartford Courant and Daily Press.

Tribune’s publishing segment posted $46.4 million in operating profit in the first quarter. The business’s revenue fell 3.2 percent to $465.9 million.

“Publishing is declining -- you can see it in the numbers,” said Matt Kaplan, an analyst at Imperial Capital LLC in Los Angeles. Though newspapers are helping shore up revenue by charging for Web access, they haven’t held up as well as television stations in the Internet era, he said. “People still watch local TV for news.”

To contact the reporters on this story: Edmund Lee in New York at elee310@bloomberg.net; Madeline McMahon in New York at mmcmahon26@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • TRBAA
    (Tribune Media Co)
    • $75.14 USD
    • 0.74
    • 0.98%
  • TWX
    (Time Warner Inc)
    • $77.8 USD
    • 0.42
    • 0.54%
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