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March 4, 2015, 5 p.m.

Newsonomics: Tribune Publishing is busy playing catch-up

The owner of the Los Angeles Times, Chicago Tribune, and other out-of-fashion metro dailies has plenty of good ideas — but they’re still playing from behind.

Throughout this morning’s earnings call, the thought reoccurred: Jack Griffin’s new Tribune Publishing Company is playing catch-up. Then, toward the end of the call, one a little more informative than average, the CEO said it plainly, and more honestly than what we usually expect to hear on such calls: “We’re playing catch-up.”

The new Tribune Publishing is made up of eight — and maybe soon to be nine — metro papers spun out of what is now the broadcast-centric Tribune Media last August. It is indeed playing a rough game, and doing so from behind. If you had to pick one segment of the daily newspaper business to bet on, you probably wouldn’t pick metros, which have underperformed even smaller community dailies by about 10 percentage points over the past half-decade. And if you were handed two handfuls of metros, you probably wouldn’t want to operate them within a public company, with shareholders looking for increasing profits, quarter after quarter and year after year. That, though, is precisely, the hand TPUB’s been handed. How Griffin and his team are playing that hand was better revealed today, though still only sketchily. That’s not surprising: In five months as a spun-off company, Griffin has greatly reshuffled his top team, with new publishers in three of the eight markets and several other high-level appointments. At this point — as would be expected — much is still prologue, and we shouldn’t expect this set of numbers to show much progress, which they don’t. It will take another good six to 12 months to judge TPUB’s real progress.

Also as would be expected, though, early reaction of the public markets was a thumbs down. TPUB was off as much as 6 percent earlier today because of, due to a quick (and likely fairly uninformed) reading of the headline numbers, which weren’t surprising. (It did recover a bit toward day’s end, finishing down 2.8 percent; TPUB is down nearly 30 percent from its opening price last August.) Despite the whirlwind of activity that Griffin could point to on the call and in other company interviews, the markets expect financial miracles, a near impossibility in this publishing climate. Jack Griffin is trying to thread a needle, a quite thin one, in the latest attempt to transform the Tribune newspapers, turning tough metro properties into market leaders. It also has to find a way to keep pruning expenses, given revenue shortfalls.

The real issue with TPUB’s transformation, a word Griffin returns to often, is how much it’s a game of catch-up. Many of TPUB’s peer companies have already been executing on similar theories, with overall tepid results. The initiatives all make sense — but even executed at a high level, they produce no better than close-to-flat results, if that. That’s why the industry keeps falling deeper into a money hole (“How deep is the newspaper industry’s money hole?”), losing a couple of points of revenue a year. TPUB’s 2014 overall results are similar.

That catch-up metaphor cuts across all the business initiatives:

  • Digital subscriptions: Griffin’s team inherited a mixed bag of digital/all-access subscription efforts. Last year, when I tried to compare what the Orlando Sentinel offered as compared to the L.A. Times, for instance, I found myself confused. Apparently, I wasn’t alone. Griffin says new systems coming into place now reduce a seven- or eight-step (!) signup process to two or three; he is aiming for one or two. “There wasn’t even a subscribe button” on some sites, he says. He says the company is now doing A/B testing as well. All good things — but that’s catch-up.
  • Selling multiplatform audience: TPUB, under new chief revenue officer Michael Rooney (formerly of The Wall Street Journal), is making a push to sell audience across print and digital platforms. Again, a smart strategy, but one that others have a head start in implementing. TPUB’s 42 million uniques, across its properties, is impressive — and it’s trying to represent more non-Tribune titles in its ad selling as well — but it’s not a huge number in comparison to so many other available ad networks out there.
  • Digital revenue: 11 percent of all TPUB’s revenue is now digital. That’s largely ad-driven, and it’s a number that needs lots of work. For instance, The New York Times now counts 31 percent of all ad revenue as digital, and other daily chains count higher numbers as well. Also of note: Digital revenue overall is essentially flat. That’s a problem, given that digital advertising is growing 13 percent-plus in the U.S.; it’s the major issue confronting Rooney in his fledgling sales reorg.
  • Digital services and content marketing: Tribune can point to a current doubling of content marketing clients, and its Jewel-Osco video model is a smart one, bolstered by its investment in Contend. With 22 “custom clients” signed up into 2015 — more than half of what the company served in all of last year — there’s a lot of upside. Again, though, doubling a tiny business, at this point, still adds relatively small dollars. Likewise, in digital marketing services, Tribune showed a whopping 54 percent increase — but, given, its small size, that amounts to only $8 million.

Griffin noted in his 2015 outlook the possibility of more “bolt-on” acquisitions. TPUB’s purchase of Maryland and suburban Chicago properties have already netted $5 million in increased earnings; expect $10-12 million in added earnings this year, due to those buys. TPUB’s got a bit of cash for more acquisitions, and as I reported Monday (“Tribune in final bidding for U-T San Diego”), it’s hot on the trail of a ninth metro property, U-T San Diego, at a likely purchase price of $85 to 90 million. TPUB’s metro bet isn’t for the fainthearted.

Take a look at TPUB’s overall 2014 performance, and you see a lot of red ink:

  • Earnings down by $20 million on an adjusted basis, to $160 million. Without the adjustments, TPUB shed $55 million in earnings, but the company’s split and less good deals the company now has to manage in digital recruitment (CareerBuilder) and digital car classified (Cars.com) take a real — if predictable — toll here.
  • Total revenues down 4.9 percent.
  • Total ad revenues down 8.7 percent.
  • Preprint ad revenues down 8.9 percent.
  • Circulation revenue managed to find a bit of black at 1.4 percent up.
  • Expenses are flat, reflecting both zero-based budgeting and small, targeted investments in the strategy.

Those numbers speak broadly to the overall down market — but also of metro papers’ particularly poor performance. Griffin offered his outlook for full year 2015, forecasting largely flat earnings, with revenues a bit up — and costs down another $65 to 70 million. The revenue forecast is what stands out — it will be quite tough to pull off.

Where might that cost-cutting come from? Chief financial officer Sandy Martin cites “centralized procurement” as the No. 1 suspect; as Tribune, like so many of its peers still, finds “waste”, operating individual properties too individually. Editorial headcount isn’t on the hit list, though given market pressures, reduction in overall FTEs through technology and centralization, should be expected. Griffin gave a shout-out to good journalistic work in both Chicago and L.A., and reiterated: “The lifeblood is content.”

A few more takeaways from Tribune’s numbers:

  • Digital-only subscribers stand at 61,000 — across all eight papers. That’s a small number, given the readerships and markets of L.A., Chicago, Baltimore, and more. Yet it’s up 24 percent year-over-year, 11 percent quarter-over-quarter. Again, that’s indicative of good recent execution — after years of stagnation. But there are a couple of standalone metros that themselves approach that 61,000 number.
  • Moving from anonymous to known: The number of registered digital readers is up (24 percent) to 3.2 million, and activation — getting print subscribers to “activate” and then actually use digital products — is up as well. Those are good markers, fundamentals of what a successful digital business needs to invest in.
  • TPUB’s in-sourced printing and production business is slowing down. In part, that’s because of lost business from the termination of its deal with the Orange County Register in L.A. But in general, the general decline of print is now sapping what has been a go-go revenue and profit source for bigger papers from coast to coast. TPUB’s commercial print and delivery business moved down 9.4 percent year-over-year, symbolic of a wider trend of print’s overall disappearing act pulling down all print-related revenues, not just print advertising (“Jim Moroney’s digital-reaching Dallas Morning News”).

Photo of clock at the Los Angeles Times Building by David Wilson used under a Creative Commons license.

POSTED     March 4, 2015, 5 p.m.
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