Zell says newspaper industry needs discipline, less complacency
Billionaire investor Sam Zell told a group of newspaper executives Monday that the industry's woes result partly from complacency in responding too slowly to rapid change in the business, comparing it to Nero fiddling while Rome burned.
Zell, who will become a major player in the industry when an $8.2 billion buyout of Tribune Co. that he led closes, said newspapers must become more disciplined and focused and do a better job selling their product.
"I think the newspaper industry has stood there and watched while other media enterprises have taken our bacon and run with it," he told the annual meeting of the Inland Press Association, a newspaper trade group representing about 1,200 papers in all 50 states. "It's too much complacency."
He cited the rise of the Internet, the cross-selling of different forms of media and the advent of 24-hour news channels as serious challenges that newspapers have not met well.
The industry as a whole, Zell said, has been "standing there and letting this happen while Rome is burning."
The real estate magnate declined to comment on his specific plans for Tribune, which owns 11 daily newspapers, 23 TV stations and the Chicago Cubs, which are to be sold as a condition of the deal.
Zell has agreed to invest $315 million in the media conglomerate. Once the deal is completed, he will own warrants entitling him to buy 40 percent of the company for between $500 million and $600 million, with an employee stock ownership plan and Tribune management controlling the remainder.
Deutsche Bank analyst Paul Ginocchio told the trade association earlier that the short-term outlook for newspapers is "scary." He doesn't foresee industrywide revenue growth in newspapers until 2011 and earnings growth until 2012.
"Most investors think the newspaper industry is going to be run over by the Internet," he said.
But despite the industry's worsening revenue and circulation trends, Zell said he still sees Tribune as a very good long-term investment. He said the deal is structured so that there is an "enormous incentive" for him to retain his ownership stake for at least 10 years, meaning he has no exit plan in mind.
Asked why he insists on selling the Cubs, he responded: "I think the Cubs are a wonderful national icon, and maybe it is a business, but it sure is a business I don't understand. .... I'm going to pass the risk to somebody who either understands it or gets enough psychic income" that they don't care.
He also said he sees "little or no chance" for a recession in 2008 but high probabilities of one in 2009.