Tronc's Newspapers Have It Hard Enough Without a Messy Ownership Fight

Things aren't easy at newspaper publishers, but Tronc (TRNC)  may be its own worst enemy.

The number of U.S. newspaper jobs has fallen by 56% over the past 15 years, dropping to 174,000 as of September from 412,000 in January 2001, according to data compiled by the Bureau of Labor Statistics. Newspaper industry businesses fell to 7,623 last year from 9,310 in 2001, a drop of 18%.

The chief culprits are well known. Newspapers lost much of their classified advertising to free services such as Craigslist, and then lost even more ad dollars when marketers pulled back on full-page and half-page print ads for lower-cost and more easily-measured online alternatives.

Like other newspaper owners, Tronc, which officially uses a lower-case 't,' has felt its share of shock from these overarching trends. Ad sales at the company once known as Tribune Publishing dropped 16% in the fourth quarter as revenue for 2016 showed almost no growth compared with a year earlier.

Each of Tronc's newsrooms has endured layoffs over the past three years, whether at the Los Angeles Times, Chicago Tribune or The San Diego Union-Tribune. All three newsrooms are much smaller than they were in 2001.

Tronc's media representative didn't reply to a request for comment on the size of the newsrooms in Los Angeles and Chicago.

Yet unlike any other U.S. newspaper company, Tronc/Tribune has been through the ringer over the past 10 years. Going back to April 2007, the company was taken private by real estate magnate Sam Zell in a transaction that added $8.4 billion in debt to Tribune's balance sheet at a time when ad sales were plummeting and the company was already carrying about $5 billion in debt.

A lousy financial structure were made worse by questionable management. Zell hired Randy Michaels, a former radio executive and disc jockey, to run the business although he had little if any experience operating a newspaper company. Employees recoiled at Zell's sexist comments and exhortations to row harder.

Less than a year after the deal closed, Tribune on Dec. 8, 2008, was forced to declare bankruptcy, the largest in the history of the American media industry. Some 4,200 people across the company lost their jobs.

Exacerbating the brain drain, Tribune had little money to invest in its newspapers and television stations -- especially in digital. Newspaper companies, not only Tribune, were infamously slow to embrace digital news reporting. Wary about alienating their readers, they mostly chose to post their stories online for free so as not to scare away an audience they'd promised to advertisers.

These days, few newspapers use a paywall, though many more do so than 10 years ago. The Los Angeles Times is among them. Digital-only subscribers at Tronc grew 82% last year to 160,000  -- yet that was across the entire company. Digital subscribers to The Wall Street Journal totaled 1.1 million at the end of 2016, up from 828,000 a year earlier, while New York Times Co. (NYT) added 276,000 new digital subscribers to its flagship newspaper in the fourth quarter, its largest total since 2011, when it first began offering a digital-only subscription.

Tronc still has a long way to go.

For the moment, its largest shareholder who doubles as its nonexecutive chairman is locked in a messy imbroglio with its second-largest shareholder, who also carries the title (for now) of vice chairman. In other words, its two top-ranking board members -- Michael Ferro and Patrick Soon-Shiong -- aren't talking much. And when they are talking, it's probably not about how to grow the digital side of the newspaper business.

Ferro recently pushed the company to buy out the stake of a minority shareholder who had opposed his decision not to sell the company last year to Gannett (GCI) . Soon-Shiong, whose name was left off the slate of directors standing for re-election, meaning his vice chairmanship will end in April, contends that Ferro has tossed aside even mild pretensions of corporate governance in a bid to assert full control over the publisher.

A similar paradigm played out for a couple of years at Viacom (VIAB) as former CEO Philippe Dauman engaged in a power struggle with Shari Redstone, the media conglomerate's vice chairman and the daughter of its controlling shareholder, Sumner Redstone. While details of that bitter, bitter fight don't require yet another airing, suffice to say that the company suffered as a result.

Not only did Viacom's stock price tumble by more than 50% in the two years before Dauman's ouster in August, its media networks led by MTV as well as its film studio, Paramount Pictures, posted some of their worst results in the history of the once-dominant company.

Tronc CEO Justin Dearborn, who also never ran a publishing company before being named to the post in February 2016 by Ferro, has sought to calm investors with assurances that the company is making progress growing its digital audience. In February, Tronc hired a new digital content office, Timothy Knight, co-founder of cars.com and apartments.com, to further develop the digital side of the business.

But the outlook for the news business is anything but promising.

In its most recent annual report, the Pew Research Center said of 2015 that it "might as well have been a recession year" given that advertising, long the backbone of the newspaper business, fell 8%. Making matters worse, digital advertising at newspapers fell 2% as marketers moved more of their money to Alphabet's (GOOGL) Google and Facebook (FB) . Combined, those two companies swallow roughly 60% of all digital advertising.

To be sure, jobs in journalism over the past 10 years have been created in what the Bureau of Labor Statistics calls the "internet publishing and web search portals industry." The number of those positions increased to 206,000 in September from 67,000 in January 2007.

Yet for legacy newspapers tied to communities through bricks and mortar, delivery trucks and newsstands, the impact has been devastating. Smaller newsrooms have meant reduced coverage. And while some newer community-based news enterprises have emerged to meet the demand for local reporting, compelling journalism requires time and money. 

If Tronc's newsroom is to survive and even thrive, it will need the full attention of its management.

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