The Tribune Company

1
The Tribune Company

• By
• Rikin Shah
• Bridgett Kelly
• Dane Bildsten

2
Why Listen?

• There are things discussed in this presentation
  that are relevant to all areas of business
• Retrenchment strategies
• Conglomerate and concentric diversification
• Application of Porters model of industry
  analysis
• Porters generic competitive strategies
• Financials and stock price analysis to determine
  the direction of the market

3
Introduction

• Background Information
• Tribune Company History
• Corporate Governance
• Company Assets
• Industry Analysis
• Overview of the Newspaper Industry
• Strategic Challenges

4
Introduction

• Financials
• Primary Competitors
• Alternatives
• Recommendations
• Video

5
Background
Sam Zell

• On April 2, 2007, Sam Zell announced plans to
  buyout the company for 34 a share, totaling 8.2
  billion
• The company will go private if this buyout occurs
• As top management we will present strategic
  issues and concerns in relation to this possible
  buyout.

finanznachrichten.de
6
Background Information

• The nations second largest media provider
• Headquarters in Chicago, IL
• NYSE TRB
• Fortune 500 388

tribune.com
7
History

• Tribune Company was founded in 1847.
• Chicago Tribune published its first issue on June
  10th.
• In 1861 the Tribune Company becomes a Illinois
  corporation
• The WGN radio station first went on the air in
  1924
• First to broadcast the World Series, Indianapolis
  500, The Kentucky Derby.
• Broke new ground with microphones in the
  courtroom during the Scopes monkey trial of
  1925.

8
History Continued

• Established WGN-TV in Chicago, followed by
  WPIX-TV in New York as two of the first
  television stations in 1948.
• 1981 the company purchased the Chicago Cubs
• 1985 purchase of KTLA-TV in Los Angeles for 510
  million, made Tribune the only non-network
  company to own VHF stations in the countrys top
  three markets.
• The merger with The Times Mirror Company,
  completed in June 2000, effectively doubled the
  size of Tribune and secured its position among
  the top tier of major media companies.

9
Dennis J. FitzSimons CEO

• Chairman from January 2004-Present
• CEO from 2003-Present
• President and COO from July 2001-Present
• Joined the Tribune Company in 1982 as a Sales
  Director for WGN-TV
• Prior to the Tribune Company FitzSimons was a
  sales director at Viacomm and a sales manager for
  Telerep Inc.

tribune.com
10
Company Assets

• 23 Television stations, including affiliates of
  Fox and ABC, and superstation WGN
• 11 TV shows including South Park, and Soul Train
• WGN radio station
• 15 Newspapers, including the Chicago Tribune, and
  Los Angeles Times
• Chicago Cubs and Wrigley Field

tribune.com
11
Company Assets (2)

• Tribune Media Services
• Forsalebyowner.com
• Chicago Magazine
• Other various assets

tribune.com
12
Porters Competitive Forces Model
13
Porters Competitive Forces Model

• How high is the threat of new entrants in the
  newspaper industry?

14
Porters Competitive Forces Model

• Threat of new entrants is relatively low
• Due to the declining market and relatively few
  competitors remaining which are using economies
  of scale to minimize costs
• Product differentiation exists among firms
• The Daily Herald is aimed at a different market
  than the Chicago Tribune
• Relatively high capital requirements to begin
  printing newspapers at a level where you can gain
  economies of scale
• Also will be difficult to steal away remaining
  customers from a larger firm

15
Porters Competitive Forces Model

• What are substitutes to newspapers and do you
  think they are a threat?

16
Porters Competitive Forces Model

• Threat of substitutes is extremely high
• Substitutes such as the Internet (in terms of
  classified advertisements and blogs) are both
  major causes of the decline in the newspaper
  industry

17
Porters Competitive Forces Model

• Do newspaper buyers have a high level of
  bargaining power?

18
Porters Competitive Forces Model

• Bargaining power of buyers is high
• Buyers have the power to drive down costs by
  either simply switching to another competitor or
  moving to a substitute (the internet)
• Many of the options on the internet are easier to
  use and free for buyers (such as classified
  advertisements and blogs)

19
Porters Competitive Forces Model

• What do you think the bargaining power of
  suppliers is?

20
Porters Competitive Forces Model

• Bargaining power of suppliers is relatively low
• The major supplies for a newspaper is paper and
  ink, which are commodity type products with many
  suppliers selling them

21
Porters Competitive Forces Model

• Rivalry is intensifying amongst the Tribune Co.,
  Gannett, New York Time, and the Dow Jones Co. as
  the industry continues to decline.

22
Porters Generic Competitive Strategy

• Between cost leadership and differentiation.

Competitive Advantage
Lowest Cost
Differentiation
Broad Target
Tribune Co.
Competitive Scope
Cost Leadership
Differentiation
Narrow Target
Differentiation Focus
Cost Focus
23
The Newspaper Industy

• Is the circulation of newspapers increasing or
  decreasing?

24
Decline in Circulation
Washingtonpost.com
25
The Newspaper Industry

• Overall, average daily circulation dropped by 2.8
  percent from 2005 to 2006.
• Circulation for Sunday papers fell by 3.4 percent
  from 2005 to 2006

http//www.washingtonpost.com/wp-dyn/content/artic
le/2005/05/02/AR2005050201457.html http//www.nyti
mes.com/2006/10/31/business/media/31paper.html?ref
business http//www.chicagobusiness.com/cgi-bin/n
ews.pl?id24785
26
The Newspaper Industry

• Decline in the newspaper market due to the
  internet
• A large amount of decline particularly in the
  younger, more technologically adept market
• the circulation of English-language papers in
  the United States has dropped by 11 since 1990,
  and that's while the population has increased

http//www.fool.com/investing/small-cap/2004/12/31
/the-future-of-newspapers.aspx
forbes.com
27
The Newspaper Industry

• Companies such as Google have realized that they
  are a media company not just a tech company
• They have taken the advent of the search to
  classified advertisements, ripping out the
  commercial heart of the newspaper industry .
• Newspapers have been dumbing-down its content
• For example, USA Today reported what secretary of
  state Colin Powell ate for dinner.

forbes.com
http//www.fool.com/investing/small-cap/2004/12/31
/the-future-of-newspapers.aspx
28
The Newspaper Industry

• The large increase of internet blogs has had an
  effect on the newspaper industry
• This may be a possible contributor to the
  dumbing-down of newspapers.

http//www.fool.com/investing/small-cap/2004/12/31
/the-future-of-newspapers.aspx
Marginalrevolution.com
29
The Newspaper Industry

• The large increase of internet blogs has had an
  effect on the newspaper industry
• Many blogs are written by serious, thoughtful
  people with a lot of information and things to
  think about.
• Tyler Crown (of marginalrevolution.com) predicts,
  mainstream newspapers will become less
  intellectual in their coverage, while (and
  because) niche options expand dramatically."

http//www.fool.com/investing/small-cap/2004/12/31
/the-future-of-newspapers.aspx
Marginalrevolution.com
30
Tribune Co. Strategic Challenges

• Is a public company with no controlling
  shareholder
• The problem here is that the current organization
  of the company no longer works.
• There is the public market (wall street) that
  only cares about ROI
• Then there is the public good that newspapers
  serve by professionally gathering information and
  reporting it to their communities
• Meeting both publics demands are no longer viable
  due to the decline in the market due to
  substitutes of newspapers (internet).

nytimes.com
31
Tribune Co. Strategic Challenges

• Lower profit margins in comparison to companies
  such as Gannett.
• This affects ROI and means change is strategy is
  needed sooner (Gannett is still seeing sizable
  profits, but growth has came to a bumpy decline).
• Advertising revenues falling (classified ads) at
  a alarming rate 7.2 in August 2007 compared to
  August 2006.

editorandpublisher.com
nytimes.com
32
Tribune Co. Strategic Challenges

• Falling revenues, profits and increasing costs
  date back to the early 2000s
• There was some growth exhibited around 2003,
  which closely parallels the growth in the economy
  after the recession.
• Declining circulation of newspapers due to the
  internet

33
Financials

• Company Type Public (NYSE TRB)
• Fiscal Year-End December2006
• Sales (mil.) 5,517.7
• 1-Year Sales Growth (1.4)
• 2006 Net Income (mil.) 594.0
• 1-Year Net Income Growth11.1
• 2006 Employees 21,000
• 1-Year Employee Growth (6.3)

hoovers.com
34
Tribune Co. Income Statement
35
Tribune Co. Balance Sheet
36
Top Competitors

• Dow Jones
• Gannett
• New York Times

37
Stock Prices For Last 5 Years
38
Financials
39
Competitor Strategies

• New York Times
• Revenues have been declining and offers for
  acquisition by other firms have been made,
  including Echostar Communications Corp.
• CEO has stated multiple times it has no
  intentions of selling to a private buyer.
• Is attempted to attract younger readers
• Teamed up with Facebook's ad system, which allows
  users to learn about content from the company's
  newspapers through word of mouth.

editorandpublisher.com
reuters.com
marketwatch.com
40
Competitor Strategies

• New York Times
• Partnered with Monster.com
• Stated that the online business will become their
  main business in the near future
• Currently nytimes.com is the most visited
  newspaper website with 13 million users
• Reduced their newspaper size by 1.5 inches to
  reduce paper costs by 10 million per year
• Subsidiary Boston Globe outsourced many jobs to
  India

inhome.rediff.com
editorandpublisher.com
iwantmedia.com
41
Competitor Strategies

• Dow Jones
• Acquired by Rupert Murdoch for 5.6 billion
• Murdoch is making plans to cut 100 million costs
• Many of these costs may be through job cuts
• Murdoch stated that he plans to increase revenues
  through growth of its products and services
  including growth on the internet

bloomberg.com
guardian.co.uk
42
Competitor Strategies

• Gannett
• Sustaining profits due to higher margins, but
  incapable of much growth due to declining market
• CEO Craig Dubow stated the company is not for
  sale on August 2007.
• Formed a joint venture with the Tribune Co. to
  publish and syndicate the weekly edition of USA
  Today abroad.
• Cut newspaper size to 48 (from 52) and is
  considering cutting the size to 44 and reducing
  the width from 12 to 11

editorandpublisher.com
43
Alternatives Trends

• Conglomerate diversification into other markets
• The Washington Post is experiencing large growth
  from its Kaplan subsidiary (a provider of
  educational and career services)
• Retrenchment
• Going private (sell-out strategy)
• Many large newspaper dominated media companies
  are looking for investors to going private
• This includes companies such as the tribune
  company and Dow Jones Co.

nytimes.com
http//www.fool.com/investing/general/2004/04/15/m
ore-than-a-newspaper.aspx
44
Alternatives Trends

• Sell the company to a single owner and go
  private?
• Currently, Sam Zell is offering to purchase the
  company
• How far to expand to the internet?
• Careerbuilder
• Autotrader
• Cut the size of the paper to cut costs.
• Outsource jobs to cut costs.
• Divestment

45
Alternatives Trends

• Expansion to international markets, where the
  newspaper industry is still experiencing growth
• Create searchable advertisement pages
• For example, Gannett (the nations largest media
  company jointly owns careerbuilder.com)
• note Many major newspaper companies have
  already tried joint-venture options and have
  failed.

forbes.com
46
Issues to Consider

• Expansion to the Internet is limited
• Companies want to better serve the needs of their
  customers, to create stronger richer
  relationships
• People want professional, intellectual material
  but expect the information on the internet to be
  free
• A conundrum exists because it is unclear how to
  make decent money from this
• If the size of newspapers is decreased the
  readers may react negatively to this

http//media.guardian.co.uk/newmedia/story/0,,1763
996,00.html
47
Issues to Consider

• Conglomerate diversification is always an option
  but how far away from their expertise can a
  newspaper company go?
• If jobs are outsourced to another country will
  this bring negative publicity to the company?
• Is is possible to attract newer readers through
  applications such as Facebook or is this the
  entirely wrong market?

48
Recommendations?
49
SWOT Analysis

• What are the Tribune Companys internal
  strengths?
• What are the Tribune Companys internal
  weaknesses?
• What are the Tribune Companys external
  opportunities?
• What are the Tribune Companys external threats?

50
SWOT Analysis

• Strengths
• Economies of scale
• Good cost control
• Second highest net income in 2006

51
SWOT Analysis

• Weaknesses
• Lower profit margins than many competitors
• No controlling shareholder

52
SWOT Analysis

• Opportunities
• Internet market is growing in many areas where
  newspapers derive there profits
• Many of the jobs done here are done for cheaper
  in other countries

53
SWOT Analysis

• Threats
• Advertising revenues falling (classified ads) at
  a alarming rate 6.1 in August 2007 compared to
  August 2006.
• People wanting good information for free and
  believe that they are finding this on the
  internet

54
Strategy Formulation

• What type of business strategies is the Tribune
  Co. using?

55
Strategy Formulation

• Business Strategy
• Joint Venture with Gannett for international
  expansion of the USA Today magazine
• Between cost leadership and differentiation

Competitive Advantage
Lower Cost
Differentiation
Broad Target
Competitive Scope
Tribune Co.
Cost Leadership
Differentiation
Narrow Target
Differentiation Focus
Cost Focus
56
Strategy Formulation

• What type of corporate strategy is the Tribune
  Co. using?

57
Strategy Formulation

• Corporate Strategy
• Retrenchment strategy
• Looking for to sell out to a private investor and
  possibly divest from some of its subsidiaries

58
Strategy Implementation

• What type of corporate structure does the Tribune
  Co. currently have?

59
Strategy Implementation

• Corporate Structure
• The Tribune Co. operates in a conglomerate
  structure with many unrelated subsidiaries
  operating under one corporate umbrella.

60
Videos

• http//video.google.com/videoplay?docid-687531694
  8019238393
• http//video.google.com/videoplay?docid3597840118
  691677472

61
Conclusion

• Background information
• History
• Corporate Governance
• Company Assets
• Industry Analysis
• Overview of the Newspaper Industry
• Tribune Company Strategic Challenges

62
Conclusion

• Financials
• Primary Competitors
• Alternatives
• Recommendations
• Video

63
Why This Was Relevant..

• If nothing else you should now
• Know a little about newspaper industry and the
  direction it is heading
• You should also be able to apply the following to
  industries you will work in
• Retrenchment strategies
• Conglomerate and concentric diversification
• Application of Porters model of industry
  analysis
• Porters generic competitive strategies
• Financials and stock price analysis to determine
  the direction of the market

64
Resources

• http//www.tribune.com/
• http//www.tribune.com/investors/governance/index.
  html
• http//www.tribune.com/about/history.html
• http//en.wikipedia.org/wiki/Tribune_Company
• http//query.nytimes.com/gst/fullpage.html?res9E0
  3E3DA103BF937A25750C0A9669C8B63secsponpagewan
  tedprint
• http//www.hoovers.com/tribune/--ID__11508,ticker_
  _TRB--/free-co-fin-factsheet.xhtml
•  

65
Resources

• http//finance.google.com/finance?qNYSETRB
• http//finance.yahoo.com/q?strb
• http//www.hoovers.com/mcclatchy-company/--ID__109
  71--/free-co-factsheet.xhtml
• http//www.newspaper-industry.org/search.cfm
• http//online.wsj.com/public/article/SB11859520619
  8884573.html
• http//www.nytimes.com/2006/10/01/business/yourmon
  ey/01frenzy.html?pagewanted2_r3refmedia
•  

66
Resources

• 13. http//www.forbes.com/columnists/
  2006/05/23/eppy-awards-newspapers_cx_pm_0523notes.
  html
• http//www.fool.com/investing/small-cap/2004/12/31
  /the-future-of-newspapers.aspx
• http//www.fool.com/investing/general/2004/10/13/h
  ard-times.aspx
• http//www.fool.com/investing/general/2003/11/05/n
  ewspapers-on-a-roll.aspx
• http//www.fool.com/investing/general/2004/04/15/m
  ore-than-a-newspaper.aspx

67
Resources

• 18. http//www.fool.com/investing/general/
  2004/07/13/a-pageturner-at-the-times.aspx
• http//media.guardian.co.uk/newmedia/story/0,,1763
  996,00.html
• http//www.editorandpublisher.com/eandp/news/artic
  le_display.jsp?vnu_content_id1003644086
• http//www.finanznachrichten.de/nachrichten-2007-0
  8/artikel-8862667.asp

68
Resources

• 22. http//www.marketwatch.com/news/story/more-new
  spaper-takeovers-unlikely-follow/story.aspx?guid
  7B0E1F3D832D68C72D4A952D82912D9041A1AA1E097D
  distbuscom
• 23. http//www.reuters.com/article/mergersNews/
  idUSN1022651920070810
• 24. http//www.bloomberg.com/apps/
  news?pid20601087sidaGDSqNYy2nGg