by James O'Shea
Table of Contents
Title Page
Dedication
Preface
Introduction
Chapter 1 - Beginnings: Des Moines
Chapter 2 - Across the Street
Chapter 3 - Otis Chandler’s Legacy
Chapter 4 - Twilight
Chapter 5 - The New Order
Chapter 6 - The Cereal Killer
Chapter 7 - His Seat on the Dais
Chapter 8 - Inside the Merger
Chapter 9 - Making News
Chapter 10 - A Changing Landscape
Chapter 11 - Market-Driven Journalism
Chapter 12 - Buy the Numbers
Chapter 13 - Count Kern
Chapter 14 - Civil War
Chapter 15 - Up Against a Saint and a Dead Man
Chapter 16 - Before the Fall
Chapter 17 - The Penguin Parable
Chapter 18 - Closing the Deal
Chapter 19 - Zell Hell
Epilogue
Acknowledgements
NOTES
INDEX
Copyright Page
To the journalists who made
the Chicago Tribune and the Los Angeles Times
great newspapers
PREFACE
THIS IS NOT a book I wanted to write.
Soon after being fired as editor of the Los Angeles Times in early 2008, numerous friends called and told me I should write a book about my experiences over the years. I must confess that I had often thought about writing a book about the business I loved. I even kept a diary recording my experiences in Los Angeles in case I wanted to reconstruct some of the events for a book.
But I always thought my newspaper book would be a novel. In 2008, after several bruising years on the front lines of the newspaper wars, I had decided to put the whole thing behind me and try something else—maybe help with a political campaign or take various menial jobs to write a book about work in America. Or maybe resume my interest in photography or ride my bike from Belfast to Beirut.
Then I began thinking that no one had reported and written about the troubles confronting my craft from the perspective of a working journalist. And that’s what this book is—a view of the media maelstrom from a journalist who worked in the trenches for more than three decades and loved every minute of it.
I make no apologies for my biases, and I make no excuses for the fact that I am first and foremost a reporter. As I began thinking about the disaster that has struck newspapers, I realized I really didn’t know what had happened, even though I had a front-row seat running the newsrooms of two major American newspapers, the Chicago Tribune and the Los Angeles Times. If we really don’t know how we got into this mess, I wondered if anyone could ever figure a way out. So I set out to report and write exactly what happened, without fear or favor.
It would be easy to condemn the people who caused this modern tragedy as venal and evil. Thousands of friends and colleagues the world over have lost jobs because of the way the industry has been managed. Some were venal, all right. But most of the people who led newspapers to this point in history were smart and thoughtful. They thought they were doing the right thing, and that’s what makes the story of what happened so terrifying. It shows this disaster could happen to anyone in any industry.
Please visit thedealfromhell.com for pictures, videos, author interview, and more information about The Deal From Hell.
INTRODUCTION
The Merger
In April 1999, John Madigan walked decisively into the lobby of the Hotel del Coronado. Tall, imposing, and impeccably dressed, the Tribune Company CEO arrived at the red-turreted hotel as a star-studded guest list of some 1,200 publishers, consultants, and experts gathered for the national Newspaper Association of America (NAA) annual meeting. Seasonably cool temperatures chilled San Diego, as Madigan, head of the company that published the Chicago Tribune, bypassed the parlors and lobbies where publishers traded industry scuttlebutt about the story of the day, the evolving coverage of two Littleton, Colorado, students who had opened fire on classmates at Columbine High School. But the Tribune chief hadn’t flown to San Diego merely to gossip or to hear luminaries like former President Gerald Ford, talk-radio host Dr. Laura Schlessinger, or Sergio Zyman, Coca-Cola’s marketing guru, speak to newspaper publishers. Madigan had set up a private meeting with Mark Hinckley Willes, the CEO of the Times Mirror Company.
At six-foot-five, well groomed, and trim, Madigan has a chiseled face that could be on Mount Rushmore. A Tribune columnist once introduced him as a man “who has never had a bad hair day.” Reared in Chicago, a town where even the choirboys are tough, Madigan arrived at Tribune in the 1970s from the world of investment banking. His goal was to whip the company into shape so its stock could be sold publicly. Reserved and sober, Madigan could be charming one moment and quite cold the next.
Madigan and his predecessor as CEO of the company, Charles Brumback, had created a corporate media powerhouse from the ashes of the old Tribune, a media icon made famous by the idiosyncratic Colonel Robert Rutherford McCormick, a colorful, rambunctious genius who had once tried to reinvent the English language to his eccentric taste. In the nineties, when Brumback was CEO, and Madigan the CFO, Wall Street and company insiders considered Brumback the visionary, and Madigan the financial market tactician. Brumback, a Korean War medal winner and accountant, was known for his combative personality. His embrace of new technology, and brutal, bottom-line mentality drew rave reviews from stock analysts. He overshadowed Madigan, a Marine Corps veteran who could be frank in private but highly insecure in public. After he seized the reins at Tribune, though, Madigan showed his true ambition and determination. He drove earnings into the stratosphere, cranking out a record 25 percent annual profit margin for the Tribune Company after only four years at the helm. Anyone who had bought 2,500 shares of Tribune stock in 1983 at the initial offering price of $26.75 had $1 million worth of stock in 1999. By the time Madigan entered the Hotel del Coronado, he was poised to make headlines that would shove Brumback and his legacy into the shadows. Just months before, he had challenged David Hiller, a lawyer turned newspaper executive in charge of the company’s development arm, to come up with transformative ideas that would put the Tribune on the nation’s major media map. He did not want one of those one-off TV station deals that had become standard fare at Tribune, but something big. Hiller’s response: Buy Times Mirror.
Sitting upstairs in his room, above the din of the industry chatter, Willes had naïvely suspected nothing when he originally took the Tribune CEO’s phone call and agreed to meet. With neatly groomed silver hair, an easy smile and melodious voice, Willes wore large wire-rimmed glasses and GQ attire. Evangelistic by nature and inclination, the devout Mormon brought to Times Mirror a mixture of William Randolph Hearst and Gordon Hinckley, Willes’ uncle and the president and prophet who led the Mormon Church through a period of global expansion. Willes, who’d been recruited for the top job at Times Mirror by the legendary Chandler family in Los Angeles, could be both emotional and a tough corporate taskmaster.
Square, and proud of it, the Salt Lake City native had followed the stock market when he was in grade school and graduated from Columbia University with a PhD in economics while still in his twenties. At thirty-five, he’d been named president of the Federal Reserve Bank of Minneapolis, the youngest person the Fed governors had ever tapped to head a district bank. Willes spoke with ease and confidence to readers, newspaper executives, and Wall Street analysts alike. But he wasn’t a newspaper careerist. After his tenure as a central banker at the Fed, Willes had spent 15 years at General Mills before landing his CEO job at Times Mirror. But Willes’ lack of newspaper credentials meant little to the Chandlers; they had selec
ted him to head the company founded by General Harrison Gray Otis for his ability to drive up the company’s stock price. And he had delivered—fast.
As Willes and Madigan exchanged pleasantries in Willes’ room and took the measure of one another, their respective companies were flourishing in an industry flush with cash. In response to competition from TV and radio, the industry had consolidated into huge corporate chains. The result? Thriving companies like Tribune and Times Mirror had far-flung operations comprising newspapers, television stations, and non-media assets that generated oodles of cash. In 1998, advertisers had pumped a record $44 billion into the coffers of American newspapers, adding muscle to the bottom lines of newspaper chains and the dwindling ranks of independently owned publishers. The gross numbers told only part of the story; newspapers posted profit margins of 20 percent and more, making them virtual cash machines that Wall Street investors coveted.
But the sky-high stock prices and fat returns that Madigan and Willes delivered for Wall Street obscured an alarming trend. Newspaper classified advertising was sinking in quicksand as publishers across the nation struggled to gain and retain readers. For their part, the journalists turned a blind eye to problems in their own industry, thanks at least in part to the time-honored wall erected between newsrooms and the business side of newspapers to maintain the integrity of the news.
The impending collapse of the classified ad franchise would strike at the heart of the industry: Of the $44 billion in industry ad revenue, classified represented nearly half, or $18 billion. A decade later, people would marvel at the speedy decline of newspapers, but even in 1999, some industry insiders warned that complacency, arrogance, and greed could cripple the business of journalism, particularly in companies with heavy investments in newspapers. Robert Cauthorn, director of new technologies at the Arizona Daily Star, warned publishers in San Diego: “We cling too long to a dream in which we can do things as they’ve always been done even as the world is rapidly changing us. Our fat profit margins have lulled us into a complacency that is very dangerous. Interestingly, the economy is retooling and transforming faster than we have retooled and transformed our industry. What happens if we step entirely out of cycle because the fundamental nature of the cycle has changed?”
Meanwhile, the news industry’s flailing response to the emerging Internet threat exposed an unwarranted self-confidence. In the early 1990s, Brumback tried to interest big publishers in the New Century Network, a consortium of America’s top-nine newspaper companies that would create a national news and information network online, for which customers would pay. In return, the customer would have access to a full-range of national newspaper content and services online. But industry leaders tried to ignore the Internet, fearing it would cause disproportionate damage to their existing business. Their internecine squabbles eventually destroyed the New Century initiative. Cindy Sease, a Sioux City classified ad director who also chaired the NAA’s Classified Ad Federation, warned the publishers, “When we are up against huge software industry giants, we need to band together as an industry and stop worrying about knocking one another off.”
As it happened, the threat posed to newspapers by software giants like Microsoft would pale in comparison to the one leveled by the little guy, a digital sniper working in an apartment, armed with little more than a dream and a computer. The industry’s lock on lucrative classified ad markets allowed papers to charge $50 to $100 for a one-inch ad that would run once or twice a week. Even as Madigan and Willes sat down for what Willes thought would be a casual chat, a mere five hundred miles up the California coast, Craig Newmark, an ex-computer programmer from Charles Schwab & Co., filed papers to register craigslist as a small for-profit Internet company that would revolutionize classified advertising with free online ads.
Meanwhile, two young Stanford University graduate students an hour plane ride away had just finished solving an equation with 500 million variables and 3 billion terms. Using banks of computers, Sergey Brin and Larry Page created an algorithm called PageRank, which they housed in a start-up company they eventually called Google. Two months after Madigan and Willes met, Brin and Page announced initial public funding.
In a small Hollywood apartment, an untrained D student who worked in a gift shop at a CBS studio was gaining traction for a conservative news-aggregation site that would become a potent weapon in the cultural wars against the so-called mainstream media. Matt Drudge rooted through studio trash cans and collected gossip to cobble together a wide range of political and entertainment industry tidbits that he published on the Internet. He created the “Drudge Report,” a gossipy, sloppy brand of journalism that would help undermine traditional journalistic standards and put organizations like the Tribune and Times Mirror at a disadvantage for their adherence to diligent reporting.
As Madigan and Willes sat down to talk, the Newmarks, Googles, and Drudges of the world were not even on their radar.
Willes was caught off guard by the proposal Madigan proceeded to lay out. From an investment banker’s perspective, the proposed marriage of Tribune and Times Mirror made a lot of sense. By merging the two companies, Madigan envisioned a media powerhouse with a print and broadcast advertising scale and breadth that could reach eighteen of the nation’s top-thirty markets, including TV stations, newspapers, and budding Internet sites in Los Angeles, New York, and Chicago. The combined company would be the nation’s third-largest media company behind the Gannett and Knight Ridder companies. It would be a powerful brand that included America’s best collection of quality newspapers, boasting a combined daily circulation of 3.6 million with television stations that reached an additional 38.4 million U.S. households. Madigan and others suggested that the new company would offer “national footprint, local reach,” a showcase for the kind of convergence that media executives held out as their salvation. Willes listened politely as Madigan described a merger of two companies that had had distinct, yet similar histories.
Rising over Michigan Avenue, at the foot of a string of glittering shops, hotels, and restaurants called the “Magnificent Mile,” the Tribune Company’s neo-gothic headquarters symbolized the raw power, influence, and historic reach of the Chicago Tribune. For the design of the famous Tribune Tower, Colonel Robert R. McCormick, universally known as “the Colonel,” had launched an international architecture competition in 1922. John Howell, a New York architect, and Raymond Hood, who would later design Rockefeller Center, had won the commission.
Perched in an office atop the “Symphony of Stone,” which New Yorker press critic A. J. Liebling referred to as the Colonel’s “atomic-bomb-proof eyrie,” the globe-trotting Colonel lured thousands of tourists to his landmark by adding hundreds of stones and fragments from iconic buildings and sites to the Tower’s walls. Among them were pieces from the Alamo, the Berlin Wall, the Taj Mahal, and even Abraham Lincoln’s tomb. The Colonel and his successors had the building’s facade engraved with the wit and wisdom of authors, politicians, jurists, and writers. Flannery O’Connor’s incisive words, “The truth does not change according to our ability to stomach it,” graced an inner wall. And the Colonel even had a couple of his favorite newspaper columns chiseled into the Tower walls.
At the top of page one of the paper, the Colonel immodestly anointed the Tribune “The World’s Greatest Newspaper.” The paper played a seminal role in the founding of the Republican Party, and candidates for offices of all stripes routinely trooped into the Tower to seek the blessing of the Colonel and the Chicago Tribune. By 1999, the paper had a daily circulation of about 650,000 and just over a million readers on Sunday.
The Tower’s dominance at the foot of the city’s premier shopping mecca symbolized the paper’s outsized influence on the community and the Tribune Company’s, on Wall Street. Over the years, the paper had its ups and downs, particularly when it printed the famous, erroneous 1948 banner headline “Dewey Defeats Truman.” By the time Madigan sat down with Willes, though, the Colonel had died and Tribune journal
ists had reformed the paper, attaining grudging respect as worthy competitors of some of the biggest names in journalism. Within the past five years the paper had won two Pulitzer Prizes and had been a finalist seven times for the coveted award. It had cashed in on a relatively small investment Brumback had made in the then-fledging company America Online, which injected $1.2 billion in cash into the company’s balance sheet. To a large degree, the Tribune set the financial standard by which newspapers would be judged, both by other publishers and by Wall Street analysts.
By the time the publishers met in San Diego, the Los Angeles Times had become a widely admired, powerful newspaper—the crown jewel of the Times Mirror Company empire. Headquartered in an art deco building in downtown Los Angeles, the paper symbolized the manifest destiny of its city and its state. With the help and the financial muscle of the Times and the Chandler family, Los Angeles had overtaken Chicago as America’s second-largest metropolis and had become the capital of America’s influential film industry. If the Chicago Tribune spoke for business and the Republican party in the conservative Midwest, the Los Angeles Times embodied the voice of the GOP on the West Coast. In its day, under the approving eye of the Chandler clan, the Times’ blatantly Republican political columnist had literally created the political career of Richard Milhous Nixon. Like the Tribune, the Times could make or break local political candidates or power brokers, and it didn’t hesitate to mix journalism and politics. In the 1960s, though, Otis Chandler, the reactionary family’s prodigal son, assumed control of the paper and began purging its political bias, eventually building the Times into a nationally respected newspaper with the journalistic chops to make it a worthy competitor of the New York Times.
The nation’s largest metropolitan daily newspaper, the Los Angeles Times had an institutional ego far bigger than the scrappier Chicago Tribune, and its journalists viewed themselves in a league of their own, superior to the bottom-line driven, hog butchers from Chicago. Under Chandler, the Times was a haven for writers pursuing quality journalism in long form. Journalists like Leo Wolinsky, a Los Angeles native, spent entire careers at the Times, developing pride in the paper, but also a fierce resistance to outsiders. The Times had won four Pulitzer Prizes in just five years and had been a finalist nine times. It boasted daily circulation of just over 1 million and 1.375 million on Sunday.
