The Deal from Hell

by James O'Shea

  He also started thinking about the future. Brumback realized before most other newspaper executives how the computer and its attendant technology would transform the newspaper industry. After the Tribune invested in America Online, in the early 1990s Brumback created Chicago Online, putting the Tribune Company at the vanguard of media and the Internet. He ordered Chicago Tribune content to be placed on the Internet and charged anyone for access to the stories unless they subscribed to the newspaper. He also tried to spread the gospel to the entire industry by promoting something called the New Century Network, or NCN, a consortium of the nine-largest newspaper groups in America, to pool their content so they could “monetize it,” or make money.

  Brumback had zeroed in on what would become a devastating problem for newspapers as the Internet began to thrive. “Charlie had a good idea but it wasn’t the right answer,” said James Cutie, a onetime head of online news for the New York Times and a NCN board member. “The group was too large. It was composed of nine newspaper companies all sitting around the table with the same skills. If someone had had the balls to charge for our digital copy, it would be a whole different ballgame today.” Brumback later told me that he had also encountered opposition from the Chicago Tribune’s circulation department, which viewed the new technology as a threat to its ability to attract print readers.

  Within three years, the NCN folded, an entrepreneurial dream plagued by differing philosophies, internecine warfare, big companies, and even bigger egos. “Charlie was trying to get Silicon Valley to invest in it, and some guy from Kleiner Perkins [Caufield & Byers] wanted to invest $5 million,” said Cutie. “Can you imagine getting all of that premium content for $5 million. We had this big meeting of all the major newspaper companies to vote on whether to go ahead. I think it was in Chicago because I thought it was like something out of the Godfather when the heads of all the crime families came there to vote about going into the drug business.” The vote was five to four against joining Kleiner Perkins, a setback that not only killed the NCN but in retrospect was a blow to the industry.

  Instead of charging customers to recoup their cost of creating content, newspaper companies put the content on line for free, hoping that a bigger audience would lure enough online ad dollars to pay their costs and boost profits. It was a bad bet. Some readers quit paying for their papers because they could get the content for free online. The technology allowed advertisers to see exactly how many people looked at their ads, intelligence that led them to bid down the price of all advertising, print and online. The result: a huge problem for the media grappling with a new generation of readers reared in the Internet age, one that expects fast, free content on computer screens, cellphones, and iPads.

  Brumback had better luck when he started thinking about his successor. “He came before the board and told us that we didn’t need to do a national search because we had two of the best people in the business already at the company—John Madigan and Jim Dowdle,” said Newton Minow, a company director and former chairman of the Federal Communications Commission who had achieved fame when he described television as a vast wasteland in the 1960s. “He then gave us a presentation on both. At the end, half the board thought he wanted Madigan and the other half thought he wanted Dowdle,” said Minow. After a year of due diligence in which he carefully sought out their respective visions of the company’s future, Brumback decided on Madigan. “I thought Madigan was the best-equipped guy to do it because of his financial background. There were a lot of financial issues then, and broadcast was a minor part of the business. I talked to them. I asked each of them to write a report on what the newspaper would look like ten to twenty years from then. Madigan had the best vision. He’s good at writing reports,” Brumback recalled.

  In 1994, the board promoted Madigan to president of the company and Fuller to publisher and president of the Chicago Tribune. A year later, Madigan got the CEO title and in 1996 became chairman, when Brumback retired. His rival, Dowdle, got the company’s number-two job. Fuller became head of the company’s publishing division, which oversaw the company’s four newspapers.

  Madigan and Fuller inherited Brumback’s legacy as a bargain hunter. Because Tribune had acquired numerous television stations, Brumback did his best to get two for the price of one—one reporter who could file reports for both the newspaper and broadcast outlets. Advocates of the idea like Howard Tyner, who had succeeded Fuller as editor of the Chicago Tribune, called the idea “synergy.” Tyner and I never really saw the world through the same lens. I felt that asking a journalist to take still and moving pictures simultaneously would only produce bad still photos and bad video. But Tyner fiercely embraced the idea championed by his bosses. He had a television camera installed in the newsroom just outside the editor’s office where Tribune print reporters would be interviewed for news shows on the company’s much ballyhooed cable television station. CLTV stood for Chicagoland Cable Television, but the old hands at WGN, the company’s more traditional station, called it Children Learning Television. The lone camera would eventually become a fully functioning television stage inside the newsroom where television anchors could interview print reporters about the stories they were covering. The studio was empty as much as it was occupied. Most television folks thought interviewing print reporters was simply bad TV.

  Madigan and Fuller also sharply increased Tribune’s earnings. In a shrewd move that reflected his financial market roots, Madigan had the company create a derivative, an arcane investment vehicle that allowed him to sell off Brumback’s $5 million investment in America Online for $1.2 billion, a windfall that gave him so much cash that he went out shopping for something to buy.

  Ambitious people always recognize the point in their careers when they need a change. I felt that way when I left a good future at the Des Moines Register and moved to the Tribune. In the mid-1990s, I got the itch to return to reporting and write a book about the consulting industry. I liked being in charge of major sections of the newspaper, but I was tired of working with far fewer resources than journalists at the New York Times or the Washington Post. Fuller had named Ann Marie Lipinski deputy managing editor for news, and we quickly became close friends and allies in a drive to make the Tribune a destination paper for investigative journalism. I confided in her that I had landed a book contract and that I was going to take a buyout to focus on writing my book. After Tyner hesitated to name Lipinski full managing editor, she was frustrated and understood my desire to make a change. About a half-hour before I was to discuss my plans with Joe Leonard, who ran the newsroom budget and headed up the buyout program, Lipinski came into my office. “You haven’t talked to Leonard yet, have you?” she implored. When I told her no, she grinned, relieved. “Good!” she exclaimed. Tyner had reconsidered and was naming her full managing editor. “I need your help running this place.” Lipinski declared. “You can’t leave.”

  8

  Inside the Merger

  In March 2000, Leo Wolinsky walked into the Los Angeles Times editorial recognition awards dinner filled with promise. Once a year, the paper’s editors nominated and selected the paper’s best work over the past twelve months. Over a lavish dinner, winning reporters and editors were rewarded with as much as $5,000. The Times paid its staff better than most American newspapers, but not many journalists ever got rich toiling in the trenches. The awards event was a good way to recognize a job well done with an offering of cash or stock to employees who weren’t eligible for bonuses. (In Chicago, the Tribune carried out its own iteration at the Beck Awards, named after longtime managing editor Edward Scott Beck, who was managing editor from 1910 to 1937.)

  Having left his Porsche with the valet at the Beverly Wilshire Hotel, Wolinsky entered the ballroom. Around nine hundred staff members and guests were expected. Well-dressed reporters, editors, and their guests mingled over cocktails, gossiping about newsroom politics and speculating on who would win the twenty-two awards that would be passed out that evening. Shortly before the program
was to start, the Los Angeles Times’ editor, Michael Parks, tapped Wolinsky on the shoulder and suggested they go for a short walk.

  The day before the awards event, Wolinsky had sniffed around the business offices at the Times to investigate rumors buzzing in the newsroom of the company’s sale to Tribune Company. “Everybody in financial said,‘No way it could happen.’” Wolinsky later recalled. “Everyone still thought the Chandler trusts wouldn’t allow a sale of the Los Angeles Times. There were all kinds of investment bankers upstairs, and we started thinking maybe we, Times Mirror, were going to buy something.” When Parks asked Wolinsky if he’d heard the rumors, as they strolled the grounds around the Beverly Wilshire, Wolinsky told him that he’d investigated them and they were patently untrue. Parks stopped in his tracks, looked Wolinsky in the eye, and said simply that he couldn’t comment. “And that was it. The first thing I did was call David Shaw [the Times media writer] and told him he’d better start making some calls,” Wolinsky later recalled.

  Times Mirror insiders and outsiders bought the line that Wolinsky got from his friends in financial. Even Mark Willes firmly believed that the Chandler trust would ban the sale of the paper until the last Chandler heir died. Park’s “no comment” stunned Wolinsky. He’d been at the Los Angeles Times for nearly twenty years, edited or worked on stories that had won fourteen Pulitzers, helped staff members through the things that hit all workplaces—nasty divorces, premature deaths, unfaithful spouses, drinking bouts, too much dope. The Los Angeles Times was his family. And now the very real possibility that the Chandlers would sell out to a bunch of people from Chicago who reputedly ran newspapers the way a butcher ran a meat market loomed large. Wolinsky realized the very real possibility of a buyout. “All of a sudden one of the premier establishments in LA was going to be owned by someone from Chicago. . . . It certainly was the end of an era,” he said later.

  Wolinsky’s surprise at the news was nothing compared to Willes’. As the company’s CEO, he should have known if his company were about to be sold, but he didn’t have a clue. The last time Willes had even heard about the subject was following his meeting with Madigan in San Diego. He’d reported Madigan’s approach to his board and did a quick analysis that concluded a deal didn’t make economic sense. “I reported that to John and I thought that was the end of it. I mean I liked John, and I thought he was being entirely up front. It never occurred to me that he would do anything behind my back. I certainly underestimated him,” Willes recalled.

  Times Mirror was on a roll, with its stock price and earnings far higher than when Willes had taken over, and the Chandlers hadn’t given him the slightest hint that they were unhappy. “Everything they had said to me,” Willes said, “was ‘thank God you’re here. You are doing a wonderful job. We’re so grateful.’ I mean literally.”

  Soon after Wolinksy had taken his stroll with Parks, William Stinehart, a lean no-nonsense Chandler family lawyer, paid Willes an unexpected visit. “He walked into my office,” Willes recalled, “and said that we’d reached an agreement to sell the company. I had no hint at all. I was so incredibly naïve. And I was so stunned and so angry. I think it’s the first time and the only time in my life I refused to shake someone’s hand when they left my office. It was just incomprehensible after all we had done that they would do this for the sake of a short-term gain. To this day, it’s incomprehensible. I felt totally betrayed.”

  It was also news to the non-Chandler directors on the company’s board. Although the transaction was portrayed as a merger of Times Mirror and Tribune Company, it had all the earmarks of a hostile takeover by Tribune and the Chandlers. Skip Zimbalist, who had just become the Times Mirror CFO, said Willes came into his office looking white as a sheet: “He told me that Tribune wanted to buy it. He was visibly shaken; he looked totally shocked . . . like he’d been hit by a truck.”

  Although Willes had done the Chandler family bidding, the Chandlers didn’t like the way he ran around acting like he owned the Los Angeles Times. The family owned the Times. As Zimbalist saw it, Willes had numbered his days when, without consulting the family, he named himself publisher and later appointed Downing publisher after he had been told he couldn’t have both the publisher and CEO titles.

  And then there was the Staples scandal. In the drive to eliminate the wall between the editorial and the business side of the paper, Downing had cut a partnership deal with the Staples Center, a $400 million sports and entertainment complex in downtown Los Angeles. To meet part of its commitment to the deal, the Times had agreed to publish a thick, 168-page Sunday magazine in October 1999, touting the center—an edition that lured $2 million worth of advertising. On the surface, there was nothing wrong with the Staples deal. Newspapers routinely run supplements full of puff pieces to lure ad dollars that support serious journalism elsewhere in the paper. But the Staples deal exposed Downing’s inexperience as a publisher: As part of the deal, the Times had agreed to split $2 million of ad revenues with the Staples Center. Soon, the outraged staff at the Los Angeles Times denounced the deal publicly. “A fundamental premise of journalism is that a journalist should not be sharing revenue or have a business relationship with somebody he’s writing a story about,” Henry Weinstein, a highly regarded Times reporter told PBS. “Our own code of ethics for reporters specifically forbids this. What we saw in this deal was that the people who run the newspaper had done something that just flagrantly violated our own rules.” The Staples faux pas became a huge story, one that deeply embarrassed the Times and, by implication, the Chandlers, to the rest of the publishing world.

  Zimbalist noted:Staples could have happened to anyone. Kathryn had no publishing experience and she apologized and it was going to blow over until someone leaked it to the New York Times. The editorial department grew up under Otis and Tom Johnson and Shelby after him believing that their mission was to create the greatest newspaper in the world and be equal to the New York Times. Winning Pulitzers was important to them. Doing important journalistic work and scooping everyone—nothing was better. Anything that infringed on their ability to do that was a cause for anger, alarm, and rebellion. When their brethren at the New York Times criticized them, they felt they had to uphold their honor and they got really mad.

  In point of fact, the Los Angeles Daily Business Journal had broken the story, but in a flash, everyone started writing about it.

  “You know I got blamed for Staples,” Willes said, “and I had nothing to do with the Staples thing, they didn’t ask me, they didn’t consult me. I didn’t know about it till after it become a problem.” But Willes had made Downing the publisher, a move that he admits in retrospect was a mistake. She wasn’t ready to become publisher, and the criticism fell upon the man who had put her in the job prematurely.

  “Mark Willes is just a symbol—and perhaps even a victim—of the combination of fear and ambition that in recent years has led many managers of media enterprises to put stockholders ahead of readers or listeners,” wrote Max Frankel, a former managing editor of the New York Times, in an op-ed piece that compared the Staples deal to a kickback scheme designed to generate positive coverage. “By giving priority to stock values and profit margins, they slighted their obligations to the public. Indeed they have shown themselves ignorant or even contemptuous of the ethical standards so long and painstakingly erected to protect the credibility of their news operations.”

  Even Otis Chandler broke his silence. From his retirement ranch north of Los Angeles, he released a statement that he had Bill Boyarsky read in the newsroom, calling the Staples deal “unbelievably stupid and unprofessional” and the Willes and Downing era “the single most devastating period in the history of this great newspaper.” In an incredible instance of self-flagellation that could only be found in the newspaper business, the Los Angeles Times had media writer David Shaw write a thirty-thousand-word piece on Staples.

  As the Staples scandal lingered in the collective journalistic memory, a short, stocky man with a winsome
smile deplaned at O’Hare International Airport and made his way to downtown Chicago for a board meeting of Classified Ventures, a collaboration between Tribune and other major media companies dedicated to combating the threats that the Internet posed to the industry’s lucrative classified advertising business. A native of Evanston, Illinois, Tom Unterman was about to leave his job as CFO of Times Mirror in 1999 to pursue his new career managing money, mainly for the Chandler family, but also some other clients. To those who knew him, Unterman was a “smart off the charts” lawyer and deal guy who had a reputation for cleverly avoiding taxes. Just before the board meeting, Jack Fuller, who by then had been promoted to head Tribune’s publishing unit and a fellow Classified Ventures board member, pulled him aside: “I told Tom ‘we are not going to give up on this. This is the smartest thing either of our companies could do,’” a not-so-veiled reference to the proposed Tribune–Times Mirror merger.