The Deal from Hell

by James O'Shea

  Although I rose to lofty positions at the Chicago Tribune, I looked at my job as more than a job. I was well paid; I made more money at the Tribune than I ever thought I would as a journalist. But I would walk out before I’d do something that would compromise my journalistic principles. To me, journalism was a calling, something I did because I loved to chase a story, to report, to tell readers what people in power didn’t want them to know.

  When he worked in the newsroom as an editor in charge of the features department, Kern viewed what he did as a job that needed doing. When I ran the news operations, he would arrive in my office agonizing over why Lipinski didn’t seem to view us as equals. He desperately wanted to become the editor at a Tribune paper because, he would say, “These are such wonderful jobs.” Kern was an adept manager; he helped the Chicago Tribune refine its zoning strategy for local news, and Blair Kamin, the Tribune’s architecture critic, won a Pulitzer Prize while Kern ran the features department. But Kern was crushed in 2000 when Lipinski passed him over to make me the managing editor of the Chicago Tribune. He seemed to think Lipinski had chosen me not because I was a better journalist, but because she, for some inexplicable reason, didn’t like him. He thought you needed to be much more than a strong journalist to effectively manage a newsroom. When the Chicago Tribune didn’t promote him, he landed a job in the Tribune corporate offices.

  First as the associate editor and later as editorial director of Tribune Publishing, Gerry became known to me as Count Kern. He started counting: how many journalists Tribune papers used to cover Hurricane Katrina, how many reporters Tribune had in its Washington bureau, how many Chicago Tribune stories ran in the Los Angeles Times. Kern wrote up elaborate reports full of color-coded pie and bar charts that championed what would become a creeping centralization of editorial decision making in Chicago. He distributed them to Smith and FitzSimons, spoon-feeding the most ardent critics of the journalists in the company with the kind of “research” that FitzSimons loved. Kern noted how one journalist from each of Tribune’s largest papers would be sent to cover a major event instead of “working together” and relying on just one paper to cover a story. Eventually, Kern advocated for key centralized desks to be responsible for the lion’s share of news content—which they’d drop into pages and distribute to smaller Tribune papers around the nation. In effect, everyone would be reading the same news story, whether you lived in Los Angeles, or Orlando. Kern was careful to couch his reports with language about not wanting to diminish Tribune Company journalism. But the broader message being championed by terms like co-location, shared content, duplication of content, family paper content, “news that readers value” (local), and nondifferentiating content (foreign) was synergy. Synergy was the Trojan horse with which FitzSimons and Kern attacked the values of journalists, cut costs, and set their focus on local news because it was often cheaper to produce.

  Kern raised a legitimate question about whether the Tribune Company really needed such an extensive network of correspondents stationed around the nation and world. Did the Chicago Tribune and the Los Angeles Times each have to send a correspondent to cover the same event, as sometimes happened? Couldn’t one reporter do a story for both papers, saving half the costs?

  The answer, of course, is yes in some cases but no in others. At the Los Angeles Times, John Carroll argued that every story in the Times should originate with an editor based in Los Angeles where he or she is closest to the reader and the needs of the paper. An editor in New York, Chicago, or Washington might not have the same tastes or make the same judgments as one in Los Angeles, the city the Times is supposed to serve. But there is an even more fundamental justification for news organizations such as the Times and the Chicago Tribune to maintain expensive foreign and national news staffs. At its core, a news organization with journalistic values exists to cover the news for its readers and provide insightful, meaningful journalism, the kind that educates and gives citizens the kind of information that empowers them, facilitates good decisions about the public’s business, and scrutinizes the political and civic institutions crucial to a democracy.

  When news breaks, you can always get the story of what happened from the Associated Press or some other wire service. That’s what you currently get on most of the Internet sites that aggregate the news. But the Associated Press exists to give customers a quick and superficial story. If an editor in Chicago or Los Angeles who is conversant with the needs of the local community wants a writer to dig deeper, explain, investigate, or tell the reader of the wider implications of a breaking story, he or she can’t simply pick up the phone and ask for a better story from the AP. You get what you get and not much more.

  If, on the other hand, an editor has a correspondent nearby, the journalist can develop the sources and information to provide readers with a better, deeper, or more insightful report. In my own experience, people around the country in the 1980s knew when the federal government swept in and closed their local savings bank. The AP reported the closure. Left unanswered was the question why? Was the bank simply poorly run or were deeper, more systematic problems afoot, ones that could jeopardize the nation’s financial system and cost the government agency that backed its deposits a bundle? As a reporter in the Chicago Tribune’s Washington bureau, I dug into those problems and discovered that hundreds of savings banks across the country were failing, not because dozens of bank examiners simultaneously discovered they were poorly run but because deregulation of the industry had spawned corruption, mismanagement, self-dealing, and sloppy banking practices that would eventually threaten the nation’s financial system and cost taxpayers billions in a bailout needed to prevent the system from collapsing. The Chicago Tribune exposed the scandal before it made headlines elsewhere and helped create public pressure for federal officials to take action. Two decades later, history would repeat itself in the subprime mortgage scandal, but few papers reported on the extent of the debacle until after the damage, which plunged the nation into a recession that has thrown millions of Americans out of work and will cost taxpayers billions. The industry simply didn’t have as many journalists watching what was underway.

  The examples of excellent reporting from correspondents at the Chicago Tribune, Los Angeles Times, Baltimore Sun, Newsday, Orlando Sentinel, Sun Sentinel in Southern Florida and most other Tribune newspapers would make an extensive list. Was there duplication of effort on certain occasions? Yes. But was the price of that duplication worth it if it resulted in superior journalism that these papers routinely gave their readers? Yes again, particularly since the cost of duplication was relatively little. Puerner noted that the Times’ entire foreign and national news budget didn’t equal what Tribune Company, which owned the Chicago Cubs, paid Sammy Sosa to swing a baseball bat. It really comes down to values. What, in your soul, are you as an editor and the newspaper company that employs you trying to do—report the news needed to sustain a democracy or make and save money? If the latter is more important, then you have an identity crisis. And if you can no longer afford to cover the news because of mismanagement or a social and technological revolution, then the problem doesn’t stop at the door of Tribune or any other company around the country. The community has a problem, and so does America.

  The intense scrutiny that Kern and FitzSimons began leveling on the newsroom in their desire to expose duplication wasted a lot of time for editors throughout Tribune Company. While the entire industry was facing an impending revenue crisis, I—and editors like me—spent the better parts of our weeks writing reports to FitzSimons to prove that we had taken audience research into consideration when deciding which stories to place on page one, and attending Kern’s endless meetings to discuss how we could work together. The whole enterprise was a waste of time and money. When I ran into Kern at a party, after he’d been moved over to Tribune publishing, I noticed that he’d assumed the same disparaging tone that business executives used to address us lowly editors. The clash of cultures had arrived and the Los An
geles Times was ground zero.

  Wolinsky started to worry when he heard rumors of tension surfacing between people in Chicago and Times editor Carroll and managing editor Baquet. Then Kern showed up in Los Angeles and began counting the paper’s editors, several of whom overheard the phone call he made to Chicago in which he caustically reported the outrageous levels of staff at the Times, which faced far more difficult deadline and delivery problems than the Chicago Tribune. Wolinsky recalled:There was all this talk about synergy, about doing these sections to serve all of the papers, mainly in the business section area. John [Carroll] didn’t want to do it, Dean didn’t want to do it. I kept saying, “Look, these guys want to do this, so let’s jump on the idea and own it.” But they didn’t want to.... Then I started getting reports that Carroll was arrogant in meetings with Tribune people, that he would go to meetings and sit there reading something while others talked. He would be totally disengaged, then get up and walk out. I knew this was the way John did things.... But he seemed to have John Puerner’s support, and Puerner was a great Tribune guy, and I figured he was okay. But then Puerner left.

  Puerner, who had gone to work for Tribune Company fresh out of college, saw the decline in revenues that had decimated classified advertising start to infect display ads—the kind that the Hollywood studios in the Times’ backyard ran to trumpet their latest films and the kind that big department stores ran. To prosper, he thought the Times had to generate unique content to justify a higher newspaper cover price and a fee for Internet access, a method known in the industry as paid content. Puerner didn’t think the Los Angeles Times could succeed by providing better local news coverage than the Long Beach Telegram: “There was just no way that you could out Long Beach, Long Beach. I looked, and in every market where we tried to do that, we were number two.... You had to look at the big topic areas—public safety, health care, the huge issues the Times was uniquely positioned to cover.”

  But investing editorial resources to provide superior coverage meant building up the expensive foreign, national, and business news staffs, a strategy that the Kerns and FitzSimons of the world strongly opposed. They knew cutting prestigious foreign and national news staffs set editors’ teeth on edge, but they were counting on the reductions to generate costs savings. “Jack [Fuller] and I didn’t agree. We had long, honest conversations about this. But he was the buffer,” Puerner said, “he was a big buffer. When he left, there was increased corporate presence in Los Angeles. Frankly it made things more difficult for us to manage.... It became clear that our philosophy collided with the need in Chicago to cut costs . . . and that these two differences in philosophies were irreconcilable.” Puerner left the Times in May 2005, and Jeffrey Johnson, another Tribune veteran and smart executive who had earned his stripes reducing the cost of the Times’ backward production process, filled the publisher’s seat. FitzSimons had effectively placed people with little publishing experience at the helm in Los Angeles, Chicago, and New York, his three largest properties and the source of more than half of the company’s revenues. And then there was a whiff of a rumor—this time about the Times’ circulation numbers.

  Newsday had gotten newspaper executives around the country to take stock of the risks involved in lying about the numbers. In July 2002, Congress added to the industry’s woes by passing the Sarbanes-Oxley Act, which mandated that top corporate officers sign off on the accuracy of all internal reports. Congress also had passed legislation creating a “do not call” list, which hurt newspapers’ phone circulation sales. And then there was the Internet—a fabulous, fast, free alternative to delivering news and advertising to hordes of willing readers.

  As newspapers began to look inward, the Dallas Morning News and the Chicago Sun-Times preempted the Banars of the world by publicly announcing they had discovered bogus circulation—announcements that triggered internal investigations, scrutiny by ABC, and more headlines. Many of the industry’s circulation chiefs started to squirm. Newspapers had to figure out how to prune any questionable circulation from their ABC books without making a bad situation look worse.

  Even industry stalwarts like Brumback, a former chairman of the Newspaper Association of America, admitted that the numbers in ABC audits left a lot to be desired: “They aren’t worth a damn,” Brumback later noted,“You just give them [ABC auditors] the numbers you want and they put them in a nice, fancy little booklet.” But even a cursory look at some audits shows that newspapers, particularly major metro dailies like the Los Angeles Times, used the ABC’s flimsy rules to obscure the extent of dubious numbers. Just after he took over, Puerner decided to scrap much of the circulation Willes had added through joint distribution deals with Spanish language papers and the local news sections called “Our Times.” He saw the Internet as the answer. “We were discounting deeply, and I wanted to get down to a number we could justify to advertisers,” he said. “I wanted to go the other way and start a paid content strategy; start creating value for online content and get away from relying on those huge numbers.” In other words, he wanted to create the kind of journalism that would justify a higher price for the paper, in print and online.

  After Puerner’s first year in the publisher’s office, the daily circulation of the paper fell by 4.46 per cent, or 48,772 papers. In 2002, the Times’ circulation dropped an additional 66,451 papers, or 6.36 percent, as Puerner jettisoned circulation Willes had taken on. Sunday circulation remained pretty steady, and the numbers seemed to settle down by 2005, the year Puerner left. Under Steven Lee, the marketing executive who had been hired from PepsiCo, the Times had launched a promotional program to reverse the slide called “Ten for Ten”: ten weeks of the Times for only $10. Klunder, who had resigned as the head of circulation under Willes and taken a job at the Los Angeles Newspaper Group, which published the Daily News, could see what was happening from afar. To encourage salespeople to sell the “Ten for Ten” program, the company set a commission high enough that a salesperson could get a name from the phone book, pay for the subscription out of her or his own pocket, collect a commission high enough to still make a profit, and hope that the new “subscriber” would like it enough to continue the subscription when someone reached him ten weeks later.

  Klunder had run the Los Angeles Times circulation department and his father had run it before him. He felt a sense of loyalty to the paper, even though he didn’t work there anymore, and he didn’t want to see the paper take a wrong turn. So he called the ABC with a tip that all was not right in the Los Angeles Times circulation department. ABC auditors descended on the company and went to work helping it fix a problem that would make the industry look even worse if the public got wind of yet another circulation scandal.

  Aside from the rare editors like Wolinsky who maintained good contacts with the business-side operations of the paper, few in the Times editorial department knew about the circulation problems. Had any industry covered by Times or Tribune journalists had such cozy relations with its regulators, we would have been all over the story. Granted, a few reporters did investigate the circulation problems plaguing our industry—at Newsday James Madore and Robert E. Kessler had dug in, and Chris Twarowski of the Long Island Press did an excellent job detailing the scheme on Long Island. But it’s likely that their stories would never have seen the light of day had it not been for Giaimo and Banar. Most media reporters across the country slavishly repeated ABC numbers that glossed over the depth of the industry’s problems. In newsrooms, we accepted those numbers like the gospel. Carroll claimed that he knew nothing about the Times circulation problems. But then again, he had other things on his mind.

  In early 2005, Carroll got word that the Los Angeles Times had won five Pulitzers for stories that had run in the paper the previous year, an extraordinary achievement. But he got no congratulations from people in the higher ranks of Tribune Company; instead he learned that Tribune would impose another round of budget cuts, which would mandate cuts in the Times news hole and eliminate sixty-two newsroom
jobs.

  In mid-2005, Carroll attended a management forum in Chicago where the attitude toward the Los Angeles Times was decidedly hostile: “I remember one guy from broadcasting standing up and saying the next time we acquire something, we will do it our way from day one,” said Carroll. With Fuller and Puerner out of the way or on their way out, FitzSimons solidified control in Chicago, including control of all of the newspaper’s Internet operations. Thanks to his refusal to use stories written by the Tribune’s correspondents in the Los Angeles Times, Carroll had few allies in Chicago, even among journalists who worked at the Chicago Tribune.

  Carroll paid a visit to Norm Pearlstine, who was head of editorial operations at Time Inc., but had been based in Los Angeles years earlier when he’d covered the West Coast for the Wall Street Journal. Pearlstine knew the Los Angeles business community well, and he knew Eli Broad, the real estate billionaire and Los Angeles civic booster. He helped set up a meeting between Carroll and Broad. “I had no illusion that this was a disloyal act. I was doing something out of line for Tribune,” Carroll recalled. “I went there on a Saturday morning. I didn’t ask him to do anything. I asked his advice if there was anything I could do to get the paper in local hands. He started talking about getting several nonprofits to combine and buy it.”

  Broad wasn’t the only one interested in buying the Times. David Geffen, who had made billions in Hollywood, also made it known he was interested in the Times and that he, unlike FitzSimons, would actually invest money in the paper. Rumors swirled that Geffen had offered FitzSimons $1 billion for the Los Angeles Times and that FitzSimons had rebuffed Geffen, whom he didn’t like. Wolinsky took it upon himself to find out what was going on.