FCC Anoints Zell Prince of 'Multi-Media' City

Think of FCC Chairman Kevin Martin's blazing-guns Tribune (TRB) waiver in two ways. In one way, it's a celebration of feudalism, as the new Sam Zell-led Tribune gets an unexpected prize, principality status in Chicagoland. In another, it's Martin's own way to propel the local newspaper and broadcast industries fully into the 21st Century, opening the door to singular, city-based companies producing multi-platform journalism and selling multi-platform ads.

By itself, Friday's ruling just gives the Tribune the ability to go private, keeping its portfolio intact for awhile, pending other FCC actions and court appeals. In FCC Commissioner Jonathan Adelstein's words opposing the waiver, "The Order employs certain novel, ill-advised and back-breaking legal gymnastics that will surely leave observers with their heads spinning." That's certainly true, but I'll leave those gymnastics to other observers, focusing instead on the media and journalism implications of what we're seeing.

The ruling -- allowing the company to keep its broadcast stations and newspapers in key markets for now -- should be enough to finally allow the Tribune deal to go through and for Sam Zell to begin his restructuring of company. The work of his teams of analysts roaming the Tribune building will take effect, and 2008 won't be much like 2007. The share price has been snaking up towards the $34 offer price expected, today closing at $31.04. A little more confidence-building as CEO Dennis Fitzsimons re-re-re-affirms that the bank financing will hold and Sam Zell affirms he's ready to roll, and the price, like it did in the News Corp/Dow Jones buyout, will move toward its target.

On the decision, the feudal part is the easiest to understand. The language:

64. IT IS FURTHER ORDERED, that a permanent waiver of the newspaper/broadcast cross-ownership rule, 47 CF.R. Sec. 73.3555, to permit the common ownership of WGN, WGN-TV and the Chicago Tribune by Sam Zell, The Tribune Employee Stock Ownership Plan, as implemented through the Tribune Employee Stock Ownership Trust, and EGI-TRB, LLC IS GRANTED.

The "permanent" is the shocker, putting into good Tribune Tower granite, the long-time domination of the Chicago media landscape.

Why? According to the ruling:

"Here, we find that the nature of the market involved combined with the uniquely long-term symbiotic relationship between the broadcast stations and the newspaper warrants a permanent waiver. In this regard, our examination of the record confirms “the myriad public interest benefits that have resulted over the almost 60 years of Tribune’s common ownership of WGN-TV, WGN[AM], and the Chicago Tribune in the Chicago DMA.”

It's hard to know whether the FCC is enshrining the near-monopoly or just re-enforcing another longtime Chicago tradition -- of course, a Daley will be mayor, and Tribune will run the media.

For Zell, though, this is probably the best prize he can get. He's now becoming the new Media Mayor of Chicago, a role he'll savor -- and can afford to subsidize.

It's the 21st Century part of the ruling that's really quite ironic.

I take you back to the year 2000. Newspaper valuations were good, and the Tribune company pulled off its blockbuster deal, buying Times Mirror for $8 billion, gaining properties in L.A., New York, Baltimore, Hartford (all subject to today's waiver granting) and a couple of others. On the foundation of that deal, Tribune, uniquely in the newspaper industry, set off on a strategy of grabbing more ad share and higher ad pricing by its ownership of newspaper, broadcast and, then, quickly, Internet sites in each site. It was a big strategy, at odds with many of its newspaper brethren. Long story short, it didn't work.

Sure, Tribune picked up a few extra dollars here and there, but as the century took off, those who bought ads were used to buying them separately for broadcast, print and Internet and those selling them weren't really all that good at "multi-platform" selling. Anyhow, the price paid for Times Mirror was way too rich.

Flash forward to the beginning of 2007, and the Tribune was running out of options. Pressured by shareholders to maximize value and seeing itself fare worse than its struggling brethren, it found no straight-out buyers for the company. Then Sam Zell and his team of financial engineers came along, and we've all been watching and trying to decipher SEC filings ever since. The old public Tribune agreed to become the new employee-stock-ownership-owned, but Sam Zell-led, private Tribune. Lots of tax advantages accompanies by an unheard of pile of debt, against a landscape of decreasing profit and cash flow.

The buyout had to pass a number of hurdles, and did, but the one hanging out there was this FCC waiver. Always expected in December, it then apparently got shanghaied by Kevin Martin's unexpected attempt to change cross-ownership in top 20 cities, and do it immediately. That proposition -- sure to be appealed in the courts -- is expected to get approval Dec. 18. But a vote that late would have upended Tribune's plan to go private this year, in time to get tax-exempt status. So after the waiver question hung around since May, Martin hurriedly moved into to the top of the agenda for today's vote.

The two Democratic commissioners opposing the waivers and the UCC and the Media Alliance all made interesting arguments about why the waivers shouldn't be approved, largely along the lines of limiting diversity in media. They're right, to a certain extent, of course. There is lots of diversity, but it has little money behind it, and thus gets little public notice.

What Martin's move today and his wider move on the Dec. 18 vote is intended to do is give media a big shove in the direction of restructuring itself. Irony of irony, he's grasping on to the Old Tribune's 2000 plan in buying Times Mirror, and giving it giant volt of electricity. From his Nov. 14 statement:

"Permitting cross-ownership can preserve the viability of newspapers by allowing them to share their operational costs across multiple media platforms."

Is he trying to re-vivify a dead notion? Or is his timing better?

Certainly, we all see the world of 2015 -- always easiest to see that far out. What will local media do? They gather the news, and they sell ads, alike for print and broadcast and the Web. How they distribute their content has defined them, but won’t in the new world.

In 2015, single companies, maybe metro-area-based, will offer audiences text, video and audio - using the content type that best tells each story. So the local media company adept at producing multimedia content — producing it as cheaply and efficiently as possible — and then distributing it widely through aggregators and mobile, will come to dominate.

Similarly, we know that by 2015 ad systems will have matured from their AdSense/Overture/Yahoo roots into highly sophisticated, cost-effective multimedia buying engines. Providing access advertisers to large numbers of city-located multimedia consumers will be lucrative. Single-city, multi-platform delivery of journalism and advertising, probably networked around the country.

Now as we count the ironies, include one that even the companies that have had combined print/broadcast assets have largely kept them separate so far, maintaining separate staffs (some like Media General in Tampa figuring out better ways to coordinate and some moving on multimedia newsrooms like Gannett's Seven Desks program and London's Daily Telegraph reorg) but with all with lots of overhead.

And that overhead is no longer supportable by the declining stream of revenues, a once-mighty river now slowed and slowing.

So maybe what Sam Zell will do in Chicago and what other Top 20 city owners will do, following FCC action, is actually move on this new landscape. 2008 isn't 2000. We could charitably say that Tribune maybe had it half-right in 2000. Whatever, Martin's push, if approved and then settled in the courts, could well set off an unprecedented roll-up of newspaper and broadcast assets and the radical restructuring of operations that the times apparently call for. It can be done with some elegance, preserving -- and expanding -- the journalistic heart of the operation, or it can be done Sweeney Todd-like. You can place your own bets on that.

Roll-up, restructuring, and more merger. No one’s used the word merger so far, but it’s a logical result of such a change.

If the 2015 world is clear, who the companies owning the properties, employing the journalists selling the ads certainly isn't. It could be the Googles and Yahoo, it could be the Pegasus' and MinnPost's, it could be the new Tribune and the old Gannett's, it could be the Burkle's and the Broad's or it can be entirely new casts of characters not yet on the scene. But make no mistake Kevin Martin's push is intended to give the old owners one more chance to get it right.