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From AJR,   May 1998  issue

Continuation of Synergy City   

By Ken Auletta
Ken Auletta is the nation’s best-known observer of media and publishing. His “Annals of Communications” columns for The New Yorker have illuminated the corporate doings of industry giants such as Microsoft, Time Warner and Disney. He has written seven books, most recently “The Highwaymen: Warriors of the Information Superhighway,” published by Random House.     

Over the Tribune Co.'s 151-year history, three men loom largest: pioneering editor and Lincoln champion Joseph Medill; his grandson, Robert McCormick, who reigned--the only word for it--for more than four decades; and Charles Brumback, who was CEO just from 1990 to 1995, but whose passions dominated the company throughout the '80s and, to a large extent, still do.

The vituperative, jingoistic, FDR-bashing Tribune of Colonel McCormick was both biased and lively--troglodyte and risk-taker, abuser of free speech and champion of it. In his engrossing biography "The Colonel: The Life and Legend of Robert R. McCormick," Richard Norton Smith dissects and celebrates the "complexities of this lifelong maverick cum pillar of the establishment, whose Tribune reflected America as in a funhouse mirror. 'I contain multitudes,' Walt Whitman had written. So did Colonel McCormick." The Colonel's Tribune branched out into radio in the '20s (WGN, for World's Greatest Newspaper) and television in the '40s, before either was popular. It was the first to initiate color printing, and among the first to build a paper mill and introduce a Sunday newspaper.

McCormick's Chicago Tribune was a family-owned enterprise that reflected the boss' every whim. It wasn't until years later under the tenure of Editor Clayton Kirkpatrick that the paper gained respect for its rising independence--the summit being in 1974, when it published a 44-page supplement containing the Watergate tape transcripts and called for Richard Nixon's resignation. In the '70s, under CEO Stanton R. Cook, management was centralized and professionalized. In 1983, Cook steered the company to Wall Street and its first public stock offering, just at the start of the Reagan-era boom market. But the regal Cook--who looked like a CEO from central casting, with flowing gray hair, dark suits and wing tips--may be remembered most for spotting Brumback, a short, bald, pear-shaped, penny-pinching accountant who wore baggy sports jackets and short-sleeved shirts, and who was busy shutting off lights at the Orlando Sentinel.

Brumback was Orlando's business manager when Cook anointed him the paper's acting general manager in 1976. Sensing his own limitations, Brumback enrolled in a one-week crash course run by the American Management Association. "I knew enough to know I really didn't know what professional management was all about," recalls Brumback, who still has three of the textbooks from the course. Taught by management consultants, as well as current and retired CEOs, the retreat gave him a framework and showed him how to plan, how to decentralize management without yielding control, how to seek synergies and, most of all, how to create a "climate" of professionalism and risk-taking.

Brumback dispatched his own managers to the same corporate boot camp. He got rid of Orlando's creaky letterpresses and invested in an automated offset plant. He poured money into marketing, sliced costs and generally set everyone around him on edge. Brumback adopted a crude refrain: "Look to your right. Look to your left. One of you will be gone next year."

An early computer buff, Brumback owned one of the first Apple computers. He became convinced that the microprocessor would transform business. On the subject of technology he was an evangelist. In interviews with business-side job candidates, he'd ask if they could type without looking at the keyboard. He encouraged his managers to take computer tutorials. "You got to get your hands on it," he'd beseech, warning that those who feared or ignored technology did so at their peril. He sought out new businesses, new technologies, that could multiply his assets. John Puerner recalls joining Tribune as a financial analyst in 1979, and as part of his initiation being dispatched to Orlando. "I was inspired that Charlie had created a new-media test bed. He was exploring how newspaper content could be redistributed in many forms."

The same year Brumback became general manager, James Squires, then 36, was sent to Orlando to edit the paper. The two men forged a close union. Squires toughened news coverage; Brumback stiffened the bottom line. Both attracted Chicago's notice. "By 1981," says Squires, "the Chicago Sun-Times was still the best-read newspaper in Chicago. Ruth Clark and her pollsters were still telling the Tribune that their readers were dying. It seemed that the Sun-Times was growing in the suburbs, where the Tribune's strength had always been." The publisher of the Sun-Times, James Hoge, was "running a hell of a show," Squires says. In 1981, CEO Cook chose Brumback to become president of the Chicago Tribune, but kept the publisher title for himself. Brumback joined the board of directors of the parent company, and in 1982 he would lure Squires to Chicago to edit the flagship paper.

Brumback was scared. "Orlando," he recalls, "is one of those magical markets where our mistakes don't show." In Chicago, there was no room for error. And he fretted that he had no experience dealing with unions--a gap that, indeed, would haunt him later.

But Brumback did not act scared. He knew there was growing competition from television and computers for readers' leisure time, as well as competition for ad dollars from TV and direct mail. So he moved quickly to control costs, the first way he could address the "appallingly low" single-digit profits. His first target was the costly hodgepodge of 250 distributors who had muscled agreements to deliver the paper. "We didn't know who our customers were," Brumback says. "I couldn't advertise a price for the Chicago Tribune on television because I didn't know what the distributors were charging." He agreed to pay $45 million "to buy back something we never sold." With the help of computers, Brumback collected the names of subscribers, allowing him to bill and use direct mail.

Meanwhile, Tribune trucks were fighting daily with tunnels to the Tower, narrow loading bays and Michigan Avenue traffic jams. Brumback supervised completion of a $250 million, 21-acre printing-plant complex--called Freedom Center--with water, rail and expressway access. "Cook's strategy was to improve the productivity of the organization," says Brumback, who recalls finding the equivalent of 4,700 full time employees when he arrived at the Tribune. With a term that butchers use for rich, fatty meat, Brumback explains, "We had a lot of 'marbling.' " With Cook's concurrence, Brumback took up his knives.

In all, he would slice 1,000 slots from production areas, and about 700 more from editorial and other departments. He attacked church-state divisions by installing staircases connecting the newsroom, on the fourth floor, to the ad and business departments, on the second and third floors. He consolidated back-office functions, such as payroll and human resources, for all divisions. Cuts rarely occurred all at once, or exclusively through layoffs. Newsroom cutbacks were less glaring because he relied on attrition. Brumback de-marbled mid-level editors, researchers, receptionists, secretaries. And when in 1985 the paper's typographers went on strike, Brumback broke the union by hiring temporary replacements who became permanent, and trimmed 250 more jobs.

Brumback was hugely unpopular. Many reporters thought he cared more about technology than journalism. Page remembers that when Brumback visited the Washington bureau, he was only mildly interested in news. "But when I told him I just bought a new computer, he was really excited by that, and asked lots of questions." A Trib editor recalls, "He was mean to people. He didn't care much about people and their hurt. He would say things that were cruel." Yet that same editor, who asked not to be identified, marvels at Brumback's prescience: Those surgical cuts in the early '80s spared the Trib the turmoil and anxiety--perhaps the even more traumatic cost-cutting--that occurred at Knight Ridder or Times Mirror in the '90s.

From Orlando, Brumback brought another insight to Chicago: Profit margins were determined not just by cutting cost, but by revenue growth. By offering color and 32 zones, he reached new advertisers who wanted inserts aimed at specific neighborhoods. By building a computerized database and starting a direct-mail company, he could advertise to Trib readers and nonreaders. Years later, says Timothy J. Landon, vice president for strategy and development for Tribune Publishing, the company would generate $10 million in revenue (and 25 percent profit margins) just on niche magazines that carry information about cars or real estate, as well as classified ads. The Tribune also makes money printing the New York Times' Midwest edition and distributing it in Chicago. Today the paper's operating profit margin stands at 28 percent--and more than half that growth comes from revenue rather than cost reductions. Says Scott Smith, "The key is the total revenue per subscriber, which is the highest in the industry" at about $1,000 a year.

Brumback brought a third insight, says Landon, who joined the paper as a 21-year-old intern in 1985. "If you've got the cash flow you can afford to take chances," he says. "That came from Charlie." The same year Cook brought Brumback to Chicago, he lured James Dowdle from Hubbard Broadcasting to lead the Tribune's diversification into electronic media. At the time, Tribune owned TV stations in Chicago (WGN), New York City (WPIX) and Denver (KWGN). Under Dowdle, the company would expand from three to 16 stations. Dowdle and Brumback were soulmates their first six months in Chicago, sharing an apartment in the John Hancock tower. Dowdle remembers coming home late and watching the rumpled Brumback bang away at something called a personal computer, a machine that at the time was still a novelty.

Brumback banged away at work, too. As Tribune president, he told executives that if they learned to use a computer the company would buy them one. John Madigan, who was then the chief financial officer, recalls, "Charlie was tightfisted. But on computers he was very liberal. That created a comfortability and familiarity... A lot of Luddites saw the light quickly."

When Cook took Tribune public in 1983, there was new capital for investment, and new discipline. It was a way, says Brumback, to impose on the company the scrutiny of shareholders, who could reward or punish its performance--to a point. Like other family-owned newspaper companies that sold stock (the New York Times, the Washington Post, Dow Jones), Tribune protected itself by insuring that control stayed in friendly hands. Today, the not-for-profit Robert R. McCormick Tribune Foundation, whose shares are voted by current and retired company executives, controls 18 percent of the common stock; employees, who enjoy a generous stock benefit plan, hold all the preferred stock.

Brumback, whose influence had long since eclipsed his titles, was named chief operating officer of the parent company in January 1989. He was promoted (over John Madigan) to president and CEO in August 1990, succeeding Cook. Brumback immediately set out to change Tribune's traditional corporate culture. In 1991 he initiated quarterly management retreats for about 50 top executives. "He said, 'I want this to be a more entrepreneurial culture,' " recalls Orlando's Haile. "I said, 'Charlie, no one believes you. We've been a cautious newspaper company.' But it started a cultural process that really changed the Tribune." (At the most recent management forum last November, 100 Tribune executives spent a day at the company's education publishing subsidiary in Washington state, and another day at Microsoft.)

And Brumback initiated something else: a year and a half of intense weekly strategy sessions among the top five executives, a group he called the development committee. Its twofold mission would have fateful consequences. The committee sought ways to grow, which would prompt a focus on new-media investments. It also meant to rethink investments that showed slow growth.

Tribune was already trotting on the electronic track. In 1989, while other companies clamored to invest in Prodigy and CompuServe, Tribune was the first outside investor in Steve Case's fledgling Quantum Computer Services, exchanging $5 million for 10 percent ownership of what would become America Online. As Brumback gathered the reins of the company, electronic investment was spurred to a gallop. These investments were very much aimed at Tribune's new audience: Wall Street, which punishes anyone who's said to be in "yesterday's business." That threw a baleful light on two of the Tribune's grandest old investments. Even before Cook and the board chose him as heir apparent, Brumback had warned that the future of the company's Canadian paper mills and the New York Daily News would have to be resolved.

The Canadian plants were the best in the business, but paper mills need almost constant upgrading at huge cost. Newsprint was becoming a more competitive commodity, reducing its profitability at the same time that the Tribune could buy paper cheaply elsewhere. Brumback and his committee decided to sell the Canadian mills. As for the tabloid Daily News--well, that was more complex.

Another grandson of Joseph Medill, Joseph M. Patterson, founded the Daily News in 1919. The feisty "Picture Newspaper" grew steadily until, by 1949, it was selling 2.5 million copies a day, more than any other paper in America. But by the '80s, after decades of inefficient management and union corruption, the News was losing readers and ads, and was saddled with featherbedding contracts and an antique printing plant. The News was sucking cash from the parent company. In 1981, under Cook, Tribune made a deal to sell the News to Joe L. Allbritton. But at the eleventh hour, Allbritton claimed he hadn't been told of the financial liabilities imposed by union contracts he would inherit. When the Tribune refused to indemnify him against those potential costs, the deal fell apart.

But Brumback and the development committee wanted resolution; in the boss' words, they would "fix it or get out." "Charlie was determined to be bold," recalls Smith, who was then senior vice president for finance. To fix the News, Tribune managers imposed new work rules and had the News hire the same law firm that advised them during the 1985 Chicago strike, King and Ballow, led by attorney Robert Ballow. Brumback thought they were hiring a "labor expert" to calibrate a careful strategy. But the strategy turned out to be short on care. Instead of isolating some mob-linked or racially gerrymandered blue-collar union--and walling off the white-collar Newspaper Guild from the strife--Tribune lumped all 10 unions together. News workers became convinced that the company wanted to rid the paper of unions, and in 1990 they went on strike. With Brumback's sanction, the News hired replacement workers. There was violence. The mayor, the governor, the New York business leaders--even Cardinal John O'Connor--supported the unions.

Unlike Chicago, where the Trib was powerful enough to bust a strike, in New York the police sided with strikers. They did not arrest those who broke the law to impede replacement workers. Trucks were vandalized, "scabs" beaten up. The News was struggling to publish every day, but no one seemed to care. Most news dealers wouldn't sell the replacement News, and those who would found few buyers. This went on for months. New Yorkers sneered at the rubes from Chicago--The Gang That Couldn't Shoot Straight. "No question we underestimated the control of the streets of New York," says Dowdle, who attended daily strategy sessions. Looking back, Smith says, "did we miscalculate things?.. Sure." But he insists that failure stemmed from Tribune virtue: Company managers were simply "eternal optimists. We really did believe we could do better in New York."

They did worse..and worse. The Tribune pegged News operating losses at $114 million for 1990. By the time they sold the News to the fly-by-night British baron Robert Maxwell in March 1991, the red ink was at flood. "Over the decade," says Smith, "we lost something over $500 million."

Brumback, for his part, says today, "I don't know what we could have done differently." He rejects the notion that his strategy didn't pan out. "It did work," he insists. "Our strategy was to fix it or get out." They got out.

By the end of 1991, even though Tribune owned six TV stations, four radio stations and the Chicago Cubs, and even though it had made a handful of new-media investments, two-thirds of its revenues still derived from newspapers. Brumback was determined to reduce this reliance.

In 1992 the Chicago Tribune became one of the first newspapers to put an edition online. In early 1993 it was among the first to establish a local 24-hour cable news outlet, CLTV. Both efforts would be replicated in other cities where it owned newspapers. Starting with the investment in AOL, the company staked a series of new-media ventures, often joining with the powerhouse Silicon venture capital firm Kleiner Perkins to bankroll start-ups like Excite, a navigation system to roam the Internet.

Brumback stepped down as CEO in May 1995 and was succeeded by Madigan. By contrast with the short, bald, gruff Brumback, Madigan was Wall Street smooth, with silver hair and a ready smile. If Brumback was the former infantry lieutenant who led the charge up a hill, Madigan, a former investment banker at Salomon Brothers, was more the stylish general staff man. But like his predecessor, Madigan was determined to change the business mix. He was preoccupied with the Tribune's stock price. "This is a company with a lot of momentum," Madigan told shareholders at the annual meeting in May 1996. "But we're not satisfied with our stock price performance over the last several years." The price was then 70-3/8 a share. (The stock would split two-for-one the following January.) Wall Street still perceived the Tribune as too dependent on print.

So Madigan accelerated Tribune's investment in other media, expanding into software, education publishing and multimedia. He bought into the start-up WB television network. Then in July 1996, soon after the federal government relaxed restrictions on the number of broadcast stations a company could own, Madigan announced a blockbuster acquisition: For $1.1 billion, Tribune would buy Renaissance Communications' six TV stations. With one stroke, Tribune now reached into one-third of all broadcast homes in the nation, and 70 percent of cable homes, courtesy of superstation WGN. By last winter, Madigan finally could boast that half of Tribune's revenues came from sources other than newspapers.

What do you like, I ask John Madigan, about the Chicago Tribune?

Seated at a tiny wooden conference table in his modestly furnished office, Madigan answers slowly, with evident care. "The overall coverage is very good," he tells me.

And what does he admire about his other three papers?

"I don't read them regularly," he says. "I do when I go there."

It's hard to know whether Madigan is being coy or polite; as CEO, perhaps he doesn't want to criticize by omission those he neglects to praise. Or is he someone who pays more attention to numbers than the journalistic product that generates those numbers? When I ask about the police-blotter news so prominent on his TV stations, he says, "I can't regularly watch those stations"--though he surmises that "our newscasts are a better quality than that."

Tribune has maintained profit margins because the company has inventively found ways to generate new revenues. But if newspaper profits can't keep pace with those of broadcasting, entertainment, educational publishing and new media, won't Wall Street thump the laggard papers?

That's when journalists want to hear that the CEO loves his papers--and is willing to sacrifice a few margin points to maintain their luster. Although Madigan, when asked, will answer that the media business holds a special trust because it provides information and helps shape public attitudes, he's not much for speeches about the World's Greatest Newspaper.

"I like the blend of local, international and national factors," he says of the Trib. "It's packaged well. There is an effective use of color and formatting. I think it's the best-looking paper there is."

This prompts another question that's heard in Tribune newsrooms: Does the company believe in newspapers? Within management ranks, from Madigan on down, the question is dismissed as ludicrous because it assumes that newspapers are static. Tribune regards papers as vessels to carry the company wherever it seeks to go. "The newspaper is at the center of what we do," says Orlando's Puerner. "And it will remain at the center. And everything else we do is complementary."

Problem is, this strategy is crimped by the fact that Tribune owns only four newspapers. The proclaimed synergies with local broadcasting, cable and online seem to require more papers at their center. "You'd love to have a footprint in more of the top 30 markets," admits Landon, the strategic vice president. "If we could have held on to the Daily News in New York, it would have been a great thing."

The flip side, Jack Fuller points out, is that national papers like the New York Times and Wall Street Journal would love to have the local franchise and multimedia arms of Tribune. "Our problem is that we don't have enough of the top 30 cities. No one does. The national brands' problem is that they don't have the local clout we do. The Times has been successful at taking a fairly shallow cut of people all across the country." Each of the big newspaper chains, Fuller says, has vulnerabilities: Gannett, for instance, has only one metro, the Detroit News, in a top market; Knight Ridder is excluded from the nation's three largest markets, as is Cox. Tribune has tried to acquire more papers, bidding last year for Disney's newspapers and Minneapolis' Star Tribune, among others. But in every case Tribune was too "disciplined" to pay top dollar. The company has simply put its money elsewhere.

Tribune's strategy may bump into other obstacles. Under the cross-ownership rules of the federal government, a company may not own both a newspaper and a broadcast outlet in the same market--unless the company did so before the rule came into force (as is the case with WGN in Chicago), or unless the government finds a public interest in waiving the rule (as it did when Rupert Murdoch was allowed to rescue the New York Post). The Federal Communications Commission, so far backed by the courts, has ordered Tribune to choose between its Fort Lauderdale paper and TV station WDZL. (The FCC let a March 22 deadline lapse so it could review the cross-ownership rules.) If the company means to prosper from multimedia synergies between newspapers and TV stations, the rules will have to change.

All newspapers confront another obstacle: Fragmented information choices are robbing papers of circulation. In the past decade, overall newspaper circulation has dropped 10 percent, a trend most analysts expect to continue. Madigan considers himself a realist. He says he'd be satisfied to hold circulation flat. But he frets, "We know young people are less inclined to read than their parents."

And what effects will newspapers feel from the Internet? Merrill Brown, the editor in chief of MSNBC online, a joint effort of NBC and Microsoft, claims to have data "starting to show" that people who get most of their news from the Internet are canceling newspaper subscriptions. "We are being reached by 360,000 different machines each day," he says; lumping together all news Web sites, Brown estimates that "a couple of million people a day get their news this way." Unlike with a newspaper, online users can "customize" their news, get it instantly, and get it free. What they don't get--certainly not from MSNBC, as Brown concedes--is much local news.

The other electronic menace to newspapers--Brumback identified this early on--is the efficient way classified ads can be presented online. Buying a home across the country? An online classified can show you color pictures, offer endless details and send you to the right Realtor. Want a new job? Online listings can link you to desirable openings in other states. Nationally, classifieds are a $15 billion market. Grenesko says they represent 46 percent of Tribune's newspaper advertising revenues. If electronic competitors reduce newspaper market share from 80 percent to, say, 50 percent, ad rates and profit margins would be decimated.

That's why Tribune has put so much effort into Internet classifieds. With the Washington Post and Times Mirror, it started CarPoint. And Tribune has a connection, CareerPath, with seven other publishers (representing 70 papers) to target employment ads. In their worst nightmares, Tribune executives see Microsoft extracting chunks of the classified market. But as is true with online news, Microsoft is thin locally. Landon sounds like a combat commander when he declares, "Our whole bet is to neutralize Microsoft's positioning, and then force it down to local ground wars."

Technology is compelling newspapers to fight these multiple-front wars. The Internet is likely to siphon off more customers, as will interactive television. With greater bandwidth, TVs or computers will be able to summon not just text, but audio news and full-motion video. Tribune sees not only challenges here but opportunities. Because electronic links will allow companies to collect data on the interests of each customer, says Jeff R. Scherb, Tribune's senior vice president for technology, "you may get to the point where zones can be your house." Scherb believes the role of newspapers and journalists will change when consumers can interact and retrieve more information than papers provide. "I don't think ink on paper will ever be replaced," he says. "It's hard to surf the Web and find things you don't expect. You have to go looking for things." Still, he considers a decline in the printed page inevitable.

In his office at the McCormick Tribune Foundation, in the Tribune Tower, Charles Brumback looks up phone numbers, checks his schedule and exchanges e-mail, all from a wireless Palm Pilot that fits in one hand. At his desk, he's equipped with the computer equivalent of a souped-up car: a three-gigabyte hard disk with an Iomega Zip drive that stores 100 megabytes on a single disk. He subscribes to technical publications and changes his equipment frequently. But he has not changed his view that Tribune must flourish as a multimedia company. In the future, Brumback says, the "successful company is going to be the table of contents to the Internet."

I ask Brumback to describe his proudest achievement. "We really are today recognized as a successful information and entertainment company," he says. "I think we've applied technology to our products, to news, in a way that makes the end product much more interesting. We have people who are not afraid of the future. We have some middle-aged editorial types who just came to life."

One of those middle-aged types is the raspy-voiced columnist John Kass, 41 years old and the father of twin boys. He is comforted by Tribune's extraordinary efforts to probe and prepare for a different future. Kass recounts the time he worked on a small daily, when the steel company in town announced sudden and massive layoffs. "People were saying, 'They should have understood the steel business had changed.' It was a good lesson for me. I try and put aside for changes. Those guys weren't prepared. What we're trying to do is prepare for the future so that the company can continue."

In preparing for that future, it may be that the greatest obstacles will be not technical but cultural. There is an inherent clash between the culture of business, which is to maximize profits, and the culture of journalism, which wants to maximize coverage. If circulation doesn't grow, business pressure will push money out of newspapers to somewhere else. At the same time, the tools to measure what readers want become more refined. "One of the great, and terrifying, things about the Web is that everything is measureable," says Hiller, the Tribune's chief strategist. Whether readers prefer horoscopes to international news, sports to science, gossip to government--all this can be quantified, he says.

So what happens when an editor's judgment collides, as it will, with market research? If readers say they prefer horoscopes to foreign news, I ask Hiller, won't there be pressure to drop foreign news?

"People really do want a quality editorial experience," he says. "On the open Web is chaos and madness. What we do as a newspaper is bring some coherence." Pressed, however, he reponds, "I think, ultimately, the market works."

Meaning what?

"I think, long term, you get in trouble not giving the public what it wants."

And if it wants horoscopes?

"Then I'd give it to them."

As it happens, it's in Chicago's western suburbs where you find perhaps today's most extreme experiment in marketing-generated news. Here Copley has augmented its daily newspapers with a free weekly whose "community" is a Zip Code--indeed, its name is a Zip Code, 60504. Its news content owes less to what journalists think than to what careful market surveys say the public and advertisers want. The result seems less a newspaper than an electrocardiogram.

At a well-run company like Tribune, where managers and editors alike speak of "quality," "credibility" and all the other heartfelt words that suggest they understand they have no product without good journalism, the problem is not executives who intend to do harm. The danger is inadvertent harm. Journalism is an act of faith. It is not concrete, like a balance sheet. Readers spend their money and time on the faith that journalists strive to learn the truth and don't cut corners. Journalists place their faith in the words of Abraham Lincoln--words etched into marble at the Tribune Tower's splendid entrance: "Let the people know the facts and the country will be safe."

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