M & A Roundup: Tribune Widely Expands Its Media Coverage

Tribune Co.’s planned $7.7 billion acquisition of Times Mirror Co. would create a massive news provider of incredible scope and depth. With 22 television stations, four radio stations, three of the seven largest daily newspapers in the U.S., and a variety of Internet news sites housed under one roof, the combined company would command a powerful media network that can reach a broad national audience and deliver deep, local-market advertising impact. Reportedly, Tribune, with its expansive cable and satellite coverage, reaches 75% of U.S. households. The deal largely revolves around the advertising industry trend toward seeking out large media companies that can offer advertising firms one-stop shopping for their radio, television, print, and online advertising needs. Tribune seems eager to roll out its cross-ownership strategy, which has been successful in its home base of Chicago and has enabled the company to provide news and information across many media channels and take advantage of cross-promotional programs and cross-media advertising sales opportunities. It has plans to launch newspaper/television combinations in several new markets, including New York, Los Angeles, Hartford, Conn., and Washington, D.C. “We intend to continue to aggressively build our television group, increasing both national reach and multiple stations in markets as now permitted by FCC rules. We see the same consolidation opportunities in the newspaper business, and this deal puts us ahead in the effort,” said company chairman, president, and CEO John Madigan in a printed statement. Tribune/Times Mirror is situated amid massive consolidation following changes to broadcasting ownership regulations made several years ago, and many smaller TV and radio operators are either selling out to larger companies or are looking to sell. Because of current Federal Communication Commission rules, newspaper companies can’t buy TV stations in the same market but radio and TV broadcasters can acquire local newspaper companies, as is the case in the Tribune/Times Mirror deal. Internet companies could provide a pool of potential acquirers, although they might fear dragging down their lofty stock prices if they buy “out of favor” media assets. Peter Kreisky, head of the media practice at Mercer Management Consulting, believes that Tribune is making “an intelligent bet” that regulations governing broadcasting property ownership will no longer exist by the time its licenses come up for renewal – in 2006 and 2007. Concurrently, there’s a great deal of pressure on the FCC to loosen its regulations, he adds. “Those regulations were made in the days when the only sources of news information that you had were broadcast from local broadcasts through TV and radio stations and from newspapers. But today we have many more sources of information, such as cable and the Internet, so the thought of local monopolies will start to fade away.” Massive payoffs in multiple media The real power, he says, is that Tribune has been able to demonstrate that if you combine newspapers and TV stations in the same market, you can achieve awesome operating margins – margins that nobody else in the newspaper business has been able to achieve. “That is due to the company’s ability to cross-promote and to have your information gatherers and journalists be the same people,” Kreisky says. Other industry analysts point to America Online’s proposed merger with Time Warner Inc. as an example of the increasing importance that new media will play in advertising. Such companies as News Corp. and CBS, they note, also are trying to leverage their increasingly diverse media assets by “cross-platform advertising opportunities” to advertisers. Tribune believes that in a world that is increasingly fragmented, local, branded mass-media providers will be the most valuable resources for advertisers that want to reach a mass audience. The company thinks that its deal with Times Mirror would provide great opportunities for advertisers to reach major markets in any media form imaginable.