Goldman Sachs Communacopia
October 4, 2001
Dennis FitzSimons, President and
Chief Operating Officer
Thanks Michael. We're glad to be here. And thanks
to all of you for being here; I know you've seen a lot of
presentations. It's been a very difficult few weeks for everyone
--especially here. With both WPIX and Newsday here the tragedy
of September 11 affected many of our employees. I'd just like
to recognize a couple of people who are here from Channel
11. Betty Ellen Berlamino, our general manger from Channel
11 is here and she's done a great job the past couple of weeks.
And Michael Eigner is here; he is president of WGN Cable and
oversees our east coast operations. Like the other broadcasters,
we had our transmitter on the World Trade Center. We lost
a very valuable person, our transmitter engineer, Steve Jacobson,
a 22-year veteran of WPIX, who was on the 103rd floor. We're
certainly proud of Steve and the work that he did. And we
are also proud of the work being done by all our journalists,
both print and broadcast who have kept our readers, viewers
and listeners updated about this tragedy and its aftermath.
I can tell you that our organization reacted quickly and with
strength -- with extra editions and wall-to-wall broadcast
coverage keep the public informed.
Against that backdrop, normal quarterly results
seem a little bit less important.
But, there is some good news. Advertisers are
returning and consumers seem to be receptive. A late-September
consumer survey found that 8 out of 10 felt "it was a
relief to see the return of the programming and advertising
they are accustomed to…because that is perceived as
part of returning to normal."
As advertisers began resuming normal activity,
they, in many instances, turned to newspapers first; and they're
doing so for a couple of reasons. One is trust: Our editorial
environment gives advertisers confidence that their messages
will appear in the appropriate context. The other is speed:
Ads can be created or changed quickly and reach consumers
the next day.
Trust, speed and effectiveness are the hallmarks
of the things we tried to do immediately after the tragedy.
Through our print and broadcast outlets, we raised more than
$9 million -- our original goal was $5 million -- to be matched
by $2.5 million by the McCormick Tribune Foundation. All of
that will be distributed to the victims of the attacks in
both New York and Washington.
These advantages were evident during the last
few weeks as companies used the LA Times, Chicago Tribune
and our other newspapers to offer both condolences and to
indicate their confidence in the future. Those institutional-type
ads have recently given way to more traditional advertising
designed to drive traffic and increase sales. That's what
advertisers count on newspapers to do.
Clearly, advertisers are facing tough decisions,
including tighter budgets and the appropriateness of their
creative. But what we're seeing is what we usually see in
difficult times; advertisers are using media that work, media
that gives them a quantifiable return on their investment.
Media like newspapers and television.
That frequently means local media... trusted
brands with strong credibility. There is probably no better
example of the importance of local media than General Motors
recent shift in ad strategy. Faced with market-share pressure,
GM has shifted from a national media strategy to heavily increasing
its focus in spending in key local markets.
That's no surprise to us; it's a key element
of our strategy. One we call: "National Reach/Local Touch."
Tribune has some of the strongest local media
franchises in the country. Our focus on major markets is no
coincidence. Advertisers have to be there because 50% of all
consumer expenditures made in the U.S. are made in the top
ten markets. These markets tend to be the bell-weather of
the economy. When economic growth returns, and we know it
will, major markets will again outperform the rest of the
country. Certainly, that's what we found at the end of the
economic downturn we saw in the early 90s.
The value of our individual franchises will
be even greater going forward. And our added ability to use
multiple media channels to deliver advertisers' messages to
consumers in major markets will only add value.
So, what does this mean for investors? The
recurring theme of the last year or so is "getting back
to basics." I think we can all agree that "getting
back to basics" should highlight companies with proven
business models, solid free cash flow and sustainable competitive
advantages. Tribune delivers all three.
Our "proven business model" is built
on aggressively controlling costs, driving efficiencies and
cross media sharing of resources. Through the years, the operating
results of Tribune's publishing and broadcast groups' have
been at the top of their respective industries.
Our businesses generate solid free cash flow,
even in a downturn.
In terms of integrating acquisitions, we're
3 years ahead of where we thought we'd be in achieving the
financial benefits we projected when we acquired Times Mirror
last year. At the LA Times alone, we have reduced costs by
$100 million annually.
We also have taken aggressive steps to cut
costs and reduce staff across all of Tribune. By the end of
this year, we will have reduced the staff by about ten percent,
or approximately 2,000 jobs since June of last year.
We are doing more than just reducing costs.
We're also focused on top line growth and we have some key
initiatives underway that'll grow revenues. In publishing,
between Chicago and LA, we expect to add about $75 million
to preprint revenue over the next several years.
In Chicago, where we have better than 60% market
share in preprints, we are just completing a new plant that
will give us further market-share upside. At the L.A. Times
we only have about a third of the preprint market with a lot
of room to grow. Believe it or not, prior to our ownership,
the LA Times was doing preprint insertion by hand. So we've
just approved a new insertion facility that will give us greater
zoning capability, later deadlines and faster delivery. That's
what advertisers are looking for, and this new plant positions
us to go after ADVO on the West Coast and build market share.
Revenue share at our TV stations also have
room to grow. Our fall programming lineups look good and The
WB, which was the only network to show audience growth last
year, will continue to focus on the younger demographics that
advertisers demand and find increasingly harder to reach.
Our syndicated line-ups in early evening and
late-night are also strong with the return of "Friends,"
and the debut of the off -network hit "Everybody Loves
Raymond." "Raymond" premiered last week, we're
double-running it at most of our stations, and the ratings
were really encouraging.
We'd also like to point to our disciplined
program buying, which is paying dividends right now. We ran
"Seinfeld" for six years in New York and LA and
we let it go because we didn't think it made sense to pay
three times what our stations had been paying in its first
six years of its off-network run. Now head-to-head, we're
beating "Seinfeld" with "Everybody Loves Raymond"
at a about 25% of the cost. On the network side, we made the
same decision when The WB decided not to renew "Buffy."
In this type of environment, those decisions
look pretty good.
Now just a couple of other notes. Tribune Entertainment,
which has become the largest producer of syndicated action
hours, has become a really significant supplier to our station
group. That has been an increasing area of profit contribution
to the company and we're very pleased with what Tribune Entertainment
has done there. We will be premiering our latest action hour,
"Mutant X," this week and we're expecting some good
ratings there. We had the strongest new show in first-run
syndication last year, "Andromeda." And probably
our best known subsidiary, the Chicago Cubs, had one of our
better years this year, both on the field and in the stands,
where we drew about 2.8 million. I bring this up because when
we talk about convergence, that's probably one of the best
examples we have in our company of synergy. The Cubs drive
the ratings for WGN-TV locally and also the national ratings
for WGN Cable, which will also, with good performance, increase
our national distribution. That's some very positive developments
there.
All of this translates to solid cash flow,
which has grown, on average, 12 to 15% annually over the past
ten years.
But what really sets Tribune apart is this
sustainable competitive advantage that I've mentioned. We
get that from the tremendous local franchises that make up
our company.
What advantages our franchises is that local
mass media is the most efficient way for advertisers to geographically
target their customers, to build their brands and move their
products. Local advertisers like grocery chains, automobile
dealer groups and retailers need to reach the broadest possible
audience in their areas. Even national advertisers like movie
studios and fast food chains need local media outlets to reach
audiences in specific markets at specific times.
We also help solve what is increasingly a nightmare
for marketers -- and that's audience fragmentation, which
continues to make it tougher, not easier, for advertisers
to get their messages through.
Today there are seven over-the-air networks,
dozens of cable networks, all of whom have additional penetration
through DBS. But for advertisers, these are all national network
options. For advertisers looking to reach mass audience in
specific major markets, the options are not nearly as great.
And that makes Tribune's local TV franchises more valuable
than ever because we deliver large audiences with great demos
in the richest markets in the country.
To illustrate just how fragmented audiences
have become, we need only look at the cable networks that
really led to the initial fragmentation of the "Big 3."
They are now being fragmented themselves and this past season
five of the six top cable networks watched their prime time
ratings slide.
Just take a look at the cable news network
category, where CNN used to dominate. The same overall share
of audience that CNN used to deliver is now split between
five players. Now let's look the audience delivered by all
those cable news channels and how it stacks up in Chicago
against our channel, WGN. We quadruple the combined audience
delivery of all these cable news services.
It's the same story with newspapers when you
think about it. In a fragmenting media environment, newspapers
are strong, reaching more than half of the adult population
on an average weekday. And in our markets, our newspaper franchises
and readership are in great shape. Consumers look to newspapers
as the best source for in-depth, relevant news and information.
The events of the last three weeks underscore
that point. Consider the following statistics:
- Single copy sales increased by more than
1 million across our newspaper group on Wednesday, September
12
- Subscription starts in Chicago and South
Florida were up about 20%
- We gained exposure with an important
new group of readers, those younger readers who turned to
newspapers for context and analysis.
Most often, relevant means local and our
strong local brands give Tribune a unique competitive
advantage with advertisers.
Our local mass media franchises -- 23 television
stations, 11 local newspapers, more than 50 web sites
-- and our newspaper-television combinations in the country's
top three markets, enable us to deliver multimedia audience
in a way few other media companies can -- in individual
markets, through unwired networks, or with cross-media,
cross-market combinations. By packaging media in the most
valuable markets, we're making it easier for advertisers
meet their marketing objectives.
Just a couple of recent examples. These happened
even given the downturn we've been going through, pre- September
11:
- Las Vegas Tourism just bought a combo package
for the LA Times and Chicago Tribune. We're leveraging multiple
newspapers when we're involved in national sales.
- The Chicago Tribune and LA Times also just
developed a new "Fashion Positioning" program
for advertisers, giving them premium space on pages two
and three. That's going to generate another several million
dollars annually.
There's good news at Tribune Media Net, which
we created to help sell cross- media, cross-market advertising.
This year, despite the tough environment, TMN is will generate
about $25 million in incremental revenue. And as things get
better, we expect that to increase significantly.
Our ability to deliver results for our advertisers
gives us an edge. We are seeing that advantage now as advertising
returns:
- The automotive category is picking up on
both the local and national levels. At the Chicago Tribune,
our auto section ad count is up 30% over the week of September
11. Additionally, in an effort to lure back buyers, and
I'm sure you've seen some of this advertising, both Ford
and GM are rolling out 0% financing which they are supporting
by spending heavily.
- One of our major retailers, Nordstrom, held
its first Fall sales event ever and supported it with full-page
advertising in the Chicago Tribune and in other markets,
as well. They've never had one of those before.
- And finally, another area of strength is
the telecommunications/wireless category which continues
to be strong as consumers are even more interested in staying
in touch
There's one trend that's definitely clear:
Companies are spending first with the market leaders, in advertising
vehicles they know will deliver for them. Lesser "vehicles"
with weaker demos and reach are at risk of losing out in what
is really a competitive environment right now. It's not a
good time to be at the Sun-Times in Chicago.
I think the most important issue that confronts
us in the newspaper business -- not just Tribune, but all
newspaper companies -- is classified advertising and its perceived
migration to the Internet. Newspapers have long had the recruitment
advertising franchise and that's not going to change. We have
a big competitive advantage because most people looking for
a job still begin their search with the classified sections
of their local Sunday newspapers.
Now, we're taking that advantage to the online
classified business.
The way we're going to win in online recruitment
is through our partnership with Knight Ridder in CareerBuilder,
which last month agreed to acquire HeadHunter. That combined
the number 2 and 3 online recruitment companies.
And what we'll do with the larger company is
go after Monster's market share in the online sector. The
HeadHunter transaction more than doubles CareerBuilder's revenue
and we'll generate significant cost savings by combining back
office functions.
I think the real opportunity lies in further
developing the CareerBuilder brand and increasing its awareness
among consumers. The way we can do that is by using Knight
Ridder's 32 newspapers, and Tribune's 11 newspapers and 23
television stations.
This past Sunday, we launched CareerBuilder
branded "help-wanted" recruitment sections. Knight
Ridder did the same thing and Belo brought in the Dallas Morning
News. We did this at all our top papers. The cross-promotional
value of these specially-branded sections is roughly $50 million
annually. It's going to help make CareerBuilder the brand
of choice for job-seekers. That's the perfect example of how
we can leverage our strong local media franchises to our own
advantage.
That's really just one of the advantages we
have.
As one of the first to have multiple media
in the same market, we've had a head start on sharing content,
cross-promoting our brands and cross-selling advertising.
We're making significant progress, especially in the top three
markets-- New York, LA and Chicago -- where Tribune is the
only media company with newspapers and TV stations.
So in conclusion, let me get back to basics.
Whether publishing, broadcasting or interactive, Tribune operates
proven business models.
We have solid free cash flow.
We've attacked our cost structure and positioned
Tribune well for when the economy recovers.
We're growing top-line revenues by developing
creative new products for our advertisers.
We have an on-line recruitment strategy designed
to take advantage of our existing strengths in publishing.
We can leverage cross-market, cross-media opportunities
better than anybody.
Finally, we've got a strong balance sheet and
financial flexibility and that gives us the potential to grow
even in times like these. And to position Tribune for what
we know is going to be a much brighter economy and much brighter
future.
Thank you.
:: :: ::
This document contains certain comments
or forward-looking statements that are based largely on the
company's current expectations and are subject to certain
risks, trends and uncertainties. Such comments and statements
should be understood in the context of Tribune's publicly
available reports filed with the SEC, including the most current
annual report, 10-K and 10-Q, which contain a discussion of
various factors that may affect the company's business. These
factors could cause actual future performance to differ materially
from current expectations. Tribune Company is not responsible
for updating the information contained in this press release
beyond the published date, or for changes made to this document
by wire services or Internet service providers. |
