Tribune bankruptcy is a warning to all

trib logoI just got a call from a reporter at the New York Times about the Tribune bankruptcy. Debt is the issue for Sam Zell, and the filing for chapter 11 protection is a hedge against a massive, pending debt payment. Cash flow isn’t… blah, blah, blah.

“We believe that this restructuring will bring the level of our debt in line with…” blah, blah, blah. “…we have made significant progress internally on transitioning Tribune…” blah, blah, blah. “…factors beyond our control…” blah, blah, blah.

Ground control to Major Sam: Media companies aren’t like flipping real estate, but who knew? There are those who suggest that this action is really Zell’s best bet to get the debt holders to restructure the $13 billion the company owes, and that will likely happen. This debt was incurred when Zell took the company private last year, and I thought that was smart at the time (still do). But the move also gives the company ways to deal with other forms of debt, including pricey operating expenses. It’s not pretty, no matter how its spun from Zell’s offices in Chicago.

This will not be the last major media company to file for Federal protection using Chapter 11, because many others face the same issue of enormous debt in a tight credit market. But it’s only a part of the much bigger picture of what’s happening to media in a season of disruption, and as I told the reporter from The Times, Zell has bigger long-term issues than debt. The Tribune Company owns businesses who make money by placing ads in between (broadcast) or alongside (print) scarce content. That model, I’m afraid, is dying for two reasons. One, content isn’t scarce anymore. Two, advertisers have other, cheaper ways of reaching the people formerly known as the audience. I’m not sure there’s any form of government help that can protect traditional media from that.

The Tribune Company is owned by Zell and Tribune employees. I wonder who’s going to get hosed the most in this? Stay tuned.

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