What Tribune's latest consolidation means for newspaper sales

Tribune's plan to reduce costs by knitting together its newspapers more closely may boost profits (if revenue doesn't fall faster). But it also is likely to repel any buyer considering the thorny task of disentangling them.

The Chicago-based media conglomerate said it would eliminate 700 jobs across its eight newspapers as it centralizes business functions, including human resources, distribution and marketing, under managers at its two largest papers, Chicago Tribune and Los Angeles Times. The newspaper division is profitable, so cost cuts will deliver an improved return for owners in the short term, says Bob Bellack, a financial consultant in Los Angeles and a former chief financial officer at the Los Angeles Times who left the company in 2010. Compensation is Tribune's biggest expense, making up 42 percent of costs during the first nine months of the year. Tribune already has started to centralize some non-editorial functions such as advertising sales, and it can't centralize some others, such as printing, notes Bob Schmitz, a consultant at Quest Turnaround Advisors who worked on Sun-Times Media Holdings's restructuring in 2009. Schmitz offers an alternative interpretation of the new moves: Cutting costs in the short term could increase the price Tribune can demand for the publishing unit and underscores its aim to sell the papers as a group, he says. That would be a blow to suitors such as Wrapports LLC Chairman and Chicago Sun-Times owner Michael Ferro, who hoped to merge his company with the larger Chicago Tribune. Tribune plans to have the cuts in place as it moves to spin off the newspapers from the company's broadcast division by mid-2014.