Sale won't stanch Sun-Times' losses

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: From Crain's Chicago Business this weekend: : : .................... : Sale won't stanch Sun-Times' losses : By: Mike Colias : September 07, 2009 : James Tyree could keep the ink flowing at battered Sun-Times Media Group Inc. Turning it from red to black will be harder. : Mr. Tyree, chairman of Chicago's Mesirow Financial Holdings Inc., leads a group of investors in advanced talks to buy the Chicago newspaper company out of bankruptcy. But he would face two huge challenges that other struggling newspapers do not: Sun-Times is losing money on its operations, and its flagship paper is the No. 2 player in town at a time when many observers question whether even one daily paper can survive in most cities. : The long-term fate of the company would hinge on Mr. Tyree's success finding fresh revenue to offset steep losses in print-advertising sales when few in the industry have done so. Even if he does, his investment group should be prepared to absorb losses in the meantime, analysts say. : "Regardless of what they pay, it's likely they would be looking at spending tens of millions of dollars to support the business until whatever strategy they have to boost revenue takes root," says Alan Mutter, a San Francisco-based media consultant. : Mr. Tyree apparently is unfazed by the fate of other wealthy interlopers drawn into the newspaper business by beaten-down values. It took real estate mogul Sam Zell one year to lead Tribune Co. into bankruptcy protection following his late 2007 acquisition. Philadelphia's two big dailies landed in Bankruptcy Court in February, less than three years after a local advertising executive engineered a $515-million buyout. : "There's no evidence that anyone has found the magic bullet for success in the newspaper business, so it's difficult to imagine an outsider would be able to," says Mike Simonton, a Chicago-based media analyst at Fitch Ratings. : Still, the timing might be better for Mr. Tyree's potential foray into print media. He'd be buying a trimmed-down company out of bankruptcy, likely free of debt because Sun-Times reportedly aims to unload a $600-million tax liability on a separate entity. And he would take over in time for a likely economic recovery, rather than at the start of a deep recession, as Mr. Zell did. : While advertisers will continue defecting to the Internet, newspaper companies should see revenues either grow slightly or remain flat next year, after years of declines, says Ken Doctor, a California-based news industry analyst. : "An investor might think, 'With zero debt and a rising economy, that gives us enough time to figure out a business model that will sustain growth into the next decade,' " Mr. Doctor says. : Without revenue growth, Mr. Tyree would need to slash costs even deeper — or demand cuts as a condition of any deal. Even after halting payments to pension funds and temporarily cutting wages 15% last spring, Sun-Times lost $3.6 million on operations in July. Observers say Mr. Tyree likely is pressing Sun-Times to make enough cuts to at least break even before any sale. : He also might look for assets to sell. Sun-Times owns two printing plants and nearly 60 suburban papers, many of them highly profitable in the past but most now suffering from the downturn in real estate, retail and automotive advertising. : Sun-Times' flagship paper also could face a stronger competitor in the Chicago Tribune if its parent emerges from bankruptcy debt-free. Tribune has become more aggressive toward its cross-town rival through the RedEye commuter paper and tabloid versions of the Trib. : Mr. Tyree hasn't talked publicly about Sun-Times since May, when Crain's first reported his interest in buying the company (May 4). He said at the time that he considered it a financial opportunity, but he also acknowledged a desire to "keep this great institution in Chicago." : "It's probably one part financial opportunity and two or three parts civic mitzvah," Mr. Mutter, the consultant, says. "That's a wonderful thing for people to step forward and save an important institution. But the challenges are immense."

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