Posted by chicagomedia.org on October 12, 2009 at 11:07:09:
Sun-Times buyer Jim Tyree: Media magician?
Jim Tyree sees plenty of value in Sun-Times Media Group. Efficiencies are needed, but 'the key and core of this is content.'
By Michael Oneal and Julie Johnsson
Tribune reporters
October 11, 2009
What on earth was he thinking?
Ever since Chicago financier Jim Tyree let it be known in May that he wanted to rescue the city's No. 2 newspaper company from certain collapse, even supporters have wondered.
Sun-Times Media Group Inc. had limped into a Delaware bankruptcy court on March 31 after bleeding hundreds of millions in cash since 2006.
It badly trailed its chief rival, the Chicago Tribune, by almost any competitive metric and was being sucked into the vortex of an industrywide implosion brought on by economic turmoil and the Internet.
If Tyree needed reminding of how badly a financial guru could stain his reputation by wandering into the media maelstrom, he could simply pick up the phone and call billionaire Sam Zell, who had steered the Tribune's parent, Tribune Co., into its own messy bankruptcy months earlier.
But Tyree, the 51-year-old chairman of Mesirow Financial Group and a prominent civic booster, was listening to his own logic.
"You look at the revenue here," he said at the time. "It's well over $200 million. You ought to be able to make money at that."
In an interview Thursday following bankruptcy court approval of his $26 million bid for Sun-Times Media, Tyree provided few specifics about how he plans to reinvigorate ad revenue at the flagship Chicago Sun-Times and its dozens of suburban cousins.
But he did talk about how to stop the company's hemorrhaging and pledged that he and his investment group have already banked enough capital to fund a transformation.
What Sun-Times Media needs most, he said, is time to figure out how to use its news gathering assets to compete in the perplexing new world of digital media, a problem nobody has solved as yet.
"If somebody says, 'I know the media business. I know exactly where it's going. I see that vision just like it's up on the wall,' I say 'OK, you can believe that and you might get lucky,' " Tyree said. "But I don't buy that."
Tyree and Sun-Times Media Chairman Jeremy Halbreich say their first challenge is to sort out the organizational chaos that has plagued the company since it was run by now-imprisoned former press lord Conrad Black and paroled former Publisher F. David Radler.
Sun-Times Media was cobbled together from a series of acquisitions such as Pioneer Press and the Chicago-area titles of Copley Press Inc. and has remained Balkanized ever since, Halbreich said.
He pointed out that the Chicago Tribune covers the market with one set of sales people, a unified technology platform and one big printing plant. Sun-Times Media is fractured, its systems are ancient and its back office was scaled to service a lot of little units underneath one large public company.
The plan is to reorganize all of that. The company already has begun standardizing its papers on a single tabloid format and is shutting small printing facilities to centralize production in Chicago and Milwaukee.
Halbreich's group is streamlining other back-office functions like accounting and billing. And despite rumors that Tyree would move the Sun-Times to Mesirow's new building at 353 N. Clark St., the company is using the bankruptcy process to renegotiate smaller space at the Chicago Apparel Center on Orleans Street.
"We're not going anywhere," Sun-Times spokeswoman Tammy Chase said.
Halbreich acknowledges that streamlining the editorial side presents a much more delicate challenge. The company had proposed creating a "universal media desk" to serve all the papers with functions like copy editing and design -- possibly in Aurora, where there already is a smaller central desk for some of the suburban papers.
But the concept so roiled the union negotiations that Halbreich says he will now consult the company's top editors about how to use new technology to link rather than uproot workers.
"With time and rigor, we can come up with a very efficient model," he said.
Tyree insisted Thursday that any additional layoffs will come from the back office -- not the editorial side -- with resources poured back into creating content at the news organizations.
He went out of his way to say that while he believes "local, high-quality, high-integrity content" is the only way to attract new advertising revenue, he's "ambivalent" about print.
"The key and core of this is content," he said, noting that he reads six papers online each day. "I think whether it's print or Internet or Kindles or Blackberrys or iPhones or 400 things you and I haven't thought of yet, you're always going to need content."
Halbreich said the changes have already made it easier for advertisers to buy color ads and place them in multiple papers that once had different formats. And Tyree insisted the new efficiencies can quickly arrest the company's $500,000 to $600,000 weekly cash burn, although he acknowledged that persistent declines in ad revenue make predicting with any accuracy difficult.
"We believe we can do it with the things we can control and we're well on the way to doing that," Tyree said. "But obviously, there's one major thing we can't control and that's revenue. So we're taking a conservative approach."
Conservatism is what led Tyree to Sun-Times Media at precisely the most perilous moment in the industry's history. Until the failing economy made a bankruptcy unavoidable, he said, buying the company didn't make sense.
Tyree said he first looked at the Sun-Times in 2004 when potential bidders like Yusef Jackson, the son of the Rev. Jesse Jackson, and California supermarket magnate Ron Burkle were mulling offers in the range of $800 million to $1 billion.
Tyree said he thought the Chicago properties were worth about a third of that amount and never made a bid. Then a couple of years later when new management came in, Tyree consulted with the company again about opportunities to find new ownership or capital.
"I told them they didn't have a prayer of doing anything," Tyree said, because the company's costs were too high and it faced a potential $600 million tax liability left over from the Black regime. The only way to rid the company of those burdens, he said, would be to file for Chapter 11. But that was a difficult move for the hedge funds dominating the stock since equity investors routinely get wiped out in bankruptcy.
Eventually, however, a Chapter 11 filing became inevitable. Sun-Times Media burned through an average of $20 million in cash per quarter from 2006 to 2008, and the pace only accelerated when the ad market fell off the table in 2009.
When Sun-Times Media filed, it had a mere $21 million on hand and was dangerously close to a full collapse. But for Tyree that meant the company might be finally ready to slash costs and restructure itself enough to survive.
One key to his confidence, Tyree said, was that he had a team of specialists at Mesirow who could dive in and analyze the company's operations. Over time, he said, he tapped at least 50 professionals ranging from turnaround specialists and investment bankers to benefits analysts and liquidation experts.
"People ask me how could you do it when nobody else could, and I just say we just worked hard and found value," Tyree said.
His conclusion was that if he could use the bankruptcy process to split Sun-Times Media into a "good" company and a "bad" company, the math might work. The good company would get the media assets and a select group of trade debts. The bad company would take over the tax liability, almost $40 million in pension costs and any other liabilities.
Tyree also concluded that he would have to wipe out the seniority and work rules that made it difficult to lay off editorial workers and move them between jobs and facilities. His imperative: that management have complete flexibility to restructure the company and that doing so would add no new costs.
With that construct in hand he went out and gathered a group of investors willing to fund losses for a period of time and supply enough additional capital to pay for new investments. The key to structuring the transaction, however, was that the price stay low ($5 million in cash and $21.5 million in assumed liabilities) and it involve no costly debt.
"This is huge operating risk," Tyree said. "So I wanted no purchase price risk and no financial risk."
Owning a newspaper presents other sorts of risks for someone with ties to Chicago's business and political establishment as deep as Tyree's.
A native of Beverly and a lifelong White Sox fan, he's the quintessential Chicago story: a hard worker who overcame a hardscrabble childhood to become one of the city's most successful businessmen.
He sees similar qualities in the Chicago Sun-Times, using terms like "scrappy" and "fighting" to describe how the paper can score points with readers as it battles the Chicago Tribune and other media.
Still, some question whether Tyree's heartfelt ties to the city will overwhelm his objectivity as a publisher.
Tyree has served on more than 50 civic and corporate boards and though he doesn't contribute to local and state politicians, he was a major fundraiser for President Barack Obama during his 2008 march to the White House.
He's an unabashed cheerleader for the city, leaping to his feet to lead a standing ovation for Chicago Mayor Richard Daley and Pat Ryan, chairman of Chicago 2016, as the two made their first public appearance last week following the city's failed attempt to land the Olympic Games.
Some wonder what will happen if Daley or business associates complain they were treated unfairly in Sun-Times coverage. Or worse, what if Mesirow, which regularly does business with the city and other municipalities, gets accused of favoritism?
Tyree's answer is that Halbreich will run the paper, not him, and he will have no input on editorial matters.
"I'm gonna say, 'Mayor, I don't write stories, I'm not part of the newspaper in terms of creating editorial content and those types of things,' " Tyree said.
That will give him ample time to ponder Sun-Times Media's biggest challenge: How to stem the steady erosion in revenue that has plagued the company for years.
Analysts agree with Halbreich that fixing Sun-Times Media's fractured structure will make it easier for advertisers to buy space and make the Sun-Times organization more competitive with the Chicago Tribune.
But the Tribune's size, broader reach and its ability to cross-sell with other media properties like RedEye give it a built-in structural advantage that has traditionally been hard for Sun-Times Media to overcome. A shrinking market only magnifies the advantage of the incumbent, analysts say, especially given that Tribune has a larger share of the most lucrative categories, like national advertising.
The Tribune and the Sun-Times also face a broader challenge. Newspapers nationwide are struggling to find a sustainable business model as advertising and readers move to the Internet, where ad rates and returns are far lower than print -- and declining.
Halbreich and Tyree emphasize the need for sales people to be more innovative. But industry analyst Ken Doctor points out that the company's sales staff, already reeling from months of turmoil, doesn't have much time to devise creative new ways to reach customers.
"He's taking over a company that's in shell-shock," Doctor said of Tyree.
The good news is that unlike Tribune's Zell, Tyree is entering the media game closer to the bottom of the market. With costs cut to the bone, any improvement in revenue should show up quickly on the bottom line.
Doctor said there's an opportunity to tap more of the small- to medium-size businesses that form the heart of Chicago's economy, many of which have never looked to market themselves in either of the city's large dailies.
But for now, analysts said, the crucial thing is that Sun-Times Media have enough time to stabilize and find its bearings. In a television interview Thursday night, Tyree made the most public of promises that he won't back off the challenge.
"I have taken a personal responsibility to do everything I can to make this newspaper successful," he said.
Tribune media columnist Phil Rosenthal contributed to this report.