The Deal from Hell (2 page)

As it happened, the threat posed to newspapers by software giants like Microsoft would pale in comparison to the one leveled by the little guy, a digital sniper working in an apartment, armed with little more than a dream and a computer. The industry's lock on lucrative classified ad markets allowed papers to charge $50 to $100 for a one-inch ad that would run once or twice a week. Even as Madigan and Willes sat down for what Willes thought would be a casual chat, a mere five hundred miles up the California coast, Craig Newmark, an ex-computer programmer from Charles Schwab & Co., filed papers to register craigslist as a small for-profit Internet company that would revolutionize classified advertising with free online ads.

Meanwhile, two young Stanford University graduate students an hour plane ride away had just finished solving an equation with 500 million variables and 3 billion terms. Using banks of computers, Sergey Brin and Larry Page created an algorithm called PageRank, which they housed in a start-up company they eventually called Google. Two months after Madigan and Willes met, Brin and Page announced initial public funding.

In a small Hollywood apartment, an untrained D student who worked in a gift shop at a CBS studio was gaining traction for a conservative news-aggregation site that would become a potent weapon in the cultural wars against the so-called mainstream media. Matt Drudge rooted through studio trash cans and collected gossip to cobble together a wide range of political and entertainment industry tidbits that he published on the Internet. He created the “Drudge Report,” a gossipy, sloppy brand of journalism that would help undermine traditional journalistic standards and put organizations like the Tribune and Times Mirror at a disadvantage for their adherence to diligent reporting.

As Madigan and Willes sat down to talk, the Newmarks, Googles, and Drudges of the world were not even on their radar.

Willes was caught off guard by the proposal Madigan proceeded to lay out. From an investment banker's perspective, the proposed marriage of Tribune and Times Mirror made a lot of sense. By merging the two companies, Madigan envisioned a media powerhouse with a print and broadcast advertising scale and breadth that could reach eighteen of the nation's top-thirty markets, including TV stations, newspapers, and budding Internet sites in Los Angeles, New York, and Chicago. The combined company would be the nation's third-largest media company behind the Gannett and Knight Ridder companies. It would be a powerful brand that included America's best collection of quality newspapers, boasting a combined daily circulation of 3.6 million with television stations that reached an additional 38.4 million U.S. households. Madigan and others suggested that the new company would offer “national footprint, local reach,” a showcase for the kind of
convergence
that media executives held out as their salvation. Willes listened politely as Madigan described a merger of two companies that had had distinct, yet similar histories.

Rising over Michigan Avenue, at the foot of a string of glittering shops, hotels, and restaurants called the “Magnificent Mile,” the Tribune Company's neo-gothic headquarters symbolized the raw power, influence, and historic reach of the
Chicago Tribune
. For the design of the famous Tribune Tower, Colonel Robert R. McCormick, universally known as “the Colonel,” had launched an international architecture competition in 1922. John Howell, a New York architect, and Raymond Hood, who would later design Rockefeller Center, had won the commission.

Perched in an office atop the “Symphony of Stone,” which
New Yorker
press critic A. J. Liebling referred to as the Colonel's “atomic-bomb-proof eyrie,” the globe-trotting Colonel lured thousands of tourists to his landmark by adding hundreds of stones and fragments from iconic buildings and sites to the Tower's walls. Among them
were pieces from the Alamo, the Berlin Wall, the Taj Mahal, and even Abraham Lincoln's tomb. The Colonel and his successors had the building's facade engraved with the wit and wisdom of authors, politicians, jurists, and writers. Flannery O'Connor's incisive words, “The truth does not change according to our ability to stomach it,” graced an inner wall. And the Colonel even had a couple of his favorite newspaper columns chiseled into the Tower walls.

At the top of page one of the paper, the Colonel immodestly anointed the
Tribune
“The World's Greatest Newspaper.” The paper played a seminal role in the founding of the Republican Party, and candidates for offices of all stripes routinely trooped into the Tower to seek the blessing of the Colonel and the
Chicago Tribune
. By 1999, the paper had a daily circulation of about 650,000 and just over a million readers on Sunday.

The Tower's dominance at the foot of the city's premier shopping mecca symbolized the paper's outsized influence on the community and the Tribune Company's, on Wall Street. Over the years, the paper had its ups and downs, particularly when it printed the famous, erroneous 1948 banner headline “Dewey Defeats Truman.” By the time Madigan sat down with Willes, though, the Colonel had died and
Tribune
journalists had reformed the paper, attaining grudging respect as worthy competitors of some of the biggest names in journalism. Within the past five years the paper had won two Pulitzer Prizes and had been a finalist seven times for the coveted award. It had cashed in on a relatively small investment Brumback had made in the then-fledging company America Online, which injected $1.2 billion in cash into the company's balance sheet. To a large degree, the
Tribune
set the financial standard by which newspapers would be judged, both by other publishers and by Wall Street analysts.

By the time the publishers met in San Diego, the
Los Angeles Times
had become a widely admired, powerful newspaper—the crown jewel of the Times Mirror Company empire. Headquartered in an art deco
building in downtown Los Angeles, the paper symbolized the manifest destiny of its city and its state. With the help and the financial muscle of the
Times
and the Chandler family, Los Angeles had overtaken Chicago as America's second-largest metropolis and had become the capital of America's influential film industry. If the
Chicago Tribune
spoke for business and the Republican party in the conservative Midwest, the
Los Angeles Times
embodied the voice of the GOP on the West Coast. In its day, under the approving eye of the Chandler clan, the
Times
' blatantly Republican political columnist had literally created the political career of Richard Milhous Nixon. Like the
Tribune
, the
Times
could make or break local political candidates or power brokers, and it didn't hesitate to mix journalism and politics. In the 1960s, though, Otis Chandler, the reactionary family's prodigal son, assumed control of the paper and began purging its political bias, eventually building the
Times
into a nationally respected newspaper with the journalistic chops to make it a worthy competitor of the
New York Times
.

The nation's largest metropolitan daily newspaper, the
Los Angeles Times
had an institutional ego far bigger than the scrappier
Chicago Tribune
, and its journalists viewed themselves in a league of their own, superior to the bottom-line driven, hog butchers from Chicago. Under Chandler, the
Times
was a haven for writers pursuing quality journalism in long form. Journalists like Leo Wolinsky, a Los Angeles native, spent entire careers at the
Times
, developing pride in the paper, but also a fierce resistance to outsiders. The
Times
had won four Pulitzer Prizes in just five years and had been a finalist nine times. It boasted daily circulation of just over 1 million and 1.375 million on Sunday.

As Madigan spelled out the broad outlines of the proposed deal to Willes, he referred to it as a “merger.” But, in reality, the Tribune Company planned to use its financial muscle to assume control of Times Mirror, eliminate its corporate staff, and run the show as it saw fit. The smaller paper with the financial chops would be taking over the larger, more prestigious
Los Angeles Times
. Though he didn't spell it out to Willes that day, Madigan's projected $200 million in cost savings
would involve cuts to the editorial staff that would threaten the
Times'
esteemed foreign and national news bureaus, the bread and butter of the paper's journalistic reputation. Nor did Madigan discuss who would be chairman of the surviving company, although he probably had a pretty good idea.

Both men have different recollections of their reactions to the proposal that Madigan put on the table. “He [Willes] initially thought it was a great idea when I sketched out the positive aspects of a deal,” Madigan later recalled. “He said it made a lot of sense. He thought the people in his management group were the best in the industry, and he didn't understand why they didn't come up with this. He was kind of kicking himself. So I felt quite good after the meeting.”

But Willes said he told Madigan that he had no interest in selling Times Mirror:

Regardless of the different recollections, two things were clear. First, Willes didn't do a serious strategic review of the proposal. Second, he made the mistake a lot of people make when dealing with Madigan: he underestimated him.

As the
Chicago Tribune
's deputy managing editor for news at the time, I supervised coverage of any big story about a major merger, whether
in the media, manufacturing, or the medical industry. As much as the prospect of an acquisition by the bottom-line-driven
Tribune
scared journalists like Wolinsky at the
Los Angeles Times
, the idea intrigued those of us at the
Tribune
, raising hopes that our paper might finally get the recognition it deserved from its snooty rivals on the coasts. The largest newspaper between New York and Los Angeles, the
Tribune
never enjoyed the respect afforded papers like the
New York Times
or the
Los Angeles Times
, even though the paper routinely delivered outstanding journalism to its readers. One reason for the
Tribune
's junior-partner treatment was a simple fact of geography: A paper located in the middle of the country didn't get the attention bestowed on papers on the coasts. And it took a long time to live down the reputation of someone like the Colonel, whose jarring use of the paper to promote his personal and political agendas stained the
Tribune
for decades. The
Tribune
's efficiency, legendary under Brumback, also worked against it. When editors at other American papers clashed with management over budgetary issues, publishers, armed with data that major papers shared with each other, would ask their editors why they needed so many resources when the
Chicago Tribune
could get the job done with less—a reminder of the paper's nimbleness that didn't earn the paper any friends in the clubby world of journalism.