Analyst's Response to Tribune Cuts: 'Again?'

By: Jennifer Saba "Again?" That was Benchmark analyst Edward Atorino's response to Tribune's announcement that it plans to trim 2% or 500 of its workforce companywide.

But all in all, he wasn't surprised given the beating that newspapers have taken on the advertising-revenue front. The memos that rolled out of Baltimore, Los Angeles, and Hartford, Conn., showed metros stymied by an uncooperative economy and new ownership, which is trying to look for "synergies" by thinning the ranks.

Exacerbating the matter, January results from reporting newspaper companies have shaped up to be, as Atorino puts it, "shockingly bad." Those dreadful vibes from '07 are rolling into '08.

"Given the trends, I'm sure Tribune is not the only company taking a look at the workforce," he said. "What else can you do?"

Indeed, one industry observer noted that Tribune is an in untenable situation given a possible recession on top of secular shifts, on top of a mountain of debt. "The worst possible capital structure you can have is the one Tribune has," he added. "They are walking on a razor-thin ledge."

Mike Simonton, senior director of media and entertainment at Fitch Ratings, echoed that view: "I probably sound like a recording, given their high interest and cost burden the company has a very limited margin of flexibility. ... They are going to have to continue to offset those declines on the cost front."

The industry observer thinks Sam Zell and his team will most likely start shucking properties for cash in order to pay down that debt: "I think that's the next step."

No one knows or would venture a guess as to how much cutting will result in self-mutilation. "We haven't seen the end of downsizing of newspapers," Atorino added. "What is scarier is what happens when you get the bottom. I don't know what the minimum is to put out a credible newspaper."