Defending The 'Revolution' p. 8

By: TONY CASE MARK H. WILLES delivered what might have been the understatement of the decade when he told analysts meeting in New York last December that 1995 had been "a difficult year" for Times Mirror Co.
After the former General Mills Inc. and Federal Reserve Bank ranking executive became chairman, president and CEO of Times Mirror last May, he didn't just move in a desk and change the wallpaper. The ink was barely dry on the business cards when Willes, an unknown in the newspaper industry, took to overhauling the Los Angeles Times, Baltimore Sun and Long Island Newsday parent.
In his own words, what he started was a "cultural revolution" at the Chandler family's venerable media empire ? the country's fourth-largest newspaper publisher in terms of circulation ? and his controversial tactics have provoked resentment and adulation alike.
In one of his first official acts, Willes grabbed headlines by shutting down New York Newsday, the ambitious, Pulitzer Prize-winning New York City tabloid that gushed buckets of cash during its 10-year life. Soon thereafter, he folded Baltimore's Evening Sun and put to rest several sections of the flagship Los Angeles daily. In the process, over 2,000 jobs disappeared.
The way investors saw it, a notoriously bloated institution had been reined in ? and did the market ever respond.
Times Mirror's value last year soared by $1.6 billion. Its stock, which traded at a 10-year low of $17 per share last spring, these days goes for nearly $40.
And while Wall Street is waiting to see whether Willes can grow the company's publishing enterprises after the cost-cutting is over, the CEO's initial moves "go a long way to assuaging the concern," said media analysts at Sanford C. Bernstein & Co. Inc.
Bernstein projected Times Mirror's earnings would grow by more than 25% annually between 1995 and 2000.
Financial types have had nothing but praise for Willes, but others have been less generous, charging that he cut too deep. They've called him dirty little names ? "Cereal Killer," "Cap'n Crunch" ? referring to his former incarnation as head of a breakfast cereal maker.
Many newspeople were outraged the CEO put down New York Newsday just as it was about to start reaping a return. "Penny-wise and pound-foolish" declared Newsweek. And the Baltimore paper? Why, the critics cried, that grand old broadsheet was home to one of journalism's treasures, H.L. Mencken!
While reams have been written about this revolutionary, Willes's own words largely have been reduced to sound bites. But in this, his first interview with E&P, the executive sounds off on a wide range of subjects: his plan for boosting profits in a mature business, online's threat to ink on paper, the struggle to maintain morale amid major retrenchment, the New York Newsday closure and ensuing backlash ? even those pesky nicknames.
"We knew right from the beginning that some of the things we were going to do were going to have a short-term negative effect," Willes said in his downtown Los Angeles post last month. "But we've been trying hard ? I'd say, with mixed success ? to overcome that . . . mixed success in that some people will kind of never feel the same, but also in the sense that some people have been energized by the process."
More from Willes follows, as does a Q&A with Times Mirror executive vice president and Los Angeles Times publisher and CEO Richard T. Schlosberg III, who oversees the company's newspaper operations, and Jeff-rey S. Klein, the newly appointed senior vice president of consumer marketing at the Times.
E&P: What was your experience with the media prior to joining Times Mirror?
Willes: My initial experience with the media was actually quite positive. When I was with the Federal Reserve System and got involved in public policy and public education, the media were very nice to me, and I really quite liked that. I also saw the enormous impact that could have. As a newspaper junkie, which I've always been, and also because I liked the way they tended to treat me, I come to this job with an enormously positive bias toward the industry.
E&P: Has your opinion of the business changed, considering some of the press you've had?
Willes: No. I love it even more. It's a fabulous business, fabulous business.
E&P: Were you surprised at the negative coverage surrounding the restructuring, especially the abrupt closure of New York Newsday?
Willes: Yeah, I have been surprised that the industry seems a bit preoccupied with itself ? and more so than I expected.
I mean, the basic things that we're doing have been done by many first-rate corporations for over 10 years now ? this kind of restructuring and streamlining and focus on returns, innovation and speed. So, frankly, it did surprise me that when we started doing them here, it was like somebody was breaking the tablets or something, and it seemed a little out of proportion to me.
Now, having said that, it didn't bother me except insofar as it made our people concerned that we were somehow, in the process, going to do something that was going to reduce the quality of our editorial products, which we have no intention of doing. But, you know, they read what everybody says, and everybody says, "Well, we're about to ruin the journalistic quality of these fabulous newspapers," and it rightly made them nervous.
E&P: So you believe the press attention had a negative effect on morale?
Willes: I think it made it a little more difficult. But fortunately, the people in our newspapers are very smart, very sophisticated, and when you just sit down and talk with them and point out what you're trying to do and what you're not trying to do, they get it ? and they get on with it . . . .
I keep reminding people, it's like the old trade-off, supposedly, between quality and cost in corporate America. We have to have both high quality and a high financial component, and there's absolutely no reason why we can't do that.
E&P: Despite the negative reaction, you must feel vindicated by the improvement in the company's financial standing since you came aboard. The market value has skyrocketed.
Willes: Well, we're pleased, I have to say. It's better to have it go up by $1.6 billion than down by $1.6 billion.
The fact is, the stock price has gone up because they expect the actions we've taken to pay off. But we still have to prove that they will pay off. So what we do this year is going to be critical to demonstrate the confidence they've expressed in the business side of what we're doing is, in fact, well placed.
E&P: The Wall Street Journal said it was "far from clear" that you had a strategy to grow Times Mirror after the cost-cutting was over.
Now that the streamlining is well underway and the company, as you said, has returned to its "core business" of news and information after shedding its cable television business ? and since you've expressed caution about making new acquisitions ? where is the company looking for revenue and profit growth?
Willes: Well, it's very simple, and absolutely nobody will believe us until we do it. And that is, we're going to grow primarily by growing the businesses we're already in.
I get two very interesting reactions when I say that. One is, "Well, how are you possibly going to grow newspaper businesses? They're old, they're mature, they're very slow-growth by definition. Therefore, don't you need to go find something else?" Then, the reaction I
get from people who've been successful in growing, quote, mature, slow-growth businesses is, "Well, of course."
Interestingly enough, an enormous amount of our ability to succeed is just in convincing ourselves that we can succeed. We have an enormous number
of very bright people. Bright people have really great ideas if they're encouraged and challenged and, in some cases, even demanded to have great ideas. So what we're now saying across the company is: The future isn't in multimedia, it isn't in cable television ? the future is right here [in publishing] . . . .
And it turns out that . . . we don't have to have heroic growth in order
to get very good growth
in earnings per share. Because we generate a lot of cash, we buy back a lot of shares and will continue to buy back a lot of shares. Once we've come to a more steady level of earnings, we can probably get 10% growth in earnings per share if we grow revenues by 5%. Well, can you grow newspapers 5%? That's probably a little heroic. Three-and-a-half to 4% is probably not impossible . . . .
Now, what I can't respond to is people saying, "Well, what specifically are you going to do?" I don't know ? but I don't need to know. In fact, you don't want me to know, because you don't want me to go down and tell the L.A. Times, "Now, here's how you're going to grow." I happen to know there are just a lot of people in the L.A. Times who are all charged up, and they're convinced they're going to grow, and we'll fund it and they'll do it.
E&P: Times Mirror's newspapers achieved a profit margin last year, notwithstanding restructuring costs, of 14%, the highest level since 1989. Despite the whining about falling readership and circulation, weak advertising results and the like, newspapers are still tremendously profitable enterprises.
Willes: It was one of the biggest surprises to me when I came into the industry, because I was hearing and reading all this gloom and doom about the newspaper business, and the newspaper business is a fabulous business ? very good margins, they generate a lot of cash. Sure, the revenue line is going to grow modestly compared to some other businesses, but if you reinvest that cash effectively, the growth of the enterprise ? either in terms of the additional activities or growth in earnings because you buy your shares back ? can be very strong indeed. I know a lot of other businessmen who would drool to have the kind of businesses we've got.
And I don't share the notion that the electronic media are going to come along and kill newspapers off in the next five years. They said the same thing about television and radio. The Internet's going to come along, and newspapers will still be a wonderful business ? if we keep them fresh and vital and exciting, and things that our readers want to have and our advertisers want to use as a vehicle.
But that's up to us. I mean, there's nothing ordained in heaven that says [newspapers are] about to go down the slippery slide. It's up to us whether they do or not, and we're bound and determined at our newspapers to make sure that doesn't happen.
E&P: When you arrived, many people were wary, since you were an outsider. And these names: "Cap'n Crunch," "Cereal Killer." The implication there is, "This guy is going to come in and treat these newspapers as cereal. But what we do is a public trust?this is not just widgets." What was your response to that?
Willes: Again, it honestly didn't bother me ? with one exception, and that was if it made our people unsure, it would concern me. But [the nicknames]? You've got to have a sense of humor about things like that. Otherwise, life is very tedious.
But what I tried to explain to our people internally is that I believe as passionately in the journalistic product and in the independence of the journalistic product as they do.
The Federal Reserve is a remarkably unique institution, technically described as an "independent government instrumentality." It's not an agency; it's independent from all other institutions of government . . . and was set up that way so that monetary policy would not be subject to the political influences of the day ? remarkably like journalists like to think of their job as being independent of the fads and pressures and influences of the day.
So I kind of grew up professionally in that kind of environment ? and I defended that environment.
E&P: Were you aware beforehand of the extent to which Times Mirror needed revamping?
Willes: While I didn't know what to expect, you just almost knew by definition it would have to be bigger and harder than anybody would have supposed ? which is one reason we went at it so aggressively. Because if you do it slowly, you just sort of prolong the agony. Morale slips and slips and slips.
On the other hand, if you get at it quickly and make the major changes rapidly, you both get an enormous amount of the pain behind you, but, in a strange sort of way, you also kind of reenergize the organization, because people do respond to what they view as a productive change. They think it's going to lead them to be a stronger, more viable, more exciting enterprise.
E&P: How did Times Mirror get in this shape in the first place?
Willes: The world is a difficult place. It's been particularly harsh on some of our major businesses. The Los Angeles Times, which is very well managed, very well run, has been in an economic environment that has been exceptionally difficult and that would have been difficult for any kind of company.
We've got the same thing in New York. Long Island is a very difficult place economically. We fought the good fight with New York Newsday ? and it really was a good fight, and they really did it well. And, you know, there's no shame in deciding it's not a good fight anymore. Nor does it mean that it wasn't a good fight when it started. It was a grand idea, but the world changed, and when the world changes, you have to change with it and get on with other things, which is what we've done.
E&P: Did you go to New York with a predisposition to closing Newsday?
Willes: When I went to New York, we had had studies going on for a long time about New York Newsday and there were divided opinions inside Times Mirror about whether we ought to continue or whether we ought to close it down.
I, frankly, started out when I got here with a very strong desire to keep it going ? in part because so many other newspapers were telling us to close it down. Like everybody else, I kind of get my back up when somebody else tells me what to do. When everybody else was saying, "They ought to kill it, it's not worth it," my initial inclination was, frankly, "We'll show them ? we'll make it successful." But when I got to New York, and I had read all the financial information beforehand, the financial information was not encouraging."
E&P: Published reports say New York Newsday lost $100 million during its short life.
Willes: Well, it was a relatively long life, all things considered. We had lost an enormous amount of money. They had a plan, which I think was an incredible plan that would have virtually eliminated losses going forward. But having no losses and earning an appropriate return are two very different things.
And, so, when I sat down in New York and went through in some detail what, if anything, we could do to earn a fair return on the investment we had

?("As a newspaper junkie, which I've always been, and also because I liked the way [the media] tended to treat me, I come to this job with an enormously positive bias toward the industry.")[Caption & Photo]
?("Once we've come to a more steady level of earnings, we can probably get 10% growth in earnings per share if we grow revenues by 5%. Well, can you grow newspapers 5%? That's probably a little heroic. Three-and-a-half to 4% is probably not impossible.") [Caption & Photo]
?("We fought the good fight with New York Newsday-and it really was a good fight, and they really did it well. And, you know, there's no shame in deciding it's not a good fight anymore. Nor does it mean that it wasn't a good fight when it started. It was a grand idea, but the world changed.")[Caption & Photo]


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