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TRIBUNE-TIMES MIRROR MERGER

Purchase Is a Bet on Value of 'Old' Media in Internet Era

March 14, 2000|JAMES FLANIGAN and GREG MILLER | TIMES STAFF WRITERS

Tribune Co.'s proposed purchase of Times Mirror Co. is a huge bet, amid serious doubts from many quarters, that the "old" media of newspapers and television will have great value in the new world of the Internet.

Tribune's aim actually is two-fold. First, the deal is an old fashioned merging of assets to create a newspaper and TV powerhouse in three major cities--Los Angeles, Chicago and New York. Tribune wants that reach so it can offer advertisers a single buy to reach customers nationwide.

In that respect the publisher of the Chicago Tribune and other newspapers and owner of 22 television stations is doing nothing extraordinary by trying to acquire the publisher of the Los Angeles Times and other papers.

But Tribune's ultimate aim is to bring its newspaper readers and TV viewers onto the company's Web sites on the Internet. It is betting that the news, features, entertainment and listings that make up the "content" of its publications will lure audiences on the new medium.

"Having huge content creation assets in the top three cities of the country--that's an asset that's unmatched, and unmatchable," said Jeff Scherb, Tribune's chief technology officer. "We are hugely positioned for online content."

It is a bold gambit because no newspaper or traditional media organization has yet succeeded in making money on the Internet, which is still in its infancy.

Investors showed some impatience with Tribune on Monday. Tribune stock fell 17%, while Times Mirror's stock soared 78.6%, reflecting the huge premium Tribune is offering for the Los Angeles-based company.

Other voices also criticized the thinking behind the proposed deal.

"We don't believe that you have to own content," said Diane Hunt, a spokeswoman for Yahoo, a major Internet platform that offers access to news, travel listings and service information of all sorts. "We still believe our strategy of being an open, independent platform where we aggregate everybody's content gives our users a lot of choice."

Experts even argued over the value of news on the Internet of the future. To Paul Saffo, director of the Institute for the Future in Menlo Park, Calif., "news could be the killer application"--jargon for prime attraction.

But analyst Charlene Li of Forrester Research, a Massachusetts technology research firm, points out that advertisers are reluctant to buy spots on Web pages devoted to news. Other categories of content, such as entertainment guides and widely used portals such as Yahoo, outrank newspapers as destinations on the World Wide Web.

"News is one of those lost souls of the Net," Li said. "You can't generate subscription revenues from it and you can't sell products around it."

So far, newspaper companies are holding their own against Internet sites in the battle for classified advertising, source of 45% of the revenue of large papers. Technology research institutes predict that newspapers will lose 18% of their classified revenues in the next four years.

Why then is Tribune, one of the most profitable newspaper companies in the country, making this bid? Because it wants to expand its efforts on the Internet and prove those predictions wrong. Tribune believes that the mass media's ability to attract and deliver customers to advertisers "are undervalued today," said Jack Fuller, head of Tribune's publishing division.

Arguably, Tribune has to make this bid to compete against national publications such as the New York Times and Wall Street Journal, which are favored more by advertisers. "They don't want to buy ads for Orlando and Chicago and Los Angeles," Fuller said. "With Times Mirror, we'll offer a national buy."

But Tribune and all other newspapers are competing in the early stages of the Internet, and Tribune's executives see the Times Mirror deal as increasing its power in that medium.

In that regard, the deal is driven by the same issues underlying the proposed merger between America Online and Time Warner announced in January. AOL, the online platform that also offers news and access to services, reached out to join forces with Time Warner's cable television channels and films and magazines.

If the Tribune and Times Mirror companies were combined today, their sites on the World Wide Web would be attracting 3.4 million visits a month, compared with 1.8 million visits for the New York Times Web site and 1.2 million for that of USA Today, said John W. Madigan, chairman and chief executive of Tribune.

Tribune and other newspaper companies don't see themselves competing with Yahoo or other purely Internet companies. Rather their aim is to retain the place they have built up in newspaper and television communications, so that they will have their share of customers and advertisers when the Internet becomes more of a mass medium, delivered on larger systems and easier to use.

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