Zell Thinks Real Estate, Ignores Steal Estate

In Buying Tribune Co. Zell Thinks Real Estate, Ignores Steal Estate
By Simon Dumenco
http://adage.com/columns/article? article_id=115953

Investor Sees Future in Newspaper Sites -- Guess He Hasn't Noticed the Kleptomedia Running Wild Online

If you're reading these words on the internet, do you really care where exactly in cyberspace you're reading them?

Sam Zell seems to be looking at the Tribune Co. newspaper brands much as he looks at grade-A office space. Only problem is, Zell is actually investing primarily in what's destined to rapidly become virtual office space.

It's a sad irony of Sam Zell's highly leveraged purchase of Tribune Co. using an employee-stock- ownership plan (ESOP) that journalists at all the various Tribune properties will be embarking on majority ownership of a major media company in the Age of Kleptomedia.

The word on Zell, of course, is that he made his fortune in real estate by buying distressed office buildings and turning them around. Given that newspapers are distressed properties, Zell sniffed major opportunity.

Real estate of the past
Sadly, though, I think Zell may be hampered precisely because of his real-estate background. He obviously thinks of the various Tribune papers -- The Los Angeles Times, Chicago Tribune, The Baltimore Sun, etc. -- as properties; literal properties. And for generations of readers, newspapers really did function as spaces -- as destinations. You had your cup of coffee and your paper and you immersed yourself in that destination; you really could lose yourself in it. Newspapers even seemed real-estate- ish: If you spread a broadsheet out on your kitchen table or desk to read it, it obliterated everything else. A newspaper had, in real-estate-speak, a major footprint.

Zell seems to be looking at the storied Tribune Co. newspaper brands much as he looks at grade-A office space. Sure, he's thinking, valuations have taken a beating, but in most cases the Tribune papers are still the premier properties in their respective markets.

Only problem is, to extend the real-estate metaphor, Zell is actually investing primarily in what's destined to rapidly become virtual office space. And, worse, squatters demonstrably have no problem co-opting and colonizing that space.

Transient readership
We're all supposed to be overlooking declining print circ at newspapers; the print operations of newspapers, we generally understand, are doomed. And we're supposed to be cautiously optimistic (as Zell clearly is) that at many newspapers online readership (and revenue) is growing dramatically. But the truth is that readers simply don't reside in newspapers' online spaces in the same way that they used to reside in their print editions. From a quality- real-estate standpoint, newspaper sites might technically qualify as grade-A cyberspace -- but most readers are, at best, just passing through their lobbies.

Rick Edmonds, a media-business analyst at the Poynter Institute, late last year issued a report titled "A Closer Look at Plunging Circulation." It includes this ominous passage:

"According to Nielsen/Net Ratings research numbers ... the average visitor spent 41 minutes at newspaper websites -- that is all sites, not those of a single local newspaper. A closer look at those numbers, however, underscores the difficulty of the industry's current business dilemma. If you divide that monthly total into a daily one ... the average time spent online would be about 1.4 minutes per day. (A recent NAA/Scarborough study estimated that the typical reader spends a little less than 30 minutes with the daily edition of the printed newspaper and more than 45 minutes on Sunday.)"

Extended stays at MySpace
Meanwhile, according to Compete.com, the average MySpace user spends just under half an hour on the site per visit.

In a way, though, even worse than the obvious lack of serious engagement that online users have with newspaper sites is the specter of kleptomedia that I raised at the start of this column.

Let's rewind 20 years. In 1987's "The Media Lab: Inventing the Future at MIT," Whole Earth Catalog founder Stewart Brand wrote: "Information wants to be free. Information also wants to be expensive.

Information wants to be free because it has become so cheap to distribute, copy, and recombine -- too cheap to meter. It wants to be expensive because it can be immeasurably valuable to the recipient. That tension will not go away. It leads to endless, wrenching debate about price, copyright, 'intellectual property,' the moral rightness of casual distribution, because each round of new devices makes the tension worse, not better."

He was writing way before the dawn of blogging, amazingly.

Motorcycles, not media cycles
Sam Zell is 65. Sure, he rides motorcycles and he seldom wears a tie, but I wonder if he reads blogs -- or if he even knows any bloggers. I wonder if he knows that, circa 2007, it's silly to buy a herd of cows -- just to stray, for a moment, far afield of the office- space metaphor -- because everybody's distributing, copying and recombining the, uh, milk free.

I suppose it'd be a different story if Zell were in this for Noble Reasons. If, say, he had a deep and profound love of cows, and was convinced of the civic importance of making sure citizens get a steady supply of nutritious, professionally produced milk.

But, no. As Zell told Dave Carpenter of the Associated Press, he sees himself as "an opportunist" -- one who's just "not as pessimistic about the future of the newspaper business as others might be. I just think that newspapers are a part of our life and they're a part of our culture and a part of our society, and there will always be a place for them."

Isn't that sweet? And a little sad?

A neat-o deal
Barring a higher bid or regulatory complications, Zell will be leveraging his own $315 million investment to purchase Tribune Co., along with 20,000 Tribune employees, for $8.3 billion.

Zell will get to become the most powerful stakeholder with a comparatively minor investment. Neat-o, right? That's the magic of ESOP math.

But the financial mushiness of the ultimate "ownership" of the Tribune Co. is really just a side issue. In the Age of Kleptomedia, the larger question is: Who really owns the news?