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Transcript

Bear Stearns Media, Entertainment and Information Conference
March 6, 2001

The Multimedia Company of the Future
 keynote speech presented by John Madigan, Tribune president, chairman and CEO

Thanks, Kevin.

You know, when Kevin asked if I’d consider delivering this luncheon talk, I quite naturally jumped at the opportunity.

Who wouldn’t? These fabulous surroundings. (Although, I expected about 80 degrees!) The opportunity to be in one of our newspaper markets -- South Florida’s Sun Sentinel.

And this is one of the country’s premiere investor conferences. A virtual hall of fame -- Sony, News Corp. -- Wasn’t Rupert fascinating last night? And there is Viacom, AOL/Time Warner -- and, can I vote in Tribune, too?

And the opportunity to talk to many of our major shareholders and to many that should be, was too much to resist. So here I am.

Kevin specifically asked me to give my views on the future of the media business, and what the multimedia company of the future might look like from my perspective.

I presumed that he asked me to do this, because of the very way Tribune is structured as a business and the model we have to attain success for the future.

At Tribune, our management likes to modestly say that we are building the multimedia company of the future.

Multimedia is the direction the industry is going. Some companies are buying their way there and some are co-venturing -- but eventually we think the important players will be structured, as multimedia companies, with major market focus and multiple methods of delivering content.

As we build a company that can succeed in the future, we are guided by 3 principles or beliefs and we think they hold true for other major media companies that have a forward view:

1. That the value of mass media will grow in a fragmenting marketplace,

2. That the importance of sharing and enriching content, cross promoting and cross-selling it will make it more important,

3. And that the ability to link strong individual markets together while delivering the unique local character of each will be a competitive advantage.

As we go about this, structuring and building the media company of the future it couldn’t be more challenging given the level of competition and the current choppy business environment.

But we are "long termers" and for us, the future is bright!

Despite today’s challenging advertising environment and uncertain economy, media spending is projected to increase 24% during the next five years, according to a survey done by the Marketing Leadership Council.

And the future holds much potential for media that has mass appeal and is delivered through multiple distribution channels in major markets.

Here’s why, and Rupert stated it last night: in a rapidly fragmenting marketplace, the ability to deliver large audiences through a variety of media outlets is critical to advertisers.

That makes strong mass media franchises -- television, newspapers, and the Internet -- more, not less, valuable to advertisers.

They should also be more valuable to you as investors.

And, it helps explain some of the blockbuster media mergers of last year:

AOL and Time Warner, Viacom/CBS, Vivendi and Universal, Clear Channel’s acquisition of AM-FM and News Corp’s purchase of Chris-Craft. They are all about creating multi-media and delivering mass audiences.

AOL/Time Warner combined the world’s biggest Internet service provider with the nation’s second-largest cable operator, instantly transforming both companies and giving them an even more enormous audience reach.

And Viacom/CBS came together to provide the smash hit TV series "Survivor," and an advertiser’s dream vehicle, which included:

A Super Bowl half-time show produced by MTV and watched by an audience of more than half a billion people worldwide.

And then CBS used the game as a platform to launch "Survivor 2."

These examples mean something very important.

They mean the future is multimedia, major markets and mass audiences.

At the end of the day, when the advertising slump is over, the rich assets of integrated media companies will put them in a position to reach more people than their competitors. It isn’t a complicated plan.

In a fragmenting marketplace, and despite the siren song of one-to-one marketing, advertisers increasingly crave mass media and my job and the job of the others shaping companies for the future is to better satisfy advertiser needs.

Almost two-thirds of the advertising pie is spent in print, broadcast TV, and the Internet.

Sure newspaper advertising has eroded as a share of the pie. Sure TV advertising has eroded, too, but the plain fact is that five years from now, the projections are that advertisers will still spend 60% of their money in print, TV, and the Internet.

That is strong testimony to the value advertisers place on mass media, and it is also why we bet $8 billion on our acquisition of Times Mirror!

That acquisition vaulted us to new heights and made us the eighth largest media company in the U.S., with cash flow of $1.4 billion last year. And we’re the only media company with TV/newspaper combinations in the country’s top three markets.

When we announced the acquisition last March, a lot of investors were skeptical, unable to see the wisdom in what they referred to as just a "newspaper deal."

We never saw it that way.

The acquisition of Times Mirror was a multi-media transaction!

It is no different than the AOL/Time Warner merger, except that it’s not as large!

Overnight, we expanded our audience, added new distribution channels and increased our access to some of the richest and most sought-after markets in the country.

It was a fabulous opportunity!

Take a look, for instance, at the nation’s top three markets: New York, Los Angeles and Chicago, where 16 percent of the U.S. population is located.

Those cities have a disproportionate share of the nation’s wealth and purchasing power.

In fact, those three cities have 25% of U.S. households with disposable income of more than $150,000.

And believe it or not, the Gross Domestic Product of New York, Chicago, and Los Angeles, is about $1 trillion -- larger than all but six countries around the world.

You’ve heard the phrase "show me the money?"

Well, that’s where the money is and the numbers get even more impressive when you jump from the top three markets to the top ten.

The top ten contain:

• 52% of the population in the United States;
• 54% of the households in the U.S. with more than $150,000 in disposable income;
• and 49% of the households with more than $50,000 in disposable income

In fact, 48% of all retail sales and 50% of all consumer expenditures made in the U.S. are made in the top ten markets.

There’s enormous potential in these markets, and a lot to be gained by being there with TV, newspapers and the Internet. But despite the explosive media growth of the last ten years, and all the consolidation, the federal government clings to archaic rules and regulations about ownership.

We remain optimistic those regulations will change soon. They simply have to. We’d like to think that the court decision on cable ownership caps last week will pave the way for other changes needed.

It is more than just a control factor. Multiple distribution outlets in the same market enable media companies to do at least three things better:

1. Share and most importantly enrich content,
2. Cross-promote brands and,
3. Cross-sell advertising.

I speak from personal experience.

We have a history of very respected journalism... our newspapers have more than 4200 editorial staff around the world. We have 45 foreign bureaus, and 90 Pulitzer-prizes.*

Last year, we were very excited to be one of only two U.S. newspaper publishers allowed to establish a news bureau in Cuba.

This carries with it a great deal of prestige and responsibility.

But it also represents a chance to serve the hundreds of thousands of Cubans living here in South Florida. We are already the largest newspaper publisher in this state. This new bureau provides us with an opportunity to distinguish Tribune from others, and ultimately it sells more newspapers!

The Times Mirror transaction allowed us to improve on our rich tradition of journalism.

Our business units have shared content for years; but now they enrich that content more effectively and efficiently than ever.

Let me give you some current examples of what I mean:

• This winter, we hired a sports writer specifically dedicated to reporting on NASCAR. He is based in Orlando, and his salary is spread among three Tribune newspapers.
  
• You probably read about him this weekend in connection with Dale Earnhardt’s autopsy pictures.
  
• His reports on safety issues surrounding the Daytona 500, and the tragic events of Dale Earnhardt’s death were carried in all eleven of our newspapers. In an earlier era, each of those newspapers would have sent their own reporter to cover the race.
  
• Now, we send one or two. We save money, we get better reporting.

This type of coverage separates us from our peers, sells papers, and strengthens our brand in the eyes of consumers.

• In Chicago, WGN-TV and the Chicago Tribune recently combined resources on a compelling in-depth investigative series regarding the city’s poor record of maintaining its sidewalks, and the millions of dollars paid out to accident victims.
  
• WGN did what television does best -- dramatically illustrating the decrepit condition of the sidewalks; the Chicago Tribune did what newspapers do best -- covering every detail of the story; and the newspaper’s Web site provided a searchable data-base of all relevant lawsuits.

And guess what? The city is now fixing sidewalks!

• In New York, WPIX will move its Long Island bureau into the newsroom at Newsday, and editors will become frequent contributors to the WPIX newscasts.
  
• KTLA and the Los Angeles Times will soon be doing the same thing.
  
• In Chicago, WGN and our cable channel have had a set in the Tribune newsroom for several years.

It’s only a matter of time -- and not that much time -- before all of our news personnel in a given market are located in the same newsroom... television, newspaper and interactive staffs working side-by-side.

It’s good journalism, and it’s good business.

Let’s talk now about cross-promotion, another element critical to the success of multimedia.

In New York City, for example, Newsday and WPIX have formed a strong partnership that has produced some impressive results.

Newsday gives WPIX a better way of targeting advertising to viewers in areas on Long Island.

Last November, for the first time in years, the station ran print ads promoting the WB prime-time line-up.

The result?

The station practically tripled its audience share in Long Island.

In February, the two combined for a special series on Black History month, producing a co-branded special section for the newspaper and promotional spots for WPIX.

Additional content was made available to readers through one of our most successful web sites, BlackVoices.com.

And, as cross-promotion extends the brand of our media outlets, their value increases, and makes them even more attractive to advertisers.

Ultimately, we want cross promotion to make viewers out of our readers, readers out of our viewers, and have all of them going to our Web sites!

When that happens, we can offer advertisers a variety of ways to reach a mass audience.

And that brings us to the third important element of multimedia -- cross-selling.

Tailoring customized advertising packages across markets and across media and across demographics, generates new top-line growth by tapping into non-traditional advertising budgets.

But don’t take my word for it; just look at the changes in the marketplace.

• McCann Erickson, one of the world’s premiere advertising firms, recently announced it would form a unit specifically devoted to cross-media packages;
  
• Last October, Viacom/CBS announced it would expand its integrated ad sales unit, CBS Plus, and rename it Viacom Plus;
  
• AOL/Time Warner has plans to do the same;
  
• And, following our acquisition of Times Mirror, we formed Tribune Media Net, designed primarily to sell national advertising across our markets, and within each of them using all of our media outlets.

As the sales people at Tribune Media Net will tell you, cross-selling is where the market is heading—and they are already finding advertisers receptive and willing to listen.

And some are even putting up their money.

How does that translate into increased revenue?

This year, in just two months, Tribune Media Net has already generated more than $8 million in sales and they did it during a down market!

Look, as part of a $750 million national advertising revenue stream, $8 million isn’t much, but this is the beginning of something big!

Big benefits for consumers, big value for our advertisers, big returns on our investment in Tribune Media Net.

How does it work?

Tribune Media Net allows us to sell national advertising across our newspapers, as we have done with Citibank and Merrill Lynch in transactions worth hundreds of thousands of dollars.

(And Kevin and Alan Schwartz… we’ve got a little space left for Bear Stearns, too…)

We’ve also sold advertising packages across our TV stations, as we did with video-game manufacturer 3DO.

Or, we can use all of our media outlets... television, newspapers, and interactive... in the big three markets, as we did for a major movie studio looking for a unique way to promote a blockbuster movie.

That transaction alone was worth seven figures.

Cross-selling, cross-promotion, and content enrichment... these are the three fundamental elements of a multimedia company.

But, alone, they are not enough to ensure success. And again, I speak from personal experience.

In an era when virtually anyone with a laptop computer and access to a server can start spewing views and opinions on any subject, the cornerstone of the multimedia company of the future will be credibility. The kind of credibility earned over time.

The kind of trust gained through knowing and understanding the community; where readers know what to expect every time they pick up the newspaper, and television viewers know what they’ll get when they turn on the news.

That is what we have at Tribune. The power of our business model is not just the ability to link large markets together, but within each one, deliver a product with unique local character.

And it works.

To our readers and viewers it means the following credo, "We are in your community, and in your neighborhood, on your doorstep every morning, on your living room TV set all day long, and there whenever you surf the net. You can trust what we deliver."

Looking back, my predecessors saw the future a long time ago.

We’ve been sharing content, cross-promoting, and cross-selling for more than half-a-century.

We got into radio in the 1920s, when most newspaper publishers were trying to kill it; and started television in Chicago and New York in the ’40s, when radio and newspaper publishers saw TV as the enemy and more recently we were the first online newspaper.

Over the years we bought more newspapers, and more radio and TV stations... and we’ve kept on buying under the terrific leadership of my colleague Dennis FitzSimons, who is here today.

Today we own 22 television stations, 11 newspapers and operate more than 50 Web sites in 23 markets.

We developed the multimedia model in Chicago, with the Tribune, WGN-TV and Radio, and our cable news channel, CLTV.

Our readers and viewers know us, and they trust us.

And that trust may be the most valuable asset of all!

As investors, you know that people buy what they believe in. It’s no different for advertisers. They spend their money where they believe it will deliver the most impact.

That is what all of us are betting on, and trying to create -- the multimedia company of the future.

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