STAFF NEWS & ANALYSIS
Tribune Files for Chapter 11 Bankruptcy
By - December 09, 2008

Tribune Co. said Monday that it filed for Chapter 11 bankruptcy protection to restructure its nearly $12 billion debt load, one of the most dramatic steps yet to underscore the dire state of the newspaper industry. The parent company of the Chicago Tribune, founded in 1847, said that its operations would continue during the restructuring, allowing it to keep running its newspapers, television stations and interactive properties, and that it currently has enough cash to fund them. The Chicago Cubs franchise, including Wrigley Field, is not included in the Chapter 11 filing, Tribune added. The company will continue to look for ways to "monetize the Cubs and its related assets." Real-estate investor Sam Zell, who acquired Tribune last December, commented that "factors beyond our control have created a perfect storm — a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt." The financing of Zell's $8.2 billion transaction involved the creation of an employee stock program that incurred a significant amount of debt. Prior to Monday's filing, there had been concerns that the company might not be able to come up with more than $1 billion in interest payments due in 2008, and could default on a payment of more than $500 million due by June. "This allows them to renegotiate with their creditors, and hopefully exit from Chapter 11 with a plan of reorganization," said Jerry Reisman, a bankruptcy lawyer with Reisman, Peirez and Reisman of Garden City, N.Y. – Market Watch

Dominant Social Theme: It's under control – and if it's not, it will be. The Western system provides the tools for a work-out.

Free-Market Analysis: It's pretty sad to read some of these stories. What was Zell thinking a year ago? That the economy was going to bounce back from whatever it was starting to go through? Nonetheless, he went ahead and made a big acquisition that he can't handle now in the deteriorating business environment. And we're not anywhere near the bottom yet. Even if Zell thinks he can figure out a way to renegotiate, the chances are that conditions will soon be even worse.

Of course, Zell isn't just fighting the environment. He made sure, bless him, to purchase in the wrong industry as well. So it is a kind of double whammy: the wrong acquisition at the wrong time. Buying a media company in the early 21st century is a distinctly risky proposition. Rupert Murdoch keeps doing it, but each time he does, he restates the obvious: the Internet is the big fish lurking in the background, ready to gobble up the best-laid plans and spit them out.

The problem that major western media has with the Internet is that it still provides a platform for compulsively readable information that quite often contradicts what has already become accepted, if not common wisdom in the mainstream. And by doing so, it attract viewers who are seeking an experience that mainstream media simply cannot provide.

The Western media model in the 20th century was based in large part on media scarcity. The barriers to entry were absolutely massive. To participate in the newspaper business or to support a television or radio network, one had to come up with literally hundreds of millions or even a billion dollars. Of course, that kind of money was only going to be delivered within the context of the mainstream banking system, which served as an additional gatekeeper. It was rare for someone or some group to slip through with a point of view or agenda that was not in line with the larger, established message.

Today, all that has changed. No matter what happens going forward, the Internet has had a major impact on 20th century media and those who consume it. Currently, information is as affordable as it has ever been. The challenge is to rise above the noise with news and entertainment that Internet surfers want to read. Mainstream Western media has struggled with this challenge, losing a good deal of the audience on the Internet to individuals and small groups that have a more compelling or rawer – or truer – message.

The idea, for instance, that a single individual like Matt Drudge of DrudgeReport.com can provide pace-setting journalism – via news links – for what essentially is a large part of the Western world shows the fragility of the previous paradigm. In fact, it is fairly bizarre. Hundreds of billions of dollars and several hundred years later, a single youngster with a few employees is able to dominate modern media, using the Internet to influence what billions are reading or viewing.

Yes, mainstream media is making the leap, clumsily, to the Internet. But the jury is still out on the impact that the Internet will have on popular culture and the kind of information that people have chosen to absorb. It took perhaps 100 years for the Gutenberg printing press to affect culture and the social order, but once the impact was felt, history convulsed: the Catholic church was not able to maintain its monopoly as a spiritual gatekeeper and the Reformation bloomed. Royalty lost its grip and the New World was discovered and populated.

It is yet too soon to see what impact the Internet will have on the support structure of elite power. Certainly the mainstream media itself continues to struggle with the 21st century paradigm of information plenty as opposed to the one of information scarcity that was the rule not so long ago. And while this sort of analysis is theoretical, it has practical consequences. At some point an entire industry and its infrastructure – radio and television networks and the vast network of printing plants that support newspapers and magazines are going to be radically revalued within the context of the ‘Net and its efficient dissemination of information that people want to absorb. With the current economic crisis ongoing, and the real-time worth of such major companies already headed down drastically, one could argue this revaluation already has begun.

After Thoughts

The seeds of so much unfiltered information have yet to sprout. There is a whole generation of youngsters in the West who have been exposed to ideas that they would never have learned within the context of mainstream education. And while the above-ground Western socio-political conversation remains resolutely what it was, to a large degree, in the 20th century, the underground Internet conversation remains quite different. Everything from the military industrial complex to mass communications and most especially to the way that banking and finance operates is being questioned by millions who have already received alternative points of view that would not have been able to gain traction in the 20th century. It has been an explosive change, but one that has yet to manifest itself fully.

There are many ways that such a scenario may play out in the near future, and one way, most likely, will be through a revaluation of the primacy of central banking and current monetary standards. Gold and silver are yet controllable – if not controlled – from a price point of view, but the Internet has been busy providing the metaphorical timber. The monetary crisis that the West is facing is likely to provide the match.

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