Business Update with Mark Lacter

AOL; Tribune Co.

KPCC business analyst Mark Lacter talks about AOL's $315 million purchase of the Huffington Post; he also talks about Tribune Co.'s bankruptcy problems.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Word came yesterday of another big media deal, Mark. Do these big online media purchases always live up to the hype?

Mark Lacter: You mean AOL buying the Huffington Post for $315 million?

Julian: Big gamble by AOL to revive itself financially.

Lacter: Well, I don't want to splash any cold water on this deal, but there is a cautionary tale to keep in mind Steve, and it goes back six years when Rupert Murdoch's News Corp. acquired MySpace for $580 million - also with a lot of fanfare. As it turned out, MySpace, which by the way got its start in the South Bay and is now based in Beverly Hills, was in real disarray when News Corp. took over. There were capacity problems, and privacy problems, and most of all, MySpace was overwhelmed by the growth of Facebook. And despite efforts in the last year or two to refocus the site, make it more of an entertainment site, it’s still struggling.

Julian: I didn't hear people talk about MySpace during the demonstrations in Egypt...

Lacter: No, it was all Facebook and Twitter. And if people aren’t going to your site, you’re not going to get too many advertising dollars, which is one reason why MySpace lost more than $150 million in its most recent quarter - that's an even higher loss than for the same period a year earlier.

Julian: And layoffs too…

Lacter: Yeah, the last one was a 50 percent cut just a few weeks ago that involved almost 500 people. At this point, News Corp. has had just about enough, and it's looking to unload MySpace. Point is, the gamble that Murdoch took in 2005 has not worked out, and it's really a reminder that when high-profile media companies get together bad things can happen. That’s not to say the AOL/Huffington Post deal will turn out the same way, but there undoubtedly will be problems with combining personnel, cultures, technologies – always sounds easy but it never is.

Julian: On another media topic, is the owner of the Los Angeles Times coming out of bankruptcy?

Lacter: Well, maybe. Tribune Co. has been in Chapter 11 protection for more than two years, but there are now only two competing reorganization plans (that's down from four late last year), and hearings are planned for next month to determine which one a federal bankruptcy judge will select.

Julian: So they're making progress...

Lacter:...and the whole thing could be resolved this summer, though once the disputes with creditors get settled, the company will still be left to figure out what to do. Tribune has announced recently that 2011 would be a challenging year for advertising. The L.A. Times seems to have stabilized, but that's not saying much considering the nosedive that it took during the recession. And once Tribune does come out of bankruptcy, it'll be controlled by a bunch of banks and investment groups, none of which have any experience in running a big media company, and probably not very much interest, either.

Julian: Same story at the two other big newspaper companies in Southern California?

Lacter: Yes, you have Freedom Communications, which is the parent of the Orange County Register, and MediaNews Group, which owns the Daily News and a bunch of other small papers. Both those companies also filed for bankruptcy protection and both are also controlled by hedge funds and other investment firms just looking for the best possible return on their investment – and at some point a chance to sell out for the best possible price. If you care about the newspaper business, especially the printed newspaper business, this can't be good news.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and at kpcc.org.


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