A year ago Sam Zell was telling Chicago that he knew how to make money in newspapers.  He was certain, absolutely certain, that Tribune Company newspapers – including The Chicago Tribune and The Los Angeles Times – would soon be returned to higher readership, higher ad rates and greater profits.   Now, Tribune Company is preparing for bankruptcy (read article here.)

Sam Zell did a horrible job of scenario planning.  He didn't look into the future and develop scenarios about what was likely to happen in news.  Instead, he simply assumed that readers would return if he made a few format and editorial changes, the economy would strengthen and he could depend on advertisers returning as well.  He expected a fast, big payback for his investment.  Just like he'd done in real estate all those years.

Sam Zell had a very Locked-in Success Formula.  He had spent a lifetime buying property, usually properties already in locations demanded.  All he had to do was fix up the property and let growing demand for the scarce resource – his building in a demanded location – drive up the value.  He didn't stick around to make money off rent.  He didn't run a business that made a product and sold it.  He bought properties, dressed them up and sold them at a profit.  To him, Tribune Company was a property that was being ignored.  All he had to do was fix it up a bit, wait a bit, and sell it to someone for more than he paid.

Oops.  That Success Formula doesn't work when customers are walking away from the property to pursue a better one.  News seekers in droves are going to the internet for their news.  They no longer want to browse a newspaper – understanding that takes time, and it gives only a single source.  The internet gives them fast answers to their queries from multiple sources.  And advertisers are going where the readers are going – to the internet as well.  The cost for a printed medium is high, and the results are hard to prove.  Whereas internet ads can be tracked for number of page views, number of click-throughs and even sales.  The readers are more, and the follow-up is superior.  Advertisers have found it easy to forget about newspaper ads, especially in a soft marketplace.

Meanwhile, the Tribune Company Success Formula was firmly stuck in the 1990s.  From sales people to editors, denial about shifting reader needs was everywhere.  Even though each news company – from newspaper to radio and TV – had great access to reporters and first touch at many news stories, they did not realize that readers were looking for that news on the web first.  Each newspaper and station was Locked-in to pushing the news through its format, ignoring the enormous audience opportunity they had in their local markets by using cross-media approaches, including the web.  There was no one approaching customers with multi-format advertising opportunities.  Nor was the company investing heavily into web sites or portals that could attract large numbers of on-line readers.  The on-line environments were under-invested, and selling ads was completely fractured.  There was limited, at best, sales efforts to get advertisers onto the weak websites running news from each individual business unit.

What Tribune Company needed was not only scenario planning that identified the range of opportunities for ad sales – but a sincerely intense analysis of on-line competitors.  Instead of bragging that the company had leading newspapers in major cities, the leadership should have recognized its fast declining share of total news coverage – due to shifts in how people acquire their news.  By focusing internally, cutting costs and trying techniques like new formats, Sam Zell missed the opportunity to really study competitors and figure out how to transform Tribune into a competitive news company – like, say, News Corp. 

And while he was busy firing people and making changes on the periphery, Sam Zell was unwilling to really Disrupt Tribune Corporation.  He didn't change the business model – the Success Formula.  He whacked the chicken coop, scaring employees, readers and advertisers alike as he talked about firing people until he made money.  But he never caused his leadership team to really stop and talk about the future of news.  They were too busy looking for people to lay off or protecting their own jobs — while Sam was trying to find buyers for the Cubs, Wrigley Field and the Tribune Tower as a potential condo project.

And Sam's Success Formula had no space for White Space.  Sam didn't see any reason to try new things – like having salespeople sell internet ads as well as print ads.  Or trying to drive traffic to the Tribune or L.A. Times web sites.  As a property "flipper" extra-ordinary, Mr. Zell was not interested in developing a new business model.  So none was developed – nor any energy spent trying to create one.

Now, America's second and third largest cities are at risk of losing their primary local newspapers.  The suppliers are seeing their customer shrink, and possibly their accounts receivable jeopardized.  Advertisers are wondering how they reach their local customers.  And employees are looking for new jobs.  Meanwhile, citizens are wondering who will be out interviewing the mayors, governors and congresspeople of their fine states.  Who will be supplying the news? 

The cost to Sam Zell Defending & Extending both his Success Formula and that at Tribune Company is enormous.  The bond holders – most certainly pension funds and bond mutual funds - will take a horrible hit.  The employees and employees of suppliers pay as well.  And the citizens, dependent upon a robust news community will also suffer.  It's too bad Mr. Zell didn't talk less, and listen more – implementing White Space to make a leading news company that would impress his customers across the U.S.A.  I guess he'll have a lot of time to read Mr. Murdoch's newspapers (like the Wall Street Journal), watch Mr. Murdoch's Fox television stations and look at Fox's web site (have a MySpace page yet Sam?)  after Mr. Zell's equity value gets wiped out in bankruptcy.  Surely the creditors will ask for a new leader – who faces a much more difficult challenge now that the resources have been gutted by Mr. Zell.