Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Tribune Media the only way Legacy Media can Make Money is to Sell Assets

The only way that legacy media companies like Tribune Media (NYSE: TRCO) can make money these days is by selling off assets. Tribune; which operates TV stations such as Chicago’s WGN, is even selling off its own history.

The company is selling its historic headquarters; the Tribune Tower a Chicago landmark, to Los Angeles real estate developer CIM Group for $240 million, The Chicago Tribune reported. The tower was built in 1925 to house The Chicago Tribune by legendary newspaperman Colonel Robert R. McCormick – the company’s founder.

Tribune itself plans to move out of the Tower so CIM can redevelop it. The company no longer needs the tower; because all of its newspapers were spun off into a separate company called Tribune Publishing in 2014, Tribune Publishing is still the Tower’s biggest tenant.


Tribune is Slowly Losing Value

Tribune Media (OTC: TRBAB) also sold off the Times Mirror Square Building; the headquarters of The Los Angeles Times, and a printing plant in downtown LA. The company is trying to liquidate all of its real estate, which has an estimated value of $1 billion.

The real estate makes up around one ninth of Tribune’s assets which were valued at $9.46 billion on June 30, 2016, according to ycharts. It is easy to see why Tribune is selling off those assets, their value is slowly but steadily sinking.

Back in December 2014 the assets (which consist of around 42 TV stations, the WGN America cable network and Gracenote; a database company) were worth $11.40 billion. That means Tribune’s assets have lost around $2 billion in value in less than two years.


This is very bad news for old or legacy media in general and television in particular. The only way a broadcaster can make money is to sell off its assets. One asset of very dubious value here is WGN America.

A problem that Tribune faces is that it can raise cash by selling off real estate but that lowers all the company’s asset value. Meaning it will have less money and borrowing capability in the future. The only good that might come of the Tower sale is that Tribune can use the cash to buy some other money-making assets.

Tribune is losing a Lot of Money

It is also easy to see why Tribune is selling off real estate, it needs lots of cash and fast. The company is in very sorry shape right now.

Tribune reported a net income of -$503.45 million on June 30, 2016 – in other words a half billion dollar loss. That means the real estate sales will only make up for half the company’s losses. It’ll need to start selling off even more assets just to stay in business.

Some other sorry numbers at Tribune include a diluted earnings per share ratio of -5.36, a negative profit margin of -30.71% and a return on equity of -12.66%. It looks as if this company simply cannot make money even though its revenues are supposedly growing.

Tribune reported revenues of $2.003 billion in June 2015 that grew to $2.083 billion in June 2016. One has to wonder how valuable those revenues are if the company has to sell off its headquarters to pay the bills.


Interestingly enough Tribune’s operations are generating some case in spite of its negative income. It reported making $343.64 million in cash from operations and having $366.64 million in the bank on June 30, 2016, there was also a free cash flow of $101.44 million. There was also $3.42 billion in long term debt and total liabilities of $5.888 billion.

Is Television Still Profitable?

The problem is that there does not seem to be enough cash to cover the company’s costs. This is one business that has no float, which indicates that TV stations are no longer a value investment. This raises serious questions about television in general as well.

The situation is much like that at retailers like Sears Holdings (NASDAQ: SHLD) where the company’s real estate is more valuable than the business itself. One reason why both Sears and Macy’s (NYSE: M) are closing large numbers of stores is so they can sell off the real estate.

An interesting question we need to ask here is television still profitable? Are TV stations not bringing in enough advertising revenue to cover their operating costs? If that’s the case we may soon see TV stations shutting down; or consolidating across the nation much like newspapers did.

It may happen because more advertising dollars are flowing online to Alphabet’s (NASDAQ: GOOG) Google and to social media like Facebook (NASDAQ: FB). Those entities focused digital ads are more cost-effective than television; and more likely to reach higher income individuals.

What Happens when Television Dies?

A problem that Tribune faces is that the people sitting at home watching its television programs are likely to be unemployed or retired and have little money. Not exactly the demographic advertisers want to reach.

What happens when local markets start losing their TV stations? This could be a real problem because many; mostly older and lower income people, rely on television for news and entertainment. There are serious questions of income inequality here, because working class people will be deprived of news and entertainment but more affluent younger people that get their entertainment and news from digital sources will not.

Will there be political pressure for taxpayer funding for broadcasting, remember we already have it in the form of PBS and National Public Radio? I would not be surprised, especially since politicians need television advertising to reach large segments of voters.

One thing is certain here, Tribune investors can kiss their 2.61% dividend yield goodbye. Tribune and the broadcasting industry simply do not seem to be making any money so expect more asset sales. Investors should stay away from this stock and television because there simply is no money in that business any more.