Tribune Vows to Stand by The WB

Oct 17, 2005  •  Post A Comment

Tribune Co.’s commitment to The WB Network remains steadfast despite the continued ratings challenges that the network and Tribune’s WB-affiliated stations still face, Tribune Chairman and CEO Dennis FitzSimons said last week.

“The WB continues to be important for us as a source of prime-time programming, and it represents 17 percent of our total revenues,” Mr. FitzSimons said last Thursday during the company’s third-quarter earnings call, in response to a question about the state of the network’s relationship with his company. “We continue to value that relationship.”

Mr. FitzSimons said Tribune this week will begin negotiating with the network for a new affiliation agreement and noted that both sides are keen on inking a long-term commitment. In addition to owning WB-affiliated TV stations, Tribune owns a 22.5 percent stake in the network.

Over the past several months questions have been raised in some Wall Street circles about WB parent Time Warner’s long-term commitment to the network, which has been buffeted in recent months by weak prime-time ratings. Matters have been made worse in several markets where Nielsen has deployed Local People Meters, as ratings data in those cities reveals even steeper declines. Tribune has challenged those findings, arguing the new meters undercount younger viewers-the bread and butter of The WB.

At the same time, though the network continues to rack up losses, Tribune has several protections in place to minimize the impact of The WB’s losses on Tribune’s own bottom line. Among them is an agreement that puts a cap on the losses at the network that Tribune funds as a stakeholder. In addition, Tribune has written down to zero the book value of its investment in The WB, which enables Tribune to no longer record losses at the network.

That is likely welcome news to Tribune, which reported that its third-quarter profit tumbled 82 percent, hurt by an unfavorable tax ruling related to its purchase of Times Mirror five years ago.

The Chicago-based owner of newspapers and television stations reported a profit of $21.9 million, down from a year-earlier $119.6 million. The decline was largely the consequence of a federal tax court ruling in late September that could put Tribune on the hook for a tax bill of $1 billion. That tax bill forced the company to record $150 million in additional income tax expenses.

Third-quarter revenue was flat at $1.4 billion.

Katrina Hurts Results

At the company’s broadcasting and entertainment units revenue fell 2 percent to $422 million, while operating profit fell 6 percent to $131 million. A significant portion of the decline was linked to the impact of Hurricane Katrina on Tribune’s two television stations in New Orleans.

Meanwhile, Tribune’s television unit recorded a 6 percent drop in revenue to $307 million, while operating profit sank 23 percent to $94 million.

The company blamed the results on advertising weakness in several key categories and the revenue impact of lower ratings in Boston, Chicago, Los Angeles and New York from the deployment of Local People Meters in those cities.

Mr. FitzSimons declined to elaborate last week on the recent resignation of broadcast group President Pat Mullen, other than to say, “We came to a decision that change would be a positive.”

However, sources familiar with the situation said Mr. Mullen was removed because he lacked sufficient management experience to navigate the group though choppy advertising waters.