WWW.BETTING_ON_THE_INTER.NET

Tribune’s turnaround may hinge on Web trio

Crain’s Chicago Business - April 16, 2007 –

As Tribune Co. goes private under Sam Zell's stewardship, the best hope for a turnaround at the publishing giant may rest with a trio of Chicago-based companies that are capturing much of the revenue being siphoned away from Tribune's newspapers.

The three companies, all jointly owned by Tribune and other publishing firms, are expanding at double-digit clips by selling advertising on the Internet at prices competitive with those for print ads.

Sales at Classified Ventures LLC, which posts online classified ads for cars, apartments and homes, are expected to hit $425 million this year-up 28% over 2006. CareerBuilder LLC, now the largest online job-postings site, could surpass the Chicago Tribune's sales this year if the seven-year-old enterprise continues growing at its

36% rate. The smallest player, ShopLocal LLC, is growing 30% a year and planning inventive offerings for retail advertisers.

The growth potential of online properties has reportedly caught the eye of Mr. Zell, who will become Tribune's chairman once the company's buyout closes. But even if these businesses continue to thrive, they'll be hard-pressed to replace the revenue that Tribune and other newspaper operators are losing in the shift from print to digital advertising. In February, Tribune's classified sales fell 13% from a year earlier, to $83.3 million, despite a 17% rise in interactive revenue, which consists mainly of online classified sales, to $20 million.

"I think that our owners have probably done better than most newspaper owners in terms of aggressively investing in online operations," says Classified Ventures CEO Dan Jauernig, 41. "But I don't think it's offsetting what they're losing."

Mr. Jauernig's firm operates some of the top online classified destinations in Cars.com, Apartments.com and Homescape.com, but it faces stiff competition from a variety of other listing services like Craigslist.com and eBay. Classified Ventures likely will never enjoy the pricing power once wielded by newspapers.

"Newspapers have continued to exploit a monopoly relationship. Clearly no other monopoly is going to grow up to replace that," says Barry Parr, a San Francisco-based media analyst at JupiterResearch LLC.

Driving Expansion

Still, Tribune's stake in the three Internet companies could provide a critical source of profits-buying time for Mr. Zell and Tribune executives to search for a fix for the collapsing print business.

The companies are already helping their publisher-owners tap revenue sources outside traditional sales channels.

ShopLocal, which began in 1999 as an online vehicle for retailers' ad inserts, is helping Tribune and its partners-in this case Gannett Co. and McClatchy Co.-push into e-commerce. It has deals with major retailers like Home Depot inc., Target Corp. and Sears Holdings Corp., not only to create ads for pricing specials but also to link directly to points of purchase on the retailers' Web sites.

Next up: pushing offline purchases by telling consumers what retailers have in inventory at nearby stores. "There's what's on sale and what's for sale. On sale we've had available for a long time. What's for sale-meaning what's the inventory-that's the part we just started working on," says CEO Vikram Sharma, 47.

ShopLocal has less than $100 million in revenue but has built a strong Web presence.

In March, its home page attracted 9 million unique visitors, up 26% from the year before and three times as many as the Chicago Tribune's home page, according to Nielsen/NetRatings.

Meanwhile, the classified Web sites are driving geographic expansion far beyond what was possible at Tribune's local newspapers and television stations. CareerBuilder places help-wanted ads in Europe and Asia, as well as in U.S. markets-even those where Tribune or its partners own the local newspaper. "We wanted to set this thing up where it was going to be offensive, not defensive," says CareerBuilder CEO Matt Ferguson, 40.

The expansion has coincided with a shift in consumers' classified shopping habits. When Cars.com launched in the 1990s, more than 50% of its traffic came through newspaper Web sites. Now less than 20% does, Mr. Jauernig says.

"From a consumer-experience standpoint, they're agnostic as to whether we have a newspaper partner or not," says Tim Fagan, president of Classified Ventures' real estate division.

Tim Landon, president of Tribune Interactive, the company's Internet division, says the newspapers still play an important role. "Tribune has launched these ventures based on our newspaper and newspaper dot-corn content, brands and sales forces," he says. "It has proved to be a very successful model, and we will likely continue to build businesses in this manner.

The primacy of Internet classifieds has changed the relationships of the dot-corn ventures with their much larger owners. Job postings from the 10,000 largest employers and staffing firms are all placed by CareerBuilder's sales staff-leaving sales reps at the local papers owned by Tribune, Gannett and McClatchy to sell to small local employers. Mr. Ferguson acknowledges tensions between print and digital sales staff, but says it's healthy. "That tension creates urgency," he says. "Everybody wants to make sure they are selling."