A PR magnate struggles to revive a newspaper

(Fortune Magazine) -- It's been a rough five months for Brian Tierney, CEO of the private company that bought the Philadelphia Inquirer in June. His employees are up in arms. Ad revenues are evaporating fast. And if that wasn't bad enough, Tierney is getting grief from his family.

He recently took a call from his older brother, who jokingly told him that his employees were going to burn him in effigy in front of the Inquirer building. Would Tierney mind if he went? "Nothing like having a funny brother who's an investor," grumbles the fledgling newspaper publisher.

Under pressure: Tierney insists he wants to grow the paper.

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Don't laugh. Tierney, a former public relations dynamo, has gone from hero to knave in journalism circles faster than just about anybody in recent memory. He was welcomed as a savior when he and a group of investors bought the Inquirer and its sister, the tabloid Daily News, for $515 million.

The Inquirer's longtime owner, publicly traded Knight Ridder, decimated the Pulitzer Prize-winning staff in an attempt to satisfy Wall Street. Even so, last year some of its big investors forced the company to put itself up for sale.

At the time, there was a lot of talk in newsrooms, journalism schools and even investment banks that a big-city broadsheet like the Inquirer would be better off in the hands of a wealthy citizen willing to tolerate lower profit margins than Wall Street in exchange for the power and influence that come from sitting in the publisher's office. Tierney did little to discourage these hopes when he was bidding for the paper.

But after watching recent events at the Inquirer, newspaper industry observers are reverting to their customary cynicism. It was always clear that Tierney would need to win concessions from the unions at the Inquirer and Daily News. But now he's at loggerheads with the company's biggest union, the Newspaper Guild, which is threatening to strike and has asked a federal mediator to referee contract negotiations.

In September, Tierney announced that he had been blind-sided by a sharp drop in advertising - he cited a 10 percent decline for that month alone - that could keep his company from meeting its obligations on the $350 million it had borrowed to finance the acquisition. In other words, it looks as if he and his investors overpaid.

Tierney argues otherwise, and insists that it's way too soon to pass judgment. He's right. But it's fair to say that the story of Tierney's first five months is a cautionary tale for the other wealthy individuals who have expressed interest in buying large dailies.

Insurance magnate Eli Broad and billionaire Ron Burkle have submitted a bid for the Tribune Co. in the hopes of winning control of that company's embattled Los Angeles Times. Former AIG chairman Maurice Greenberg, and newspaper giant Gannett have also expressed interest in the company.

The Tribune Co. (Charts) recently fired both editor Dean Baquet and publisher Jeffrey Johnson of the Times after they resisted demands to cut the staff. (David Geffen is also vying for the paper.)

Jack Welch is part of a group that has approached the New York Times Co. (Charts) about buying the Boston Globe. If Tierney's experience is any indication, they may get far more than they bargained for should they succeed.

Before buying the Inquirer, Tierney, 49, was the man Philadelphia's rich and powerful called when they were besieged by camera crews. He is funny, brash and more than willing to boast of his entrepreneurial prowess.

In the past decade, he sold two public relations firms he had founded. He sits on the board of NutriSystem, a diet-food company in suburban Philadelphia, and he played a role in the company's recent turnaround, which he attributes largely to a no-brainer decision to up the annual marketing budget from $1 million to $90 million.

For years people speculated that Tierney, active in Republican circles, would one day run for office. Instead he chose to become a media mogul. He tried and failed to buy Inc. and Fast Company from Gruner & Jahr in 2005.

Then a more attractive opportunity arose. In March the McClatchy Co. (Charts) announced it was buying Knight Ridder. But Sacramento-based McClatchy wanted to sell the Philadelphia papers because they were heavily unionized and located in a slow-growing older city.

Tierney backed his bid with a brilliant PR blitz. The Inquirer's editorial staff viewed him as a Voldemort-like character. Over the years he had had some nasty battles with reporters on behalf of his clients.

What if he used the papers to advance his former clients' interests? Tierney shrewdly defused the issue by signing a pledge not to interfere with the editorial side. He charmed the paper's labor leaders by getting the local carpenters' union pension fund to join his investing group. He said he would revive the Inquirer by ramping up the marketing, not by laying people off.

His enthusiasm was persuasive, and everybody was happy when the Tierney group bought the Philadelphia papers. But the good will soon dissipated. Tierney inherited a web of union agreements with decades-old work rules that other publishers view as among the most archaic in the country.

He was flummoxed upon learning that Knight Ridder didn't send its union-represented salespeople to meet clients in Chicago because they had to be paid time and a half.

Tierney says this was his response: "Guys, how bad is it if I ask you to leave your house for a night, fly out to Chicago, stay at the Hyatt, go to Morton's, have steak with a client, a bottle of wine, maybe take them out to listen to some jazz on Rush Street, come back the next morning, get a big commission, and put in your expenses? Is that punishing?" He also laments that pressmen are paid time and a half when they go on vacation.

With the union contracts all set to expire Aug. 31, Tierney had an opportunity to change things. But instead of sending in fresh faces to talk to the unions, he used some of the same people who had negotiated for Knight Ridder. It didn't help that the new owners also wanted to freeze the pension program and institute a 401(k) plan.

The Guild, which represents about 1,000 of the company's 2,400 full-time employees, pushed back hard. It commissioned a radio attack ad lambasting Tierney. Members also gave Guild leaders permission to call a strike.

While all this rancor simmered, Tierney made the stunning announcement that layoffs were now inevitable because the Inquirer's ad revenues - particularly those from national clients - had nose-dived in September. October, he said, looked even worse.

Naturally, Inquirer newsroom people wonder whether Tierney is spinning. But other newspaper company CEOs say they are grappling with the same ad problems.

"He happened to enter the industry right when national advertising went into a tailspin," says William Dean Singleton, CEO of MediaNews Group, the privately held owner of 54 dailies, including the Denver Post. "I've been in this business for 30 years, and I didn't see it coming."

Some newspaper columnists say Tierney's talk of layoffs proves that private local owners are no better than public chains. But they are missing the point. The Inquirer is in a bind because Knight Ridder nibbled away at the Inquirer rather than confronting the unions about the archaic work rules. It could accept subpar profits from the Inquirer because it had money flowing in from 30 other papers.

"Whenever there was a showdown, Knight Ridder blinked," says Zack Stalberg, editor of the Daily News from 1984 to 2005. "The current owner can't afford to blink."

Tierney seems to understand what's at stake. He's considering cutting the combined staffs of the two papers' newsrooms from 535 to 385. But Tierney suggests that the cuts might not be that bad if he gets the work-rule changes he's seeking (he's already won concessions from seven smaller unions).

Either way, Tierney says, he plans to increase the marketing budget from $300,000 to $5 million. "We're going to grow this company," he says. "We're starting next year with the marketing dollars. Actually, we're starting next year with the interest payments. Then we're going to add in the marketing dollars."

He steers the conversation back to his favorite topic: the bright future he envisions for the Inquirer. He recently hired William Marimow, a former Inquirer reporter with several Pulitzers, to be the paper's new editor. He wants to expand the two papers' Web franchise. He has an array of targeted niche products in mind to rejuvenate ad sales. He's a seasoned-enough public relations guy to make it all sound plausible.

Then again, the newspaper ad recession may get a lot worse. The unions could strike. Tierney's not out of the woods yet. Are you listening, Jack Welch?

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