A jewel in the crown loses its luster

Gathering in The Boston Globe's Washington bureau in June 1993 shortly after learning that The New York Times Co. had purchased the Globe for an eye-popping $1.1 billion, they sipped cocktails, former bureau chief David Shribman recalled, discussing both the past and the future.

Few, if any, Globe staffers welcomed the sale. The Taylor family, who had controlled the Globe for over a century, was generally beloved - and bedrock Boston. But the prevailing feeling the day of the Globe's sale was that if the Taylors were going to sell, the best possible owner was the company that published the best paper in the land.

Times Co. executives were equally pleased. It was Times Co. chairman and CEO Arthur O. Sulzberger who had reached out to the chairman of the Globe's parent company, William O. Taylor, in the fall of 1992, not the other way around. And as Globe reporters downed their drinks, Sulzberger and Taylor, newspaper scions both, held court at the Parker House in Boston and later at a New York hotel.

It was dubbed, at the time, a "royal marriage." But 16 years later, with the parent company struggling, the Globe bleeding cash, and the Times Co. threatening to shutter the Globe if it doesn't get union concessions, this marriage is in trouble and possibly stumbling toward an ugly split.

It was always a relationship with issues, even as the Globe for many years generated handsome profits and major journalism awards for its owners. With the benefit of hindsight, some now question whether it was a smart purchase for the Times Co., given the recent implosion of the newspaper business model and the Globe's financial freefall. What else could $1.1 billion have bought in 1993, on the eve of the age of the Internet?

But no one then could have foreseen this: The Globe is on track to lose $85 million in 2009, according to a Globe employee briefed on the numbers - the equivalent of $1.6 million a week. And revenues at the Globe, as at just about all newspapers across the country, are projected to fall even further. The Times Co. stock price that once climbed over $50 a share now sits at just over five bucks. If he had to do it over again, knowing what he knows now, George Munroe, a member of the Times Co. board of directors in 1993, said he probably wouldn't have supported the purchase.

Some media analysts speculate that the Times Co.'s ultimatum to the unions is merely a prelude to a sale. Some in the community have blamed Times Co. management for the paper's plight and called for a return to local ownership. But remembering the good years, Matthew V. Storin, editor of the Globe from 1993 to 2001, said the Times Co. should not shoulder all the blame for the Globe's current financial struggles. Some problems, Storin said, were far larger, and more difficult to solve, than anyone knew at the time.

"It's tempting to ascribe what's happened to the Globe in some way to Times management," said Storin, who now teaches journalism at University of Notre Dame. "But even if you grant some of that, wouldn't it just be to some degree? Because let's face it: You can point fingers all you want, but the Internet came in and stole a huge part of our classified ad revenue."

But in June 1993, when the Times and Globe finalized their merger, everyone was thrilled to talk. Both Sulzberger and the Taylors believed they had something worth celebrating.

For months prior to the sale, Taylor had been unofficially shopping the Globe. He was concerned about two expiring family trusts, which controlled Affiliated Publications Inc., the Globe's parent company. So long as the trusts remained, the family interests voted as a single entity. But in 1996, when the trusts were set to expire, shareholders would be free to do what they wish, making a hostile takeover possible.

"I'm not sure everybody agreed with this," said Ben Taylor, who became Globe president in 1993 and publisher three years later. "But it's certainly a legitimate point of view to say control would have been hard to maintain once those two trusts dissolved."

Many suitors came calling - and for good reason. The Globe, under Affiliated, was not only one of the nation's most esteemed dailies, but a financial powerhouse. An investor who bought $1,000 worth of Affiliated stock in 1973, holding it as it appreciated, would have had about $120,000 in 1993.

It makes sense then that the newspaper would have attracted the interest of Arthur "Punch" Sulzberger, who phoned William Taylor in late 1992. As Sulzberger said at the time, he called Taylor to ask a simple question: "Should we talk about whether there's some sweet music we can play together?"

Taylor was already whistling the tune. After one false start - the first stab at a deal fell through - the two sides reconvened in May and finally crafted the $1.1 billion deal, the highest price ever paid for a newspaper.

"The Globe was a good paper and it was hard to buy a good property in the newspaper business," said Munroe, a retired copper mining executive and Times board member at the time. "This was an opportunity that was unusual and it appealed to Punch. He was in favor of doing it."

So were those crunching the numbers. Gordon Medenica, vice president of operations and planning at the Times Co. at the time, said the Globe was "a jewel of an asset." The paper seemed to be ahead of the Times in utilizing the Internet, he said, and in buying it, the Times Co. was essentially getting "a lot of in-house expertise on the Internet." But the greatest financial attraction was the Globe's classified ad revenue - from help wanted, auto, and real estate listings - the same revenue that would soon be under siege from Internet sites like eBay, Monster.com, and Craigslist.

"You had terrific advertising in the classifieds up there, especially in help wanted," said David L. Gorham, then senior vice president and chief financial officer at the Times Co. "The Globe had a lock on that market."

"From a money point of view, it was a brilliant move," said Robert A. Lawrence, a Boston money manager who was on Affiliated's board of directors and, after the sale, joined the Times Co. board. "Times stock doubled in value. And so, from a business point of view, a stockholder's point of view, it was very, very profitable and a seemingly wise decision."

But shortly after the purchase, cracks also began appearing in the freshly poured foundation of the newly constituted company. Times executives always maintained a hands-off policy on editorial content, but on the business side there was chafing. The Times Co. was making a significant investment into the Globe, said Gorham, but the Globe's advertising revenue, while growing, wasn't meeting targets set by the Times.

There were some uncomfortable board meetings as independent directors told Taylor family members that the Globe had to bring in more money, Gorham recalled. "The Taylors," he said, "weren't used to being told by outsiders that they had to improve."

Globe circulation, mirroring a national trend, had been slipping since it peaked in the early 1990s. And by 1999, so, too, was advertising revenue, especially classified ads. According to figures released at a meeting of Globe department heads in June 1999, classified ad revenue was down 4.5 percent compared with the previous year. And a Times Co. quarterly report that spring noted the trend as well. Ad revenue, the report said, was "weak at The Boston Globe, where help wanted advertising continues to soften."

Ben Taylor, the publisher, still expected growth in 1999. But the Times Co., which had vowed after the sale not to remove upper management for at least five years, was no longer bound by that promise and not willing to wait any longer.

Arthur Sulzberger Jr., having succeeded his father as Times chairman, flew to Boston in July that year, invited Taylor to dinner at the Four Seasons, and then fired him.

"That was a bomb," said Tom Mulvoy, the Globe's managing editor for news operations at the time. "And it told us everything."

If anyone was in doubt, the Globe was the Times Co.'s paper now.

"Bottom line, he wasn't a Taylor," Mulvoy said of Gilman. "That pretty much says it. He had a different style of managing. He had a Harvard MBA. He was smart. He was just a new guy who wasn't a Taylor. That was how a lot of us looked at it."

The presence of Gilman - and soon, other top executives - increasingly underscored, for staffers, the fact that they worked for a distant employer. Storin, editor until 2001, said he always believed Arthur Sulzberger Jr. to be supportive, even admiring, of the Globe, which won three Pulitzer Prizes in the first five years of Times ownership. But in 2001, Storin was reminded of the shift in priorities when Gilman, on orders from New York, asked the editor to offer buyouts to his newsroom staff - the first of many buyouts to come.

"That was an object lesson, I thought, in how this might go," said Storin, who left the paper that summer for unrelated reasons as the staff reductions took effect. "We had no illusions about the fact that when push came to shove that the flagship newspaper came first. But this was the first real indication of that."

Gilman, who left the Globe in 2006, defended the Times's oversight of the Globe. "If anything," he said, "the Times Co. did an admirable job in standing by the Globe."

Running a newspaper, Gilman explained, is a balancing act between journalism and business. "People in New York were trying to balance these things," he said, "and we were trying to do that in Boston as well."

Still, with Globe revenues falling each year since 2004, according to a Barclays Capital report, that balancing act repeatedly and inexorably led to more cuts. These cuts have forced hard changes at the Globe - the closing, for example, of its prized foreign bureaus - and some critics blame the Times. But Shribman, the former Globe Washington bureau chief who became executive editor of the Pittsburgh Post-Gazette in 2003, said the Globe has been hit by a "tragic confluence of very, very bad luck."

The changing way many people get their news, combined with tough economic times, has made it hard for almost all papers, including the Globe and Shribman's paper, to avoid deep cuts. Some have been forced into bankruptcy. And according to some projections, that trend is not likely to change anytime soon, with the Internet still savaging the media business model and the economy in the midst of a historic slump.

Perhaps this scenario could have been avoided under different management, but most likely not, said Mulvoy, who retired in 2000 after 35 years at the Globe. People at the paper saw much of this coming, he said; they just weren't sure how to stop it. As managing editor for news operations in the late 1990s, Mulvoy himself led meetings, he said, talking about the Internet and how to defray the blow it might deliver to the newspaper.

"But nobody had any answers then," he said. "And nobody has any answers now."

Keith O'Brien can be reached at kobrien@globe.com. Robert Weisman can be reached at weisman@globe.com.