Sun-Times Media Group inks distribution deal with Tribune

CHICAGO – Newspaper publisher Sun-Times Media Group Inc. inked an unusual deal with one of its biggest competitors Wednesday, announcing that the Chicago Tribune would deliver its flagship Chicago Sun-Times and 10 other suburban Chicago newspapers owned by the company.

Separately, the Sun-Times said its second-quarter profit grew because of a massive benefit related to a Canadian tax settlement. Excluding that benefit, the Chicago-based company would have lost $58.7 million _ more than twice its adjusted loss from the second quarter last year.

Terms of the delivery deal weren’t disclosed. Tribune spokesman Michael Dizon said the new distribution would begin shortly and be phased in through the fourth quarter.

The Tribune will deliver home subscriptions of Sun-Times publications as well as single copies of the Sun-Times papers in the Chicago suburbs. The Sun-Times will continue to sell single copies of the tabloid within the city of Chicago.

President and Chief Executive Cyrus Freidheim Jr. said the deal will save the struggling company $5 million annually while helping it improve customer service.

“We view this agreement as crucial to our turnaround and look forward to working with our new distributor,” he said.

During a conference call with investors, Freidheim dismissed a suggestion that the Sun-Times newspaper enter into a joint operating agreement with the Chicago Tribune.

Newspaper analyst John Morton called the distribution deal unique, but an effective way for the Sun-Times to pare down expensive delivery costs in far-reaching areas.

“It’s probably cheaper for them to hire the Tribune to do it even though they have to pay a profit margin to do it,” he said.

A Sun-Times spokesman said details regarding any potential job cuts associated with the deal were still being finalized and would be announced later.

Chicago Tribune, which is owned by Tribune Co., already distributes a dozen newspapers in the Chicago area, including The New York Times and The Wall Street Journal.

Meanwhile Wednesday, the Sun-Times said it earned $528 million, or $6.57 per share, during the April-June period, up from a profit of $20.6 million, or 24 cents per share, last year.

Excluding the tax benefit in 2006, the company would have posted a $22.4 million loss.

“Every quarter at the Sun-Times has its challenges and surprises, and the second quarter of 2007 certainly was not an exception,” Freidheim said.

Revenue at the company, which was known as Hollinger International until last year, dropped to $94.3 million from $107.4 million in the second quarter of 2006 as sliding advertising revenue continued to plague the newspaper industry.

Advertising revenue fell 12 percent while circulation revenue dropped 8 percent. The company also recorded $25.1 million in indemnification, investigation and litigation costs related to the trial of former Sun-Times Media Group executives.

Former media mogul Conrad Black was convicted last month of three counts of mail fraud and one count of obstruction of justice in what federal prosecutors called a multimillion dollar fleecing of the publisher.

Sun-Times shares fell 12 cents, or 3 percent, to $3.94 Wednesday, while Tribune shares climbed 23 cents to $27.07.