Tribune-owned Compton's Multimedia reported an $11 million third-quarter loss, a result of higher-than-expected returns of its flagship CD-ROM encyclopedia and the cancellation of expensive projects.
For Compton's, acquired by Tribune 13 months ago for $57 million, the loss is the latest in a series of downturns.
Shortly after the Tribune purchase, the unit won a patent for key software searching capabilities, then lost it when rivals claimed the patent was too broad.
Compton's NewMedia CEO Stanley Frank and Exec VP Norman Bastin have left the company since the Tribune acquisition; Tribune cited differences in philosophy.
The company also shelved an interactive CD-ROM focusing on John Lennon. The venture had promise, Tribune executives said, but a large number of copyright releases hadn't been obtained.
"We are changing to reflect the growth and maturing of the industry," acknowledged Jim Longson, who moved from Tribune to become exec VP-general manager of Compton's NewMedia, Compton's largest arm. "We are going through puberty."
Still, analysts were astonished that Tribune waited so long to acknowledge internal problems at Compton's.
"This is something I would've expected to happen at the time of the acquisition, not a year later," said media analyst Edward J. Atorino of Dillon Read & Co., New York. "It's possible somebody didn't turn over a rock or two. Maybe Tribune got distracted."
Compton's first focus going forward will be its 1995 encyclopedia. That edition will include a whole range of new user-friendly features such as actor Patrick Stewart's face and voice narrating user help features. The software also will let students create multimedia "book reports" that can be downloaded to a disc and given to a teacher.
Bob Bosau, exec VP-general manager of Tribune New Media, stopped short of calling the loss the result of poor due diligence, but conceded that problems became more visible as Tribune assumed a more active role.
"We had to face up to some of these expenses," Mr. Bosau said. "We had a lot of bookkeeping adjustments to make in terms of inventory and the costs of goods. There were projects in development that weren't going to get done. We recognized those expenses and got them over with."
Jeff Borden of Crain News Service contributed to this story.