Something’s gotta give at S.F. Chronicle
The only questions are: What? And when?
Like most publishers, the Chronicle has been whittling away at its staff for the last few years, dropping the headcount in the newsroom to 260 today from 400 in 2007, according to Michael Cabanatuan, a reporter who is president of the newspaper’s chapter of the California Media Workers Guild.
With the staff 35% smaller than it was two years ago as the result of some year-end buyouts, the paper has 0.7 journalists for every 1,000 of circulation, or well below the old (but now widely discarded) rule of thumb that a paper ought to have one journalist for every 1,000 subscribers.
It would be a relief if that were the end of the cutting. But it’s hard to believe it will be, inasmuch as the newspaper is said by knowledgeable sources to have suffered an operating loss of approximately $75 million in 2008 on top of unabated operating losses in every year since Hearst bought it for $600 million in 2000.
Add together the purchase price and the ongoing losses that Hearst has been subsidizing with profits from its other media operations and the publisher, conservatively, has put more than $1 billion into the newspaper with no hope of a profit in sight. The bulk of the money was spent before 2008, when the economy took its worst turn in more than 75 years.
With the outlook for the newspaper business now worse than ever, a more radical solution than nipping and tucking the Chronicle to profitability would seem to be in order. And it probably is this:
Folding the Chronicle into the network of MediaNews Group papers that completely surround it – a network, significantly, that Hearst itself played a major role in building.
In that event, the Chronicle’s now-independent news, ad sales, production, distribution and administrative staffs would be merged into a single entity managed by MediaNews. Deep staff cuts likely would result in every department, not the least of which would be the already decimated newsroom.
The Chronicle’s editorial staff, which numbered 592 when Hearst acquired the paper, likely would be stripped in a merger to a far leaner complement than today’s 260 souls. The survivors would be tasked with producing a modest ration of local stories for a paper filled with generic content produced by the other MediaNews properties in the market. Click here to see how that worked at the MediaNews paper in neighboring San Mateo County.
While the merger of the last two independent dailies in a market historically would have run afoul of federal antitrust laws, the depressed (and depressing) state of the newspaper business – and the rising strength of the Internet and other alternative media – would seem to strengthen Hearst’s case for favorable consideration from the new team about to settle in at the U.S. Justice Department.
In seeking the antitrust waivers necessary to permit a merger that effectively would create a single publishing entity for the fifth-largest media market in the land, Hearst could argue convincingly that it no longer is willing to underwrite the Chronicle’s formidable losses. The rationale, quite simply, would be that it is better to save the editorial voice of the Chronicle by merging with MediaNews than to have it drowned out forever in a sea of red ink.
The situation for Hearst is not as dire as it might appear to be. At the same time Hearst has been funneling millions into the Chronicle, it has been working on what seems increasingly likely to be the plan to get the Chronicle off indefinite life support.
Hearst put up $1 billion in 2006 in a complicated deal that helped MediaNews acquire two other major competitors in the market, the San Jose Mercury-News and the Contra Costa Times. Upon the completion of those transactions, the Chronicle was surrounded on the north, east and south by MediaNews properties. The closest competition to the west is the Honolulu Advertiser.
Today, the circulation of the MediaNews properties dwarfs the Chronicle’s 370k daily circulation by more than 2 to 1.
For helping MediaNews buy the two former Knight Ridder papers flogged off by McClatchy, Hearst gained a significant interest in the massive cluster of newspapers MediaNews has assembled in southern California. Hearst also bought some MediaNews papers in Connecticut in August when MediaNews needed cash to pay off a slug of its nearly $1 billion in debt.
The close but complex financial relationship between Hearst and MediaNews means that their financial interests are far more interdependent than competitive.
To wrap the Chronicle into the MediaNews cluster in northern California, however, Hearst and MediaNews presumably would have to satisfy not only the Justice Department but also a doughty local activist named Clint Reilly. A former political consultant who became a real estate magnate, Clint previously hauled the publishers into federal court not once, but twice, to protest what he deemed to be anticompetitive activities.
The first time, Clint blocked the sale of the Chronicle to Hearst in 2000 by demanding that Hearst find a way to assure the continued publication of the San Francisco Examiner. In 2000, Hearst owned the Examiner, which it published in a joint-operating agreement with the Chronicle, then owned by the descendants of the founding de Young family.
Because antitrust rules forbade Hearst from owning both papers at the same time, it was required to sell the Examiner to acquire the Chronicle. When no buyers materialized for the Ex, Clint’s legal challenge forced Hearst to pay $66 million to the family running a local Asian weekly to take over publishing the Ex. (The Ex subsequently was sold to Denver billionaire Philip Anschutz, who owns it to this day.)
The second time Clint checkmated the publishers was in 2007, when Hearst and MediaNews voluntarily abandoned pending initiatives to co-operate on ad sales and circulation after Clint challenged their plans in federal court. As the result of that settlement, Clint got free space in the MediaNews papers to run a weekly column, which isn’t half bad.
After Clint and his attorney prevailed in both challenges, they got several millions in each case from the publishers to cover their legal fees and expenses.
Clint, who says he hung out as a young man at the loading docks of the newspapers on Saturday night so he could be among the first to buy the Sunday edition, says he never made any money for himself by suing the publishers. He undertook the actions, he says, strictly in the public interest.
Would Clint fight the publishers for a third time if they tried to merge the Chronicle with the MediaNews Group? He’s not saying.