Tuesday, February 24, 2009

SF Chron cost-cut target equals 47% of staff

If the San Francisco Chronicle had to slash enough payroll to offset the more than $50 million operating loss threatening its future, nearly half of its 1,500 employees would be dismissed.

That’s the magnitude of the challenge facing the managers and union representatives who were tasked today by Hearst Corp. to find a way to cut the paper’s mushrooming deficit – or else.

After losing more than $1 billion without seeing a dime of profit since purchasing the paper in 2000, the Hearst Corp. today threatened to sell or close the Chronicle if sufficient savings were not identified to staunch operating losses surpassing $1 million a week. Without significant cost reductions, the losses would accelerate this year as a result of the ailing economy, said Michael Keith, a spokesman for the paper.

To wipe out a $50 million loss, let alone make a profit, the paper would have to eliminate 47% of its entire staff, assuming an average annual cost of $80,000 per employee for salary, benefits and taxes. Because any savings package presumably would include more diverse measures than just cutting payroll, the eventual staff cuts likely would be less severe than this theoretical number.

But publisher Frank Vega made it clear in a letter to his staff that labor cuts are a top priority. “First and foremost of these cost savings will be a significant reduction in force across all areas of our operation affecting both represented and non-represented employees,” he said. “Our current situation dictates that we accomplish these cost savings quickly. Business as usual is no longer an option.”

Nearly half of the newsroom of the Newark Star-Ledger was eliminated last year after its owner, Advance Newspapers, threatened to sell or shut the paper if drastic expense-reductions were not achieved. Deep staff cuts also were negotiated with unions elsewhere in the plant to stem a loss that management pegged at $40 million a year.

Beyond cutting payroll at the Chronicle, other ways to reduce expenses would be further constricting the paper’s already diminished circulation footprint, making additional cuts in the paper’s already shrunken newshole and outsourcing such activities as editorial production, ad makeup and delivery.

The Chronicle already has hired Transcontinental Inc., a Canadian company, to begin printing its papers this summer at a new plant built at a cost of $150 million to $200 million, according to production experts. It is widely believed that the long-term contract with Transcontinental would require Hearst to pay the printer at least the cost of the plant if it were to close the paper at any point during the life of the agreement.

So, Hearst evidently has a powerful incentive to avoid shutting the Chronicle – a motivation it did not possess last month when it declared that it would close its money-losing Seattle Post-Intelligencer unless a buyer emerged within 60 days. To date, no purchaser has stepped forward in Seattle, just as no buyers have been announced for such once-desirable properties as the Miami Herald, the Rocky Mountain News and the San Diego Union-Tribune.

Unlike many of the other papers that have been on the block for months with no takers, the Chronicle has a potential buyer in MediaNews Group, which operates a sprawling complex of newspapers across Northern California whose collective audience dwarfs the Chronicle’s 370k daily circulation by more than 2 to 1.

Far from competing at arm’s length, MediaNews and Hearst became business partners in 2006 when Hearst put up about a third of the money needed to fund a complicated, $1 billion deal that helped MediaNews acquire two of its largest titles in the San Francisco area, the San Jose Mercury-News and the Contra Costa Times.

In exchange for helping MediaNews buy the two former Knight Ridder papers, 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.

As reported here in a post last month predicting that Hearst was bound to lose patience with the mounting losses at the Chronicle, a plan to sell the Chronicle to MediaNews potentially would be challenged by the antitrust division of the U.S. Justice Department.

Historically, the Justice Department has been wary of approving the combination of competing newspapers in a market for fear the surviving entity would use its leverage to raise advertising rates. When approval was given, the newspapers were required to create joint operating agreements requiring them to maintain separate editorial departments while combining ad sales, production and circulation activities.

Several JOAs have unwound in recent years because publishers could no longer bear their operating losses. Given the weakened state of the newspaper industry and the wide number of competing ad media enabled by interactive technologies, antritust objections to newspaper mergers – and JOAs – may be about to become relics of the past.

At the end of the day, Clint Reilly, a former political consultant who became a real estate magnate in San Francisco, may turn out to be a more formidable foe than the Justice Department if Hearst tries to combine the Chronicle with MediaNews.

Reilly hauled Hearst into federal court not once, but twice, to protest what he deemed to be anticompetitive activities in the Northern California market. The second time, he charged MediaNews, too. He won both civil cases, costing the publishers many millions in legal fees.

Asked today if he would oppose teaming the Chronicle with MediaNews, Reilly said he would have to think about it.

Related posts

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Staff cuts won't cure SF Chron woes

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8 Comments:

Anonymous Anonymous said...

How can MediaNews be considered a serious buyer when it is millimeters away from default/bankruptcy?

9:05 AM  
Blogger Martin Langeveld said...

See my suggestions for Hearst and MediaNews Group at Nieman Journalism Lab:
http://www.niemanlab.org/2009/02/hearst-medianews-you-can-invent-the-future-in-san-francisco/

10:51 AM  
Anonymous Michael Bazeley said...

Yes, Alan, please explain the possible financial mechanics of a sale to or merger with MediaNews. What can MediaNews bring to the table?

12:56 PM  
Anonymous Anonymous said...

Firstly, it's a shame that 47% of the Chron staff stand to be sacrificed to save the publication... however it will be utterly tragic if the Guild & Teamsters refuse to play ball with Hearst, thereby exposing 100% of the staff to an almost certain, unpleasant future.
What I find most interesting here is that HEARST invested monies to leverage the strength of BANG, it's strongest (although fragmented) competitor in the market by adding additonal titles in the area.
With a sizeable trim down of the Chron staff to acceptable standards, it becomes a rather attractive asset for BANG- one that would offer the group total print domination in the market.
Can you say collusion boys and girls?
I knew you could.

2:42 PM  
Anonymous Anonymous said...

Another example of big labor pushing a long term enterprise out of business.

5:23 PM  
Anonymous Anonymous said...

What does MediaNews bring ... it can squeeze a dime out of a penny, which is why even Gannett lets MNG manage some of its properties.
When MNG controls most of the regional print in the Bay Area, it will be able to charge for its Web content, finally being able to monetize it. What other competitors remain will see they can start to charge too; soon regional/local news will be only available via print or Web if you pay. Of course Google and Yahoo will still be giving AP and Reuters for free, but they won't tell you about the Neiman Marcus battle in Walnut Creek. ...

4:22 PM  
Anonymous Anonymous said...

Anonymous said...
Another example of big labor pushing a long term enterprise out of business.

5:23 PM....

And how, exactly, did Chronicle's union workers push the publication out of business? Total staff payroll and benefits gobble up only about 24 percent of the Chron's annual revenue. Of that, roughly half is distributed to union members. So in your argument, 12 percent of the company's total cost is responsible for 100 percent of its financial problems. Weak.

8:39 PM  
Blogger LinXiaoChuan said...

I listened to you on KPFA this morning. Thanks for speaking up; I appreciate the introduction.

It seems to me that this blog represents predominantly the voice of professionals involved in publishing, a group I include myself in.

I would like to recommend to you the book Here Comes Everybody, the power of organizing without organizations by Clay Shirkey (Penguin, 2008, ISBN 978-1-59420-153-0). In it the author describes emerging trends in the the Internet Age.

I would like to suggest that the impact of Craig's List on newspapers is merely one aspect of the larger picture. The above-mentioned book will change the way you think about such issues.

The Internet has changed everything for the publishing industry. Focusing too closely on SF Chron is pointless. The bigger picture is far more fascinating, far more disturbing, far more edifying. Besides being a great read.

8:15 AM  

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