Performance

› gwschulz@sfbg.com
The plight of newspapers is a popular news story these days, from a late-August cover package in the Economist (“Who Killed the Newspaper?”) to National Public Radio’s On the Media last week (“Best of Times, Worst of Times”).
It’s usually told as the story of an industry on its deathbed, bleeding from self-inflicted wounds and those delivered by Wall Street, Main Street, Craigslist, and the blogger’s laptop. Ad revenues have nose-dived in recent years. Circulation is down nationwide. Journalism scandals and shortcomings have damaged the whole profession’s credibility.
And staff newspaper blogs alone won’t be enough to bring a new generation of tech-savvy Americans back to hard-copy publications that even smell stodgy and old.
Yet the bottom line is still the bottom line. The truth of the matter is that many publicly traded newspaper companies have healthy profit margins ranging between 15 and 20 percent. But the tendency of the doom and gloom business press to sensationalize bad news may actually make things easier for William “Lean” Dean Singleton, the cost-cutting king of Denver-based MediaNews Group, which recently announced a round of staff reductions at its Bay Area newspapers. The cuts came amid claims of a massive dip in ad income just a few months after Singleton promised that his company’s buyout of local newspapers wouldn’t diminish the quality or quantity of journalism here.
“Given continued declines in revenue, we need to reduce expenses significantly, and thus have no alternative but to implement a reduction in [the] work force,” George Riggs, who was recently appointed to lead the company’s Northern California operations, told employees in a memo Oct. 20. Several such memos have now been posted on the Internet.
If this is how quickly the news biz can turn ugly, it’s a wonder MediaNews was attracted to print journalism in the first place. Who knows what newspapers around here will look like in another few months? How much fat can they trim before they start hitting bone?
They aren’t just cutting staff. The Bay Area’s newspaper establishment is now outsourcing work to circumvent those pesky labor unions. The press operators’ union at the San Francisco Chronicle — which was the sole union holdout against management’s demand for expanded control and decreased benefits — could disappear in three years as a result of a new printing contract with a Canadian company. MediaNews recently announced plans to outsource ad production positions to India.
Consolidation already has amounted to fewer reporters covering individual stories that are distributed to several publications, including at least one story about the latest layoffs. That means fewer editorial perspectives on key public policies (and possibly fewer editorial positions) for readers in a market that’s notorious for its high intellectual demand and robust political participation.
Only an ongoing federal Justice Department investigation and a civil lawsuit threaten to slow down big changes going on at the Bay Area dailies. A federal judge ruled just before deadline in real estate mogul Clint Reilly’s antitrust claim against the Hearst Corp., publisher of the Chronicle, and MediaNews that for now, at least, the two could not combine circulation and advertising operations to save money.
The companies had secured a court order sealing key records unearthed during discovery, including depositions and exhibits, citing the right to protect confidential trade secrets. It’s an ironic move for a group of papers that have regularly sued government agencies for public records and made a great show of their First Amendment pieties.
Federal Judge Susan Illston on Nov. 28 blocked the two companies from merging some advertising and distribution operations, a consolidation she said was probably illegal under antitrust laws. And she sounded her concern that Hearst isn’t the “passive equity investor” it had represented itself in court to be. She also revealed the contents of letters written in March and April by company executives: “Hearst and MediaNews will enter into agreements to offer national advertising and internet advertising sales for their Bay Area newspapers on a joint basis, and to consolidate the Bay Area distribution networks of such newspapers, all on mutually satisfactory terms and conditions, and in each case subject to any limitation required to ensure compliance with applicable law.” (For more extensive information on the ruling and related coverage, see www.sfbg.com.)
For those who regard newspapers as more of a public trust than an engine for deep profits, the future is starting to look a bit unsettling.
When Singleton expanded his control over the Bay Area threefold last summer, he temporarily quelled some discontent by assuring skeptics that there were no planned changes in staffing and salaries as a result of the transactions.
“We’re looking forward to doing a lot of good things here in Northern California,” Singleton told San Jose Mercury News staffers, according to the paper’s story on the buyout.
But employees at the papers still had every reason to be nervous about Singleton’s $1 billion takeover of the Contra Costa Times, the Mercury News, and other papers from the Sacramento-based McClatchy Co.
MediaNews already owned the Oakland Tribune, the San Mateo County Times, and the Marin Independent Journal among others in California before it carved excess properties out of McClatchy, which had grown too large following its purchase of the Knight Ridder chain earlier this year.
The purchases allowed Singleton to seize almost complete control of 14 metropolitan and suburban media markets. The only remaining daily print competitor in the Bay Area was the Chronicle and its parent company, the Hearst Corp., which subsequently purchased $300 million in MediaNews stock, a deal the feds are still investigating. When the transaction with Hearst was finalized, top executives at MediaNews were collectively awarded about $2 million in bonuses.
Some profiles of Singleton have depicted him as a good old-fashioned newspaper journalist, but knowing his cost-cutting reputation, only a fool would assume there were no plans to consolidate major operating functions to save money regardless of any promises made. Singleton has always been more about business than news.
Clustered ownership and shared management were prominent features of the company that MediaNews presented to investors at a Deutsche Bank “Global High Yield” conference in October. An April letter that reappeared in federal court last week during a hearing in Reilly’s suit confirmed that MediaNews and Hearst hoped to shed costs by possibly combining circulation and advertising operations.
Layoffs are also a big part of Singleton’s MO. Respected but tough Contra Costa Times editor Chris Lopez was let go in October because he’d become “redundant,” according to a memo company executive John Armstrong sent to employees.
“That came as a shock to a lot of people in the newsroom,” one source at the paper told the Guardian. Known for handing cash rewards out of his wallet to reporters who nailed concise stories for the front page, Lopez had attempted to play down Singleton’s reputation when the purchases were announced. Lopez had been at the paper for more than six years and had helped earn Singleton a Pulitzer Prize during a six-year stint at the company’s flagship Denver Post, received for its coverage of the Columbine shootings.
“In better times, we might have found a way to ignore an extra position or two or even three,” Armstrong wrote in the memo.
Lopez insisted to the Guardian in a phone interview that he had proposed his own termination to ease anticipated cuts elsewhere.
“My layoff from the paper was not unexpected,” Lopez said. “It caught the staff off guard, but I saw it coming. I made the recommendation. I was trying to save some jobs in the newsroom.”
The loss of an experienced editor may have saved some jobs … for now. But maybe not for long. Reporters have been asked to summarize their beats for managers to determine how they can cover single subjects for a number of papers. The idea seems to be maximizing staff output rather than ensuring broad coverage of the communities.
A story about Lopez’s departure written by a Times reporter also appeared on the Merc’s Web site. MediaNews is also looking into multimedia deals with local TV stations and arming reporters with cameras for podcasts, one source told us.
Armstrong told the Guardian in a phone interview that opinion columnists, for instance, could still cover the same stories. “But we had found some situations where reporters were sent to the same events like Oakland [Raiders] away games.” He said offering buyouts to staffers has been “successful,” but it wasn’t enough to stem declining revenue, triggering the need for “involuntary” layoffs.
All of this may make sense from a strictly economic perspective. After all, doing more with less is a widely accepted imperative for profit-driven corporations. But there is a public price that will be paid for this reality: Bay Area citizens will get less original reporting and fewer perspectives on the news.
A former senior staffer at a major Bay Area daily wrote an open missive outlining recent major stories covered by fewer reporters: “Three months after MediaNews Group added two major Knight Ridder dailies to its far-flung Northern California newspaper group, news coverage is well on its way to being homogenized in this formerly competitive market.”
The observation is borne out by a Guardian survey of three major MediaNews papers. Out of 10 top recent cultural and political stories in the Bay Area, nine were covered by the same reporter, who wrote the same article for all three papers. (For details, visit www.sfbg.com.)
Under the recent layoff announcement, the Merc could lose up to 101 employees, half from its newsroom, while more than 100 business-side positions will be reportedly moved to a new, nonunionized San Ramon office of the California Newspapers Partnership (CNP), a consortium of companies including Gannet Co. and Stephens Group that helped MediaNews fund its recent purchases. The centralized San Ramon space could continue to fill up with employees from the business side of the papers who have been forced to reapply for their jobs under the CNP corporate moniker. They would presumably fall out from under union protection.
The company’s Peninsula and East Bay papers saw cuts across their operations from Walnut Creek to San Mateo. Armstrong told the Times the layoffs were “broad but not deep.” East Bay Express writer Robert Gammon, a former Tribune reporter and union organizer, revealed in early November that MediaNews planned to leave behind the Tribune’s historic downtown tower and move many of its staffers to the San Ramon office. News-side functions could be moved to a cheaper spot across from the Oakland Coliseum.
“The question is how do we continue to put out a paper people want to read if we continue to cut further?” Luther Jackson, executive officer for the San Jose Newspaper Guild, which represents almost 500 workers at the Merc, asked the Guardian. “I have a concern that when newspapers face increased competition for advertising, why are we cutting service? Does it work for readers? Does it work for advertisers?”
The Bay Area isn’t alone. In the complex transactions that took place over the summer, Hearst bought the St. Paul Pioneer Press from McClatchy and shifted it to MediaNews in exchange for stock in the company. At the Pi Press, as it’s known in Minnesota, 40 positions were cut in November. A MediaNews paper in Los Angeles, the Daily News, recently axed its publisher and 20 other workers.
MediaNews enraged union workers at the Merc when it offered them a contract during September negotiations that was unlike anything they’d seen at the paper before. The company has since toned down some of its harsher demands but asserted that if a tentative agreement were accepted by Nov. 30, the Merc might see fewer layoffs, Jackson told the Guardian.
The proposal would grant management the right to modify insurance coverage without telling the union, freeze the paper’s pension plan and replace it with a 401(k), and change the types of work that could be assigned to nonunion employees. It would also allow the paper to hire new workers at “market-rate” salaries, which means their pay increases could be capped at lower rates.
The company may choose to simply not replace costly veterans who are retiring or accepting buyouts, meaning cub reporters could find themselves with fewer seasoned mentors around to help teach them government and private sector watchdogging.
The guild foresees losing nearly 200 members if the full number of layoffs and worker transfers are carried out. And many guild members fear it may also mean the beginning of the end of newspapers as we know them.
Corporations have the right to see to their bottom lines. But communities and individuals also have a right to the fruits that independent, competitive journalism bestows. And that’s the right being asserted now in civil court by Clint Reilly.
While federal and state investigators have largely been idling, Reilly sued Hearst, MediaNews, and its other business partners last summer. He asked Judge Illston to temporarily halt the transactions until the trial begins in his antitrust claim against the companies. She denied Reilly’s initial request for a preliminary injunction, in part because the Hearst investment had not been officially inked, even though the trial isn’t expected to start until this spring.
In her opinion, however, she suggested parts of the deal were troubling and has not ruled out forcing MediaNews to give up some of its newly acquired assets. Earlier this month Reilly’s attorney, Joe Alioto, again asked the judge for an injunction. The renewed appeal was inspired in part by the recently announced job cuts.
The plaintiffs are arguing Hearst and MediaNews previously withheld a letter from the court that the two companies had signed agreeing to discuss the possibility of combining some circulation and advertising functions to save money. In his request Alioto told the judge the companies were “rapidly consolidating, commingling, and irrevocably altering their San Francisco Bay Area newspapers so as to frustrate this Court’s ability to provide an effective remedy for their antitrust violations.”
During a tense hearing last week on the matter, Alioto asked that top Hearst and MediaNews executives be ordered to testify immediately. He suggested Hearst’s board of directors would never have agreed to invest $300 million in MediaNews if it couldn’t also merge distribution and ad sales with its competitor.
“I don’t think there is any doubt that they intend to end up with newspapers that are very different than they are today,” Alioto said. He wants any such discussions stopped by the court, adding, “We believe they intend to wipe out the possibility of any of these papers to remain freestanding. These papers will not be the same within a very short amount of time.”
Hearst attorney Daniel Wall angrily fired back that no one was trying to deceive the court with a price-fixing agreement and that the companies were merely discussing the possibility of “pro-competition collaboration,” which Wall described as a business partnership lawfully permitted by the Justice Department. He disclosed that the Chronicle was bleeding millions of dollars annually, partially because of lost revenue to the Web, and exclaimed that drastic cost reductions were necessary to keep the paper alive.
“These are tough times for newspapers, and they need to take cost out of the system,” Wall told the judge. “They need to find new revenue streams.”
Hearst has already faced something akin to all of this before. Reilly sued it in 2000 when the company bought the Chron and attempted to nix competition by shutting down its long-held San Francisco Examiner. Reilly didn’t block the deal, but the Justice Department forced Hearst to keep open the reliably conservative Examiner, today owned by another Denver-based company.
This week Illston ruled that Hearst and MediaNews must temporarily stop any agreements to combine advertising sales and distribution networks until Dec. 6, when she’ll decide whether to extend her prohibition on merging business operations.
Reilly has emerged over the last decade as a serious pain for corporate media executives and unshakable critic of concentrated newspaper ownership in the Bay Area. His most recent lawsuit charges that the Hearst and MediaNews partnership would dilute fair competition and limit alternatives for both readers and advertisers.
“They started the blood flow with the firings,” Alioto told reporters after the hearing. “We think when they’re done with this they’re going to have entirely different newspapers.”
Recent job losses don’t stop at just MediaNews. The Chronicle is getting in on the action too.
Divisive contract negotiations between the Chronicle and the Web Pressman and Prepress Workers Union Local 4 over the last two years ended recently when the union “reluctantly approved” an agreement, union treasurer Paul Kolter told us. The union was the last holdout at the paper to accept drastically reduced workers’ rights.
By successfully pushing its will on the unions, Hearst has virtually ensured that the press operators won’t pose much of a threat to the company anymore, because around the same time it signed a $1 billion outsourcing deal with the Canadian printing company Transcontinental.
The union’s new contract is up in about three years, and there are no assurances Local 4 will have any workers in the new plant Transcontinental has promised to build. That could mean the end of its relationship with the Chronicle and about 225 workers from the paper that it represents.
The previous contract ended in the summer of 2005, and under the paper’s new publisher, Frank “Darth” Vega, management called for drastic cuts in salaries and benefits. The two groups spent several intervening months battling over the proposed changes.
In July, Vega prepared the paper for a strike, issuing a memo that outlined exactly how to keep the paper operating throughout a work stoppage, and hired a notorious security firm that specializes in handling labor disputes.
The union points out that while the Chronicle complains of massive financial bloodletting, its parent company, Hearst, has somehow scraped together enough money for a brand-new $500 million office building in midtown Manhattan, the construction of which was completed over the summer. The company also sold the sprawling 82,000-acre ranch that surrounds Hearst Castle to the state early last year for nearly $100 million. It was once home to the notoriously belligerent and imperialistic newspaper magnate William Randolph Hearst.
Union members say there are wide ramifications to what’s happening here. In July the World Association of Newspapers published a report describing how more news services globally, including the New York Times, were outsourcing major tasks, even news reporting, to save money.
“There are a lot of labor unions that have an interest in what is happening with us,” Local 4 organizer and press operator Bruce Carlton told members at a meeting in late October. “If this flies, it will be a blueprint on how to break unions. We will be sent back into the ’30s.”
The mood is dark for many employees working under MediaNews and Hearst. The scrappy feel and hard-driving reportage of the CoCo Times under Lopez and Knight Ridder are believed by some to be at risk following the purchases. “No one thinks we’re going to be a better newspaper because of this,” one source at the paper told us.
In another memo MediaNews executive Armstrong wrote to Bay Area staffers last week, he stated that the company, in fact, predicted its “advertising revenue challenges.”
“We have no additional job reductions planned due to economic conditions, but we cannot guarantee that additional reductions might not be necessary in the future,” he wrote. “Our job level is dependent on our revenue performance.”
The memo also shows that the company plans to sell an office in Danville and two parking lots in downtown Oakland.
News accounts depicted third-quarter earnings for MediaNews based on Securities and Exchange Commission filings as a windfall profit caused by its purchases of the Times and the Merc. But the company’s ad revenue and circulation are actually down a few percentage points, and it made $16 million from the July sale of an office building in Long Beach, which offsets a simple analysis of its financial standing.
It’s still a company that topped $1 billion in revenue last year, a figure that has increased steadily since 2002, but Singleton has never feared doing business with loads of debt on the books, which he’s always used to fuel new purchases. For the Bay Area papers, MediaNews took on a $350 million bank loan in August.
MediaNews has still managed to take recent dire economic forecasts to a fever pitch despite its confidently large debt burden, enabling the company to implement a business model that’s hardly new for Singleton. He knows how to make money. Interestingly, for an industry that’s supposedly on the ropes, several billionaires (who didn’t become wealthy by investing poorly) have in the last few weeks publicly expressed interest in purchasing some of the nation’s largest dailies.
The Boston Globe noted earlier this month that rock industry tycoon David Geffen and grocery chain investor Ron Burkle were considering a bid for the Tribune Co., which owns the Los Angeles Times. That paper recently endured a major shakeup when a top editor was fired for refusing to execute job cuts demanded by the company. Former General Electric CEO Jack Welch has considered a run for the Globe, and more buyout rumors have floated around the Baltimore Sun and the Hartford Courant. Such deals could signal a fundamental shift in how newspapers are regarded with respect to their newsgathering responsibilities.
“Geffen has reportedly told associates that he’d be happy with returns comparable to the 3 or 4 percent he might get from municipal bonds,” the Globe wrote. Others have discussed turning individual newspapers into nonprofits.
But Singleton probably isn’t going anywhere, and a lot of people are going to have to learn how to get along with him around here, Texas drawl and all, unless the feds shut down his party.
Knight Ridder was a respected newspaper chain before investors grew restless and demanded greater short-term profit margins. It was sold earlier this year to McClatchy (begrudgingly for some top execs and Pulitzer-wielding journalists who openly fought with Knight Ridder’s financial backers prior to the sale). Knight Ridder posted a profit margin of nearly 20 percent in 2004.
Employees of the chain wrote a chilling open letter shortly before it was sold: “Knight Ridder is not merely a public company. It is a public trust. It must balance corporate profitability with civic purpose. We oppose those who would cripple the purpose by coercing more profit. We abhor those for whom good business is insufficient and excellent journalism is irrelevant.” SFBG