San Francisco daily may close without significant staff cuts

Pete Carey
San Jose Mercury News (MCT)

In the latest sign of the deteriorating state of the newspaper industry, Hearst Corp. said Tuesday it must significantly reduce the number of employees at the San Francisco Chronicle "within weeks" or it will sell or close the newspaper.

The startlingly blunt statement from the Chronicle's parent company adds one more publication to the list of critically ill newspapers caught in an industry slump that has produced numerous bankruptcy filings.

Many newspapers are showing signs of acute financial stress not just because of the economic downturn, but due to a massive decline in print advertising, their primary source of revenue. Readers have migrated online, where they can get their news for free, but advertising revenue has not followed, leaving publishers scrambling to figure out a sustainable economic model for their newsrooms.

But the wave of threatened closures has until now affected primarily two-newspaper towns, including Seattle, Denver and Tucson. Tuesday's announcement raises the prospect that San Francisco - where the Chronicle, with its storied history, is the only major paper - could be left without one.

Hearst recently announced it was closing the Seattle Post-Intelligencer unless it could find a buyer. None has emerged. The Tribune Co., which operates the Los Angeles Times and the Chicago Tribune, sought bankruptcy protection in December. The Philadelphia Inquirer and Philadelphia Daily News' parent company followed over the weekend.

The Chronicle has posted "major losses" every year since 2001 and lost more than $50 million last year. Its losses this year are projected to be "much worse," Hearst said in a statement from its New York headquarters.

San Francisco Mayor Gavin Newsom's office issued a statement saying he's "concerned" but "optimistic" that the Chronicle - whose history parallels the growth of San Francisco from a gold-rush boom town to a West Coast metropolis - will survive. "We don't want to see this cherished institution close its doors," the statement said.

Hearst called on the unions that represent Chronicle employees to work together to make necessary cuts, citing the "sea change" newspapers are undergoing and the "dire economic times" caused by the current recession.

"Given the losses the Chronicle continues to sustain, the time to implement these changes cannot be long," said Frank A. Bennack, Jr., vice chairman and chief executive officer of the Hearst Corporation, and Steven R. Swartz, president of Hearst Newspapers.

Chronicle union officials wondered how the company could implement enough staff cuts to a workforce of something over 1,000 to make up for the financial bleeding.

"When you're talking $50 million to $60 million in losses a year, I'm not sure how you replace that by cutbacks," said Rome Aloise, principal officer of Teamsters Local 853, which represents about 400 production workers and drivers. "It's really the revenue side that is the problem. How do you fix that by cutting wages?"

"We'll listen to what ideas they have to achieve the savings they need," said Doug Cuthbertson, executive officer of the California Media Workers local of the Communication Workers of America, which represents the company's white-collar employees.

Media observers speculated Tuesday that the ultimate outcome might be a distress sale to Denver-based MediaNews, owner of the San Jose Mercury News and all the other major daily newspapers in the Bay Area. MediaNews owner Dean Singleton declined comment.

But any move to combine the newspapers could revive the antitrust legal battle waged by San Francisco investor Clint Reilly when MediaNews took over the San Jose Mercury News and Contra Costa Times in 2006. Reilly could not be reached for comment, but his lawyer, Joe Alioto Jr., said, "I do not believe the courts would allow such a thing."

Legal experts said the companies could argue that there was no other buyer for the San Francisco Chronicle, and that it would shut down without a deal with MediaNews.

Stanford University law professor Joseph A. Grundfest said the companies could raise a "Newspapers - who cares?" argument. "With all the competition they have from the Internet and other sources, merging two newspapers isn't the problem it used to be," Grundfest said.

The San Francisco Chronicle in recent years has slashed staff, raised newsstand and home-delivery prices and made plans to outsource printing operations, which would eliminate much if not all of its production staff.

Across the country, most newspapers have taken drastic steps to try to remain profitable: reducing the number of days of home delivery, slashing staff, combining sections, asking for concessions on pay and health insurance, and even dropping print publication entirely.

"It's a question of, how do you slim down the product, holding onto as much print advertising as possible while making the digital transition?" said Ken Doctor of Outsell, a Burlingame, Calif., research company.

In addition to Hearst's announcement about its Seattle paper, the E.W. Scripps Co.'s Rocky Mountain News, in Denver, and Gannett Co.'s Tucson Citizen, in Arizona, also have said they would close if they do not find buyers.

But those towns would still be left with one major newspaper. San Francisco has the Examiner, but it is a free daily that does not have the scope or regional focus of the Chronicle.

Hearst, a multibillion-dollar media conglomerate, paid $600 million for the San Francisco Chronicle in 2001. About 260 people work in its newsroom, down from nearly 600 when it was acquired.

In 2006, Hearst put up nearly $300 million to assist MediaNews in the acquisition of four former Knight Ridder newspapers - including the San Jose Mercury News and Contra Costa Times - that had been purchased by McClatchy Newspapers of Sacramento, Calif.

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