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From AJR,   October/November 2007  issue

San Francisco News Blues   

Layoffs and buyouts have become commonplace at newspapers throughout the country. But few regions have been hit as hard as the San Francisco Bay Area.

By Paul Farhi
Senior contributing writer Paul Farhi (farhip@washpost.com) is a reporter for the Washington Post.     

For a few hours on July 2, journalists at the San Jose Mercury News waited anxiously for news about themselves. That morning, managers of the paper told editorial employees to stay home and await further instructions. Anyone whose job was being eliminated would receive a call from the paper by 10 a.m.; those who didn't get called could come in to work. By the end of the morning quickly dubbed "Passover" the bell tolled for 31 of the Mercury News' 246 newsroom employees.

The layoff-by-phone drill represented yet another backpedal from the lofty rhetoric of just 11 months earlier, when William Dean Singleton's MediaNews Group bought the paper and its suburban cousin, the Contra Costa Times. MediaNews acquired both dailies in a complicated deal with McClatchy, which in turn had purchased them a few weeks earlier from Knight Ridder, the Merc's deceased and dismembered former owner. "We have bought the crown jewels of Knight Ridder," Singleton declared at the time. "They are excellent papers that we expect to make better."

Perhaps he meant "smaller." The first layoff at the Merc newsroom (15 people) came just four months after Singleton, known in some quarters as "Lean Dean," assumed control. A series of resignations starting in June trimmed 15 more jobs. Combined with the Passover cuts, the newspaper's staff had shrunk by 22 percent in the first year of the Singleton era.

The Mercury used to have more than a dozen reporters in its San Francisco peninsula bureau located about 15 miles from San Jose. Now there's just one. The Merc gets most of its peninsula news from the short-handed San Mateo Times and the Palo Alto Daily News, a free tabloid MediaNews acquired in the Knight Ridder deal last year. Some parts of the paper's newsroom have simply just disappeared, among them a five-member projects team that included 40-year Merc veteran Pete Carey, who was part of a group that won a Pulitzer for foreign reporting in 1986. Carey is now a business reporter.

Some 40 miles north of the Mercury in San Francisco, another newspaper is undergoing its own wrenching contraction. In mid-May, the San Francisco Chronicle, the Bay Area's largest paper (daily circulation: 386,564), announced it would reduce its editorial staff. When the numbers were finalized a few weeks later, 90 journalists (23 percent of the Chron's newsroom) had either simply resigned or agreed to take buyouts offered by the paper's owner, Hearst. Among those who've recently left the paper are Managing Editor Robert J. Rosenthal, two deputy managing editors and the editors of the paper's opinion, business and Style sections.

There's nothing remarkable about layoffs and buyouts in newsrooms these days, as newspapers everywhere struggle to adjust to the Internet age. But perhaps no region has suffered from the news blues quite as grievously as the San Francisco Bay Area. Indeed, it's unlikely that any other major metropolitan paper in the country has fallen as far, or as fast, as the Mercury and Chronicle have since their peak at the height of the dotcom boom seven years ago.

"I used to tell job applicants that the Merc was the only paper in the country to double its newsroom staff in the 1980s and early '90s," says Jerry Ceppos, a former executive editor and managing editor of the Merc during its Pulitzer Prize-winning heyday more than a dozen years ago. "The update now would be that the Merc might be the only paper to halve its newsroom workforce" since 2000.

Ceppos, who was Knight Ridder's vice president/news from 1999 until he took early retirement in 2005, estimates that the Merc's newsroom is now about the size that it was in 1980. That's a remarkable retreat, he says, given that the population in the paper's immediate circulation area, Santa Clara and Alameda counties, has grown by 35 percent in that time. "The whole capacity to do newsgathering in the Bay Area has been harmed," he says. "I'd love to be a crooked politician [here] right now," because journalistic accountability is so impaired.

Most observers think the Mercury News (circulation: 230,000) is still profitable. The paper was making 12 percent when Singleton's Denver-based company acquired it last year. But hard numbers are difficult to find because MediaNews is private and doesn't report its results. Suffice it to say that the arrows keep pointing down, Singleton said in an interview. In a dismal time for the newspaper industry, he says the region's papers are doing relatively worse. "It's been a tough year," he says.

Asked if he would buy Knight Ridder's Bay Area papers again knowing what he knows now, the normally gung-ho publisher hesitated. "I don't know the answer to that question," he replied. "It's hard to put yourself back then. The fact is, I didn't know then what I know now. But we're happy we bought them."

The Chronicle, meanwhile, has been bleeding red ink for several years, though it's not clear how much (Hearst is also privately owned and doesn't disclose its financial results). A 2004 audit by the Newspaper Guild, however, pegged the paper's losses at about $62 million annually. One business executive formerly affiliated with the paper and intimately familiar with its finances says that losses have grown since then; if severance costs are added in, he guesses that the Chronicle's annual operating loss would now approach $100 million.

For anyone judging from afar, the papers' difficulties seem almost perverse. The Bay Area, after all, is hardly Detroit or Buffalo. One only needs to travel between the Mercury's suburban offices and the Chronicle's dingy downtown digs to sense the region's wealth, from the glittering Silicon Valley office parks clustered near the Merc's headquarters in San Jose to the million-dollar condos sprouting on San Francisco's bayfront. Glancing out a window in the Chronicle's newsroom one recent morning, Phil Bronstein, the paper's editor, acknowledged the obvious: "San Francisco is booming."

What's more, Hearst and MediaNews have the region's newspaper market all to themselves. After last year's deal-making, the two companies now control all of the 12 metropolitan and suburban papers in the Bay Area's six most populous counties. The lineup is simple: Hearst owns the Chronicle, and MediaNews owns everything else.

Plotted on a map, MediaNews' 11 daily newspapers form a necklace around San Francisco Bay. The chain stretches from Marin County north of the Golden Gate Bridge, east to Contra Costa and Alameda counties, south to San Jose and Santa Clara County, and up the peninsula into San Mateo County. The Chronicle is ringed by this necklace (see "Surrounded by Singleton," June/July 2006).

But while they are rivals in the Bay Area, the two companies are allies elsewhere. In fact, Hearst is a part owner of some of MediaNews' newspaper holdings outside the Bay Area. It acquired the stake last year when it provided Singleton with $288 million to help him buy the Mercury News and Contra Costa Times, giving him his near-monopoly on the Bay Area's daily newspapers.

Just a few years ago, no one foresaw such an unusual concentration of ownership, or the market's meltdown. As recently as 2000, the Bay Area's newspapers seemed to be sitting on a mother lode. The dotcom economy, centered between the poles of San Jose and San Francisco, was roaring, spinning out millions of dollars in new advertising, from help wanted and real estate listings to display ads.

The good times helped compel Knight Ridder to move its corporate headquarters from Miami to downtown San Jose in 1998. It also spurred a more important change: the undoing of a joint operating agreement (JOA) that had locked Hearst's afternoon Examiner into a 35-year-old business alliance with the morning Chronicle, then owned by the descendants of the paper's founders, the de Young brothers. The JOA had made the papers marginally profitable over the years, and with the agreement set to expire in 2005, Hearst made its move. It bought out the Chronicle's family shareholders for $660 million and took over the morning slot.

But it turned out Hearst had bought at the top. Not long after it completed its purchase in July 2000, the Internet bubble, which had been inflating through the late 1990s, burst.

The technological dynamism that once enriched the two papers now seems to be slowly suffocating them. The slow exodus of newspaper classified ads and listings to such free Internet sites as Craigslist and e-Bay had already begun at the peak of the dotcom boom. The bust of 200103 turned this into a free fall, as troubled tech firms stopped hiring.

P. Anthony Ridder, Knight Ridder's chairman and chief executive (and a Mercury News publisher in the mid-1980s), estimates that the Merc lost about 80 percent of its help wanted listings between 2001 and 2003. This decline lopped about $100 million a year off the paper's revenue, he says. But just as this ad category began to turn positive as Silicon Valley recovered around 2003, Ridder says, other kinds of advertising automotive, national ads, the newly consolidated retail industry began to turn soft (the Merc itself reported in June that its overall revenue has declined 36 percent since 2000).

To his growing unease, Ridder could sense Wall Street's impatience with newspaper stocks, particularly that of his company, which owned papers in troubled metropolitan areas. Soon, a Knight Ridder shareholder and money manager named Bruce Sherman was publicly demanding that Knight Ridder slash its costs and raise its stock price or sell the company to someone who could (see "Sherman's March," February/March 2006). "We were the most vulnerable [of the newspaper companies] because we had only one class of stock," Ridder says. "I asked Bruce why he was after us and he said, 'Because I can.'" Sherman's campaign eventually led to Knight Ridder's sale and breakup.

Some suggest the Merc and Chron were slow to recognize the deteriorating conditions and bring their costs in line. The Chronicle, in particular, seemed bloated after its staff was merged with the Examiner's. Hearst had pledged no layoffs to the Chronicle's powerful labor unions when it bought the paper in 2000, even though it soon found itself with the manpower to produce two papers instead of one.

At its peak, the Chronicle's newly enlarged news staff numbered 575. Even Bronstein, the paper's editor then as now, looks back with some regret and a touch of exasperation. "The staff had two of everything. We probably had two dance critics," he says glumly.

Ridder thought at the time that the Chron would use its new editorial muscle to launch a major editorial and circulation thrust into Knight Ridder's strongholds in Contra Costa and the South Bay. The Merc even beefed up its San Francisco bureau in anticipation of fighting back. But Ridder was surprised when the offensive didn't materialize. "I don't think [the Chronicle] improved with all the extra staff they had," he says today. "They didn't suddenly become a much better paper."

The real question now, of course, is what's next.

Hearst executives declined to be interviewed for this article. Asked about the outlook for the Chronicle, Hearst spokesman Paul Luthringer would only say: "We are committed to the Chronicle as evidenced by the fact that we've entered into a long-term contract with Transcontinental to print it."

But it's clear the company would prefer cooperation to competition with MediaNews. According to documents made public in a lawsuit challenging terms of MediaNews' purchase of the Knight Ridder papers last year, MediaNews and Hearst had talked about combining their distribution and national advertising sales operations in the Bay Area. But a federal judge blocked any attempt to do so last year, and in settling the lawsuit (brought by political consultant Clint Reilly) last April, the two companies agreed to keep their business interests in the Bay Area separate.

Which has left the newspaper owners with the same strategy: a grinding series of cost-cutting and consolidation moves.

In relative terms, the biggest impact of the cutbacks has fallen on Singleton's 10 smaller dailies in the Bay Area, from the Independent Journal in Marin County to the Oakland Tribune and Tri-Valley Herald in the East Bay. All of these papers have lost local newsroom resources as MediaNews has moved to centralize many editorial functions.

No longer, for example, does each paper field its own sports reporters to cover the region's professional teams; that assignment is handled by a MediaNews reporter whose stories are fed throughout the chain. Business news, feature stories, copy editing, even editorials are run much the same way. Many of these tasks are the responsibility of a MediaNews team that works out of an office in the East Bay town of Pleasanton.

Singleton argues that this gives his Bay Area papers more local news and editorial strength. In effect, he says, each of the papers now has access to 600-plus MediaNews journalists in the Bay Area, instead of the few dozen they formerly employed as stand-alone papers.

Such resource-sharing arrangements win grudging praise from Alan Mutter, a former editor at the Chronicle who is now an independent investor and media industry commentator in San Francisco. "I know it's not fashionable to say nice things about MediaNews, but they have been quick to restructure the huge embedded costs of putting out a newspaper," he says. "They have tried to find economies of scale to maintain the business. Give the devil his due. If [Singleton] didn't do this, some of those papers wouldn't be there. Is some coverage of Oakland better than none? Of course it is."

But news from Oakland might not be what readers in San Mateo have in mind when they think of their "local" paper. In fact, MediaNews' centralization strategy has had a noticeable effect on the character of the papers and their Web sites, transforming them from community-based dailies into more regional, homogenized news sources. On a recent Friday, readers of the Mercury could find MediaNews-generated stories in the paper's main news section, its local news section and its entertainment and sports sections. Many of these same stories ran that day in MediaNews' other Bay Area papers.

Singleton won't get much praise from John Bowman, a former MediaNews editor. When he was managing editor of MediaNews' San Mateo County Times between 2002 and 2004, Bowman worked with three other editors and had 12 reporters under him. In April, when he briefly returned to the Times as executive editor, the paper was down to eight reporters and three editors.

That meant that the Times newsroom was stretched impossibly thin in trying to cover a county with 705,000 residents, he says. Times' reporters (who earn about $35,000 a year in one of the most expensive housing markets in the country) regularly cover double and triple beats. According to the Times' masthead, reporter Rebekah Gordon covers politics, the board of supervisors and senior issues; Julia Scott covers seven coastal towns as well as county environmental news.

Bowman says that a centralized news department often has little awareness of the people and the issues that affect a local community and drive a local paper. He blames the central copy desk, located 30 miles away, for mistakes that have crept into the Times' headlines and captions; a recent headline told readers that an event took place in Pacifica, when the story plainly said it occurred in nearby Half Moon Bay. "Everybody has swallowed the Kool-Aid about the future of newspapers being local, local, local," says Bowman, who quit the paper in dismay this spring after only seven weeks on the job, "but nothing takes more resources than covering local news. You can't cut your way to prosperity."

The Chronicle's and Mercury's top editors admit they don't have any easy answers. But both also believe that the worst is behind them. "I don't expect to grow, but I don't expect to shrink, either," says Carole Leigh Hutton, who took over the Merc when Editor Susan Goldberg left for Cleveland's Plain Dealer in May (see "Transforming the Architecture").

Hutton offers no grand designs for her paper's future; she says instead that she'll listen to what readers want in a "rethinking" exercise that the paper launched over the summer. "The flaw in newspapers is we tend to think we can answer our own questions," she says. "We always think we should do what we're comfortable with. But it's never that simple."

Bronstein, who still wears cowboy boots to the office, just as he did when he was a foreign correspondent 20 years ago, thinks there may be something to a phrase coined by William Randolph Hearst "the journalism of action." He wants the Chronicle to "engage readers more in their civic lives, and give them ways to act instead of just saying things are bad. We have the technology and the tools to have a different relationship with our readers." Even if, he acknowledges, that means "day to day, there might be less of 'here's what happened at the Richmond City Council.'"

From a practical standpoint, Bronstein can see the advantage to the Chronicle in Singleton's editorial retreat ("It's a shame that their quality is dropping, but as a competitor I'm happy," he says). Yet he recognizes that this is a danger for his paper, too. "The problem is, you can get into a death spiral, where you're less and less effective each time you have to cut something," he says. "I can't tell you that that's where we're at now. But is there a point when you're no longer effective to readers? Probably there is. Is it a danger? Yes, it is."

Ridder, who was widely criticized for cutbacks at Knight Ridder during his tenure, thinks the Bay Area's papers are rapidly approaching enfeeblement. He still reads his old newspaper, the Merc, every morning, but with a mounting sense of disappointment and sadness. "There's less there there," he says, and reflects: "Most newspapers are so incredibly important to the area they serve. Most of the great enterprise journalism is done by newspapers. They keep the government honest. They tell us about the state of the educational system. Who's going to do it when they no longer can?" (Singleton's MediaNews Group sued Ridder's son Par after Par Ridder left his position as publisher of MediaNews' St. Paul Pioneer Press to become publisher of Minneapolis' Star Tribune. In September a judge ordered Ridder to leave his job for a year.)

Singleton refuses to be chastened, even as he presides over an ebbing tide. "The newspaper business today is a marathon, not a sprint," he says. "We're going to have some unhappy days the next three or four years, but I think long term this is a very good business."

He tells a story he thinks is instructive. As a junior executive at the old Washington Star some years back, he once got a phone call from the paper's owner, Joe Allbritton, who told him to meet him at the airport that night.

"Where are we going?" the young Singleton asked his boss.

"We'll gas up the plane and keep flying until we feel like coming down," he remembers Allbritton telling him.

That night, the two men flew for several hours. They finally put down in Bismarck, North Dakota, a place Singleton had never visited before. "We went downtown and had a steak dinner. We had a great time. I'll never forget it."

To Singleton, it's not just an anecdote it's a metaphor for the uncertainty surrounding the newspaper business. "We don't know where we're headed or when we'll get there or what we'll find when we get there," he says. "But I can tell you this: We're going to have fun getting there."

Paul Farhi (farhip@washpost.com) is a Washington Post reporter who writes frequently about the news media for the Post and AJR. He wrote about hyperlocal news Web sites in AJR's June/July issue.