Surrounded by Singleton    

Scooping up the San Jose Mercury News and the Contra Costa Times gives Dean Singleton a mammoth cluster of newspapers in the San Francisco Bay Area and poses a significant challenge to the San Francisco Chronicle.

Most major newspapers came of age in big cities, surrounded by smaller papers in the suburbs and outlying towns. These rivals may have nipped at their heels and cut into their circulation, but they never threatened the big papers' market dominance.

But now, in the San Francisco Bay Area, a cluster of suburban papers is rising up to challenge, and perhaps one day overshadow, the San Francisco Chronicle.

This summer, a series of newspaper sales involving six media companies — Knight Ridder, McClatchy, Hearst, Gannett, Stephens Media Group and MediaNews Group — will reshape the newspaper business in the Bay Area. Unless those transactions are blocked by government antitrust action, one group of local papers, owned by MediaNews, will more than double its circulation overnight, becoming larger and more potent economically than its big-city rival, the Chronicle. What this means for advertisers, readers and the newspapers' employees remains to be seen. The one certainty is that plenty of people are worried.

The architect behind the new juggernaut is William Dean Singleton, the innovative, somewhat flamboyant 54-year-old chief executive of MediaNews, a Denver-based company that presently owns 51 dailies in 13 states. Singleton began preparing the ground for this little revolution in 1985, when he bought three small family-owned dailies in the towns of Hayward, Fremont and Pleasanton, in Alameda County just across the bay from San Francisco. Later, he bought more small papers in that area, and by 2002 he had stitched nine of them together into what he calls the Alameda Newspaper Group, or ANG.

Because they are close together, six of these papers share newsgathering, production, distribution, accounting and administrative facilities, a strategy known as clustering. They also offer combination advertising deals. It is possible to think of them, in fact, as one big paper with six zoned editions. Their news coverage is heavily local.

The ANG papers and the Chronicle are quite different, and until now they haven't seen each other as principal rivals. ANG makes little effort to cover San Francisco — it doesn't even have a reporter assigned to City Hall. And the Chronicle can't put enough people into ANG's communities to compete for highly local news. In fact, the Chronicle has cut back on editorial zoning in the suburbs in recent years (see "The Chronicle Chronicles," October/November 2005). "Zoning didn't work for us very well," says Phil Bronstein, the Chronicle's editor and executive vice president. "We are a regional paper."

So the Chronicle's biggest turf battles have been with Knight Ridder, whose two area papers, the Contra Costa Times to the east and the San Jose Mercury News to the south, have a combined daily circulation of 422,000, which tops the Chronicle's 398,000. The combined circulation of all nine ANG papers comes to not quite 300,000, so MediaNews has been a presence but not the biggest star in the galaxy.

But when all the pending deals are signed, MediaNews will own not just the ANG papers but also the Mercury News and the Contra Costa Times, which means it will dominate not just one Bay Area county, as now, but three contiguous ones. So instead of three big dogs in the yard, there will be just two, and the Chronicle will be the smaller one. (Also in the mix is the San Francisco Examiner, a free daily owned by billionaire Philip Anschutz.) The papers owned by MediaNews will have almost 80 percent more circulation than the Chronicle. They will have more newsroom employees (about 770 compared with some 400 at the Chronicle) and perhaps more advertising clout — and they will have the Chronicle surrounded.

Here's how all of this came about:

In March, Sacramento-based McClatchy struck a deal to buy Knight Ridder, the nation's second-largest newspaper company, which is headquartered in San Jose. McClatchy then announced that it would immediately resell 12 of Knight Ridder's 32 daily papers to help pay off its debt from the deal.

In April, MediaNews agreed to take four of those papers off McClatchy's hands — the San Jose Mercury News, the Contra Costa Times, the Pioneer Press in St. Paul and the Monterey County Herald, a small daily on California's central coast.

These two transactions change the newspaper landscape dramatically. For one thing, Knight Ridder ceases to exist. For another, McClatchy becomes the country's second largest newspaper company, after Gannett, in terms of circulation. And MediaNews becomes the country's fourth largest newspaper company. (The Tribune Co. is third.)

Both deals — the McClatchy purchase and its resale of the four papers to MediaNews — are expected to close sometime this summer. But the MediaNews deal is tricky. According to official documents, McClatchy is to receive $1 billion for the four papers, but MediaNews and two minority partners, Gannett and Stephens, will pay only $736.8 million. The rest will come from another party: Hearst. Hearst is buying two of the Knight Ridder papers, the Pioneer Press and the Monterey County Herald. But it will immediately lateral them to MediaNews; in exchange, it is to receive an estimated 20 percent to 30 percent of MediaNews' assets outside the Bay Area.

Hearst's role came as a huge surprise, because Hearst happens to own the San Francisco Chronicle. Why Hearst would help to finance a deal that benefits a major competitor — to the apparent disadvantage of one of its own papers — remains a mystery. Is Hearst hedging against the large financial losses (up to $60 million a year) that the Chronicle has been suffering? Nobody at the Chronicle seems to know. "That was a business decision by Hearst," Bronstein says, "and I think the only people who can answer that are the people involved in the business decisions at Hearst." A Hearst corporate spokesman declined to comment.

In the absence of facts, there is speculation. "It is absolutely clear, I think, that the newspaper publishers have sat down in a room and allocated all the markets," says Todd Miller, a Washington attorney who advises the Newspaper Guild-Communications Workers of America on antitrust matters. He notes that Gannett is already a partner in MediaNews' California papers.

"You've got MediaNews in bed with Gannett. Now you're throwing Hearst into that pot," Miller says. "The antitrust question is, how does that change the behavior of the newspapers? They purport to be competitive, yet they're partnering."

The Guild had complained that a Los Angeles investment firm, Yucaipa Cos., was hampered in its efforts to buy the Knight Ridder papers that MediaNews is acquiring, because McClatchy didn't give Yucaipa the same access to inside financial information that it gave MediaNews. The Guild sees unfairness here; it had backed a sale to Yucaipa rather than MediaNews, because Yucaipa proposed to set up an employee ownership plan.

After MediaNews' purchase was announced, Singleton visited the papers he is buying and answered employees' questions. Virginia Hennessey, a reporter for the Monterey County Herald, wrote that Singleton was asked about Yucaipa and other possible bidders being denied access to the papers' books. According to her article, Singleton said that McClatchy officials had told him that to speed up the sale process, they would rather sell the papers to a company that had already examined the books, which MediaNews had done as it considered making a bid for all of Knight Ridder. Singleton, she wrote, said he was told that if he offered McClatchy enough money for the papers, "McClatchy would sell to him before opening the bidding to others."

McClatchy's chief financial officer, Patrick J. Talamantes, declined to comment on the Yucaipa controversy.

Linda Foley, the Guild's international president, calls the McClatchy-MediaNews deal "a very suspicious action," doubly so in light of the role played by Hearst. "You have to wonder," she says, "what are the deals that are being cut, and to whose benefit are they?"

In May, in a letter, six members of Congress from the area asked the U.S. Department of Justice to consider whether Singleton's proposed new acquisitions "would significantly heighten the concentration of media ownership, and deprive readers in our districts of the quality and depth of news coverage that more varied ownership offers." They also asked Justice to "examine whether advertisers would be hurt by a diminution of print media outlets and a likely increase in advertising rates that a single owner in the market could demand."

California's attorney general, Bill Lockyer, has announced an interest in exploring possible antitrust implications. He issued a statement in mid-April saying that "competitive choices could be narrowed for both advertisers and readers" if the deal goes through, and that his office would therefore study whether it should intervene.

McClatchy and MediaNews have both expressed confidence that the sale will pass muster. Singleton points out that Hearst's minority interest was structured to exclude any economic ties to the Bay Area, so Hearst would have no direct interest in papers competing with the Chronicle.

As for other antitrust issues, Singleton says he doesn't see any. "The Mercury News primarily circulates in Santa Clara County, and the Contra Costa Times primarily in Contra Costa County, and ANG primarily in Alameda and San Mateo counties," he says. "There is virtually no overlap in the newspapers. We reviewed it carefully. The Justice Department automatically reviews any transaction that is $50 million or more. But, again, we don't see any antitrust issues."

The six ANG papers that form a cluster consist of the Daily Review in Hayward, the Argus in Fremont, the Alameda Times-Star, the Oakland Tribune, the San Mateo County Times and the Tri-Valley Herald. While each one strives to preserve a local identity, they employ all sorts of synergies to save money. Until about three years ago, the papers fed all of their copy into a single "news center" in a big second-floor room in the town of Pleasanton, where the Tri-Valley Herald is based. There, some 70 people did the copy editing, photo processing, layout and other editing and composing room chores for those six papers. As deadline approached each day, everything funneled into this central hub from newsrooms in communities 30 miles apart. A regional reporting staff also worked there, turning out business and entertainment stories to supplement the work of the reporters and assigning editors at the outlying papers.

This system was a bit of an experiment, and it didn't work as well as ANG had hoped. Kevin Keane, the papers' executive editor, says that the lack of contact between the central news desk and local writers and editors was a constant frustration. "They realized," he says, "that it was important for the news desk to be with the city desks, to engage the editors and the reporters in how the stories were going to be played."

So now there is more of a balance. Each of the six outlying newsrooms processes stories at its own news and copy desks. But much sports, entertainment and business copy still comes out of Pleasanton. For instance, reporters and columnists who write about the area's college sports and professional teams are in the central newsroom, as are their copy editors and assigning editors. But other sports journalists — those covering high school games, Little League baseball, local soccer teams and the like — work in the local newsrooms, writing mainly for zoned sports sections.

There is another central desk in Oakland that has a team of eight investigative and specialist reporters who deal with areawide issues, working under their own editor. Their beats include transportation, health care, education, the environment, the nuclear industry and higher education. In addition, a part-time reporter covers family issues and immigration for the region.

A common desk writes editorials on regional and statewide issues for the six papers, "but then each editor of the local papers writes local editorials, at least twice a week, usually more often," Keane says. "We try to be as local as we possibly can." He says the six newsrooms combined have the equivalent of about 200 full-time employees.

Clustering pervades every aspect of the papers' operations. "We have four print sites" for the six papers, ANG's president and publisher, Fred Mott, says. "It gives us a lot of flexibility. We can print some advanced sections in one place and the daily sections in another site. It's a fluid thing."

The papers also share circulation warehouses, which saves on overhead and on delivery costs. In areas where two papers have overlapping circulation, both can use the same contractors to make single-copy drops.

An advertiser can place an ad in one of the papers or make a buy in all six, or in any combination of them. Or, the three other dailies in the group — in Marin County, Vallejo and Vacaville — can be included. "You can buy all nine and get a large footprint, which a lot of the major and national advertisers want," Mott says.

When MediaNews brings Knight Ridder's two largest California papers into this mix, one might expect to see them integrated into the system as well. But Singleton says he doesn't envision that happening. "They're going to be stand-alone," he says of San Jose and Contra Costa. "I'm sure they'll share some resources and share some ad sales, but basically they'll be stand-alone." When I ask how those papers will reap the cost-saving advantages of clustering, he says he thinks all the papers, as a group, will get some new revenue from national and major advertisers, "just as a result of being so big now."

Singleton has a reputation in newsroom circles for doing journalism on the cheap; he has been called "lean Dean." As a group, his papers are not noted for their editorial excellence. On the other hand, his defenders point out that he has rescued failing papers that would have died without his aggressive cost-cutting measures. His flagship Denver Post spent enough money to win a bitter newspaper war with E.W. Scripps' Rocky Mountain News (see "The Next Level," December 2003/January 2004). The Post received a Pulitzer in 2000 for its coverage of the Columbine High School shootings, and the Oakland Tribune picked up a Sigma Delta Chi Award in 2004 for investigative reporting.

MediaNews' most recent annual report to the Securities and Exchange Commission says the company seeks "to increase operating cash flows at acquired newspapers by reducing labor costs, and implementing overall improvements in cost management."

Journalists in California have a particularly vivid memory of how this has worked in the past. After he acquired the Long Beach Press-Telegram from Knight Ridder in 1997, Singleton abrogated the existing union contracts (which he could do under terms of the sale) and summarily cut most newsroom salaries by 20 percent or more. All the staffers were forced to reapply for their jobs. Although Singleton did not fire any journalists, the Newspaper Guild said he eliminated some 200 jobs of non-newsroom workers such as mailers, pressmen and truck drivers. Within a year, scores of newsroom employees had left the paper.

Singleton has never lived this down in California journalism circles, although supporters say he has been less ruthless in his budget-cutting in recent years. In late April, when he visited the newsrooms of the Knight Ridder papers in California, he had to fend off questions about layoffs and cost reductions. He did this, according to news reports, with a good deal of charm, drawing applause at times. But he made no ironclad promises about the future.

"We told them there'd be no changes in staffing or salary levels or benefit levels as a result of this transaction," he told me afterward. "I can't predict the future, what the economy will do, what the newspaper industry will do. Anybody in today's environment that makes a blanket promise isn't being responsible. We're saying there will be no changes as a result of this transaction."

Union contracts will remain in force. Even so, many at the Mercury News, and especially within the Newspaper Guild, were disappointed that Yucaipa Cos. wasn't able to buy their paper. Yucaipa wanted to take "a high-road approach" to newspapering, says Luther Jackson, the executive officer of the San Jose Newspaper Guild.

After the paper went on the market last fall, the Guild in San Jose set up a Web site (SaveTheMerc.com) that urged local citizens to take notice of what was happening and make their voices heard. If the sale goes through, the Web site declares, "One out-of-state publisher would now control all daily newspapers in the Bay Area outside of San Francisco, with the capability of restricting news content, limiting voices of expression and dictating terms for advertising leading to higher rates." SaveTheMerc.com also urges state and federal antitrust officials "to investigate whether Yucaipa Companies and other interested parties were denied the financial information they needed to bid for the Mercury News and other California papers owned by Knight Ridder."

The Web site contains news stories about the Singleton deal, statements of support from people in the community, support-the-Merc bumper stickers and a petition one can sign as a show of concern. The petition bears the names of state and local politicians, academics and leaders of area labor unions, civic groups, business organizations and charities.

"We want to make sure people in the community know what's going on and get their support," Jackson says. "You never know what can happen. If, for instance, there are antitrust issues and that delays the deal or puts aside the original deal, then all bets are off and we're back in the game. It's definitely worth keeping that hope alive."

Meanwhile, at the San Francisco Chronicle, Editor Bronstein has found a sunnier side to the deal. He acknowledges that MediaNews could be a business threat to his paper. "But editorially," he says, "we're very pleased that Dean Singleton is going to own these properties, because we feel that the issue of quality will distinguish us even further. There are some things he might do at those papers that will make them less valuable rather than more valuable. We see opportunities here."

Senior writer Charles Layton (charlesmary@hotmail.com) wrote about the Knight Ridder Washington bureau in AJR's April/May issue.