News & Views from 465 California Street

Hearst’s Hindenburg

Clint Reilly
Mar
31
2009

The San Francisco Chronicle is the greatest wealth destruction machine in American journalism today. While its headlines announce the immolation of hallowed names such as Lehman and Merrill Lynch, the paper itself is aflame with astonishing losses of more than a billion dollars.

Think the “Hindenburg” of newspapers.

Since Hearst bought the Chronicle in 2000 for nearly $700 million and gave $66 million to subsidize the Examiner’s new owners, operating losses have reportedly reached up to $90 million in a year.

A fair estimate is that losses have averaged $50 million annually for the last eight years. This means that Hearst has invested more than $1.2 billion in a newspaper that has no viable vision for success.

While the paper’s editorials excoriate politicians for mismanaging California’s budget, the Bay Area’s largest daily newspaper has crashed and burned under Hearst’s management. Now Hearst has asked House Speaker Nancy Pelosi to suspend the nation’s laws protecting the competition of news gathering in order to save the Chronicle. Hearst says it needs a monopoly in order to survive.

But does it?

The Wall Street Journal ran a revealing interview with investment banker Jonathan Knee last week. In it, he pointed out that newspapers actually still have a higher profit margin than many other media businesses. The difference is debt.

A number of newspaper companies are being strangled by the debt they took on to purchase other papers, not by unprofitable papers in their portfolio.

This analysis is highly relevant to our situation in the Bay Area. Dean Singleton’s MediaNews Group is saddled with nearly $1 billion in debt, part of which came from the company’s purchase of the San Jose Mercury News and the Contra Costa Times.

The continuous layoffs and cost cutting at MediaNews’ Bay Area papers are driven by the need for free cash flow to make the company’s required debt payments in the face of an advertising downturn – not because the papers are failing.

The Chronicle’s financial fiasco begs the question: If Dean Singleton makes money on his Bay Area papers, why is the Hearst Chronicle chalking up obscene losses?

While Singleton’s problems are partly a product of his large debt, the Chronicle has no debt. And while MediaNews papers such as the San Jose Mercury News and Marin Independent Journal continue to throw off profits, the Chronicle hemorrhages red ink.

How does $1.2 billion go up in smoke at the region’s largest newspaper while other Bay Area dailies are making a profit?

When Hearst bought the Chronicle in 2000, the monopoly newspaper model was still thriving across the country. Hearst clearly expected the Chronicle to become a long-term cash cow. Why else would the company have paid $660 million and then thrown away nearly $100 million more in legal fees, subsidies and settlements to close the already expensive deal?

On top of that, Hearst made a status quo promise to the unions in order to ensure their support. The company agreed to keep all employees of both the Hearst Examiner and the Chronicle, guaranteeing that the Chronicle would float into the most challenging times in newspaper history as a bloated whale.

Another reason the Chronicle has lost so much money is that the paper’s business model is untenable. With more than 75 percent of its circulation outside San Francisco, the Chronicle is unable to cover The City or the suburbs in depth. The paper’s circulation should have been cut in half many years ago; at 360,000, it remains massively expensive to produce, print and circulate. Resizing alone might have saved the paper by dramatically reducing operating costs across the organization.

There are indeed real problems facing newspapers across the country. However, sanctioning a newspaper monopoly will have serious long term consequences for our democracy and may not save the Chronicle.

Remember that the argument to suspend anti-trust laws to save the Chronicle is being manufactured by the same executives and attorneys who ran the Chronicle aground in the first place. Unless Hearst makes dramatic changes to the paper itself, hooking it up to every other Bay Area daily newspaper may kill them all.

Comments (2)

  • I’ve tried to read and always have appreciated your opinions which are printed in the San Jose Mercury.

    I wholeheartedly agree with your stance regarding the Chronicle aka Hindenburg. Over the years I’ve subscribed to the San Mateo Times but when they were bought out had to subscribe to the Chronicle or the S.F. Examiner even though I live in the Belmont/San Mateo area. However, based on the lack of attention to the mid peninsula area I dropped the S.F. papers and began subscribing to the San Jose Mercury. At first they actually covered the mid peninsula, however, it’s very seldom that anything other than a mass murder is now printed.

    Do you know what I see people pick up almost every day to read?….the local free papers which can be found at news stands, Starbucks, local stores, etc. If these papers are able to stay in business and offer what the readers want then why can’t the Chronicle?

    On another note, the big papers cry for lack of subscribers because of the internet. I don’t believe that’s the case at all. I certainly don’t want to be tied down to a computer or any other tech device to relax and read the news. I’m more likely to read and notice an advertisement in the hand held paper than any computer device. Bet I’m not the only one!

    The managements of the larger papers have failed over the past several years to simply adapt in all of the necessary areas. It’s still not too late!

    What do you think?

    Brent

    Posted by: Brent | March 31st, 2009 at 12:05 pm

  • Good article on the San Francisco Chronicle in today’s Mercury News.

    FYI — IMHO the reason the Chronicle is such a money looser is because
    of its editorial and “news” policies. For the past 15 years, the only times I ever
    buy the paper was to check out open houses in SF. On the other hand, I
    subscribe to the Mercury News and read it seven days a week.

    Why? It has taken, and actually follows, the FOX broadcasting motto of
    Fair and Balanced reporting.

    ALL of the Chronicle’s “news” stories and editorials are with a far left point
    of view. It is boring and generally a waste of time to try and read it.

    The Mercury News on the other hand has both left leaning and right leaning
    contributors. It has Mallard Fillmore as well as Doonesbury and Non Sequitur
    in its comic section.The letters to the editor contain both points of view. Humorously,
    both sides complain that the paper is too far left and too far right and only prints
    the opposite of what they believe. That means it is on target.

    I may not always agree with its editorial positions, but that is OK. Better to
    disagree with some and make me think than to have it only parroting back
    my thoughts or always be something with which I completely disagree.

    IMHO, this is also why a number of newspapers are declining in readership –
    most are far left leaning and there are more moderate and right leaning people
    than just far left. They do not publish to the total base they are supposed to
    serve. Why support and read something that almost never reflects your views?
    Be it middle of the road or to the right. Presenting both views makes for interesting
    and thought provoking reading.

    Bill C

    Posted by: Bill C. | March 31st, 2009 at 5:05 pm

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