Jan. 31, 2000
Vol. 12, No. 3

HEARST ADDS KEY ITEMS TO PACKAGE IN BID TO SELL EXAMINER

Economics of a two-paper city still argue against paper's survival

In the soap opera that has become "As San Francisco Turns," the Hearst Corp. last week decided to silence critics of its purchase of the San Francisco Chronicle by putting together a better offer to sell its Examiner.

When we last left our heroes, they were mired in yelps of "monopoly" and "antitrust." Following the August announcement that Hearst would buy its longtime competitor and partner in a joint operating agreement (see NewsInc., Aug. 30, 1999), the newspaper and magazine publishing giant has been nibbled to death by ducks:

  • The company was criticized for making a preemptive bid on the Chronicle, which had been put up for sale by the heirs of its founders after they decided that they wanted to liquidate their entire mini media empire (three newspapers, three TV stations, a web site and a book publisher). We estimate the Chronicle's sale price to have been $850 million, while others have reported it to be $660 million.

  • Hearst also was criticized for its offer to sell the Examiner -- all that was included was the paper's nameplate, its subscriber list and an agreement with the Newspaper Guild to provide workers. Hearst contended that the main effect of buying the Chronicle would be to close the joint operating agreement (JOA), so it was not interested in selling the existing situation, but one in which a new buyer would have to supply presses and trucks.

  • The Antitrust Division of the U.S. Justice Department has been slow in approving the sale. The California attorney general's office has viewed the sale gimlet-eyed.

  • City politicians have been whining about a one-newspaper town, working to prevent the assumed merger of the Examiner into the Chronicle. One politician even filed a federal antitrust suit against Hearst, contending that the loss of the Examiner would be of personal harm (see NewsInc., Jan. 17, 2000).

    So, last week Hearst sweetened the deal. The company was giving potential buyers the rights to buy a "turnkey package": in addition to the previous assets, it would include not only the paper's headquarters building, but also one of the JOA's three printing plants, some 100 trucks and any "additional assets" as the buyer might need to start producing a daily paper.

    Two kickers: the deal has to close by Feb. 15 and the new owners have to print the Chronicle in the plant until Hearst can replace the press capacity.

    Despite the potential of this offering, it is unlikely a buyer will be found. What the politicians and San Franciscans in general don't seem to understand is that without the life-support of a JOA, American cities cannot afford two daily newspapers.

    On TV the night the new terms were announced, the reporter said that the Examiner had been losing money and had been "hanging on by a thread."

    That caused a chuckle. Think about this: The two papers pooled their revenues, out of which the production, advertising and overall administration costs (in other words, all the expenses of the JOA) were then deducted. The resulting profits were then split 50-50. From that, the 456,742-circulation morning Chronicle paid for its editorial product, including about 350 workers, while the 107,129-circulation afternoon Examiner paid for its editorial product, including about 150 workers.

    Who was losing money here? Not Hearst.

    The major metropolitan afternoon newspaper is dead and Hearst wanted into the morning field. When I was working for the Ex a decade ago, it was clear to all of us that it was a waiting game – eventually the owners of the Chronicle would lose patience with the JOA and they would sell. Hearst would be the assumptive buyer. Hearst would then merge the Ex into the Chron.

    My theory has been that the resulting paper would be called the San Francisco Examiner & Chronicle, giving the Hearst Corp.'s founding property lead billing.

    Now, though, the soap opera's end may be near. Tune in tomorrow for another episode of "As San Francisco Turns."

    – David M. Cole

    Inside ...

    From NEWSINC., Jan. 31, 2000, Copyright © 2000, The Cole Group. All Rights Reserved.

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