SAN JOSE SITUATION CASTS HARSH LIGHT ON PAPERS

Publisher quit rather than lay off staff; now, what to tell Wall Street?

It has all the earmarks of a Shakespearean play – the favored prince in the kingdom commits suicide rather than execute the orders of the king, because he believes those orders to be wrong.

Well, nobody died, but the resignation last week of Jay Harris as publisher and chairman of the San Jose Mercury News certainly has a theatrical ring to it.

For the last few months, Knight Ridder, the San Jose-based newspaper and new media company that owns the Mercury News, has been talking with its publishers about things like attaining specific profit margins. The numbers I've heard run in the lower 20 percents.

So, last fall in Philadelphia, there were layoffs. They were followed by layoffs in Grand Forks, N.D. Those were followed by layoffs in Akron, Ohio.

All of these were followed by a scheme in Kansas City to revamp the Monday Star, attempting to fool the readers into believing that less is more. The focus groups weren't fooled; the Missourians are back at the drawing board.

And while those papers are important to the company, the Mercury News has become the flagship of Knight Ridder, if for no other reason than it is the company's hometown property (there are other reasons – Chief Executive P. Anthony Ridder was once publisher of the MercNews, while the vice president of news, Jerry Ceppos, was most recently MercNews executive editor).

So, when Harris issued a memo to the staff earlier this month stating that revenues were in rapid decline and that something must be done, he too had to use the word "layoffs." Within days, a group of three Pulitzer Prize-winning reporters issued their own memo, stating that layoffs would "wreck the newsroom."

Ten days ago, Harris and his management team met with various Knight Ridder corporate executives to discuss how to make the Mercury News meet its corporate profitability goals in a sagging advertising environment. While Knight Ridder characterized the meeting as "tough and candid," and that no layoffs should be contemplated, obviously a message was sent that caused Harris to decide to quit.

Harris, a former reporter who had been publisher in San Jose for seven years, is one of the leading lights in American newspapering. His development of Spanish- and Vietnamese-language editions was true cutting-edge work, and he has led a very good newsroom to new heights. In addition, Harris personally administered the transition of the Contra Costa Times (and its siblings) from being privately held to Knight Ridder ownership; he has continued to supervise those papers as well as the Mercury News. (In his note to the staff, Harris said that he plans to stay in Silicon Valley, but that he has no plans beyond resting.)

With all this on his plate, Ridder now has a couple of other things he must do: