The Case For One Daily

The Joint Operating Agreement deprives the Chronicle of the resources it needs to produce a great newspaper; it also prevents the afternoon Examiner from connecting with the readers it needs to survive. Since the JOA makes it inevitable that only one wil

The sad truth is that the Examiner is financed by JOA funny money earned by the Chronicle and, despite nearly two decades of fevered editorial thrashing to reverse the inexorable trend, often sees its circulation falling into the pitiful range of a zine.

Meanwhile, 1.3 million daily readers -- the great demographic middle -- join Chronicle editors in regarding the Chronicle as the Bay Area newspaper, even though the Examiner is in many ways more original, tougher and better written and hardly anybody sees it.

This is the part the Examiner hates.

A de Young-Thieriot family member recently described the current Chronicle/Examiner standoff to me as "watchful waiting on both sides while, because of the JOA, neither side has the income to put out a first-rate paper."

Financial specifics for the San Francisco newspaper industry have always been hard to come by because the papers and the San Francisco Newspaper Agency, their jointly owned operations wing, keep the numbers secret.

Some insight is available, however, in a San Francisco Newspaper Agency internal "Weekly Flash Report."

The report covers one week in October 1993, during the depths of California's recession. According to a source within the Agency, advertising revenues are now up, "much more in '94 and climbing higher in '95."

The "Weekly Flash Report" illustrates exactly why the de Young-Thieriot family is miserable with its end of the Joint Operating Agreement.

During that first week of October 1993, the Agency -- on behalf of the Chronicle and the Examiner -- took in $5.1 million in advertising and $1.9 million in circulation: $7 million for the week.

During the same period, the Agency incurred total expenses of $5.5 million.
The weekly net, $1.5 million, was divided equally between the two newspapers.

Because the regional economy has improved dramatically since October 1993 without production costs rising appreciably (except the recent run-up in newsprint), the agency source estimates current weekly nets at $2.25 million, or about $58.5 million annually each for the Examiner and the Chronicle.

From that must come salaries for each newspaper's editorial staff --340 people at the Chronicle, 210 at the Examiner. Estimates for the Examiner put its non-payroll editorial budget at about $8 million annually, the Chronicle's at about $12 million.

The simple arithmetic reveals that before depreciation, the Hearst Corp. collects about $20 million a year and the Chronicle Publishing Co. receives just $10 million. But out of these operating cash flows (revenues minus costs plus depreciation), each company must service its debt, pay taxes and make new capital equipment purchases.

Since both companies are privately held and no one involved with the Examiner, Chronicle or the San Francisco Newspaper Agency will reveal the precise figures, we're left to speculate on how much each company is making -- or losing. The Examiner is said to be earning a few dollars, but Forbes magazine reported last April that the Chronicle "has barely been able to squeak a nickel" of profit from its revenues. This has not elicited smiles from the approximately 26 not-exactly-kissing cousins of the de Young-Thieriot family who own Chronicle Co. stock. Forbes also reported that the company put its cable TV systems up for sale last year to reduce the staggering debt of $400 million (against total revenues of $500 million) and create "liquidity" -- cold cash in the parlance of civilians -- for the shareholders.

The Hearst Corp. is reportedly happy with its net take, and why not? The Examiner generates just 15 percent of the business, but gets 50 percent of the income. The Chronicle, for exactly the same reasons, is unhappy.

Both newspapers would love to eliminate the other and find a way to make real profit from those revenues. Though the Chronicle has the beefy morning circulation and the more widely known nameplate, the Examiner has far deeper corporate pockets and, thanks to the exigencies of the JOA, less reason to sell out.

Knowing the de Young-Thieriot cousins who own the Chronicle are cash-hungry, the Hearst Corp. offered $800 million for Chronicle Publishing in 1993. After some debate, the offer was rejected, partly because the $800 million was deemed insufficient and partly because a few of the senior family members, putting principle above capital, aligned with septuagenarian Chronicle Publishing Board Chairman Nan McEvoy's remark that the Hearsts would own the Chronicle "over my dead body."

A junior de Young-Thieriot cousin recently told me: "That may be what it takes."

(Hearst's offer to buy the Chronicle did little to soothe Examiner employees' job worries: The last time the company bought a competing, larger, paper -- the San Antonio Express -- it fired its own staff at the San Antonio Light.)

During the strike that shut both papers for 12 days last November, Chronicle Publishing reportedly offered the Hearst Corp. a slice of Chronicle revenue to fold the Examiner. A similar offer by the morning Miami Herald, which promised to share profits with former JOA partner Miami News for the next 32 years, was sufficient to shut the afternoon News in 1988. It is not known whether the Chronicle offered the Hearst Corp. a limited or perpetual percentage of its revenues to close the Examiner; in any event, the offer was rejected.

There's no grand plan now unfolding in either camp to break the stalemate. Despite many analysts' assumptions, William Randolph Hearst III's January departure as editor and publisher of the Examiner is no automatic harbinger of the paper's demise. He was simply bored with his job.

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