The much-loved Web site is taking millions from Bay Area newspapers and causing layoffs that adversely affect coverage. And its founder's well-intentioned support of citizen journalism has a slim chance of fixing the problem.

On the Saturday before Halloween, Newmark walks onto the open-air back patio of Reverie, the Cole Valley cafe he visits at least once every day. He wears his standard black cap, of the style favored by hip hop moguls and elderly golfers, and the top three buttons of his green shirt are unfastened. The furniture is full of droplets from the previous night's rain, so he heads back inside and asks the guy behind the counter for a dish towel. Reverie is Newmark's own little Craigslist-like community: The staff and regulars know him here; it's where he met his girlfriend and found an architect to remodel his new house.

He sits down and clasps his hands together, ready for the morning's challenge -- discussing how his community site came to deprive the newspaper industry of tens of millions of dollars per year, and describing what, exactly, he plans to do about it.

The average person who posts an apartment for rent on Craigslist has no clue that the decision affects her local newspaper. All she knows is that, by filling out a short form, she can attract a dozen potential renters to her doorstep that weekend. No fees, no spam, no annoying pop-up ads. The same is true for personals, used car sales, and, in most cities, jobs.

The hidden cost, though, is that newspapers (including SF Weekly) make their money largely, or solely, via advertising. Media businesses are cagey about revealing how much revenue comes from classifieds, but the percentage share is usually well into the double digits, and profit margins are high. A five-line, text-only ad for a used car in the San Francisco Chronicle costs $39 for 10 days. Compare that to Craigslist, which offers as much space as you need, plus photos, for free. With millions of newspaper readers choosing Craigslist, newspaper revenue losses are adding up.

The hardest-hit publications are in the Bay Area, which accounts for about one-quarter of Craigslist's traffic. The Chronicleand its competitors lose more than $50 million per year because of job ads that have migrated to Craigslist, according to a 2004 report by Bob Cauthorn, the former vice president of digital media at ChronicleWeb site, who is now working on his own media venture, City Tools.

In the past year, the number of Craigslist Bay Area job postings per month has almost doubled, to more than 20,000.

The San Jose Mercury News alone misses out on $12 million annually in employment ad revenue because of Craigslist, according to recent estimates by Lou Alexander, who retired as the paper's advertising operations director two years ago. (Both studies accounted for the fact that not all Craigslist posters would otherwise have bought ads in papers.) A few million is a relatively small loss for Knight Ridder, the $3 billion chain that owns the Merc, but it's a fortune inside an individual newsroom. In November, Merc Publisher George Riggs cut 52 editorial and eight business employees, laying off the entire staff of community papers Viet Mercury and Nuevo Mundo and buying out dozens more in the Merc's newsroom. This saved the Mercury about $6 million in salaries by losing 16 percent of the editorial staff but offset only half of its Craigslist-related annual losses.

The Chroniclerecently bought out 91 of an expected 120 employees, many of them in editorial.

"[Publishers] wouldn't say: 'Of 52 buyouts we offered, 17 of them were from Craigslist,'" says John McManus, director of Bay Area journalism watchdog site "But there's no question that some of these losses in reporters are due to classified ads migrating from newspapers to the Internet." As Craigslist continues its rapid expansion beyond the Bay Area, those staffing cuts could be a harbinger of things to come at newspapers across the country.

The trouble is, outside the media industry and its watchdogs, no one seems to care. U.S. newsroom employment fell by 1 percent last year, to a total of just over 54,000, according to the American Society of Newspaper Editors. It was the lowest number of editorial staffers since 1997, and judging by high-profile buyouts and layoffs at the likes of the New York Times and the Los Angeles Times, that figure will drop again in 2005.

Fewer reporters often means lower-grade news coverage. "When a newsroom suffers cutbacks, its journalism becomes less ambitious," says McManus. "There may be as many stories, but fewer have depth and include investigation." The lack of quality articles repels readers, and circulation and revenue decrease further, in a vicious cycle.

It's tough to convince the average reader that one of the causes of inferior newspaper articles was her placement of an ad on Craigslist instead of in the paper. And yet, in aggregate, the numbers make that case. "The public gets to save a few bucks on classified advertisements," McManus says, "but given the reliance of participatory government on newspapers, it may be no bargain at all for society."

Craigslist, of course, isn't the only threat to newspapers' survival, and Newmark is quick to pin the media's problems on market forces and the publishers themselves -- and off of Craigslist.

"The media was changing anyway, because papers are too expensive and we'll soon have these flexible screens which could be rolled up into your cell phone," he says. "Meanwhile investigative journalism is suffering. It's too expensive for the profit margins that a lot of papers want to have. So those reporters are getting fired or reassigned." Newmark continues, rattling off a laundry list of problems with the news media, most of which he's learned from dozens of hours logged in conversation with media analysts and pundits.

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