Examiner on the Block

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What would William Randolph Hearst have made of it all? Had the legendary newspaper mogul (and inspiration for Citizen Kane) been hanging out on the 17th floor of San Francisco's federal district courthouse this past month, he would have watched the company that bears his name fighting for the right to dump his beloved first newspaper, the San Francisco Examiner, in favor of buying its rival, the Chronicle. He would have heard about how the Examiner is more profitable than its owners let on. And he would have witnessed its publisher, Timothy White, admitting to "horse trading" with Mayor Willie Brown--offering favorable editorials if Brown backed the sale.

It's a tale of intrigue, and there's a cast of larger-than-life characters to go with it. There's Clint Reilly, the former mayoral candidate and Brown opponent who brought the matter to court, alleging that the Hearst Corp. was trying to kill off the Examiner and rule the town with the Chronicle in violation of antitrust law. There's Ted Fang, the free-newspaper king and Brown ally who will receive a $66 million subsidy from Hearst for taking over the Examiner if the Chronicle sale goes through. And then there's Judge Vaughn Walker, master of the well-placed witticism, who will soon decide the fate of this two-newspaper town--and most likely a few others.

In fact, Walker will be the first federal judge to rule on an issue at the heart of American journalism. For the past 35 years, the Examiner and the Chronicle have been bound up in a Joint Operating Agreement. JOAs are special government-approved antitrust exemptions that allow two papers in the same town to fix advertising rates, pool publishing costs and split proceeds. They're supposed to preserve opposing editorial voices and give readers a choice at the newsstand. Trouble is, more often than not they fail. In 15 of the 28 JOAs attempted in the U.S. so far, only one of the two papers ended up surviving--often by buying its rival or paying it not to publish. The law is very clear on how you get into a JOA; it's a bit hazy on how you get out.

In San Francisco's case, the JOA has helped prop up the Examiner--which, since it publishes in the afternoon, has lower circulation and would otherwise be hemorrhaging money. (Everyone had assumed it was, until its profit figures came out at the trial; see box.) But it has also prevented the two papers from investing in themselves. Why bother when the other guy's going to get half the profits anyway? Even Hearst's lawyers compare the JOA to a "bad marriage."

With that marriage set to expire in 2005, Hearst offered $660 million for the Chronicle and put the Examiner on the market--but without its JOA privileges. When there were no takers, Hearst offered to pay Fang to take the paper away. That raised antitrust eyebrows, especially considering that Fang would be allowed to decide how much of the $66 million he needed to spend on keeping the Examiner afloat and then pocket the rest.

Would a Fang Examiner be anything like a serious rival to the Chronicle? Fang admits he would cut publication of the paper in the Bay Area outside San Francisco--and give the city a local community paper instead. "You can't be all things to all people," he says. "Hearst's challenge is to create a world-class Chronicle. My challenge is to build an Examiner that's going to be unabashedly San Franciscan." But publishing daily is a costly enterprise. Experts believe it will take around $50 million a year to turn the Examiner into a morning publication, and Fang has not yet offered to pony up any of his own cash to add to Hearst's. That could mean the end of the Examiner when the Hearst subsidy runs out in 2003--which is what Reilly claims Hearst intended all along.

Whether or not the Fang deal is blocked, it's the worst of times for Examiner employees. "Boy, have our failings been shoved in our face lately," wrote Examiner columnist Rob Morse after spending three days in the courtroom listening to embarrassing revelations like the horse trading with Brown. "The San Francisco Examiner is dying, and it can't even die with dignity." William Randolph Hearst, who once dubbed his paper "the monarch of the dailies," would probably agree.

NEWSPAPER -- The Chronicle -- The Examiner
OWNED BY -- De Young Family -- Hearst Corp.
CIRCULATION -- 454,482 -- 107,000
AD SHARE -- 80% -- 20%
REVENUES -- $56.5 million* -- $56.5 million*
EXPENSES -- $42 million -- $25 million
PROFIT -- $14.5 million -- $31.5 million Under the Joint Operating Agreement, San Francisco's two main newspapers split their revenues. This means that Hearst's Examiner, even though it's failing, actually makes more of a profit than the De Young family's successful Chronicle.

*UNDER JOINT OPERATING AGREEMENT