When Do You Stop The Presses?

Why the San Francisco Chronicle is a candidate to exit print

Jon Fine
Business Week

July 23, 2007

Play with me on this one: Which major American newspaper should be the first to throw up its hands and stop publishing a print product?

It's a question worth asking. This could be the worst year for newspapers since the Great Depression. The double-digit revenue declines long forecast by doomsters have arrived. While nearly all the major papers still post profits, albeit smaller than before, a few prominent ones are losing boatloads. At Hearst Newspapers' San Francisco Chronicle, according to a deposition given by James M. Asher, the company's chief legal and business development officer, losses of $330 million piled up between mid-2000 and September, 2006, better—or should I say worse?—than $1 million a week. During negotiations with the Pittsburgh Post-Gazette's unions, the owning Block family disclosed that the paper lost $20 million in 2006. Late last year, The Boston Globe was headed for unprofitability as well, according to The Wall Street Journal.

And 2007 does not look materially kinder than 2006 for any of these papers. One senior executive describes the climate like this: "If you told me 24 months ago that revenues would be declining as much as they are today, I'd say you were smoking dope." Print newspapers require maintaining a costly status quo—paper, presses, trucks, and mail rooms—that, if only through rising gas prices, will only get more expensive.

WHEN, EXACTLY, do you junk something that no longer works? And which major paper should go first—not today, but within the next 18 or 24 months?

San Francisco Chronicle, I'm looking at you.

Killing print requires acknowledging not just that the old mode is dead but also that the future means less revenue and shrunken staffs. This is why it makes sense soonest at a money-losing newspaper already grappling with those realities, and one in a major city that generates enough local ad dollars to support a sizable online business.

On paper, San Francisco is perfect: a Web-centric town, a cash-drain daily, and private ownership. Which does not mean this will happen. San Francisco is the ancestral home of the Hearst empire, the birthplace of William Randolph Hearst and the town where he ran his first paper. It could be hard for Hearst to consider the move on those grounds alone. (In Asher's deposition, though, he said Hearst briefly considered selling the Chronicle in 2005.)

There are attractions to the way things are today. The Chronicle claims 265,000 weekday subscribers and sells a year's worth of home delivery for $138. Even if you assume that discount offers bring the average subscription price to $90, that's still $23.9 million a year—not an ungodly sum, but one that nervous executives are probably loath to kiss off forever. (Distribution costs, of course, mean those dollars don't appear for free.) But what's more relevant, at least today, is that advertisers still pay more for ads in the newspaper than on the Web site. "Even if you double or triple it, the revenue [online] just isn't there yet," argues one top executive.

This is why the papers dream about getting consumers to pay for digital or online content. But water has had a hard time finding a way up that hill.

Executives might be better off wondering at what point the Globe's Boston.com or the Chronicle's sfgate.com—with unassailable market positions, excellent editorial, and massive traffic—will be worth more as a solo digital play than attached to a print newspaper. Or whether going all-in on digital might make their market's ad dollars flow there more quickly, especially if they're the only major paper in town. Or that a paper could buy tons of unsold local ad inventory from the likes of MySpace and Yahoo!, and then resell it profitably through its veteran sales force.

All of this requires big thinking—and spending enough to create networks of local sites and a giant local portal. And it will take a brave man or woman to pull the plug on the presses.

It almost takes a William Randolph Hearst.