Times Co. says losses go beyond newspaper

The Seattle Times Co., owner of the city's largest daily paper and seven other newspapers in Washington and Maine, disclosed that it lost money last year and expects to show a loss for this year as well.

The disclosure by a spokeswoman for the corporate parent of The Seattle Times newspaper was the first time the company has acknowledged losing money on a corporation-wide basis, instead of only under its joint-operating agreement (JOA) with The Hearst Corp., owner of the Seattle Post-Intelligencer. It could bolster Times arguments in an 18-month legal battle with Hearst that the JOA has worsened The Times' financial condition.

Previously, Times Co. officials refused to say whether the private company, which also owns a separate printing business and has real-estate holdings, was actually losing money or simply showing paper losses under a JOA formula that largely reflects newsroom operations only.

But Times Co. spokeswoman Kerry Coughlin said this week that the company did lose money last year and faced another loss this year.

"The truth is," Coughlin said, "this company and this newspaper are both losing money."

Coughlin declined to say how much the corporate loss would be this year or whether it had widened from last year. She also declined to say whether The Times Co. had companywide losses from 2000 through 2002.

The company has shown losses under the JOA formula for those three years, but Hearst is challenging their validity in a suit against The Times.

The Times corporate loss was underscored in an internal memo to staff Monday by Carolyn Kelly, the company's president and chief operating officer. Kelly said The Seattle Times newspaper, the company's largest property, faced "difficult decisions and deep cuts" necessary to restore the company to profitability within two years.

"No company can lose money over a sustained period without ending up in a sale or bankruptcy," Kelly said.

A Hearst spokesman said the company would have no comment on Times losses.

Long battle

The Times Co. and Hearst have been battling in court and through public-relations broadsides, with each claiming the other seeks to put the rival paper out of business. The surviving paper in the fight, according to industry experts, could have a market value of $1.4 billion.

Under the JOA, the papers are editorial rivals, but they share a business arrangement in which The Times handles printing, distribution, marketing and other non-news functions for both papers.

After The Times is paid for those functions, the papers split their revenue, with the P-I getting 40 percent and The Times taking 60 percent.

Times Publisher Frank Blethen has charged Hearst has taken advantage of the P-I's dwindling circulation under the JOA, as well as a costly legal battle, to "bleed" The Times Co.'s financial reserves in an effort to force the company to sell The Seattle Times to Hearst.

In April 2003, Blethen notified Hearst that The Times had lost money under the JOA formula for three years. The notification triggered a JOA provision requiring negotiations that could lead to a shutdown of the P-I or an end to the JOA. Hearst has said the P-I could not operate outside the JOA.

Hearst has contended that Blethen, whose family owns 50.5 percent of The Times Co., is using JOA loss claims to create a false impression that the parent company is also being squeezed financially. In its suit, Hearst challenged the validity of The Times' JOA losses.

A three-judge Appeals Court panel in March reversed a lower court decision favoring Hearst in one part of the suit. The state Supreme Court is scheduled to decide early next month whether to hear the case.

Ailing industry

While the circumstances of The Seattle Times losses are in dispute, industry experts say the newspaper business as a whole is struggling despite improvement in the broader economy.

In September, Deutsche Bank Securities noted retail advertising for papers across the U.S. has been weak during this year's rebound.

Retail advertising, which the investment-bank analysts called "the bread-and-butter category" for papers, was stuck at an average growth rate of 1.8 percent, less than during the recovery after the 1991 recession.

Deutsche Bank's analysts blamed the slow rate on the impact of "big box" stores like Wal-Mart and Costco, which have seized market share from more traditional retail advertisers and prefer direct advertising and television ads to newspaper ads.

While online advertising may contribute slightly to papers' revenue, the analysts predicted the giant retailers would continue to grab market share and divert ad revenue away from newspapers.

Locally, Seattle's economic rebound has also perked up this year, with state and area surveys showing unemployment falling and job growth rates climbing.

In their staff memo this week, Times Co. officials said The Seattle Times had gained ad revenue at a somewhat better rate than the Deutsche Bank analysts' industry assessment.

Overall, The Times Co. memo said, Seattle Times ad revenue improved by 3.4 percent during the first 10 months of this year over the same period a year ago.

While revenue in some key categories such as classified advertising fell during the period, the memo said, the company's online ad revenue climbed by 128 percent to an expected $10 million to $12 million this year.

Times President Kelly called online revenue "a bright spot and a great source of optimism" for the company. But, she added, "it remains a small factor in the moment."

In e-mails to the presidents of The Newspaper Guild and Communications Workers of America earlier this month, Blethen painted a grim picture of The Seattle Times' fortunes.

The paper's annual advertising revenue has remained about $50 million below its all-time-high of $270 million in 2000, Blethen said, and the paper expects to lose $13 million this year.

In his e-mails, Blethen laid much of the blame for the newspaper's financial condition on what he called Hearst's "creative legal attacks and unlimited resources."

Noting that Hearst had closed papers in Houston, San Francisco and San Antonio when it gained single-owner status in those cities, he called on the unions to pressure Hearst to drop its Seattle lawsuit.

"If Hearst prevails," he warned, "I have no doubt that Guild CWA membership will suffer significantly."

Blethen has also sought recently to persuade the union locals representing workers at The Seattle Times and P-I to drop their support of an ad hoc citizens group, the Committee for a Two-Newspaper Town. The group has intervened in Hearst's suit and taken positions that side with the New York media company.

On Nov. 13, in a 62-43 vote, local union members from both papers rejected an effort to cut off the support.

Bill Richards is a freelance writer hired on a special contract by The Seattle Times to cover events involving the joint-operating agreement with the Seattle Post-Intelligencer. He can be reached at brichards@seattletimes.com.