In his previous job, as a technology reporter for The Detroit Free Press -- then one of the country's leading newspapers -- he had trouble getting editors to understand how important the tech story was. Now he was at the center of the most vibrant part of the American economy, where fortunes and history were being made almost every day. ''We were one of the few newspapers that was growing,'' said Mr. Gillmor, who with a number of other prominent hires to The Mercury News provided some of the best chronicling of the dot-com bubble era. That bubble burst, but Silicon Valley has come back. The Mercury News, however, has not. Last Monday, the McClatchy Company announced it was buying Knight Ridder in a deal valued at $4.5 billion, but it also said that it would immediately sell 12 of those Knight Ridder papers to help finance the acquisition. The Mercury News, which calls itself ''the user manual for Silicon Valley,'' was to be jettisoned, along with papers in cities like Philadelphia, Fort Wayne, Ind., and Akron, Ohio. P. Anthony Ridder, the chairman of Knight Ridder, who moved the company's corporate headquarters here from Miami in 1998, a move that reflected the paper's cutting-edge status, expressed shock. ''I was just stunned,'' he was quoted as saying, in a story on the front page of The Mercury News the next day. It was a view shared by nearly everyone at the paper. One reason McClatchy has decided not to keep The Mercury News is the paper's high operating costs, the company said. The newspaper's profit margin of about 9 percent is well below the average of about 12 percent for the Knight Ridder papers that McClatchy is keeping. Douglas M. Arthur, an analyst for Morgan Stanley, estimates that the newspaper earns less than $22 million a year on revenue of about $235 million. McClatchy's decision was also based on a factor the paper's leadership could not control -- the rate of household growth in the area. With newspaper circulation figures stagnating in recent years, it is especially important for a paper to be in an expanding region where it has a better chance of gaining new readers. Silicon Valley, despite its wealth and innovation, is already so crowded that it has little room for suburban expansion. As a result, it is growing more slowly than the communities of the papers McClatchy is keeping. San Jose is expected to grow nearly 30 percent from 1997 to 2020, according to state government projections. But in that same period, Sacramento, where McClatchy has its headquarters, is expected to grow by more than 50 percent. In its heyday in the late 90's, The Mercury News sought to break out of its traditional territory and go beyond its core readership. It tried to expand into San Francisco, setting up a bureau above a pizza parlor near Union Square to cover that city's politics, popular culture and business. It opened a bureau in Vietnam, and it created Vietnamese- and Spanish-language editions to reach out to large immigrant populations in the city. The staff was encouraged to travel and urged to suggest stories that would call for travel. ''There was a certain giddiness,'' said Mike Cassidy, a columnist for the paper. ''The staff grew, and our ambitions grew. We felt like we were on the edge of being a great newspaper.'' The newspaper tried to be as innovative as the companies it was covering. It was one of the first papers with a Web site -- MercuryCenter.com -- and one of the earliest to blog, back in 1999. It recognized that people were consuming news in a new and different way because of the Internet. But the paper had missed an important innovation, one that would rock the entire newspaper industry. As the dot-coms collapsed, Silicon Valley companies were doing decidedly less hiring. When they did need to fill a job, they posted the opening free on their own Web sites or on Craigslist.com and on the new nationwide Web job listings, like Monster.com. ''Craigslist has disemboweled us in many ways,'' said Scott Herhold, another of the paper's columnists. Jay T. Harris, the paper's publisher from 1994 to 2001 and now a teacher at the Annenberg Center for the Study of Journalism and Democracy at the University of Southern California, Los Angeles, added that ''when you start to lose very high-margin revenue dollars, you can't make that up with cost-cutting.'' Nevertheless, the paper tried. Susan Goldberg, who arrived in 1999 as managing editor and became executive editor four years later, led a hasty retreat from San Francisco. She closed the bureau in Vietnam and shuttered the local foreign-language editions. She tightened the travel budget and stopped printing a Sunday magazine and a separate Sunday book section. ''Our story is a lot like the companies we cover,'' she said. As a result, Mr. Harris said, ''the paper is quite different and quite diminished.'' At its peak in 2000, The Mercury News had a Sunday circulation of 326,839 subscribers, according to the newspaper. Last September, the company counted 278,470 Sunday subscribers, a drop of about 15 percent. Revenue from the company's help-wanted ads fell to $18 million a year from more than $118 million, according to the paper. The newsroom was whittled to 280 people from 404, a 30 percent decline. Even with a 9 percent operating margin, the paper may be valuable to some potential bidders. The MediaNews Group, the Denver-based chain of papers run by William Dean Singleton, could value The Mercury News and other Knight-Ridder papers more highly because of their fit with the papers it already owns in Northern California. Jody Lodovic, MediaNews president, would not confirm that his company planned to make a bid for The Mercury News, but in a telephone interview he laid out reasons that doing so might make sense. The MediaNews strategy, he said, is to cluster newspapers to use printing presses more efficiently and to sell ad placement in a family of regional papers to national advertisers. MediaNews already owns papers in Marin County, to the north of San Francisco; San Mateo to its south; and in Oakland, Hayward and Fremont, across the bay to the east. Picking up San Jose, Palo Alto and The Contra Costa Times from Knight Ridder would complete a ring around San Francisco and Hearst's San Francisco Chronicle, which has 467,000 Sunday readers. ''It's more important to own your market, whether it is a high-growth market or not,'' said Mr. Lodovic. The MediaNews chain is also known for slashing costs, which is why many employees at The Mercury News say they dread having Mr. Singleton buy the paper. The Mercury News is a union paper with higher labor costs than the Knight Ridder papers that McClatchy is keeping. (Indeed, all of the Knight Ridder papers that McClatchy is selling have union contracts.) Mr. Singleton's willingness to cut costs might suggest he has an advantage over any bidder who does not intend to scale back union wages. But that may not necessarily be true. Yucaipa Companies, a buyout firm based in Los Angeles, is talking to McClatchy about The Mercury News and the 11 other papers, said Linda Foley, national president of the Newspaper Guild-Communications Workers of America. Yucaipa's hope is to buy the papers and then offer union members the opportunity to transfer their qualified retirement plan account balances into a stake in a newly created employee stock ownership plan company, which would provide a number of tax advantages. Not having to pay as much income tax would ''turbo-charge'' the company's returns, said Christopher Mackin, president of Ownership Associates in Cambridge, Mass., which is advising the union and Yucaipa. That might give Ron Burkle, the former supermarket magnate who heads Yucaipa, the latitude to outbid others. ''We can enjoy returns the others can't,'' Mr. Mackin said. George Riggs, publisher of The Mercury News, said that whoever bought the paper would get a property on a growth trajectory. Employment in the region is back to where it was before the dot-com crash, he said, and tech executives exercising stock options are pouring more cash into the economy. ''We feel very good about the Mercury News/Contra Costa market,'' said Mr. Riggs. David Rounds, vice
president of circulation, said that in the six months ending in
March, the paper expects to show its first circulation gains in six
years. But any such improvement will come too late for Mr. Gillmor,
who achieved national renown as a columnist at The Mercury News.
Last year, he left the paper to start his own Web site. Correction: March 22, 2006, Wednesday An article in Business Day on Monday about plans by the McClatchy Company to sell The San Jose Mercury News and 11 other newspapers that it is acquiring as part of its purchase of Knight Ridder misstated the average operating profit margin at the papers McClatchy is keeping. It is 30.3 percent, McClatchy said, not 12 percent. The article also misstated the number of papers among those being sold whose workers are represented by unions. It is 9, not all 12. The article also misstated the role of Susan Goldberg in newsroom cuts at The Mercury News and her title at the time. She did not close the paper's foreign-language weeklies; that decision was made by the publisher. She was managing editor when the paper stopped printing its Sunday magazine and a separate book section; she has since become executive editor. The article referred incorrectly to the revival of employment in Silicon Valley. The region has regained about 10,000 of the 178,000 jobs it lost since the dot-com collapse; it has not recovered them all.
|