FIGHTING FOR LIFE : Potential Buyers Fear Herald Examiner May Be Too Sick to Save

Shortly after oil and movie tycoon Marvin Davis decided not to buy the Los Angeles Herald Examiner a few weeks ago, an official from the paper approached Jose Lozano, publisher of La Opinion, the city’s leading Spanish-language daily.

The asking price for the Herald Examiner, Lozano was told, was more than $100 million. And if he bought it, Lozano said, “We would be looking at monthly losses of $1 million, plus any capital spent on improvements.”

Lozano declined. “I think,” he said tersely, “it is too sick to save.”

Not everyone is so gloomy. Toronto Sun Publishing Co. of Canada was persuaded that the Herald can be profitable, though it didn’t want to take on the commitment.

But the message is clear: Eighty-six years after William Randolph Hearst founded the Examiner, and after at least a decade of losing money, Hearst Corp. has put the Herald Examiner up for sale.

It has not, apparently, hired a broker to peddle the paper outright, and some who have looked believe the proud, privately owned Hearst company is being particular about to whom it will talk.

But most in the newspaper industry believe the universe of potential buyers is small. And some say the key question is whether Hearst, if it cannot find a buyer, will close the paper.

If that happened, almost everyone believes that Los Angeles would suffer--the nation’s second-largest city left with only one metropolitan newspaper and an improving host of suburban papers. A certain segment of Angelenos, say experts, would stop reading newspapers altogether. Roughly 800 people would lose their jobs.

Sense of Loyalty

And a uniquely scrappy competitor and watchdog over official misconduct would vanish, threatening to make the remaining media less aggressive: Among the stories that the Herald has beat The Times and others on are Los Angeles Mayor Tom Bradley’s connections to Far East National Bank, one of the elements in the current revelations about Bradley’s finances.

All this seems to have evoked a surge of loyalty in the long-defiant Herald staff. “There was an initial flurry of ‘Oh God, I think we should leave’, “ said one employee active in the paper’s union, but now “there is no sense of people jumping ship en masse. “

“It’s vitally important to the people of Los Angeles that we have a second metro-wide newspaper,” said Herald reporter Andy Furillo, “and we’re the only paper attempting to do that.”

Hearst officials would not return phone calls for this story. But according to insiders, they want to sell in part to pursue broadcasting projects here--something ownership of a newspaper in the same market makes impossible under current federal regulations.

The actual asking price is less than half the $100 million intermediaries told Lozano, sources who have dealt directly with Hearst said.

And many newspaper executives believe that to sell, Hearst might have to settle for no cash at all, trading the paper instead for a share of future profits.

But Hearst has been quietly looking for alternatives to competing in Los Angeles for more than two years, some of that time apparently unbeknown even to its own local managers.

Hearst’s efforts to sell became more serious in the past 12 to 18 months, according to sources, and then became public after January, when Hearst looked for help from the Toronto Sun Publishing Co. The Sun publishes a series of racy tabloids in Canada that have defied the conventional wisdom that says second newspapers cannot make money.

Ostensibly seeking advice about the viability of a tabloid daily paper in Los Angeles, Hearst really was open to any option, from using the Sun Co. as a consultant, to a partnership, to selling the Herald, Sun President J. Douglas Creighton said.

Creighton said he believes that a tabloid would work in the market. But he backed away from the Herald anyway, first because he would have needed to replace the Herald’s old converted letterset presses with full-color offset machines. Second, his company is launching two other papers in Canada.

Were it otherwise, Creighton said, “if we could have struck a deal I think it could have worked.”

Soon after, Davis made his approach. And although it has never been publicized before, it wasn’t his first try. Davis had agreed in 1984 to finance a third-party buyer for the Herald Examiner, but Hearst had no interest in selling.

This time Hearst wanted to talk. But after looking it over, Davis now backed away, convinced, sources said, that the cost of running the paper would be too great.

Next, a Herald management group, led by Chief Operating Officer John McCabe, conceded publicly that it had been given approval by Hearst to put together a buyout plan from employees. After their bid became public, those involved confided to friends that they began getting a series of phone calls from interested local parties.

Still, no one investor has come forward yet with the finances to back a deal. “I think it’s a long shot,” McCabe has said.

Hearst’s theory for selling the paper is that its name, presence in the market, its 15,000 news racks and its distribution system all are worth something, according to informed sources. Hence, the first asking price is a significant sum.

But many doubt that the company will get it.

Little Cash Involved

“My understanding is Hearst is willing to give it away to anyone willing to keep it open for a reasonable length of time,” said one media executive active in buying newspapers, who, perhaps in an effort to talk Hearst down, derided the paper’s chances.

Arrangements to sell a paper for little or no cash are not unusual. Hearst purportedly sold Rupert Murdoch the Boston Herald for less than $1 million, plus a claim on future profits. In return, Murdoch was given the real estate and had responsibility for any closing costs.

But finding a buyer with the financial wherewithal to keep the paper running could be difficult.

The paper lost nearly $16 million in 1986 on revenue of $44 million, according to several sources, and losses are higher now.

Newspaper executives doubt that any publicly owned media company would dare absorb such losses, fearing it would depress the company’s stock price.

If no qualified buyer emerges, the fact that Hearst is not shopping the paper aggressively has some thinking it may still hold on.

While the losses are high, insiders say Hearst still can easily absorb them. The paper, too, remains a powerful symbol to the Hearst family, which is still active in the company (William Randolph Hearst III publishes the original Hearst paper, the San Francisco Examiner.)

And the Spanish Renaissance-style Examiner Building, with its hand painted tiled entrance floor and marble and gold lobby, once housed William Randolph Hearst’s private apartment.

But others familiar with Hearst are less certain it still wants the paper: “When they decided sell Boston (Hearst sold the Boston Herald to Murdoch in 1982), that to me was a turning point in the Hearst philosophy,” said one Hearst consultant. “They were no longer going to carry these on forever.”

Four years later Hearst closed the Baltimore News American after seeking a buyer unsuccessfully for just six months.

There are other signs Hearst might be ready to give up. Glenn Schwarz, sports editor of the Hearst-owned San Francisco Examiner, was told by his management a few weeks ago that he might be able to add positions, despite a budget freeze, if he hired people from the Herald Examiner. (After Schwarz contacted two people here, Herald Editor Maxwell McCrohon wrote a letter to Schwarz’ boss stopping the discussions).

How did the Herald get to this point? The problems really date to 1962, when Hearst chose fatefully to concentrate on afternoon circulation, merging the morning Examiner with the less successful Herald-Express. The decision occurred two days after Times Mirror Co. closed its afternoon paper, the Mirror, leaving the afternoon wide open so it could concentrate on a massive expansion of the morning circulation Times.

But Hearst’s move left the Herald, like most afternoon papers, with a more blue-collar audience, because such readers traditionally tended to go to work and return home earlier in the day.

And advertisers followed the money. By 1967, The Times enjoyed a 2-1 advantage in advertising, despite only a 120,000 lead in circulation. The Herald still had circulation of more than 720,000, but it was starting to fall.

Then came the strike.

Circulation Plunged

The American Newspaper Guild struck the Herald over wages in 1967 and was eventually joined by 11 other unions. It went on for 10 years, in part, say Herald staffers from the time, because Publisher George Hearst wanted to break the contracts and reduce costs.

When the strike formally ended in 1977, Herald circulation was just 330,000, less than half its prestrike level.

In the years since, Hearst has thrashed around for a strategy it felt would succeed. But few second newspapers have succeeded at such a game of catch-up. And at least some in Herald management past and present feel Hearst has never had the will to fully commit resources to any single strategy.

As the strike ended, Hearst installed Francis Dale as publisher and, as editor, James Bellows, best known as the innovative editor of New York Herald Tribune. Their strategy, essentially, was to position the paper for younger, sophisticated readers, people who considered The Times stodgy and liked the Los Angeles typified by the movie colony and the West Side.

The strategy never fully blossomed. “They needed to put more money into it,” Bellows says now. “We made an effort, but we needed more.”

And Bellows left in frustration in 1981. The next year, Herald President N. S. (Buddy) Hayden decided the Dale-Bellows strategy was ill-conceived: Why, he argued, go after the Times’ strength, the West Side?

So he set out on a split course for blue-color and upscale readers called “Class and Mass,” developing prototypes for a slick Sunday format for upscale readers and a provocative blue-collar format on weekdays.

Hearst executives accepted the recommendations but again chose to study further, and in 1984 Hayden left, later followed by Dale.

More recently, Hearst has pondered making the paper a tabloid. More prototypes were produced. Local management decided to go ahead, but again New York hesitated.

Throughout, the paper has continued to attract gifted staff. And it has frequently bested the competition--including on such stories as the financial and safety improprieties at RTD and the questionable campaign finances of councilman Richard Alatorre.

But while advertising linage has remained stable for the past several years, circulation has continued to shrivel. It stands at about 238,000 weekdays, and on Sunday the Herald is No. 3 among papers in Los Angeles County behind the suburban Daily News.

Hayden and others credit Hearst with sticking by the paper.

But others blame Hearst for never fully financing a renovation: “They always try to save their way into prosperity,” said former Executive Editor Donald Forst, who was Hearst’s last editor in Boston, and is now editor of Times Mirror’s New York Newsday.

And now, some staff members are enthused by the prospect that Hearst might sell, hoping a new owner might be more generous with resources. “This is positively the most exciting period since I’ve been here,” argued reporter Furillo, “and the sooner that the Hearst company gets out of this paper the better.”

To be fair, Hearst has problems difficult to escape. For one, only 20% of its readers get the paper delivered at home. The rest buy it at newsstands, which makes it less desirable for advertisers, who prefer to have a paper that is kept around the house and passed among family members.

What’s more, 38% of the Herald’s readers, and many of its most affluent, also get another paper. Hence, many advertisers have decided they are reaching that audience already.

And if the Herald were to die, some of the rest of the Herald audience is almost certain to stop reading newspapers altogether. These are readers who are either fiercely loyal to the Herald, or are marginal readers who find The Times too demanding, said John Morton, a newspaper analyst with the brokerage firm of Lynch, Jones & Ryan.

“It has happened in every market where a paper has died,” Morton said. “When it goes, some sizable number of the reading public goes with them.”

What also would go is a style of newspapering already too scarce. The Herald echoes a day when working for papers was a freer, less structured game, played by editors and reporters willing to take risks.

Says sports columnist Doug Krikorian: “I’m not sure if I would continue in the newspaper business if it weren’t here.”