Advertisers seeing, expecting change 

While media-watchers have gawked for two weeks about the revelation that Hearst Corp. once explored selling its San Francisco Chronicle to William Dean Singleton’s MediaNews Group Inc., the largest owner of newspapers in the Bay Area, MediaNews has quietly been implementing Singleton’s "clustering" approach with the two big newspapers it purchased last summer.

Approached by The Examiner, several buyers of newspaper advertising said they have seen or expect to see changes in their purchase of ads from the Bay Area Newspaper Group, which consists of the papers MediaNews already owned as part of the ANG Newspapers plus the Contra Costa Times group and the San Jose Mercury News. Privately owned MediaNews purchased those two former Knight-Ridder Inc. papers from the McClatchy Corp. (MNI) as part of a complicated 2006 deal financed in part by Hearst, which is facing a legal challenge by local businessman Clint Reilly. He contends the deal creates a duopoly that could lead to higher advertising rates and less competition in newsgathering.

Singleton did not return a request for an interview.

The "media buyers" — people who negotiate advertising deals between companies that advertise and media outlets like broadcast, cable and newspapers — said they have not yet seen price increases as a result of the corporate consolidation, but some have begun working with new advertising sales staffers on the newspaper’s end from a consolidated office in San Jose, and several expressed concerns about future pricing issues and the maintenance of editorial quality at the newly purchased papers.

"The people I’ve talked to in [these] publications aren’t confident that their jobs are long-term. At one of those papers you mentioned, I’ve had three ad reps in the past year," said Ricki Kohn, the founding partner of RK Media Solutions. "It makes my job a little harder."

James Hearn, director of sales at San Francisco’s Gumas Advertising, said that staff members at the papers believed that sales efforts would soon be consolidated at all the BANG papers, not a surprise given that the MediaNews model involves "clustering" the back-end functions of its papers to create cost savings. The approach works and is also used by other newspaper chains — Hearst executives, who lose millions on the Chronicle yearly, have expressed admiration for MediaNews in court records, and MediaNews’ second-quarter net income more than doubled for the quarter ending in December 2006.

Only a few representatives said they were asked to extend advertisements from the former Knight-Ridder papers to the ones MediaNews had already owned, such as the Oakland Tribune or the San Mateo County Times, or vice versa. Mike Monroe, the VP of media and operations for major advertising buyer Macy’s West, said he thought that was unlikely to happen soon because the two sets of papers still look different, creating challenges when it comes to laying the ads out on a page. He is making all buys for the consolidated BANG chain from one sales representative now, he said, down from three previously.

Several media buyers said they are concerned that the papers maintain their quality, because readers may not subscribe to a paper if it changes, or a different demographic group of customers may result. Those options can expose ads to fewer potential customers — or the wrong ones for the ad buyers’ clients.

"If it’s not local, if its general Bay Area stories … their articles will become useless," said one buyer who represents a very large national advertiser, who asked not to be named. "It’s important that they [the different papers] maintain their individuality, that the content remains pertinent."

That buyer is also concerned that, with MediaNews owning every major paid circulation daily in the Bay Area except for the Chronicle, MediaNews will raise prices down the line when the issue is out of the spotlight. He said he spoke to the Department of Justice for more than an hour on that issue at the time of the sale of the Mercury News and the Contra Costa Times.

Others said price increases concerned them less, and that they don’t believe the papers compete with one another, because with exceptions in San Mateo County and a small part of the East Bay, they all covered different geographic areas. The media buyers also said more of their clients are willing to shift from newspaper advertising in favor of television, direct mail, radio and the Internet.

"Newspapers used to rest on their laurels that they were delivering a certain intelligence level, a certain income level. I think that Internet usage has changed the whole landscape. … Newspapers don’t have claim to that audience as much any more," Hearn said.

With that in mind, John Gumas of Gumas Advertising and Macy’s West’s Monroe said they understood why newspaper firms would want to consolidate.

"I think the elephant in the room that many media folks don’t want to talk about is the deteriorating circulation, and what that means," Monroe said. "Not only are we losing circulation, but we’re losing even more penetration into the marketplace when you think the market is growing. That’s a very serious challenge."

Macy’s is now testing bundled advertisement deals between newspapers and their Web sites with MediaNews’s Los Angeles papers, he added. Online advertising typically costs much less than newspaper ads.

That echoes the testimony of Hearst senior VP James Asher, who told the Department of Justice in September 2006 he did not believe Hearst and MediaNews are each other’s primary competition. He also said that during a free-flowing discussion, executives speculated federal approval of MediaNews’s purchase of the Contra Costa Times and the Mercury News could lay the groundwork by which Hearst could get approval for selling the Chronicle or investing in MediaNews’s Bay Area papers.

"If the antitrust issues, whatever they may be, could be overcome in that transaction, they ought to be able to be overcome in our investing in all of MediaNews," Asher said.

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