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Originally published December 16, 2009 at 10:50 AM | Page modified January 10, 2009 at 2:43 AM

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Seattle P-I up for sale, but almost certainly will fold, industry observers say

The Hearst Corp. confirmed Friday that it has put the P-I on the market, saying the paper lost $14 million last year and stands to lose more in 2009.

Seattle Times staff reporters

P-I video: Hearst announces sale

Hearst Newspaper President Steven Swartz announces to Seattle Post-Intelligencer staff a 60-day process to sell the newspaper.

Responding to rumor

Seattle Post-Intelligencer Managing Editor David McCumber and P-I Columnist Joel Connelly respond to reports of the newspaper's sale Thursday evening, when news of the sale could not be confirmed.

Seattle's daily newspapers: A timeline

The P-I is the oldest morning newspaper in the state of Washington.

The early years

1867: The newspaper Weekly Intelligencer, the origin of the Post-Intelligencer, is founded in Seattle.

1881: The Intelligencer combines with the Post to become the Post-Intelligencer.

1896: The Seattle Daily Times' new owner, "Colonel" Alden Blethen, publishes his first edition to challenge the older, more conservative P-I.

The middle years

1921: William Randolph Hearst takes over the Seattle Post- Intelligencer, revealed when Hearst's first editorial appears.

1930: The Ridder brothers of New York and St. Paul, Minn., buy a minority interest in The Times.

1936: A Newspaper Guild strike suspends publication of the P-I for nearly four months.

1946: The Blethen family fends off a hostile takeover attempt by the Ridder family.

1953: A Newspaper Guild strike suspends publication of The Times for three months.

The later years

1983: The Hearst Corp. and The Seattle Times Co. form a joint-operating agreement (JOA) in which the larger Times handles advertising, printing, promotion and distribution for both newspapers, but each continues to run separate, competing newsrooms. The P-I publishes mornings Monday-Saturday; The Times publishes Monday-Friday afternoons, Saturday-Sunday mornings.

1986: The P-I, no longer needing printing presses, moves into a new building on Elliott Avenue West, installing its trademark globe there.

2000: After renegotiating the JOA, The Times switches to morning publication, going head-to-head with the P-I. Later in the year, Newspaper Guild workers at the P-I, alongside those at The Times, go on strike. The P-I strike ends first, after 38 days, with the approval of a new contract.

2003: The Seattle Times attempts to end the JOA, but The Hearst Corp. sues The Times to stop the action. A long legal battle follows, and Hearst threatens to sell the P-I if the proceedings don't speed up. Cartoonist David Horsey wins a second Pulitzer Prize.

2006: McClatchy buys Knight Ridder, inheriting its Times stake.

2007: Hearst and The Times Co. settle new terms of the JOA.

Jan. 9, 2009: News reports say Hearst puts P-I up for sale, preparing to close it.

Compiled from Seattle Times archives and Historylink.org by news researcher Gene Balk and desk editor Laura Gordon.

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The Hearst Corp. is unlikely to find a buyer for its money-losing Seattle Post-Intelligencer, and the venerable newspaper -- at least in its printed form -- almost certainly will fold, industry observers say.

In other cities it's been hard for newspapers with stronger market positions than the P-I to find buyers, said Rick Edmonds, media business analyst with the Poynter Institute, a journalism think tank.

"If Hearst wants to do it in 60 days, I don't think the odds are very good," he said.

Hearst confirmed Friday that it has put the P-I on the market, saying the paper lost $14 million last year and stands to lose more in 2009. "We see no opportunity for us to publish the P-I on a profitable basis," Chief Executive Frank Bennack and Hearst Newspapers President Steven Swartz said in a letter to P-I employees.

If the newspaper isn't sold within 60 days Hearst said it would "pursue other options," and wouldn't continue to publish a print edition itself.

A move to a digital-only operation "with a greatly reduced staff" is one possibility, Bennack and Swartz wrote. But Edmonds and other industry analysts questioned whether advertising revenues would support such a publication.

"With a greatly reduced staff, that reduces the appeal of the P-I," said Maryland-based newspaper analyst John Morton. "It doesn't sound like a winning formula."

Swartz delivered the news -- first reported Thursday night by KING-TV -- to newspaper employees at a noon meeting. Breaking-news editor Candace Heckman said the staff appeared stunned.

"People cried, people are still crying, editors are slamming their doors," she said. "They're talking of drowning their sorrows."

Hearst also said it has no interest in buying The Seattle Times, its rival and partner for more than 25 years in a federally sanctioned joint operating agreement (JOA). In a prepared statement, Times Publisher Frank Blethen and President Carolyn Kelly called Hearst's announcement "a surprise, but a rational business decision for them."

The Times also is losing money, and Blethen and Kelly said a P-I shutdown would increase The Times' odds of survival. But it's still not a sure thing, they added.

Newspapers across the country are reeling from declining advertising revenues as the economy contracts and advertisers and readers migrate to the Internet.

Under the 1983 joint operating agreement The Times and P-I maintain competing news operations, but The Times handles business functions for both. In return, it gets 60 percent and Hearst 40 percent of what remains after The Times is compensated for non-news expenses.

In their letter, Bennack and Swartz said the JOA had extended the smaller P-I's life, but the paper hasn't turned a profit since 2000. "Regrettably, we have come to the end of the line," they wrote.

A new owner might find a different business model to keep the P-I alive, they said.

Industry analysts were dubious. "Buying a second paper in a JOA market is not a winning proposition," said Edmonds. "There have been a lot of papers put up for sale, but very few transactions."

Washington, D.C., media economist Miles Groves agreed. "It's always possible there's someone out there with lots of money who wants a voice," he said, "but we already saw how that worked in Chicago, didn't we?"

Real-estate magnate Sam Zell purchased Chicago-based Tribune for $8.2 billion in 2007, then filed for bankruptcy protection less than two years later.

Kathy George, attorney for the Committee for a Two-Newspaper Town, said the group, which formed during a four-year legal fight between The Times and Hearst, already was talking about what it could do to help find a buyer for the P-I. A public-spirited local buyer and employee ownership are possibilities, she said.

But David Brewster, publisher of the online news site Crosscut, said he was skeptical that local buyers would emerge for the P-I, and that even keeping it alive with ad revenue as an online-only operation would be a struggle.

Crosscut hasn't generated enough advertising to sustain itself, and Brewster hopes to rebuild as a nonprofit venture.

Edmonds and Morton also questioned whether online advertising would support a purely digital P-I, even with a smaller staff. But Groves said newspapers eventually will publish exclusively online, and it's too soon to judge whether an all-Web P-I would succeed: "You've got to see their product to see if they're going to survive."

One question that remains unanswered: Could Hearst publish the P-I entirely online and continue to collect its 40 percent of the JOA proceeds? Representatives for Hearst and The Times declined to comment Friday, and George said she didn't know.

The JOA does contain numerous references to the production of the print newspapers, however, and says the contract can be terminated if either party fails to perform.

The U.S. Department of Justice's antitrust division oversees newspaper JOAs, and has intervened in some cities when publishers have moved to close one of the two papers.

But Jack Kirkwood, a Seattle University law professor who specializes in antitrust law, said Hearst shouldn't have any problem with Justice if it does close the P-I. "There's no duty under the antitrust statutes to operate an insolvent business," he said.

Kristin Alexander, a spokeswoman for the state Attorney General's office, said its antitrust division also would review any P-I closure. "But from the initial description, it appears it would comply with terms of the JOA," she added.

Seattle Mayor Greg Nickels issued a statement expressing "alarm and sadness" at the problems of newspapers.

"Newspapers may have fallen on hard times, but no one doubts their value in our democracy, " Nickels said. "I hope a buyer can be found for the Seattle Post-Intelligencer. And if that proves impossible, I look forward to seeing an electronic version of the state's oldest newspaper."

The P-I has roots dating back to 1863, and has been owned by Hearst since 1921.

Liz Brown, administrative officer of the Pacific Northwest Newspaper Guild, which represents P-I employees, said Hearst has an obligation to bargain with the union over impacts of any shutdown.

If the newspaper does go all digital, "we expect it would retain many of its talented employees," Brown said.

P-I Managing Editor David McCumber said he was in shock after the announcement. "More than anything else I'm grieving for the people I've been lucky to work with."

He said he didn't know what the chances were of the P-I continuing as an online-only publication, but he hoped it would.

P-I reporter Kery Murakami said he had assumed the P-I would outlast The Times because of Hearst's greater resources. He said he was disturbed to hear news of the sale first on television.

Hearst should have told P-I staff before the news was "leaked to the competition," he said. "That just makes this situation worse if that's even possible. It's like sticking and twisting the knife."

Murakami, 42, said he has wanted to be a reporter ever since he saw "All The President's Men" when he was in third grade.

"I love what I do. I don't know what else to do."

Seattle Times staff reporters Bob Young, Emily Heffter, Sharon Chan and Warren Cornwall contributed to this report. Eric Pryne: 206-464-2231 or epryne@seattletimes.com. Jim Brunner: 206-51-5628 or jbrunner@seattletimes.com.

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