Philly's Newspapers Are Going Back on the Block

Former Newsweek publisher Gregory Osberg, who was hired earlier this year to run the newspapers in Philadelphia after creditors took them over, has given journalists in Philadelphia something that they haven't had in years -- hope. Now, the 52-year-old's leadership skills are going to be put to the test.

Osberg's employer, Philadelphia Media Network, signed a $139 million deal in April to acquire the parent company of the Philadelphia Inquirer, Philadelphia Daily News and the Philly.com website after emerging as the top bidder for the papers at an auction. But that deal collapsed on Sept. 14 because of opposition by Teamsters Union Local 628, which represents the papers' drivers. According to the Inquirer, members of the union balked at the company's plans to replace contributions to the Teamsters Pension Fund and instead to contribute to a jointly run 401(k) program. The Teamsters were the only holdouts.

"We're disappointed," Osberg is quoted by the Daily Newsas saying. "We came very close, 14 out of 15 unions. . . . We thought we might be able to get this thing over the finish line at the very last moment, and we didn't have the opportunity to do that." The Teamsters' opposition means the auction will have to be held again.

"Hard-Line Position"

Labor troubles are nothing new at newspapers, including those in Philadelphia, particularly as staffs have shrunk because of financial losses caused by the migration of readers and advertisers online. The Boston Globe and San Francisco Chronicle faced labor strife last year. Adding to Osberg's challenges is the political strength of unions in Philadelphia, especially the Teamsters, which many observers say are among the more militant.

"They have taken a pretty hard-line position for as long as I can remember," says Zac Stalberg, former editor of the Philadelphia Daily News who now runs civic watchdog group the Committee of Seventy. "They feel like they have muscle in Philadelphia. . . . The real test is if [Osberg] can get a deal out of the Teamsters."

Pennsylvania Gov. Ed Rendell, a former Philadelphia mayor, had urged the Teamsters to settle with Philadelphia Media, which is backed by Angelo, Gordon & Co., Credit Suisse, and Alden Global Capital. But the bidding process now starts again. Chief Bankruptcy Judge Stephen Raslavich has scheduled a new auction for Sept. 23 in his courtroom, the Inquirer says. Philadelphia Media Network will be among the bidders, the paper says.

The Teamsters may have bargained themselves into a corner. According to media reports, Philadelphia Media Network may impose new terms on the drivers if it wins the new auction, which is highly likely. The company will honor its agreements with the other unions. Union officials could not be reached for comment.

Closely Watched Situation

Osberg, who has a broad background in digital media from his years at Newsweek and Cnet, is quoted as saying he thinks the new auction is a "tremendous waste of time." Nonetheless, supporters say he seems up to the task of turning around a money-losing business that last year had a 10.7% decline in circulation. He has won over most of the paper's other unions, especially the Newspaper Guild, which had an acrimonious relationship with Brian Tierney, the outspoken former advertising executive who slashed 17% of the newsroom staff. Osberg wasn't available for comment. Tierney won't submit a new bid, according to spokesman Jay Devine.

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Philadelphia's situation underscores the perils newspapers face with unionized workforces that often have multiple bargaining units, according to Rick Edmunds, a business media analyst with the nonprofit Poynter Institute. It also highlights the challenges Osberg faces in restoring Philadelphia Media Network to its former glory

"People are watching the situation because they are big papers with strong editorial histories," Edmunds says.

Moreover, the business isn't a complete dog. In 2008, the papers had earnings before income, taxes, depreciation and amortization of $36 million. Unfortunately, that figure reflects the mammoth cost-cutting undertaken by Tierney. The papers continue to produce quality journalism including coverage of the shenanigans of the Philadelphia Housing Authority. Whether advertisers will reward that good work remains to be seen.

Note: This story was updated on Sept. 16 to clarify the point about relations between the unions and Brian Tierney.