IN HIS HEYDAY, William Randolph Hearst started wars and built castles, wooed and won San Francisco, then set his sights on the rest of the country.
Along the way, Hearst collected art treasures so randomly and in such volume that even the great castle of San Simeon couldn't hold them all. He spent $1 million a year on art and antiques alone.
The only item he collected with more enthusiasm was newspapers. The first was his father's Examiner, a failing sheet in young and flamboyant San Francisco. Hearst, just out of Harvard, took over the Examiner in 1887 and turned it around with a brand of journalism as yellow as the California gold from his father's mines.
He didn't need his father's money long. His kind of yellow bought Rembrandts and Boston Americans, Renoirs and New York Mirrors. Before long The Chief owned the most powerful chain of newspapers in American history before or since. Name a major city -- Los Angeles, Washington, Chicago -- and William Randolph Hearst was there.
Some said the Hearst voice, erratic but strategically placed, made him more powerful than the president of the United States. "Remember the Maine!" his voice cried and a president went to war. He traveled throughout the world and was received like royalty.
Hearst's presses might well have been printing greenbacks, so great was the wealth they accumulated. His profligate life devoured the money as fast as it came in.
But failure never was in the cards, not for an empire builder, not for a legend born out of the boundless optimism of the West and the equally boundless opportunitis of the First Amendment. Not for a man who could wire one of his homesick artists, who wanted to return from Cuba because he had no war to cover there: "You furnish the pictures and I'll furnish the war." And then furnish it.
There was no room for failure unless the government mucked things up, the way governments do. As with all turn-of-the-century American empire builders, William Randolph Hearst pyramided his fortune without the albatross of the federal income tax.
Along came the tax and The Chief was never quite the same. His personal budget was $15 million a year. His advisers told him his increasing financial problems were coming from all that incredible spending. But The Chief never really believed that. To him, it was the income tax, the dreadful government and its loathsome tax. He took in a dollar and he spent a dollar. That was the American way.
Newspapers are part of the American way: the Fourth Estate, the fourth branch of government. Give him a choice between a government without newspapers or newspapers without a government, Thomas Jefferson said in the formative days of the Republic, and he'd take newspapers without a government.
Later, after spending some time running the government, Jefferson said it was better not to read newspapers because a man is wiser knowing nothing than having his head filled with falsehoods. The first Jeffersonian dictum gets a lot of publicity -- it graces the lobby of more than one newspaper. The second dictum is less quoted. So goes it.
American newspapers started running into financial trouble during the Great Depression. In fact, they started going broke right and left.
In 1933 the two newspapers in Albuquerque discovered an out. They formed what became known as a joint operating agreement. Under that agreement the editorial functions of the two newspapers would be kept separate -- preserving two editorial voices, two protectors of the American way. The commercial operations of the newspapers -- advertising, circulation, printing -- would be joined under one roof, achieving great economies.
It was a gem of an idea and as newspapers came under more financial pressures -- aging technology, tougher labor unions and, finally, the publisher-panicking assault be television -- more and more newspapers opted for the Albuquerque escape. By 1969, 44 newspapers in 22 cities were combined under joint operating agreements.
In 1969 the U.S. Supreme Court declared all this illegal. In a case involving two Tucson newspapers, the court said the agreements amounted to price-fixing and illegal profit-sharing in violation of the Sherman Antitrust Act.
The publishers descended on Washington like locusts on Salt Lake City. In fact, the head of the publishers' committee, Jack Gallivan, was from Salt Lake City, which had a joint operating agreement. He ran the lobby for the Newspaper Preservation Act, a stalled bill known until the court's decision by a less noble title -- the Failing Newspaper Act.
Most Hearst publishers, like the publishers of other major chains, threw lavish dinners and parties. The stakes were huge -- a thriving free press, not to mention the treble damages which can be assessed in antitrust cases.
The goal of legislation may have seemed lofty -- preserving separate editorial voices in cities where the second newspaper was failing. Still, it put its publisher backers in a rather special-interest group their newspapers normally would criticize, seeking a low that most would have attacked as legalized price-fixing, removing themselves from the very free-market system their editorials normally would hail as one of the American way's virtues.
"The lobbying which went on for this bill may well have set new records," said former senator Thomas McIntyre. "I tried without luck to get some idea of when the bill would come to the floor. Then, two days before it did come up, representatives from all the large newspaper chains in the country descended on Washington. Just as they departed, the bill came to the floor."
The Justice Department opposed the bill. "I do not personally believe that, in the long run, government promotes newspaper independence by granting newspapers special favors," testified Richard W. McLaren, then the department's antitrust chief.
The Nixon administration, whose second in command was referring to the Fourth Estate as "nattering nabobs of negativism," nevertheless sent word to Congress that its Justice Department didn't represent the administration's view on this one. The Commerce Department did. Commerce favored the bill. So did Congress and the Newspaper Preservation Act of 1970 came into being, retroactively legalizing 22 monopolies including the one now preserving, like an historic monument, Hearst's first journalistic gold mine.
In 1892 The Chief, having turned the Examiner around with his special sauce of sensationalism, took a map of the United States and circled all the major cities, circling New York twice. Shortly thereafter, he made a trip to Egypt and acquired a collecton of mummies, with which he decorated the Examiner's officers.
By 1913, the ominous year when the 16th Amendment legalized a federal income tax, Hearst had newspapers in almost all the circled cities. He owned three in New York. He also owned paintings by Rembrandt, Rubens and Van Dyck, a step up from the mummy collection.
By the 1920s, when he first was accused by a congressional committee of dodging taxes by shuffling losses within his empire, he owned 23 newspapers, several magazines and had started on his $30 million castle at San Simeon.
Ten years later, a Treasury official told a Senate committee on tax evasion that by internal corporate money-shuffling Hearst had managed to avoid $2.4 million in taxes in 1934 and $2.7 million in 1935. By then, he had purchased a Spanish cloister and a Spanish monastery. Both were dismantle, brick by brick, crated and shipped to the United States. When he died in 1951, both were still in their crates.
Hearstian advisers were becoming frantic in the '30s. The Chief would show up in one of "his cities, phone the editor and ask for $25,000 at a shot. He would get it, of course, but he also was getting close to bankruptcy.
By 1937 bankruptcy seemed imminent. He was $126 million in debt. He turned his affairs over to a committee that made the decisions he couldn't make -- to sell. First went some of the newspapers and then the art.
The selling orgy continued for five years, ending in a bizarre art sale at Gimbel's in New York. The department store advertised that the treasures would be sold on the Easy Payment Plan. Van Dyck's portrait of Queen Henrietta went for one-fourth of what The Chief had paid. Suits of armor and Elizabethan cups went for 10 cents on the dollar.
The empire was saved. But it was a spooked empire after that, a reduced empire that until recently hoarded cash as compulsively as Hearst had spent it in the past.
Hearst's original Examiner entered a joint operating agreement with the San Francisco Chronicle in 1965, 14 years after the old man died. The two papers had been rivals for almost a century and there was nothing The Chief liked better than to gore the Chronicle.
But it was the spooked Hearst empire that wanted the deal, claiming almost certain failure without the safety net of a joint operating agreement. Lawsuits began flying almost immediately. The first were nullified by the 1970 congressional action.
But new suits came soon afterward, claiming the Examiner didn't meet the financial-unsoundness test required for the antitrust exemption. The first was settled out of court for a reported $1.3 million, a move that effectively kept Hearst's financial records out of the public realm. Hearst is a private corporation, family-owned, and its books are as closely guarded as the Vatican's.
Almost immediately, another suit was filed, this one by a suburban weekly, the Pacific Sun, and two local advertisers. This time, despite its penchant for secrecy, Hearst had to fight or face hemophilia. The records that surfaced in the case were tantalizing.
They showed that between 1945, shortly after the Gimble's sale, and 1959 the Examiner earned $35 million. The annual losses began in 1960, at the height of a brutal newspaper war with the Chronicle. The losses averaged $1.5 million a year for the next five years. After two years of losses, the Examiner started wooing the Chronicle. Three years later, the deal was cut.
University of California law professor Stephen R. Barnett, an attorney in an earlier suit, later wrote a Columbia Journalism Review article on joint operating agreements. He said the San Francisco case showed "a recipe for failure."
Lawyers for the Pacific Sun argued that funds were shuffled out of the Examiner's till, showing up as losses while they appeared as revenues of other Hearst-owned entities: that a Hearst-owned Sunday supplement, The American Weekly, cost the Examiner $250,000 a year more than the going rate; that Hearst's national advertising agency charged the Examiner 14 percent in commissions while other agencies averaged 7 percent; that the total overcharges cost the Examiner a "paper" loss of about $650,000 a year.
The records in the case also told much about what had happened inside the Hearst empire since the Easy Payment Plan sale at Gimbel's.
As early as 1945 Examiner executives began warning Hearst corporate leaders that their presses, built in 1920, soon would need replacement. They were never replaced and, by the time of the final war with the Chronicle, they were printing at half the speed of the competition.
The result was deadly on deadlines, especially on sports news, which was crucial as major league teams began to arrive in San Francisco.
"If you were an Examiner reader, sat down with your cup of coffee and wanted to find out how the Giants and Dodgers had done the night before, you had good news and bad news," Arthur Shartsis, the Pacific Sun's attorney, said in his opening courtroom argument. "The good news was the Giants were leading the Dodgers, 4-3; the bad news was it was only the fifth inning."
Shartsis brought in a newspaper industry consultant who testified that if Hearst had modernized the Examiner plant after the war, spending some of those postwar profits on equipment and new presses, the savings would have been $2.1 million a year by 1960.
Even with all that, the Examiner still was leading the Chronicle in circulation and ad revenues by the time the merger negotiations began. Shartsis popped one more gem in the trial -- a memo written by the Examiner's publisher, Charles Gould, just months before the deal went through in 1965.
In the memo, Gould complained that during the three years of negotiations with the Chronicle the Examiner had "softened some of its competitive attacks in the interest of not rocking the boat." He said, "The records prove conclusively that Hearst is a whale of a lot stronger in this community than some of us seem to realize."
On the stand, Gould wrote off his memo as in-house corporate "rhetoric." In any case, it was ignored. Shartsis argued that Hearst neglected its opportunities "because the gold at the end of the rainbow of the joint operating agreement was far too great."
The lawyers for the Examiner and the Chronicle argued that, under the Newspaper Preservation Act, it made no difference how the Examiner became unprofitable. All that counted was that it was unprofitable in 1965.
The trial ended in a hung jury, 3 to 3. A retrial is scheduled to open Tuesday.
Within 10 months of the 1965 San Francisco marriage, the Chronicle's ad rates increased from $1.20 a line to $2.32; the Examiner's, from $1.03 to $1.55. The combined rate was $2.50 a line, giving an advertiser both papers -- in an offer few could refuse -- for 18 cents more than the Chronicle alone.
Joint operations has worked wonders in the years since. The newspapers are equally fat, the ad lineage almost equal. Profits have averaged about $3 million a year for each newspaper, making the Examiner the wealthiest paper in the wounded Hearst chain.
So much is at stake in San Francisco now that the Chronicle and Examiner have paid one of their key expert witnesses $200,000 to prepare his testimony for the retrial.
Ironicaly, except for those wondrous profits and advertising lines, a better case for newspaper failure might be made today than in 1965. The Chronicle's daily readership now is over 500,000. The Examiner sells 157,000 newspapers a day. So goes it.
After the near-bankruptcy of 1937, the Hearst accountants took over. Long appalled by The Chief's spending, they became as miserly as Hearst had been extravagant. Dollars that once went into Rembrandts and newspapers now went into the bank.
The once eccentric crown prince of American journalism became the Fourth Estate's Karen Quinlan instead.
In Los Angeles, where Hearst once owned the largest afternoon paper in the country, the Herald-Examiner has become a sickly second to the powerful Los Angeles Times.
In Boston, the once-dominant Herald-American has tumbled far behind the Globe. In San Francisco the sweetheart deal rubber-stamped by the Newspaper Preservation Act props up a peper outsold, 3 to 1.
William R. Hearst Jr., the editor-in-chief, still has his father's penchant for globe-girdling visits to kings and premiers. But none of the five Hearst sons ever played his father's role in the new regime. Hearst Jr. recently made a most revealing statement to Business Week:
"We didn't have the responsibility that people have when they rise to the top. If we didn't perform, Pops didn't fire us, although he would let us know he wasn't pleased."
But it would be a sad mistake to think the new Hearst empire, failing newspapers or not, is facing anything like the crisis of '37
The Hearst legend is so intertwined with American journalism that most people think of Hearst as a newspaper chain only. But the corporation owns a highly profitable magazine subsidiary, vast land holdins, radio and television stations, book publishers. The newspapers may have been suffering, but the rest of the corporation was doing extraordinarly well. In 1980 the parent corporation expected to gross $1 billion. Off past profit ratios, the 1980 profit could be $100 million.
In the last few years, Hearst has begun to emerge from its shell and started buying again. In 1979 and 1980, the corporation spent more than $150 million -- cash -- to acquire five nonmetropolitan newspapers, a TV staion and other properties.
Two months ago the Hearst Corp. announced that its Seattle newspaper, the Post-Intelligencer, was failing hopelessly and said it would apply for a Newspaper Preservation Act operating agreement with the Seattle Times. Readers, advertisers and employes greeted the news with incredulity.
"It was as it the Rockefellers were telling the government one of their kids needed for stamps," said Hilda Bryant, a Post-Intelligencer investigative reporter who has decided to fight her bosses with the same intensity that she has gone after welfare frauds.
The Newspaper Preservation Act doesn't offer Hilda Bryant much hope on that issue. The issue of rich corporate parents is irrelevant when newspaper offspring get into trouble. It was the chains, after all, who did most of the powerful lobbying in 1970. Fifteen of the original 44 papers were chain-owned. Since the act's passage, the chains have gobbled up seven more of the "failures" protected by the golden goose of the Newspaper Preservation Act.
In 1970 the argument was made that the publishing situation was so precarious in two-newspaper cities that once a paper began to fail the situation was hopeless -- so hopeless it was pointless to add a provision requiring that the "failing" papers be offered for sale before getting an antitrust exemption.
Since the bill was passed, three more joint operating agreements have been approved by the Justice Department -- In Cincinnati, Chattanooga and Anchorage. In Cincinnati the proposal was bitterly opposed by newspaper unions and others, some wanting the "failing" Cincinnati Post to be sold lby its parent Scripps-Howard chain.
In its legal briefs, Scripps insisted it would not consider selling its loser. Scripps argued, ineffect, that the law not only guaranteed that "separate editorial voices" should be maintained in Cincinnati but that their editorial voice should be guaranteed.
It was the ultimate preservationist argument, as if newspapers were historic monuments that only could be maintained, not replaced. The argument prevailed.
In alaska in 1974 the Anchorage Daily News may have been the most clearly failing of all the newspapers ever taken under the umbrella of the antitrust exemption. Its circulation was a meager 15,000, trialing far behind the fat Anchorage Times' 43,000. The Justice Department approved the deal without holding a hearing.
After the agreement, the Times' circulation grew to 47,000; the News slipped to 12,000. The owners of the News sued to undo the agreement, a suit that was settled in their favor in 1978. By that time it had neither building nor presses and only a handful of employes representing its "separate" editorial voice.
The News had six months to vacate the Times building and crank up its operation once again. Within three months, the owners had sold 80 percent of the News to the McClatchey papers of Sacramento.
Within three months after that, using the brand new technology revolutionizing American newspaper production, McClatchey bought and installed new equipment, purchased a building, tripled the editorial staff and began publishing on his own. Nine months later, the hopelessly failed Daily News had climbed to a record 30,000 circulation.
Shortly after the San Francisco newspaper marriage, Hearst sent its ancient and now unneeded Examiner presses north to Seattle.
Atop the building that houses the fading Hearst newspaper empire's Seattle outpost, a huge blue planet revolves endlessly, conjuring up romantic images of local Clark Kents stripping down to their Supuerman suits and soaring off to save the populace with powers born of the Planet Krypton.
The globe went up about the time The Chief died. He woudl have loved it, even if his Seattle readers rarely have been troubled by reporters flying faster than speeding bullets. The Post-Intelligencer, like the rest of the Hearst papers, is not one of the nation's journalistic giants.
It is an erratic and irascible Hearst-child, constantly hovering between financial collapse and another inflammatory expose, struggling with corporate budget drains, babying its archaic presses to produce sports scores beyond the fifth inning.
Still, it had its moments. Last year, in classic Hearstian fashion, it brought down a governor who called it The Daily Birdcage Liner, sent reporters up the side of an erupting killer volcano and took a fugitive state senator into custody for the U.S. government. It also covered a frog-jumping competition in California and then passed up the Republican National Convention as an economy move.
That was one of the flamboyant Post-Intelligencer's last economy moves before Hearst moved to retreat it into the ultimate economy of the Newspaper Preservation Act.
Virgil Fassio, the local publisher, said the P-I, as it is known in Seattle, was not for sale even though rumors of potential buyers have been rampant for years. If Hearst couldn't make it work, Fazzio said, nothing could. Except the Newspaper Preservation Act.
In the P-I newsroom, beneath the blue planet that won't be preserved, the stunned reporters who brought down a governor are downright mad. Hilda Bryant has formed a committee.She is raising more money than it would have taken to cover the Republican convention. She has hired the best antitrust lawyer in the region. William Dwyer, whose suit forced the American League to give Seattle back its baseball team several years ago.
She also knows, after researching the strange history of the Newspaper Preservation Act, that it may take powers stronger than those brought from Krypton to fend off the nearly inevitable. But fighting mad is fighting mad.
On the staff bulletin board, beneath the blue planet The Chief would have loved, a photo of a machine-gun-toting Patricia Hearst was pinned up recently.
Beneath it was a Walt Whitman exhortation:
"Resist often. Obey little." CAPTION: Picture 1, San Simeon: the $30-million castle that Hearst built. AP; Picture 2, William Randolph Hearst hosts a dinner at San Simeon. Picture 3, The Chief reading galley proofs. The Bettmann Archive, Inc.