Friday, Jan. 16, 2009 | The ax fell again Friday at The San Diego Union-Tribune. This time, no one was left untouched.

Driven by a 40 percent reduction in advertising since 2006, the local newspaper announced a sweeping cost-reduction plan that will temporarily reduce its top executives’ pay, eliminate 401(k) matches, suspend merit-based raises and significantly increase employee contributions to health benefits.

The newspaper, which is owned by David Copley, has been up for sale since July and has not found a willing buyer. The company told employees in a memo that while it’s been pursuing a sale, it had to act now to keep the business viable. The paper’s president and CEO, Gene Bell, told employees that the company continues to work with prospective buyers, but said the sale environment had been “challenging.”

Bell described the cost-saving steps as “deep cuts” in the memo. But they are not the last. More layoffs are likely coming, he wrote.

“We must make even more dramatic changes in our cost structure that, unfortunately, must soon include a reduction in force,” Bell told employees.

The news dealt a devastating blow to newsroom employees who have steadily watched some of their most talented colleagues depart since 2006 through buyouts, layoffs and resignations. When buyouts were offered in September, the paper said it was employees’ last chance before the newspaper was sold.

“It’s a terrible hit for everybody — even those who will stay on,” said one newsroom employee, who requested anonymity to avoid being targeted.

Another newsroom employee said the cuts weren’t a shock. Still, the person said, “it’s really hard for us to get work done. It’s really bad.”

Unlike in previous cuts, the financial pain from this round reverberates through the highest echelon of management. Managers and executives will have their salaries cut between 9 and 18 percent in February and March. Reporters and other non-supervisors will be required to take one or two unpaid days off each month. No one will get a performance-based raise in 2009.

One newspaper source said each department — such as advertising and the newsroom — has been given a target dollar amount that it must cut from its budget. Employees worry their salaries could be cut 10 percent for the year if the furlough plan is extended.

Benefits are also being cut. All part-time employees will lose health insurance coverage. Full-time employees will be required to pay more for health insurance: They previously covered 5 percent of their policy’s costs, according to newsroom employees. They’ll now pay 20 percent.

The advertising revenue decline is responsible, Bell told employees, and is driven by the housing market collapse and retail consolidation. The recession is driving some advertisers, such as Circuit City, out of business.

Newspapers across the country are struggling. The Seattle Post-Intelligencer, which is up for sale, will go online-only, or shut down all together, if no buyer is found. The Minneapolis StarTribune filed for bankruptcy protection Thursday. The Tribune Co., which owns major newspapers in Los Angeles, Chicago and Baltimore filed for bankruptcy protection in December.

The Union-Tribune appears to be slimming down to appear more attractive for potential buyers. The paper is assumed to still be profitable, though its finances are secret because it is privately held. Bell did not reference its profitability in his memo.

“They’re obviously facing reality. You can’t raise subscription rates and the street prices. And if your sources of revenue are shrinking, what else can you do? They’re not trying to run a nonprofit,” said Dean Nelson, director of the journalism program at Point Loma Nazarene University.

The Union-Tribune began cutting its staff in late 2006. Since then, it has cut at least 74 positions from a newsroom once estimated to have as many as 360. Other employees have quit and their positions have been frozen or consolidated. The paper has shrunk its Sacramento bureau and eliminated its Washington, D.C. bureau. The reporters who led the paper’s 2006 Pulitzer Prize-winning coverage of the Randy “Duke” Cunningham bribery scandal are gone.

The Union-Tribune was once the flagship paper of a robust newspaper company with holdings across the country. Today, it is the sole daily owned by the Copley Press, which has divested eight daily and eight weekly papers. The company’s Copley News Service, which boasted bureaus from Mexico City to Springfield, Ill., has been sold. Only the Union-Tribune and bi-weekly Borrego Sun remain under Copley’s control.

Other subtle changes are continuing throughout the newspaper. Last weekend the company laid off 20 percent of its pressroom employees. It has cut its TV Week section. The daily feature section, Currents, has been cut on Thursdays. The opinion section is now a single page on Mondays and Tuesdays. The paper trimmed its free obituary listings, no longer including the names of survivors or information about funerals and viewings.

While the newspaper continues cutting, readers are not likely to notice the same impact as from earlier cuts, Nelson said.

“I don’t know how many more aftershocks we can really feel,” he said. “The big damage has already been done.”

Randy Dotinga contributed to this report.

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