A week before Christmas, the mosaics and stained glass in the sanctuary of Congregation Rodeph Shalom framed a somber scene. About two hundred members of The Newspaper Guild of Greater Philadelphia, representing white-collar workers at The Philadelphia Inquirer and the Philadelphia Daily News, had gathered to consider a tentative contract that wasn’t exactly a holiday gift.

The three-year pact with the former Knight Ridder papers’ new local owners, Philadelphia Media Holdings LLC, contained numerous concessions. It expanded a two-tier wage system, curtailed sick pay, poked holes in seniority, and provided inadequate money for spiraling health-insurance costs, let alone raises. After one last payout, it froze pensions without offering any future contribution to employee 401(k) plans. The company did agree to help pursue a merger with a multi-employer pension plan, an effort to preserve the pension system so important to the union’s aging membership.

Guild leaders warned that if members rejected the pact, they faced a potentially unwinnable strike, massive layoffs, and perhaps the destruction of the papers themselves. Persuaded, workers passed the contract by 498 to 69, including absentee ballots. Those present vented their frustration by approving a toothless resolution of “no confidence” in the papers’ owners.

But there was worse to come. In early January, the company announced seventy-one layoffs in the 412-person Inquirer newsroom and another thirty-four in advertising—numbers that the local guild president, Henry J. Holcomb, said “shocked” him. Brian P. Tierney, chief executive officer of Philadelphia Media Holdings and publisher of its two newspapers and Web site, blamed the cost-cutting on past Knight Ridder management, an unexpectedly steep drop in advertising revenue—and his desire to invest $20 million in marketing, computer technology, Web site redesign, and other initiatives. “It was a really poorly run company in a really challenging business,” said Tierney, who said profit margins remained about 10 to 11 percent. “I just did what I had to do. I’m trying to save a company.”

The situation in Philadelphia reflects labor trends that are roiling the entire news industry. As companies continue to shed workers—media job cuts rose 88 percent in 2006 over the year before—they are also rolling back benefits and eliminating contractual constraints that they say are hindering efficiency. “It’s a very, very difficult bargaining environment at the moment,” said Linda K. Foley, president of The Newspaper Guild, citing “the collapse of the corporate consolidation model,” rising health care costs, and a new federal pension law that has made single-employer pensions harder to sustain.

According to a report by Challenger, Gray & Christmas, 17,809 media jobs were lost last year—the most since the recession year of 2001. As the chain ownership model fragments and the industry is rocked by diminishing print circulation and advertising revenues, both union and nonunion workers are in a defensive crouch.

Knight Ridder, the first of the big media chains to implode, managed its business with “a strategy of attrition—if attrition is a strategy,” said Darren Carroll, executive officer of the Minnesota Newspaper Guild. At the St. Paul Pioneer Press, run by MediaNews, and elsewhere, “we see an acceleration of that trend: more costcutting, more staff reductions, more expense reductions,” he said. “It’s good for profitability in the short term, bad for the long-term future of a business that relies on depth and breadth of coverage as its competitive advantage.”

But newspaper managers see the problem differently. They say they need both cost savings and greater flexibility to compete effectively in the digital age. Tierney, a former advertising and public-relations executive, termed the seniority system “antithetical to quality and diversity” and said he would eliminate it entirely if he could.

Even the nation’s elite newspapers aren’t immune to these trends. In a January memorandum, The New York Times called for the guild “to loosen some of the arcane work rules and practices that hamper The Times’ ability to swiftly meet the challenges posed by a new multimedia era.” As the price of bailing out the union’s ailing health care fund, the company was asking to bring newspaper and digital employees under a single contract with a longer work week and language making it easier to dismiss employees for poor performance.

Steve Yount, president of the Independent Association of Publishers’ Employees, said Dow Jones was seeking a 400 percent rise in union members’ contributions to health insurance premiums by 2010. In St. Paul, where the contract expires July 31, MediaNews wants to freeze pension contributions and substitute an employer match for a 401(k). “They said that unless we agree to this proposal, they will lay off more people,” Carroll said.

The threat of layoffs, which are replacing buyouts, is becoming a powerful tool to extract concessions. At the San Jose Mercury News, another former Knight Ridder property now under MediaNews management, the union agreed in December to higher health insurance premiums and the outsourcing of finance and advertising jobs, reducing guild layoffs from sixty-nine to twenty-eight. During the Philadelphia negotiations, management suggested that Inquirer newsroom layoffs could reach 150.

Privately held Block Communications Inc. has been wielding a different cudgel: a threat to sell its money-losing newspaper properties if it can’t get significant cost savings and jurisdictional flexibility. The National Labor Relations Board has charged the Toledo Blade with illegally locking out more than 200 workers representing five unions. In response, the unions have mounted advertising and subscription boycotts. “We decided that if they’re going to sell the paper, there wasn’t a damn thing we could do about it anyway,” said Larry Vellequette, a spokesman for the Toledo Council of Newspaper Unions.

Michael Bucsko, president of The Newspaper Guild of Pittsburgh, said in February that Pittsburgh Post-Gazette guild members were likely to approve a new thirty-nine month contract that cuts pay by diverting about $280 a month to health insurance and the pension fund.

Jeremy P. Sherman, a Chicago-based lawyer at Seyfarth Shaw who has advised management negotiators in Philadelphia and Pittsburgh, said newspapers must learn to compete with the “entirely different economic model” of the Web, with its “constellation of different content providers,” and more flexible job assignments. “This is a paradigm shift,” he said.

That isn’t to suggest that newspaper managers aren’t “passionate about putting out the finest quality consistent with business reality,” Sherman added. Where those goals intersect is “the area subject to legitimate debate.”

To Mark Cooper, the research director for Consumer Federation of America, the continued cost-cutting spells trouble. Newspaper Web sites still dominate their markets, Cooper said, but newspapers “do exactly the wrong thing: They say, ‘Let’s get rid of reporters.’ ”

In Philadelphia, despite the cuts, Tierney said in January that his promotional efforts were yielding results, with Inquirer print circulation edging up and page views of Philly.com increasing by about 50 percent from the same time last year.

At the Inquirer, a one-time Pulitzer magnet decimated by three major buyouts since 2000, the layoff process has been chaotic. One well-respected arts reporter was told he would be laid off, then reprieved, threatened again, and finally spared by being moved into management. “The newsroom is in shambles,” Holcomb said, “because nobody knows what’s next. Nearly every department has lost or is in the process of losing key people.”

While the new contract protected dozens of reporters in key beats from seniority-based dismissals, it made no allowance for diversity. About 28 percent of those on the layoff list were African American or Asian American, nearly twice their newsroom representation. After a protest from the National Association of Black Journalists and a meeting with minority staff members, Tierney promised to reinstitute a diversity committee.

“You couldn’t overstate how difficult and painful it was to lose so many great journalists and colleagues,” Bill Marimow, the paper’s new editor, said he told the staff. Still, he said, “We have to play the hand we’re dealt—and, to me, having a newsroom this size is a good hand.”

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Julia M. Klein is a cultural reporter and critic in Philadelphia and a CJR contributing editor.