As Freedom Communications Holdings Inc., moves through bankruptcy, its second-largest newspaper — the Gazette — is showing sharp declines in circulation, and the California-based conglomerate's own financial forecast predicts a further, company-wide reduction in force next year.

Things are so tight that Colorado Springs' daily newspaper has relinquished its credentials to cover the Winter Olympics in Vancouver, British Columbia, the first time it will pass on covering any Olympics with its own personnel since the U.S. Olympic Committee relocated to Colorado Springs in 1977.

Then, Friday, the newspaper announced it had laid off 11 people including seven in its newsroom. Though names weren't released, other Gazette employees confirmed that the departures included several who had been with the company at least 20 years.

The latest Audit Bureau of Circulations report shows the Gazette's Sunday circulation plunged by 10.6 percent in a 24-month period ending Sept. 30, dropping to 84,265, while the weekday count lost 12 percent to 63,404. Those figures represent average paid circulation at 50 percent or more of the subscription price.

The Pueblo Chieftain lost ground, but not as much during the same period, with Sunday circulation declining by 6.2 percent to 46,608, and weekday by 6.3 percent to 43,514.

Circulation numbers are important, because ad rates are tied to them. The greater the circulation, the more a newspaper can charge for ad space.

The 2 percent solution

Freedom's five-year financial forecast, recently filed as part of its Chapter 11 bankruptcy, predicts circulation revenue will increase at a 1 percent annual growth rate from 2009 to 2014. Translation: Home delivery prices will go up. Local subscribers already are seeing an increase.

The financial forecast says Freedom's payroll and benefit expense next year will decline, "driven primarily by reductions in headcount in the newspaper and broadcasting divisions." Translation: More people could be laid off, or positions not filled. Scores of jobs have already been shed by the Gazette since 2007. (The planned closing of the unprofitable East Valley Tribune in Mesa, Ariz., on Dec. 31 is excluded from the five-year forecast.)

Gazette editor Jeff Thomas, in an e-mail response to questions, said of the bankruptcy documents, "They will have to speak for themselves, I'm afraid."

Publisher Steve Pope did not respond to a request for comment on this story.

Bob Emmers with Sitrick and Co., a public-relations firm hired to handle communications during the bankruptcy, says any staffing decisions will be in response to business conditions. But he doesn't rule out layoffs.

Freedom's holdings, which include eight television stations, 33 daily and more than 70 weekly newspapers, employ more than 8,200 people and independent contractors in 15 states, according to bankruptcy documents.

The bankruptcy, filed in September, proposes a reorganization that would wipe out a big chunk of debt in exchange for drastically curtailing the extent of R.C. Hoiles family's ownership. The majority would be controlled by Freedom's creditors, chief among them JPMorgan Chase.

In another bankruptcy document, financial advisers Houlihan Lokey Howard & Zukin Capital Inc., value the reorganized company at between $90 million and $190 million. That's a fraction of the estimated $2 billion that Freedom executives said it was worth in 2004, when they explored selling the company to pay off family members who wanted to cash out, including Tim Hoiles of Colorado Springs. Instead, the company took on equity investment from Blackstone Communications Partners and Providence Equity Partners.

Under a proposed reorganization plan, Chase and other lenders will take over the company, leaving the family and the equity firms with only 2 percent of the company, with the possibility of increasing that to 10 percent within five years if certain goals are met.

Millions to consultants

Freedom officials have tried to put a positive spin on the bankruptcy, saying the "debt restructuring" will allow the company to "emerge with a solid balance sheet to enable the company to meet today's industry and economic challenges."

To navigate the bankruptcy, Freedom is paying millions to several consultants. The Houlihan Lokey firm, hired in March, will be paid $200,000 per month, plus $6 million when the transaction is completed. Sitrick and Co., hired in October 2008, is providing corporate communications advice (although it didn't return the Indy's call by press time) at hourly rates from $185 to $850. The company has been paid $488,000 so far. Yet another firm has been hired to market the Mesa property.

And speaking of payouts, Freedom paid $3.7 million to its executives in the year leading up to the bankruptcy, according to AZ Capitol Times.

Former Gazette publisher Scott McKibben, who left about a year ago for the Los Angeles Times Media Group and recently was hired to oversee the Tournament of Roses Parade and Rose Bowl football game, got a $25,000 bonus. Current Gazette publisher Pope, who started in January, has received two bonuses totaling $30,000. McKibben and Pope were rewarded for "managing by objective," as were Freedom chief executive Scott Flanders, who raked in bonuses totaling $1.15 million before leaving in June for Playboy magazine, and Jonathan Segal, a Freedom Newspapers executive who was paid $189,000 in bonuses.

Asked to comment on the bonuses, handed out as employees were being laid off and as the decision to close the Mesa paper was being made, Emmers says, "We're not commenting on the bonuses at all. Whatever the filings say, the filings say."

The company hopes to complete the bankruptcy by June 2010.

— zubeck@csindy.com