Error by Times Publisher Raises Ire in Newsroom.

Kathryn Downing just can't seem to stay out of trouble.

Downing's improbable tenure at the L.A. Times took another unexpected twist last week as word of the paper's unorthodox profit-sharing arrangement with Staples Center owners received national attention and again raised the $64 question:

What is she doing as publisher?

An obscure executive at Times Mirror Co.'s legal publishing division until just 18 months ago, the 46-year-old Downing has raised a stir at the nation's second-largest metropolitan newspaper almost from the start.

She has no background in the running of a daily, much less one with the national stature of the Times.

She daringly projected a circulation increase of 1 million -- upping the projection of Times Mirror Chairman Mark Willes by 500,000 -- and was immediately branded by industry veterans as naive and out of touch.

She is said to have developed a "my way or the highway" management style that some say led to the departures of numerous senior-level Times executives.

But all this was prelude to the brouhaha that unfolded over the Staples deal that had been struck as part of an Oct. 10 Sunday magazine package -- and which led to a public apology last Thursday afternoon in front of an overflow crowd of Times employees at the paper's cafeteria.

The Times generated about $2 million in ad revenue from the 164-page edition, the largest Sunday magazine ever published by the newspaper. But profits were split with the arena owners. It's the kind of deal that once again as naysayers pointing to a too-cozy relationship between the editorial and business sides.

During the two-hour meeting before a largely hostile group, Downing apologized for the ad revenue-sharing idea. She acknowledged bringing shame to the newspaper and said she had learned from it, and will continue learning more about the newspaper world.

"People did give her credit for her candor and accepting responsibility, but they were not reassured that this wouldn't happen again," said one observer.

After the 15-minute apology, newsroom staff members spent more than 90 minutes peppering Downing with heated questions and insinuating that it might be a good idea for her to resign. But she remained firm that she would stay on as publisher.

"The editorial staff feels the paper can't climb out of the credibility hole it has unless she is gone," said one reporter who attended the meeting. "They also feel this is what you get when you bring someone on who is inexperienced as a publisher."

Downing announced that she will implement six measures to assure that revenue sharing won't happen again. One of those includes asking the paper's legal department to review all contracts made with advertisers.

The publisher also said she will cancel an agreement with the Staples Center calling for the newspaper and the arena to work on more revenue-enhancing projects.

Downing's apology was prompted by an Oct. 27 petition that had been started by business reporters protesting the Staples arrangement. It made the rounds to journalists throughout the paper, and by late Wednesday afternoon, nearly 300 signatures had been gathered.

"I think there is a strong feeling that we have someone who literally has no newspaper background, and that is showing itself," said one reporter.

Downing, who received a degree in economics from Lewis and Clark College and a law degree from Stanford University, joined Times Mirror in 1995 as president and CEO of Mosby and Matthew Bender, the company's legal publishing division. When that was sold off, she joined the Times as president and chief executive. She became publisher in June and has worked closely with her mentor, Willes. That has led to speculation over the months that Downing would be a prime candidate to take over the top ranks of Times Mirror, perhaps as a successor to Willes.

Whether those plans might be derailed as a result of the Staples controversy is open to debate. Willes has shown to be especially comfortable with Downing -- enough so to make her publisher.

John Morton, a newspaper analyst in Spencerville, Md., said it's not entirely fair for staffers to question Downing's abilities in newspaper management. After all, most businesses don't have the same need of newspapers to both generate revenues and seem objective about the source of those revenues. Her lack of expertise on such fine points doesn't necessarily make her a bad manager.

"The same thing came into play when Willes took over," Morton said. "He has a very tenuous background in journalism, too. If you're a good manager, you can manage anything. You don't have to have a journalism background, but if you do, you're more sensitive to the appearance of things. That might be something that's trickier to someone without a journalism background (at a newspaper)."

Downing was unavailable for comment.

Editors maintain that the stories written for the special Sunday magazine edition on Staples Center were not altered or influenced by the advertising department.

Reporter Tony Perry, who wrote an article for the magazine about whether an arena can revive an economically depressed downtown, said he approached the story like any other. "We pursued it, we wrote it and edited it without an iota of influence from advertising," Perry said.

The controversy stems from a joint venture agreement that was arranged nine months ago between the Times and the owners of Staples Center. The Times is one of 10 founding partners in the arena, which means it gets certain signage and other promotional rights in exchange for an annual payment of between $2.5 million and $3 million.

When the Times first developed plans to devote an entire issue of the Sunday magazine to Staples, arena officials agreed to solicit the other founding partners, as well as vendors inside the building and other supporters, to buy ads in the publication.

The Business Journal first reported that arrangement on Oct. 11. The following week, New Times disclosed in a gossip column that ad revenues for the publication were split between the Times and Staples. The story was picked up by The New York Times and the Wall Street Journal.

"It certainly raises a question when there is a profit-seeking enterprise with an institution that the newspaper covers," Morton said. "It raises the possibility of a conflict of interest, and it requires even greater than normal diligence on the part of editors to see that nothing (untoward) happens. For that reason, I think a lot of newspapers would choose not to do it."

Of course, controversy is getting to be old-hat at the Times. Two years ago, Willes himself was the subject to industry-wide criticism for his proposals to create "mini-publishers" with control over both the advertising and editorial segments of each of the newspaper's sections.

Some feared it would serve to dismantle the traditional wall that stands between the advertising and editorial departments. Almost 30 top marketing and sales executives have left the paper since the policy was instituted in 1997.

Yet for all this, Times Mirror just reported third-quarter earnings that beat market expectations. Profit from newspaper operations were $102.2 million, compared with $80.5 million for the like period a year ago.

Although Times Mirror would not break down the numbers specifically for the Times, the jump was attributed in part to a 7.2 percent increase in advertising revenue at the newspaper.

The amount of printed advertising unit inches also is on the rise -- a trend that extends across the newspaper industry, thanks to a surge in advertising by dot-com companies. Between Jan. 1 and Sept. 27, there were 763,643 advertising unit inches in the newspaper, compared with 675,768 in the like period a year ago.

"I don't think there's any danger of the L.A. Times not being profitable," Morton said. "It's not a union paper, and it has been improving in profitability. The only thing you can say is that nothing seems to have gone wrong since Downing took over."

Except, perhaps, in those circulation numbers. Average weekday circulation only showed a 0.3 percent increase for the six months ended March 31, 1999. That's a gain of just 3,341 papers.