As the Seattle Post-Intelligencer’s fate continues to hang in the balance, Steven Swartz (CEO of P-I owner Hearst) and Lincoln Millstein (Hearst’s Senior VP-Digital) have lunch:

Millstein: Steve, we need to make up our minds about the P-I.  The 60-day clock we put them on stopped three days ago.

Swartz: Yes, I’m sorry — I’ve been tied up dealing with the Chron, shuffling management, getting that e-reader going, and whatnot.  But you’re right, let’s figure it out.  I’m running out of time in my “100 days of change,” also.  What’s your thinking?

Millstein: I’m thinking we go with an online-only P-I.  We’re going to end up facing that choice in other markets, including San Francisco, and Seattle gives us the opportunity to test the model and find out what works and what doesn’t.

Swartz: But can we make money?  We’ve been losing more than $1 million a month there — $14 million last year.  I’m not interested in an experiment to see if an online-only brand can stand up against a print/only combo — I’m interested in making money.  In the immortal words of Jack Welch: “fix it, sell it, or close it.”  There’s no buyer in sight, so we’re down to fixing or closing.

Millstein: I say we fix it.  We’ve got the numbers down to breakeven.  That’s doing pretty well, in this economy.  We can build profitability going forward. We’ve got a staffing plan: with just a few dozen content people we’ll have an operation that can cover Seattle well enough.  We need to hire a sales and marketing staff, some tech people, some admin types, but overall we’ve cut that $ 14  million loss down to total expenses of $5 million.   We can sell ads to cover that — the site is leading the market in unique visitors and pageviews.

Swartz: OK, but just to cover $5 million in cost, you need $100,000 a week in ads, and as I said, breaking even is not good enough — this is still a business.  The right number would be $250,000 a week, or more.  $13 million a year in revenue.

Millstein: Look, the Seattle Times has been selling all the ads in the JOA, so we’re going to have to ramp up to that number, but it can be done.  We get 4 million visitors, 45 million pageviews a month.  We outpull the Times.  We’ll be selling online and nothing but online; their folks still have to straddle print and Web.  If you want to get to $13 million in sales [pulls out napkin and pencil], that’s a page CPM of $24…

Swartz: That would beat any newspaper we’ve got, in the current ad climate.

Millstein: It would, and we’re not going to get there on day one.  Again, it’s going to have to be a ramp-up, but we can get to $10 CPM pretty quickly and build from there.  $10 gets us to a small profit in the first year. [Clarification: “Millstein” means total page CPM throughout.]  By year two, we’ll build in some other revenue sources: e-reader subscriptions, some niche products in print, like visitor guides, and some subscription revenue for premium online content that goes beyond what we’re publishing now.  We’ve built capacity to do that into our budget. And as business improves we’ll get to $24.

Swartz: You’re making me nervous, Lincoln.  There’s too many “ifs” — if you can operate with the staff that lean, if you can get $10 CPM, if you can get subscription revenue, if you can launch niche products, if the economy improves, and if you can built it up to $24 CPM down the road.  If you owned it, what would you do?

At this point, both of their cell phone ring.  The waiter brings the check.  They both have planes to catch.  “Call me tomorrow,” says Swartz. “Maybe we can figure it out by next week.”