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Seattle newspapers settle legal dispute, extending their Joint Operating Agreement, on April 15, 2007.
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On April 15, 2007, The Seattle Times and the Seattle Post-Intelligencer (P-I) settle a four-year-old legal dispute and agree to extend their Joint Operating Agreement (JOA) for at least nine years. The settlement was reached the day before an arbitrator was scheduled to hear final arguments on an effort by the Times to end the JOA, under which the Times handles business operations for its smaller competitor. Times publisher Frank Blethen claimed the arrangement had become an unprofitable "yoke" that threatened the future of his family-controlled paper. The Hearst-owned P-I disputed the Times’ financial arguments and said, further, that the P-I could not survive outside the JOA. Employees of the P-I reacted to news of the settlement with relief, while some of their Times counterparts expressed puzzlement. "People are trying to figure out who wins or who blinked," said one Times reporter (Seattle Post-Intelligencer).
One Press, Two Papers
Joint Operating Agreements were made possible by the Newspaper Preservation Act of 1970, which was intended to promote newspaper competition in major markets. The act allowed daily papers to merge business functions -- in ways that would otherwise violate antitrust laws -- if the Justice Department determined that one of them was in danger of failing. The New York-based Hearst Corporation, which has owned the Post-Intelligencer since 1921, and Ridder Publications, Incorporated, which acquired a minority interest in the Times in 1930, were among the media conglomerates that lobbied for the measure. Critics called it protectionist legislation that would benefit publishers more than the public. Supporters said it would promote editorial diversity, keeping two newspapers alive even if market forces would support only one.
The Times and P-I applied to the Department of Justice for approval of a JOA in 1981. The application was strongly opposed by a coalition that included the Seattle Weekly, suburban newspapers, several prominent advertisers, the Pacific Northwest Newspaper Guild (the largest union representing newspaper employees), and a number of P-I staffers. William L. Dwyer, a noted attorney (and later federal judge), represented the group on a pro bono basis. Dwyer convinced a district court to overturn the Justice Department’s approval of the JOA, but lost on appeal. The Seattle JOA (the 22nd to be enacted in the nation) took effect on May 23, 1983.
The agreement gave the Times control over production, delivery, advertising, circulation, and marketing for the two papers, in return for two-thirds of the profits of the joint operation. The same presses were used to publish both papers -- the P-I in the morning, and the Times in the afternoon. The news and editorial departments remained separate, independent, and competitive.
JOA, Part II
Initially, the agreement seemed to be attaining its objective. The P-I’s circulation increased from 188,723 in March 1983 to 202,374 in March 1988 -- a gain of 7 percent over five years. The Times’s circulation also increased, by about 5 percent, to 235,705. Readers sometimes seemed confused by the arrangement and some advertisers continued to voice resentment about it, but the publishers of both papers pronounced it a success. "The JOA means we aren't wasting money going head-to-head with the P-I," Frank Blethen told a Times reporter in May 1988. "Instead we are doing what we should really be doing, which is serving the reader and advertiser by putting money back into the product instead of dealing with the competition across the street."
Privately, however, Blethen was chafing at the restriction that limited the Times to afternoon publication, a position that few newspapers with morning competitors found profitable. At his behest, the Times renegotiated the JOA in 1999, granting certain concessions to Hearst in return for the right to publish in the morning. The Times reduced its share of the joint profits from 66 to 60 percent; gave up a provision that limited the development of the P-I’s website; and gave Hearst the right of first refusal to buy the Times if the Blethen family ever decided to sell. Blethen insisted that the family would never sell; granting the right of first refusal to Hearst may have been a reflection of his unhappiness with the Knight-Ridder newspaper chain, which then owned 49.5 percent of the Times. (Knight-Ridder, and its stake in the Times, has since been purchased by the McClatchy Company.) An earlier stipulation, that Hearst receive 32 percent of the profits earned through the JOA even if it stopped publishing the P-I, remained in place. The new JOA was extended for 50 years beyond its original term, to 2083.
Newspaper observers questioned why Hearst would give up its monopoly on morning publication -- seemingly its most valuable asset. David Brewster, former publisher of the Weekly, was among those who concluded that it was the beginning of the end for the P-I. "It sounds to me as if Hearst is preparing to close up shop in Seattle," he wrote in a 1999 article in the Times. After three years of losses, "Hearst could go to the Justice Department with new evidence of being a failing paper, close the P-I, and clip coupons until 2083, enjoying its guaranteed 32 percent of Seattle Times profits."
However, J. D. Alexander, then publisher of the P-I, said the new agreement offered numerous advantages. "We get a much bigger share of the profits," he said. "The resolution of the dispute over the Internet, and the right of first purchase, are not inconsequential either" (Seattle Times, 1999). The new financial arrangement would allow the P-I to put more resources into staffing and content in preparation for head-to-head competition with the Times, he added.
Duel at Dawn
The war between the two dailies was officially launched on March 6, 2000, when the Times shifted to morning delivery. Most handicappers gave the advantage to the Times. "The P-I has the morning experience, the morning audience and a gritty, underdog attitude," the weekly Puget Sound Business Journal noted. But the Times "has more resources and will benefit from not publishing several editions throughout the day, as it does now. And the Times will continue to publish the vitally important Sunday issue, which reaches a much wider audience, generates a huge portion of advertising revenues, and provides better distribution and display for major stories."
Hearst prepared for the battle by appointing a new publisher, Roger Oglesby (former president of the Orange County edition of the Los Angeles Times), and otherwise beefing up the management and staff of the P-I. Nonetheless, the paper’s circulation dropped steadily under the amended JOA, from 192,000 in March 2000 to 164,000 two years later. The Times’ daily circulation, meanwhile, increased slightly, from 225,000 to 228,000.
Both papers suffered economic losses during a 49-day strike by the Newspaper Guild, beginning in November 2000. The terrorist attacks of September 11, 2001, and the ensuing recession added to the financial stresses.
In January 2003, the Times said it had lost money for three consecutive years and thus planned to trigger an "escape clause" that would allow it to dissolve the JOA. Hearst responded by invoking another clause in the agreement. Under the "force majeure" (literally, major force) provision, losses beyond the control of the parties involved could not be used to break the JOA. "We believe that the past three years don't constitute a fair test of this JOA's continued economic viability," Hearst said in a lawsuit filed in King County Superior Court on April 28, 2003. A separate claim alleged that mismanagement of the JOA by the Times had cost the Hearst Corporation millions of dollars.
The two sides battled each other in court for the next three years. Times publisher Frank Blethen repeatedly insisted that Seattle could not support two daily newspapers and that the effort to "artificially support" the P-I through the JOA was a threat to the survival of his paper. "It is not our intent to let the Hearst Corporation bleed one of the few remaining independent newspapers out of existence," he said in one written statement. He later characterized the JOA as a "yoke" that unfairly tied his paper to a "failed and market-rejected newspaper" (Puget Sound Business Journal, 2003 and 2004).
The Times prevailed in two higher court decisions on whether strike-related losses could be used in its bid to leave the JOA. Nevertheless, in March 2006, the two papers’ owners unexpectedly agreed to enter confidential, binding arbitration on the future of the JOA and on the related issue of whether Hearst was entitled to damages stemming from alleged mismanagement of the joint business operations by the Times. Retired King County Superior Court Judge Larry Jordan was chosen as the arbitrator. He was scheduled to begin hearing the case behind closed doors on April 9, 2007, with a decision due by the end of May.
As the hearing date approached, principals at both companies became involved in intense, behind-the-scenes negotiations. The hearing was postponed for a week, to April 16. A settlement was signed on the afternoon of April 15, a Sunday, and announced the next day.
Nine Year Lease on Life
In the settlement, the Seattle Times Company agreed to take no action to end the JOA until at least 2016. It also accepted new accounting restrictions that limited the amount of money that could be charged to the joint operation for the salaries of top Times executives, for travel and administrative expenses, and for training and career development for Blethen family members. Hearst gave up its right to 32 percent of the Times’ profits if the P-I were closed any time before the expiration of the JOA, in 2083, in return for a net payment of $24 million from the Times. Hearst also agreed to drop its claim that the Times had deliberately undercut the circulation and promotion of the P-I, in violation of the JOA.
Describing the settlement to elated P-I staffers, Editor and Publisher Roger Oglesby said it offers the paper "a new lease on life -- a nine-year lease." He was loudly applauded when he announced that the newspaper delivery trucks, which previously carried only the name of the Times, would be repainted to include the names of both papers -- an important symbolic gesture. Still, he cautioned, the settlement doesn’t mean "nine years to sit around -- it is a nine-year opportunity" (Seattle Post-Intelligencer).
Times Company Chief Executive and Publisher Frank Blethen faced the bigger challenge of trying to explain why his company, after saying it had been losing money in the JOA since 2000, would now help finance its continuation for at least nine more years. In a news conference, he called the settlement "very good news for us." At the same time, he expressed doubts that it would work. "I'm still very skeptical it'll work," he said. "I don't know if newspapers will survive, period." On the other hand, he added, the deal would at least keep both papers alive for the short term. "My guess is that we’ll have two newspapers longer than just about any other city" (Los Angeles Times).
In an interview with the Puget Sound Business Journal, Blethen suggested that a primary motive for the settlement was to get out of court. Even if the Times had prevailed in the arbitration, he said, legal challenges from a citizens group called the Committee for a Two-Newspaper Town could have prolonged the dispute. "We were looking at the potential of several more years of very expensive litigation," he said.
Still, the abrupt turnaround baffled some observers. "People at the Times are really bewildered," said Liz Brown, a representative of the Newspaper Guild (The Seattle Times). Some wondered if Hearst had a "smoking gun" -- evidence that the Times had sabotaged business operations for the P-I in an effort to drive its rival out of business. Executive Editor David Boardman faced a dubious audience when he met with the Times editorial staff to discuss the settlement on the day it was announced. "There were a lot of very direct and skeptical questions about how is it that a failing business model one week is something we can live with the next week," one Times staffer told a reporter for the P-I.
The mood at the P-I, in contrast, was jubilant. Reporter Lisa Stiffler spoke for many of her colleagues when she said: "I don't know what the future holds, but for right now, I'm happy just to be happy" (Seattle Post-Intelligencer).
Janice Hayes, "One Press, Two Voices: In Public’s Eye, JOA Blurs the Lines Between Times and P-I," The Seattle Times, May 22, 1988, p. D-1; David Brewster, "Touted A.M. Competition Recipe For A One-Daily Town," Ibid., February 5, 1999; Nancy J. Kim, "Times, P-I Promise a Feisty A.M. Showdown," Puget Sound Business Journal, February 5, 1999 (http://seattle.bizjournals.com/seattle/stories/1999/02/08/story8.html); "P-I Owner Hearst Goes to Court to Defend JOA," Ibid., April 28, 2003 (http://seattle.bizjournals.com/seattle/stories/2003/04/21/daily58.html); "Times Calls P-I ‘Failed’ and a ‘Yoke’ on Operations," Ibid., May 21, 2004 (http://seattle.bizjournals.com/seattle/stories/2004/05/17/daily37.html); Dan Richman and Brad Wong, "Seattle P-I and Times Settle Legal Dispute," Seattle Post-Intelligencer, April 17, 2007, p. A-1; Sam Howe Verhovek, "You Still Can read All About It Twice in Seattle as Deal Retains 2 Papers," Los Angeles Times, April 17, 2007, p. A-8; Alwyn Scott, "Questions for Frank Blethen, Publisher and CEO, The Seattle Times Co.," Puget Sound Business Journal, April 20, 2007 (http://seattle.bizjournals.com/seattle/stories/2007/04/23/story3.html); Eric Pryne, "Explanation, Speculation after Times’ About-Face," The Seattle Times, May 6, 2007, p. G-1.
Note: The author is the spouse of a Seattle Post-Intelligencer employee and has contributed op-ed essays to The Seattle Times.
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