Barons back off newspaper trial

See bottom of story for full Web package of Guardian newspaper-transaction coverage and documents related to the Reilly suit

Click here for the Reilly press conference documents.

Click here for the famous April 26, 2006 letter.

Well, it’s over before it ever truly began.

Clint Reilly’s federal civil suit against the Hearst Corp. and MediaNews Group, filed last year in an attempt to block the would-be competitors from sharing monopoly control of the Bay Area’s daily newspaper establishment, ended today in a settlement that left Reilly claiming victory.

The deal blocks any future business deals between Hearst, owner of the San Francisco Chronicle, and MediaNews, which now owns almost every other daily in the region.

The settlement saved some of the nation’s biggest newspaper barons from the prospect of a long and embarrassing trial that could have produced alarming revelations about the way the big publishers do business.

The case was set to go before a judge and jury April 30.

But in exchange, Reilly says he got most of what he was asking for – in particular, an end to the prospect of a Hearst-Media News business deal.

At a morning press conference April 25, Reilly announced that the settlement puts the Chronicle back into competition with local MediaNews properties.

“The purpose of my lawsuit,” Reilly told reporters, “was to ensure we will not have one company or one partnership owning every single paid subscription daily newspaper in the Bay Area … I strongly believe in newspaper competition. Newspapers create the record of our civic life.”

The local real-estate investor and former mayoral candidate forced the two companies, along with minority business partners the Stephens Group and Gannett Co., to promise they wouldn’t carry out the terms of a now-famous letter dated April 26, 2006 that outlined how Hearst and MediaNews could consolidate distribution and advertising operations among their local papers to create revenue.

That was just one of many proposed plans Reilly’s suit called a violation of federal antitrust laws. Also according to the settlement, Hearst’s $300 million stock investment in MediaNews, which CEO William Dean Singleton relied upon to complete his takeovers last spring of the San Jose Mercury News, the Contra Costa Times, the Monterey County Herald, and eventually, the Torrance Daily Breeze near Los Angeles, would rise and fall in value based only on the performance of MediaNews assets outside of the Bay Area.

The “tracking stock” scheme, as it’s known, was initially conceived this way to clear Hearst and MediaNews of immediate antitrust scrutiny by justice-department officials, but Hearst hoped it would later be converted into general MediaNews stock that included its Bay Area papers, a fact confirmed by records unearthed in an earlier phase of Reilly’s suit. Hearst, it turned out, much preferred that its huge investment include the totality of MediaNews.

But today’s settlement would keep that from happening, according to terms laid out between the parties, some of which they’ve agreed not to disclose.

Any talk of conjoined operations during the next three years between the companies would have to first be divulged to Reilly and his legal team.

Singleton has also agreed to turn over all executive meeting minutes of the California Newspapers Partnership, formed originally with Gannett and Stephens in 1999, that detail any negotiations with the Chronicle or other major media companies looking to do business with MediaNews in the Bay Area for the next three years.

In addition, Reilly will be permitted to recommend a citizen for appointment to the editorial boards of CNP’s Bay Area newspapers and will himself serve on the editorial board of at least one of them.

“The ten-month-long legal battle gave us a chance to see confidential documents between Hearst and MediaNews, Stephens and Gannett,” Reilly said. “Numerous documents show these newspaper companies and their executives are capable of the very cover-ups they so vigorously prosecute in politicians, executives and celebrities. I believe that their primary motivation for settling this case was their fear of exposing questionable competitive practices to public scrutiny.

“This is the second time Reilly has done this,” his attorney, Joe Alioto, told the reporters, referring to a 2000 suit Reilly filed to stop Hearst from shutting down the San Francisco Examiner. “And he does it because the government won’t do it. He does it all at his own cost and risk.”

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Reilly’s first antitrust assault on Hearst produced some sensational revelations – including the fact that the Examiner publisher sought to trade favorable editorial coverage of then-Mayor Willie Brown in exchange for Brown’s support of Hearst’s business deals.

With the settlement in place, Reilly’s second suit won’t produce that sort of high drama. But he has forced the release of records showing that Hearst and MediaNews wanted to develop close business ties – and there are more potentially explosive documents that may become public.

After the Guardian and Media Alliance intervened to have records previously sealed by the newspaper companies opened to public access, we learned for the first time that Hearst had considered selling the San Francisco Chronicle to Singleton in 2005. But the latter’s offer was chump change, coming just a few short years after Hearst had plowed through three quarters-of-a-billion dollars in its bid to take over the Chronicle and dump the San Francisco Examiner, which it had owned for more than a century. The terms were “totally unacceptable,” Hearst executive James Asher would tell the justice department in a September deposition that turned out to be among the most interesting and candid documents to surface from the intervention.

We learned that Hearst had spent more than 10 years gnashing at the bit for an opportunity to invest in the MediaNews business model, best described as a series of “clusters,” in which Singleton consolidates the operations of several regional newspapers, hacks madly at the payroll with a broadsword, and sends ill-fated staffers packing, from veteran editors with Pulitzers on their résumés to longtime press operators.

We learned that Hearst’s inspiration for its major stock investment in MediaNews began after the two became fast friends in Texas, Singleton’s home state. MediaNews in 1995 sold the assets of the Houston Post for $120 million to Hearst, which owned the Houston Chronicle, enabling Hearst to rid itself of a major-market competitor.

We learned that from day one, Hearst wanted its $300 million investment to directly hinge on Bay Area MediaNews properties as well, presumably meaning they believed it would make the investment more valuable, and also meaning Hearst would then have less of an incentive to compete directly with MediaNews. Would you if your competitor was holding $300 million of your money?

We also learned that an anticompetitive agreement to join advertising and distribution networks with MediaNews was required by Hearst “in order to proceed with the transaction,” according to a memo Hearst exec Asher sent to MediaNews president Joseph J. Lodovic IV in early 2006. In other words, a quid pro quo by its very definition.

We learned that contradictory legal strategies are far from off limits. The Hearst Corp. argued first in Reilly’s 2000 suit that the Bay Area is brimming with aggressive newspaper competition, and for that reason, he had no grounds to denounce the closure of the Examiner planned at the time. The papers argued in 2006, however, that newspaper competition in the Bay Area is actually all but non-existent because the markets are subdivided, so Clint Reilly doesn’t have anything to complain about.

Some of the most interesting material is still under court seal, including the depositions of senior publishing executives. But the settlement specifically allows Reilly to go back into court seeking an order to open those records, and he and Alioto vowed to do that very shortly.

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Overall, it’s been a monumental year for newspapers, replete with massive waves of unfortunate irony. Banner headlines at dailies across the country have prophesied the death of newspapers, a trend story that Hearst and MediaNews tried to use in court to convince judge Illston that the industry was wilting under a consolidate-or-die atmosphere. A better analysis, of course, might conclude simply that shareholders aren’t getting the enormous returns they once did, with the exception of the Chronicle, which, we learned from Reilly’s suit, has been losing $1 million a week for Hearst — if not more.

A shareholder revolt broke to pieces one of the nation’s largest newspaper chains, Knight-Ridder, respected by many in the industry for its commitment to investigations, bold enterprise reporting and funding for national and international bureaus. The company was forced to sell after investors grew restless, and Singleton swept in to takeover the chain’s gem, the Merc, as well as the Times in Contra Costa County.

Layoffs ensued and MediaNews immediately began consolidating business-side functions in a single San Ramon office where operations for several papers could be managed at once. And MediaNews recently spiced up the company’s Web site, an emblem of its new dominant position. But like the old site, there’s very little information about the company’s journalism awards, and no bios of its editors, profiles of its reporters or portraits of anyone driving the company’s papers from the bottom up. Like the old site, there’s information for investors and photos of the company’s top executives, including one of Singleton smiling alongside company president Lodovic, who earned a $1 million bonus just as MediaNews consummated its marriage with Hearst last year.

At MediaNews papers in the Bay Area, single stories began appearing in several papers under one byline during Reilly’s suit meaning fewer perspectives for major Bay Area issues. Again with a touch of irony, one of the regular bylines on stories covering Reilly’s suit has been from veteran Merc reporter Pete Carey, who under the paper’s old owners helped win two Pulitzers, first for its joint 1985 coverage of the downfall of Filipino despot Ferdinand Marcos and second for stories explaining how red tape blocked needed retrofits at some California highways leading to greater infrastructure damage during the 1989 Loma Prieta earthquake.

In Minnesota, a Ridder family heir hung on as publisher of the St. Paul Pioneer Press after Singleton took it over last year with Hearst’s help before he left just recently for a job at the competing Minneapolis Star Tribune. The move has devolved into a bitter court dispute with Singleton, according to the Twin Cities alt weekly, City Pages. The Ridder family’s involvement with the Pi Press lasted more than 70 years.

Even Singleton’s beloved flagship paper, the Denver Post, couldn’t escape “industry changes” – that is, layoffs. The paper reported buyout offers to more than a third of its staff April 24.

But we have received a recent ominous sign of what’s to come just as Reilly inked his settlement with Hearst and MediaNews.

In an election for board directors at the April 24 annual meeting of the New York Times Co., 42 percent of the shareholders withheld their votes to protest the company’s stock structure, which keeps a controlling ownership stake in the hands of the Sulzberger family, the members of which have owned the Times for generations.

The Times – like the Washington Post – has staved off shareholder raids like the one that tanked Knight-Ridder by maintaining their own separate class of stock. The Sulzbergers have reiterated that the strategy enabled them to keep quality reporting at the paper’s forefront and short-term obsessions with profit at bay.

“Mr. Sulzberger dismissed the calls to separate his two titles,” a Times story on the meeting noted, “saying that holding both roles [of publisher and chairman] allows him to ‘balance the financial and journalistic needs of this institution.'”

But Wall Street’s war on newspapers, in the meantime, is likely not over.

“At the beginning of my case, I said that 25 years involvement in politics and government had taught me how important newspapers are to our democratic society,” Reilly said at the press conference. “I hope this lawsuit in 2007 will guarantee competition among newspapers for another generation in our city and the Bay Area.”

THE PAPER TRAIL
Several of the documents stemming from Clint Reilly’s antitrust claim against Hearst, MediaNews and other business collaborators in the California Newspapers Partnership

THE UNFOLDING STORY
Major Guardian stories and editorials published since last spring following the recent major Bay Area newspaper transactions and Clint Reilly’s resulting lawsuit

THE NEW-MEDIA SCOOP
Posts to the Politics Blog about the Clint Reilly suit

THE BRUCE BLOG ON MONOPOLY MEDIA
Keeping tabs on the Galloping Conglomerati via blog reports and impertinent questions