Beyond the Reilly settlement

> gwschulz@sfbg.com

Click here to read the Guardian editorial on the Reilly victory

Shortly before Clint Reilly began a press conference April 25 announcing that he’d settled his federal antitrust suit against the Bay Area’s two largest newspaper companies, Cheryl Hurd of NBC affiliate KNTV, channel 11, loudly complained to the pack of reporters that she just didn’t quite get the story.

"Why does anybody care about this?" she asked, sounding annoyed as she waved the press release listing the terms of the settlement in the air. "I don’t even understand any of this. What’s this mean?"

She wasn’t the only confused reporter. In the week since the settlement was announced, the local media have downplayed or mangled what is actually a huge story: Reilly, acting on his own, with no support from federal or state regulators, managed to scuttle a deal that would have ended all newspaper competition in the Bay Area.

"Would I have liked to see it go further? Yeah," said Bruce Cain, director of UC Berkeley’s Institute of Governmental Studies, who penned a declaration supporting Reilly’s case. "But at least he was able to stop more collaboration between those two companies, and he was able to establish the legal point that this has more than just economic consequences. It has consequences for the vitality of political news coverage in the Bay Area."

The settlement involved a lot of peripheral terms, but the essence was this: the Hearst Corp., which owns the San Francisco Chronicle, can no longer consider combining printing, distribution, and ad sales with MediaNews Group, which owns almost every other major local daily in the Bay Area.

Reilly announced that the deal prevents the supposed competitors from unfairly or illegally negotiating any major joint operating arrangement in the near future. The trial was scheduled to begin just days after the agreement was reached.

"Newspapers are the intellectual bridge between citizens and their government," Reilly told reporters. "To me, one Bay Area newspaper company owning every paid circulation daily newspaper would be a very bad thing for Bay Area newspaper readers and for public discourse."

The deal nixes a plan outlined in a letter unearthed during an early phase of the trial. The letter showed that Hearst and MediaNews wanted to consolidate distribution and advertising operations among their local papers to create additional revenue and save on expenses.

Hearst enabled MediaNews to complete the purchase of several major local dailies last year by investing $300 million in the company’s stock. To survive antitrust scrutiny, the deal was crafted to make the stock’s value hinge entirely on non-Bay Area assets. But documents revealed during the suit clearly show that Hearst had planned to convert the stock so that it included MediaNews papers here as well. The settlement also prevents that from happening.

According to the terms, Reilly will recommend private citizens for appointment to the editorial boards of every California Newspapers Partnership publication in the region, including the San Jose Mercury News, the Contra Costa Times, and the Oakland Tribune.

He will also get access to advertising space in the pages of the papers for a regular column.

Reilly had originally sought to force MediaNews to divest itself of the San Jose Mercury News and other papers, but that was a long shot at best. What’s remarkable is that he accomplished as much as he did when no government agency was willing to help.

"I see in a lot of places what’s happening is owners are trying to make as much money as possible," Cain told us. "I see this in local TV, I see this in print media. I’m sure there’s an element of survival sometimes, but I think a lot of it is just trying to get profit margins up."

The US Justice Department never made a serious effort to stop the deal. The Guardian recently confirmed that the state Attorney General’s Office under the newly elected Jerry Brown has dropped its probe into the transactions. Spokesperson David Kravets refused to explain why.

The state’s treasurer and former AG, Bill Lockyer, began the investigation, and when we asked for a comment on Brown’s decision, he declined, saying he had "moved on."

Gina Talamona, spokesperson for the federal Justice Department, said its examination of Hearst’s substantial investment in MediaNews continues. But MediaNews CEO Dean Singleton told us that he expects it will not only close soon but will also clear the companies to move ahead.

Singleton said his meetings with Reilly, a Bay Area native and former mayoral candidate, were civil and there were no terms of the settlement he was displeased with. But he still doesn’t believe Reilly had grounds to bring the suit.

"A lot of wild statements have been thrown out that are simply not true," Singleton said. "There’s no evidence whatsoever that we had any discussions with Hearst about doing anything with the Chronicle that would have been improper. In fact, we’ve had few discussions about anything with the Chronicle."

Perhaps there was nothing "improper" as far as justice officials were concerned. But a March 2006 letter from Hearst vice president James Asher to MediaNews president Joseph Lodovic that surfaced during the case shows Hearst required an agreement on consolidated distribution networks with MediaNews before the company would proceed with its side of the transaction.

So let’s go back to Hurd’s question: why should anyone care about newspaper mergers in an era when there are so many other sources of information?

John McManus is a part-time journalism professor at San Jose State University and director of GradeTheNews.org, a consumer Web site on Bay Area news quality. He was hired as a consultant by Clint Reilly’s legal team to provide analysis of how consolidated or noncompetitive media outlets might fail to provide the best, most valuable news stories possible to local consumers.

His answer is simple. "Everyone is affected by the quality of newspapers because they form the bottom of the food chain for news," McManus told us. "Probably about 85 percent of the original news reporting in the Bay Area comes from newspapers, because they have much larger staffs than television stations or radio stations or Web-only operations."

McManus did his Stanford PhD dissertation in 1987 on four television news stations scattered around California, spending a month at each of them. At one of the stations, he said, what appeared in the local newspaper was so important, a station producer would clip stories directly from it and attach them to the assignments reporters were expected to have prepared by that evening’s newscast.

"The situation has gotten worse since then," McManus told us, "because local TV news staffs have shrunk."

The settlement also did not include an agreement on what would happen to the mountain of records produced in the case leading up to the trial.

Hundreds of pages previously sealed by the newspaper companies were opened to the public after the Guardian and the East Bay nonprofit Media Alliance intervened in the case. Reilly’s lawyer, Joe Alioto, recently insisted that he would petition the judge to unveil more documents, such as full depositions of company executives and additional memos and e-mails.

The settlement comes with some caveats for critics of consolidation. McManus believes that Reilly ultimately "got a quarter of the loaf." Reilly, he said, may have protected the independence of the Chronicle, but MediaNews isn’t being forced to unload any of its Bay Area properties to balance the field.

"Without [Reilly] having liberated the Mercury News and the Contra Costa Times and the smaller papers from the grip of MediaNews," McManus said, "the Chronicle‘s fate may be sealed." *

Editors note: The daily papers in the Bay Area treated the news of the settlement as a one-day story, and not a terribly big one. The San Francisco Chronicle ran it below the fold in the business section with a one-column head. But over the next few days, there were a lot of development and arguments over the deal; the trade journal Editor and Publisher was all over it. But none of that made it into the supposedly competitive local daily press.

A lot of the back and forth appeared on chainlinks.org, a Web site run by the Newspaper Guild. A selection:

Hearst-MediaNews deal scuttled: Former Chronicle City Editor Alan Mutter on the Reilly settlement

Editor and Publisher on the disagreement over the settlement

Jerry Ceppos, former executive editor of the San Jose Mercury News, whines about the deal

Romanseko links to some of the first-day stories