The silent scandal

Pub date September 5, 2006
WriterG.W. Schulz

Editor’s note: This story has been altered to correct an error. The original version stated that an Examiner editor had admitted in court testimony to providing positive coverage to politicians in exchange for help with a business deal. The person who testified to that was not an editor, but Publisher Tim White, and he was talking about editorial, not news, coverage.

After William Randolph Hearst flunked out of Harvard in the 1880s, he pursued a new career path, asking his wealthy father for only one thing: the San Francisco Examiner.
Young William didn’t stop with the Examiner — over his lifetime, he accumulated dozens of newspapers nationwide. Eventually, one in five Americans regularly read a Hearst paper.
That seems like a lot of power and influence, and it was. But it’s nothing compared to what the heirs to Hearst’s media mogul mantle are doing today.
In fact, the Hearst Corp. is working with another acquisitive newspaper magnate, William Dean Singleton, to lock up the entire Bay Area daily newspaper market. If the project succeeds, one of the most sophisticated, politically active regions in the nation may have exactly one daily news voice.
That worries Clint Reilly.
The political consultant turned real estate investor has sued the Hearst Corp., owner of the San Francisco Chronicle, for the second time in a decade to stop a partnership he fears will eliminate the variety of voices among newspapers in the Bay Area.
It’s an amazing story, full of politics, big money, secretive arrangements, and juicy executive bonuses. What’s at stake? Control over one of the most lucrative businesses in Northern California.
But for the most part, you aren’t reading about it in the daily papers — which means you aren’t seeing it on TV or hearing about it on the radio.
In fact, the blackout of the inside details of the Singleton deal and Reilly’s effort to stop it is one of the greatest local censored stories of the year — and the way the press has failed to cover it demonstrates exactly what’s wrong with monopoly ownership of the major news media.
The story began in the spring when one of the nation’s more respected newspaper chains, Knight Ridder, was forced to put itself up for sale after Bruce Sherman, a prominent shareholder, decided that the company’s relatively healthy profit margins (and dozens of Pulitzers) were simply not enough.
It’s the nature of publicly traded companies to be vulnerable to shareholder insurrections, unless they have multiple classes of stock. Knight Ridder didn’t, and although its former chief executive, P. Anthony Ridder, later said he regretted the sale, Knight Ridder went on the block.
The Sacramento-based McClatchy chain bought the much bigger Knight Ridder but needed to sell some of the papers to make the deal work.
In the Bay Area, Knight Ridder’s two prime properties, the San Jose Mercury News and the Contra Costa Times, were bought by MediaNews Group, the Denver-based conglomerate run by Singleton. That was a problem from the start: Singleton already owned the Oakland Tribune, the Marin Independent Journal, the San Mateo County Times, and a series of smaller local papers on both sides of the bay. The two former Knight Ridder papers would give him a near-monopoly on daily newspaper ownership in the region; in fact, there was only one daily in the area that would be in a position to compete with Singleton. That was the San Francisco Chronicle.
But in one of the strangest deals in newspaper history, Hearst — the erstwhile competitor — joined in the action, buying two of the McClatchy papers (the Monterey Herald and the St. Paul Pioneer Dispatch) and then immediately turning them over to Singleton, in exchange for some stock in MediaNews operations outside of California.
When news of the transactions first broke, MediaNews publications and the Hearst’s Chron covered it extensively, more than once putting the billion-dollar partnership on the front pages. (The transactions also involve a company formed by MediaNews and two of its other competitors, the Stephens Group and Gannett Co., called the California Newspapers Partnership.)
Since then, however, coverage has been overshadowed by JonBenet Ramsey and local crime news. The real story of what happened between Hearst and Singleton and how it would devastate local media competition never made the papers.
If this had been a deal involving any other local big business that had a huge impact on the local economy and details as fishy as this, a competitive paper would have been all over it. And yet, even the Chron was largely silent.
In fact, when Attorney General Bill Lockyer decided not to take any action to block the deal, the Chron relegated the news to a five-paragraph Reuters wire story out of New York, buried in the briefs in the business section. The original Reuters story was cut; the news of Reilly’s suit and his allegations didn’t make it into the Chron version.
At times, the new Singleton papers have treated the story with upbeat glee: in early August, the Merc proclaimed in a headline that the area’s “New media king is having fun.”
The story noted: “MediaNews is privately held, a step removed from the Wall Street pressure that forced the Mercury News’ previous owner, Knight Ridder, to put itself up for sale…. Singleton is its leader, and by all accounts, a man who lives, breathes and loves newspapers.”
Longtime media critic and former UC Berkeley journalism school dean Ben Bagdikian, author of The Media Monopoly, told the Guardian that most of the coverage so far has focused on the business side of the transactions.
“The coverage I’ve seen has simply described the devices they used to divide the McClatchy chain and did not describe how cleverly it was designed to avoid an antitrust action,” Bagdikian said.
Here’s some of what the daily papers have ignored:
The Hearst deal was certainly good for MediaNews, because on the same day the agreement was signed, top executives at the company were awarded $1.88 million in bonuses. MediaNews president Joseph Lodovic earned the chief bonus of $1 million, while the president of MediaNews Group Interactive, Eric Grilly, received over $100,000 in bonuses on top of a $1.25 million severance package for retirement. The figures were disclosed in the company’s most recent Securities and Exchange Commission filing.
Hearst has insisted repeatedly that its investment in MediaNews involves only tracking stock, meaning its up-and-down value rests solely on the performance of MediaNews businesses outside of California. Such a structure may help the two companies comply with antitrust rules — for now.
But in a little-noticed footnote included in a July memo filed by Hearst in response to Reilly’s lawsuit, the company revealed that its tracking stock could still be converted to MediaNews common stock in the future — meaning it would then have a stake in the entire company, including its Bay Area holdings. “The tracking stock will be convertible into ordinary MNG common stock, but that will require a separate, future transaction and its own Hart-Scott-Rodino review,” the July 25 document states.
In other words, public records — information freely available to the 17-odd business reporters at the Chronicle — show that Hearst’s fundamental presentation of the deal is inaccurate. Hearst is not just a peripheral player in this deal; the company is a direct partner with Singleton and thus has no economic incentive whatsoever to compete with the Denver billionaire.
And that means there will be no real news competition either.Reilly has been in politics most of his adult life, and he knows what happens when one entity controls the news media: perspectives and candidates that aren’t in favor with the daily papers don’t get fair coverage.
Newspapers, he told us recently, are charged with checking the tyranny of government; without competition they will fail to check the tyranny of themselves.
“The combination intended to be formed by these defendants constitutes nothing less than the formation of a newspaper trust covering the Greater San Francisco Bay Area,” Reilly’s suit states, “implemented through anticompetitive acquisitions of competing newspapers, horizontal divisions of markets and customers, and agreements not to compete, whether expressed or implied.”
A federal judge recently tossed Reilly’s request for a temporary restraining order against the Hearst transaction. But Reilly’s overall lawsuit, designed to stop Hearst’s $300 million investment in MediaNews, will still wind its way through the courts, and Judge Susan Illston signaled in her last order that she would “seriously consider” forcing MediaNews to give up some of its assets if the court finds the company’s transactions to be anticompetitive.
There are clear grounds to do that. In fact, as Reilly’s attorney, Joe Alioto, points out in his legal filings, the monopolists have made the argument themselves. When Reilly sued to block the Examiner-Chronicle deal in 2000, Hearst, which wanted to buy the Chron and shutter the Examiner, argued that closing the Examiner would have no competitive impact — since all the other competing Bay Area papers provided the reader and advertiser with a choice. Now the lawyers are arguing just the opposite — that the Chron and the outlying papers never competed in the first place.
Hearst will more than likely argue in court that since its newspapers face unprecedented competition from online content, there’s technically no such thing as a one-newspaper town. The world is globally connected now, this thinking goes, and the Chron and MediaNews both face competition from popular blogs such as Daily Kos and Valleywag on the West Coast and Gawker and Wonkette on the East Coast.
But that ignores a media reality: for all the power and influence of bloggers and online outlets, daily newspapers still have the ability to set the news agenda for a region. Among other things, local TV news and radio stations regularly take their cues from the daily papers — meaning that a story the dailies ignore or mangle never gets a real chance.
MediaNews argues in its most recent memo to Judge Illston that “any potential anticompetitive effect of the transactions against which the Complaint is directed is greatly offset and outweighed by the efficiencies that will result from those transactions.”
“Efficiencies” isn’t actually defined, but if the past is any indication, jobs could be the first place MediaNews looks to “efficiently” save money for its investors — at the cost of performing the traditional role of a newspaper to monitor government.
Reporting — real reporting — is expensive. It requires experienced journalists, and a good paper should give them the time and resources not only to watch day-to-day events but also to dig deep, below the headlines.
That’s not the monopoly media style.
Speaking in general terms, Jon Marshall, who runs the blog Newsgems and teaches at Northwestern University’s Medill School of Journalism, wrote us in an e-mail that newspapers have to be willing to invest in innovation now, while there’s still time.
“If newspapers really want to win back readers, they’ll need to start offering more outstanding feature stories that really dig deep and have a big impact on their communities,” Marshall wrote. “Readers need a reason to turn to newspapers rather than all the other content that’s now available through the Web. Newspapers will have a hard time creating these outstanding stories on a consistent basis if they keep paying their current skimpy entry-level salaries.”
The pattern Singleton is known to follow isn’t unique. A recent survey conducted by journalism students at Arizona State University revealed that the nation’s largest newspapers are giving reduced resources to investigative and enterprise reporting as media companies trim budgets to maintain or increase profits. More than 60 percent of the papers surveyed, the report stated, don’t have investigative or projects teams.
Brant Houston, executive director of Investigative Reporters and Editors, told us that while teams of reporters dedicated exclusively to investigations may be disappearing, many papers are willing to pull staffers away from their regularly assigned beats to make sure that big stories are thoroughly covered. But, he said, Wall Street’s haste to make money could backfire if readers head elsewhere in search of more exclusive content.
“I think everything is in flux right now,” Houston said. “Everyone’s trying to figure out what the next newsroom looks like.”
Luther Jackson, an executive officer of the San Jose Newspaper Guild, which represents staffers at the Merc, said it’s too early to determine the impact of MediaNews on the paper. The union just recently began new contract negotiations with the company, while the previous agreement, which expired in June, remains in place. Jackson said he didn’t believe the Merc’s Silicon Valley readers would tolerate any dramatic dip in quality coverage.
“We have a problem with the idea that you can cut your way to excellence,” Jackson said.
Just six years ago, after Reilly sued Hearst the first time to stop its purchase of the Chronicle and subsequent attempt to shut down the Examiner, trial testimony revealed that the Examiner had, in fact, abused its editorial power to advance its business interests. Examiner Publisher Tim White admitted in open court that he had traded favorable editorial coverage to then-mayor Willie Brown in exchange for his support of the Chronicle purchase.
Reilly lost that one — but for now this case is moving forward. The suit could be the last legal stand for people who still think it’s wrong for one person to dominate the news that an entire region of the country depends on — and at the very least will force the story of what really happened out into the open. SFBG
PS At press time, Judge Illston ordered the trial be put on the fast track and set a trial date for Feb. 26, 2007. See the Bruce blog at for more info.