Friday, August 15, 2003
By TODD BISHOP AND DAN RICHMAN
SEATTLE POST-INTELLIGENCER REPORTERS
The Hearst Corp. offered the Seattle Post-Intelligencer for sale Thursday but said it still hopes to retain ownership of its 140-year-old newspaper by prevailing in a dispute that threatens the P-I's existence.
Hearst, which has owned the newspaper since 1921, said it hired an investment bank to seek a buyer to run the P-I outside the joint operating agreement, or JOA, under which the P-I and The Seattle Times have shared business functions for 20 years.
Speaking to a hushed newsroom, P-I Editor and Publisher Roger Oglesby said the decision to put the paper up for sale "does not in any way lessen Hearst's resolve" to continue publishing the P-I and to win a lawsuit the company filed to block the Times' effort to end the JOA.
Hearst filed that suit in April. A day later, The Times formally declared that it had experienced three consecutive years of losses, triggering an 18-month countdown toward the JOA's end. Without the agreement, Hearst says, the P-I can't survive.
The company has been warning for more than three months that it would be forced to put the P-I up for sale if the countdown continued, citing terms of the JOA and potential antitrust concerns that could arise if the paper were closed.
"Hearst strongly believes that The Seattle Times has not suffered three years of losses under the meaning of the JOA, and we're pursuing that," Oglesby said. "And when the judge rules to that effect, Hearst intends to continue to publish the P-I under the JOA."
Times spokeswoman Kerry Coughlin said Thursday that it was "entirely Hearst's decision" to put the P-I up for sale.
Newspaper and antitrust experts said a probable lack of willing buyers for the P-I means the process of searching for one may ultimately serve a different purpose -- showing that none can be found. Such evidence could help Hearst allay antitrust concerns.
In the past, in cities including St. Louis and Miami, the Justice Department has said that newspapers involved in JOAs must prove, before closing or merging with their JOA partners, that they will fail without the JOA and that there are no buyers willing to operate the newspaper outside the scope of that shared business arrangement.
U.S. District Judge Vaughn Walker affirmed the validity of that approach in a ruling three years ago consenting to Hearst's move to acquire the San Francisco Chronicle and end that paper's JOA with Hearst's Examiner.
The Justice Department acknowledged in June that it was investigating whether the end of the JOA in Seattle or the closure of one of the papers might violate antitrust laws. The Justice Department declined this week to disclose the status of that investigation.
Antitrust concerns could stem from the fact that the closure of either of Seattle's major daily newspapers would essentially hand a monopoly to the survivor. The concerns may be heightened by a provision in the JOA that would give Hearst a 32 percent share of the Times' profits until 2083 if the P-I stopped publishing.
Such an arrangement could be seen as The Times, in effect, paying Hearst to leave the market. That would raise antitrust concerns, but they wouldn't necessarily be insurmountable, said John Kirkwood, an assistant law professor at Seattle University.
Only rarely have papers leaving JOAs found willing buyers. Before ending the San Francisco JOA, for example, Hearst put the Examiner up for sale twice and, after receiving no adequate bids, paid a local publishing family a $66 million subsidy to take the newspaper off its hands.
Veronis Suhler Stevenson, the New York investment bank hired by Hearst to seek a buyer for the P-I, played the same role in the attempted sale of the Examiner.
The chances of finding a qualified buyer in Seattle are similarly slim, according to experts in the valuation and sale of newspapers.
In part, that is because the buyer would operate the paper outside the JOA. As a result, it would need to acquire or lease all the business and production functions -- including printing plant, circulation department and sales force -- that under the JOA have been handled for the P-I by The Seattle Times Co.
Without physical assets such as a printing plant, Hearst can offer only intangibles: the Seattle Post-Intelligencer name, the paper's staff, its subscriber list and advertising contracts. Hearst spokesman Paul Luthringer said he couldn't detail the assets to be put up for sale.
"Acquiring a masthead and personnel is only useful if you have the printing capacity to produce the newspaper," said Daniel Van Vleet, a principal at Chicago-based valuation firm Willamette Management Associates. "It's hard to say whether it would be desirable for anybody."
Based on past deals, newspaper brokers said, a metropolitan paper with a complete set of assets could sell for two and 2 1/2 times its annual revenue. That means the P-I might fetch about $200 million to $250 million, were it to be sold with a full set of typical newspaper assets -- judging from the P-I's share of the papers' total circulation and from revenue figures disclosed as part of the lawsuit.
But those figures ignore a number of realities, including the fact that The Times is responsible for the vast majority of the content in the combined Sunday paper -- a major revenue source. In addition, a new owner would be competing with The Times for advertising and circulation, which would tend to drive down revenue for both papers. Those factors would tend to reduce the value of the P-I as a stand-alone publication
The newspapers now compete only in news gathering.
Several major media companies mentioned by brokers as potential buyers declined to say whether they might be interested. They include Gannett Co. Inc. of McLean, Va., the nation's largest newspaper chain, and The McClatchy Co., of Sacramento, Calif., whose newspapers include The News Tribune in Tacoma. Denver-based MediaNews Group said it does not plan to bid.
Peter Horvitz, president and publisher of the King County Journal in Bellevue, said he's not interested in buying the P-I even though his company might be considered a logical candidate. To print the P-I, he would have to install a new press, which he called financially unfeasible.
Horvitz said he agrees with Times Publisher Frank Blethen that Seattle can't sustain two major daily newspapers. "So if the purpose is to make money," Horvitz said, "then I can't imagine anyone making the business decision" to buy the P-I.
P-I employees said Hearst's decision to put the paper up for sale, although expected, raises their level of uncertainty about the future.
Veteran P-I reporter Debera Carlton Harrell said she worries that the move will increase the perception of subscribers, casual readers and advertisers that the P-I is losing the battle against The Times.
"A lot of reporters would like to see Hearst give its side of the story a little more, do something to reinforce that we're still putting out a paper every day," Harrell said. "I never thought I'd be asking for spin control, but I am on this one."
Times employees are also watching the dispute closely. Yoko Kuramoto-Eidsmoe, a features copy editor at The Times and secretary of the Pacific Northwest Newspaper Guild, said the mood in the newsroom there is one of fear -- not fear of a sale or closure, as at the P-I, but fear of Hearst.
"People are afraid here, I think, that Hearst is trying to bleed The Times," she said. "In other cities, Hearst has taken over the other newspaper in town. A lot of people here are very concerned that the P-I is the underdog, but at the same time, they're looking over their shoulders."
P-I reporter Todd Bishop can be reached at 206-448-8221 or email@example.com
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