It’s rare to see a federal judge slap down two of the nation’s biggest media corporations, accuse them in effect of lying and declare that their intentions are illegal. That’s what Susan Illston did Nov. 28 in a ruling that barred Hearst Corporation and Dean Singleton’s Media News Group from combining sales and business operations in Northern California.
It’s a stunning legal document: The judge exposes in some detail the plans of the two big companies to collaborate with each other on sales and distribution, undermining any pretense that there will be real competition in the Bay Area daily newspaper market.
The ruling came as part of a lawsuit by real-estate investor Clint Reilly, who is doing as a citizen what the state and federal justice departments have refused to do. He’s challenging the right of Singleton and Hearst to create a regional daily paper monopoly.
Reilly sued to block Singleton from buying the San Jose Mercury News, the Contra Costa Times, the Monterey Herald and some 30 other smaller papers, a move that would give the Denver media magnate a virtual monopoly on daily newspapers in the region. (Singleton already owns the Oakland Tribune and the Marin Independent Journal). Singleton’s lawyers argue that the deal isn’t actually eliminating competition, since the San Francisco Chronicle, owned by the Hearst Corporation, is still a major competitor. And in fact, in part of the basis of that argument, Illston rejected Reilly’s original attempts to put the deal on hold.
But there’s a strange aspect to the sale: Hearst put up $300 million to help finance the buyout, and in exchange was slated to get stock in some of Singleton’s properties outside of California. Reilly found that fishy, but at first, the judge disagreed.
But over the past few months, as Reilly’s lawyer, Joe Alioto, has sifted through a huge pile of discovery material, a key piece of evidence has come to light. It turns out that Hearst and Singleton quietly had a plan going to sell ads together and to combine their Bay Area distribution operations. In other words, the ostensible competitors were really going into business together.
“”The Hearst Corporation and Media News Group Inc. agree that they shall negotiate in good faith agreements to offer national advertising and internet sales for the San Francisco Bay Area newspapers on a joint basis,” an internal letter that Alioto uncovered states. The April 26, 2006 letter, from Hearst Senior Vice President James Asher to Joseph J. Ludovic IV, president of Media News, also states that the companies will work to “consolidate the San Francisco Bay Area distribution networks of such newspapers.”
That sort of arrangement is very similar to the joint operating agreements that were popular in the 1970s and 1980s. Under JOAs, two competing daily papers would combine their business functions while operating separate newsrooms. It was immensely profitable for the JOS publishers - and horrible for readers and advertisers. Without any ecnomic inventive to compete, the papers gave up on their duties as watchdogs of the public trust. The San Francisco Chronicle and Examiner operated under a JOA for many years.
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