What we know now - Page 2

New court documents show the big local dailies couldn't handle competition -- but never talked much about improving their papers

Layoffs have already occurred at the San Jose Mercury News and the Contra Costa Times, and reporters are covering stories for several papers under a single "MediaNews Staff" byline.

While Hearst lawyers told Illston early in Reilly's suit that its $300 million investment in MediaNews, consummated last summer, would involve only non–Bay Area properties to avoid conflicting interests, executives were telling another story behind the scenes.

"The proposed transaction is an opportunity to invest at a reasonable price in a company we have admired," Hearst president and CEO Victor Ganzi wrote to Hearst's board of directors last July. "If we are able to convert the investment to common stock in all of MediaNews, we will be able to participate in the efficiencies MediaNews will achieve through the consolidation of the Bay Area newspapers other than the San Francisco Chronicle. Whether or not we are able to convert our investment, the proposed transaction provides additional impetus for lawful cooperation between the San Francisco Chronicle and the Bay Area newspapers, which will be owned or controlled by MediaNews, in areas such as distribution, national advertising and the Internet."

Several hundred pages of records were originally filed under seal in Reilly's suit, but the Guardian, along with the East Bay nonprofit Media Alliance, intervened to have the filings opened to public access. Attorneys Jim Wheaton, David Green, and Pondra Perkins of the First Amendment Project did the legal work.

Illston agreed with our request and made most of the records available in an order last month. Reilly's suit is expected to go to trial in the spring. He's alleging that Hearst, MediaNews, and its other business partners, including the Stephens Group and Gannett Co., conspired to divide and monopolize the Bay Area newspaper market.

At the very least, Asher admitted in his deposition that Hearst saw media consolidation as one of the few reasons to bother staying in the newspaper biz. Originally, Hearst executives were considering a $500 million investment in MediaNews, but that amount was eventually lowered.

"We're among the larger owners and operators of newspapers," Asher stated. "We still believe in them, notwithstanding their challenges, and we would like to participate in that consolidation. And, in fact, if we don't choose to, we should probably think about exiting the business." *

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