When a newspaper wanted to fold its JOA partner, buy its local rival or gobble up weeklies, the Bush administration was no obstacle. Will Clinton's Justice Department be tougher?
Stephen R. Barnett
Stephen R. Barnett teaches law at the University of California at Berkeley and writes frequently about the newspaper industry.
Antitrust enforcement in the newspaper industry, somnolent for the past decade, may be in for a revival. The Clinton administration's antitrust chief, Assistant Attorney General Anne K. Bingaman, calls herself an "unabashed and enthusiastic supporter of vigorous antitrust enforcement" and has vowed to "re-energize" her job. The New York Times says Bingaman is "rousing antitrust law from its 12-year nap," while the Financial Times expresses the widespread belief that "the relatively light U.S. antitrust enforcement of the Reagan-Bush years is almost certainly over."
The newspaper industry, which probably harbors more monopoly than any other non-regulated business, may not escape Bingaman's beacon. Mergers and other moves reducing newspaper competition may get some real antitrust attention for a change.
Bingaman does not sound like a crusader, though, when discussing the newspaper business. She rejects any "First Amendment dimension" for newspaper antitrust, and takes positions suggesting that she may not be as tough on newspaper mergers as the Reagan administration was in its early years. Bingaman stresses, however, that newspaper antitrust investigations are "fact-intensive," hinging on the specific circumstances of each deal. The "facts" that arose under Bush and Reagan thus may be our best guide for projecting what may happen under Clinton.
Putting aside the inter-industry face-offs with telephone, cable, software and other media, there are two major confrontations within the newspaper business that could be expected to catch an awakened antitrust eye. These do not include the swallowing of independent papers by chains, as in the New York Times Co.'s megabuy of the Boston Globe – cleared by Bingaman in August – or the gluttony of Gannett. Since each chain-owned paper operates in a different market, chains are not seen as reducing competition under existing antitrust laws.
One area that may get attention involves the remaining head-to-head confrontations between metropolitan dailies, or rather the mergers and joint-operating agreements (JOAs) that put such competition to rest. The other is the growing move by metropolitan dailies to buy out suburban weeklies that compete with them.
Monopolistic moves in both fields were treated with benign neglect by the Bush administration, in contrast to some real vigilance – the popular impression notwithstanding – during the first three Reagan years. Carter's administration was more like Bush's; it did little more than approve JOAs for daily papers in Cincinnati and Chattanooga.
Bingaman's statements may suggest further indulgence. She was asked whether antitrust laws have a special application to the newspaper industry, since the stakes include not just economic concerns but the First Amendment interest in diverse sources of news and opinion. Her answer: "Not really." (Bingaman's answer was conveyed through a staff member after a discussion with her and presented as "the position of the antitrust division.") The staffer elaborated, "The focus of the antitrust laws is on competition. That focus often advances First Amendment concerns, but is separate from them."
This view seems to ignore the Supreme Court's declarations that the First Amendment "provides powerful reasons" supporting the application of antitrust laws to the newspaper industry. Still, Bingaman has been mainly a litigator, not an academic; the facts of each case probably will move her more than doctrine.
In the realm of head-to-head metropolitan dailies, much of the legal action for the past 25 years has involved JOAs. Much of it still does, but with a dramatic twist. At issue now is not the creation of JOAs, but their destruction. These pacts, in which separately owned papers merge their business operations to preserve two editorial voices, by grace of an antitrust exemption conferred by the 1970 Newspaper Preservation Act, have proved easy enough to create. No attorney general has ever met a JOA he didn't like. New JOAs have been approved for Anchorage (1974), Cincinnati (1979), Chattanooga (1980), Seattle (1982), Detroit (1988), York, Pennsylvania (1990) and Las Vegas (1990).
Janet Reno, however, may not get her chance. The number of cities that still have competing dailies, and thus even the abstract prospect for a two-daily JOA, is down to about 10.
What's more, the bloom is off JOAs after the debacle in Detroit. There the biggest JOA of them all, wedding Knight-Ridder's Free Press with Gannett's News – a marriage of the rich, presenting such a dubious case for the "failing" status of the Free Press that it squeaked through the Supreme Court on a 4-4 vote – has produced not the massive profits that were anticipated, but scarcely any profits and a struggling paper, the News. With the juiciest JOA in history coming up dry, the owner of any healthy paper will lash himself to the mast before pursuing the same "sure thing" that enticed Gannett.
Clinton's Justice Department almost certainly will face, though, the problem of taking JOAs apart. Since a newspaper monopoly can lower costs and fatten profits by publishing one paper rather than two, JOA publishers have been moving to kill off their afternoon papers.
This maneuver debuted in St. Louis. Newhouse Newspapers announced in 1983 that it would close its Globe-Democrat but, under its JOA with the Pulitzer Publishing Co., go on sharing the (enlarged) profits of Pulitzer's Post-Dispatch. Even the savvy were shocked. Since JOA publishers had been given an antitrust exemption in order to preserve "two independent voices" and stave off "one paper towns," it seemed "perverse," said the Wall Street Journal, that publishers would use a JOA to strip one paper of its business and production capabilities and then shut it down. The Newspaper Preservation Act was being wielded to kill the papers it was supposed to preserve.
These moves don't come up dry. A recent Pulitzer prospectus revealed that Newhouse's one-half share of Post-Dispatch profits – which could last until 2064 – came to $11.7 million last year and $43.5 million over the past five years.
The shock of 1983 has worn off. Since St. Louis, six other cities have seen their JOAs converted to one-paper monopolies. In Columbus, Ohio, and Shreveport, the dominant JOA partner simply refused to renew the pact. In Knoxville and Tulsa, the stronger partner bought the other out.
Miami followed the St. Louis model. Cox Enterprises closed its Miami News in 1988 as part of a deal with Knight-Ridder extending their JOA so Cox would share the profits of the Miami Herald until 2021.
Cox greased the deal by buying $100 million of Knight-Ridder stock in a veiled takeover threat. When Justice later sued Cox for failing to disclose the purchase, Cox consented to a fine of $1,750,000 – not too painful, considering the estimated $165 million to $300 million that Cox will draw from the Herald's profits under the renegotiated JOA.
In Pittsburgh last year, the stronger paper, E.W. Scripps' Pittsburgh Press, was sold during a strike to the weaker JOA partner, the Post-Gazette, owned by the Block family. The Blocks promptly closed the Press, leaving the Post-Gazette as the city's only daily.
Publishers in other JOA cities – now numbering 18 – are lining up for their own tickets to one-paper monopolies. The Hearst Corp.'s San Francisco Examiner hangs by a thread, possibly to be snipped by Hearst's purchase of the dominant Chronicle, owned by the Thieriot family (see Free Press, July/August). Also said to be in the queue are JOA publishers in Nashville, Tucson, Birmingham, Cincinnati and Evansville, Indiana. In Detroit, some believe continuing financial problems could ultimately induce Gannett to pull the plug on the News.
These bids to dismantle JOAs will be a test for antitrust chief Bingaman – a test that divided her predecessors in the Reagan and Bush administrations. When the proposed move from JOA to one-paper monopoly was unveiled in St. Louis, Reagan antitrust chief William Baxter stepped in publicly, ordered Newhouse to put the Globe-Democrat on the market, and policed the sale to make sure Newhouse didn't reject a qualified buyer at a reasonable price. Four such buyers came forward. Newhouse chose Jeffrey Gluck, publisher of the now-defunct Saturday Review, who may have been the weakest of the four. Two years later, Newhouse got its wish when the Globe-Democrat folded, leaving the Post-Dispatch with a monopoly and Newhouse with half its profits.
So Baxter, who has returned to teach antitrust law at Stanford – where he once taught Bingaman – may not have done enough in St. Louis. His successors did a good deal less.
When Cox announced in October 1988 that it would fold the Miami News at year's end unless a buyer was found, antitrust chief Charles F. Rule said nothing publicly until the last week of December. On December 30, Rule announced that he still hoped the News would be sold, but was investigating "how vigorous a search was made for potential buyers by Cox" and "how seriously negotiations were conducted once a potential buyer was found." Unruffled, Cox made no sale and closed the News on December 31.
Rule, now practicing law in Washington, D.C., says he thinks the investigation ended when the paper closed. Asked why he didn't act immediately, as Baxter had done in St. Louis, Rule says that Baxter "was pushing the limits of the law." And such action was "less necessary" in Miami, Rule adds, because Baxter had established that the paper must be shopped around.
If the Miami case raises some eyebrows, the way Justice handled Pittsburgh in the closing days of the Bush era should send them higher. Justice's December 30, 1992, announcement that it would not challenge the Post-Gazette's acquisition of the Press came despite a Wall Street Journal story reporting that Scripps' investment banker said the company had received "more than one comparable bid" for the Press. A lawyer for Richard Scaife, publisher of the nearby Greensburg Tribune-Review, says Scaife made an offer "substantially higher" than the Post-Gazette's.
It's the law, and declared Justice policy, that an offer that would keep the paper alive – any offer above liquidation value – must be accepted over a higher offer that would close the paper. William Baxter says that it would be "totally perverse" for Justice to let a company in Scripps' position accept an offer from a crosstown competitor, which would kill the paper and create a monopoly, because that offer was higher than other bids.
J. Mark Gidley, who made the decision as acting antitrust chief during the last month of the Bush administration and now practices law in Washington, D.C., did not return phone calls.
In dealing with moves to end JOAs, Anne Bingaman will have to choose between the relative toughness shown by Baxter in St. Louis and the indulgence of Rule and Gidley in Miami and Pittsburgh. But she can go further than Baxter. First, when there's a choice between qualified buyers, as in St. Louis, Justice can require the seller to choose the one that seems most likely to succeed with the paper. Baxter concedes in hindsight that "maybe I should have picked the buyer."
Second, and more important, Justice can require that the paper be sold not as a free-standing competitor to the stronger daily, but together with its interest in the JOA. Real competition, economic as well as editorial, is more desirable. But that goal may be unrealistic for a paper that's been shorn of its business and production capacities and otherwise hobbled as a junior partner in a JOA. Whatever one thinks of JOAs, Congress has declared that in a choice between a JOA and a one-paper monopoly, the law favors the former.
There is nothing unusual about selling a seat in an ongoing JOA. It happened recently in Honolulu. Gannett was trading up to the Advertiser and therefore had to discard its Star-Bulletin. The paper, offered for sale as part of the ongoing JOA, drew plenty of interest and was sold in January to Liberty Newspapers. Justice can require this approach when it looks like the only way to keep the second paper alive.
Searching for Buyers
Apart from JOAs, similar questions of enforcement vigor arise when two competing dailies in the same city want to sign a truce in which one buys out the other. This happened in Dallas and Little Rock during the Bush administration, and in San Antonio during the early days of Clinton (with Bush appointees still in charge). In each case, Justice waved the deal through. In each case, one can ask whether Justice did all it should have to find another buyer who would keep the paper alive.
In both Little Rock and Dallas, the selling publisher – Gannett for the Arkansas Gazette, John Buzzetta for the Dallas Times Herald – made a deal with the crosstown rival before letting a broker seek other bids for the paper. These bids would be unlikely to match the one in hand, which contained a monopoly premium.
And in both Little Rock and Dallas, Justice went along with the seller's wish to keep the paper's death sentence a secret until it was carried out. The citizens of Little Rock and Dallas awoke one morning to read that their paper was closing, without any prior announcement that it would close unless a buyer was found. Such an announcement might have mobilized public concern and flushed out a buyer who was not among the usual suspects futilely canvassed by newspaper brokers.
Why was Justice so compliant? The usual official answer is silence, citing confidentiality requirements that apply to information from companies seeking to merge. In the Dallas case, though, Justice replied to an inquiry from Texas Democratic Reps. Jack Brooks and John Bryant. The search for a buyer of the Times Herald was not made public, explained Deputy Assistant Attorney General Charles A. James, because the paper's owners feared – and Justice agreed – that this would have increased staff defections, advertising losses and credit restrictions and thus "hastened the newspaper's demise."
But the paper was marked for imminent demise anyway. One would think the public's interest in a better chance of finding a buyer outweighed the seller's interest in minimizing its losses during the final weeks.
Asked whether she thought the search for a buyer should be made public in such circumstances, new antitrust chief Bingaman answers: It depends. The law requires a "good faith" search for "reasonable alternative offers," she says. "In a particular factual situation, this may require a public search; in others it is possible that a private search would be sufficient."
While such hedging is understandable, it suggests a softer approach than Baxter took for the Reagan administration. "How are you going to facilitate entry and test the proposition that the newspaper is worthless," Baxter asks, "unless you announce publicly that it's for sale?"
In San Antonio, Hearst did announce in October 1992 that it planned to buy the Express-News from Rupert Murdoch and close its own Light unless a buyer could be found. A local group of investors made an offer, but more time was needed to put a deal together. Rather than allow more time, the Bush holdovers in Justice gave Hearst the go-ahead to extinguish the Light.
Gobbling in the Suburbs
Most cities already are reduced to one-daily monopolies, so a more important area for antitrust concern may lie where competition now thrives: between metropolitan dailies and suburban papers, particularly suburban weeklies. Weeklies are the fastest-growing segment of the newspaper industry. Their total circulation rose from 42 million in 1980 to 55 million in 1992, while circulation of dailies (excluding Sundays) declined from 62 million to 60 million. The weeklies may well catch the dailies by the end of the decade.
In many markets, weeklies offer potent competition, sometimes the main newspaper competition, for the metropolitan daily. And the dailies are reacting in the suburbs as they did downtown: by buying their rivals.
Past administrations have blocked such moves. In 1965, when the Los Angeles Times bought the daily San Bernardino Sun, Justice sued and undid the deal. In 1982, Reagan's antitrust division under William Baxter sued successfully to make the Orlando Sentinel cough up a chain of five weeklies it had bought in suburban Osceola County.
But that was the last peep out of Justice. Baxter's successors have sat on their hands as dailies increasingly wolf down competing weeklies.
Not the largest deal, but a signal that anything goes, was last year's purchase of the weekly Mason City Shopper in Iowa by Lee Enterprises, owner of Mason City's daily Globe-Gazette. The broker who handled the deal boasted to the New York Times that the seller got a "full price" from Lee "because Lee was removing a competitor."
Lots of larger deals are taking place. The Orange County Register has acquired 19 surrounding weeklies since 1990. The competing Los Angeles Times gobbled back in May by buying a package of dailies and weeklies in Orange County and in the San Fernando Valley. The Chicago Sun-Times has bought two chains of suburban weeklies. The Seattle Times has bought three thrice-weekly papers.
None of these deals appears to have piqued the interest of Justice – including the Los Angeles Times' recent acquisitions, which Bingaman could have looked at after taking office in June. One daily-weekly consolidation, though, did get the department's attention.
In 1989, the Wolfe family, owner of the daily Columbus Dispatch in Ohio and television and radio stations in the city, bought a chain of five weeklies and three shoppers in the Columbus suburbs. The Wolfes' nemesis, Max Brown – himself the owner of 21 weeklies – cried foul and stirred interest from the Cleveland office of the antitrust division. After much investigation, the antitrust lawyers begged off, saying they thought a suit would not succeed.
Metropolitan dailies can't be expected to play dead as swarms of weeklies colonize their suburban territories. Even a monopoly daily like the Columbus Dispatch is entitled to start as many weeklies as it likes – barring an intent to "monopolize," which is very hard to prove. It's a different question, though, whether the daily may fight for the suburbs by buying weeklies that compete with it. This should depend, as far as Justice is concerned, on whether the acquisitions violate the department's merger guidelines.
Those guidelines contain a mathematical index to measure market concentration. We can't know what the index numbers were for the daily-weekly deals that Justice has not challenged. In general, though, when one firm starts with anything near 40 percent of the relevant market – as a monopoly daily probably will – it can't buy even another 1 percent without tripping the index.
So the first thing Bingaman can do is simply apply Justice's own merger guidelines – something the department may not have done since the Orlando case a decade ago.
In applying the guidelines, a possible kicker lies in their proviso that "ease of entry" in an industry trumps what would otherwise be a violation. The idea is that even if a merger produces excessive concentration, the merged firm won't be able to raise its prices or reduce the quality of its product – at least not for long – if new competitors can easily start up. Thus the public won't be hurt, and there's no reason to worry about the merger.
Justice's failure to challenge any daily-weekly merger since Orlando may reflect the view that market entry by weeklies indeed is easy – that all you need to start a weekly is desktop publishing and a mail permit.
But if the easy entry factor applies to weeklies, why did Justice sue in Orlando? Baxter not only brought the Orlando case, he wrote the merger guidelines. He says he would not have sued in Orlando without checking whether starting up new weeklies was easy enough to disarm antitrust concerns.
Indeed, cheap as it may be to launch a weekly, out-of-pocket start-up costs are not the only test of "easy entry." The advantages established firms have over newcomers pose barriers. Daily newspapers, for example, are thought to be "natural monopolies" because once a paper gets the lead in circulation, it enjoys economies of scale in spreading its editorial and other costs over a greater number of copies. Similar advantages favor an established weekly – especially one co-owned with a daily – over a start-up weekly.
Beyond that, even if entry is easy, one can ask whether newspapers are not different in this respect from other products. Even if the weekly bought by the daily does not raise its prices or reduce its quality, there is one dimension of "quality" in which the single firm publishing the merged daily and weekly simply cannot match the pre-merger papers.
In news and opinion, ownership marks the product. A single owner cannot give readers two sources of news and opinion, because a single owner is a single source. It's here that the First Amendment's concern for diverse information sources may give antitrust law a special application to newspaper mergers.
In any event, buyouts of weeklies by dailies in the same market offer plenty of opportunities for challenge under a conventional view of antitrust laws. Anne Bingaman's antitrust division need only follow the precedent set in the Orlando case. l ###