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Wednesday, December 10, 2003 - Page updated at 12:01 A.M.

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Times' concession eases danger to P-I for four years

By Bill Richards
Special to The Seattle Times

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An agreement quietly negotiated by The Seattle Times Co. and The Hearst Corp. in mid-October means Hearst's Post-Intelligencer would likely publish until at least 2007 — no matter what happens in a fast-track court appeal in the two companies' legal dispute.

The Times and Hearst struck the bargain in telephone and e-mail discussions regarding The Times' effort to speed up its appeal of a judge's ruling in a Hearst lawsuit. The suit, which seeks to block Times' moves that could shut down the P-I or end the papers' joint-operating agreement (JOA), is scheduled for a hearing Jan. 21 before a three-judge panel of the state Court of Appeals.

In return for a Hearst promise not to oppose an expedited appeal, Times attorneys agreed not to restart an 18-month clock counting down to the end of the JOA until a final decision on all the suit's elements. At one point, the countdown — a provision of the JOA — pointed to the possible demise of the P-I as early as October 2004.

Although some details of the negotiations two months ago have been disclosed in court documents and reported in the media, neither Hearst nor The Times has previously acknowledged the impact on the P-I's longevity.

But attorneys both inside and outside the fight said the effective impact of the bargain is that whatever the Appeals Court decides, the P-I will be able to publish for at least four more years, unless the two companies reach a negotiated settlement before further legal challenges are sorted out.

"If that is what was agreed to, it seems to me they (The Times) have given away their case," said Lawrence Schwerin, an attorney for The Committee for a Two-Newspaper Town, an ad hoc citizens' group that is an intervenor in Hearst's lawsuit.

Times spokeswoman Kerry Coughlin acknowledged the bargain could extend the P-I's publishing life for several years beyond the original timetable. But she said The Times has not given up its effort and will continue to pursue the case.

"This does not really change the picture for us that dramatically," Coughlin said.

Times officials, she said, feared that allowing the clock to run out with legal issues still pending could raise objections from the U.S. Department of Justice, which oversees the nation's dozen JOAs. Justice Department officials have been investigating Seattle's JOA since May.

A department official declined to comment.

"We can't suddenly say in the middle of litigation, 'Oh, look at the clock. It's over,' " Coughlin said. "It would not be appropriate for us to do that.

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"We had to weigh the wisdom of going ahead and executing something while there would still be substantial legal issues pending around it."

"They may not be giving up," said Jack Kirkwood, a law professor and antitrust expert at Seattle University School of Law. "But the practical effect will be to delay any shutdown of the P-I by three to four more years."

In April, New York-based Hearst sued The Times in King County Superior Court, seeking to block The Times' efforts aimed at shutting the P-I or ending the JOA. Hearst has said its 140-year-old paper, the smaller of the two dailies, cannot operate outside the JOA.

The Times' concession on the clock complicates the paper's future. Senior officials have asserted in the past that The Times cannot survive financially under the current JOA structure.

Times officials have repeatedly said that by yoking their paper to the weaker P-I, which has seen circulation drop more than 21 percent since 1999, the JOA puts The Times' financial stability and local ownership in jeopardy.

Last May, in a court filing in Hearst's suit, Times President and Chief Operating Officer Carolyn Kelly said the paper "will continue to lose millions of dollars a year as long as the JOA is in existence and publishing two papers."

Times Publisher Frank Blethen underscored that message in a memo to Times staffers two months ago.

Without an escape clause in the JOA, he warned, Hearst "could follow a strategy of forcing the local Times to continue to lose money until the family had no option but to sell." Hearst has the right of first refusal on any sale of the Blethen interest.

Under the JOA, The Times handles business, advertising and circulation functions for the P-I, while the papers maintain separate and competing news and editorial staffs.

They pool ad and circulation revenue and, after The Times is paid for printing, distributing and marketing both papers, the remainder is divided, with 60 percent going to The Times and 40 percent to the P-I.

Blethen family members hold 50.5 percent of The Seattle Times Co.'s voting stock and control its board. San Jose, Calif.-based media giant Knight Ridder owns the rest.

Asked what the Blethens will do now that Hearst can keep publishing the P-I, Coughlin said: "I can't answer that with any certainty. I can't say whether they can hang on for four years."

But Coughlin said the Blethens have made no decision to sell their stake.

"Their commitment to see this through is still very strong," she said.

A Hearst spokesman declined to comment on the negotiations. He repeated earlier statements that the company intends to continue publishing the P-I under the JOA.

The agreement to stop the clock came during negotiations over The Times' appeal of King County Judge Greg Canova's ruling Sept. 25 in Hearst's lawsuit. Canova disallowed The Times' effort to trigger a so-called "stop-loss" provision in the JOA.

Under that provision, if one paper loses money for three consecutive years as determined by an accounting formula defined by the joint-operating agreement, the two papers' owners must negotiate to either shut one down within 18 months or to end the JOA.

Blethen triggered the provision in April when he notified Hearst that The Times had lost money in 2000, 2001 and 2002.

But Canova agreed with Hearst's claim that a 49-day newspaper strike in late 2000 and early 2001, which was the cause of the losses in those years, fell under the contract's "force majeure," or "greater force," clause.

The strike was outside the control of the papers, and thus its resultant losses for 2000 could not be applied to the stop-loss provision, Canova ruled.

The Times, which had argued the losses should be allowed, appealed the decision. Its attorneys asked for accelerated consideration by the state Appeals Court, noting in a brief that Times officials had projected continuing losses of millions of dollars annually under the JOA.

"The Times, Seattle's last locally owned daily newspaper, cannot continue to operate in this fashion and survive," the brief said.

In negotiations outside court, Times attorneys agreed to extend Canova's ruling to cover the paper's 2001 loss claim, and Hearst agreed not to block The Times' request for an expedited appeal process.

Both sides also agreed that Canova's ruling had halted the 18-month clock. But it was unclear whether it would resume ticking if The Times won its appeal.

If it were to restart after a successful appeal, it would mean the stop-loss provision deadline could come around mid-2005.

According to people familiar with the negotiations, Hearst's attorneys demanded that the clock remain stopped until a final court decision on all three years of Times losses.

That would push any restart even further back because Hearst, if it loses at the appellate level, has indicated it intends to appeal to the state Supreme Court.

In addition, Hearst attorneys have said they would seek a jury trial on the 2002 loss claimed by The Times, which likely would take the case into 2006.

A jury trial, legal experts said, probably would involve substantial pretrial preparation to determine whether The Times may have created the 2002 loss by unusually heavy spending.

"Full discovery, plus a full trial, plus appeals, could take several years," said Seattle University's Kirkwood.

Even if The Times prevails in each of these arenas and the clock restarts, more than 12 of the 18 months remain, moving proceedings well into 2007.

Bill Richards is a freelance writer hired on a special contract by The Seattle Times to cover events involving the joint-operating agreement with the Seattle Post-Intelligencer. He can be reached at brichards@seattletimes.com.

Copyright © 2003 The Seattle Times Company

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