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Originally published April 17, 2007 at 12:00 AM | Page modified April 17, 2007 at 8:32 AM

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Seattle Times, P-I reach agreement to keep both newspapers publishing

The settlement that owners of Seattle's two daily newspapers announced Monday appears to end the city's four-year-old newspaper dispute...

Seattle Times staff reporter

The settlement that owners of Seattle's two daily newspapers announced Monday appears to end the city's four-year-old newspaper dispute. Both The Seattle Times and Seattle Post-Intelligencer will continue to publish for the foreseeable future.

But with few details about the agreement immediately available, many observers were speculating about why The Seattle Times Co. had agreed to the deal.

The Times is paying The Hearst Corp., the P-I's owner, $24 million. And it is getting no relief, at least for now, from a contract with Hearst that Times Publisher Frank Blethen has repeatedly said threatens his newspaper's profitability and tradition of family ownership.

At a news conference Monday, Blethen called the settlement "good news for us." It gets The Times out of an expensive legal struggle, he said, and allows the two companies to rebuild their fractured business relationship.

But he also said he's still skeptical that the joint-operating agreement (JOA) between the two newspapers can become profitable. And he said The Times has lost money under the arrangement over the past seven years.

Word of the settlement came on the same morning the companies were to begin a closed-door binding-arbitration hearing to resolve their longstanding differences over the JOA. Lawyers for the two sides already had completed months deposing potential witnesses and exchanging internal documents.

"It seems kind of like The Times blinked," said Liz Brown, leader of the union that represents the largest number of workers at both papers.

But Doug Underwood, a University of Washington journalism professor and former Times reporter, said The Times may have decided to "limp along" for several years with the hope that the P-I will shut down, leaving The Times the only daily newspaper and getting all the profits.

Key provisions

While the text of the new agreement was not expected to be made public until today, both sides said its key points include:

• A $49 million payment from The Times to Hearst. In return, Hearst gives up its previous right to get 32 percent of The Times' profits through 2083 if the P-I ever closes.

• A $25 million payment from Hearst to The Times. In return, The Times agrees not to attempt to trigger an escape clause in the JOA, which could lead to closure of the P-I, until 2016.

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• Provisions to help boost the smaller P-I's circulation, including a senior Times executive dedicated to monitoring P-I circulation, and other changes Blethen dubbed "relationship-restoring items." Among them: repainting trucks that now bear only The Times' name to include the names of both newspapers.

Timing of payments

Blethen and P-I Publisher Roger Oglesby said the timing of the payments had not been determined, though Oglesby said it was expected to happen in the next few months. Times spokeswoman Jill Mackie said The Times would borrow to pay Hearst the $24 million.

While there apparently is nothing in the agreement that prevents Hearst from closing the P-I at any time, "no one over here thinks there's going to be any reason to fold the P-I anytime soon," Oglesby said.

If that were Hearst's intent, he said, it never would have agreed to the settlement. "It's a new beginning for the P-I," he said.

Blethen sounded a similar note. "My guess is Seattle is going to have two newspapers probably longer than any other city in the country," he said.

In contrast to Blethen, however, Oglesby said he thinks the JOA can become profitable.

No layoffs or buyouts are planned at the P-I, he said.

When asked the same question, Blethen deferred, citing the difficult economic climate for newspapers nationally.

The financial viability of the JOA has underscored the dispute. Under the agreement, The Times and P-I maintain separate, competing news operations, but The Times handles the business and production side for both. The Times gets 60 percent, Hearst 40 percent, of what remains after The Times is paid for the non-news costs of producing both newspapers.

Escape clause

The Times moved to trigger the JOA's escape clause in 2003, notifying Hearst it had lost money under a formula spelled out in the contract in each of the three preceding years. Under the contract, that could have led to closure of the P-I, the end of the JOA, or both.

Hearst filed a lawsuit challenging the validity of The Times' losses. The Times said producing the weaker P-I had become an economic drain that threatened its future.

Times President Carolyn Kelly said Monday the JOA's economics still don't work, but "we're going to give it our best shot."

Groups that had worked for years to keep both papers alive hailed the settlement.

"It's terrific news for our members and terrific news for Seattle," said Brown, administrative officer of the Pacific Northwest Newspaper Guild, which represents more than 500 workers at the two papers.

But questions remain, she added, about Hearst's long-term commitment to publishing the P-I.

Anne Bremner, co-chair of the Committee for a Two-Newspaper Town, said her group was reserving judgment on the settlement until it sees the text. But if it is as good as it sounds, she added, the committee would drop its own claims against both newspapers in King County Superior Court.

Bremner speculated that something might have come up during discovery that tilted the balance toward Hearst and pushed the Times to settle. Times spokeswoman Mackie denied that.

"Our agreement to settle is not in any way a reflection of the strength of our case in the arbitration," Mackie said.

Despite the agreement, Miles Groves, former chief economist for the Newspaper Association of America, said he doubts both newspapers will continue to publish for long.

"When you look at what's going on in the industry and where the revenue is going, it's a total changing of the landscape," he said.

Jack Kirkwood, an antitrust expert at Seattle University's law school, said The Times may have just decided to wait for its reward. "Nine years from now The Times will be in a position to issue another loss notice. Maybe there's a pot of gold for The Times in nine years."

David Brewster, founding editor of the Seattle Weekly, said, "Hearst is the one that blinked, not Blethen."

Hearst appears to have had a persuasive argument that the Times undersold and undercirculated the P-I, he said. And even if Hearst lost that argument in arbitration, it still would have been entitled to 32 percent of the Times Co. profits had the P-I gone out of business.

Speculation that the long-running dispute might be headed toward a settlement spiked April 6, when both companies announced that the arbitration hearing, which had been scheduled for April 9, had been postponed a week.

Oglesby said Monday that the talks began several weeks earlier. The principal negotiators, he said, were Blethen, Kelly, Hearst General Counsel Eve Burton and Robert Danzig, a retired Hearst vice president.

Blethen wouldn't say much about the talks. "It was touch and go and it was on and off," he said. As recently as Saturday morning, he said, he was both talking with Kelly about a possible settlement and preparing for the hearing.

Attorney General Rob McKenna said he had talked with people involved in the negotiations, and was told the looming deadline of the arbitration trial forced the parties to negotiate. "There's nothing quite like a deadline to focus people," he said.

Both sides had agreed not to appeal arbitrator Larry Jordan's decision.

Early Monday morning Jordan's office still was preparing for the hearing. A security guard sat at the entrance to Jordan's miniature mock courtroom in downtown Seattle, with a list of lawyers, witnesses and experts to admit.

Shortly after 8:30 the guard's radio crackled. It was his supervisor, telling him the hearing had been called off.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com. Seattle Times staff reporter Jonathan Martin contributed to this report

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