GR EXTRA!

Antitrust cops ignore York sleight-of-hand

MediaNews thumbs nose at JOA as it builds financial house of cards

Andy Zipser, Editor

27 Jan 2010

The Guild Reporter

The news last week that MediaNews Corp. was filing for bankruptcy overshadowed its settlement of a federal lawsuit charging antitrust violations in Charleston, WV. That's unfortunate, because the West Virginia settlement not only illustrates how a publisher gamed the Newspaper Preservation Act to help it create a financial house of cards, but reopens the question of why a startlingly similar situation in York, PA, remains unchallenged by the U.S. Dept. of Justice.

The West Virginia case dates back to May, 2004, when MediaNews announced it had sold "substantially all" of its economic interest in the Charleston Daily Mail to its competitor, the Daily Gazette, with whom it had been in a joint operating agreement since 1958. In exchange for $55 million, the Gazette acquired the Daily Mail's masthead, website, subscriber list, intellectual property, goodwill and all other intangible assets, as well as the Daily Mail's 50% share of Charleston Newspapers, the JOA operator.

Although MediaNews ostensibly continued to publish the Daily Mail, Justice Department investigators concluded it was simply a contractor who received a fixed annual fee for management and supervision services "regardless of the Daily Mail's quality or circulation levels." Moreover, the department charged, the sale gave the Gazette "the unilateral right not only 'to take immediate and deliberate steps' to decrease the Daily Mail's circulation, but the unfettered power to terminate publication of the Daily Mail whenever it saw fit to do so"—which, Justice contended, was in fact the plan.

Three years later, Justice filed a civil antitrust lawsuit alleging that the Charleston transaction violated the Clayton and Sherman acts. It took nearly an additional three years to resolve the matter, but the Jan. 20 tentative settlement—it has yet to be approved by a District Court judge—purportedly preserves the Daily Mail and gives MediaNews an ongoing financial stake in its performance. The settlement restructures five contracts governing the papers' non-news operations; bars any changes without government consent; gives MediaNews two seats on a five-member board of managers at Charleston Newspapers; and requires  a minimum six month's half-off subscription discount offer for the Daily Mail in an effort to rebuild its readership.

The agreement also bars the Daily Mail from ceasing publication without prior Justice Department approval. And if the newspaper does go out of business, all its intellectual property—after payment of any debts—must revert to MediaNews.

Given the Justice Department's persistence in Charleston, its apparent lack of interest in parallel developments in York is puzzling, to say the least. There, as in Charleston, MediaNews was a partner in a joint operating agreement. And, as in Charleston, one partner sold essentially all of his newspaper's assets to the other, leaving only his name as a figurehead publisher. But in the York exchange it was MediaNews that emerged as owner of both papers, while the figurehead publisher, Phil Buckner, took his $38 million sales price and retired to Seattle.

And, as in Charleston, the exchange occurred in May, 2004. The timing suggests that MediaNews netted $17 million between the two transactions. (The Charleston settlement apparently is silent on whether MediaNews has to refund any of the proceeds it gained from the sale of assets it has now regained.)

In York, the Daily Record was owned by the Buckner News Alliance, while MediaNews owned the Dispatch. (MediaNews also owned the Sunday News, which under the JOA served as the Sunday paper for both dailies.) As explained in a May 7, 2004 press release from MediaNews, the Denver-based company had "acquired substantially all of the related 42.5% economic interest Buckner News Alliance held in the JOA," while Buckner would be "solely responsible for the publication and editorial content of the York Dispatch."

Yet in its filings with the Securities and Exchange Commission, MediaNews asserted that it now possessed the whole package, explaining that the company "still owns the masthead and all other tangible and intangible assets of the York Dispatch" as well as all of the York Daily Record and the York Sunday News.  Moreover, MediaNews's financial statements consolidated the results of all three York newspapers under its corporate umbrella, in contrast to its unconsolidated reporting of other MediaNews joint operating agreements, including Denver and Salt Lake City.

And, just for good measure, the York shell game amended the JOA—without prior Justice Department approval—to move up its expiration from 2090 to 2024.

Despite all the red flags, the Justice Department ignored Guild attempts to have it investigate the transaction. "We gathered a lot of information and fed it to sources in the department, who saw a strong case," a Guild organizer recalls. "But this was the Bush administration. Eventually the word filtered back that the department didn't want to touch the thing, and that was that."

Nor has that changed with a new sheriff in town. A spokeswoman from the Department of Justice told the Guild Reporter today that there is no record of a past investigation in York, adding that she couldn't comment whether the antitrust division would take a look now that the Charleston case has been settled.

One final parallel is worth noting.  One concern voiced by government attorneys about the Charleston transaction was the subsequent increase in  Daily Gazette circulation, apparently at the Daily Mail's expense. In York, the Buckner-owned Daily Record had a daily circulation of 43,845 in 2003, the year prior to its sale; the MediaNews-owned Dispatch trailed just slightly, at 39,150. By last Sept. 30, the Daily Record had boosted its daily circulation to 55,370—while the Dispatch had slid to 23,867.