Times reports impasse on JOA talks, may try to close P-I; Hearst will sue

Seattle's simmering newspaper feud heated up yesterday with The Seattle Times Co. disclosing that negotiations with The Hearst Corp. had reached an impasse and that The Times was prepared to take steps that could lead to a shutdown of its crosstown rival, the Post-Intelligencer.

Hearst, the P-I's owner, said it planned to file a lawsuit against The Times shortly, but did not elaborate. The Times said it had been informed the suit would be filed tomorrow.

In a memo and accompanying press release circulated yesterday afternoon to Times staff members, spokeswoman Kerry Coughlin said negotiations between The Times and New York-based Hearst to restructure the two papers' joint operating agreement (JOA) had been going on since late last year.

In the memo, Times Publisher Frank Blethen said, "Our goal is not to kill the P-I. In fact, we believe it is Hearst's strategy to kill The Seattle Times."

Blethen said he thinks Hearst instead is attempting to "bleed" The Times by causing "substantial losses for the foreseeable future" under the existing JOA.

"It is not our intent to let The Hearst Corp. bleed one of the few remaining independent newspapers out of existence," Blethen said.

The JOA merges the papers' non-news functions under The Times operation while permitting the papers to publish separately without violating federal antitrust laws.

Coughlin said that because the talks had broken down, The Times had informed Hearst it was prepared to give notice, if it became necessary, to start proceedings to shut down the P-I under the terms of the JOA. The memo did not give a date for the notification.

In a brief statement issued last night, Hearst noted it has been publishing the 140-year-old P-I since 1921 "and intends to continue to do so."

"We do not believe either party has a basis for terminating the Seattle Joint Operating Agreement. We expect to file papers in court shortly seeking the court's opinion on this issue."

Coughlin said Victor Ganzi, Hearst president and chief executive officer, informed Blethen of Hearst's intentions during a conversation in the last two days.

Ganzi did not elaborate on the filing, Coughlin said. But she added that The Times does not believe Hearst is planning to seek any kind of injunction against The Times' invoking terms of the JOA.

Instead, Coughlin said, Hearst is expected to challenge The Times' claim that it lost money during the last three years.

Under a 1999 revision of the now-20-year-old JOA, if The Times notifies Hearst it has lost money in three consecutive years, it can pressure Hearst to begin negotiations over a date to close the P-I. If no agreement is reached in 18 months, the JOA ends and Hearst can operate the P-I as a stand-alone paper.

In January, Coughlin said The Times had lost money during each of the past three years.

Yesterday, Coughlin said Hearst has "raised the issue during negotiations of whether those losses are real."

"The losses are real," said Coughlin. She said they had been audited

and confirmed by The Times' auditors, Deloitte & Touche.

Industry experts have said that attempting to build a separate business, circulation and advertising operation for the P-I from the ground up would cost Hearst hundreds of millions of dollars and would be unlikely.

The Times' memo was the first confirmation that rumored negotiations had been going on between the two daily papers. Speculation had surrounded The Times' plans since last fall when Blethen told Times staff members the paper had been losing money.

In yesterday's memo, Blethen called the Seattle JOA "one of the most, if not the most, successful in the country." But he said the JOA had caused The Times to experience "serious production and distribution limitations which hamper us in the marketplace and keep us from generating new advertising revenue."

These problems, he said, "threaten the survival of The Seattle Times."

Currently, a dozen of the 29 JOAs approved by the U.S. Justice Department are still functioning.

In January, Blethen told Times staff members in an internal memo that The Times Co. had fallen out of compliance with its lenders because of several problems, including a 49-day strike and the collapse of the local economy. The newspaper company regained loan compliance after cutting $40 million from its operating budget. Last month, the lenders said the company remains in compliance.

"The JOA structure — which creates an artificial situation to perpetuate a second newspaper that is not making it on its own — has been terribly inefficient," Times President Carolyn Kelly said in yesterday's memo. "In the new economy," she said, "it's devastating."

Kelly said whether Hearst sues The Times, or The Times seeks to close the P-I, "The Seattle Times will continue to manage the P-I in accordance with the JOA as long as it is in effect."

Bill Richards is a free-lance 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