The newspaper war heats up: a Q & A

To anyone familiar with Seattle's newspaper joint-operating agreement (JOA), the events of last week might have looked like one of those old-fashioned movie reels, with people scurrying every which way. After 20 years, mostly in low profile, the federally approved pact between Seattle's two daily newspapers became the center of fast-and-furious action.

Here are a few basic questions and answers to help anyone following the JOA proceedings understand who the players are and what is going on.

Q. What is a joint operating agreement?

A. It's a business arrangement in which a jointly funded "agency" handles advertising, printing, circulation and other non-news operations for two newspapers. The two papers' news and editorial operations remain separate and independent. In 1970, as it became more difficult for two or more papers to survive competition in individual markets, Congress passed the Newspaper Preservation Act, granting antitrust exemptions for papers forming these joint agreements. There are a dozen JOAs operating in U.S. cities today, down from nearly 30.

Q. What about Seattle's JOA?

A. In 1983, The Seattle Times and the Seattle Post-Intelligencer entered a JOA that had been approved by the U.S. Department of Justice. The P-I, owned by the Hearst Corp., had lost $14 million in the decade before and had qualified as a "failing newspaper," a necessary classification for one of the partners in a JOA.

Q. What about the companies involved?

A. The Seattle Times Co. owns eight newspapers. In addition to The Times, the company has two dailies and a weekly in Washington and three dailies and a weekly in Maine. The company is privately owned and controlled by the Blethen family, which owns 50.5 percent. Media giant Knight Ridder holds 49.5 percent.

Hearst, also privately owned, is a New York-based media conglomerate. It owns a dozen daily papers and 17 magazines, plus Seventeen, which it agreed to buy last month. It also has 27 television stations and other media properties. Hearst's president and chief executive officer is Victor Ganzi.

Q. How does the Seattle JOA work?

A. The two papers maintain separate news and editorial staffs, meaning the news content is produced by reporters and editors in separate operations in offices across town from each other. But the business functions — advertising, circulation, printing and other publishing tasks — are handled by The Seattle Times Co., acting as the agency that manages the JOA.

Q. What's the financial arrangement?

A. Revenue from both papers' advertising and circulation is pooled by the agency. After The Times is paid for non-news expenses, the rest — called the "remainder" — is split 60-40 by The Times and the P-I. Each uses its share to cover news and editorial expenses. What's left is each paper's profit or loss.

Q. There was a revision to the JOA in 1999. What was that about?

A. Some horse-trading. The P-I, which was getting 32 percent of what's left after non-news expenses under the original JOA, receives 40 percent under the revision. In return, Hearst let The Times, then an afternoon newspaper, move to head-to-head competition with the P-I in the morning.

Both papers agreed if the new arrangement caused one to lose money for three straight years, it could begin negotiations to shut down one of the papers. The Times agreed if Hearst voluntarily shut the P-I, it would annually pay Hearst 32 percent of The Times' profit, after deducting news and non-news expenses, until 2083, the year the JOA is set to expire.

If the two companies can't agree on shutting down one of the papers within 18 months of a three-year-loss notification, the JOA automatically dissolves and both papers would be on their own. For the P-I to continue, it would need to build a non-news operation, a venture industry watchers say is prohibitively expensive.

Q. What happened last week?

A. The Times notified Hearst it had three consecutive years of losses, from 2000 to 2002. Frank Blethen, publisher of The Times and CEO of The Seattle Times Co., claimed Hearst was using the JOA, and the P-I, to "bleed" The Times in order to weaken and buy it (Hearst has the first right of refusal should The Times be sold).

Hearst sued in King County Superior Court, saying The Times' losses in 2000 and 2001 resulted from events beyond either paper's control, including a strike in 2000 and the 2001 terrorist attacks, and were, therefore, not covered by the JOA. The 2002 losses, Hearst said, came from deliberate and unreasonable overspending by The Times. Ganzi, Hearst CEO, said the P-I should stay open.

The Times contended the JOA doesn't preclude extraordinary events from being considered in loss accounting. It also said the spending in 2002, which came after earlier cutbacks and went toward hiring staff, expanding coverage and other expenses, was needed in order to retain the newspaper's core readers and grow its circulation.

Q. What's next?

A. The battle moves from press releases to court. The first hearing was scheduled for Tuesday, but The Times, without explaining why, asked Judge Bruce Hilyer to step down from the case. He did. A random selection of another judge is under way. Stay tuned.

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.