Key issues emerge in newspaper fight

Depending on who is talking, The Seattle Times either:

• Is overstaffed, or understaffed.

• Vigorously markets and distributes the rival Seattle Post-Intelligencer, or sabotages P-I sales.

• Is trying to preserve a variety of news sources, or trying to eliminate one.

The Seattle Times Co. and the P-I's owner, the Hearst Corp., have staked out opposing positions on all three issues, each of which is playing a part in the debate swirling around the joint-operating agreement (JOA) that governs the companies' relationship.

The $55 billion newspaper industry is watching how the conflict unfolds. Seattle's JOA has been cited as the most successful of the 28 JOAs approved by the Department of Justice since Congress granted the industry unique protection from antitrust regulations under the Newspaper Preservation Act of 1970. Only a dozen JOAs are left. If Seattle's collapses, it could further diminish an American staple — the two-newspaper town.

Others are watching, too. The Pacific Northwest Newspaper Guild and the Teamsters, the papers' major unions, tried to mobilize public support when they struck both papers in 2000, a strike that cost The Times and Hearst heavily. The unions plan to muster public support again to try to keep both newspapers open.

Staffing increase

The Times' staffing moves may be the most murky issue. In an April lawsuit filed in King County Superior Court, Hearst accused The Times of deliberately overspending on staffing and other improvements to run up three consecutive years of losses. That allowed The Times Co. to invoke a clause in the JOA and demand Hearst begin negotiations to shut the P-I to staunch further losses.

Under the JOA, The Times Co. handles advertising, production, circulation and marketing for the P-I. The papers pool their revenues and, after accounting for the non-news expenses, split the remainder, with 60 percent going to The Times and 40 percent to Hearst. The Times says supporting the weaker P-I is bleeding financial resources. Invoking the so-called "stop-loss" clause, The Times says it lost about $10 million from 2000 to 2002, including a $2.7 million loss last year.

In its rebuttal of the Hearst suit's contentions about staffing, The Times says the New York-based media company misrepresented the true situation at the paper.

Times spending last year rose by 17 percent, including the hiring of 55 full-time staffers to boost the full-time staff to 343. The hiring was necessary, Times executives say, to rebuild after cutbacks resulting from a 49-day strike in late 2000 and early 2001, a collapse of the local economy and the Sept. 11, 2001, terrorist attacks.

The hiring wasn't excessive, they insist, because it left the paper below its pre-strike staff level of 354 full-time employees.

Industry experts differ widely over optimal staff size for newspapers. But a study by the Poynter Institute for Media Studies, a St. Petersburg, Fla., journalism school and research group, indicates The Times has been among the most heavily staffed newspapers in the U.S. for its circulation size — before and after its strike.

Rick Edmonds, the Poynter researcher who did the study, said The Times' hiring last year accounted for nearly a fifth of all hires in the U.S. newspaper industry. He cited the Fort Worth Star-Telegram as a paper in The Times' circulation range with a large staff. Last year, the Texas paper, not part of a JOA, had 336 full-time news staffers for a daily circulation of about 225,000. The Times' daily circulation is about 239,000.

Because JOAs restrict business competition, Edmonds said, news staff-to-circulation ratios at JOA papers such as The Times are usually lower than the industry average. "I don't think I've ever seen another JOA paper where staffing is very much on the high side," he said.

Times officials say that if Edmonds' study included Sunday papers, The Times' staff-to-circulation numbers would be closer to the industry average. Under the JOA, The Times' Sunday edition, which has a circulation of 475,000, carries both papers' mastheads but the news sections are produced entirely by The Times' staff.

Edmonds and others also say The Times' loss last year was uncommon for an industry where average profit runs around 18 percent. At newspapers that spend heavily on staff and content, such as The Times, profit may drop as low as 8 percent, he said.

But, he added, "It's very unusual for newspapers anywhere to be actually losing money."

Times Publisher and Chief Executive Officer Frank Blethen has said The Times' spending helped it maintain its "core readership," especially in the suburbs. The paper's average daily circulation grew nearly 5 percent over the past year, according to audited statements.

"We absolutely feel we weren't overspending on our news operation because we were so severely downsized," said Times spokeswoman Kerry Coughlin.

Marketing complaint

Times and Hearst officials also differ adamantly on The Times circulation and marketing of the P-I.

In a letter to Blethen in January of last year, Hearst's top executives accused The Times of deliberately undercutting the P-I's marketing and circulation to weaken it. Industry experts say the market value of The Times would go up as much as $500 million without the P-I.

The complaint — from Frank Bennack, then Hearst's president and chief executive officer, and Victor Ganzi, then chief operating officer — was referred to in a lengthy rebuttal by Blethen that was included in documents Hearst filed in its lawsuit last month. Hearst did not include Bennack and Ganzi's letter in the lawsuit and declined to make it available.

In his 12-page rebuttal, Blethen challenged Hearst's allegations and outlined The Times' marketing strategy. Blethen's letter cites the P-I's falling circulation figures and polling by The Times last year that showed readers' apparent preference for The Times over the P-I by a ratio of better than 4-1.

"It is the P-I itself, and not our lack of marketing diligence or any other alleged management shortcoming, that is making our job of selling the P-I so difficult," Blethen said in the letter.

Blethen also listed a number of efforts by The Times to boost P-I circulation, including spending more on each new P-I subscriber than each new Times subscriber.

And he cited an "inexplicable" decision by Hearst in late 2001 to drop the P-I's high-school sports coverage. The decision, he said, likely cost the P-I some of its 63,000 suburban subscribers, contributing to its circulation decline while The Times gained readers.

Hearst officials and Blethen declined to comment on the letters.

TV, newspaper cross-ownership

Hearst and The Times also take different positions on the Federal Communications Commission's expected vote tomorrow on ending the government's prohibition against one company owning both TV and newspaper properties in a single city.

Hearst and other large media companies support the change. Blethen is an outspoken opponent, warning a U.S. Senate panel last month that dropping the cross-ownership ban would be "the beginning of the end of our democracy."

Neither Hearst nor Blethen, however, talks much about the effect of the change on their own situation in Seattle.

A decision by the FCC to end the ban would clear the way for Hearst, whose Hearst-Argyle Television unit owns 27 TV stations around the U.S., to buy into the Seattle broadcast market.

The most likely target would be Fisher Communications' KOMO-TV. The P-I already shares some news operations with KOMO and rumors of Hearst's interest in buying the station were widespread last fall. At that time, Fisher hired Goldman Sachs, the New York investment banking company, to explore the sale of some of its media properties, including KOMO.

William Krippaehne, Fisher's chief executive officer, called the rumors "patently ridiculous" and said his company has no plans to sell KOMO.

But others at Fisher and Goldman say it is likely Goldman floated the idea of buying several Fisher TV stations, including KOMO, with Hearst-Argyle Television, during last fall's strategy review.

"Hearst-Argyle has had a relationship with this company for years," said a Fisher executive, who asked not to be named. If Fisher did sell, he said, "Hearst might be the logical buyer."

A Goldman Sachs spokeswoman declined to comment.

Advertising industry officials say pairing KOMO with the P-I could tilt the balance of power in Seattle in Hearst's favor, especially during the next 17 months while Hearst and The Times fight over the future of the JOA.

If it owned KOMO, Hearst might decide to try to keep the P-I operating outside the JOA, publishing on its own.

"If you can package both media together, they'd be a greater value for the advertiser," said Mary Jane Keehn, media director at Cole & Weber/Red Cell, a Seattle-based ad agency.

Generally, said Keehn, advertisers sell in both papers in a two-paper city. But if Hearst owned both the P-I and KOMO, she said, it could say to advertisers: "Instead of buying The Times, take the money and look at television."

Media concentration

Blethen's position on cross-ownership focuses on the effect media concentration may have on the public. He has criticized FCC Chairman Michael Powell's position that the public can get information from alternative sources such as the Internet and cable TV, so concentrating ownership of traditional radio and TV outlets won't matter.

After Powell addressed a national newspaper executives conference in Seattle in April, Blethen told reporters: "It's amazing to hear somebody use so many words to say nothing. He's focused on technology and not news and how news serves our democracy, and the loss of the diversity of voices we're seeing through concentration of ownership."

In Seattle, however, Blethen said the city will benefit from eliminating the P-I and concentrating newspaper ownership in The Times, because The Times will have more resources to put into its news operation.

Times spokeswoman Coughlin said there is no contradiction in those positions.

"If Seattle will be left with one newspaper," she said, "then wouldn't we be better served by an independent, locally owned newspaper than one owned by a New York-based multibillion-dollar chain?'"