Explanation, speculation after Times' about-face

Three weeks after The Seattle Times Co. and The Hearst Corp. settled their long-running legal dispute, the question persists:

Why did The Times agree to the deal?

For four years, Publisher Frank Blethen maintained The Times' joint-operating agreement (JOA) with Hearst's Seattle Post-Intelligencer was bleeding his family-owned paper into unprofitability.

The Times touched off the fight in 2003 by triggering an escape clause in the contract that could have led to closure of the P-I, termination of the JOA or both.

The settlement, however, perpetuates the business arrangement Blethen had argued was so crippling. The day the deal was announced, Blethen called it "very good new for us."

The turnaround seemed abrupt. "People at The Times are really bewildered," said Liz Brown of the Pacific Northwest Newspaper Guild, the largest union at the paper.

One theory, advanced by Brown and others: The Times settled just before a binding-arbitration hearing on the dispute because Hearst had a "smoking gun" — evidence The Times, which has handled thebusiness side for both papers under the JOA since 1983, had been sabotaging the P-I for years in a bid to force its rival out of business.

The Justice Department looked into management of the JOA several years ago. It closed its inquiry in 2005, saying it hadn't found sufficient evidence The Times had engaged in improper conduct likely to lead to a monopoly.

But the agency said it had reached no conclusion about whether The Times had breached its contract with Hearst.

The Times says it had "great confidence" it would have prevailed in the arbitration. Its explanation for why it agreed to settle is more complicated.

Blethen and Times President Carolyn Kelly have presented their case in interviews and in private meetings and correspondence with employees. In essence, they say, local and national conditions changed so sharply after the dispute began that an arbitration win would have been a Pyrrhic victory.

Among their points:

• The litigation probably would have dragged on.

In an interview with the Puget Sound Business Journal, Blethen cited the re-emergence of the Committee for a Two-Newspaper Town this year. That group, which had filed claims in court against both The Times and Hearst in 2003, virtually disappeared last spring after losing the support of the Newspaper Guild, its chief financial backer.

But the committee, while still underfunded, reorganized its board, retained a new, high-powered legal team and revived its claims this winter.

"We were looking at the potential of several more years of very expensive litigation," Blethen said. He also raised the possibility that Hearst could have prolonged the legal fight.

• Even if The Times won, competition for local daily newspaper readers probably wouldn't have ended.

The Justice Department would have required Hearst to put its paper up for sale to buyers willing to run it outside the JOA before closing it. When Hearst put the P-I on the market briefly in 2003, it got no bites.

Last November, however, Canadian press baron David Black jumped into this market, buying a chain of suburban papers.

Black, a fierce competitor, bought a Honolulu newspaper threatened with closure after dissolution of a JOA in 2000, and has kept it alive since — something no other publisher has accomplished.

Black said last month he never looked into buying the P-I. Blethen has said Black wasn't a significant factor in The Times' decision to settle.

But Times employees who attended private meetings with Blethen and Kelly about the settlement say the executives mentioned Black.

"If I were in The Times' position, he would make me nervous," said one executive with another newspaper company.

Times employees also say Blethen has said that, even if the P-I closed, some other competitor was likely to emerge.

• Arbitrator Larry Jordan's decision might not have been clear-cut.

Times employees say Blethen said Jordan could have ruled "mostly" for The Times and still given Hearst something.

It's unclear what he meant. Under the 2006 arbitration agreement between the companies, it appears Jordan's options were limited: He could only have ruled The Times was, or wasn't, entitled to trigger the escape clause in the JOA.

But the agreement also called for a second phase of arbitration, to consider the companies' claims against each other for damages — money. Hearst was seeking damages from The Times for its alleged efforts to undermine the P-I.

One conceivable outcome: Jordan could have ruled The Times could trigger the escape clause but also had to pay Hearst millions.

• The newspaper industry's crisis has deepened, and the litigation was consuming energy and money The Times could have spent on navigating a fast-changing media environment.

"It progressively became clear that the negative readership and advertising trends in our industry were structural and not cyclical," Times spokeswoman Jill Mackie said in an e-mail.

The deal offered a chance to stop hemorrhaging money to lawyers and to rebuild cooperation with Hearst to look for ways to make both papers profitable, Blethen and Kelly have said.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com