Seattle will remain a two-newspaper town for at least 10 more years

Seattle's two warring newspapers have settled a long-running dispute over their joint operation with an agreement that will allow Hearst Corp.'s Seattle Post-Intelligencer to continue publishing for at least 10 more years. The deal drew cheers in the P-I newsroom on Seattle's waterfront when it was announced on Monday, April 16, shortly before attorneys for Hearst and the locally controlled Seattle Times Co. were to begin a binding, winner-take-all arbitration. The Seattle Times Co. will now defer a four-year quest to shut down the crosstown rival until 2016 at the soonest. In return, Hearst agrees to drop costly litigation it had brought to block the Times effort to shut down the P-I. Hearst also gave up a provision in the papers' present operating agreement that would have paid Hearst 32 percent of Seattle Times profit for the next 77 years if the P-I were closed. The two papers have been uneasy partners in the federally regulated joint operating agreement (JOA) since 1983, with the more widely read Times, which owns the printing presses, overseeing business functions for both papers. The P-I controls its own news content but is not directly involved in advertising sales, marketing, production, or circulation. Under the settlement, which was finalized Sunday, the Seattle Times Co. will pay Hearst $49 million to drop the lawsuit Hearst filed in 2003, which led to the arbitration that was to occur this week. Hearst, in turn, will pay $25 million to the Times Co. to continue managing the the JOA and not seek to end it for at least 10 years. When the cash shuffling is done, Hearst will end up $24 million ahead. A Times spokeswoman said the company will borrow cash to make the payment to Hearst. According to previous JOA rules, the Times could force Hearst to end the agreement and close the P-I 18 months after demonstrating that the Times had lost money for three consecutive years. Times officials have been trying to invoke that provision since 2003, claiming that under a JOA formula, the paper had lost money each year from 2000 to 2006. Hearst's lawsuit challenged the Times loss claims. Both sides were scheduled to begin the binding arbitration Monday before retired Superior Court Judge Larry Jordan. Aside from the cash considerations, the settlement essentially moves the Times and the P-I back to where they were four years ago. But it does bring several key changes. By dropping its right to Times profit through 2083, Hearst will give up most of the leverage it had under to JOA to keep the Times from closing the P-I, though now that can't happen before 2016. Insiders on both sides have questioned how substantive Hearst's leverage was, however, since any Times profit would be recognized only after deducting the Times' annual operating and newsroom expenses. "The Times could have whittled the whole thing down to no profit at all," said a person involved in the settlement, who asked not to be identified. This way, he said, Hearst ends up with at least 10 more years of printed life for the P-I and $24 million up front. "Everyone here is thrilled with that," he said. From the Times Co. perspective, the settlement gives the Seattle-area Blethen family more discretion in managing the company by removing the threat of Hearst poring over Times books for the next 77 years. The Blethens control the Times through their ownership of 50.5 percent of Seattle Times Co. voting stock. The minority share is owned by Sacramento-based McClatchy Co. Insiders said McClatchy, which acquired the Times Co. minority stake last year when it bought out previous owner Knight Ridder, played little part in the settlement with Hearst. Other elements of the agreement, according to a Times news release, are "aimed at fostering a renewed constructive business relationship between the two parties." Hearst has long complained, for example, that the Times has failed to give equal marketing and circulation treatment to both papers, as required by the JOA, and the topic was expected to be a major issue in the artbitration. At least two former Times executives gave Hearst attorneys sworn depositions last November claiming the Times skewed circulation and marketing spending during the 1990s to favor itself. Under the new agreement, the Times will hire a senior circulation executive for the P-I and put more effort into marketing the smaller paper. That will include equal identification for both papers on delivery trucks, which now carry only the Times logo, and more say in marketing by the P-I. "I honestly believe this is a good settlement for everyone," P-I Publisher Roger Oglesby said. "It preserves a 144-year-old newspaper, saves a lot of jobs and continues to give Seattle two daily newspapers." "We are happy to have found common ground," Times Publisher and Times Co. CEO Frank Blethen said in a statement. Times Co. President Carolyn Kelly called the settlement "a positive development for the people of this region, for our readers and advertisers, and for our employees." The JOA, which was signed in 1981 and implemented in 1983, is essentially a legal monopoly allowed by the Newspaper Preservation Act of 1970 and was approved by the U.S. Justice Department. The Times and P-I maintain separate newsrooms and compete for readers. But the Times gets a greater share of profit and handles the business side – selling advertising and printing, circulating, and marketing both papers. The agreement says the Times Co. "will use its best efforts, using the same degree of diligence" to promote and circulate both papers. The Times Co. owns The Seattle Times, the Yakima Herald-Republic, the Walla Walla Union-Bulletin, and, in Maine, the Portland Press-Herald and Sunday Maine Telegram, the Kennebec Journal in Augusta, and the Morning Sentinel in Waterville – plus weeklies, Web sites, real estate, and Rotary Offset Press in Kent, Wash. Hearst is a multibillion-dollar media company that owns a dozen newspapers, 28 television stations, magazines, Web sites and numerous other media properties. According to people familiar with the details of the settlement, Hearst and the Times Co. began serious backdoor negotiations about four weeks ago. In addition to trading telephone calls and e-mails, Eve Burton, Hearst's general counsel, and Robert Danzig, the company's former general manager, made several trips to Seattle to negotiate with Times Publisher and Times Co. Chief Executive Frank Blethen and President Carolyn Kelly. While the papers' settlement does not require approval by the Justice Department, a Times spokeswoman said the agreement would be filed with federal antitrust officials within 48 hours and would be made public. The settlement resolves the core of the dispute between the Times and Hearst, but it still leaves several loose ends to be cleared up. They include the status of a legal challenge by the Committee for a Two-Newspaper Town, which contends that the entire JOA is unconstitutional under Washington law. The committee, a citizens group that has been granted intervenor status in Hearst's lawsuit in King County Superior Court, claims the JOA's 32 percent payout provision – the money Hearst would have received even if the P-I was no longer published – gave Hearst an illegal incentive to shut down the P-I. Judge Greg Canova was scheduled to take up the committee's challenge on July 20. Kathy George, the committee's attorney, said the group's board would seek clarification of the settlement details before deciding whether to continue the case against the JOA. "Our goal was to maintain two papers, and the papers apparently believe this is not only possible but desirable," she said. Also unclear are Hearst's plans for the P-I. While Oglesby said in an interview that he hoped the P-I would continue to publish "forever," he also pointedly noted that "a lot can happen in 10 years." Hearst has refused to disclose the state of the P-I's finances, but the paper's circulation, and presumably ad revenue, has been shrinking steadily. The P-I's weekday circulation is about 126,000, according to the Audit Bureau of Circulations, which tracks newspaper figures. The Times weekday circulation is about 212,000. Hearst's decision to give up its claim under the JOA to 32 percent of future Times profit if it shuts down the P-I could be a signal that the New York-based media conglomerate is willing to settle for second place in Seattle. But Hearst's history has been to move aggressively to eliminate competition in other cities where it publishes newspapers. In 1999, when the Seattle JOA was amended, Hearst insisted on a side deal with the Blethen family for first right of refusal should the family ever decide to sell its 50.5 percent controlling interest in the Seattle Times Co. The Times spokeswoman said the first-refusal agreement was not affected by Monday's settlement. Perhaps the biggest question for both papers is how they will cope with the steady migration of readers from print to the Web. While the move to online sources of news and advertising is by no means a local phenomenon, both the Times and P-I have seen their online readership increase by between 20 percent and 30 percent in each of the four years they have been dueling. As a result, neither print paper is as valuable as it was when the fight began. Both Hearst and McClatchy have invested in technologies that could be used in moving their newspapers online. The Times spokeswoman said the settlement of the JOA dispute "frees up our top executives to focus all their attention on how newspapers survive in the future, whatever form they may take."