West Virginia Record

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Justice Department sues over Charleston newspaper merger

By John O'Brien | May 23, 2007

CHARLESTON – The 2004 sales of the Charleston Daily Mail violated antitrust laws, according to a federal lawsuit filed May 22 by the Department of Justice.

The lawsuit, filed in U.S. District Court in Charleston, seeks to reverse the sale of the afternoon newspaper to the Daily Gazette Co. and restore the competition that existed between the Daily Mail and Charleston Gazette.

To read the complaint, click here.

On May 7, 2004, the Charleston-based Daily Gazette Co. bought control of the Daily Mail from MediaNews Group, which is based in Denver. The Daily Gazette Co. publishes the Gazette. Before that, the papers were operated by Charleston Newspapers under a joint operating agreement that was created in 1958.

The suit argues that three antitrust violations have occurred. First, it says the sale of the Daily Mail resulted in a monopoly of daily papers and advertising in the Charleston area. Secondly, it says the sale wiped out MediaNews' ability to compete with the Gazette. And finally, it says the Gazette will continue to maintain an unlawful monopoly.

The DOJ seeks an order that rescinds the May 7, 2004, sale of the Daily Mail and requires Gazette Company and MediaNews Group to restore the Daily Mail's competitiveness to the level that existed before that.

"This lawsuit challenges a series of transactions in 2004 that extinguished competition between Charleston's two daily newspapers by combining The Charleston Gazette and the Charleston Daily Mail under the common ownership of Gazette Company as part of a plan to terminate the publication of the Charleston Daily Mail and leave Charleston with a single daily newspaper," the complaint says.

"On May 7, 2004, Gazette Company, the Charleston Gazette's owner, acquired all of the assets of the Charleston Daily Mail, its only competitor, from MediaNews Group. On that same day, Gazette Company and MediaNews Group also entered into a new arrangement that gave MediaNews Group nominal responsibility for the news and editorial content of the Charleston Daily Mail, but gave Gazette Company ultimate control over the budgets, management and news gathering and reporting of both newspapers, as well as the right to receive all profits of both newspapers. The arrangement also gave Gazette Company the unilateral right to shut down the Charleston Daily Mail."

The DOJ suit says the transaction "eliminated all remaining competition" under a plan "to terminate publication of the Charleston Daily Mail and thereby force upon consumers in Charleston a single newspaper."

"Today, MediaNews Group purports to provide 'management and supervision' services for the Charleston Daily Mail in return for a fixed fee paid by Gazette Company," the suit says. "In reality, however, the news and editorial assets and resources of the Charleston Daily Mail are under the ownership and control of Gazette Company.

"Gazette Company's plan was to use that control to weaken the Daily Mail to the point where it would fail and could be eliminated as a competitor to the Charleston Gazette, and Gazette Company acted quickly to carry out that plan – until the Department's (DOJ) investigation interrupted those efforts."

Because of that plan, the DOJ says the transactions eliminated any claim that the papers' arrangement is immune to antitrust scrutiny under the 1970 Newspaper Preservation Act.

"When Daily Gazette Company acquired the Daily Mail with the aim of shutting it down, readers in the Charleston area, and the advertisers who value access to them, were denied the benefits of competition," Thomas O. Barnett, an assistant attorney general in the DOJ's Antitrust Division, said in a news release. "The Department's investigation saved the Daily Mail from this unlawful termination, and this action seeks to remedy the competitive damage already done and to prohibit the parties from resuming an anticompetitive course in the future."

Daily Gazette Co. President Elizabeth E. Chilton called the action "inexplicable" and said "we intend to contest it vigorously."

"The Gazette knows of no law that has been violated," Chilton said in a statement. "Because the Justice Department refused to share a copy of the lawsuit with us in advance, we cannot comment in more detail on its allegations at this time, but the Gazette will respond forcefully in court to protect its distinct West Virginia voice."

Similarly, MediaNews said there was no basis for the DOJ's action.

"In 2004, the parties amended the Charleston JOA to address the deadlocks and competitive inertia caused by its 50/50 structure," a company news release said. "These changes were necessary for the newspapers to compete effectively with the many new challenges posed by the internet and modern media markets.

"The Antitrust Division contends that the 2004 amendment forfeited the JOA's antitrust immunity. The Division's position is contrary to the language and policy of the Newspaper Preservation Act and the cases interpreting it."

Joseph Lodovic, president of MediaNews Group, said the DOJ "does not understand how JOA's are structured and how they operated."

"Since the 2004 restructuring of the Charleston JOA, MediaNews Group has maintained complete editorial control over the Daily Mail," he said in a statement. "The Daily Mail and The Gazette have remained as journalistically competitive as ever, and the people in Charleston continue to benefit from the choice of two fine newspapers. The Department's attack on the JOA undermines rather than promotes newspaper competition in Charleston."

The DOJ says MediaNews no longer shares in the newspaper's profits and that the Daily Gazette Company plan to shut down the Daily Mail "formulated with the advice of an outside consultant and shared with Gazette Company lenders, called for a rapid reduction of the Charleston Daily Mail's circulation to a level at which the newspaper would no longer be economically viable."

"Gazette Company believed it could then successfully argue to the Department of Justice that it should not oppose the termination of the JOA because the Charleston Daily Mail would be a 'failing company,'" the suit says.

"The parties entered into a new contract that preserved the appearance that the Charleston Daily Mail was still being published by MediaNews Group but, in fact, gave Gazette Company control over Charleston Newspapers, which is now owned 100 percent by Gazette Company. Under the new arrangement, MediaNews Group no longer shares in the profits or the losses of the two newspapers nor contributes to the capitol costs of the business. The arrangement allows Gazette Company unfettered discretion to set the news and editorial budget for the Charleston Daily Mail and gives Gazette Company the sole power to terminate publication of the Charleston Daily Mail when it sees fit."

The complaint says that shortly after the sale of the Daily Mail, Gazette Company stopped all promotions and discounts for the Daily Mail, stopped delivering the Daily Mail to thousands of customers, attempted to convert Daily Mail subscribers to Gazette subscribers, stopped publishing a Saturday edition of the Daily Mail, allowed almost half of the Daily Mail reporters to leave without filling their positions and cut the Daily Mail newsroom budget substantially in 2004 and 2005.

As a result, Daily Mail circulation dropped from 35,076 in February 2004 to 23,985 in January 2005. In that same time, Gazette circulation jumped slightly, peaking at more than 52,000.

"This decline in circulation matched almost precisely the projections that Gazette Company and its consultants made as part of Gazette Company's pre-acquisition plan to shut down the Charleston Daily Mail by 2007," the DOJ suit says. "Only after learning in or about December 2004 that the Antitrust Division of the Department of Justice was investigating the May 7 transaction did defendant Gazette Company take any steps to limit further damage to the Charleston Daily Mail …

"Those steps, however, failed to restore the competitive conditions that existed prior to the May 7 transactions."

In addition to the order rescinding the sale and restoring the Daily Mail competitiveness, the government seeks costs of the legal action.

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