Gazette antitrust suit settled

By Steve Korris | Jan 20, 2010

CHARLESTON – Charleston Gazette owners who bought the Daily Mail in order to shut it down will set it free with a shot at success under a Jan. 20 settlement of antitrust charges that the U.S. Department of Justice brought against the Gazette.

The settlement would return ownership of the Daily Mail to Affiliated Media of Denver, Colorado, under a joint operating agreement between the newspapers.

Affiliated Media, formerly MediaNews, would take two of five seats on a board of managers overseeing the partnership.

The settlement would offer the Daily Mail incentives to compete, such as cash bonuses for the publisher and circulation director if they sign up enough subscribers.

It would slash Daily Mail subscription rates by at least half.

It would specifically ban Gazette involvement in the Daily Mail newsroom, and it would generally prohibit any action that would harm the Daily Mail.

"Defendants may not deliberately hasten the failure of the Daily Mail," wrote U. S. Attorney Charles Miller. "Defendants may not take any action with the intent to cause the Daily Mail to become a failing newspaper."

He wrote that the United States considered proceeding to a trial that would have started on April 20 before District Judge John Copenhaver.

"The United States is satisfied, however, that the prohibitions and requirements contained in the proposed final judgment will adequately address the competitive concerns regarding the unique local daily newspaper market in Charleston," he wrote.

The government sued in 2007, claiming the Gazette's purchase of the Daily Mail in 2004 violated the Sherman Act and the Clayton Act.

The government claimed the papers surrendered the immunity from antitrust laws that they had enjoyed since passage of the Newspaper Preservation Act in 1970.

The act exempted joint operations from antitrust law, as long as the newspapers maintained separate and independent newsrooms.

In Charleston, Miller wrote, "each owner actively sought to protect and increase the circulation of its respective newspaper rather than seeking solely to achieve the most profitable combined circulation."

Each owner monitored the joint operating agency, Charleston Newspapers, to make sure managers didn't favor one paper over the other, he wrote.

"Each regularly blocked certain proposals that would have saved money for Charleston Newspapers because one owner believed that the proposal would provide the rival newspaper with a competitive advantage," he wrote.

In 1998, the Gazette and MediaNews adopted an amendment allowing the Gazette to match any third party offering to buy the Daily Mail.

MediaNews received a $55 million offer, and in 2004 the Gazette matched it.

According to Miller, United Bank financed the sale after Gazette owners showed a plan calling for termination of the Daily Mail at the end of 2007.

After the sale, the Daily Mail quit publishing on Saturdays. It didn't replace reporters who left. All promotions, discounts, and solicitations of new readers ended.

Daily delivery stopped for thousands of customers.

The owners tried to lure Daily Mail subscribers to the Gazette subscription list.

In less than a year, Daily Mail circulation fell from 35,076 to 23,985.

When the government sued, the dailies answered that they continued to comply with the Newspaper Preservation Act.

They moved to dismiss, and Copenhaver denied the motion. He noted "vigorous debate" over whether news and editorials of the dailies remained under separate control.

"In this connection, the continued viability of reportorial competition is worthy of further scrutiny with the benefit of a developed evidentiary record," he wrote.

Throughout last year, the government and the dailies obtained a series of stays from Copenhaver, always claiming they would soon settle.

At last they settled, on terms giving the Daily Mail every chance to bounce back.

Approval of newsroom budgets would require four of five votes from the board of managers, so the two Daily Mail representatives could veto the Gazette's budget.

That provision would allow Affiliated Media to negotiate for the resources it needs to compete, Miller wrote.

The Daily Mail will have no fewer than 32 newsroom positions, he wrote.

Affiliated Media can even exceed its newsroom budget, Miller wrote, as long as it pays for the extra cost.

The settlement doesn't guarantee the survival of the Daily Mail, but it would turn the failure of the Daily Mail into a likely loss for the Gazette instead of a gain.

The public can send comments to John Read at the Department of Justice, 450 Fifth Street NW, Suite 4000, Washington, D. C., 20530.

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