East Valley news monopoly would face obstacles - East Valley Tribune: Business

East Valley news monopoly would face obstacles

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Posted: Monday, March 17, 2003 8:41 am | Updated: 2:05 pm, Thu Oct 6, 2011.

Government antitrust officials would be unwilling to see a newspaper monopoly in the Phoenix area, several newspaper industry experts said in the wake of Freedom Communications’ decision to put its newspapers and television stations up for sale.

That would mean the government would probably move to block Gannett Co. from buying the East Valley Tribune and Scottsdale Tribune, which are owned by Freedom. Gannett, the nation’s largest newspaper chain, already owns The Arizona Republic and KPNXTV (Channel 12).

If the experts are correct, Tribune readers and advertisers can be reassured that competition will continue to have a positive effect on local advertising rates, subscription prices and the quality of local news reporting.

The possibility of such a purchase is more than idle speculation.

When Freedom made the announcement March 6 that it would accept bids for the company in whole or in part, Vi rg inia-based Gannett responded eagerly that it was interested in buying.

With headquarters in Irvine, Calif., Freedom also owns 27 other daily newspapers, including its flagship, the Orange County Register, eight television stations and 37 weekly newspapers. Some estimates put Freedom’s value at up to $2 billion.

Analysts believe that Gannett is best poised among a small group of potential bidders to close a deal with Freedom. And the company, known for its aggressive practices in acquiring businesses, has a habit of eliminating the competition when it can, industry watchers said.

"My gut impression is that if Gannett bought Freedom, one of the business-side rational things would be to shut down the Tribune," said Steve Doig, a journalism professor at Arizona State University. "I would say it would impact the community. Any loss of an independent media voice is not a good thing to happen."

COMPETITION CALLED GOOD FOR THE MARKET

The statewide Arizona Republic is much larger than the Tribune by daily average circulation, but the two papers go head-to-head in the East Valley. (According to Scarborough readership surveys, about 213,000 people read the Tribune each day.) That competition means Valley residents get better

information from more diverse sources, Doig said.

The Tribune makes the Republic less complacent about serving its customers and in recent years has forced the larger newspaper to put extra resources in Scottsdale and the East Valley to help stay competitive, he said.

Advertisers also rely on competition between newspapers to help keep rates lower.

Such factors weighed heavily in a recent decision by the U.S. Justice Department to discipline two alternative weekly newspaper companies, one of which was the Phoenix-based New Times.

In that case, New Times and Village Voice Media of New York, both of which had owned alternative weeklies in Los Angeles and Cleveland, each agreed to close a paper and leave one company dominant in each city. Previously, as court records note, intense competition between the two companies had once resulted in better ad rates, editorial content and service for readers in Cleveland and Los Angeles.

The Justice Department fined each company about $375,000 and required them to sell the assets of each closed newspaper to companies that would revive them and create competition once again.

John Morton, a nationally recognized media consultant from Maryland, said the odds are "very slim" the government would let Gannett purchase the Tribune as part of the Freedom package.

"The Justice Department has allowed metro dailies to acquire suburban weeklies, but not a substantial daily operation like yours," Morton told the Tribune.

Ralph Spritzer, a senior lecturer at ASU’s College of Law, said that under the 89-year-old federal Clayton Act, actions that produce a "substantial lessening of competition" in commerce are not allowed. An important question the government would have to consider is the nature of the market served by the companies, Spritzer said.

"In TV, there’s a fair amount of competition, but in newspapers, if I live in Tempe and I want local news other than the Tribune and the Republic, what else is there? " Spritzer said.

TRIBUNE COULD BE EXCLUDED FROM GANNETT DEAL

If Gannett moved to purchase Freedom, the wide publicity of the deal might cause antitrust prosecutors in the Justice Department to proactively launch an investigation of the Tribune issue, newspaper and legal experts said. Or, the companies might inform the government of the situation when they submit mandatory antitrust disclosure forms required in transactions of more than $50 million.

Another possibility is that the state Attorney General’s Office, which also investigates antitrust issues, would play a role.

Tribune publisher Karen Wittmer, who is the former publisher of two Gannett newspapers in California and New Jersey, said "anyone with a rational mind" should understand why it is good to have the Tribune to compete with the Gannett paper.

"Our elimination would benefit them greatly," Wittmer said. "The laws on the books are there for a good reason."

When Gannett tried to close the Honolulu Star-Bulletin in 1999, which would have left the Gannett-owned Honolulu Advertiser the only newspaper in the city, community members rose up in protest, and that state’s attorney general asked the federal government to stop the deal.

Once the government gets involved, a potential sale of Freedom to Gannett could be delayed by bureaucracy, said Todd Miller, a Washington, D.C.-based lawyer who provided legal assistance to the Star-Bulletin. The government, if it acts, would likely allow Gannett to acquire Freedom only if it agrees to then sell off the Tribune as well as the affiliated Daily News-Sun in the West Valley, Miller said. In theory, the government would then be required to review the new buyer thoroughly to ensure the Tribune would continue to be a competent competitor of Gannett’s.

Knowing the Tribune could make a sale problematic, savvy dealmakers at Gannett and Freedom are likely to use a "fix it first" approach, taking care of antitrust concerns before the government can raise them, Miller said.

"They’ll say, ‘We’re not going to acquire the Tribune at all,’ " he said.

In Hawaii, the Star-Bulletin’s troubled financial picture made for a "stranger circumstance" than the Tribune would face in any antitrust issue, Miller said. The federal Newspaper Preservation Act, which governs joint business operations between two newspapers when one is failing, does not apply in this case because the Tribune is profitable.

"That makes it more likely Gannett will have a very tough time" acquiring the Tribune, Miller said.

Still, some media experts said the conservative, pro-business Bush administration won’t want to help the Tribune. As an example, they point to industry predictions that the Federal Communications Commission will soon lift restrictions on single ownership of newspapers and television stations in the same markets.

"I don’t think this is a very good climate for people to be opposing media consolidation," said Sante Fe, N.M.-based journalist Richard McCord. "It’s a very real possibility that Gannett could buy your company."

McCord, author of "The Chain Gang: One Newspaper Versus the Gannett Empire," said he is "no friend of Gannett" following battles he helped waged to prevent the media giant from taking over two small newspapers. If Gannett wants the Tribune, Gannett will fight hard for it, he said.

"Gannett’s newer strategy has been to pin down geographic dominance," he said. "They’ve started staking out states where, if they can round up significant markets, they will be dominant in that state. These include New Jersey and Wisconsin."

MANY OPTIONS ON ROAD TO POTENTIAL SALE

A spokeswoman for Gannett, Tara Connell, said it was "incredibly premature" to speculate on those details, or even whether Gannett would bid on Freedom.

"My heart goes out to you, but it’s just way too early," Connell said. "We don’t know what the price is yet. Can we afford it? We don’t know."

Gannett has succeeded in turning two-newspaper cities into onenewspaper ones. While the Star-Bulletin still competes with Gannett in Honolulu, other newspapers, such as the Nashville Banner, now live only on microfiche at the library. In 1998, Gannett paid the Banner’s owners $65 million to shut down the newspaper, allowing the Gannettowned Tennessean to run without competition.

U.S. Justice Department officials and Arizona Attorney General Terry Goddard declined to comment on the possibilities involving a Freedom sale to Gannett, saying it was too speculative to discuss.

Freedom Chief Executive Alan Bell also said it was early to discuss such matters.

Bell said many of the roughly 60 family members with voting rights and ownership in the company are not necessarily interested in selling the whole company outright. The decision to put the company out for bids is an attempt to satisfy some family members who want to cash out, and there are other options to consider besides a single deal with Gannett, he said.

A merger with a larger company, or a sale of parts of the company to several separate buyers, is just as likely at this point, Bell said.

"There’s a long, long road ahead," Bell said. "You may be talking about stuff that may never happen."

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