Garcia: High stakes in Media News, Hearst trial 

You’d think that of all businesses, newspaper companies would understand the ageless adage that the readers are always right.

But apparently the old rules apply only when business is good, and that certainly wouldn’t be the case for the Bay Area’s biggest newspaper companies: MediaNews and the Hearst Corp., the New York-based owner of the San Francisco Chronicle.

Desperate times call for desperate measures, and to say that the companies that own such disparate papers as the Contra Costa Times, the San Jose Mercury News and the once-mighty Voice of the West are financially anxious would be the understatement of the year. And that’s why earlier this year lawyers for the two companies filed a lawsuit suggesting that individual readers have no legal right to challenge newspaper acquisitions under antitrust laws.

As it turns out, that $1 billion question will be answered starting late this month when a lawsuit challenging the sale of several Bay Area newspapers to Denver-based MediaNews — aided by several hundred million dollars from the Hearst Corp. — finally goes to trial. The green light for the court case was given by a federal judge this week when she ruled that, yes, readers do have a right to challenge media mergers based on both content and financial means.

For those of you too shocked at the state of our current sports scene (Warriors playoffs? Giants swoon, 49ers shuffle), a quick recap. Early last year, MediaNews purchased the Mercury News, the Contra Costa Times, the Monterey Herald and the St. Paul (Minn.) Pioneer Press for $1 billion, with $300 million of that coming from Hearst in exchange for a stake in MediaNews’ "non-Bay Area newspapers.’’ Local real estate mogul and political player Clint Reilly sued to block the deal, saying the acquisitions would create a virtual monopoly on daily newspapers in the region.

In a key finding, Reilly and his attorney, Joseph Alioto, unearthed letters in which the two companies discussed combining their local distribution and national advertising operations, an agreement that U.S. District Judge Susan Illston said would increase the likelihood "that the transactions at issue here were anti-competitive and illegal.’’

Lawyers for the two newspaper giants fought hard to dismiss Reilly’s lawsuit on the grounds that the newspaper purchases would not diminish the number of editorial voices and argued that individual readers have no right to stand in the way of the acquisitions. And this week, Illston booted that argument all the way to the South Bay when she said that federal antitrust laws recognize the public’s stake in maintaining competition and diversity in the news media.

"Congress values the existence of separate sources of newspaper content in a community, and that loss of separate sources injures consumers,’’ Illston wrote. She also noted that another federal judge allowed Reilly to challenge Hearst’s $660 million purchase of the Chronicle seven years ago — a deal that ultimately led to the survival of this newspaper and maintained multiple viewpoints in the local newspaper market.

"Allowing these acquisitions to go forward would have a deleterious effect on the marketplace of ideas,’’ Alioto said. "Since most media outlets still get their news from newspapers, it would reduce the number of divergent views. The judge recognized that, and that’s the real victory.’’

So why do lawyers for MediaNews and Hearst protest so much? Much of it stems from Hearst’s management of the Chronicle, which by the admission of its own executives has lost more than $300 million since Hearst took over the paper from the Theriot family. Beyond the courtroom drama, the Justice Department has reportedly ramped up its investigation of the transaction.

Clearly, the fear is that executives of the media company will be exposed for colluding to try to dominate the local market, and there appears to be ample evidence that they did. That’s the primary reason their lawyers have sought — so far successfully — to keep many depositions and other documents under seal, a rather ironic twist in which two standard-bearers for opening, gathering and disseminating information have tried to keep their own case closed from scrutiny.

There’s a lot at stakein this trial, which is scheduled to start in federal court April 30. But whatever the outcome, it’s reassuring to know that the courts believe individual readers still have a right to question what companies do with their newspapers.

Ken Garcia’s column appears Tuesdays, Thursdays and weekends in The Examiner. E-mail him at kgarcia@examiner.com or call him at (415) 359-2663.

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