Another tangled issue is waiting in the wings.

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When The Seattle Times Co. and The Hearst Corp. take their long-running fight to a State Supreme Court hearing today, the nine-judge panel is likely to hear many of the same arguments the companies have made since their battle began nearly two years ago.

The Seattle Times, the city’s largest daily, says that to survive, it needs to be free of the joint-operating agreement (JOA) that yokes it to Hearst’s weaker, and shrinking, Seattle Post-Intelligencer. Hearst says the 142-year-old P-I can’t survive without the JOA.

But while the city’s warring dailies play out their struggle before the court, the stage around them is changing.

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The region’s economy is recovering with some strength after laboring under the twin blows of the dot-com bust and the 9-11 terrorist attacks. The newspaper industry is rebounding, too, though with less vigor.

Meanwhile, The Times continues to feel the effects of the economic downturn, moving into what its owners say is a fiscal crisis. This month, to help cut expenses, it is implementing plans for one of the deepest staff cuts in its 109-year history.

Before the legal arguments begin again, here are some questions and answers to help keep you up to date.


Q:

How long can this thing go on?

A:
Most likely, that will depend on Hearst.

In a suit filed in April 2003, Hearst is challenging Times claims of financial losses in three years: 2000, 2001 and 2002. Under the JOA, if either paper loses money for three consecutive years, it can demand negotiations that could lead to closing one paper, ending the JOA, or both.

So far, the courts have dealt with only part of Hearst’s suit — a basic contract dispute covering the 2000 and 2001 loss claims. That’s the issue the Supreme Court is hearing today, and it’s likely to be months before the court hands down a ruling.

After that, Hearst could still litigate The Times’ 2002 loss. Hearst says it would do that, which could extend the battle for years.


Q:

What would the 2002 fight be about?

A:
Hearst says The Times inflated its spending in 2002 to create a loss. Among other things, Hearst says The Times overhired in 2002.

Times officials say the 57 full-and part-time staffers they hired that year were necessary to make up for staff losses incurred by a 49-day strike in 2000 and 2001 and to keep up with the paper’s expanding suburban coverage. The Times’ 2002 hires gave it a full-time news staff of 343 — 11 below the paper’s pre-strike staff level but above the industry average for papers of similar size.

Add to that arguments about every expense, from pencils to presses, and the case could last for years.

Moreover, another tangled issue is waiting in the wings. The Committee for a Two-Newspaper Town, the ad hoc citizens group granted intervenor status in Hearst’s lawsuit, raised the question of whether elements of the JOA violate state public-policy law, a hazy area that could take still more time to decide.


Q:

What is The Times’ position in all of this?


A:

Times Co. officials say that under a formula set up by the JOA, their Seattle paper has lost money every year since 2000 and that the Seattle market can no longer support two profitable papers.

They accuse Hearst of seeking to continue the agreement in an effort to “bleed” The Times, since the Blethen family, which owns 50.5 percent of The Seattle Times Co., doesn’t have the resources to sustain long-term losses.

They say Hearst wants to force the Blethens to sell their Times stake to Hearst, which would then close the P-I and gain the advantage of monopoly ownership. By issuing the loss notice to Hearst, The Times says it is fighting to keep the paper in the hands of a local owner.

“The Times has every right to assure its own survival,” Times attorneys said in their brief to the Supreme Court, “and invalidating the Loss Notice would threaten its ability to do so.”

Hearst denies that allegation and says The Times’ own internal documents, filed with the court, show the Blethens have been planning to do away with the JOA and the P-I for 20 years.


Q:
In recent months, Times Publisher Frank Blethen has issued increasingly bleak pronouncements about The Seattle Times’ finances and future. Is The Times in financial trouble?


A:

Recent moves suggest the company is feeling a heavier financial burden. Among other things, it’s on the verge of instituting job cuts, raising the daily newsstand price to 50 cents at the end of the month, eliminating distribution in Eastern Washington, changing the newspaper’s size (to save on newsprint costs) and making various cuts in content.

Still, it’s not clear how deep the financial problems go. The Times Co., like Hearst, is privately owned and doesn’t disclose its financial details.

Company officials do say their Seattle paper lost more than $12 million in 2004. In a December memo to Times staffers, Carolyn Kelly, the company’s president and chief operating officer, announced the loss and said, “Our immediate objective is survival.”

A more telling indicator would be the company’s consolidated accounting, which includes all four of its operating divisions: The Seattle Times, other papers in Yakima and Walla Walla (and a weekly in Issaquah), a printing company, and a chain of papers in Maine.

Times spokeswoman Kerry Coughlin says that on a consolidated basis, the company lost money in 2003 and 2004 but won’t say how much.

In July, Knight Ridder, which owns 49.5 percent The Times Co.’s voting stock, reported to the Securities and Exchange Commission that The Times Co.’s 2004 accounting did not include about $30 million the paper received from a sale of downtown Seattle land.

If the profit on the sale had been included in the 2004 accounting, The Seattle Times would have shown a $3.6 million after-tax profit instead of a $12 million loss, Coughlin acknowledged.

According to Knight Ridder’s SEC filing, the accounting gain was deferred “due to certain unresolved contingencies.” The filing also said The Times used the money to pay down the company’s long-term debt, most of which was incurred in buying the Maine papers.

Coughlin declined to discuss the accounting or elaborate on the contingencies. Of the decision to use the money toward the debt instead of applying it toward operational expenses, she said:

“We made the wisest investment for the long-term survival of The Seattle Times Co. Operationally, buying down the debt gave us some flexibility to save critical areas in our operation.”


Q:

What’s going on with the federal investigation of the Seattle JOA?


A:

Attorneys from the Justice Department and the state Attorney General’s Office, who have been looking into antitrust concerns related to the Seattle JOA, began an investigation of the agreement in mid-2003.

For months, those questioned said the investigators’ queries generally were about how well the JOA was working. Late in 2003, according to three people questioned, the investigators began focusing on how The Times performed its role in the agreement.

Under the JOA, The Times prints, distributes and markets both papers. The agreement requires The Times to use “the same degree of diligence” and spend the same amount of money promoting each paper. But in early 2002, senior Hearst officials complained The Times was favoring its own paper over the P-I.

Blethen vehemently denied the allegations. In a 13-page letter sent in 2002 to Frank Bennack and Victor Ganzi, Hearst’s past and present chief executives, Blethen said The Times had “gone far beyond the letter of the (JOA) contract and the letter of the law by subsidizing P-I circulation with millions of dollars.”

The Justice Department and the state Attorney General’s Office declined comment on the investigation but said it was continuing.


Q:

What about Knight Ridder? Doesn’t it have a role in all of this?


A:

Knight Ridder, the nation’s second-largest newspaper publisher, has held its 49.5 percent stake in The Times Co. since 1929, when the Ridder family put up $1.5 million to bail the Blethens out of financial difficulties.

So far, Knight Ridder has maintained a low profile in the Times-Hearst dispute.

Knight Ridder’s representatives sit on The Times Co. board, but the board is structured so that the San Jose, Calif.-based chain has one seat less than the Blethen family and its representatives. Board members say the Blethen group generally votes as a bloc, leaving Knight Ridder with little say over key Times Co. decisions.

“These days,” says a member of the Knight Ridder group, “we don’t say much. We can count.”

Just what Knight Ridder might, or could, do to influence the current fight between The Times and Hearst isn’t clear.

It could sell its stake. But, says the Times board member, “who would buy it? It would cost plenty and you’d have no control over the company.”

More likely, says newspaper-industry analyst Paul Ginocchio, the company will probably sit tight and let Hearst and The Times fight it out. Ginocchio’s employer, Deutsche Bank Securities, holds Knight Ridder stock.

While Knight Ridder isn’t realizing much return from its Times investment, Ginocchio notes that newspapers aren’t getting any cheaper. The Times Co. is a “hidden asset on Knight Ridder’s balance sheet,” he says.


Q:

Under the current JOA, Hearst would get 32 percent of the JOA profit until 2083 if it agrees to fold the P-I. Why doesn’t it just take the money and shut the P-I?


A:

On the face of it, that sounds like a good deal for Hearst. But a revision to the JOA in 1999 included an insertion into the payout clause. Instead of getting 32 percent of The Times’ ad and circulation revenue after accounting for non-news expenses, Hearst would get paid only after The Times deducted both news and non-news expenses.

That means Hearst and The Times could be wrangling over every Times expenditure for decades — something neither company wants.

Besides, Hearst could make a lot more money if it bought The Times. Newspaper brokers estimate The Seattle Times would be worth about $900 million on the market today. With the JOA and P-I gone, the paper might be worth as much as $1.4 billion, they figure.

Why? Because owning the only daily in town means you get to set ad rates, which can be lucrative. Hearst boosted ad rates at its newspapers in San Antonio, Houston and San Francisco after it gained control of those markets. Times officials say Hearst would do the same thing in Seattle if it wins the current fight.

With such stakes, Hearst might see it as worth the fight and hope to wear the Blethens down.


Q:

The Pacific Northwest Newspaper Guild has voted twice recently to continue supporting the Committee for a Two-Newspaper Town. Where does the guild stand in the fight?


A:

Liz Brown, the guild’s administrative officer in Seattle, said the union backs continuation of the JOA and both Seattle papers. She said it also supports the committee, which has backed a portion of Hearst’s position in the legal case before the State Supreme Court.

“The committee is trying to prevent the closing of the P-I, but that doesn’t necessarily mean they are on Hearst’s side,” said Brown, whose union represents more than 150 P-I employees and some 700 workers at The Times.

“We don’t side with the employers,” Brown said. “We side with the employees.”

Bill Richards is a freelance writer hired on a special contract by The Seattle Times to cover events involving the joint-operating agreement with the Seattle Post-Intelligencer. He can be reached at brichards@seattletimes.com.