Trial on Future of Newspaper Competition Begins
By Bob Egelko/AP

In a trial that began this week, a federal judge must decide whether the sale of the San Francisco Chronicle and the transfer of the San Francisco Examiner will promote or stifle daily newspaper competition.

A lawsuit by Clint Reilly, a former mayoral candidate and unsuccessful bidder for the Examiner, contends the Hearst Corp.’s purchase of the Chronicle was rigged and its transfer of the Examiner to a local publisher is a sham, designed to give Hearst a local newspaper monopoly after more than a century of competition.

All three publishers—Hearst, the Chronicle Publishing Co., and Ted Fang, the prospective publisher of the Examiner , who with his family owns AsianWeek and a free local newspaper chain—say their transactions will promote competition, not destroy it.

The U.S. Justice Department found no antitrust violations in the sale and approved the dissolution of the joint operating agreement under which the Chronicle and Examiner have been published since 1965. The agreement, which combines business operations but keeps editorial staffs separate, was scheduled to run through 2005.

But U.S. District Judge Vaughn Walker, who is presiding over the non-jury trial, stunned the publishers by issuing a restraining order against the Chronicle sale March 30, a day before it was to be completed. Walker said the purpose of the federal law that authorized the joint operating agreement—to keep foundering newspapers afloat—would not be served if the transactions that ended it were designed to let only one paper survive.

James Fang, president of AsianWeek, however, said the trial will highlight two points.

“From my perspective, this is about the joint operation agreement and 35 years of protection the Examiner and Chronicle have received from anti-trust laws and competition,” Fang said. “The second thing this trial is about is whether or not the city is ready to have a newspaper that reflects the changing diversity of San Francisco.”

Fang also contended that Reilly’s lawsuit is a “tactic to put us, a newspaper publishing family of over 25 years, on the defensive.”

He added: “There really is no way we would let this fail. We would try our very best to make this newspaper a success. We have a duty as the first Asian American newspaper publishers to make this venture a success. We have the skill and the resources to make the newspaper competitive.”

Hearst announced its $660 million purchase of the Chronicle, the second-largest newspaper in California and 12th-largest in the nation in August. Hearst said it would sell or close the Examiner, one of the largest remaining afternoon papers, after 120 years of Hearst ownership.

Hearst said its agents later contacted more than 80 prospective buyers, including the nation’s leading publishers, and found no one willing to pay for the money-losing Examiner.

But the Fangs, publishers of the Independent newspaper and AsianWeek, agreed to assume ownership and reportedly accept a $66 million subsidy over three years. Ted Fang said he plans to switch the afternoon Examiner to morning publication in August and compete for San Francisco readers with the Chronicle, which has more than four times the Examiner’s circulation.

Reilly argued in court papers that Hearst used the joint operating agreement to exclude other potential buyers of the Chronicle, who would have had to assume the larger paper’s obligation to split profits with the Examiner through 2005.

He also said he offered to take over the Examiner if he got a $200 million subsidy over six years—$50 million less than the amount needed for a competitive newspaper, according to experts he consulted.

As further evidence that the transfer to Fang was designed to fail, Reilly said Hearst has offered Fang and his family a $10 million bonus if they reduce subsidized spending on the Examiner by $20 million in the last two years of their agreement. James Fang said that accusation, however, is “not true. Just not true, period.”

The Fang-owned company, ExIn LLC, has countered Reilly’s charges, pointing out that eight failed newspapers have been revived under ownership by the family—and that the company can do the same for the Examiner. Meanwhile, Hearst argued that the fate of the Examiner is legally irrelevant to its purchase of the Chronicle.

“I hope Clint is not suggesting he’d make a better newspaper publisher than we would, given his expertise in politics and real estate,” James Fang said. “I hope Clint is not implying that Asian American publishers cannot put out a successful competitive newspaper.