Publisher Explains To US Congress How Advertising-Supported Free News Works On The Internet: ‘It’s Similar To A Dancing Club That Charges $10 A Beer While Providing Dancers For Free’

Philip M. Stone April 23, 2009

By most accounts a Congressional subcommittee looking into whether US newspapers should get more anti-trust protection because of their dire financial conditions was little more than a farce this week with those House representatives who turned up taking the occasion more to bash the media that usually bashes them.

But the real news was that the Obama Administration that had previously said there may be merit to easing antitrust laws for newspapers took an opposite hard-line before the committee. Carl Shapiro, deputy attorney general in the antitrust division, testified that the Justice Department saw no reason to relax current rules. “We do not believe any new exemptions for newspapers are necessary,” he testified.

Just last month his boss, Attorney General Eric Holder, said he had no problem with opening a review on how antitrust is affecting the newspaper industry today, but Shapiro’s testimony either means that Holder has talked it over with his antitrust people and they have agreed to leave well enough alone, or the boss and his deputy are at loggerheads which is unlikely in testimony before Congress.

All of this is bad news for Dean Singleton and for Hearst who were hoping that if antitrust rules were relaxed that Hearst might be able to sell The San Francisco Chronicle to Singleton’s Media News which runs just about every daily newspaper in the San Francisco Bay Area. Hearst has a stake close to one-third in MediaNews and the two groups co-operate in the ownership of several California newspapers.

Under current antitrust rules such a sale would probably be studied very closely by the Justice Department.

There are major players in this. Nancy Pelosi represents California's 8th District, which includes San Francisco, and she also just happens to be the mighty powerful Speaker of the US House of Representatives. No sooner had senior Hearst representatives visited her Washington office last month than she fired off a letter to Holder asking that he look into expanding the boundaries of media antitrust to mean not just the number of newspapers in a geographic area, but taking into account all other media such as radio and TV, when deciding whether a sale might be anti-competitive. Not only that, but she arranged for this week’s House Subcommittee on Courts and Competition Policy hearing.

She had written in her letter to Holder, “We must ensure that our policies enable our news organizations to survive and to engage in news gathering and analysis that the American people expect.” If she believes that the editorial product now being produced in the Bay Area by Singleton’s newspapers is what “the American people expect” then it seems very likely she has not been reading those newspapers lately.  All are sharing news information, very few if any competitive news beats – that’s not the great tradition of American journalism. If Hearst keeps The Chronicle, albeit with far less employees probably meaning a far lesser editorial product, it still can’t help but be better than what would be on offer otherwise.

Holder had responded to all of this by saying "I think it's important for this nation to maintain a healthy newspaper industry, so to the extent that we have to look at our enforcement policies and conform them to the reality that the industry faces, that's something I'm going to be willing to do."

But a month is a long time in Washington and his deputy told the House subcommittee there would be no changes. No word from Pelosi on what she thinks about that.

For Hearst it means going full speed ahead getting concessions from Chronicle union employees or it has threatened to close down the newspaper. Already its largest union, the California Media Workers Guild, has approved by a 10-1 margin to let 150 jobs go and to eliminate various benefits, and The Teamsters Union has agreed to cuts of between 90 – 100 drivers that the union says will save Hearst some $5 million to $6 million a year. Hearst says the 144-year-old newspaper is  losing more than $1 million a week, and there doesn’t seem to be anybody who really disagrees with that.

Back in Washington, Philadelphia Newspapers publisher Brian Tierney – his papers are in bankruptcy court --  gave it the old college try, telling the subcommittee, “I’ve never seen an industry so fearful of competition. We really need help. We don’t need subsidies. We need a little room to move.”  He said publishers would like to discuss together how they can create their own national classified online service  -- “We’ve got to come up with our version of  Craigslist” --  but he said because of antitrust laws such discussions were prohibitive.

Most antitrust lawyers will tell you, however, that it’s usually okay for trade groups to discuss projects in general,  it’s only when you get into pricing issues, such as  agreeing a set price for all, that antitrust lawyers start earning their money.

A typical response came from Representative Jason Chaffetz, Republican from Utah, who said, “Newspapers will only be profitable when they adjust to an ever-changing market place.” He noted the Newspaper Preservation Act had allowed newspapers over the years to combine back-room functions without fear of antitrust. What he didn’t say, but it was the elephant in the room, is that the Justice Department, and labor unions,  believe that Act has not always served the best interests of communities and has ended up resulting in too many one-newspaper towns as the weaker newspaper partner eventually gives up the ghost.

And then there was the time that Tierney brought the House down. He gave an analogy he hoped the Representatives would understand on why newspapers have adopted the advertising model to give news away for free on the Internet.  He said it was similar to a gentleman’s-type club where beer is sold at $10 a round, but there’s no charge to watch the scantily-clad girls dancing on the bar top.

No doubt some in Congress understood that real good.