Hearst Newspapers Push Monopoly Control

A seven-month Project Censored investigation has revealed a pattern of newspaper takeovers and closures by the Hearst Corporation, allegedly funded in part by money obtained by defrauding advertisers.

"One of the fundamental corner posts of our government is a free and independent press.
"The exhibits attached to this document raise questions of whether the press is serving its function when the issue concerns whether one of its members is betraying their privileged position by leveraging politicians into allowing illegal monopolies; that one of their members is bartering favorable treatment in editorial and news pages in exchange for help in fighting off the federal agencies whose responsibility it is to ensure a free, independent, diverse and competitive press.
"Why have the large media conglomerates ignored rather than investigate conduct set out in the exhibits? Why haven't the other members of the press asked Hearst to explain the facts as set out in the attached exhibits? Are there more important news stories than the possibility that a giant in the free press is corrupting a major corner post of our government?" Federal antitrust complaint in Norris et al. v, The Hearst Corporation, et al., United States District Court, Southern District of Texas, at Houston.

Two unrelated circulation fraud cases alleging strikingly similar facts are in federal district courts in Texas and New York. Discovery in the cases coupled with an investigation by the House Judiciary Committee could lead to a roll back of the consolidation of newspaper ownership - or demonopolization.

According to documents obtained by Project Censored, management at Hearst's Houston Chronicle directed circulation managers to get auditors drunk at "titty bars" the night before they were to review Chronicle records for the Audit Bureau of Circulations, or ABC. Plaintiffs in Norris v. Hearst say management hoped auditors would be hung over the following day, and not properly monitor how the paper reported its numbers. The ABC is the official industry source for how many copies of a newspaper are purchased, and it is on the basis of those figures that advertisers decide where to spend their money. By falsely inflating the circulation figures, a publisher can appear to justify raising advertising rates and at the same time deny the competition revenue by making the competition seem irrelevant in the market by comparison. It was during this period of alleged fraud that the Chronicle's competitor the Houston Post went out of business.
       In subsequent years, distributors claim they were forced to "buy" more papers than there was demand, and were paid to destroy them or take them to a dump, fabricate subscribers and claim street sales were higher than they were.
     Ed Rossi, a plaintiff in the Houston case, came to Texas from post-Fascist Sicily as an eight-year-old immigrant in 1947. Three years later he still didn't speak English, but he was a capitalist.
     When he was 11, Rossi started selling newspapers on a north Houston street corner. On his first day, he recalled, he bought five papers for a dime each and sold each for 15 cents. He worked that corner all the way through school, delivering to residences by foot in his spare time. Later, he bought a bike for $30, put a basket on it and started a route. He did so well he won a motor bike in a Chronicle paperboy contest. By age 15 he was delivering 200 papers a day. It was honest work and his hustle paid off.
        "I loved it," Rossi said. "We used to tie the papers with twine. I used to be able to roll and tie 50 papers in three-and-a-half minutes." By 1961, Rossi was grossing $1,500 a month, and had built his single copy sales to 450 a day. By 1995, Rossi was distributing 3,500 papers a day and grossing $80,000 a year. Rossi knew that newspapers had a special place in American society; even though he couldn't read, he recalled that people hungered for the Korean War stories his papers carried.

        Rossi, now 65 years old, is one of the six plaintiffs in the Houston case.
      Rossi says after Hearst purchased the company he was told to falsely inflate the number of newspapers he distributed as a condition of employment. "I felt betrayed," Rossi said. "I gave them my life and they did this to me?"
        While allegedly tweaking the circulation figures and hiking ad rates, the Hearst Corporation went on a newspaper buying binge, closing down the competition and creating news monopolies.
       The chairman of the House Judiciary Committee, Rep. F. James Sensenbrenner (R-Wis.), has demanded that the U.S Department of Justice explain why it continues to authorize Hearst takeovers of competing papers when Hearst immediately closes them.
    Sensenbrenner also asked the DOJ's Antitrust Division in a Feb. 10, 2004 letter whether the "use of illicit means to falsely inflate circulation figures in a one newspaper town might violate the antitrust laws," especially if those funds were used to buy other newspapers and close them, leaving presses still, workers idle and dissenting voices quiet from coast to coast.
This pattern is not just the dark side of corporate culture, says Houston attorney Jerry S. Payne, who represents the six former distributors suing Hearst. The pattern is intentional monopolizing, which is a felony. But much worse, he said, is the impact on society.
"Newspapers didn't just offer an opportunity to make money for any kid who understands rubber bands or has a bike," says Payne, who himself had a Chronicle route as a child. "They are watchdogs of government. They are a pillar of our democracy."
So important are newspapers to a democratic society that in 1970 Congress passed the Newspaper Preservation Act, which exempted newspaper joint operating agreements (JOAs) from antitrust laws if one of the newspapers was failing.
The Newspaper Preservation Act, known officially as Title 15, Chapter 43 - Newspaper Preservation, begins: "In the public interest of maintaining a newspaper press editorially and reportorially independent and competitive in all parts of the United States, it is hereby declared to be the public policy of the United States to preserve the publication of newspapers in any city, community, or metropolitan area where a joint operating arrangement has been heretofore entered into because of economic distress or is hereafter effected in accordance with the provisions of this chapter."
       A media monopoly is 10 times more dangerous than other monopolies because of their ability to affect voting, Payne said. "This is a national emergency. And as they get more monopolies, every step up gets harder because they control politicians."
   San Francisco attorney Joseph Alioto agrees. In an interview with Project Censored's Brittny Roeland, Alioto, who represented Clint Reilly in an antitrust suit that failed to stop the Hearst takeover of the Chronicle, says Hearst bartered editorial content favorable to politicians for support of Hearst's efforts to obtain a monopoly in San Francisco.

Alioto: We favor competition in the media; it is the rule of trade unlike anywhere else in the world. Media competition is necessary in sustaining the 1st Amendment. There should not be monopolies. We need opinions and diversity in editorials. In the late 60's Citizen Publishing Company decided that they did not want to compete. They wanted to run the newspapers under the joint operating agreement so they could have the same prices for advertising. Ads are the life-blood of the newspapers, without the ads you have no newspaper. The DOJ sued Citizens publishing Co. and the Supreme Court said they could not run under the JOA because it was in violation of the antitrust laws.

      All the big newspapers at the time did not like this so they went to their friends in Congress and asked them to pass a special exemption for them within the anti-trust laws. The newspapers did not want competition. The newspapers were so powerful that Congress passed this. Congress was very concerned about what the newspapers would write about them. Probably because the newspapers come out everyday. President Nixon reviewed the law (Newspaper preservation Act NPA). The Newspapers said they would not support him if he did not approve of the NPA. He approved the law and needless to say it allowed two newspapers to get together and do whatever they wanted, except they were to maintain a diverse editorial voice in each of the papers. The special exemption within the JOA is if the other newspaper is going broke then the stronger paper might as well save it. With the Reilly case the DOJ said it was okay for [Hearst] to sell the Examiner - the failing paper. Yet, the Hearst-owned Examiner was not going out of business. They wanted to keep the dying paper in business. This was so they could close down the "failing" paper (after 3 years of lost money-special exemption) and have their monopoly in S.F.

Project Censored: Do you believe that Hearst traded favorable editorial treatment to Willy Brown for his approval of the Hearst takeover of the Examiner?

Alioto: Yes, [Former Examiner Publisher Timothy] White said yes. He said this nonchalantly.

Project Censored: Do you think that Tim White was forced to retire, retired on his own will, or was he fired?

Alioto: Tim White was fired, and he actually sued Hearst and was paid $5 million. Other Hearst employees were proven to be liars. The judge pronounced the chief executive officers of Hearst are not credible.

Project Censored: Are their any prominent facts that the DOJ had to ignore in order to approve the Hearst purchase of the Chronicle?

Alioto: The Company buying the newspaper was the same company that owned the competing paper (Examiner). Instead of investing their money they killed the paper. The DOJ ignored that the Chronicle would become a monopoly in SF.

Project Censored: Why would they ignore this?

Alioto: The Antitrust Department have consistently failed in their obligations to preserve competition in the US by prosecuting antitrust laws. (DOJ sides with monopolies and files against citizens standing up to Hearst) The DOJ has failed with stopping monopolies in many areas, oil companies, computer companies, television companies, newspaper companies. These mergers increase prices, people lose their jobs, there is less innovation, and more destruction to citizen freedoms.

Project Censored: Who is controlling this?

Alioto: Its politics. Politics, all of it is controlling this. Big money is power. Private parties like yourself and Reilly are the only people who can stop them.

Project Censored: What are your ideas about the Hearst purchase scenario? What did the various parties get in return?

Alioto: Hearst got their monopoly.

Project Censored: Did the DOJ know the truth about Hearst dealings? Did they keep any of this from the judge or Congress? Why? Were there any documents pertaining to this issue that were not allowed into the trial?

Alioto: Either the DOJ did not know what to do with the evidence or they did not want to do anything with it, it is one or the other. The judge invited the DOJ to appear in court and they decided not to.

Project Censored: Why not?

Alioto: Probably because they didn't want me to ask them any questions.

Project Censored: What would you have asked them?

Alioto: The same questions I asked the Hearst executives. How can you allow the weaker paper to buy the other? How can you support a monopoly? This is an extraordinary organization, the fourth estate, editorials are for sale. The media should reveal the economic interest inside our government's dealings but it is not required to. We definitely should require this of our 4th estate.

*************************

In response to Rep. Sensenbrenner's letter, Assistant Attorney General William B. Moschella answered on May 19, 2004, acknowledging the DOJ had conducted three antitrust investigations of Hearst between 1993 and 2000:

ß In 2000, Hearst gave away its San Francisco Examiner and $66 million for operational expenses to Ted Fang and his family, which published a free tabloid, in order to get DOJ's Antitrust Division's approval of Hearst's bid to acquire the competing San Francisco Chronicle. Although Hearst said the deal would preserve all jobs, within two years of the change in ownership the Examiner was being published by just eight people. Under Fang's ownership, the Examiner became a free tabloid and by the time it was sold again in February 2004 for $20 million, the circulation had dropped from 95,800 in 2000 to 69,000.

ß In 1995, the Antitrust Division investigated the acquisition by Hearst, which operated The Houston Chronicle, of its major daily newspaper competitor, The Houston Post. The Division did not challenge the acquisition, after determining that the Post was a "failing firm" under established case law. Specifically, the Division gathered evidence and determined that the Post, (a) was unable to meet its financial obligations in the immediate future, (b) was unable to reorganize successfully under Chapter 11 of the Bankruptcy Act, and (c) had completed good faith efforts to elicit reasonable alternative offers of acquisition that would keep its assets in the market. The Post subsequently ceased publication. The DOJ did not mention the alleged circulation fraud that may have driven the Post under.

ß In 1993, the Division investigated Hearst's acquisition of the San Antonio Express-News. Hearst owned the San Antonio Light, the other daily newspaper in San Antonio, Texas. Again, the DOJ's Antitrust Division did not challenge Hearst's acquisition, after determining that the San Antonio Light met the requirements of the "failing firm" defense. The San Antonio Light subsequently ceased publication.

Moschella noted that the DOJ currently is "conducting a thorough investigation of a newspaper joint operating agreement between Hearst and the Seattle Times Company."
"This investigation is intended to determine whether any conduct associated with the operation of that agreement raises significant competition concerns under the federal antitrust laws. Based on the Division's findings, the Department will take whatever steps are necessary to preserve competition in the relevant market."

        To recap:

ß In Houston, Hearst bought the Post's assets and has a monopoly with the Chronicle.

ß In San Francisco, Hearst had the weaker Examiner and managed to acquire the stronger - and viable - Chronicle, resulting in a de facto monopoly.

ß In San Antonio, Hearst had the weaker San Antonio Light but bought San Antonio Express-News and closed its own paper, resulting in a monopoly.

        In Seattle, Hearst's says its Post-Intelligencer, with a daily circulation of 157,558, is a "failing newspaper," while its partner in the JOA, the Times, reports daily sales of 224,140 and has lost money for the past three years. Under the terms of the JOA, the Times, owned by the Blethen family, can pull out of the agreement after three unprofitable years, but Hearst is suing to force the Times honor the agreement despite the escape clause. The Times says the P-I is trying to bleed it until it goes broke.
In a letter to readers, Frank, Bob and Will Blethen complained that in their battle with Hearst, media are not giving it the coverage it deserved. They said Hearst's attempt to muscle out The Times was being reported as "a relatively low profile dispute."
"Many of you may not be aware of what is at stake for this community and, from a larger perspective, what this dispute means in the battle to preserve independent ownership of media rather than having it consolidated into the hands of three or four powerful corporations in America. You have a right to know."
   "Hearst has a history of squeezing out the competition and becoming the absentee owner of the only daily newspaper. It did it in San Francisco, San Antonio and Houston, and now that's what it's trying to do in Seattle," the Blethens write.
"The Blethen family could have sold The Times years ago to a media giant like Hearst for more money than we could spend in several lifetimes. But for us, this is not about money. It is about our responsibility to the First Amendment and the traditions of a free press responsive to the communities in which we reside.
   "We will do all we can to make sure Hearst will not end independent journalism in Seattle. We are unified in our resolve. We are selling real estate to provide cash to minimize additional cutbacks at The Times, especially in our news staff and content. If Hearst wins, it will surely do as it has done elsewhere and drain this community by slashing the news staff, increasing advertising rates and siphoning off profits to its New York headquarters."
      Hearst has billions of dollars, 12 daily newspapers (including the nation's 10th and 11th biggest), 17 magazines and 27 television stations (Hearst-Argyle reported net revenues for the quarter ended March 31, 2004 of $166.9 million, up 11.8%, from $149.3 million in the first quarter of 2003).
   How do newspapers continue to increase ad revenue at a time when newspaper readership has bottomed, the Internet is growing as a source of information and in cities like Seattle, where Hearst calls its Post-Intelligencer a "failing newspaper" and one of the city's two daily papers will not likely see the end of the decade?

*********

   Whether they paid by American Express or Food Stamps, Americans last year had $40.50 added to the cost of their purchases after the price of national newspaper advertising was passed on to consumers as higher prices.

        From baby formula and bread to automobiles and houses, U.S. consumers in 2003 took an $11.8 billion hit for national newspaper ads - 7.7 percent of the $153 billion national advertisers spent on all media. This eight percent increase over newspaper ad revenue in 2002 is in addition to the markup on local products and services advertised locally, like car dealerships and grocery stores, whose costs are not included in the national figures reported by the Newspaper Association of America. For the $27 billion spent on local retail and general local advertising, deduct another $92 from your wallet.
       These increases in advertising revenue occurred at a time when newsprint consumption decreased 1.6 percent in 2002, and production declined about 10 percent, from 5.7 to 5.2 million metric tons.
      This reverse correlation between newspaper production and advertising revenue to date defies logical explanation.
       Among the issues investigated during the project was whether Hearst paid the price of obtaining the monopolies through a pattern of racketeering and criminal fraud, illegally crippling its competition then using fabricated circulation figures to generate advertising revenue necessary to buy the failing competitor - and whether the Department of Justice turned its back on the whole deal.
   In Houston, plaintiffs' attorney Payne accused Hearst of using the money generated by the fraud to obtain and shutdown the competition, "however the money is not traceable."
   "If they need $100 million they can just pull it out of a different subsidiary."

*****************
       Meanwhile, in New York, a class action lawsuit names Newsday and its parent Tribune Publishing Company of racketeering in a federal lawsuit on behalf of advertisers.
   Attorney Joseph Giaimo also names as defendants The Tribune Company's Spanish language newspaper, Hoy, four distributors and eight individuals. The advertisers who brought the suit are four Queens businesses who claim Newsday stole from them through the fraud for about 10 years.
Giaimo says there are thousands of potential class members whose ads ran in the papers.
The suit alleges that Newsday participated in "an enterprise designed to defraud, steal and embezzle from the plaintiffs by means of false and fraudulent pretenses and representations as to the circulation volume of the newspapers."
        The suit claims that the defendants "executed such scheme through use of the United States mail, telephone communication, telephone facsimiles and the Internet in interstate and foreign commerce."
    "Defendants secretly and fraudulently padded and inflated the circulation volume through various means such as dumping unsold Newsday newspapers; creating false circulation reports and affidavits submitted to the circulation auditing agency, Audit Bureau of Circulations; compelling their newspaper distributors under threat of Newsday's termination of the distributorship to inflate reported circulation volume by falsely decreasing the number of Newsday newspapers returned to the distributors by retailers and falsely increasing Newsday sales volume; creating false street sale ("hawker") programs; paying retailers to purchase Newsday newspapers with the knowledge that the newspapers would be unsold and dumped by the retailer; and other nefarious devices."
      While the Audit Bureau of Circulations, or ABC, is responsible for checking up on publishers' statements of how many copies are sold, the not-for-profit industry organization has not interviewed one witness or plaintiff in either the Houston or New York fraud cases. But, while nevertheless stating that it has revisited the documents audited and find them truthful, ABC lawyers have not interviewed the plaintiffs.

*******************

      The costs are not just at the checkout counter. Attorney Payne says if the public had as much information about the newspaper monopolies as they do about Enron or Halliburton, they would be up in arms.
       But our research shows that only newspapers in the same markets wanting to humiliate the Houston Chronicle and Newsday have reported on the lawsuits.