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Question before the court: Is deal designed to save or sink The Tribune?

Published July 21, 2014 8:31 am

Lawsuit • Is the new pact an ominous blow or bold leap into brave, new digital world?
This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

The awkward and messy fight over how Salt Lake City's two daily newspapers are run gets its first courtroom airing Monday.

In what is likely to be a routine status hearing, U.S. District Judge Clark Waddoups will preside over opening exchanges in a lawsuit that loyal supporters of The Salt Lake Tribune say could determine whether the 143-year-old newspaper survives.

If the case goes to trial, Waddoups may well decide if a deal reached last fall between corporate owners of The Tribune and the LDS Church-owned Deseret News amounts to starving The Tribune or, instead, represents a bold move to reduce costs and vault the paper into a more profitable and sustainable digital future.

The nonprofit group Citizens for Two Voices, also known as the Utah Newspaper Project, is seeking a preliminary injunction to halt the recent business arrangement between the News and New York-based Digital First Media, which operates The Tribune on behalf of Alden Global Capital, a multibillion-dollar hedge fund with sizable U.S. media holdings.

Managers at the News and Digital First finalized the deal in October, cutting The Tribune's share of profits in half, giving the News control of joint operations and selling The Tribune's share in a printing plant in West Valley City.

The revised pact, agreed to in exchange for a substantial cash payment by the News to Digital First, was filed without fanfare at the U.S. Department of Justice and went unnoticed until details were leaked to Tribune reporters.

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Local action • After trying for months to get Justice Department lawyers to intervene, Citizens for Two Voices filed its federal lawsuit in Salt Lake City, claiming the changes have put The Tribune in jeopardy and that Utahns face grave consequences at the prospect of losing a key source of independent journalism.

The state's largest newspaper "is bleeding out, more layoffs are likely, more reductions in news gathering and reporting are imminent,'' the group of former Tribune employees and concerned residents says in its suit. "[T]he loss of a daily newspaper, and particularly the Salt Lake Valley's only secular daily, would result in irreparable and immeasurable harm.''

The News and Digital First, meanwhile, are asking the judge to toss out the legal challenge to their new joint-operating agreement (JOA).

How the papers share profits and otherwise manage their affairs is up to them, they assert in their filings. The case, they contend, has unfairly subjected private matters to public review and is "an assault on the right of a business owner to decide what makes the most sense for its business."

"Far from being designed to 'gut' or 'cripple' The Tribune,'' their court briefs say, revisions to the JOA "were designed to recognize the changed reality of the newspaper business and enable it to compete effectively as readers continue to migrate from print to digital media."

Both the preliminary-injunction request and the motion to dismiss are considered legal long shots, requiring higher-than-usual thresholds of proof. While Waddoups could rule definitively Monday, it is more probable the suit will proceed to further hearings as both sides build their cases.

The clash already has brought to light previously unknown details about how the revamped JOA came about and some of the intricate dealings behind a decades-old business arrangement that insiders sometimes refer to as "the three-headed monster.''

While running separate, often fiercely competitive newsrooms, the News and Tribune have cooperated for 62 years on newspaper production, advertising and delivery, as well as a growing line of non-newspaper operations including real estate brokering, specialty printing, event planning and web development. Their shared operations are run by a third company, known for years as the Newspaper Agency Corp. (NAC) and now called MediaOne of Utah.

The Tribune-News cooperation amounts to a daily newspaper monopoly in Salt Lake City. But it is allowed under the federal Newspaper Preservation Act, a law passed in 1970 but applied retroactively to the Utah papers, whose deal began with congressional blessing in 1952.

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History • The JOA has carried the News and Tribune through decades of profitable print publishing and well into an era of digitally delivered information.

The papers have altered the JOA and enjoyed various shares of their joint profits through the years, with only occasional review from anti-monopoly lawyers with the DOJ. For more than a generation, The Tribune reaped 58 percent of the profits and the News, 42 percent ­­— roughly in keeping with their shares of combined readership.

New leadership came on board at the News in 2010 and the hedge fund took over ownership of The Tribune and a chain of other U.S. newspapers the following year.

Sometime in 2012, less than a year after Alden assumed control of The Tribune and nearly 75 other dailies in a series of complex bankruptcy proceedings, Digital First CEO John Paton turned his focus to Salt Lake City, he said in a sworn affidavit.

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Bottom line • The Tribune's share of NAC profits, Paton said, "were a small fraction of what they had been just six years ago," a fact he said was of "great concern." An even deeper worry, he said, was whether the paper could survive on its own when the JOA expired in 2020.

Paton, viewed by many in the news industry as an evangelist for digital transformation, visited Utah on Nov. 27, 2012, his affidavit said.

He met with Brent Low, president and CEO of MediaOne, who told him The Tribune's share of newspaper profits was "no longer sufficient to cover what he understood to be The Tribune's then-current editorial budget."

Senior DFM executives, for their part, were increasingly baffled that Low seemed to resist using an online ad sales and targeting system called AdTaxi, which DFM had deployed at other newspapers to great success. As much as $250 million in digital advertising revenues were "up for grabs" in Salt Lake City and MediaOne had no "multiple-platform strategy for competing for those dollars,'' according to a sworn statement from Kirk MacDonald, senior vice president for sales development for DFM.

MacDonald and other DFM bosses had become convinced The Tribune "would never realize its full potential so long as it remained under the dominion of the NAC and Mr. Low,'' he said in his affidavit.

Shortly after meeting with Low, Paton went to see The Tribune's top editor at the time, Nancy Conway, for whom he said he has "great respect."

But Paton left the meeting "concerned that she did not share my view of the kind of restructuring and repositioning that would be needed at The Tribune and at newspapers generally in order to assure their future viability.''

Since retired, Conway, in turn, has offered her own affidavit, saying the recrafted JOA does not give The Tribune enough money to operate and sets the stage for its demise.

Paton wrapped up his day in Salt Lake City that November by meeting with Deseret News CEO and fellow Harvard University alumnus Clark Gilbert, whom he says he considers a kind of kindred spirit. Two years prior, Gilbert had laid off dozens of reporters and editors, narrowed the Mormon church-owned paper's focus to family and faith-related issues and shifted resources toward growing digital operations.

"Mr. Gilbert generally shares my views on the digital future of newspapers and had already taken many of the necessary steps needed to position his newspaper to succeed,'' Paton said. Specifically, they talked about "restructuring the JOA to allow The Tribune to control its digital future.''

Their discussion, Paton said, "ultimately led to the amendment of the JOA in October 2013.'' DFM formed Utah Digital Services as a result, he said, with a new digital sales force he claims is generating around $500,000 a month in digital advertising revenue.

Undoing that now, Paton argues in court documents, could do untold damage to The Tribune's operations.

But in court filings last week, Citizens for Two Voices sought to poke holes in that version of events. The Tribune already gained control of its digital side in 2011, with a prior JOA revision, the group said. That "casts doubt" on Paton's claims the 2013 JOA was essential to saving the paper.

And while disputing that The Tribune is in fiscal trouble, DFM and the News have declined to provide detailed information to support their position, the group said.

Those numbers and other key facts could well emerge as the case unfolds in court.

tsemerad@sltrib.com

Twitter: @Tony_Semerad —

Developments

U.S. District Judge Clark Waddoups has set a hearing for Monday in a lawsuit challenging a long-standing business partnership between Salt Lake City's two largest daily newspapers, The Salt Lake Tribune and the Deseret News.

The U.S. Department of Justice is pursuing a separate investigation of whether the newspapers' recently revised joint-operating agreement violates federal antitrust laws.

The Utah attorney general's office is also scrutinizing the antitrust implications from the amended JOA.