Times Mirror Loan Intended to Block a Stronger Rival

After years of fierce competition, the Los Angeles Times had its San Fernando Valley rival, the Los Angeles Daily News, on the run by the late 1990s in terms of journalism, circulation and advertising.

To stay ahead, The Times formulated a strategy to ensure potentially stronger rivals did not take ownership of the Daily News, according to sources knowledgeable about the plan.

Executives at The Times and its corporate parent, Times Mirror, secretly lent $50 million to MediaNews Group to help finance its $130-million purchase of the Daily News in January 1998. The loan--and a companion option giving The Times the right to purchase the Daily News--was disclosed only after Tribune Co. took over Times Mirror earlier this year.

The plan was intended to prevent the Orange County Register or any of half a dozen other media companies from gaining control of the Daily News and threatening The Times’ core franchise. That plan reflected years of concern about the Daily News.

Former Times Publisher Richard T. Schlosberg III said openly in the mid-1990s that The Times was seeking to ensure that the Register did not gain control of the Daily News and that Times attorneys were researching whether The Times itself could buy the Daily News when it was for sale. Schlosberg, now head of the Packard Foundation, did not return repeated phone calls seeking comment.

But Times Mirror was cautioned by its law firm, Skadden, Arps, Meagher & Flom, that there was little chance the Justice Department would let it acquire the Daily News, according to key sources outside The Times.

Instead of buying the paper, Times Mirror executives believed the loan would ensure that a relatively weak competitor would remain in The Times’ marketplace, according to individuals familiar with the strategy. Equally important, they said, the deal gave Times Mirror an option to purchase the Daily News at a future point as federal media ownership regulations loosened.

Such financial dealings between competitors might cut close to federal antitrust restrictions, but they also represent shrewd business strategy.

It’s often better to have a weak competitor than no competitor, said Marvin Lieberman, a professor of business strategy at the Anderson School at UCLA. A market with no direct competitor leaves a company open to an assault by a well-heeled rival from another region, Lieberman said. But a weak competitor will often keep a third rival out by raising the cost of entry.

Less than a year after making the loan, top management of The Times and Times Mirror ordered $4 million slashed from the Valley edition’s annual news budget--an apparent retrenchment in the fight against the Daily News. Whether the loan and MediaNews’ ownership were behind the retrenchment is not clear. It occurred when The Times was heavily investing in a community news effort, known as Our Times, across its circulation zones.

The Times’ San Fernando Valley circulation did slip after the retrenchment, dipping about 1% in the first quarter of 1999. But perhaps in a vindication of top management’s thinking at the time, it had rebounded by the first quarter of this year to about 190,000. The Daily News has a circulation of 200,000, but that includes areas outside the core San Fernando Valley.

Mark Willes, the former Times Mirror chairman who oversaw the loan and the cutbacks in the Valley edition, declined to be interviewed. Martha Goldstein, a Times spokeswoman, would not talk specifically about the transaction or its legal ramifications. Times Mirror was purchased by Chicago-based Tribune earlier this year, though all of the deals with MediaNews remain in effect.

One executive familiar with the deal conceded that there wasn’t much fear that William Dean Singleton, the cost-cutting chief executive of MediaNews, would upgrade the editorial quality of the Daily News. Singleton is known in the industry as a money man, not a crusading journalist.

He is “notorious for running low-budget operations and taking a lot of revenue out of them,” said Ben Bagdikian, retired dean of the UC Berkeley Graduate School of Journalism. “The quality of his newspapers is not notable.”

A half a dozen media corporations could have posed a greater threat to The Times than MediaNews--from aggressive Knight Ridder to Freedom Communications, publisher of Times archrival Orange County Register.

The concern by Times Mirror executives that Freedom Communications might purchase the Daily News seemed justified.

N. Christian Anderson III, a longtime Freedom executive and now publisher of the Orange County Register, said Freedom considered purchasing the Daily News as far back as the mid-1980s. Freedom looked at the paper again when it was for sale in 1994 but passed. It was a bad year financially for California newspapers, and the company was worried about having too many properties tied to the Southern California economy.

Whether Singleton was in fact a weak competitor is debatable.

Buying the Daily News provided Singleton with the biggest link in a strategy to ring the Los Angeles metropolitan area with suburban newspapers. Individually, the smaller publications have trouble attracting national and regional advertising. But by offering a combined purchase, Singleton can deliver enough eyeballs to draw the interest of bigger advertisers.

Singleton’s ventures also control the Long Beach Press-Telegram, the San Bernardino Sun, the San Gabriel Valley Tribune, the Pasadena Star-News, the Whittier Daily News, the Redlands Daily Facts and the Inland Valley Daily Bulletin. Combined, the group has a daily circulation of 578,000 in the Southern California market, about half of what The Times sells each day.

MediaNews is the seventh-largest newspaper group in the United States, owning newspapers with a total daily circulation of roughly 1.5 million. It reported a small profit of $4.5 million on revenue of $700 million for the nine months ended March 31.

Singleton bought the Daily News from the estate of Jack Kent Cooke, who purchased it from Tribune in 1986.

The loan and a companion option giving Times Mirror the right to buy the Daily News was disclosed in the footnote of a Securities and Exchange Commission regulatory filing. Exercising the option would require Justice Department approval.

State and federal antitrust laws generally prohibit collusion between rivals that might reduce competition and raise prices in an industry.

Singleton said the Justice Department reviewed the financial agreements and a subsequent deal to sell certain types of pre-printed ads jointly. An industry source, contacted by the Justice Department at the time, said the agency’s questions focused on the advertising agreement and that there was no mention of the loan or the option. Jennifer Rose, a Justice Department spokeswoman, said the agency was unfamiliar with the case.

The legal implications of the transaction and subsequent moves by The Times would depend on the motives, according to Brian Schwartz, former deputy director of the Bureau of Competition of the Federal Trade Commission and now an attorney at the Washington firm of Bryan Cave.

“It would be OK as long as it was a unilateral decision rather than a joint decision not to compete,” Schwartz said. “The latter would be a conspiracy and a restraint of trade and would be the type of thing that might attract attention.”

There is no evidence of such collusion. Other antitrust experts said the sequence of events alone should have been enough to raise regulators’ eyebrows.

“Any time you’ve got [financial] dealings between people who are competitors, the antennas start turning everywhere,” said Jon Ferguson, former chief of the antitrust section for the Washington state attorney general’s office and now a private attorney handling antitrust matters.

Singleton said the loan deal came about from a “close” relationship with Times Mirror through his 1987 purchase of the Denver Post from the Los Angeles-based company and other business dealings.

Singleton said he could have found financing on Wall Street or elsewhere but worked with Times Mirror because of his previous dealings with the company. The deal established what looked to be a profitable advertising link between his papers and the much larger Los Angeles Times.

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Times staff writer Myron Levin contributed to this report.