Market definition, merger review, and media monopolization: congressional approval of the corporate voice through the Newspaper Preservation Act.

• Author: Sanders, Amy Kristin

1. INTRODUCTION II. HISTORICAL AND LEGAL BACKGROUND A. The Citizen Publishing Case B. The Newspaper Preservation Act C. The Federal Antitrust Laws D. The Courts, the NPA, and the Justice Department III. CURRENT CRITICISMS OF THE NEWSPAPER PRESERVATION ACT IV. THE NPA, MEDIA COMPETITION, AND MERGER REVIEW A. Market Definition B. Adverse Effects of Mergers C. Market Entry D. Efficiencies E. Failing Firms V. CONCLUSION I. INTRODUCTION

   Wilkes-Barre is not your average American town of 43,123 residents. (1) The northern Pennsylvania burg, located 113 miles from Philadelphia, boasts two competing daily newspapers. The Wilkes-Barre Times Leader, once a Knight Ridder newspaper, was sold by McClatchy to an independent investment group for $65 million in late July 2006. (2) The Citizens' Voice, Wilkes-Barre's second daily newspaper, was founded in 1978 by workers on strike from the Times Leader. Now owned by Times-Shamrock Communications, the newspaper has become a worthy competitor, boasting more than 32,000 daily readers. (3) Unlike competing dailies in twelve other cities, the Times Leader and Citizens' Voice are not run under a federally approved joint-operating agreement ("JOA"). Instead the two newspapers are produced and printed by separate staffs in separate facilities.

   With the growth of new media, including the rise of the 24-hour cable news channel and the increasing reliance on the Internet for news, such a phenomenon is rare at best. (4) As Americans turned to radio, television, and the Internet for their news, the newspaper industry began to wane. (5) At one point, the nation boasted more than 94 competing dailies. (6) However, as advertising dollars decreased and readers began to turn away, newspapers began to look at cost-saving measures to keep from closing their doors. (7) In an effort to keep struggling newspapers afloat, Congress, at the urging of newspaper publishers, passed the Newspaper Preservation Act ("NPA"). (8) The NPA exempted newspapers from federal antitrust laws, (9) essentially allowing competing dailies to merge their business entities while maintaining separate editorial staffs. (10) Unlike traditional companies seeking to unite their business ventures, newspapers can petition the Attorney General under the NPA to request authorization for a JOA. (11)

   This Article examines the effect of the NPA on competition in the daily newspaper market by analyzing legislative history, subsequent court interpretations, and Justice Department implementation of the NPA. Part II of the Article discusses the legislative history of the NPA and the subsequent case law that has interpreted it. In addition, this Part addresses the effects of the NPA on the Justice Department's merger review process. Part III summarizes current criticisms of the NPA and its impact on media competition. Part IV posits that the NPA is harmful to competition among the media because it removes certain aspects of anti-competitive action from strict merger review. Part V concludes with a call for more regulation of media mergers and a redefinition of market as it pertains to media merger analysis.

2. HISTORICAL AND LEGAL BACKGROUND

   A historical examination of JOAs must begin with a discussion of newspaper industry practices that began shortly after the Great Depression. (12) During the 1930s, several local newspapers had already united their operations and penned agreements to merge their businesses. (13) In doing so, they employed the traditional anti-competitive practices scrutinized today under federal antitrust laws. (14) These included price-fixing, profit-sharing, and other cost-cutting measures. (15) Two newspapers in Tucson, Arizona--the Star and the Citizen--were among those who entered into these unification agreements. (16) This agreement formed the basis of the United States v. Citizen Publishing Co. case, in which the Department of Justice sought to enforce federal antitrust laws against the Star and the Citizen.

   1. The Citizen Publishing Case

      The Justice Department's victory in United States v. Citizen Publishing (17) played a key role in the eventual enactment of the NPA. (18) In Citizen II, the U.S. Supreme Court held that a JOA between two daily newspapers in Tucson, Arizona, violated the Sherman Act (19) by fixing advertising rates and pooling profits between competitors. (20) In doing so, the Court acknowledged that the newspapers, formerly competitors in business, had instead turned into a cartel that had substantial market power to set prices and control competition. (21)

      The newspapers, operating separately, had circulations that were approximately equivalent, but the Star had significantly larger advertising revenues than its competitor. (22) When the JOA went into effect, the Citizen was not up for sale or in danger of ceasing operation. (23) The agreement stipulated that the papers would retain segregated news and editorial functions as well as maintain independent corporate identities. (24) All assets of the newspapers' other operations would be merged, and a parent company, Tucson Newspapers, Inc., would be formed. (25) The agreement mandated three controls to end competition between the newspapers. First, it fixed advertising and subscription rates, which were set by Tucson Newspapers, Inc.'s advertising and circulation departments. (26) Second, it provided for the pooling of profits, which allowed the proceeds to be distributed to the individual newspapers at a fixed ratio. (27) Finally, the agreement sought to control the market by prohibiting those affiliated with Tucson Newspapers, Inc. from engaging in any business contrary to the interests of the corporation. (28)

      Tucson's two dailies, the Star and the Citizen, were not the only newspapers engaged in joint operations during the 1960s. (29) Because the Citizen II decision worried newspaper owners around the country, many in the industry--including those involved in the Citizen II case--petitioned Congress for a special legislative exemption from federal antitrust regulations. (30) In doing so, they relied on a small piece of dicta from the Citizen II opinion--a sentence that described the "failing company" defense. (31)

      This potential antitrust exemption for newspapers first emerged in the U.S. Senate in 1967. Senate Bill 1312, known as the Failing Newspaper Act, was introduced shortly after the federal district court's ruling in Citizen 1. (32) Not surprisingly, the bill garnered support from several legislators whose states had newspapers with arrangements similar to the one in Tucson. (33) After a round of hearings, the NPA, delineated in Senate Bill 1520, replaced the Failing Newspaper Act. (34)

      Newspaper owners, particularly William Small of Small Newspaper Group who was involved in Citizen I, supported the legislation. (35) Many believed that allowing the cost-saving measures, such as combined printing and delivery systems, was the only way the newspapers would survive. (36) Small pointed out that the Citizen could not support separate advertising and business staffs, which were two major components of its joint operations with the Star. (37)

      The Justice Department, on the other hand, ardently opposed the NPA. (38) At the very least, attorneys for the federal government sought to get the NPA postponed until after the Citizen H case had been remanded and reheard by the U.S. District Court in Arizona. (39) Doing so, they argued, would allow legislators to examine the modified agreement the district court had been instructed to create. (40)

      Congress passed the NPA on July 24, 1970, just two years before the U.S. District Court in Arizona ruled on the Tucson modified JOA. (41) The outcome of the Tucson JOA under the court's modified decree was quite similar to what the outcome under the NPA would have been. Under the joint-operating agreement, the two newspapers would produce one Sunday edition, from which they shared cost and profit. (42) Sunday advertising rates and subscription prices were also decided in concert. (43) Throughout the rest of the week, the newspapers could sell advertisements in combination so long as the rates were independently determined. (44) Merged advertising, business, printing, and circulation staffs were also allowed under the court-mandated modified decree. (45)

      Essentially, the court's modified decree provided the Tucson newspapers with almost all of the NPA safeguards. (46) The only protections the court's decree did not grant to the Tucson papers were the relaxation of price-fixing and profit-pooling restrictions. (47) Under the court's decree, the newspapers could not share revenue or agree on prices for the weekday editions. (48) Thus, advertising and circulation rates for the Monday through Saturday editions of the newspapers had to be independently set, and the profits had to remain with the individual newspapers.

   2. The Newspaper Preservation Act

      Under the NPA, two newspapers are allowed to petition the federal government to form a joint-operating agreement. (50) A JOA is a formal arrangement between two companies that combines certain functions, allowing both companies to utilize the same resources to perform that function. Essentially, in the newspaper industry, these agreements allow two newspapers to unify all aspects of their operations except the editorial functions, which are required to remain separate. (51) Because Congress asserted the NPA was designed to sustain newspaper competition in markets that were not supporting two newspapers, the law requires that news-editorial content in the newspapers be gathered distinctly and produced separately. (52)

      The NPA stipulates that newspapers seeking JOAs comply with two requirements in order to be exempt from federal antitrust laws. (53) First, the newspapers must seek the U.S. Attorney General's written approval prior to entering the JOA. (54) Second, one of the two newspapers must qualify as a failing newspaper, which stems from the failing...