A 1999 letter of agreement could prove awkward for Seattle Times Co.

The agreement, still in force, spells out what would happen if The P-I were to become just a digital paper, and it could put a squeeze on the Times.
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The agreement, still in force, spells out what would happen if The P-I were to become just a digital paper, and it could put a squeeze on the Times.

As reporters and editors at the Seattle Post-Intelligencer scramble for ideas on how to convert the 146-year-old print paper into an all-online e-paper, The P-I'ꀙs future may rest on a five-paragraph note written a decade ago by Frank Blethen, the head of the Seattle Times Co., to Frank Bennack, chief executive of Hearst, The P-I'ꀙs owner.

The Feb. 1, 1999 letter briefly spells out the agreement the two corporate chiefs had worked out over the future of what Blethen called 'ꀜelectronic publication issues'ꀝ between their Seattle newspapers, which were — and still are — linked in a joint operating agreement (JOA). Under the agreement, the papers publish separate editions, but the Times handles non-news functions like printing, marketing, and distribution. They split the remaining revenue, with The Times getting 60 percent and The P-I 40 percent.

'ꀜThe P-I and Seattle Times,'ꀝ wrote Blethen, 'ꀜwill each have an electronic news and editorial presence that parallels the print model (of the JOA).'ꀝ The letter continues: 'ꀜAs with the present print model, all production, sales and other business expenses for the two Newspapers'ꀙ electronic news services will be (JOA) Expenses. Related revenues will be (JOA) Revenues.'ꀝ

Oddly, though the Web has dramatically reshaped the news business since the 1999, both The P-I'ꀙs and Times'ꀙ legal and business positions still rest on Blethen'ꀙs 'ꀜDear Frank'ꀝ note. In 2007, when the Times and Hearst settled their four-year legal battle over the Times'ꀙ effort to end the JOA and effectively kill off the P-I, their settlement agreement noted, 'ꀜregarding electronic publication issues the 1999 letter agreement shall apply.'ꀝ

One legal expert, who is familiar with the settlement details, told Crosscut that unless Hearst or the Times Co. moves to end the JOA, the agreement would also shape any electronic version of The P-I. 'ꀜIf the JOA continues,'ꀝ he said, 'ꀜthe Blethen letter could cause a problem.'ꀝ

In his Jan. 9 newsroom announcement to The P-I news staff, Hearst Newspapers President Steve Swartz said that Hearst will either sell the paper and its JOA membership within 60 days or stop printing the paper and possibly launch an e-paper version of The P-I. But Swartz did not say what would happen to the JOA if the Hearst decides to turn The P-I into an e-paper. A spokesman for Hearst told Crosscut that questions about how the New York-based media company would deal with the JOA'ꀙs limitation on electronic news were 'ꀜspeculation.'ꀝ 'ꀜLet'ꀙs wait until 60 days is up,'ꀝ Hearst'ꀙs spokesman said.

Hearst officials, however, apparently are not waiting. In a memo to the P-I staff Wednesday, P-I Publisher Roger Oglesby said the paper'ꀙs editors and officials of Hearst'ꀙs Digital Media Group are working 'ꀜon creating a viable online-only model for this market.'ꀝ To produce an e-paper, JOA rules say Hearst would either have to collaborate with the Times as a JOA partner, splitting the costs and profit, or try to kill off the JOA and go it alone.

But killing off the 28-year-old JOA would not be easy. The Times Co. tried to do that in 2003, only to be legally blocked by Hearst. Four years later, the Times paid Hearst $24 million to end the legal fight over the agreement and the JOA continues to remain in effect.

Under JOA rules, if Hearst decides to try to end the agreement it would first have to stop providing The Times with printed editorial material for their joint Sunday edition, or default on other joint news or non-news operations. Then The Times would have to give Hearst written notice it had violated JOA rules. Sixty days later, if The Times chose to, it could issue a written notice of default to Hearst. And thirty days after that, The Times could elect to end the JOA. While the 2007 agreement gives the Times leverage to derail or delay Hearst'ꀙs plans, it does not say how Hearst could end the JOA on its own.

At the same time, the terms of the 1999 'ꀜDear Frank'ꀝ letter, and Hearst'ꀙs current interest in starting an e-paper, puts The Times in the unusual position of possibly ending up defending the JOA after years of trying to get rid of it.

If the Times agrees to end the JOA it would free Hearst to compete in Seattle with an e-paper that does not have the Times expensive printing and distribution overhead. That would be especially troublesome now, with Seattle Times ad revenues dropping and the Times Co.'ꀙs bankers pressing for debt repayment.

But if the Times chooses to continue the JOA it could end up collaborating with Hearst on an e-paper. That would help keep the Times insulated from outside competition and protected from competing financially against larger and wealthier Hearst.

Times spokeswoman Jill Mackie said her company only learned of Hearst's plans last week. "Specific steps that we may take in response to Hearst's action are still being determined," Mackie said.


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