Seattle Times figures say JOA loss exceeded $14.6 million in 2003-05

The Seattle Times says it lost a total of more than $14.6 million in 2003, 2004 and 2005 under its joint operating agreement (JOA) with the Seattle Post-Intelligencer.

The audited figures are included in two notices The Times submitted to the P-I's owner, The Hearst Corp., last fall and last week in its continuing bid to trigger an escape clause in the JOA that could lead to termination of the agreement, closure of the P-I, or both. The "loss notices" were made public for the first time in court papers Hearst filed Thursday.

While they show The Times lost money in each of the three years under the formula spelled out in the JOA, the loss notices also indicate Times news and editorial spending — as defined by the contract — increased 11 percent over the first two years, before falling about 1 percent in the third.

Hearst representatives would not discuss the notices. But the New York-based company has argued in court in the past that The Times boosted newsroom spending unreasonably in 2002 to deliberately lose money and allow it to invoke the escape clause — a charge The Times has denied.

Times spokeswoman Jill Mackie said, "The numbers make it very clear that we have lost money for six years in a row," dating back to 2000. She would not comment on the increase in news and editorial expenditures.

Industry experts were divided on whether the increase is unusual. Considering newspapers' recent circulation and advertising difficulties nationwide, "you'd be unlikely to find an increase like this elsewhere in the industry," said Miles Groves, a media economist and consultant in Washington, D.C.

"Most firms, if they're losing money, will cut expenditures," said John McManus, an adjunct journalism professor at San Jose State University.

But Stephen Lacy, a Michigan State University professor who studies media economics, said comparisons are difficult because newspapers generally don't reveal details of newsroom spending.

"It's not surprising for a competitive market," he said of The Times' increase. "In JOAs, they tend to spend more because there's another newspaper there."

Philip Meyer, a University of North Carolina journalism professor and former newspaper chain executive, agreed. "If you follow my logic, they aren't increasing it [newsroom spending] enough," he said, "because to survive, you've got to produce a better product."

Under the 23-year-old JOA, The Times handles business and production functions for both newspapers, but they maintain separate news and editorial operations. The Times gets 60 percent, Hearst 40 percent of what's left after combined non-news expenses are subtracted.

In the JOA contract, it's called the "agency remainder."

The JOA also allows either company to move to get out of the agreement, or close one paper, if its share of the "agency remainder" doesn't cover its news and editorial expenses three years in a row. The Times invoked that clause in April 2003, notifying Hearst it had lost money under the formula in 2000, 2001 and 2002.

Hearst, which maintains the smaller P-I can't survive outside the JOA, filed a lawsuit challenging the validity of The Times' losses. The Times, for its part, contends publishing the P-I has become an economic burden that threatens The Times' future.

The two companies last week announced an agreement to submit their dispute to binding arbitration. The deal came after The Times served Hearst with two more "loss notices" — last September for 2002, 2003 and 2004; last week for 2003, 2004 and 2005.

The two new notices were attached to a brief Hearst filed Thursday with King County Superior Court Judge Greg Canova supporting the two companies' request that all court proceedings be frozen until arbitration is completed. The Committee for a Two-Newspaper Town, a citizens group that has intervened in the case, is opposing that bid.

Times spokeswoman Mackie said the company had not been inclined to make the new loss notices public. Hearst attorney Guy Michelson said Hearst did not tell The Times in advance that it would be filing the notices in court.

The $14.66 million that The Times lost in 2003, 2004 and 2005, according to the notices, exceeds the $10 million in total losses it reported for 2000, 2001 and 2002. But, after peaking at $9.54 million in 2004, the loss dropped to $1.88 million last year.

The Times' share of the "agency remainder" jumped 27 percent, from $26.74 million in 2004 to $34.05 million in 2005. News and editorial expenses climbed 6.1 percent in 2003 and 4.7 percent in 2004 before dropping 0.9 percent last year, when the newspaper cut news staff as part of what executives said was an effort to return to profitability by 2007.

In earlier court papers, Hearst charged that a 17 percent increase in Times news and editorial expenditures during 2002 showed The Times was trying to lose money on purpose. The Times said it was only restoring some positions cut as the result of a 2000-2001 strike and downturn in the local economy.

A loss reported under the JOA formula doesn't necessarily mean The Times actually lost money. Last year, for instance, the newspaper recorded a $24 million profit from the 2004 sale of real estate near its South Lake Union headquarters, and Mackie said at the time that, as a result, The Times would show a profit for 2005.

But that was a one-time gain that didn't affect the newspaper's underlying profitability, she added. The privately-held Times has said it lost money companywide in 2003 and 2004.

The briefs both newspaper companies filed Thursday, asking Canova to stop court proceedings while they arbitrate, mostly rehashed arguments they have made before. Canova is scheduled to consider the request today.

If court proceedings aren't frozen, Hearst said in its brief, the arbitration probably won't go forward, forcing Hearst to put the P-I up for sale to comply with the JOA and antitrust laws.

That, in turn, would likely cause employees, readers and advertisers to flee. "... The P-I could be lost before any final resolution of the P-I's challenges... " Michelson wrote.

The Times' attorneys wrote that freezing court proceedings "will promote judicial economy and avoid confusion and possible inconsistent results."

The two companies released a letter to their chief executives from Gov. Christine Gregoire expressing pleasure with their decision to seek binding arbitration.

A spokesman would not say Thursday whether Gregoire also supports a hold on all court proceedings.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com