The DOJ Isn’t the Kind of Friend the Newspaper Industry Needs Right Now

The DOJ logo is pictured on a wall after a news conference in New York
The Department of Justice (DOJ) logo is pictured on a wall after a news conference to discuss alleged fraud by Russian Diplomats in New York December 5, 2013. REUTERS/Carlo Allegri (UNITED STATES - Tags: CRIME LAW) - RTX1657T
Photograph by Carlo Allegri — Reuters

Just as Tribune Publishing was about to seal a deal to buy Freedom Communications—the newspaper-holding company that owns the Orange County Register, among other Southern California publications—the Justice Department decided to parachute into the fray. In a statement released on Thursday, the federal regulator said it would block the acquisition because of antitrust concerns.

According to the DOJ, the Tribune acquisition would “give it a monopoly over newspaper sales in each county and allow it to increase subscription prices, raise advertising rates and invest less to maintain the quality of its newspapers.” This would be bad for newspaper readers and advertisers in the Orange County area, the statement says.

If this acquisition is allowed to proceed, newspaper competition will be eliminated and readers and advertisers in Orange and Riverside Counties will suffer. Newspapers continue to play an important role in the dissemination of news and information to readers and remain an important vehicle for advertisers. The Antitrust Division is committed to ensuring that competition in this important industry is protected.

It would probably be fair to say that the response to this statement from many people—both inside and outside the media industry—was incredulity. The Justice Department’s concern for the health of the newspaper business seems touching, but also about a decade too late to be of any real use to the industry it is trying to save. It’s a little like the fire department rushing to the scene of a fire after everything but a few sticks and timbers have been turned into ash.

A Tribune Publishing spokeswoman responded by saying that regulators “are living in a time capsule, with a framework that predates the arrival of iPhones, Google, Facebook, and modern media outlets that are killing the traditional newspaper industry. It wasn’t competition from the L.A. Times that forced the Register into bankruptcy. It was the Internet and related technology.”

There’s one fundamental question the DOJ needs to answer before its claim about antitrust can seem rational: Namely, does it make any sense to consider the newspaper industry as a discrete market for the purposes of antitrust law? Or are newspapers just part of a much larger market for information that includes television and radio and the Internet?

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If it’s the former, then the government’s concern about the Tribune deal might hold at least a little water. According to the Justice Department’s statement, the Los Angeles Times (which is owned by Tribune) and the Orange County Register together account for 98% of newspaper sales in Orange County, and the L.A. Times and Freedom’s newspapers together account for 81% percent of English-language newspaper sales in Riverside County.

That said, however, it’s not clear that it makes any sense to consider newspapers as a discrete market any more. As USC journalism professor Gabriel Kahn told the OC Register, that newspapers “no longer have any kind of monopoly on information in their markets.”

Loyola Law professor Daniel Lazaroff told the L.A. Times that the Tribune wouldn’t be able to dictate rates for advertisers even if it bought Freedom, given the range of online options. “If they raise advertising rates significantly they would lose even more advertising,” he said. “It’s like saying Italian suits are a separate market from all suits.”

The reason why Freedom is in bankruptcy protection for the second time—this time after a failed turnaround by Boston investor Aaron Kushner—and the reason Tribune (which has also been through a bankruptcy restructuring) is looking to consolidate its assets is that the newspaper business has been decimated by the departure of both readers and advertisers. How is preventing a merger going to help either of those situations? The short answer is that it isn’t.

San Diego attorney Bill Markham, an antitrust expert, told the OC Register that the Justice Department’s proposed blocking of the deal is “an unfortunate use of the scarce resources of the DOJ. There are better antitrust fish to fry than newspapers that are grasping to stay alive.”

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Even if Tribune is blocked from buying Freedom, the next most likely acquirer—Digital First Media, the owner of such newspapers as the Denver Post—isn’t in any better position to maintain competition than Tribune is. Digital First is owned by hedge funds whose primary interest is in a return on their capital, and that means cutting costs as quickly as possible.

The DOJ is concerned about the impact that consolidation might have on advertising rates, but the idea that even a much larger Tribune Publishing could somehow dictate dramatically higher rates seems almost ludicrous at a time when the overall trend for newspaper advertising is somewhere between a cliff dive and a free fall from space. Could Tribune Publishing convince some local advertisers to agree to higher rates? Maybe in the short term—but certainly not in the long term.

The newspaper business is a fundamentally broken industry, especially at the mid-sized market level where Tribune and Freedom exist. Their biggest enemy isn’t large competitors with a monopoly controlling prices—their biggest enemy is time, and the impending death of most of their remaining loyal print readers. That’s not something the Justice Department can do anything about, no matter who it decides should be the winner of the bidding for Freedom Communications.

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