A few questions for the publishers

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OPINION The MediaNews Group, which proposes to buy the San Jose Mercury News, the Contra Costa Times, the Monterey Herald, and 30 Bay Area weekly newspapers, is paying a 20 percent premium over the price McClatchy paid Knight-Ridder for those same publications less than two months ago. Antitrust regulators in the US Justice Department, who must decide whether to go to court to try to block the transaction, will want to know why.

There are two possible explanations. One is that MediaNews, which already owns or controls eight daily and three weekly newspapers in the Bay Area, thinks the deal will yield economies of scale, allowing it to operate its newly acquired properties more efficiently than Knight-Ridder was able to. Another explanation is that MediaNews's dominance of a restructured market will enable it to raise advertising rates.

From the standpoint of antitrust, the first reason is completely benign. Antitrust regulators will be very concerned, however, if they suspect the second explanation: that MediaNews paid a premium because its competitive position in the Bay Area newspaper market where its circulation will rise from approximately 290,000 predeal to more than 800,000 postdeal will permit it to raise rates.

MediaNews's share of the Bay Area daily newspaper market will be somewhere north of 65 percent if the McClatchy sale goes through as planned. While that is a high degree of market concentration and almost certainly would have drawn a challenge from the Justice Department 20 years ago it is likely to be seen today as inconclusive.

Why? Because these newspapers compete not only with each other but also with Craigslist, eBay, Yahoo!, Google, and numerous other Internet-based businesses (not to mention television and radio) offering help-wanted ads and real estate and auto listings, as well as display advertising.

But another aspect of the McClatchy-MediaNews deal is not so easily dismissed. I'm referring to the role of Hearst, owner of the San Francisco Chronicle, which will be MediaNews's primary competitor in the Bay Area.

As part of the deal, Hearst will also become a MediaNews investor and partner. The questions the regulators will ask are these: Why Hearst of all possible investors? If Hearst's only function is to be a source of investment capital for a deal between McClatchy and MediaNews, why not use other investors whose participation would raise no competitive issues at all? Why use the one company that has the resources and incentive to object to the deal and whose participation creates at least the risk of a lessening of competition?

Whatever the answer, the public is entitled to have the Justice Department or Federal Trade Commission hear it and make its own judgment. Although filings with Justice in such "pre-merger reviews" are generally confidential, let's hope that McClatchy, MediaNews, and Hearst, which are all in the business of making information public, will elect to tell their readers what they’re telling government regulators. SFBG

Peter Scheer

Peter Scheer, a lawyer and journalist, is executive director of the California First Amendment Coalition.