The newspaper owners answer
the state charges in the
court of appeals

By Debra Barayuga
Star-Bulletin

There is no conspiracy to shut down the Honolulu Star-Bulletin without putting its assets up for sale as alleged by the state, owners of Honolulu's two daily newspapers say.

In papers filed yesterday with the 9th Circuit Court of Appeals in San Francisco, Gannett Pacific Corp., which owns the Honolulu Advertiser, and Liberty Newspapers, owner of the Star-Bulletin, rebutted arguments by the state to uphold a lower court's ruling barring the closure.

The newspaper owners are appealing the Oct. 13 decision by U.S. District Judge Alan C. Kay, arguing that forcing Liberty to continue publishing if it doesn't want to violates its First Amendment rights.

The only agreement reached by the two papers is to end its 1993 joint operating agreement and that Gannett would pay Liberty $26.5 million in lieu of making guaranteed future payments, Gannett said.

The lump sum payment is "far less" than the $28.7 million Liberty would be guaranteed if it were to continue in the joint operating agreement until 2012 and the millions in annual operating losses Gannett would have to absorb, Gannett said.

The joint operating agreement, amended in 1993, allows the two newspapers to share printing, production and advertising functions, but keeps editorial and news functions separate.

The state maintains that the $26.5 million payment violates state and federal antitrust laws because it's a payment to stop a competitor from competing and amounts to a conspiracy to monopolize general circulation papers on Oahu.

The agreement would result in the demise of the Star-Bulletin, since it has no physical assets that would enable it to continue publishing once the agreement ended, Kay noted in his decision. "In effect, Gannett would be buying out the Star-Bulletin."

Liberty's decision to stop publishing because it wants to invest its capital elsewhere is because of market forces and does not amount to an antitrust violation, Gannett argues.

In a friend-of-the-court brief filed last week, the U.S. Department of Justice concedes that a decision to shut down a newspaper "whose incremental costs exceed the incremental revenues attributable to its operation is unlikely to violate the antitrust laws," Gannett says. "That is the case here."

While Liberty continues to receive guaranteed payments under the 1993 joint operating agreement, expenses to publish the Star-Bulletin substantially exceed the incremental costs, making it unprofitable to continue publishing, Gannett said. "Indeed, if the Star-Bulletin were not losing money, Gannett Pacific would have no economic reason to want to end the JOA."

Attempting to sell the Star-Bulletin would be futile because it doesn't have the infrastructure to print and distribute, Liberty said.

Rupert Phillips, in an affidavit earlier, said he didn't put the Star-Bulletin up for sale and no one has approached him with any offers, despite the nationwide publicity generated since Liberty announced Sept. 16 that it would cease publication on Oct. 30.

Circulation figures for the past nine years for the Star-Bulletin and Advertiser show the "long-term downward spiral" of the afternoon paper, Liberty said.

While the Advertiser's combined circulation from Monday to Saturday increased from 590,400 to 627,600, the Star-Bulletin's declined from 556,800 to 402,700.

If it weren't for Gannett's contractual obligation under the joint operating agreement to subsidize Star-Bulletin losses, the afternoon paper could not continue publishing, Liberty said.

Under the Newspaper Preservation Act, it is not unlawful to amend a joint operating agreement as long as it is filed with the U.S. Department of Justice and does not add a newspaper to the agreement, Gannett said. The agreement between the Star-Bulletin and Advertiser satisfies both requirements, Gannett says.

Deputy Attorney General Rodney Kimura said his office received the newspaper owners' briefs late yesterday and was unable to review them. "We're still hopeful the 9th Circuit will uphold Judge Kay's well-reasoned decision."

Kimura declined to comment on what the state would do if the 9th Circuit lifts Kay's preliminary injunction.

The state has said in the past such an action would result in the demise of the Star-Bulletin.

Attorneys for Gannett could not be reached for comment.

The briefs filed yesterday were final arguments to the federal appeals court before the case is referred to the next available three-member panel in San Francisco for a decision.

While it can take six to nine months before a panel hears the motion, the appeals court agreed to expedite the matter. A decision could come by Thanksgiving.

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Bulletin closing archive