Mr. ZIMMERMAN. Well, of course, we have several problems there. Let's assume that we have no dispute between us on the definition of "failing." As you know, this bill apparently broadens the definition of "failing." But putting that to one side, I do not have here any set of studies, nor indeed have I made any set of studies, to demonstrate that operation of joint production and distribution has greater economies in it than any other joint operation. I think our point is that you can achieve most of your economies without going the rest of the way to profit pooling, and to joint setting of rates, and from that point of view, we don't have to get into a refined analysis of what it is that you are not saving. I suppose every merger eliminates management, and to that extent, you are getting some elimination of duplication, but at some point or other, you want to preserve competition, and you pay a price in having separate management. I suppose the way here to get ultimate savings is to avoid all duplication. I would guess that savings on the big elements of production, the physical production of the paper, are where the real economies are. Whether you would save further by having one advertising representative or one accountant dividing up profits is not clear. I am sure there is some saving, but I think it would be doubtful that it is very significant. I think our general approach, Mr. Harkins, is that we are not against economies achieved through physical integration. We are against joint arrangements where they carry to the point where all commercial competition is removed; in these situations, you don't have to go whole hog. You don't have to go whole hog and if you ask me how do I know, we litigated one case which suggests this is so, and I think that before this body recommends legislation which seals the situation up for a long term, perhaps it should wait and see. Mr. HARKINS. The district court was concerned with application of per se doctrines, price fixing, and so on. You wouldn't expect such flexibility. Mr. ZIMMERMAN. Right. Mr. HARKINS. However, in the Supreme Court, if there are merits to the arguments made by these newspapers joint venturers, that there would be a failure but for this device, this will be where the decision on such considerations can be made. It seems to me that until the Supreme Court has ruled upon these arguments, accord between the two parties' opinions here is not easily resolved. Mr. ZIMMERMAN. You have a finding of fact in this case that the joint production and distribution do not require the elimination of commercial competition. Mr. HARKINS. That might not be, but the question is, was it failing, and if it were failing, what caused it to fail, and what is necessary to keep them going? Mr. ZIMMERMAN. You also have a finding of fact in the district court that this was not failing. Mr. KASTENMEIER. Mr. McClory. Mr. McCLORY. Mr. Chairman, do I understand, Mr. Zimmerman, that it is possible in the Tucson case and in these other cases that if an order was entered directing the agreements, the joint agreements, to be revised to eliminate rate fixing and Mr. ZIMMERMAN. Profit pooling. Mr. MCCLORY (continuing). Profit sharing that might be acceptable to the Attorney General's Office? Mr. ZIMMERMAN. Yes. Mr. McCLORY. So that it is not necessary-it doesn't follow, necessarily, that you have to have a separation? Mr. ZIMMERMAN. No; we have maintained throughout that we think most of the real efficiencies that can be attained through these arrangements can be obtained without going whole hog at the expense of commercial competition. Mr. McCLORY. Now, with regard to the application of the antitrust laws, does the first amendment enter into your philosophy at all? Do you regard the significance of a free press as affecting the application of the antitrust laws? Mr. ZIMMERMAN. The antitrust laws have been held to apply to the newspaper business, as they do to other businesses. As in all development of antitrust policy, we worry about other national concerns and other national policies. I started out in my statement indicating that I am concerned about preservation of diversity. I happen to think that application of the antitrust laws here is consistent with, and in my judgment enhances, the preservation of diversity. So I don't get into the problem of which way I opt if there is a direct confrontation between diversity and application of the antitrust laws. I have found these problems very rarely exist. Mr. McCLORY. I gather from the latter part of your statement that you question the genuineness of the separate editorial voices, where you have these noncompetitive newspapers with all of the operations joint except the morning and evening newspaper and the different political view that is set forth in each one. Mr. ZIMMERMAN. I don't question it in any personal way. I am sure that the gentlemen who have testified here saying that, you know, one is really a liberal Democrat and one is really a conservative Republican, are absolutely sincere. What I am suggesting is that taking the long view, and what you are talking about here is a statute that is going to apply in the long view, when these gentlemen are gone from the scene, you do not know who is in next. I am suggesting that the profit incentive, the desire to compete for profit, has always been one of the greatest guarantees of true diversity, and I give the illustration of all the testimony about the keen competition among the journalists. I raise the question: What is the incentive for any particular management to add additional manpower to his newsgathering staff when his profits are simply going to be divided with his cooperator? I am saying that in the long run, economic incentive is the best guarantee of diversity. I am not suggesting any of the gentlemen who testified are insincere, or that the experience thus far necessarily belies the claim. I am saying you are enacting legislation which is going to be good for a long, long time, when the particular gentlemen pass from the scene. In the long run, the way you get independence is when you have independence of economic incentive. Mr. McCLORY. Some of these individual writers in the editorial departments of these newspapers are reported to compete for annual awards with the quality of their writing. Mr. ZIMMERMAN. Right. Mr. McCLORY. Would that be the type of competition that you would consider adequate? Mr. ZIMMERMAN. No; I don't think so, because I would guess the managerial decisions on how much they will pay in incentive awards would be significantly affected, because this comes out of the other fellow's pocket as well. This is precisely where I think that in the long pull you are not going to get what you would get if you had separate commercial competition. Mr. MCCLORY. Thank you very much, Mr. Chairman. Mr. KASTEN MEIER. Counsel, do you have questions? Mr. HARKINS. Mr. Chairman, I would like to place in the record at this point, following Mr. Zimmerman's testimony, a July 24, 1968, letter from the Deputy Attorney General on the committee's request for comments on this legislation. Mr. KASTENMEIER. Without objection, that will be included. (The letter follows:) Hon. EMANUEL CELLER, Chairman, Committee on the Judiciary, House of Representatives, Washington, D.C. JULY 24, 1968. DEAR MR. CHAIRMAN: This is in response to an informal request for the views of the Department of Justice on a committee print, dated June 19, 1968, in the nature of a substitute for S. 1312, the "Failing Newspaper Act." This committee print would exempt from the antitrust laws all joint newspaper operating arrangements which involve one or more "failing" newspapers, and like the original S. 1312, would apply to newspaper joint operating arrangements a concept of "failing company" which appears to be substantially different from that applied under present merger law to industries generally. The committee print differs from the original bill in that it (a) does not apply to mergers and (b) makes explicit the continuing antitrust prohibition against predatory and other conduct that would be illegal if engaged in by a single newspaper. The Department of Justice voiced its strong opposition to the enactment of S. 1312 in testimony delivered April 16, 1968, by former Assistant Attorney General Donald F. Turner, before the Subcommitee on Antitrust and Monopoly of the Senate Judiciary Committee. At that time the reasons for the Department's opposition were set out in detail. We believe that the committee print poses the same if not greater, problems. By eliminating the proposed antitrust exemption for mergers, the proposed substitute for S. 1312 would actually encourage joint activities by newspapers-such as price fixing and profit pooling agreements— that are per se illegal under present law. Despite the substitute bill's presumed intention of preserving separate editorial policies of jointly operated newspapers, its effect would be not only to channel the newspaper publishing business into arrangements creating serious economic harms, but also to eliminate truly independent newspaper operations in many instances where they could be preserved. By requiring that a newspaper show only that it "appears unlikely to remain or become a financially sound publication," the bill imposes a standard much easier to meet than the present failing company defense applicable to mergers, which is available only to a company that is clearly facing disappearance as a viable entity and that cannot find a preferable buyer willing to keep it in the market. Therefore newspapers facing business difficulties would be encouraged to enter into anticompetitive arrangements rather than attempt to resolve their problems or to sell to independent interests who would keep competition alive. For example, it may be that a newspaper's inability to "remain or become a financially sound publication" is due to nothing more than its inability to conduct its operations with skill and efficiency. We question that there is any public interest to be served in granting to such a newspaper the right to remain in business by pooling profits and fixing prices with its competitor. Such an arrangement would inhibit entry of new competitors and compensate the "failing newspaper" for its lack of success by an agreement which eliminates commercial competition and permits it to share in the profits of a commercial monopoly. The commitee print of S. 1312 would not affect the application of the traditional antitrust "failing company” defense to newspaper mergers. It is not clear, however, that the joint operating arrangements which the bill encourages are preferable to outright mergers. A joint operating arrangement involving price fixing and profit pooling might well be even less desirable than full merger with a competitor, since the joint operating agreement is likely to maintain higher barriers to entry by new competitors in the future. Moreover, although the apparent purpose of the revised bill is to preserve separate editorial policies while permitting joint operating agreements, whether meaningful editorial independence would be maintained in the face of the complete identity of economic interests that would result from price fixing and profit pooling agreements is open to serious question. To the extent that the legitimate goal of preserving separate editorial voices in a city can be furthered by limited joint production and distribution arrangements, legislation is unnecessary since the antitrust laws presently permit such joint arrangements among newspapers in appropriate circumstances. Finally, if newspapers were afforded special exemption from the antitrust laws, claims for special treatment would surely be presented by other industries whose products or services would similarly be claimed to be uniquely important to the public. For these reasons, we believe that there has been no demonstration of countervailing public interest that would warrant the exemption from antitrust policy proposed in the committee print of S. 1312. Accordingly, we oppose its enactment. A copy of Mr. Turner's earlier testimony, which sets out in greater detail the reasons for our opposition, is enclosed and we incorporate it by reference. The Bureau of the Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program. Sincerely, WARREN CHRISTOPHER, Mr. KASTENMEIER. The Chair would again like to express thanks to the witness for his testimony this morning, and that will then conclude the hearing this morning. The Chair would like to announce that hearings will continue on H.R. 19123 and other bills relating to the same subject tomorrow at 10 a.m., Thursday, September 26, in this room, at which time the committee will hear the Newspaper Committee for a Free and Competitive Press, consisting of six publishers, the National Newspaper Association, and Georgia Press Association. Until 10 o'clock tomorrow morning, the committee stands adjourned. (Whereupon, at 12:12 p.m. the subcommittee recessed, to reconvene at 10 a.m., Thursday, September 26, 1968.) T NEWSPAPER PRESERVATION ACT THURSDAY, SEPTEMBER 26, 1968 HOUSE OF REPRESENTATIVES, The subcommittee met at 10:30 a.m., pursuant to recess, in room 2141, Rayburn House Office Building, Hon. Robert McClory presiding. Present: Representatives Donohue and McClory. Staff members present: Kenneth R. Harkins, chief counsel; and Howard W. Fogt, Jr., associate counsel. Mr. McCLORY (presiding). The subcommittee of the House Judiciary Committee will be in order. The chairman, the Honorable Emanuel Celler, is en route to the meeting, and he has requested that I preside, pending his arrival, which will be very shortly. I am going to call our first witness, who is Stuart Paddock, and present him to the committee. Mr. Paddock is a third generation publisher of the very successful and very influential chain of newspapers that circulate largely in the 11th District of Illinois, and other parts of the Illinois urban area. His papers are principally triweekly publications. He is also serving as president of the Newspaper Committee for a Free and Competitive Press. He testified previously before the Senate committee on the related bill, and we are pleased, indeed, to have you with us here this morning to testify, Mr. Paddock. Will you proceed? TESTIMONY OF STUART R. PADDOCK, JR., PRESIDENT, PADDOCK PUBLICATIONS, INC., ARLINGTON HEIGHTS, ILL.; ACCOMPANIED BY COUNSEL, SHELDON I. COHEN, OF CHAPMAN, DISALLE & FRIEDMAN Mr. PADDOCK. Thank you, Congressman McClory. I certainly do appreciate being introduced by the presiding chairman this morning. I would also like to introduce our counsel seated next to me, attorney Sheldon I. Cohen, of Chapman, DiSalle & Friedman. Mr. COHEN. Mr. Chairman, my name is Sheldon Cohen. I am an attorney with Chapman, DiSalle & Friedman. Our firm represents the Newspaper Committee for a Free and Competitive Press, a national committee of newspaper publishers. A few of its members are here today to testify against H.R. 19123, a bill to grant an antitrust exemption to the newspapers. |