C. THE JOINT OPERATING AGREEMENT

On October 23, 1964, Hearst and CPC entered into a joint operating agreement ("JOA"), pursuant to which they merged all of the business, i.e., non-editorial, non-news, functions of their newspaper operations into a jointly-owned company known as the San Francisco Newspaper Agency ("the Agency"). At the time, CPC was publishing The Chronicle as a morning paper. Hearst was publishing The Examiner as a competing morning newspaper, and Hearst was also publishing an afternoon newspaper, The News Call Bulletin. Under the JOA, Hearst agreed to move The Examiner to the afternoon and combine it with The News Call Bulletin. The Agency undertook to perform "the mechanical, circulation, advertising, accounting, and credits and collections functions" for the newspapers, who divided equally the excess of Agency revenues over expenses. With their shares of the Agency profits, Hearst and CPC funded their news and editorial departments, which remained separate and independent, thus preserving two daily newspaper voices in San Francisco. (PX 1.)

The agreement provided that Hearst and CPC would separately set prices and advertising rates for their own newspapers, a practice they have in fact followed, thus maintaining price competition between The Chronicle and The Examiner. (Id.; Deposition of John Sias ("Sias Depo."), pp. 11-12.) In 1970, Congress passed The Newspaper Preservation Act, 15 U.S.C. § 1801, et seq., which accorded antitrust immunity to the JOA and comparable arrangements throughout the country.

The term of the JOA was 30 years, with each party having a single option to extend the JOA for ten more years. In the early 1990s, Hearst exercised its option to extend the JOA from 1995 to 2005, at which time it will expire, CPC having stated that it will not extend the JOA.

The JOA as structured contains a number of terms that have the effect of impeding Hearst or CPC from leaving the JOA or selling its newspaper, and deterring potential buyers of either newspaper. First, Hearst and CPC each have a right of first refusal to match any offer from a prospective buyer. Second, Hearst and CPC each have an undivided one-half interest in all assets of the Agency, which requires an equal division on termination of the JOA or sale of one of the newspapers. Third, any buyer of one of the newspapers must assume that newspaper’s obligations under the JOA, which include paying half of Agency profits to the other partner. Finally, neither Hearst nor CPC can sell its interest to any buyer operating a competing newspaper within 60 miles. These features have combined to prevent CPC from selling The Chronicle to anyone but Hearst, and have also depressed the value of The Chronicle. (PX 1; Comanor trial testimony; Sias Depo., pp. 71-76.)