Loose Federal Requirements, Political Pressures Cited : OK Likely on Joining Detroit Papers

Many newspaper industry experts are skeptical of the claim by the Detroit Free Press this week that it must combine forces with the rival Detroit News--a maneuver that requires exemption from federal antitrust laws--or otherwise soon die.

But legal authorities believe that the paper is assured of winning Justice Department approval for its plan anyway because the requirements for such agreements are so loose and the political pressures on the Justice Department so intense.

“There is a tendency in these matters to give the word failing a very superficial definition,” said William F. Baxter, the former assistant attorney general for the antitrust division under President Reagan. “It is not impossible that a paper would be the likely winner in a newspaper war and be defined as failing” within the parameters of the law.

The Free Press and the News on Monday announced their intention to call a truce in their historic newspaper derby by seeking an exemption to federal antitrust laws and thereafter sharing business operations and profits. Under the Newspaper Preservation Act of 1970, newspapers are allowed to enter such agreements if one can prove that it otherwise would fail.

In Detroit, the News, which is owned by Gannett Co., proposes to publish in the afternoon and to take 55% of the profits. The Free Press, owned by Knight-Ridder Newspapers, will publish mornings and take 45%. After five years, they will split the profits 50-50.

In its announcement, Knight-Ridder reasoned that “this market cannot support two high-quality, high-cost independently published newspapers,” and it stated that it would apply to the Justice Department as a failing paper.

Since 1980, Knight-Ridder claimed, the Free Press has lost more than $35 million; Gannett, saying that it is doing better, claims that the News has lost $20 million.

But industry analysts view those numbers with skepticism. Alan J. Gottesman, of L. F. Rothschild, Unterberg, Towbin, said most of the Free Press’ losses exist only for accounting purposes, the product of tax write-offs for depreciation on new printing facilities. On an operating basis, Gottesman and others said, the Free Press about breaks even.

The News, on the other hand, is likely doing worse than Gannett suggested in its numbers released Monday, said John Morton, an analyst with the brokerage firm of Lynch, Jones & Ryan. For instance, Morton said, internal figures released by a News executive last year showed that the newspaper would lose $12 million in 1984 alone.

Dominant in Morning Market

Indeed, Morton believes that the “Free Press is doing better than the News” and, if left to fight it out, the Free Press would likely emerge the victor. One reason, Morton said, is that the Free Press is the dominant newspaper in the morning while the News commands the afternoon. Over time, Morton said, circulation in Detroit, as it has elsewhere around the country, is gradually shifting to mornings.

The News, which only recently began offering morning home delivery, declined Thursday to release a breakdown of morning versus afternoon circulation. But sources within the News said the paper sells between 100,000 and 150,000 morning papers, while the Free Press sells 634,466. The News’ afternoon circulation would then be about 500,000. On Sundays, the News’ command is clearer, leading in circulation 837,821 to the Free Press’ 754,615.

Morton also said that while the News commands a larger percentage of advertising linage in Detroit, much of that is heavily discounted. The two papers are far closer in revenues.

Why then would the Free Press propose a truce? One reason, analysts said, is that even in victory, continuing the rivalry would likely prove more costly against the rich and aggressive Gannett chain than it had when the News was family owned.

Privately, analysts suggested another reason as well. “Knight (Ridder) recently has tried hard to show steady consistent (corporate) earnings so it could produce a higher multiple” in its stock price, one analyst said.

The pressure to improve earnings has grown so great, the analyst said, that “I was led to believe that Knight might not stick with the News” if the derby in Detroit became any more intense.

Gannett Paid $717 Million

And why would the Free Press agree to call itself the failing paper? One reason, analysts said, is that under the laws regarding joint operating agreements, the News might have a difficult time depicting itself as failing.

The reason, University of California law Prof. Stephen R. Barnett said, is that the key test in determining whether a newspaper is failing under the act is whether anyone would be willing to buy the paper. Eight months ago, Gannett paid $717 million for the News, two smaller papers and several broadcast properties.

If the Free Press is stronger than its announcement Monday would suggest, that still does not mean that the papers will have any difficulty winning Justice Department approval, however. To date, no court has ever denied a joint operating application.

One reason is that “exactly what the law means by failing isn’t clear,” said Baxter, who as former assistant attorney general for antitrust administered the Newspaper Preservation Act.

“My answer is that in general, most of these newspapers are not failing except in the superficial, accounting sense,” Baxter said.

Political Clout Cited

Even in cases where the antitrust division of the Justice Department has opposed the joint agreement proposal, the attorney general invariably has approved it.

“The reasons are pretty obvious,” Barnett said. “Especially when it is a major newspaper chain, the political clout of the company applying for the exemption is enormous.”

Donald Ginsburg, assistant attorney general for antitrust, and members of his staff did not return phone calls regarding this story.

Despite these objections, there are numerous cases where no joint operating agreement proposal was offered and one of the papers did fail. In recent years, the Philadelphia Bulletin, Minneapolis Star, Washington Star and Buffalo Courier-Express all ceased publication when no joint proposal came about.

Times staff writer James Risen and researcher Stephanie Droll in Detroit contributed to this story.