Meese Approves Rescue Plan for Detroit Papers : Some Business Operations to Be Combined to Avert Shutdown of Free Press

Atty. Gen. Edwin Meese III on Monday stopped the Detroit newspaper war by allowing two bitter rivals, the Free Press and the News, to combine their business operations, thus averting a threatened shutdown of the Free Press.

The joint operating agreement in the nation’s fifth-largest metropolitan market will begin Aug. 18, assuring a steady flow of profits for the owners of the papers, which had been locked in a deadly competition for years. The advertising and circulation activities will be combined, while each paper will maintain its own reporting staff.

The Detroit Free Press has suffered a loss of about $100 million since 1980, while the Detroit News lost about $40 million. The owner of the Free Press, Knight-Ridder Inc., warned in January that it would shut the newspaper unless the government permitted the money-saving combination with the News, which is owned by Gannett Co.

Meese said Monday that the combination is “the best way to keep the maximum number of newspapers alive” in Detroit.

Losses Cited

“It was a very close case,” Meese said, noting that he and Administrative Law Judge Morton Needelman used the same facts but came to different conclusions. Needelman decided last December that there was no imminent danger of the Free Press going out of business and advised Meese to ignore the application from the newspapers.

But the attorney general, overruling Needelman, was convinced that the threat of extinction for a major newspaper was real. “What most impressed me” were the big financial losses of the Free Press, Meese told a news conference on the steps of the Justice Department. “There was no way the Free Press could extricate itself from this situation,” he said.

The Newspaper Preservation Act under which Meese made his finding allows the government to ignore the antitrust laws, and permit competing newspapers to combine to save “a newspaper publication, which regardless of its ownership or affiliation, is in probable danger of financial failure.”

The interpretation of the law must ignore the relatively deep pockets of the newspaper owners, a pair of wealthy media chains. The law focuses only on the prospect of failure for the single newspaper, rather than its relationship with a wealthy parent firm.

“The fact that larger corporations are willing to provide for losses for a time does not disqualify” the two papers for consideration under a joint operating agreement, Meese said. The Detroit News was the circulation leader, with 688,211 copies distributed daily and 836,331 in Sundays, according to figures for the six months ending March 31. The Free Press trailed with circulation of 647,763 daily and 721,676 on Sunday. The News had a big lead in advertising revenue, “generating some $61 million more than the Free Press in 1986,” according to Meese’s report.

Both papers could become profitable by raising their circulation and advertising rates, but neither would do so, Meese noted. “Both have been frustrated,” he said.

The competition has been a war without a victor. “Neither newspaper has prevailed, despite the sizable expenditures in 1976 and again in 1985 by Knight-Ridder of investment capital on its press facilities to expand the Free Press production capacity,” Meese said.

Monday’s ruling by Meese was welcomed enthusiastically in Detroit.

“This is the best single day of my years at the Free Press,” said David Lawrence, the paper’s publisher. “I am grateful for the loyalty of readers and advertisers and the staff of the Free Press through what has been the most difficult time in our history.

“Some of the very best people stayed with this newspaper at real peril to themselves,” he told a news conference at the paper. “It’s an extraordinary story. This newspaper held on to the business and by and large we held on to the readers . . . we held on to the advertisers.”

The joint operating agreement will eliminate about 500 jobs at the Free Press, Lawrence noted. He did not indicate how many workers would be dismissed, but said some of the jobs would be eliminated by attrition, and some workers would be offered early retirement.

Times Researcher Leslie Eringaard in Detroit contributed to this story.