2 Detroit Papers’ Proposal for Joint Operation Arouses Suspicion in Community

Executives of Knight-Ridder Newspapers had to sneak into Detroit the day they went to end newspaper competition there.

They registered at their hotels under aliases. They left their limousine part way into town and arrived at the hotel in an “an inconspicuous . . . red van that looked like it had spent the last two years deer hunting in Michigan,” Knight-Ridder Chairman Alvah Chapman would recall.

Now, seven weeks later, some civic and political leaders want to make sure that Miami-based Knight-Ridder and Washington-based Gannett Co., publishers of Detroit’s two rival newspapers, are not trying to sneak anything more serious by the city of Detroit.

The community leaders are worried about the proposed truce between Knight-Ridder’s Detroit Free Press and Gannett’s Detroit News, under which the Free-Press would publish mornings, the News afternoons, and the two would share profits.

Under federal law, the Free Press must prove to the Justice Department that, without such an arrangement, it would die. But some community leaders worry nonetheless that the papers are not as financially malnourished as their parent companies claim.

A few observers believe that approval of a so-called joint operating agreement (JOA) in Detroit could hasten similar truces in the other few remaining two-newspaper towns.

And the two media companies, both defenders of public disclosure in government, have attracted charges of hypocrisy because they want the government to approve the plan without holding public hearings.

“There is, to put it mildly, an incongruity in two newspapers, which have long championed freedom of information and open government, to then turn around and lobby against a public hearing,” said Bob Berg, a spokesman for Detroit Mayor Coleman Young.

Countered Gannett Chairman Allen H. Neuharth recently: “Any unnecessary delay in approval of the JOA” such as a public hearing “can only further weaken the Free Press.”

The dispute intensified after the newspapers formally filed the JOA proposal last month, urging government approval without a public hearing.

A nine-member citizens group, which included Mayor Young, called foul. Serious questions exist about the JOA, it said, and it asked the Justice Department for hearings. Other members of the group include former United Auto Workers President Douglas Fraser, screenwriter and former Free Press executive editor Kurt Luedtke and Michigan AFL-CIO President Sam Fishman. Michigan Reps. John D. Dingell and William D. Ford, both Democrats, also wrote Atty. Gen. Edwin Meese III asking for public hearings. And state Sen. John Kelly (D-Detroit) introduced a bill in the Michigan Legislature that would also require state approval of the JOA. Attorneys for the newspapers have called the bill unconstitutional.

At the core of the dissent is concern over how the papers would operate under a joint operating agreement and whether one is really needed.

Young, for instance, is neutral on the JOA but is worried that the papers will not compete for news aggressively if “all the money goes into the same cash register,” spokesman Berg said.

Doubt It’s Failing

K mart Corp., which is based near Detroit, also wrote the Justice Department expressing concern that the newspapers would raise advertising rates too sharply once commercial competition between them had ended.

Some people in Detroit, such as Luedtke, doubt that the Free Press is really a failing newspaper. Luedtke, now an Academy Award-winning screenwriter, argued that the Detroit papers lose money only because, locked in a battle to knock each other off, they have engaged in heavy discounting and capital investment.

While most papers around the country sell for 25 cents or 30 cents, for instance, the Free Press costs 20 cents and the News 15 cents. Both newspapers have made clear that they will charge more if a joint operating agreement is approved.

“If the papers merely charged us now what they say they will charge us after the JOA, there is just no doubt they would be profitable,” Luedtke said.

But Luedtke said Knight-Ridder and Gannett will not accept the moderate profit margins that operating independently would provide. “The issue isn’t profitability,” he said. “It’s rate of return.”

May Not Fit Criteria

William Keating, a former congressman hired to head the joint newspaper agency in Detroit, disagreed. “There is no assurance,” Keating said, “that if one of the papers took the risk of raising prices that the other would follow. . . . I really think that if there were a way they could have been profitable here, they would have.”

Even if the Free Press could not be profitable now, some critics argue that it does not fit the definition of a failing newspaper under the Newspaper Preservation Act of 1970. The two Detroit papers are close in circulation--both around 640,000--and the Free Press dominates the slowly growing morning market, argues Hillel Levin, executive editor of Metropolitan Detroit magazine.

Philip H. Power, publisher of 19 suburban weeklies around Detroit, even argues that a joint operating agreement by the Detroit newspapers could “loosen the definition” of a failing paper, further hastening the decline of newspaper competition in America.

“It would set a precedent,” argued Power, chairman of Suburban Communications Corp., echoing the sentiments of Luedtke and Levin. A Detroit JOA, he said, might encourage papers in other competitive newspaper cities making moderate profits to engage in quick discounting and then apply for approval of a JOA.

Again, Knight-Ridder and Gannett officials feel that their critics misunderstand them. “It is a mistake to look at surface numbers” such as circulation, “and think the papers are close,” Free Press Publisher David Lawrence said.

For instance, the rival News has more readers in the immediate Detroit market, Lawrence said, and consequently draws 65% of the advertising revenue.

“As much as I would like it to be otherwise, my newspaper has some very real problems,” Lawrence said.

Perhaps the biggest dispute concerns the papers’ opposition to the government holding public hearings.

Free Press Publisher Lawrence said that prolonging the JOA approval process could weaken the papers, as advertisers get nervous and employees leave.

Keating, who experienced the formation of a JOA in Cincinnati as publisher of Cincinnati Enquirer, argued that the written documents that the Justice Department requires--and that are made public--reveal everything that would be disclosed in hearings.

But Power argued that the newspapers should consider public hearings to be in their own best interests. “If you create a newspaper monopoly in this town without full public scrutiny, the JOA might lack a certain legitimacy in the public’s mind,” he said in a telephone interview.

As it stands now, the public has until June 30 to raise objections. If no public hearing is scheduled, the Justice Department’s antitrust division could make a recommendation as early as that date, followed by a 30-day period for public comment. The matter then goes to the attorney general for a final decision.