Dizzy in Detroit
The three-way deal shows how much the industry has changed.
By John Morton
John Morton (email@example.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
Many years ago, when Al Neuharth was head of Gannett, I once asked him if the company had ever considered selling any of its newspapers. He replied: "We don't sell newspapers, we buy 'em."
My, how times have changed. Nowadays, Gannett and other large chains do not hesitate to sell or swap newspapers to create or enlarge geographic clusters of properties or find some other strategy calculated to improve the bottom line.
It calls to mind what William Allen White of the Emporia Gazette in Kansas wrote upon the 1925 death of the notorious newspaper-consolidator Frank Munsey: "He and his kind have about succeeded in transforming a once noble profession into an 8 percent security. May he rest in trust." Of course, 8 percent would not be an acceptable return for today's newspaper companies, but you get the idea.
The big deal that prompted this rumination was the recent three-way swap and sale of six dailies worth perhaps $800 million involving Gannett, Knight Ridder and MediaNews Group.
It was the latest in a long line of newspaper disposals in recent years that involved chains as disparate as the New York Times Co., Hollinger International, Thomson, Dow Jones & Co. and Community Newspaper Holdings, among many others. Newspapers in some ways have become commodities, bought and sold without regard to histories or legacies or any of the other emotional ties that once bound newspapers to their owners.
The Gannett-Knight Ridder-MediaNews transactions are worth examining for insights into the different strategies that drive companies to give up some newspapers and acquire others.
The most prominent of the dailies involved are Knight Ridder's Detroit Free Press and Gannett's Detroit News, both published by a 50-50 joint operating agency.
Gannett's ownership of the afternoon News has placed the company in an awkward position because the paper, owing to declining circulation (down 68 percent since the agency was formed in 1989), was certain to cease publishing long before the agency contract expires in 2086. (The Free Press also was down, by 44 percent.)
Gannett would still get 50 percent of any profits even if the News folded. But because Gannett controls a majority of votes on the joint agency's board, it would wind up in effect managing an agency that publishes another company's newspaper, the Free Press. The solution was for Gannett to buy the Free Press and at the same time sell the News to MediaNews Group.
As the controlling owner of the joint agency, only Gannett was in a position to reformulate the agency contract. Now, Gannett will get a higher share of the profits — I estimate about 70 percent — and sole ownership of the Sunday paper, which has been produced jointly by the two newspapers.
Thus Gannett will be the prevailing publisher in Detroit, which despite its economic troubles is still a major market. Moreover, Gannett already owns four other Michigan dailies and hordes of free publications in the Detroit suburbs, all of which offer the usual clustering opportunities in efficiency, promotion and advertising sales.
The other big change in the joint-agency contract is that under MediaNews ownership, the News will move to morning publication, Monday through Saturday. The Free Press also will publish on Saturday, whereas before the Saturday paper, like Sunday's, was a joint production. The News will have a chance to seek significant suburban circulation, difficult to accomplish as an afternoon paper because traffic congestion prevents timely delivery.
While the news and editorial competition will be head-to-head in the morning, the News will have fewer resources than the Free Press because of MediaNews' smaller claim on profits.
The swap part of the deal has Knight Ridder giving Gannett its Tallahassee Democrat and $239 million in exchange for Gannett's Idaho Statesman in Boise and two dailies in Washington state, the Bellingham Herald and the Olympian. Both companies said the swap transaction was completely separate from and had no bearing on the Detroit deal, a position that will be accepted by all those believing in miraculous coincidences.
By getting Tallahassee, Gannett enlarges its presence in Florida, where it already owns three dailies and three television stations. Knight Ridder, in getting three high-margin Gannett dailies in the Northwest, carries through on its pledge to Wall Street to improve profitability.
Getting rid of the low-margin Detroit Free Press helped as well, even though as part of a joint agency its numbers show up as an equity investment rather than as part of operations.
So this is what the newspaper business has become: a quest to realign assets to suit a long-term strategy for financial gain. There is nothing ignoble about this — it's what businesses do. But it's not particularly noble either, and surely readers and employees of the affected properties will wonder what new ownership might bring to their hometown newspapers.