The Business of Journalism
Breaking Up is Not That Hard to Do
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.
A company that publishes one daily newspaper generally makes a lot more money than one that publishes two in the same town.
This truism has sunk a lot of afternoon papers owned by morning newspaper companies, and it is starting to sink newspapers published by joint operating agencies as well.
Joint agencies, I probably need not remind you, are the controversial arrangements under which two companies combine under the protection of the Newspaper Preservation Act of 1970. The act allows the papers, in what otherwise would be a violation of antitrust laws, to publish editorially separate newspapers supported by common production, circulation and advertising operations. In other words, the two owners share profits.
Joint agencies, which have existed since the mid-1930s, were declared illegal by the U.S. Supreme Court in the late 1960s. Congress resurrected them with the 1970 law because it concluded it was in the public interest to permit newspapers to skirt antitrust laws if the result meant preserving separate and competing editorial operations.
So far, so good. In recent years, though, the preservation law's intent has been undermined by the very same economic forces that fostered creation of joint agencies in the first place.
Joint agencies were created because one newspaper in a market could not survive in full-scale competition with another. In effect, a joint agency allowed the two newspapers to operate like a commonly owned morning-and-afternoon newspaper company. By eliminating commercial competition, the joint agency produced higher profits than the successful paper had made by itself. Ideally, the profits are high enough that after they're split the successful paper makes more than it used to, and the weaker paper makes at least something.
However, the market forces (chiefly television growth and declining readership) that initially drove one newspaper into unprofitability have continued. The failing paper has continued to lose readership, although the effects of this for a long time were muted by the agency's high profits.
In time, though, the weaker paper's fading circulation becomes a drag on the agency's earnings, just as a weak afternoon paper hurts earnings of a commonly owned morning-and-afternoon company. This is the core reason for the closings of many afternoon papers published by morning papers, and it is also the reason some joint agencies, one way or another, have cut back to one newspaper a day.
In recent years we have seen the closing in joint agency cities of the St. Louis Globe-Democrat, the Columbus Citizen-Journal, the Miami News, the Shreveport Journal, the Knoxville Journal and the Tulsa Tribune (see "When Your Newspaper Dies," page 41). In Columbus and Shreveport this happened because the dominant partner in the agency refused to extend the agency's contract when it was due to expire. In Knoxville and Tulsa there was an outright buyout. In St. Louis and Miami, the owners of the weaker papers agreed to shut down to enhance the profits both partners would share during the rest of the contract.
Now come two more joint agencies – in Honolulu and Pittsburgh – whose futures are uncertain, at least as of this writing. In Honolulu, Gannett's afternoon Star-Bulletin historically has been the dominant paper, but the company has seen the circulation of it weekday paper slide while that of the morning Advertiser has grown. The Advertiser's weekday circulation now is 105,000, the Star-Bulletin's 88,000, whereas 10 years ago the Star-Bulletin led 112,000 to 85,000. Gannett chose to get out of this fix by buying the Advertiser and putting the Star-Bulletin up for sale. The Sunday paper, shared before, will become wholly the Advertiser's.
Of course, Gannett may find a buyer, and the Honolulu agency could keep publishing two newspapers. I suspect, though, that the Star-Bulletin will be a tough sell. A group of Hawaiian investors with a desire to control an editorial voice would be the most likely prospect. How the Justice Department would respond should Gannett fail to find a buyer and elect to shut the Star-Bulletin is hard to predict. So far, Justice has not interfered significantly in joint agency closures.
In Pittsburgh, E.W. Scripps, having exhausted its patience with striking Teamsters, put its strike-closed Pittsburgh Press up for sale. Block Newspapers, owner of the junior partner in the agency, the Pittsburgh Post-Gazette, has agreed to buy the Press, assuming labor difficulties can be worked out. If Block winds up owning both newspapers, the Press probably will not survive for long.
What all these developments in joint agencies demonstrate is that they merely delay the inevitable. Indeed, there are other agencies where the weak partner probably is a drag on earnings: papers in Nashville, Evansville, Tucson, Birmingham, San Francisco and Cincinnati may be the next to go. l
John Morton, a former newspaper reporter, is a newspaper analyst with Lynch, Jones & Ryan.###