U.S. Seeks Hearings on Detroit Papers’ Proposed Linkup

A proposed truce between Detroit’s two rival newspapers hit its first snag Thursday when the Justice Department, saying that the papers have so far failed to prove that an agreement to merge their business operations is necessary, called for public hearings.

Atty. Gen. Edwin Meese III now will allow 30 days for public comment on the recommendation, after which he can approve the call for public hearings, approve the truce or reject it outright.

The recommendation for hearings, made by the Justice Department’s antitrust division, was a setback for the Detroit Free Press, owned by Knight-Ridder Newspapers, and the Detroit News, owned by Gannett Co. The two papers openly opposed holding a public hearing on their plan, arguing that hearings would prolong the process and weaken the papers.

Dividing the Market

Critics of the truce plan praised the recommendation and said they thought the papers would have difficulty making their case in hearings as well.

The two papers want to stop competing financially, form one business arm and split the newspaper market halfway, the Free Press taking the morning market and the News the afternoon. Such so-called joint operating agreements require a special exemption to federal antitrust laws but are granted to newspapers if one of the two can prove it would otherwise go out of business.

The antitrust division said that after receiving more than 150,000 pages of documents from the two newspapers, plus comments from the public, Knight-Ridder so far had failed to prove that the Free Press is really a failing newspaper.

“Without further evidence that the economic choice facing Knight-Ridder was much bleaker than these objective facts indicate, approval of the application does not appear necessary,� the report concluded.

Among its reasons for doubting the need for the JOA, the staff recommendation said that “if the Free Press is in probable danger of financial failure, why was Gannett interested in negotiating a JOA immediately upon acquiring the rival News� earlier this year?

In raising questions about losses at the Free Press, the recommendation noted that Knight-Ridder had engaged the paper in a strategy it called “Operation Tiger,� in which it pumped millions into the Free Press to win “dominance� over the rival News “at the expense of short-term profitability.�

Raises a Question

Said the report: “When a newspaper owner consciously and deliberately decides to sacrifice short-term profits in a quest for greater long-term profits, indeed potential monopoly profits, should a JOA be available as a second-best alternative?�

James Batten, president of Knight-Ridder, said in an interview that his company waged Operation Tiger because in “a head-to-head newspaper war, you have no choice but to compete as energetically as you know how. You don’t plan for failure. But as circumstances change, you change with them.�

Batten said he believes Knight-Ridder will have no trouble proving its case in Justice Department hearings. “We are disappointed that the Justice Department felt the need to have hearings, but we know the case we have is a strong and compelling one,� Batten said.

William Keating, the Gannett executive who would head the joint agency operating the two papers, admitted that he considered the recommendation “strong� in its wording, but said: “I am not all that bothered by it. I think, when you write a recommendation, you want to make it as strong as you can.�

Screenwriter Kurt Leudtke, the former Free Press executive editor who joined a citizens group asking for public hearings, said he thought that the recommendation was “a pretty firm rejection of the newspapers’ arguments thus far.�

In Cincinnati and Seattle, the two other cities that applied for joint operating agreements under the current Newspaper Preservation Act of 1970, the Justice Department recommended public hearings and the attorney general approved that recommendation. In both cases, the JOAs eventually were approved.

In the newsroom at the Free Press, “I don’t detect a whole lot of shock or stunned amazement,� said Kent Bernhard, executive editor. “I think most folks thought there would be a hearing either way.�