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Will Gannett give up the Gazette?

Will Gannett Give Up The Gazette?

In Addition To The More Than $100 Million It Has Lost In Little Rock, There Are Numerous Reasons Gannett Might Leave Arkansas

Arkansas Democrat Publisher Walter E. Hussman Jr. has a board meeting and a stockholders' meeting every morning when he stands in front of his bathroom mirror to shave.

When he wants to make a change at the Democrat, he does it.

Important changes a few blocks away at the Arkansas Gazette can't be made without receiving permission from above -- from Gannett Co. headquarters at Arlington, Va.

Gazette Publisher Maurice L. "Moe" Hickey and Editor J. Keith Moyer -- the only two official spokesmen for the Gazette--usually won't comment on the directives that come from Arlington.

"They could save themselves a lot of money if they would just fire the people in their PR department and answer the phone with a recording that said |no comment,'" says one Gannett employee.

Even when an official statement is released, it usually says little.

During this year's first quarter, Gannett's newspaper revenues fell 6 percent, broadcasting revenues fell 12 percent and outdoor advertising revenues fell 5 percent.

John J. Curley, Gannett's chairman and chief executive officer, responded by saying, "Our advertising-based businesses were tested during the first quarter by the reluctance of advertisers to promote their goods and services during wartime."

The war is over in the Persian Gulf, but it's far from over in Little Rock for Gannett.

Nationwide, second-quarter revenues are up from the previous quarter, but they're down compared with the same quarter a year ago.

In 1990, Gannett experienced the first decline in revenues in the more than two decades it has been a public company.

Still, with earnings of $377 million in 1990, Gannett can handle Gazette losses.

"Arkansas they could tolerate," says Ken Noble, a former securities analyst who now operates his own business, Noble Consultants Inc.

Noble, the founder of the annual Paine Webber conference on the outlook for the media, says the Gazette is small in the overall Gannett scheme of things.

"I don't think Arkansas is a real pressure on them," Noble says. "Of course, in this environment, everything is a pressure on them."

The recession and a resulting advertising slump has hit some media companies so hard that Gannett's 5 percent drop in earnings for 1990 doesn't look bad.

Knight-Ridder Inc.'s earnings-dropped 40 percent in 1990, and the New York Times Co.'s earnings declined 76 percent.

But Gannett decreases are more pronounced for the first six months of 1991 with a 20 percent drop in earnings.

That's what makes the Gazette and its estimated losses of more than $20 million a year an increasingly irritating thorn in Gannett's side.

Add in its losses at USA Today and the Detroit News, and there are more and more reasons for Gannett to get out of Arkansas.

Monopoly Markets

Gannett doesn't like competition.

That attitude is what got the company into trouble in Little Rock.

Gannett clearly underestimated Hussman.

Usually, Gannett enters markets where it will be the only daily newspaper or where it can eliminate competition quickly.

When Gannett bought the Des Moines Register in Iowa, it also acquired the afternoon newspaper and quickly shut it down.

Lack of competition made the The Courier-Journal in Louisville, Ky., an attractive buy. The company wasted little time shutting down a sister afternoon publication, The Louisville Times.

But when Gannett bought the Knoxville Journal, it bought trouble.

The Scripps-Howard-owned Knoxville News-Sentinel provided too much competition, and Gannett sold the Journal.

Gannett sold the Oakland Tribune in part because it didn't like the competition from San Francisco and suburban newspapers.

Its problems didn't end there.

Publisher Robert Maynard bought the Tribune in 1983 and assumed a $31.5-million debt that until recently was mounting by almost $300,000 per month.

The Tribune is the nation's only major daily newspaper run by a black family, and its demise would have left Oakland as the largest city in the country without a daily newspaper.

To avoid a public relations disaster, Gannett decided to strike a deal with Maynard. Gannett lost millions by restructuring Maynard's debts.

Meanwhile, USA Today, Gannett's flashy national newspaper that has served as the prototype for many of its other papers, has not made a profit in its nine-year existence.

Gannett's struggles make the company's purchase of the Times-Journal Co., a chain of suburban dailies in Virginia and Maryland, especially interesting. The purchase price is estimated to be at least $50 million for a chain that has not made money the past two years.

Is Gannett simply seeking to establish more of a print presence in the nation's capital?

Gannett will have to overcome federal rules that prevent companies from owning newspapers and broadcast entities in the same market. It currently owns WUSA-TV, Channel 9, the CBS affiliate in Washington.

Motown Madness

When Gannett entered into a joint operating agreement with Knight-Ridder in Detroit, there were predictions the Detroit market would yield profits of between $100 million and $300 million per year.

But Gannett's Detroit News has lost 240,000 readers in less than two years.

Circulation at Knight-Ridder's Detroit Free Press has dropped by 30,000.

No one is quite sure where the readers are going.

There are 4 million people in the Detroit metropolitan area, and both newspapers have raised advertising rates.

"The idiots from Knight-Ridder and Gannett still can't make a profit," says Lou Mleczko, a reporter at the News for more than 20 years.

Mleczko is president of the Newspaper Guild of Detroit Local 22, which actively opposed the JOA.

Before Gannett bought the News, then-Chairman Al Neuharth called the chairman of Knight-Ridder to receive assurances that if he bought the News, he could immediately enter into a JOA.

It was a call Knight-Ridder had been waiting for.

In what the company dubbed "Operation Tiger," Knight-Ridder lost money on purpose in order to make a JOA's approval by the Department of Justice more likely.

"The Justice Department is sound asleep, and they know it," Mleczko says.

The two Detroit newspapers were running virtually neck and neck. The administrative law judge assigned to review the application for a JOA recommended that it not be approved.

The Justice Department ignored his recommendation.

Hussman filed an amicus curiae -- a friend-of-the-court brief -- supporting the judge's position. Hussman worried that if the government could justify a JOA in Detroit, the same could happen at Little Rock.

"Gannett deserves everything that's happening because it went down there with the attitude that it could do what Knight-Ridder did in Detroit," Mleczko says.

Just as Gannett and Knight-Ridder's strategy failed in Detroit, Gannett's plan to drive Hussman to his knees in Little Rock has failed.

Mleczko claims that whenever the company can get away with it, Gannett puts out mediocre newspapers and maximizes its profits.

"That's the MO on Gannett nationwide, preferably in markets that are non-union," he says.

Combined with problems in Detroit and expenditures on the Washington-area newspapers, Little Rock is becoming a more irritating problem for Gannett.

Although Gannett can handle the Gazette's losses -- which reportedly have topped $100 million since 1986 -- Hussman has made it clear he won't give up.

That means Gannett must continue to explain to its stockholders why it is losing millions per year in a small state such as Arkansas.

Neuharth went on a spending spree in 1986, purchasing the Detroit News for $717 million, the The Courier-Journal for hundreds of millions more and the Gazette for $51 million.

Five years later, only the Louisville investment is paying off.

If the advertising recession continues, will Curley begin to cut his losses? [Graph Omitted]

PHOTO : BOTTOM-LINE TROUBLES: The losses the Gannett Co. is experiencing in Detroit and with USA Today have led to rumors that it is thinking about getting rid of trouble spots across the country such as the one in Little Rock.

PHOTO : I DIDN'T DO IT: Gannett Co. Chairman and Chief Executive Officer John J. Curley (right) could blame the Arkansas Gazette problem on former Chairman Al Neuharth (left). It has been almost five years since Gannett, led at the time by Neuharth, purchased the Gazette for $51 million.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Rengers, Carrie
Publication:Arkansas Business
Date:Sep 16, 1991
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