Appendix — Michigan Citizens for an Independent Press v. Thornburgh
Supreme Court brief1989
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No.
IN THE
Supreme Court of the United States
OCTOBER TERM, 1988
MICHIGAN CITIZENS FOR AN
INDEPENDENT PRESS, et al.
Petitioners,
RICHARD THORNBURGH,
UNITED STATES ATTORNEY GENERAL, et al,
Respondents.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
William B. Schultz
(Counsel of Record)
David C. Vladeck
Alan B. Morrison
Public Citizen Litigation Group
2000 P Street, N.W., Suite 700
Washington, D.C. 20036
(202) 785-3704
Attorneys for Petitioners
CASILLAS PRESS INC. — 1717 K STREET NW, WASHINGTON DC 20036 — 223-1220 ‘\\
TABLE OF CONTENTS
Recommended Decision of the Administrative
Law Judge (December 29, 1987) ................000 cece la
Decision and Order of the Attorney General
EES EE LEE 136a
Memorandum Opinion and Order of the U.S.
District Court for the District of Columbia
EE 149a
Judgment of the U.S. Court of Appeals for
the District of Columbia Circuit (January 27, 1989) .......... 164a
Opinions (Panel Majority and Dissenting)
of the U.S. Court of Appeals for the District of
Columbia Circuit January 27, 1989) ...................... ».166a
Order and Opinions (Concurring and Dissenting) ;
of the U.S. Court of Appeals for the District *
of Columbia Denying Suggestion for Rehearing -
re 198a
la
BEFORE THE
ATTORNEY GENERAL OF THE UNITED STATES
In the Matter of:
Application hy Detroit Free Press Docket No.
Incorporated, and The Detroit News, 44-03-24-8
Inc., for Approval of a Joint
Newspaper Operating Arrangement [December
Pursuant to the Newspaper 29, 1987]
Preservation Act, 15 U.S.C.
§ § 1801, et seq.
Nee ee ae ee ee ee ee ee ee”
RECOMMENDED DECISION
By Morton Needelman, Administrative Law Judge
- Seymour H. Dussman, Gregory B. Hovendon, and Marybeth
McGee,
Counsel for Antitrust Division,
United States Department of Justice
Hughes Hubbard & Reed Washington, D.C.
By Philip A. Lacovara, Calvin J. Collier, and Gerald Goldman
Counsel for Detroit Free Press, Incorporated
Nixon, Hargrave, Devans & Doyle Washington, D.C.
By John Stuart Smith, and Robert C. Bernius Lawrence J.
Aldrich Arlington, Virginia
Counsel for The Detroit News, Inc.
Barris, Sott, Denn & Driker
Detroit, Michigan
lb
By Eugene Driker, Andrew M. Zack, and Morley Witus
Counsel for Intervenors Newspaper Drivers and Handlers
Local No. 372, and Detroit Mailers Union No. 40, each af-
filiated with international Brotherhood of Teamsters
Miller, Cohen, Martens & Ice Southfield, Michigan
By Duane F. Ice, Russell S. Lincen, and Hanan B. Kolko
Counsel for Intervenor Newspaper Guild of Detroit, Local 22,
AFL-CIO
Bell & Gardner, P.C. Detroit, Michigan
By Edward F. Bell, Cynthia K. Yott, and George Koklanaris
Counsel for Intervenors Coleman A. Young, Mayor of the
City of Detroit, and the City of Detroit
Ic
CONTENTS
Page
I. STATEMENT OF THE PROCEEDINGS ............. 1 [la]
ey ec uceneeeweuee 8 [6a]
A. The Great Detroit Newspaper War .............. 8 [6a]
RITES IS No PIE O PEE Te? 8 [6a]
ie Eo o'6 6 4 edeUENNK 6 bb0ssdcececeebens 11 [9a]
i Es gaidiéee cadbieeedetenskaekaes a 16 [15a]
4. The Status of the Rivalry At The Time
ee I 0 ol'o 6 65:66 Secs Seindene'’s 35 [31a]
i. SE eSilet ane es tadsentonsseseecs 35 [31a]
tinct arr to Em EM 42 [39a]
c. Circulation and Advertising Revenues ..... 54 [58a]
GE wher d ewe candida eVeives oscetns 56 [59a]
e. Financial Condition of the Free Press ..... 62 [70a]
f. Financial Condition of the News ......... 71 [82a]
B. The Prospects For The Free Press ............ 73 [86a]
Bb. Ce ED Ln ccccencdcuidckovees 73 [86a]
ne 75 [87a]
Eos. dt aancavedéecbaredmens’ 90 [100a]
Oi FE dba 60k nce cocacceaswied 92 [102a]
i. EY oc cae uv tcueveeusevabel 93 [104a]
RS cbtdanvencatencencdedeiens 93 [104a]
EE cabs 04. ¢ sun uwedeevccesntetenn 95 [105a]
EE Saeki d aviv diddudddeced eae 102 [1lla]
ED §¢-6.0'u4 0 ann eveceus cesweenni 104 [113a]
ld
ee I ORE Co ccoccccesccecessnen 106 [114a]
De as ae et sehen een Ken win 110 [117a]
i, ee eae ieee ceueedaeeene 128 [132a]
V. RECOMMENDED ORDER ..................-. 129 [133a]
TABLES
Page
Table 1: Wayne County Demographics ‘a
RS A ee oe 11 [10a]
Table 2: Oakland County Deinographics
a es 6 A 13 [lla]
Table 3: Macomb County Demographics
(IGBD-1GBG) nn crc ccccccccsccccsccecsceeces 13 [12a]
Table 4: Total of Wayne, Oakland And
Macomb Demographics (1960-1985) ........... 14 [13a]
Table 5: Combined Free Press And News Sunday
Circulation (1960-1987) And
ee ee ice écewseces 44 [41a]
Table 6: Combined Free Press And News Sunday
Circulation (1960-1987) And |
ec RY 46 [43a]
Table 7: Combined Free Press And News Daily
Circulation (1960-1987) In PMA Counties
And Free Press Share, ..............-. eoeaee 48 [46a]
Table 8: Combined Free Press And News Sunday
Circulation (1960-1987) In PMA Counties
And oo cc ea biceese6edeees 49 [48a]
Table 9:
Table 10:
Table 11:
Table 12:
Table 13:
Table 14:
Table 15:
Table 16:
Table 17:
Table 18:
Table 19:
le
Combined Free Press And News Daily
Circulation (1960-1987) In The CZ
And RTZ And Free Press Share .............
Combined Free Press And News Sunday
Circulation (1960-1987) In The CZ
And RTZ And Free Press Share .............
Combined Free Press And News Home
Delivery Circulation (1960-1987) In
CZ And RTZ And Free Press Share ..........
Combined Free Press And News
Circulation Revenue (1963-1986)
Ne eeceesees
Combined Free Press And News
Advertising Revenue (1963-1986)
IRI EOL TT ETT
Combined Free Press And News Total
Full-Run Advertising Linage
(1960-1986) And Free Press Share ...........
Combined Free Press And News Full-Run
ROP Advertising Linage (1960-1986)
CN i cccnctcvecees
Combined Free Press And News Full-Run
ROP Classified Linage (1960-1986)
a tl
Combined Free Press And News Full-Run
ROP Classified Linage (1960-1986) and
Ne eg went
Combined Free Press And News Full-Run
ROP General Linage (1960-1986) And
ee A
Free Press Selected Financial
Information (1963-1986) .................085-
[50a]
[52a]
[56a]
[60a]
[61a]
[62a]
[64a]
[68a]
[72a]
[74a]
[76a]
lf
Table 20: News Selected Financial
Information (1963-1986)
eeeevevewew eevee ew eevee eeneee
lg
I
STATEMENT OF THE PROCEEDINGS
On May 9, 1986, the Detroit Free Press (‘‘Free Press’’),
which is published by Detroit Free Press, Incorporated, a
wholly owned subsidiary of Knight-Ridder, Inc., and The
Detroit News (‘‘News’’), which is published by The Detroit
News, Inc., a wholly-owned subsidiary of Gannett Co., Inc.,
filed an application for approval of a joint operating arrange-
ment (‘‘JOA’’). The proposed JOA would effectively merge
the commercial (i.e., non-reportorial and non-editorial) aspects
of the only metropolitan daily newspapers serving Detroit,
Michigan, and thus end the protracted and bitterly contested
Detroit newspaper war.
The application and data supporting the JOA were filed pur-
suant to the Newspaper Preservation Act (‘‘NPA’’) which
grants a limited antitrust exemption for a JOA receiving the
prior written consent of the Attorney General. To qualify for
approval, it must be demonstrated to the satisfaction of the
Attorney Generai that one of the parties to the proposed JOA
is a ‘failing newspaper’’, defined as ‘‘a newspaper publica-
tion which, regardless of ownership or affiliation, is in prob-
able danger of financial failure.’’ In addition, the Attorney
General must determine that approval ‘‘would effectuate the
policy and purpose’’ of NPA which is to maintain ‘‘a newspaper
press editorially and reportorially independent and competitive
in all parts of the United States.’’
In order to determine whether the Free Press meets the
crucial ‘‘failing newspaper’’ standard of NPA, and thus is en-
titled to enter into the proposed agreement with the News,
on February 25, 1987, the Attorney General ordered that an
Administrative Law Judge conduct a hearing in accordance with
the Department of Justice’s NPA Regulations, 28 C.F.R. §
2a
48.10. This order, which came after a period of public com-
ment on the proposed JOA and recommendations of the Ac-
ting Assistant Attorney General for the Antitrust Division,
directed that a record be developed in the following seven areas
bearing on the ‘‘failing newspaper’’ question:
1. The relevance in the Detroit newspaper market
of economies of scale, and the extent to which the
two newspapers’ unit costs differ.
2. The possibility of geographic, demographic or
other segmentation of the Detroit newspaper mar-
ket, and its implications for the viability of two com-
peting newspapers.
3. The reliability, as an indicator of the viability of
competing newspapers in Detroit, of the recent
financial performance of the Detroit Free Press and
The Detroit News, in light of the economic recession
and the possibility that one or both of the newspapers
may have been seeking market dominance rather
than near-term profitability.
4. The financial history of the Detroit Free Press
as a separate economic unit, considering specifical-
ly capital structure, taxes and management fees.
5. The cause of The Detroit News’ losses in 1986
after a profitable 1985.
6. The proper characterization of expenses incur-
red by the Detroit Free Press in its effort to achieve
market dominance, specifically whether any of those
expenditures are properly regarded as capital in-
vestments, and the proper amortization period of the
Detroit Free Press’ investment in its Riverfront plant.
7. The Detroit Free Press’ prospects for long-term
profitability in the Detroit newspaper market in light
3a
of (a) favorabie advertiser, demographic and sub-
scriber trends, (b) the possibility of significant cost
savings, and (c) the possibility of a price increase.
Following designation by the Attorney General of the ma-
jor Detroit area newspaper unions and the Honorable Coleman
A. Young, Mayor of Detroit, as Intervenors with party status,
a prehearing conference was held in Detroit on April 9, 1987.
At that time and subsequently through the use of telephonic
prehearing conferences, a schedule was set, discovery pro-
blems were resolved,' and two basic ground rules for the for-
mal hearings were established: intervenor representation was
to be coordinated; and all parties — Applicants, Antitrust Divi-
sion, and Intervenors — were required to present the direct
testimony of their witnesses in writing in advance of the for-
mal hearings, the hearings being reserved essentially for cross-
examination and a hybrid form of redirect that allowed for the
introduction of evidence rebutting the previously filed writ-
ten direct testimony of opposition witnesses.
On July 17, 1987, objections to proposed exhibits (including
written direct testimony) were heard. The witnesses were
then presented for cross-examination and rebuttal in Detroit
between August 3 and August 24 when the record was clos-
ed for the receipt of evidence. During these hearings counsel
for all parties were given full opportunity to be heard and to
‘In addition to the use of telephonic prehearing conferences, the
discovery stage (document production, written interrogatories, witness
interviews and depositions) was somewhat shortened by moving the
massive pre-hearing public record (including virtually all documents filed
by the newspapers with the Attorney General in support of the applica-
tion) to Detroit for easier intervenor access. The entry of a strict protec-
tive order was designed to discourage time-consuming confidentiality
arguments and appeals to the Assistant Attorney General, who had been
designated as the reviewing authority for all procedural matters.
4a
examine the witnesses. The parties filed their proposed find-
ings and main briefs on September 23, 1987. Replies were
filed on October 14, 1987.
After reviewing all the evidence as well as the proposed fin-
dings, conclusions, and briefs submitted by the parties, and
based on the entire hearing record including a determination
of the credibility of witnesses (which took into account de-
meanor and the consistency between prepared for litigation
testimony, expert or otherwise, and the plain meaning of
everyday business records written before the JOA application
was filed) I make the following findings of fact:?
2Proposed findings not adopted in the form or substance proposed are
rejected as either not supported by the entire record or as involving im-
material or irrelevant matters.
The following abbreviations are used throughout in citing to the record:
NX (Applicant newspapers’ exhibits)
AX (Antitrust Division’s exhibits)
IX (Intervenors’ exhibits)
At the ALJ’s direction the parties prepared Joint Exhibits (JX1-JX27)
outlining the basic business and financial facts respecting the two
newspapers. These JX’s are the sources for the tables appearing in the
Findings of Fact. Indices to the parties’ exhibits were marked as Ad-
ministrative Law Judge Exhibits (ALJ Exhibits 1-3) and appear as the first
exhibit in Volume I of each party’s bound volumes of exhibits.
The direct testimony, which was submitted in written form prior to the
start of the formal hearings in Detroit, is cited by the exhibit number follow-
ed by a paragraph (4) reference and witness’s name as in NX 800Z-30
{ 96 (Rosse). Testimony on cross-examination or in rebuttal is cited by
the witness’s name followed by the transcript page as in Rosse 2452.
Bound, bulky, and paginated exhibits were marked with letters as physical
exhibits followed either by a page reference as in AX A p. K001791 or
by reference to some document included within the physical exhibit as
in NX C-2 Ex. 1 4 4.2.
Applicants requested in camera treatment for a limited number of ex-
hibits and after an adequate justification was made pursuant to the I ederal
Rules of Civil Procedure, it was ordered that these exhibits were to be
segregated and placed in an in camera file. The Omnibus In Camera Order
Sa
(footnote continued from previous page)
issued on July 21, 1987, which governs all in camera exhibits, provides
in part as follows:
It should be clearly understood that nothing contained in this
Order in any way limits the public use of this material in deci-
sions written by the Administrative Law Judge, the Attorney
General, or reviewing courts. While I have no intention of mak-
ing unnecessary disclosures, whether or not to publish in my
Recommended Decision all or part of the material contained
in in camera exhibits must be left solely to the discretion of
the Administrative Law Judge, and I must reserve the right
to exercise this discretion without consulting any party.
The appearances of the witnesses were as follows:
Transcript for
Exhibit No. Cross, Redirect,
For Direct and Rebuttal
Name Called By Testimony Testimony
Robert H. Thibault Applicants NX 500 257-555
Partner, accounting firm
of Ernst & Whinney
Stewart J. Hahn, Applicants NX 600 637-902
Partner, accounting firm
of Artnur Andersen & Co.
Robert J. Hall, Applicants NX 200 920-1344
Ex. V.P. and General
Manager, Free Press
Peter B. Clark, Applicants NX 400 1352-1519
Formerly, Chairman,
Evening News Associa-
tion, now, a board
member of Gannett
Allen H. Neuharth, Applicants NX 300 1519-1761
CEO and Chairman,
Gannett
Alvah H. Chapman, Applicants NX 100 1762-2154
CEO and Chairman,
Knight-Ridder
John E. Morton, Applicants NX 700 2156-2372
Retained expert
6a
II. FINDINGS OF FACT
A. The Great Detroit Newspaper War
1. The Rivals
1. This JOA application represents the largest proposed con-
solidation considered to date under the Newspaper Preser-
(footnote continued from previous page)
James N. Rosse, Applicants NX 800
Retained exp! 2379-2819
David N. Lawrence, Jr., _Aatitrust Mr. Lawre 282
Publisher, Free Press Division an — _—
witness, did not
file written
direct.
John E. Kwoka, Jr., Antitrust AX 200
Retained expert Division ee
Kenneth C. Baseman, Antitrust AX 300 3141-3207
Retained expert Division
Marilyn J. Simon, Antitrust AX 100 321
Expert on the staff Divi- —
sion of Antitrust Division
Dorn K. Dean, Intervenors IX 450 -
warhead 3269-3321
Robert C. Nelson, Intervenors Mr. Nelson 3339-34
Formerly, Publisher an adverse -
of the News, now, wi'ness, did
Special Assistant not file
to the Chairman, written
Gannett direct.
J. Chester Johnson, Intervenors IX 405 -
Retained expert ee
Coleman A. Young, Intervenors IX 400 By stipulati
Mayor of Detroit cmt a wa
Young’s pre-
NX 860 was
received into
evidence in lieu of
cross-examination.
7a
vation Act.? In the News and Free Press it would bring
together, respectively, the nation’s seventh and eighth largest
daily and the seventh and ninth largest Sunday newspapers.
The corporate parents of the papers are the two largest news
organizations in the United States.
2. The alleged ‘‘failing newspaper,’’ the Free Press, is a
morning metropolitan daily of general interest serving the
Detroit, Michigan area. It began publishing once a week in
1831 under the banner of the Democratic Free Press and
Michigan Intelligencer. By 1835, the paper was being published
six days a week and a Sunday edition was added in 1853. In
1940, John S. Knight purchased the Free Press for $3.2
million, and it became part of the newspaper group owned by
Knight Newspapers. When Knight Newspapers merged with
Ridder Publication in 1974, Detroit Free Press, Incorporated,
became a wholly-owned subsidiary of Knight-Ridder, Inc.®
3. Knight-Ridder, Inc. (‘‘Knight-Ridder’’), which has its cor-
porate headquarters in Miami, Florida, is the nation’s second
largest newspaper group with company-wide total daily paid
circulation exceeding 3.7 million. It reported operating reve-
nues of over $1.9 billion in 1986 and net income of over $140
million. About 90% of Knight-Ridder’s revenues are derived
from its 31 daily newspapers which include The Miami Herald,
Detroit Free Press, and Philadelphia’s only metropolitan papers,
The Philadelphia Inquirer and Philadelphia Daily News. In ad-
3 The circulation of the Free Press and News exceeds the combined cir-
culation of all other papers which have previously applied for advance JOA
approval. IX 450F 4 18 (Dean), [IX 452. By the same token, the losses
of the Free Press and News far exceed the combined losses of all prior
JOA applicants. NX C-1, p. 12, Appendix I, pp. 43-44.
4 NX A, pp. 4-5, 62, NX 300C 4 10 (Neuharth); AX 2A-E.
5NX A, pp. 2, 62, NX C-1, Appendix I, p. 2, NX 100A-B 44 2, 5 (Chap-
man); IX 225E.
8a
dition to newspapers, Knight-Ridder has magazine and broad-
casting interests.®
4. Joining with the Free Press in the JOA application is the
News, the only other metropolitan daily of general interest
serving Detroit. The News was first published as The Even-
ing News in 1873 by James E. Scripps who created the Even-
ing News Association (‘‘ENA’’) as the privately-held corporate
parent for the News and other media properties. In 1960, ENA
purchased from the Hearst chain the assets of the Detroit
Times, at that time Detroit’s third general interest daily
newspaper. In addition to the News, ENA owned newspapers
in New Jersey and California, a radio station in Detroit, and
five television stations including the CBS affiliate (Channel 9)
in Washington, D.C. In August 1985, Gannett co., Inc. con-
tracted to buy ENA for $717 million. The sale was consum-
mated on February 18, 1986.’
5. Gannett Co., Inc. (‘‘Gannett’’), which has its corporate
headquarters in Arlington, Virginia, reported operating reve-
nues exceeding $2.8 billion in 1986 and net income of over
$276 million. It publishes 93 daily newspapers including the
domestic and international editions of USA Today as well as
39 nondailies. In all, its newspapers have a total paid circula-
tion of more than 6.1 million, making Gannett the largest
newspaper group in the United States. In addition to news-
papers, Gannett ownes eight television stations (including
Channel 9, Washington, D.C., renamed ‘‘WUSA-TV”’ after
the acquisition of ENA), 18 radio stations, and the nation’s
largest outdoor advertising company. Among its larger daily
®6Chapman 1985; NX A, pp. 2, 4-5, 44 NX C-1, Appendix I, pp. 1-2,
NX 100B-C 4 7 (Chapman).
"NX C-1, Appendix I, p. 3 NX 400A-B, D, E, S 44 1-2, 4, 9, 42 (Clark);
IX 255 F. Of the $717 million paid for ENA, Gannett has attributed $150
million to the value of the News. Neuharth 162728.
9a
newspapers are The Detroit News, The Des Moines Register,
The Louisville CourierJournal, The Cincinnati Enquirer,
Honolulu Star-Bulletin, The Nashville Tennessean, and Arkan-
sas Gazette. Gannett also publishes USA Weekend, a weekend
supplement carried in approximately 280 newspapers with a
combined circulation of over 13.7 million. Gannett ownes Louis
Harris & Associates, an international research company, and
it operates a television programming production company called
GTG Entertainment.®
2. The Setting
6. Detroit, a great metropolitan center and the sixth largest
city in the United States, has seen better days as shown in
Table 1, the demographics for Wayne, Detroit’s home county.
7. The decline in Detroit’s population since 1960 traces to
several economic and social forces, but there is no dispute
that the race-related riots which erupted in 1967 were a signifi-
cant cause of an exodus from the city’s center.!° Also, as in-
dicated in Finding 11, Detroit lost ground (and population) in
the severe 1979-1984 depression that hit the automobile in-
dustry.
8. The most recent census figures for the period ending June
1987 suggest, however, that Detroit’s six-year population
decline may have been arrested.!!
8NX A, p. 4, NX B, p. 37, NX 300C-D 4 10 (Neuharth).
*Detroit is by far the largest market in which advance approval for a
JOA has been sought under NPA. Detroit is about three times larger than
Seattle or Cincinnati, 10 times larger than Chattanooga, and 25 times larger
than Anchorage. IX 450F 4 19 (Dean), IX 453.
10Nelson 3420-21; NX 400E 4 13 (Clark).
"TX 391.
10a lla
Table 1: Wayne County Demographics Table 2: Oakland Country Demographics
(1960-1985) (1960-1985)
Population Households Retail Sales Retail Sales Population Households Retail Sales Retail Sales
— orm EH Ghee oT (1000's) (1000's) (000°s of $) (000s of $67) CPI
1960 2,678.9 774.9 3,572,560 4,027,689 88.7 1960 733.8 210.2 988,927 1,114,912 88.7
1961 2,703.7 792.4 3,412,582 3,808,685 89.6 1961 746.5 204.2 962,709 1,074,452 89.6
1962 2,716.1 794.8 3,669,231 4,049,924 90.6 1962 757.9 207.4 1,068,832 1,179,724 90.6
1963 2,717.1 794.3 3,869,679 4,219,933 91.7 1963 750.0 205.2 1,179,309 1,286,051 91.7
1964 2,708.5 791.8 4,005,547 4,311,676 92.9 1964 758.7 207.7 1,224,822 1,318,431 92.9
1965 _—2,710.0 794.7 4,603,010 4,870,910 94.5 1965 7650 210.2 1402782 1"484.425 04 §
1966 = 2,705.6 794.2 4,759,520 4,896,626 97.2 1966 780.8 215.9 1,528,795 1,572,834 97.2
1967 2,713.8 799.5 4,667,484 4,667,484 = 100.0 1967 —s- 821.6 228.0 1,623,791 1,623,791 100.0
198 = 2,727.3 812.8 5,005,881 4,804,108 104.2 1968 851.2 239.3 1,830,167 1,756,398 104.2
1969 2,723.3 821.0 4,878,195 4,442,801 109.8 1969 —«-863.1 245.7 1,822,215 1,659,577 109.8
1970 2,701.7 844.3 4,812,867 4,138,321 116.3 1970 912.8 267.5 1,858,212 1,597,775 116.3
1971 2,708.8 848.8 5,178,730 4,269,357 121.3 1971 916.1 269.2 2,199,490 1,813,265 121.3
1972 2,716.9 882.0 5,437,567 4,339,638 125.3 1972 923.9 281.3 2,455,975 1,960,076 125.3
1973 2,637.5 870.5 5,891,881 4,426,657 = 133.1 1973. 933.5 289.0 2,903,357 2,181,335 133.1
1974 2,567.7 858.8 6,529,683 4,420,909 = 147.7 1974 952.3 298.5 3,190,423 2,160,070 ‘147.7
1975 2,526.0 850.8 6,843,574 4,245,393 161.2 1975 965.4 304.8 3,341,897 2,073,137 —-161.2
1976 2,490.8 857.8 7,775,192 4,560,230 170.5 1976 970.7 313.4 3,719,645 2,181,610 170.5
1977 2,445.8 851.6 7,776,341 4,284,485 181.5 1977 973.6 317.8 3,869,164 2,131,771 181.5
1978 = 2,405.0 842.1 9,578,507 4,901,999 195.4 1978 992.8 324.1 4,798,909 2,455,941 195.4
1979 2,359.1 833.0 10,009,791 4,604,320 217.4 1979 1,010.5 331.0 5,894,176 2,711,213 217.4
1980 =. 2,310.4 822.2 10,009,293 4,055,629 246.8 1980 1,019.5 363.2 5,976,644 2,421,655 246.8
1981 2,272.7 816.1 10,764,482 3,951,719 272.4 1981 1026.4 371.1 6 445.016 2366012 2724
1982 _—-2,231.5 803.5 10,331,026 3,573,513. «289.1 1982 1023.1 372.7 6,588,580 2278997 289.1
1983 2,177.6 793.8 10,272,548 3,442,543 ~—«-298.4 1983 1014.0 368.6 6.647.396 2227680 298.4
1984 2,178.4 804.6 10,072,940 3,237,846 311.1 1984 1,021.7 376.3 7,535,089 2,422,079 311.1
1985 2,171.4 804.1 11,250,997 3,491,930 322.2 1985 1'029.1 380.2 8 481.600 2.632.402 322.2
Source: JX 10. Source: JX 9.
9. In the larger battlefield of the Detroit newspaper war,
the so-called ‘‘PMA’’ (the papers’ ‘‘Primary Marketing
Area’’), Wayne’s neighboring counties of Macomb and Oakland
are growing.'? But notwithstanding this growth, the overall
PMA population reached its peak in 1972, and has declined
slightly since then as seen in Tables 2-4.
121X 277B.
Table 3: Macomb County Demographics
Population Households Retail Sales Retail Sales
(000’s of $)
(1000's)
1960 437.7
1961 436.6
1962 452.7
1963 476.9
1964 502.7
1965 521.9
1966 554.1
1967 578.4
1968 596.3
1969 629.9
1970 627.9
1971 631.3
1972 637.9
1973 647.8
1974 651.9
1975 669.3
1976 672.2
1977 676.7
1978 695.4
1979 702.4
1980 699.1
1981 705.0
1982 701.7
1983 697.7
1984 699.2
1985 699.6
Source: JX 8.
12a
(1960-1985)
(1000's)
120.9
114.6
119.0
125.3
132.2
137.8
147.6
134.8
161.6
172.9
172.7
174.4
182.6
188.9
192.3
198.8
204.2
207.8
216.8
222.8
235.0
240.7
241.8
239.9
243.7
244.5
418,149
403,697
484 ,353
554,397
610,498
716,122
785,512
816,001
915,341
1,059,470
1,032,524
1,196,293
1,354,939
1,601,085
1,729,688
1,799,830
2,018,650
2,045,319
2,429,736
3,664,670
3,685,942
4,001,227
4,090,604
4,122,409
4,302,197
4,829,219
(000’s of $67) CPI
471,419
450,555
534,606
604,577
657,156
757,801
808,140
816,001
878,446
964 ,909
887,811
986 ,227
1,081,356
1,202,919
1,171,082
1,116,520
1,183,959
1,126,898
1,243,468
1,685,681
1,493,494
1,468,879
1,414,944
1,381,504
1,382,898
1,498,827
88.7
89.6
90.6
91.7
92.9
94.5
97.2
100.0
104.2
109.8
116.3
121.3
125.3
133.1
147.7
161.2
170.5
181.5
195.4
217.4
246.8
272.4
289.1
298.4
311.1
322.2
ee ee ee a + ne mS ne? —
oe
lina
Table 4: Total of Wayne, Oakland
13a
and Macomb Demographics (1960-1985)
Population
(1000's)
1960 3,850.4
1961 3,886.8
1962 3,926.7
1963 3,944.0
1964 3,969.9
1965 3,996.9
1966 4,040.5
1967 4,113.8
1968 4,174.8
1969 4,216.3
1970 4,241.5
1971 4,256.2
1972 4,278.7
1973 4,218.8
1974 4,171.9
1975 4,160.7
1976 4,133.7
1977 4,096.1
1978 4,093.2
1979 4,072.0
1980 4,029.0
1981 4,004.1
1982 3,956.3
1983 3,889.3
1984 3,899.3
1985 3,900.1
Source: JX 11.
Households Retail Sales
(1000's)
1,106.0
1,111.2
1,121.2
1,124.8
1,131.7
1,142.7
1,157.7
1,182.3
1,213.7
1,239.6
1,284.5
1,292.4
1,345.9
1,348.4
1,349.6
1,354.4
1,375.4
1,377.2
1,383.0
1,386.8
1,420.4
1,427.9
1,418.0
1,402.3
1,424.6
1,428.8
(000’s of $)
4,979,636
4,778,988
5,222,416 _
5,603,385
5,840,867
6,721,914
7,073,827
7,107,276
7,751,389
7,759,880
7,703,603
8,574,513
9,248,481
10,396,323
11,449,794
11,985,301
13,513,487
13,690,824
16,807,152
19,568,637
19,671,879
21,210,725
21,010,210
21,042,353
21,910,226
24,561,816
Retail Sales
(000’s of $67) CPI
5,614,020
5,333,692
5,764,256
6,110,562
6,287,263
7,113,137
7,277,600
7,107,276
7,438,953
7,067,286
6,623,906
7,068,848
7,381,070
7,810,911
7,752,061
7,435,050
7,925,799
7,543,154
8,601,408
9,001,213
7,970,778
7,786,610
7,267,454
7,051,727
7,042 ,824
7,623,158
88.7
89.6
90.6
91.7
92.9
94.5
97.2
100.0
104.2
109.8
116.3
121.3
125.3
133.1
147.7
161.2
170.5
181.5
195.4
217.4
246.8
272.4
289.1
298.4
311.1
322.2
10. If the newspaper’s PMA is expanded by adding nearby
(and relatively small) Lapeer, Livingston, Monroe, and St. Clair
counties in order to conform to the more widely-used non-
newspaper measure, Primarily Metropolitan Statistical Area
or ‘‘PMSA’’,!3 the importance of the Detroit market becomes
13NX C-1, Appendix I, p. 22. ’7PMSA’’ has apparently replaced SMSA
(Standard Metropolitan Statistical Area) which in the Detroit area con-
sists of Lapeer, Livingston, Macomb, Oakland, St. Clair, and Wayne coun-
ties. NX C-5 4 1B.
l4a
readily apparent. In 1986, the Detroit PMSA ranked fifth in
the nation in both population (4,361,000) and number of
households (1,576,700). The Detroit PMSA also ranked se-
cond nationally in suburban population (those persons living
outside the limits of the city center), trailing only the Los
Angeles-Long Beach metropolitan area. Detroit ranks sixth
in buying income, eighth in households with income over
$5C,000, and sixth in total retail sales.14
11. Historically, the economy of the densely-populated
Detroit metropolitan area has been subject to the vagaries of
the highly cyclical automobile industry, which suffered a severe
depression in 1979. The depression (brought on by a com-
bination of high interest rates, real decline in purchasing power,
and foreign competition) was both deeper and longer than the
recession that hit most other areas of the country. The number
of employees in the Detroit area declined as automobile
workers pulled up stakes and looked elsewhere for work. Per-
sonal income and retail sales also declined and business failure
increased. !5
12. The effects of the 1979-1984 depression on both the
Free Press and News were severe since a newspaper’s cir-
culation and advertising revenue tend to reflect the size of the
underlying market and the level of its economic activity. Local
businesses cut back on advertising linage to the point that
multiple listings were discontinued, and even in the one chosen
paper, a smaller amount was spent on advertising. !”
14NX 203H; AX 1A-1’’0’’, AX 504C.
1SClark 1487-90, Rosse 2687, 2709, Dean 3312; NX C-1, p. 11, Ap-
pendix I, pp. 23-25, NX D, p. F75275, NX 400H-‘‘I’’ 44 18, 19 (Clark),
NX 800 Z-23 to Z-24 4 82 (Rosse), NX 852B.
16Clark 1487-90, Rosse 2674-75, 2704, Nelson 3374-75; IX 4E.
17NX D, pp. F75266-73, NX 848C.
15a
13. Despite urban riots, stagnant population growth, and
uncertainty about the automotive industry, the Detroit news-
paper market has always been regarded by the Free Press
and News as a choice prize:'* Detroit is the nation’s fourth
largest market in terms of overall newspaper circulation, ex-
ceeded only by New York, Chicago, and Los Angeles. In ad-
dition, Detroit has the highest per capita newspaper reader-
ship in the United States, and it is first among the top ten
markets in newspaper penetration of households. '*
3. The History
14. The rivalry between ue r ree Press and the News over
this huge Detroit newspaper market traces back into dim
history.2° The modern phase of the ‘‘Great Detroit Newspaper
War’’2! began in 1960 when the News bought the assets of
the Detroit Times (principally its circulation lists) from Hearst.
As a result of the acquisition, the News gained a substantial
circulation lead over the Free Press.??
15. The News’s lead, however, was vulnerable to the Free
Press's strategic positioning as the morning paper. Not only
did the Free Press have a distributional edge (it is much easier
to deliver a paper before the morning rush hour in contrast
to the congestion problems faced by the afternoon paper) but
the morning paper is also favored by white collar workers who
have time to read before going off to work, and unlike the after-
18See Finding 98.
19AX 570Z-3; IX 22E, IX 373A, IX 462.
20See IX 255E-U.
211X 99C.
22Clark 1446, 1499, Nelson 3340-41; NX 400E 4 12 (Clark), NX 702G,
NX 852F; IX 26Z-76, IX 27A, IX 96A, IX 266C.
16a
noon paper it does not face the stiff competition of television
evening news programs.?%
16. External events also seemed to favor the Free Press.
To illustrate, the 1967 riots had a greater impact on the News
than the Free Press because the News’s basic strength has
always been in the city center itself.* Moreover, the 1968
strike against the two papers hurt the News more than the
Free Press because the News was targeted by the unions as
the main objective of the work stoppage. Most significantly,
the early and mid-1970’s brought life style and economic
changes — inner city decay and flight to the suburbs, more
women entering the job market, and the proliferation of white-
collar service industry jobs — which favored the morning paper
over its afternoon rival.”°
17. The News did not cravenly accept these reversals. In
1973, in what may have been the opening salvo of the latest
and most bitter phase of the great Detroit newspaper war,
the News built a plant in Sterling Heights, Michigan, which
was specifically designed not only to facilitate delivery to its
core readership in the central city, but also to challenge the
Free Press’s strength in servicing suburban and out-state
readers removed from the central city area.”®
23Morton 2191-92, 2274, Clark 1486-87; NX 400E 4 13 (Clark); IX 131E,
IX 255K. The power of the morning franchise is such that under the pro-
posed JOA, which requires the News to relinquish its minority share of
the morning market (see Finding 137), the Free Press will become domi-
nant in circulation. Clark 1477, Morton 2312-14; IX 251A-B, IX 265U.
24Nelson 3417-18, 3420-22; IX 10C.
25Clark 1485-86, 1514-15, Chapman 2086-87, Rosse 2505-06, 25992600;
NX 400E 4 13 (Clark); IX 131E, IX 255L. Because of this trend, most
of the major papers which have closed in the past 10 years have been
afternoon papers. Chapman 1983-84.
26Nelson 3355-58; NX 400F 4 14 (Clark); IX 255M.
17a
18. The News made an even more direct challenge to the
Free Press’s main strength (its morning franchise) in 1976
when it began out-state home delivery and street sales of a
morning edition.?” At the the same time, the News made plans
for the opening in late 1980 of a Lansing, Michigan satellite
plant which would further challenge Free Press out-state and
morning dominance with morning home delivery of an edition
that went to press later than the Free Press’s and thus con-
tained more late-breaking news and final sports scores.29
| ‘19. The ability of the Free Press to counteract these in-
itiatives by moving aggressively against News strength in near-
by circulation zones (the so-called ‘‘PMA’’, ‘‘CZ’’ and
} RTZ’’) was limited by its lack of press capacity for produc-
ing post-midnight papers. To meet this need Knight-Ridder
management in 1976 approved the construction of a new facility
equipped with 36 offset presses. This facility (the Riverfront
Plant) was designed to permit the Free Press to produce a
larger number of late newspapers as well as providing superior
color and graphics. The expenditure for Riverfront — $47
million — was made for the specific purpose of taking the cir-
culation lead away from the News.29
| 20. Simultaneously with the opening of the Riverfront Plant
in 1979, the Free Press signaled its intention of escalating the
intensity of the growing war by adopting some of the tactics
used successfully in Philadelphia where Knight-Ridder had
scored a trumph (after six years of losses) for its papers (The
Inquirer and News) over the rival Bulletin.2° This new level
27Clark 1355-56; NX C-1, Appendix I, p. 3
852F; IX 255M. »P. 3, NX 400F 14 (Clark), NX
*8Clark 1357; NX C-1, appendix I, p. 3, NX 400F
IX 342A.B. p. 3, {14 (Clark), NX 852F;
"NX C-1, appendix I, pp. 15-16, 50-51, NX C-3, Ex. 22.
*°Nelson 3372-74; AX 507B; IX 367A-B.
18a
of competition first appeared in the form of sharp Free Press
discounts in advertising rates,?! and the announcement of an
aggressive circulation plan aimed at gaining 100,000 readers
in five years.*”
21. These competitive moves by both papers came as the
auto industry was going deeper into the depression begun in
1979, and the national economy entered a period of both reces-
sion and inflation which had a particularly sever impact on the
cost of newsprint.*? Revision of postal rates created still ad-
ditional problems for the newspaper in the form of heighten-
ed direct mail competition.** In answer to these external
pressures and the initiatives of the Free Press, the News put
into effect steep circulation price cuts off its already low cover
price and advertising discounts of its own in a determined ef-
fort to gain clear-cut market domination.*°
22. Responding to this challenge, Free Press management
determined that it too would aim for domination at any cost
by discounting advertising rates still further. This —
which originated when operating losses were already apparen
and Detroit was moving still deeper into an economic “omg
sion, represented an explicit rejection by the Free Press o
31Nelson 3372.
32Nelson 3372; NX 852G; IX 35D.
33Clark 1487-89, Chapman 1972-73, Rosse 2485, Nelson 3374-75; mx
C-1, p. 14; IX 211A.
ees 2485-86; NX 700Z-15 4 67 (Morton), NX §00Z-24 to Z-25 4 83
Rosse). ,
4Clark 1383, 1394-96, 1436-37, 1467-68, Rosse 2445, Nelson $368,
3373, 3409-10; NX D, p. 72374, NX 400Z-2 4 60 (Clark), NX 852G; AX
515B: 1X 10C. IX 26C, EX 55A, IX 219, IX 255A-B, “0”, IX oa
; sSClark Nelson 3368, 3373,
1383, 1394-96, 1436-37, 1467-68, Rosse 2445, :
3409-10; NX D, p. 72374, NX 400Z-2 4 60 (Clark), NX 852G; AX 515B;
IX 10C, IX 26C, IX 55A, IX 219, IX 255A-B, O”’, IX 361.
3%6Lawrence 2898-99; NX 852B.
19a
any thought of signaling the News ‘‘to cool it somewhat”’ un-
til the ‘“‘economy turns up.’’37
23. Free Press and Knight-Ridder as well as News and ENA
management believed that the goals of dominance and future
profitability at the cost of near-term earnings were rational
policies given the past history of many union papers which had
not been able to survive as the second paper in metropolitan
area competition.3*
24. As the moves and countermoves described in F indings
20 to 22 were being made, the Free Press and Knight-Ridder
also began to calculate the profits to be realized by aJOA as
an alternative to the bitter fight for dominance which had
developed.*° To that end, peace initiatives in the form of feelers
about the possibilities of a JOA were sent out by both Alvah
Chapman, Knight-Ridder’s CEO, and Peter Clark, ENA’s
CEO. These initiatives came at a time when the Free Press
was completing its second year of operating losses and the
News had just experienced its first.4° At an early meeting be-
tween the two adversaries, it was emphasized that one or both
newspapers needed to continue to show losses in order to
qualify for a JOA, and that with a few more years of such losses
the prospects for a JOA would be ‘‘ironclad’’.4!
87AX 507D; IX 20D. Once the struggle intensified, the Free Press seem-
ed to be impervious to any attempts by the News either ‘‘to coach’’ it
into returning to card rates by intermittent lulls in the severity of the dis-
counts (Clark 1372-73; AX 546B) or to change its ‘‘style of competition’’
by a demonstration of the high cost of continued discounting. Clark 1398.
Clark 1399, 1502-03, Chapman 1854-55, 2141-42, Lawrence 2899-
2900; NX 200M-N 4 30 (Hall).
**Chapman 1854-59, 1862; NX 852J; AX 507A-C, AX 508A-D: IX 14A.
C, IX 16A-C, IX 20A-D, IX 75A-’’0”’.
“Findings 83, 92; Clark 1377-82. See also Nelson 3391-93.
“IX 16B. See also Clark 1379-82, Chapman 2028-30.
20a
25. Negotiations over a JOA continued sporadically during
the period January 1981 to January 1984.‘? Knight-Ridder
representatives at first insisted that it must control and operate
the JOA as well as receiving a near equal split of the profits.**
ENA was not only unprepared to conceded the control point,
but it made counter-proposals for various profit splits in its
favor. The issue of how profits were to be split was never
the subject of serious negotiation, however, because of the
fundamental disagreement over the structure and control of
the JOA.*5 Moreover, the imperfect knowledge each party had
of the actual economic performance of the other was still
another barrier to the success of these early JOA discussions.
Neither Knight-Ridder nor ENA made public disclosure of
financial information for its Detroit newspapers on a stand-
alone basis. As it happens, during the late 1970’s and early
1980’s, officials of Knight-Ridder and the Free Press may have
seriously overestimated the magnitude of the News's losses,
incorrectly assuming them to be on the order of twice those
of the Free Press. There is some evidence that this error,
combined with the knowledge that Knight-Ridder’s financial
resources significantly exceeded those of ENA, encouraged
the Free Press to spend extravagantly during the mid-1980's
in the expectation that the News could ill-afford to meet the
financial challenge and would either be driven from the field
entirely, or would be forced to accept a JOA structured on
‘2Clark 1376-82, Chapman 1878, Nelson 3391-3400; AX 7E-G; IX 66B,
IX 349G-H.
43AX 507A-D; IX 38B, IX 40A-B, IX 65A-C. See also Chapman 188485.
“4Clark 1479-81, Nelson 3398; IX 39A-B, 1X 59A-B, IX 312B-F, IX
341B. :
45Clark 1493-94, Chapman 185-86; NX 400Z-6 to Z-7 4 71 (Clark); AX
515E.
2la
terms favorable to Knight-Ridder.*® Progress toward a JOA
stalled, however, after Chapman proposed to end uncertain-
ties concerning the actual financial circumstances of the two
newspapers by permitting an independent auditor to examine
their books. Clark declined the invitation because although he
believed the News’s financial position to be stronger than the
Free Press’s, he was unwilling to take the competitive risk
of being proven wrong.4?
26. With the breakdown of the Knight-Ridder—ENA negotia-
tions for a JOA, the Free Press (in concern with KnightRidder
corporate executives) began in late 1983 and early 1984 to
develop an even more aggressive and comprehensive long-
range plan for achieving market domination called ‘‘Operation
Tiger’’. The first phase of the plan, ‘‘Tiger I’’, was modeled
after the Knight-Ridder ‘‘Win Plan’ for Philadelphia. The plan-
ning for ‘“Tiger I’’ was completed in May 1984, but the plan
itself was not to be fully implemented before 1986.48
27. The objectives of Tiger I were two-fold: to achieve pro-
fitability through total market dominance (in circulation, adver-
tising, and news and editorial content), *® and if that should fail,
to force the News to accept a JOA on the free Press’s terms.
While Tiger I was essentially a marketing strategy, other in-
“See " awrence 2909-10; AX 504E-F, AX 507A-D, AX 508A-D: IX 61A-
B, IX 96A-B, IX 267’’I:’, IX 315A-C, IX 503A-B. The Knight-Ridder
strategy was described as ‘‘hurt{ing] the News financially [and] putting
them in a position where they would have to accept an agency agreement
UOA] on our terms.’’ AX 508A.
*7AX 515C; IX 70A-B, IX71, IX 312B.
**Chapman 1775-79; AX A, AX 501D, AX 515D; IX 92C-D, IX 96A-H,
IX 99A to Z 146, IX 393A-B.
**AX A, AX 501D; IX 96A-H, IX 99D, IX 161H, IX 275A.
Chapman 2140; AX 515A-F; IX 96A-H, IX 314A-B, IX 393A-B. Knight-
Ridder had pursued similar objectives in philadelphia with its ‘‘Win Plan’’.
IX 364A to Z-41. r:
22a
itiatives included obtaining the physical capacity for turning out
more timely papers, and improving the editorial quality of the
paper with an expanded sports coverage, stronger business
coverage, new suburban and zoned city sections, and a bet-
ter Sunday magazine.*!
28. The cost of this overall plan for market domination was
estimated at $26.78 million.5? The plan assumed that because
of these costs there would be losses in excess of $27 million
for the period 1984 to 1986.5° Tiger I in fact had no specific
target date for profitability.** As it happens, it soon became
apparent to Free Press management that profitability was out
of the question inasmuch as the main battlefield of the Detroit
newspaper had become circulation and advertising discoun-
ting, which would hardly allow for any daily price increases
that might have covered the additional expenses inherent in
the Tiger plan itself and thus put the Free Press into the
black.55
511X 99A to Z-146.
52These costs were for improvements in news and editorial ($7.25
million), promotion ($4.57 million), production ($7.59 million), and circula-
tion ($7.37 million). IX 99L.
53Chopman 1778-79; NX 105; IX 99L. See also IX 394B.
54Chapman 1778-89; IX 99G-H. :
55Clark 1394-95, Chapinan 1776-77, 1866, 1951-55, Lawrence 2840,
2879-80, 3025, 3033, NX 400Z-2 4 60 (Clark); AX 503G-’'I’’, AX 514A-
B; IX 79A, IX 96D, IX 107, IX 116B. See also Finding 99. The only cir-
culation price increase put into effect during Tiger I was a Sunday increase
from 50 cents to 75 cents which was projected to generate $5.5 million
in additional revenue. IX 88D. This increase was originally planned for
September 1984 but was delayed until January 1985 because of uncer-
tainty about the response of the News. Chapman 1953, Lawrence 3012-13.
Although the News eventually followed the increase in March 1985, the
Free Press lost circulation in the interim, and its failure to improve overall
Sunday circulation may still be reflective of the 1985 decision. Hall 1262-64,
Chapman 1954, 1958-59, 2018-19, Lawrence 2957-58; NX 100Z-46 to Z-45
¢ 146 (Chapman).
-—
23a
29. Profits were also out of the question for the News since
its strategy was to keep the pressure on the Free Press with
low circulation and advertising prices that would result in clear
dominance or resumption of the JOA negotiations on terms
favorable to the News.* This strategy was to be pursued even
if it meant that losses were inevitable5’, and even though News
executives believed that the probability of either paper folding
was close to zero.*8
30. Operating losses, which first appeared at the Free Press
in 1979 and the News in 1980, grew as the depression deepen-
ed and the costs of Tiger I (and the News’s own similar in-
itiatives) increased. While some progress was seen at the Free
Press in the form of circulation gains®®, these gains failed to
achieve advertising share-of-field improvement in the face of
sharp discounting by the News.® The overall goal, however,
of dominance was unchanged as revealed in the following Free
Press recapitulation:
The original Tiger concept remains solid — that the
Free Press would seek to gain supremacy in every
single significant category of competition with The
Detroit News and to convert that supremacy to
domination of the Detroit market.®!
31. With the goals of market dominance or a JOA firmly in
mind, Free Press management ordered a reevaluation of the
Clark 1385, 1394-99, 1401-07, 1436-37, Nelson 3369, 3434; NX
400-"’O”’ ¢ 32 (Clark); AX 501H, AX 556; IX 361.
57Clark 1397-99, 1436, Nelson 3368.
58IX 72A; see also Clark 1392-93, 1437.
TX 111B, IX 118C.
°°NX 100 Z-22 to Z-23.4 98 )Chapman); IX 111C-D, IX 118D, IX 150D,
IX 160B, IX 207A.
S1AX A, p. 1.
24a
Tiger initiative in February 1985.®? A reaffirmation of the
market dominance strategy led to Tiger II, an expanded and
more integrated approach which coincided with the reorganiza-
tion of the management team of the Free Press. David
Lawrence was named publisher, and to run the business end
of the paper, Knight-Ridder brought in Robert Hall as General
Manager and Jerry Tilis as President, both veterans of the
successful Philadelphia campaign by Knight-Ridder’s Inquirer
and News to gain dominance over the Bulletin.®
32. Tiger II was to be implemented between 1985 and
1987. The centerpiece of the plan was expansion of the
Riverfront Plant. The expansion, like the original construc-
tion, was primarily intended to improve the Free Press’s ability
to deliver post-midnight papers and thus to make inroads into
the News’s historical lead in the close-in circulation zones.®
operating losses, it was hardly perceived as the last gasp of
an expiring homunculus. On the contrary, it was undertaken
because Free Press and Knight-Ridder executives believed
that many aspects of Tiger I had been successful and that the
goals of dominance and eventual profitability were within reach.
As one senior KnightRidder executive put it, ‘‘[Operation
Tiger] has been a success’’ and ‘‘the project [proposed press
expansion at Riverfront] is crucial to our winning dominance
621X 161D, H. See also Chapman 1925-26, 2140.
63Hall 921, 1144-45, Chapman 1779-81, Lawrence 2821-22; NX 200A-
B 43 (Hall); IX 133, IX 161D, IX 230A.
64AX A. See also IX 342A.
6SHall 955-956, 974, 1103, 1250-51, Clark 1442, Chapman 1782-85,
1787-91, 1816, Nelson 3376-77; AX 501A-B, AX 502E, G, AX 515C-D;
IX 72Z-15, IX 96C, IX 99F, Z-11 to Z-12, IX 126B, K, N-’’O’’, [IX 136B,
IX 150E. Knight-Ridder executives believed that the original Riverfront
Plant construction had been undertaken with inadequate planning,
necessitating the later expansion with its concomitant loss in circulation
momentum during the start-up phase of the new press operations. IX
265)-K.
25a
in one of the nation’s top half-dozen markets.’’®* This view
echoed the sentiments of Free Press management —
If the strategy for making the Detroit Free Press
the dominant newspaper in its market were failing,
there would be no need to consider additional press
capacity for the Free Press. In fact, that strategy—
agreed upon by Knight-Ridder and Free Press
management in the spring of 1984—is working so
well that the Free Press is taxing the capacity of its
riverfront plant to sustain post-midnight production.®?
33. The presentation by Free Press executives to the
Knight-Ridder board in justification of the Riverfront Plant ex-
pansion included various financial scenarios and projections.
These projections did not foresee operating profits until at least
1990 and under some scenarios even later.** Nonetheless, on
March 8, 1985, the Knight-Ridder Board approved a capital
expenditure of $22.3 million for the Riverfront Plant expan-
sion and thereby indicated confidence in the predictions of Free
Press executives that the investment would eventually bring ©
dominance and a profit to Knight-Ridder shareholders.®
According to Chapman —
In late June, we broke ground in Detroit on a $22
million press expansion project due to be completed
in early 1987. This will increase our production
capacity by approximately 25 percent — of signifi-
66AX 501A; See also Hall 958-59, 970, 990, Chapman 2086, IX 354B,
and statement of a Knight-Ridder executive justifying the Riverfront Plant
expansion because ‘‘we believe confidently that we will become dominant’.
Morton 2326.
67AX 502E. See also IX 136B, IX 270A, IX 371A-F. 4
68Hall 1310-11, Chapman 1829-33, 1840; AX 501Z-2 to Z-4; IX 126268
to Z-69.
69AX 501A; IX 141A-B, IX 147B-C.
26a
cant importance in the competitive struggle for
supremacy in Detroit. Circulation growth of the
Detroit Free Press has been encouraging in the past
few years, and we expect this trend to continue. This
investment reaffirms our confidence in our prospects
in the Detroit market and in our newspaper an its
management and employees. We believe the return
to our shareholders from this investrment will be a
good one.”°
Knight-Ridder management gave the following additional
justification for the Riverfront Plant expansion:
The Detroit market—the fifth largest in the U.S.— ,
generates approximately $300 million dollars in total
newspaper revenues, which considering the total
dollars for which we are competing, we believe that
this capital expansion is a wise investment on the
part of the KRN shareholders. Not only are we en-
couraged by the significant growth in circulation but
we are heartened by a recent readership study by
Scarborough, which shows the Free Press in the im-
portant eight-county area gaining more than 11 times
as many. . . readers as did The News, and with even
larger gains on Sunday. More significantly, the Scar-
borough study shows Free Press readers have
stronger demographic profile than readers of the
Detroit News. We are not encouraged by our
operating losses. But we are convinced of two
things: a $300 million dollar newspaper market is a
prize worth fighting for, and KRN overall will con-
tinue to show steady earnings growth while this com-
petitive battle continues.”
707X 354B.
71Morton 2324.
27a
34. Because the Riverfront Plant expansion was not com-
pleted until December 1986, the added capacity deemed so
essential for the confrontation with the News was not even
available to the Free Press until six months after the JOA ap-
plication was filed.72
35. With the completion of the Riverfront Plant expansion,
the Free Press’s printing facilities are generally regarded as
superior to those of the News in terms of reducing waste,
ability to expand the number of operating presses, press
layout, and the quality of its offset equipment.”
36. In addition to the Riverfront Plant expansion, Tiger I]
embraced many other specific initiatives including long-term
growth in circulation, the selection of target advertising ac-
counts for special sales efforts, the development of specific
linage and share of field goals, reorganization of the newsroom,
zoned editions, and major editorial improvements.”4
37. Tiger II set a financial goal of reducing operating losses
by 15% a year but like Tiger I it did not anticipate operating
profits while the plan was being implemented. In short, the
Free Press and Knight-Ridder recognized that the goals of
market dominance or a favorable JOA would involve a long-
term effort and that this effort might entail substantial losses
over an extended period of time, for not only did the plan em-
brace the huge expenditures for the Riverfront Plant expan-
”*Hall 974-75, Chapman 1845-47, 2086; AX 300C 4 5 (Baseman). In the
post-JOA period of declining morale and circulation loss, the new presses
at Riverfront have only been used to provide fill-in capacity while other
presses were out of service for routine maintenance or when there was
a sudden surge in demand, as occurred after the August 1987 air disaster
at Detroit Metro airport. Hall 1102-1107, Lawrence 3006; AX 8E.
"8Clark 1472-75, Neuharth 1550, Nelson 3358-59, 3367; IX 218B, IX
246A-U.
™AX A, AX 504A-Y.
28a
sion, but Tiger II’s ‘‘Program Expense Summary’’ for 1986-
1987 projected that 78 new full-time employees would be need-
ed in order to carry the plan forward. The additional labor and
benefit expenses were estimated at $6.4 million, and the total
costs projected for Tiger II (apart from the Riverside Plant
expansion) were $12.9 million.”
38. Despite the failure of the Free Press to meet specific
circulation and advertising share goals set either by Tiger |
or Tiger II’*, the two Tiger plans brought the Free Press
circulation lead’’, and throughout 1985 and early 1986 the plans
were being defended by Free Press and Knight-Ridder ex-
ecutives as a successful effort that would lead eventually to
dominance.”®
39. At the same time that the Free Press was challenging
the News’s circulation lead with the Tiger plans, ENA was
coming under pressure from dissident shareholders. These
dissidents not only believed that ENA may have been under-
valued but they were growing increasingly disenchanted with
the poor financial performance of the paper as the News
adopted costly countermeasures to the Tiger plans in the form
of circulation and advertising discounting.”® This unrest in turn
attracted the attention of a group of outside investors who
viewed ENA as ripe for a hostile takeover. As part of its ex-
ploratory work, the investors made contact with Knight-Ridder
about the prospects for a Detroit JOA. While Knight-Ridder
representatives refused to have substantive discussions on
75Hall 955, Chapman 2049-52; IX 161Z-21 to Z-23.
76Hall 1157-59, 1238-39, Chapman 1792, 1795, 1853, 2016; IX 224C.
77Hall 958-59, 1043-44, Clark 1436-37; AX 501A; IX 354B.
78Hall 958-59, 1214-15; AX 501A-B, AX 503A-P, AX 504A-Y, AX
505AGG.
79Clark 1444-47; NX 100Z-15 P 85 (Chapman); AX 505A; IX 255B.
29a
the question, they told the outside investors that Knight-Rider
might be interested in pursuing JOA negotiations should these
investors be successful in a take-over attempt.®°
40. In early August 1985, Peter Clark concluded that ENA
could no longer remain a closely-held corporation. He invited
Gannett among other to bid for the company. Allen Neuharth,
Gannett CEO, agreed in principle to the acquisition and
simultaneously contacted Knight-Ridder management to deter-
mine if Knight-Ridder was still interested in forming a JOA.®!
Gannett’s motivation in pursuing the JOA is plainly shown in
an August 1985 internal memorandum:
It appears that the only way this investment could
be self-supporting would be through substantial ear-
nings gains at the Detroit News. Obviously, this
would be very difficult without a JOA.®2
41. In response to the Neuharth initiative, Knight-Ridder
informed Gannett of its continuing interest , an assurance which
Gannett took into account in formulating its final bid for the
ENA stock.* ~
42. Senior officials of Knight-Ridder and Gannett including
Chapman and Neuharth met 16 times between August 1985
and April 1986 to discuss the JOA.®° At these meetings the
parties identified common ground on such issues as duration
of a JOA and publication of the Free Press in the morning and
the News in the evening. There were, however, differences
_ ®NX 400S-T 44 41-43 (Clark).
®'Neuharth 1599, Chapman 1908; AX 7A.
827X 165A.
83Chapman 1908.
®4See AX 558A-F, AX 559A-C, IX 348E-F for evidence that a JOA was
part and parcel of Gannett’s original planning for the ENA acquisition.
8SAX 7A; IX 348B-E.
30a
be resolved. The parties remained apart on issues of struc-
pci and control. Gannett, for example, proposed that the Free
Press just fold its business operations, leaving Gannett to carry
out all production, sales, and distribution functions for both
papers.®* Knight-Ridder, however, was far from willing to con-
cede that it had lost the great Detroit newspaper war. This
is shown in the January 20, 1986, letter and memorandum from
Chapman to Neuhart, the text of which appears in Finding 49.
43. During the JOA negotiations the question was raised
as to which newspaper would be presented as the ‘‘failing
one and the parties considered the possibility of both apply-
ing as failing newspapers.*’
44. The JOA negotiations were advanced by the parties’
recognition that there existed ‘‘an economic window of op-
portunity’’ which might be closed if both papers became
marginally profitable .**
45. The JOA negotiation was also advanced by the Free
Press’s realization that it was not confronted by the deep-
pocketed Gannett rather than the independent ENA.®°
immediately cutting the News’s out-state price from 20 cents
to 15 cents.%
46. As for Gannett, it knew that the news would incur heavy
86AX 513A-D.
87Neuharth 1654-57, Chapman 2098-2106. See also AX 511A; IX 492.
881X 228B. See also Neuharth 1726, 1732-34, AX S81C. Applicants also
believed ‘‘that the political climate is right for a JOA”’. AX 512A. For other
evidence of how the filing of a JOA application influences business deci-
sions, see AX 518E in which a 1986 building expansion is delayed because
“‘the announcement of a construction project by the ‘failing paper will
be at the least misunderstood by many’’.
8Chapman 1499-1903, 1918, Morton 2343; IX 197A.
See Finding 105.
3la
losses for the foreseeable future so long as it had to compete
against Knight-Ridder.®!
47. On April 11, 1986, the Free Press and the News ex-
ecuted a joint newspaper operating agreement while the parent
companies simultaneously signed a cooperation and guaranty
contract.9
48. The JOA was announced jointly by Knight-Ridder and
Gannett on April 14, 1986. They said —
Over a period of more than a quarter century since
this became a two-newspaper city, the Free Press
and The News have fought to a virtual draw.93
4. The Status of the Rivalry at The Time of the
JOA Application.
a. Overview
49. The public announcement that the JOA reflected a ‘‘vir-
tual draw”’ in the Detroit newspaper war came just four months
after Chapman had sent Neuharth the following memorandum
(described by Chapman in the accompanying letter as the ‘‘ra-
*!Neuharth 1617-18, Chapman 1899-1903, Rosse 2810-11; NX 100Z-40
{ 135 (Chapman), NX 300U 4 47 (Neuharth). As a matter of corporate
strategy, Gannett avoids markets where there is direct daily paper com-
petition. Rosse 2731-32. With the notable exception of its long battle with
ENA (and then Gannett) in Detroit, Knight-Ridder has pursued a similar
policy. Chapman 1987; IX 173D, IX 265M.
92NX C-2, Ex. 1.
%8[X 254A. The claim by Chapman (Chapman 1943-44, 2130-31) that the
press release was a sop to the morale of the Free Press staff is contrary
to the evidence. At the highest levels of KnightRidder management, the
view was held that ‘‘The newspapers have fought to a standstill."’ AX
512A.
32a
tionale supporting our position on the market place strengths
of the Free Press compared with the News’’):
Private and Confidential
January 20, 1986
Although both the News and the Free Press operate ina
difficult economic environment that has produced significant
losses over an extended five-year period, an assessment of
the relative strength of the two newspapers leads us to the
firm conclusion that any agency that may be negotiated, reflec-
ting the reality of the marketplace, must result in a 50/50
arrangement. |
The Detroit Free Press is a well-managed newspaper with
a loyal readership base and a prove and continuing capacity
d its reach.
" Whether we go all the way back to the early days of a two-
paper Detroit market or coucentrate on the last few years,
the evidence is clear: the Free Press keeps improving its com-
parative position, and especially among readers who are bet-
ter educated and better off financially.
There have been blips along the way, but the overall trend
is strongly favorable to the Free Press. .
The Free Press has a number of competitive advantages.
They include: 7 |
© We have clear leadership in the critically important
morning field.
e Overall readership of the Free Press continues to
exceed that of the News. .
e There is a high degree of readership duplication, and
among duplicate readers the Free Press is Favored
ignificant margin.
° . <a categories, the Free Press
is the clear-cut favorite.
et
33a
* Circulation trends over a 24-year period show dra-
matic Free Press improvement.
¢ The Free Press has improved advertising share of
field over time.
¢ We are better printed and are recognized by readers
as having better color.
¢ The Free Press has one of the outstanding young
leadership teams in the business.
¢ Our journalistic peers recognize the Free Press as
producing higher quality work.
¢ The Free Press continues to be the innovative leader
in the Detroit field.
¢ Our new presses, in the light of demonstrated
growth potential in the metropolitan area, give us
momentum.
A look at some circulation figures should set the stage
for further consideration of these points. The numbers
below are for the audit year ending March 31, 1985.
Detroit Daily Circulation
Detroit Free Press Detroit News
5-year 5-year
1985 growth 1985 growth
City + RTZ 504,030 38,870 592,056 (111)
AOZ 140,748 752 63,683 26,297
Total 644,778 39,622 655,739 26,186
Detroit Sunday Circulation
Detroit Free Press Detroit News
5-year 5-year
1985 growth 1985 growth
City + RTZ 556,472 61,433 776,739 22,693
AOZ 234,423 17,868 95,280 26,451
790,895 79,301 872,019 49,144
This shows Free Press growth during the 1980-85 period
of 39,622, with almost all of it (38,870) coming in the city Zone
3Aa
plus the RTZ. During the same period the Detroit News daily
growth was 26,186, and it actually grew more than that
(26,451) in the AOZ. In the City Zone plus RTZ, the News
lost 111. On Sunday, as the table shows, the Free Press
outgained the News in the City ZZone plus RTZ by 61,433
to 22,693. Even though the News circulation totals are larger,
we think the figures reflect the Free Press’ increasingly strong
competitive position. That becomes clearer as we examine |
the Free Press advantages listed earlier one by one:
1. Morning dominance. We list this first, becaus~ it’s
most important. As your own figures show, Decroit
increasingly is a morning market. A recent Chris Ur-
ban study (dated March 1985) showed that 60% of
those reading both papers actually read the Free
Press in the morning, with the remaining 40%
reading it later in the day. Only 30% of duplicate
readers actually read the News in the morning, with
the remaining 70% reading it either in the afternoon
or evening. The same study shows that among ‘‘lo-
yal’’ Free Press readers (those reading the Paper
at least four times a week), 68% read it in the
morning. Only ‘‘25% of loyal’’ News readers actually
read the News in the morning. We are holding firm-
ly to the morning franchise.
2. Readership. Surveys continue to show that the Free
Press has greater overall readership. The Urban
study mentioned above shows that 30% of Michigan
adults read the Free Press on an average daily basis,
while the News is read by 28% of Michigan adults
daily. A 1985 Simmons-Scarborough study shows the
Free Press with 1,880,900 readers in Michigan dai-
ly and the News with 1,775,400. On Sunday, accor-
ding to the study, the Free Press lead in readers
is 2,294,300 to 2,186,000.
35a
3. The duplicate factor. The Detroit market is one with
a high duplicate readership. The Urban study shows
that 37% of the average daily audience of the Free
Press also reads the News, while 39% of the average
daily News audience also reads the Free Press.
Among those duplicate readers, the Free Press is
the ‘‘favorite paper’’ of 44% and the News is the
‘favorite paper’’ of 30%. Also among duplicate
readers, 73% are “‘loyal’’ Free Press readers com-
pared to 65% who are “‘loyal’’ News readers. The
survey findings give meaning to a fact that those who
work or have worked at the Free Press are aware
of: To a remarkable extent, Free Press readers
seem to care about it.
. Demographics. The Simmons-Scarborough study
shows the Free Press is the dominant daily paper
among adults in virtually all upscale demographic
categories. The Free Press has more readers than
the News among adults in each occupation category:
white collar, professional/manager, clerical/sales and
blue collar. Between 1978 and 1985 the Detroit-area
ADI* was changed from eight counties to nine coun-
ties. A comparison of market reach for eight original
counties in two Scarborough studies, one for 1978
and one for 1985, shows solid competitive improve-
ment for the Free Press:
Press News Press News
Daily Daily Sunday Sunday
Percentage market 1978 38.1 45.4 38.8 54.1
reached 1985 40.9 43.0 42.9 52.1
College graduates 1978 48.7 44.1 50.5 51.7
1985 52.8 442 534 50.7
* “ADI’’ refers to Area of Dominant Influence, a nine county (Lapeer,
Livingston, Macomb, Monroe, Oakland, Sanilac, St. Clair, Washtenaw and
Wayne) measure of demographics in terms of age, income, and occupa-
tion. NXC, Appendix I, p. 22, NXC-2, § .22; AX 503D. [AL] note]
36a
Household income 1978 47.0 50.8 48.5 57.3
$35,000 and up 1985 47.9 44.6 47.7 54.2
Professionals/ 1978 50.2 45.2 91.2 52.6
managers 1985 49.6 46.2 52.6 51.1
5. Circulation trends. Similarly, comparing circulation
figures from the September 1961 ABC statement,
the year after the News bought the Times, with
September 1985 figures, shows dramatic Free Press
improvement.
City+RTZ Change Total Change
Free Press
Daily 1961 421,276 550,000
a 1985 496,339 + 75,063 634,466 + 84,466
Sunday 1961 407,891 600,014
15 + *154,601
Sunday 1985 532,198 + 124,307 754,6
City+RTZ Change Total Change
Detroit News
Daily 1961 694,252 723,578 723,578
Daily 1985 575,657 —118,595 645,016 —78,562
Sunday 1961 738,811 914,523
Sunday 1985 743,660 — 40,151 837,821 — 76,702
6. Advertising trends. Advertising linage figures mean
less than advertising revenue figures, but only linage
is available. Here, too, there is improvement over
time, Here are 1961-1985 share of field figures for
total advertising linage: ,
Daily Sunday Total
Total
Free Press 1961 37.9% 28.9% 34.5%
Free Press 1985 42.7% 41.1% 41.3%
There have been ups and downs but the trend has been upward.
7. High quality printing/color. We are the daily with full
offset printing, and our printing quality has had an
37a
effect in the marketplace. Despite the News’ heavy
investment in color in recent years, the Urban study
shows that readers perceive us as having the best
color. (Among duplicate readers, for example, 41%
say the Free Press has the best color, and only 19%
say the News has the best color.)
. Quality of Leadership. The Free Press has built an
outstanding leadership team, young but experienc-
ed, bright and energetic. David Lawrence is general-
ly recognized as one of the rising newspaper leaders
in the country. Jerry Tilis and Bob Hall played ma-
jor roles in building a winning operation in Phila-
delphia, and they bring expert metropolitan ex-
perience to their current jobs. Joe Stroud carriers
great respect within Detroit and Michigan and in the
profession generally. Kent Berhard is a seasoned
newsman with strong organizational skills and a com-
mitment to excellence. Pete Pitz in production and
Steve Morris, our new vice president/advertising,
are outstanding talents in their fields. the Free Press
tradition, going back to Al Neuharth’s days there,
is to put out an outstanding product with a lean, ef-
ficient staff. That’s what we’re doing now.
. Recognition by our peers. The Free Press has won
six Pulitzer Prizes (the News two). In four of the
last five years, the Free Press has either won a
Pulitzer Prize (once) or been listed as a runner-up.
In each of the last two years, the Free Press has
won the Michigan Press Association General Ex-
cellence Award, has dominated state AP and UPI
contests, and has won several top national awards.
During recent years the News has won one Pulitzer
Prize, and the people who won it now work for the
Free Press and the Inquirer.
38a
10. The cutting-edge tradition. Even without the circula-
tion lead, the traditional innovator in Detroit jour-
nalism has been the Free Press. A few examples
come quickly to mind: Action line, offset printing,
use of color, Business Monday, the Science/High
Tech section, foreign coverage, the visible accent
on credibility, pricing. Generally, the Free Press ha
led the way; the News has followed.
11. Momentum. Our recent circulation growth has been
concentrated where it counts most, in the metro-
politan Detroit area, while News gains have largely
been outstate. The demand for late papers reached
the point that we decided to invest $22 million in new
press equipment to help satisfy it.
Note: Here’s basic information about surveys mentioned in
this memorandum:
There are several references to a study done by Ur-
ban & Associates for the Free Press, with interview-
ing done in the latter part of 1984 and results de-
livered in March of 1985. There were 3,153 respond-
ents from throughout Michigan. the Simmons-
Scarborough references are to a national study of
56 ADIs dated this year, with 1,428 interviews in
the Detroit ADI. Local sponsors were the Free
Press, the News and the Oakland Press. Also refer-
red to was a 1985 Scarborough Report on the nine-
county Detroit ADI, involving 2,581 respondents.
Sponsors were the Free Press, three TV stations,
14 radio stations, three magazines and three ad agen-
cies. This report was compared to a similar one by
the same organization in 1978.
%AX 506A-G.
39a
50. Chapman’s January 20th memorandum undoubtedly
presents the best case for the viability of the Free Press.*
But since most measures of newspaper rivalry — total cir-
culation, circulation in key geographical zones (‘‘CZ’’, ‘‘RTZ’’,
‘‘PMA’’), linage, readership, demographics, and circulation
revenue — are readily verifiable, there is no basis for assum-
ing that Chapman believed that he could get away with far-
fetched claims that would hoodwink Neuharth.% Altogether,
the January 20th memorandum was a reasonable summary of
the data available at the time.9’ See Findings 51 to 82.
b. Circulation
51. Although total circulation figures do not tell the whole
story of the rivalry between two metropolitan papers (as in-
dicated in Findings 56 to 64, Sunday circulation and circula-
tion in certain key areas or ‘‘zones’’ are particularly impor-
tant to local retail and classified advertisers who wish to reach
the largest possible audience within reasonable travel distance),
nevertheless, the record indicates an overriding concern at
both the Free Press and the News about total circulation
figures. Thus a perceived need to hold or overcome the nar-
row differences in total circulation has played a key role at
both papers in devising marketing strategies, especially in mak-
ing pricing decisions. Both papers believed that if the Free
Press were able to promote itself as the number one daily,
*SChapman 1931, 1933-38.
%See IX 267A and Chapman 1937-38; NX LOON-Q 44 32-35 (Chapman).
It should also be noted that during the JOA negotiations, the parties ex-
changed financial information. Neuharth 1613-14.
97Chapman acknowledged that considering the deep losses at botn papers
and ‘‘since most of the criteria about which most of the outside world looks
at newspapers were very close together. . . a 50/50 profit split would
be appropriate for the Free Press.’’ Chapman 1910-11.
40a
this would not only affect staff morale but would also soon
change advertiser perception of the two papers relative com-
mercial value.%
52. The News’s purchase of the Detroit Times in 1960 gave
it a substantial lead (183,751) over the Free Press in daily =
culation. This lead, however, could not be held for = :
reasons: the former subscribers of the Detroit Times foun
i than the Times; the
that the News was a far different paper Pr
News bore the brunt of a 1967-68 strike and experienced a
greaterx loss than the Free Press as a result of the 1967 —
the New’s lead was vulnerable to the growing preference or
morning newspapers; and at least some attrition was vd
tributable to the success of the Tiger initiatives adopted by
the Free Press.”
ily ci has been fought to
_ By 1976, the daily circulation battle | |
a pe and between 1976 and 1986 when combined dai-
ly circulation of the two papers grew from 1.25 million copies
to over 1.3 million, the Free Press’s share of total daily cir-
culation never fell below 49% as shown in Table 5.
98Hall 994-95, clark 1354, 1356, 1385, 1396, 1436-37, 1504-05, ote
Neuharth 1625-26, Morton 2317-18, 2357-58, Nelson 3434; NX “4 Se
J 425 (Neuharth), NX 400’’0”’, Z-2 44 32, 60 (Clark); IX 134A-B.
i are sold the selling price is
a more pragmatic level, when newspapers sag oh
calculated on the basis of $1200 to $1300 per sub
1580, 1634.
Findings 14, 16; Clark 1500-02; NX 400E-F 4 13 (Clark).
Nae nes
4la
Table 5: Combined Free Press and News Daily
Circulation (1960-1987) And Free
Press Share (%)
(Combined Free Press
and News Circulation) (Free Press Share)
1960* 1,344,986 36.5%
1961 1,109,207 47.4%
1962 1,256,172 42.3%
1963 1,221,972 41.6%
1964 1,219,038 42.1%
1965 1,179,596 41.8%
1966 1,198,163 42.5%
1967 1,236,979 44.1%
1968 1,293,480 45.8%
1969 1,141,485 46.6%
1970 2,201,958 47.9%
1971 1,239,509 47.9%
1972 1,230,759 47.0%
1973 1,269,592 47.4%
1974 1,301,685 47.3%
1975 1,272,044 48.9%
1976 1,250,233 49.8%
1977 1,255,837 49.4%
1978 1,246,558 49.3%
1979 1,245,606 49.3%
1980 1,234,709 49.0%
1981 1,232,450 49.4%
1982 1,247,626 50.0%
1983 1,280,880 49.5%
1984 1,283,070 49.3%
1985 1,300,517 49.6%
1986 1,283,264 49.8%
1987 1,327,698 48.8%
Notes: Daily figures are an average of Monday-Saturday data from 1960
to 1974, and of Monday-Friday data thereafter. When separate
data were reported for different periods within the year, the figure
shown is a weighted average.
“Detroit Times circulation is included in 1960 combined figure.
Source: JX 1.
42a
54. For the six 1.. iths ending March 31, 1986 — the last
period reported before the JOA was announced — the News's
margin had been reduced to slightly more than 5,000'°°, and
there is persuasive evidence that on or about the date of the
announcement of the JOA, the Free Press had all but elimi-
nated the News’s daily circulatie. lead.!®
55. In the last months of 1986 and the first quarter of 1987,
there was a sudden surge in favor of the News which resulted
in a widening of the daily circulation gap. This was fairly predic-
table and is consistent with the history of other JOA’s which
shows that once an agreement is announced it has an adverse
effect on the morale and performance of the designated ‘‘fail-
ing newspaper’’ . 1°? The surge in the News’s daily circulation
is also attributable at least in part to a significant increase in
the News’s competitive vigor following the Gannett acquisi-
tion (as shown by promotions and discounting), which occur-
red at the very time that the Free press was cutting back in
the same areas.!°
56. While the News was not able to hold onto the combined
News—Detroit Times Sunday readership, over the years the
‘ree Press has not done nearly as well in challenging the
News’s Sunday lead as it has in the daily circulation battle.
This is shown in Table 6.
100JX 1. See also IX 262A-B for evidence of News apprehension about
the prospects of losing the circulation lead by the third quarter of 1986.
For other indications of Free Press gains in early 1986, see IX 258.
1017X 270A-B, 1X 272A, IX 303A.
102Hall 1341-42, Clark 1518, Neuharth 1733-34, Chapman 2117-18, Mor-
ton 2312; AX 516A-C, AX 519A-C; IX 236A-D, IX 274D, IX 281A, IX
282B.
103Hfall 1050-52, 1057, 1165; AX 519A-C, AX 529A-C, AX 530A-B, AX
531A, AX 532, AX 539A-C, AX 541A; IX 274B-D. The News also gained
circulation from its cut in the out-state daily price. NX 300J-K 4 27
(Neuharth).
43a
Table 6: Combined Free Press And News Sunday
Circulation (1960-1987) And Free Press
Share (%)
(Combined Free Press
and News Circulation) (Free Press Share)
1960* 1,597,126 32.7%
1961 1,323,291 42.5%
1962 1,511,793 38.8%
1963 1,498,370 37.7%
1964 1,506,163 38.0%
1965 1,478,388 37.5%
1966 1,491,219 37.6%
1967 1,542,653 38.6%
1968 1,582,599 40.1%
1969 1,408,653 41.4%
1970 1,480,484 42.7%
1971 1,508,621 43.0%
1972 1,518,569 44.2%
1973 1,547,149 45.5%
1974 1,569,475 46.0%
1975 1,560,609 47.4%
1976 1,561,415 47.4%
1977 1,533,854 46.6%
1978 1,536,014 46.7%
1979 1,534,646 46.3%
1980 1,534,469 46.4%
1981 1,553,901 46.9%
1982 1,578,060 47.9%
1983 1,625,385 47.7%
1984 1,646,552 47.8%
1985 1,662,914 47.6%
1986 1,583,360 47.3%
1987 1,575,385 46.7%
Note: *Detroit Times Circulation is inclded in 1960 combined figure.
Source: JX 2.
97. The fight for Sunday circulation reflects the importance
of this edition. The Sunday paper not only has the largest cir-
44a
culation and the most editorial material and advertising, but
it is also the edition that is perused the longest by readers.
For all these reasons, advertisers are willing to spend more
for space in the Sunday edition.’
58. Apart from daily and Sunday circulation, newspaper com-
petition is measured by performance in certain key — or
‘‘zones’’ — the Primary Market Area (“PMA Ds od
Zone (‘‘CZ’’), and The Retail Trade Zone ( RTZ ). hese
areas are important because retail and classified a
are most interested in reaching readers who live or work :
the area where the advertisers themselves are located. wd
versely, retailers and classified advertisers are unwilling :
pay as much to have their message delivered to readers -_
are too remote from them to be likely potential customers.
59. As indicated in Finding 9, the Primary Market Area
(‘‘PMA”’) consists of Wayne, Macomb, and Oakland oar
Over 87% of the population of the Detroit metropolitan =
and about 41% of Michigan’s total population resides in :
Detroit PMA. In addition, the Detroit PMA accounts for se
50% of Michigan’s personal income. The three-county
is the area of most importance to local Detroit posrragect =
i.e., those who provide more than 75% of the revenue to
the Free Press and News.'°’
104NX 100L-N 44 27, 31 (Chapman).
105H{all 1040; NX 100Z-13 4 79 (Chapman), NX 200L-M 4 28, (Hall),
NX 300”'1’’-J 425 (Neuharth).
106NX 100S 4 40 (Chapman), NX 700U-V, Z-16 to Z-17 44 32, 69 (Mor-
ton); AX 515A.
107NX C-1, p. 4.
45a
60. Trends within the PMA are the most reliable and im-
portant indicators of circulation strength. '% Although the News
enjoys a lead in daily PMA circulation, at least prior to 1987
there was evidence of a strong trend favorable to the Free
Press. Between 1980 and 1986, the Free Press’s share of
daily PMA circulation increased from 42.7/to 45.7, represen-
ting a gain of 36,000 for the Free Press, and a loss of 22,000
for the News as shown in Table 7.
61. While the Free Press has made gains against the News’s
Sunday lead in the PMA, the News still has a substantial lead
as shown in Table 8.
62. The Detroit City Zone (‘‘CZ’’) consists of the corporate
limits of the city and the immediately adjacent areas in Wayne,
Macomb,and Oakland counties. The Detroit Retail Zone
(“‘RTZ’’) embraces those parts of Wayne, Macomb, and
Oakland not included in the CZ as well as Monroe, Livingston,
and Washtenaw counties, and nearby areas in Canada. Apart
from the PMA, the CZ and RTZ are generally regarded as
the geographic areas tha tropolitan Detroit retailers are
most interested in reaching because this is where most of their
prospective customers live. 1%
63. The CZ and RTZ, which traditionally have been the areas
of News strength,!?° are usually reported together as shown
in Tables 9-10.
18Rosse 2681-82, 2685, 2738, 2814: NX 400V-W q 50 (Clark). A sud-
den increase in the News’s lead in daily PMA circulation for the period
ending March 31, 1987, is attributable to the factors cited in Finding 55.
‘Clark 1463; NX C-1, Appendix I, pp. 26, 28, NX C-5 q1C, NX
100°*O"’-P 4 33 (Chapman), NX 700Z-17 to Z-18 44 70-71 (Morton); IX
126K.
"Nelson 3417-18, 3420-21.
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64. As seen in Table 9, there was a trend favorable to the
Free Press in the CZ and RTZ prior to late 1986 and early
1987. This was confirmed in the following May 1986 assess-
ment made by the News —
1. Free Press suffered losses outstate and
gains in City and RTZ where we suffered
substantial losses.
2. Continuation of this trend will adversely affect
our advertising share of field.
3. Historically, losses in the city remain a very
serious problem.
4. Past history indicates that if we do not reverse
this figure by 9/30 the Free Press could
lead us daily. is
5. Overall, we are suffering a deterioration in the
city and RTZ which has historically been our
strength.!1!
65. The All Other Zone (‘‘AOZ’’) consists of the Michigan
areas not covered by the PMA, CZ, or RTZ. This zone is often
referred to as ‘‘out-state’’ to signify its removal from the
Detroit area. The AOZ is not considered as important as the
PMA, CZ, or RTZ because of the cost of serving it and its
relatively low value to the retail and classified advertisers that
form the backbone of a metropolitan daily.1!2 The Free Press
has consistently held the leadership in the AOZ with almost
twice as many readers as the News.'!*
66. The Free Press’s lower circulation levels in the PMA,
CZ, and RTZ result in lower household penetration rate, still
111TX 262B. See also Hall 1041-42, IX 263A-B. As indicated in Table
10, the favorable trend for the Free Press in the CZ and RTZ even con-
tinued into 1987 for Sunday circulation.
112NX C-1, Appendix I, p. 26, NX 800G 4 7 (Rosse).
113Clark 1386.
95a
another indicator of relative attractiveness. The paper with
the lower penetration rate is considered by many advertisers
as the second and therefore less desirable buy.'"4
67. Newspapers and advertisers also tend to regard home
delivery circulation as more valuable than single copy
(“‘street’’) sales. Bad weather, holidays, and other factors may
adversely affect street sales more than home deliveries. In
addition, advertisers believe that their messages are more like-
ly to be read and used by those taking home delivery. Fur-
thermore, several members of the household typically read
a newspaper delivered to the home whereas a single copy sale
may or may not be taken home. Also, home delivered circula-
tion unlike single copy sales can be directed at specific
demographic groups.'!5 Prior to the announcement of the JOA,
the Free Press had actually taken the lead in CZ and RTZ dai-
ly home delivery, and had showed some progress in Sunday
home delivery as seen in Table 11.
68. The Free Press maintains its huge leadership ‘‘in the
critically important field’’.1!® It is by far Michigan’s largest
morning paper. !!7
69. At least until 1986, the Free Press had higher reader-
ship (total number of readers of each copy), greater circula-
tion among the upscale consumers (in terms of education, oc-
cupation, and income) who are favored by most advertisers,
and was the paper preferred by duplicate readers.118 The
'M4NX C-1, Appendix I, pp. 32-34, NX 100L { 26 (Chapman), NX 700W-
X ¢ 36 (Morton), NX 800Z-44 4 128 (Rosse).
"SNX C-1, Appendix I, pp. 33-34, NX 100P ¢ 34 (Chapman), NX 700X-
Y, Z-20 44 37,75 (Morton), NX 800H 4 7, (Rosse).
116Chapman 1934; AX 506D.
‘N7NX A, p. 62.
'18Hall 979, 1187-88, Morton 2318-19; NX 203H; AX 503D, AX 506D-
E, AX 569F, K; IX 85A-L, IX 119B, IX 237B.
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58a
results for 1986, however, indicate that the Free Press’s _
in demographics is vulnerable to competitive pressures.
c. Circulation and Advertising Revenues
70. Head-to-head competition between two metropolitan
newspapers is also measured by circulation and advertising
revenues. Of the two, advertising revenues, which are deter-
mined on the basis of prices (‘‘rates’’) paid and the eoeagee
(‘‘linage’’) sold, is by far the most important source 0
revenues for both newspapers, accounting for approximately
72% of the Free Press’s total revenues and 81% of the
News’s.}7°
’s cl hown in
71. The Free Press’s circulation revenues (as s
Table 12) exceeded those of the News mainly because “ee
daily price of the Free Press was 5° higher than the price o
the News.
72. While the News’ lead in advertising revenues has —_
eroded since 1963, it still is substantial as seen in Table 13.
The Free Press’ best performance, a 40.6% share in 1983,
was followed by two years of decline, followed in turn by only
a marginal gain in 1986 which still left it below its 1983 share.
N9NK 4K, NX 200Z-5 to Z-6 4 64 (Hall), NX 205A-B, NX 8002-18
q 71 (Rosse).
120NX 100G-H 44 15-16 (Chapman).
121The News’s discounting policy has been a key deterrent to any
substantial advertising gains by the Free Press. See Findings 109-111.
d. Linage
73. In reporting the results of the “‘linage’’ (volume of adver-
tising) competition, newspapers traditionally refer to share of
run of press advertising (‘‘ROP’’) which is printed on the
newspaper’s own presses in contrast to “‘preprints’’ or ‘‘in-
serts’’ prepared by others and merely distributed with the
paper. Competition for advertising linage also frequently refers
to ‘‘full-run’’ advertising which is circulated to all of the
newspaper's readers in contrast to ‘‘part-run’’ advertising
which is only distributed to a portion of the total circulation. !22
Examples of ‘‘part-run’’ advertising are the ads appearing in
a paper's zoned editions, typically news sections of interest
to readers in a limited geographic area. 123
74. The News leads in daily and Sunday total full-run and
full-run ROP linage as shown in Tables 14-15.
'22NX A, p. 28, NX 100] ¢ 21 (Chapman). Full-run advertising produces
85% of the Free Press's advertising revenue, and 87% of the News's
revenue. Part-run advertising produces 7% of the Free Press's advertis-
ing revenues and 3.8% of the New’s revenue. A substantial F ree Press
lead in part-run advertising was erased by the News between 1985 and
1986. JX 22, JX 25. Preprints account for 8% of the Free Press’s revenue
and 14.9% of the New’s total. NX 613A-B.
'?3Hall 930; NX A, p. 28. Zoned editions are used by local merchants
who have targeted a specific geographic area and therefore do not wish
to incur the higher prices charged for reaching the general (‘‘full-run’’)
circulation. NX 100’'I'’-J ¢ 20 (Chapman).
| :
60a 6la
Table 12: Combined Free Press and News Circulation Table 13: Pes wo hla ped a
Revenue (1963-1986) (in thousands of dollars) thousands of dollars) and Free Press
and Free Press Share (%) Share (%)
Combined Free Press . io
eT News Circulation) (Free Press Share) (Combined Advertising
Revenue) Share) Revenue) (Free Press Share)
1963 $61,640 30.2%
1963 $34,546 39.7% 1964 $43,037 29.5%
1964 $23,673 38.9% 1965 $74,498 29.8%
1965 $35,837 39.2% 1966 $82,518 30.2%
1966 $37,169 40.5% 1967 $71,498 30.7%
1967 $34,029 42.6% 1968 $34,894 31.6%
1968 $15,055 45.8% 1969 $90,245 31.6%
1969 $40,841 44.7% 1970 $90,388 30.6%
1970 $43,439 45.0% 1971 $97,525 30.6%
1971 $47,948 48.5% 1972 $111,978 31.3%
1972 $50,869 48.6% 1973 $125,246 32.6%
1973 $50,980 49.1% 1974 $130,935 34.8%
1974 $55,235 49.5% 1975 $135,088 35.6%
1975 $59,502 50.0% 1976 $151,942 36.7%
1976 $67 ,372 49.8% 1977 $172,236 37.1%
1977 $66,796 50.4% 1978 $194,546 37.0%
1978 $66,608 50.3% 1979 $209,928 37.6%
1979 $67,605 51.1% 1980 $207,203 38.1%
1980 $69 ,986 52.8% 1981 $223,991 38.0%
1981 $72,343 53.6% 1982 $217,879 39.7%
1982 $74,204 53.6% 1983 $234,858 40.6%
1983 $75,189 53.3% 1984 $263,146 39.8%
1984 $76,901 53.3% 1985 $291,225 38.5%
1985 $87,923 52.6% 1986 $312,348 38.9%
1986 $89,853 51.1% Note: Data for 1963-1975 are not necessarily consistent from
year to year or between the papers due to possible classification
Note: Data for 1963-1975 are not necessarily consistent from or accounting policy differences or changes.
year to year or between the papers due to possible
classification or accounting policy differences or changes.
Source: JX 12.
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66a
75. As shown in Tables 14-15, there is no indication of any
favorable trend for the Free Press in share of total full-run
or ROP full-run advertising linage. To the contrary, in each
year since 1982 Free Press daily share has declined. Slight
improvement in Free Press share of total Sunday full-run and
Sunday full-run ROP advertising linage in 1985 and 1986 would
appear to be largely a function of how far back the Free Press
was to begin with in the Sunday competition as well as the
loss of some Sunday circulation by the News in the PMA
following the 1985 circulation price increase. !4
76. Competition for linage share between newspapers is also
broken down by kinds of advertising — ‘‘retail’’, ‘‘general’’,
and ‘‘classified’’. ’’ Retail’ is displayed advertising from local
merchants such as department and grocery stores. ’’General’’
(also referred to as ‘‘national’’) is display advertising by na-
tional advertisers who promote their brand name products such
as Cars, cigarettes, and cosmetics on a nationwide basis.
‘‘Classified’’ includes locally placed ads which are listed to-
gether and organized by category such as real estate, employ-
ment opportunities, and auto sales. Classified and retail adver-
tising constitute ‘‘local advertising’’ .!25
77. Classified advertising is especially important to a
newspaper because not only is it a source of revenue, but it
also serves as an important stimulus to circulation. A strong
classified advertising section attracts readers seeking employ-
ment, housing, automobiles and other goods or services. In
addition, classified advertisers typically prefer to place their
124See Finding 103.
125NX A, p. 28, NX 100G 4 14 (Chapman), NX 700S 4 27 (Morton).
67a
message in the newspaper that carries the most classified
advertising. !76
78. A major News strength is in classified advertising as
seen in Table 16.
79. Despite some gains in recent years!2’, Free Press per-
formance in classified advertising has been weak.!2® Miniscule
improvement in Sunday share!2° would seem to be inevitable
considering the large gap between the two papers and is pro-
bably attributable to the News’s loss of circulation following
the 1985 Sunday price increase.!%°
80. The News has the lead in retail advertising. While the
Free Press has shown fairly steady progress in Sunday linage,
daily gains have been sporadic as shown in Table 17.
81. National or ‘‘general’’ advertising accounts for only 10%
of the News’s and Free Press’s advertising linage. There is
some indication that national advertisers may turn eventually
to newspapers as an alternative to network television but no
significant trend in this direction is yet discernible. !*!
82. The Free Press, reflecting its out-state circulation
strength, has fared well in national advertising linage as shown
in Table 18 which indicates that its share of field has exceed-
ed 50% for each year since 1976.
126NX C-1, Appendix I, p. 17, NX 100G-H 4 15 (Chapman), NX 700T-
U 429 (Morton). See also Lawrence 2935; IX 99D-E.
127AX 504G, AX 505B-C; IX 233.
128AX 515E.
1291X 207A.
130See IX 244.
131See Morton 2171.
69a
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70a
e. Financial Condition of the Free Press
83. Prior to 1980, the Free Press was a profitable paper. '*?
Between 1980 and 1986, the Free Press had operating losses
of $56.2 million including the Michigan Single Business Tax
and excluding management fees as shown in Table 19.'%%
84. The Michigan Single Business Tax (MSBT), which is
shown in the sixth column of Table 19, is an annual franchise
fee which is properly included as an operating expense.!**
85. On the question of management fees, the Free Press,
like other Knight-Ridder newspapers, is from time to time
charged a management fee for home office overhead as well
as an array of administrative, personnel, computer, com-
munications, accounting, counseling, support, and legal ser-
vices.!35 Prior to 1982, the management fee was based on
a percentage of the newspaper’s profit. Accordingly, the Free
Press was not charged a management fee in either 1980 or
1981 because it did not earn a profit in those years. No fee
was paid in 1979 although the Free Press earned a small
operating profit then. A charge was made in 1978 and the
preceeding years when the Free Press was profitable. In June
1985, Knight-Ridder determined not to charge management
fees for 1984 and 1985, and the Free Press was told to adjust
132The 1968 losses were attributable to a year-long strike. Chapman
1766; AX 515A. The question of the level and disposition of profits for
the years 1940-1979 as between Knight-Ridder and the Free Press was
not the subject of pre-hearing discovery, nor was this point developed
on the record in any meaningful way. See, e.g., Thibault 343-44, 359,
435-36, IX 385A.
133The Free Press’s current operating budget anticipates the same
operating loss for 1987 as for 1986. See Chapman 1964-65; NX 206A.
14NX C-1, Appendix I, p. 40, NX 500L-M 4 36-37 (Thibault), NX 600)-L
{32 (Kahn).
135NX C-1, Appendix I, p. 47, NX 500M-P 44 39-46 (Thibault).
7la
its books retroactively to reflect this change. In September
1985, however, this decision was reversed and an estimated
management fee was assessed for these two years. But a still
different (and lower) figure was pressed in this proceeding on
the basis of an accounting device (the so-called three-part test)
which KnightRidder and the Free Press had not used for in-
ternal purposes. !36
86. While the services provided for the management fees
have value, and the Free Press would undoubtedly have to
pay for at least some of these services if it were a stand-alone
firm, Applicants did not quantify how much of the manage-
ment fees represents actual value received by the Free Press
or which of these fees the Free Press would have had to in-
cur on a stand-alone basis.'*’ A more stringent accounting of
management fees is required given the record evidence that
this charge contains a substantial degree of discretion. To il-
lustrate, Gannett charges its newspapers no management fees
at all since Neuharth views these services as representative
_ of corporate strength which are more likely to be used (and
thereby improve Gannett corporate performance) if they are
made available at the discretion of the local paper and without
charge. 1°* Moreover, the Free Press’s and Knight-Ridder’s
handling of management fees smacks of slippery accounting
which cautions even further against their use: Knight-Ridder’s
internal accounting system does not report management fees
as operating expenses; Knight-Ridder does not take manage-
ment fees into account in assessing newspaper performance;
136Hall 1003-05, 1014, 1069-74; NX C-1, Appendix I, pp. 47-48, NX
6’'0"’, NX 500’’O”’ 4 44 (Thibault); AX 404A-B; IX 346A-B.
137Thibault 279-81. See also Hall 1004-05.
138Neuharth 1584-88.
72a
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as indicated in Finding 85 a decision to reverse a previous
forgiveness of management fees came about when the JOA
application was clearly part of the picture; and while the
management fee which eventually was put forward in this pro-
ceeding was lower than previous estimates, it was derived
from a methodology which was not even used internally prior
to the filing of the JOA.%9
87. Another challenge to the Free Press’s accounting came
from John Kwoka, an economist retained by the Antitrust Divi-
sion, who claimed that the expenses incurred for the purpose
of improving the Free Press’s long-term competitive position
(namely, the above-average expenditures of the Tiger plan
for 1984-86 which Kwoka’s regression analysis put at $10.3
million'*°) are properly treated as capital expenses (and
depreciated at an annual rate of 60% for purposes of a JOA
analysis.!41 While Kwoka’s approach finds some support in Ap-
plicants’ own perceptions of the significance of huge expen-
ditures in the Detroit newspaper war — they are considered
‘‘investments’’ to be returned in future profits! — the ad-
justments he advocated would not only be an extreme depar-
ture from any accepted accounting norm for evaluating cur-
rent operations, but they would only have the effect of reduc-
139Hall 1070-74, 1284-88, Chapman 1949-50. It should also be noted
that in reporting management fees as part of the JOA process, they have
been moved from below the line (a non-operating expense) on the applica-
tion filed with the Attorney General to above the line (an operating ex-
pense) in post-application exhibits. Hall 1017-18.
140K woka 3071; AX 200S-T 44 38-39 (Kwoka).
141K woka 3055-56, 3134; Ax 200A to Z5 44 1-60 (Kwoka).
142K woka’s analysis also finds additional support in the notion that cir-
culation obtained through a corporate acquisition (as in the case of the
News’s acquisition of the Detroit Times) is amortized in contrast to cir-
culation ‘‘acquired’’ by promotional efforts. Thibault 317-18, Kahn 727-31.
79a
ing later period profits or increasing later period losses. 43
Besides, Kwoka’s analysis adds little to the record since even
with the amortization of the Tiger expenses, Free Press
operating losses are nevertheless substantial. '44
88. Questions have also been raised by the Antitrust Divi-
sion and Intervenors about the reliability for purposes of fail-
ing newspaper analysis of the Free Press’s non-operating
expenses'*® and its balance shéet.!4¢ These questions relate
mainly to the treatment of loans and advances from Knight-
Ridder as well as the way that the Free Press’s tax loss car-
ryover was handled. !47
89. In connection with the construction of the Riverfront
Plant, Knight-Ridder loaned $41 million to the Free Press.
The loan was evidenced by an interest-bearing promissory
note. Additional advances increased the principal amount of
the loan to $71 million.!4* In 1985, Knight-Ridder capitalized
the $71 million by removing that amount from the Free Press’s
long ternr liability account and adding it to the Free Press’s
43Thibault 519-24, Kahn 886-87; Kwoka 3112-13, 3140; AX 200C 47
(Kwoka).
4AX 200Z-2 to Z-6 44 54-62 (Kwoka).
'#SWhen non-operating items (mainly interest expense) are added, the
losses of the Free Press for the years 1979-1986 amounted to over $130
million. NX 603A. See, however, Finding 89 for the handling of interest
expense.
46As of December 31, 1981, the balance sheet of the Free Press
reflected a negative shareholder's equity of $106 million. NX 502E, NX
600"’O"’ 4 39 (Kahn), NX 603B.
'47On the question of the amortization of the Riverfront Plant expan-
sion, the Antitrust Division’s retained expert, John Kwoka, concluded that
the period chosen — 25 years — was ‘‘appropriately conservative straight-
line depreciation’’. AX 200Z-1 452 (Kwoka). See also NX 6P-S, NX
100Z-35 ¢ 125 (Chapman), NX 200U-V 4 46 (Hall), NX 500P-Q 44 48-49
(Thibault), NX 600M-N 4 35 (Kahn).
48Hall 1122; NX 502N, NX 827A-C.
80a
paid-in capital account with the result that the equity picture
of the Free Press was dramatically improved.'*® Knight-
Ridder’s purpose was to conceal from the News the size of
the Free Press’s operating losses which could be gauged from
the Free Press’s rapidly decreasing equity as shown in papers
filed with the State of Michigan.'5° In December 1986, ‘‘in
light of the JOA application’, the transaction was reversed’*',
the loan was again shown as a liability on the balance sheet,
and the previously forgiven accrued interest expenses were
restored. 152
90. The tax issue revolves around the treatment of the tax
loss carryover. The losses of the Free Press from 1979 to
date would have enabled the paper for tax purposes to carry
those losses back for three years and to carry them forward
as an offset against net profits for 15 years.'5* The Free
Press’s financial statements specifically prepared for this litiga-
tion do not reflect the potential tax benefit of carrying forward
the losses because the Knight-ridder accountant believes that
it is improper to reflect the value of a future offset against
profits unless the realization of profits is assured beyond a
reasonable doubt.'54 The same accounting firm, however, was
not nearly as inflexible when it came to preparing pre-litigation
internal financial statements. For that purpose, the tax car-
149Thibault 270-72, 361; NX 502N. At the same time the accrued in-
terest charges ($26.4 million) were eliminated retroactive to January 1,
1984. Thibault 361-62, 371-75.
180Thibault 476; AX 405C; see also IX 106E.
1511X 384F. See also Thibault 379.
152Thibault 382-83; NX C-1, Appendix I, pp. 49-50; AX 405A-C; IX
383A-C.
1S3Thibault 421.
154Thibault 417-18, 421, 502-05; NX 828F.
foe ee ered:
8la
ryover was shown as a reduction in Free Press net losses. 155
Even if this bookkeeping discrepancy had been satisfactorily
resolved on the record, which it was not, it would have no
impact whatsoever on the operating losses reported in Table
19.
91. To sum up. The flip flops described in Findings 85-86
and 89-90, suggest that the discretionary aspect of the parent-
subsidiary relationship lends itself to creative bookkeeping
which tends to make the Free Press’s balance sheet and P&L
suspect.!56 But this cautionary note aside, there can be no
15SThibault 404-05, 418-19; IX 374B, IX 389L. The same treatment of
tax losses appeared in the original JOA application. Thibault 399. There
is a related question of whether the tax benefit to Knight-Ridder from Free
Press losses is properly carried on the Free Press’s balance sheet as an
asset or on its P&L as an offset against net losses. Applicant’s argument
that this may only be done if there is a formal tax-sharing agreement bet-
ween parent and subsidiary is flimsy (a written agreement is not required
and may be inferred, see Thibault 397-98, NX 500J-K 4 27 (Thibault);
but given the requirement under NPA that the Free Press should be con-
sidered as a stand-alone entity, resolution of this arcane point of federal
tax — i.e., when tax benefits may be transferred between parent and sub-
sidiary — is not required. It is fair to assume, of course, that any unused
Free Press tax loss carryovers (should they exist) may be taken into an
account by any interested acquirer of the Free Press as an offset against
future profits. Thibault 422. The record evidence, however, on the ques-
tion of potential acquisition is so insubstantial that it is unnecessary to
speculate about the significance which a potential acquirer would attach
to this nebulous asset which, in any event, may already have been used
up by Knight-Ridder. See Finding 123 and Thibault 508, 534.
'S6To illustrate, the equity-debt reversal described in Finding 89 caus-
ed the Free Press balance sheet to show a deficit equity as of December
31, 1986, of $105,735,000. Had the reversal not taken place, the deficit
would have been $8,393,217 — i.e., $105,735,000 less the capital con-
tribution of $70,922,873 and the accrued interest for 1984-86 of
$26,419,000. Moreover, without the reversal, the Free Press’s net losses
(but not operating losses) would also have been substantially lower because
of the elimination of interest expense. Thibault 340, 361-62, 372-75; NX
502E, F, N; IX 383A-C. The use of this sort of discretionary manipula-
tion substantially reduces the reliability of ratios and analyses based on
balance sheets and net losses rather than operating losses alone. See,
e.g., Thibault 277, 339, Kahn 666, 788, 794-76.
82a
serious question that between 1979-1986 the Free Press had
deep operating losses, that it did not generate an adequate
cash flow to cover actual operating expenses!**, that given
its poor financial performance it was unlikely to find funding
elsewhere!*®, and that without advances from Knight-Ridder
(or some other parent) it could not continue as a going con-
cern on a stand-alone basis.'59 On the other hand, its poor
financial performance must be evaluated in the context of a
deliberate Knight-Ridder strategy of striving for future market
dominance and profitability (or a JOA) at the expense of pre-
sent profits.
f. Financial Condition of the News
92. The News’s financial performance between 1980-1986,
as seen in Table 20, was hardly more impressive than the Free
Press’s.
93. The News had an operating profit in 1985 of $667,000.
This was attributed by News executives to a diversion of
management’s attention away from the competitive struggle
while ENA’s stock was ‘‘in play’’ and also to the requirement
in the contract of sale to Gannett that certain minimal finan-
cial goals be met.'*! The record tends to support this odd ex-
157See Table 19.
1S8Thibault 264, 336, 472, 496-97, Kahn 876-79.
159Thibault 263-64, 284, 392, 472-73; NX 500G, X 4419-20, 66
(Thibault), NX 600R-T 44 48-51 (Kahn).
160Thibault 307-08, 310-11, 332-34, 495-96, 529-31, 532-33, 550-51,
553; IX 377A. See also Kahn 654, 676, 722-24, 783-84, 900-01, Chap-
man 2140-43.
161Clark 1357-58; 1360-66; NX 300’’0”’ 4 37 (Neuharth), NX 400 S-T
44 41 -45 (Clark). The 1985 profit may also reflect in part an ENA deci-
sion to drop management fees and the Michigan Single Business Tax from
News operating charges. IX 269A-B.
83a
planation for a firm’s profitability, witness the fact that the
advent of Gannett and the return of the News to the fray has
produced record losses. '®?
94. Not only will the News’s losses in 1987 approximate
those of 1986, but there is no end in sight for such losses so
long as Gannett and Knight-Ridder persist in maintaining pre-
sent pricing policies!®* and do not move to higher prices. !*
The financial condition of the Free Press, summarized in Find-
ing 91, (that is, without funding from its parent, its future as a
viable stand-alone entity is in doubt so long as present condi-
tions persist) applies with near equal force to the News.'®©
Despite its sharp losses, News management never considered
shutting the paper down.
95. In Neuharth’s view the News’s losses represent an in-
vestment which will pay off in future profits either in the form
of market domination or a JOA. This is Neuharth’s ‘‘win/win’”’
strategy. 167
162Cjark 1455-57, Neuharth 1570-72, 1578-79; NX 300J-K 44 26-28,
(Neuharth), NX 400U 4 46 (Clark).
163Clark 1455-56, Neuharth 1539, 1623-24, 1714-15; NX 100Z-40 4 135
(Chapman).
164News, ENA, and Gannett officials believed that circulation and adver-
tising rate increases (presumably increases followed by the Free Press)
would return the News to profitability. Clark 1418-22, Neuharth 1722-23;
AX 558A, E, AX 559A, AX 560A. See also Finding 113.
'65See AX 584 and Neuharth 1624.
166Clark 1387-89.
167Neuharth 1617-18, 1625-27, NX 300L-M 4 31-33 (Neuharth). See
Neuharth 1681-85 for a similar ‘‘investment’’ rationale for the $400 million
pre-tax loss thus far incurred by Gannett’s USA Today.
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B. The Prospects For The Free Press
96. The Attorney General duwected that a record be made
respecting several alternative scenarios — an economic up-
turn in the Detroit market, price increases, cost savings,
market segmentation — which could conceivably return the
Free Press to profitability. The prospects for each of these
conditions are considered in Findings 97 to 121.
1. The Detroit Economy
97. The record presents a mixed picture of how far Detroit
has progressed from the depths of the deep recession of 1979-
1984. By the end of 1984, total employment in the Detroit
metropolitan area had rebounded nearly 6% from its low point
in 1983 and stood at 93.2% of its level in 1979.'®* In 1986,
however, there were still additional setbacks in the auto in-
dustry .'®
98. As for predicting the long-range prospects of Detroit,
the record on this point (consisting of whatever gloomy or
sanguine statistical scrap either side could dredge up but all
unaccompanied by any persuasive expert opinion compelling
a choice in either direction!”°) does little to resolve reserva-
tions about even attempting to litigate over this sort of
guesswork. What the record clearly does show, however, is
that even under the most modest assumptions about the future
of the area, the huge Detroit newspaper market (valued at
over $300 million) is a choice plum. As Free Press planners
put it —
168NX 870A-H. See also 1X 165A.
169NX 100Z-11 ¢ 75 (Chapman), NX 400J q 21 (Clark), NX 700Z-10 to
Z-11 4 59 (Morton).
170Compare IX 211C-D, IX 400C, E-F 44 4, 7 (Young), IX 404AB, IX
405C-P 4 4-29 Johnson), [IX 406A-G, IX 407, IX 408A to Z13, IX 409A-
P, IX 519A to Z-3, with Rosse 2492-96, NX 3A-B, K, NX 700Z-10 to
Z-13 = 4 59-63 (Morton), NX 800Z-29 to Z-30 4 94 (Rosse), NX 868A-
B, NX 872A to Z-12.
87a
THE DETROIT MARKET
Detroit, the nation’s fifth largest market, has already
grown to where many of the so-called ‘‘growth
markets’’ want to be.
For instance:
Population 5th 4.3 million
Households 5th 1.6 million
Effective buying
income 5th $46 billion
Total retail sales 4th $22.8 billion
The suburban Detroit market, with three million
residents, is second only to Los Angeles in popula-
tion. The effective buying power of suburban Detroit
is fourth in the nation at $35 billion.171
2. Increased Revenue
99. Apparently confident that the opening of the Riverfront
Plant would soon give it the circulation lead (and with the ob-
jective of recouping in part the capital outlay for the project)
the daily price of the Free Press was increased from 15* to
20° in 1979. To this day, the News has not followed this price
increase because it fears loss of the circulation lead if the papers
'71AX A, p. K 001791. See also AX 570Z-3 (‘‘the market represents
one of the most promising long turn newspaper ‘turfs’ available’’), and
AX 503B-D, AX 504C, IX 22D-E, IX 51C, IX 96D, IX 161H, IX 255A-B.
Only one larger metropolitan area (Philadelphia) does not now have two
competing newspapers, and several markets smaller than Detroit support
newspaper ccinpetition. AX 1A, AX 2E. The evaluation cited in the text
of this finding followed an assumption ‘‘That the economic climate will re-
main about the same. Though some short-term fluctuation will occur, in
the longer term we anticipate that while the decline probably has bottom-
ed out, we likely won’t see any significant growth in the marketplace for
the foreseeable future.’ AX A, p. K 001793.
88a
sold at the same price.!?2 Other significant prices moves were
as follows:
In 1983 the News raised its out-state price to 20*, matching
the Free Press’s out-state price.'”*
The prospect of increasing losses from Tiger II, apparently
inspired a January 6, 1985, Sunday price increase by the Free
Press from 50* to 75*. The News followed on April 7, 1985.'”4
On March 31, 1986, the News reduced its daily out-state
price from 20¢ to 15*. The Free Press followed the News's
lead on the same date.'”°
On May 18, 1987, the News raised the daily copy price in
the out-state area to 20*. The Free Press followed this lead
on the same day.!76 This increase alone was projected by the
172Clark 1382, 1385, 1504-05, Nelson 3384-87; NX 400G 4 14 (Clark),
NX 852F; [IX 35C, IX 139A. The Free Press’s weekly subscription price
in the CZ and RTZ is $1.90 compared to the News’s $1.65. Clark 1382-83;
NX 6A, NX 200Z-10 4 74 (Hall), NX 800Z-48 ¢ 137 (Rosse); AX 9A; 1X
139A.
173Clark 1353.
174NX C-2, Exhs. 9.a, 9.b, NX 400Z-3 ¢ 62 (Clark). There is evidence
that the Sunday price increase had a tactical component too. By increas-
ing its Sunday price the Free Press wished ‘‘to force the which-paper-to-
buy Sunday issue (based on the assumption fewer people will buy two Sun-
days if the price goes to $1.75).’’ IX 314A. This Sunday price increase
was projected by the Free Press to produce additional revenue of
$5,570,321 (IX 88B) and while it added revenue to the Free Press's bot-
tom line (Lawrence 2939), the drop in overall Sunday circulation of both
papers following the increase reduced the gain in income below the pro-
jected amount. NX A, p. 62; IX 150C, Q, IX 258, IX 302A. See also Chap-
man 1954, IX 155A. It should also be noted that any increase in circula-
tion prices is only partially credited to the newspaper because some of
the added revenue must be passed on to distributors. Hall 1261; IX 46.
\175NX 200, Z-13 ¢ 81 (Hall); AX 503P, AX 555.
176Lawrence 2880; NX 200N 4 31 (Hall).
0 eee
89a
Free Press to reduce its operating loss by over $543,000 for
the balance of 1987.177
100. The daily prices in Detroit (20* for the News and 15¢
for the Free Press) are probably the lowest in the United
States. 178
101. In addition to low cover prices, both papers have dis-
counted sharply to promote circulation. The News despite its
cover price advantage has used discounting more aggressively
in order to maintain its circulation lead.!79
102. While Free Press management has expressed the belief
that it ‘‘can endure and regain more quickly from pricing [in-
creases] than the News’’!®° (and there is some support in the
record for this view since the Free Press has largely main-
tained its nearly equal total daily circulation notwithstanding
its higher price!®") the Antitrust Division and Intervenors did
not seriously challenge the evidence showing that future pro-
fitability could not be accomplished by any additional circula-
177AX 554. See also NX 2002-13 to Z-14 4 81 (Hall).
‘78Neuharth 1687-88, Chapman 1957; AX 2A-E, AX 3A-B, AX 515B,
AX 572C; IX 173C, IX 255Q, IX 461A-B. The 75* charge for the Sunday
papers is also among the nation’s lowest Sunday prices. AX 579D.
179Hall 1164-66, Clark 1383-84, 1395, 1436, 1465-66 Morton 2241-42,
Rosse 2453-54; NX 400Z-2 4 60 (Clark), NX 852G; AX 503G, AX 515B,
AX 529B-C, AX 564B-C, AX 581C; IX 52B, IX 96B, IX 214A, IX 221,
IX 272A-D, IX 312F, IX 342B, IX 355. Interestingly, it is the paper which
is faced with the prospect of entering the ‘‘downward spiral’’ (see Fin-
ding 128) which traditionally has been the heaviest discounter. Morton
2245, Rosse 2455. Circulation discounting is generally frowned upon by
advertisers who feel that it only produces casual readers. Rosse 2455.
See also AX 504N, O.
189AX 503H; see also IX 189, IX 212C, IX 258.
'81See, e.g., Morton 2273, Lawrence 2850; AX 505A-G; IX 212A, IX
272A. Free Press sponsored market research, however, indicates that
actual price sensitivity for both papers is about the same. IX 198Z-15.
90a
tion price increases by either the Free Press or the News
which is not followed by the other. '*?
103. Prior to the Gannett acquisition, the Free Press and
Knight-Ridder had little basis for expecting that ENA would
oblige the Free Press by either following or initiating any ad-
ditional circulation price increases.!83 While a daily price in-
crease was briefly considered by the News in 1985 following
the Sunday increase!*, the Sunday price increase itself was
regarded as a mistake by News’s management since it may
have had the effect of diminishing the News’s lead (in both
daily and Sunday circulation) and thus was contrary to the
News’s overall strategy of seeking domination through low
circulation and advertising prices.!#°
182While the record does not establish the precise demand elasticities
of the Detroit newspaper market, it is clear that any additional unilateral
price increases by either paper would mean the loss of some circulation
which in turn may require still additional promotional expenses including
perhaps discounts off the increased circulation price. A loss of circulation
may in return require a reduction in advertising prices because of the ef-
fect on milline rates. Hall 1261, 1265, Clark 1385, 1433-34, Chapman
1868-89, 1958-59,1962-63,Rosse 2617, 2699-2700, Morton 2355-57,
Lawrence 3024-26, Simon 3240-41, 3243-44, Nelson 3382-84; NX 100Z-43
to Z-46 44 141, 143-48 (Chapman), NX 200Z-10 to Z13 44 75-79, 81 (Hall),
NX 700Z-37 to Z-39 44 102-105 (Morton), NX 800Z-51 to Z-53, 44 144, ;,
146 (Rosse); IX 79A, IX 96D, IX 88B, IX 99Z-33. Of course the best
proof of the lack of Free Press pricing flexibility is shown by its inability
in the face of substantial losses to increase daily prices because of apprehen-
sion over the adverse circulation effect. See, e.g., IX 92A-B.
183Clark 1425-26, Nelson 3368, 3373, 3382-87, 3391; AX 501H, AX
515B-C, AX 556. It is virtually certain that the Free Press would have
followed any News price increase. Hall 1315; AX 504U.
184AX 557A-M; IX 162W.
185Clark 1353-54, 1385, 1394-96, 1436, 1458-63, 1504-05, 1511-13,
Nelson 3401, 3403-05; NX 400Z-3 4 63 (Clark); IX 96B, IX 155A-D.
ee ee ee eee
9la
104. Free Press and K: ~ht-Ridder management had good
reason to anticipate a moie accommodating pricing policy from
Gannett given Gannett’s well-recognized reputation for charg-
ing at least 25* and in may cases 35* for its papers!**. More-
over, Neuharth had predicted that total readership of the two
Detroit papers would continue to increase ‘‘even if, or maybe
especially if, they make it more convenient for the public to
drop a single coin like a quarter into a vending machine rather
than two dimes or a nickel and a dime.’’!87
105. Notwithstanding Free Press expectations and Neu-
harth’s intimations of a price increase, Gannett’s first action
in arriving in Detroit was to lower its price out-state (where
the Free Press is dominant) from 20* to 15*. This shot across
the bow impressed on Knight-Ridder the high cost of head-
to-head competition with Gannett and the desirability of a
JOA. 188
106. Gannett pricing strategy was also motivated by the
realization that any increase in circulation price might jeopar-
dize the JOA by putting the Free Press into the black. !*9
186Hall 1030-31, Neuharth 1689-90, Morton 2182, 2184-85, 2327-29,
2343-44, Lawrence 2875, 3014-15; AX 503N-’’0’’, AX 504F, U-X, AX
505A-B, AX 553A, AX 572C, AX 581A-D; IX 173C, IX 197A. See also
Chapman 1959, 2006-07.
1871X 572D. Neuharth told the Detroit Press club that underpricing their
newspapers is one of the biggest mistakes made by publishers. AX 572C-
D. See also IX 165B.
188Neuharth 1524-25, 1712-13, Chapman 1902-03; AX 503N-P; IX 241,
IX 345A.
1891X 167A, IX 235B. As early as August 1985, Gannett officials were
sensitive to the effect on JOA prospects of any price increase which could
return the Free Press to profitability. Gannett was also concerned that
any pause in News discbunting could move the Free Press into the cir-
culation lead. Neuharth 1687; IX 167A.
92a
107. Neuharth and other Gannett officials testified that
without a JOA they will not raise circulation prices since they
intend to maintain pressure on the Free Press as they seek
market domination.!® This strategy received the endorsement
of Applicants’ retained expert.9! But Gannett officials and re-
tained expert never explained how Gannett can persist in this
strategy in the face of uncontroverted proof that neither the
News nor the Free Press can become profitable so long as
both papers continue current competitive strategies.1% As it
happens, contemporaneous evidence indicates that absent a
JOA Gannett may eventually initiate circulation price increases
as the way to return the News to profitability.'%°
108. In addition to circulation prices, the Detroit newspaper
war has been bitterly fought in the advertising price sector.
Newspapers typically publish their advertising prices in “‘rate
cards’’. These rate cards generally establish different rates
per line for different types of advertising and provide reduced —
rates for larger quantities. In addition, combination rates are
offered for purchases of space in multiple issues or sections
such as daily-Sunday or part-run—full-run combinations.’
'9Neuharth 1617-18, 1738-39, 1748, Nelson 3411-13; NX 300F-G, J-
M, S-T 44 16-18, 26-28, 31, 33, 44-45 (Neuharth). See also IX 256B.
'91Morton 2182.
192See Clark 1355, Neuharth 1687, 1714-15, Chapman 1969-70, Rosse
2385, 2465-67, Nelson 3367-69, 3434-35; NX 100Z-40 q 135 (Chapman).
193AX 557A, AX 558E, AX 559A, AX 560A; IX 165B, IX 169B.
1i9NX 100J-K, M 44 22-23, 28 (Chapman), NX 201A-P, NX 202A-L,
203A-H, NX 837. In addition to consulting rate cards, advertisers are in-
terested in the ‘‘milline rate’’, that is, the cost of reaching a million
households with a line of advertising. NX 100K-L q 25 (Chapman), NX
700V-W 44 33, 34 (Morton). While the News’s milline rates in the PMA
were consistently lower than the Free Press’s (NX 700Z-2 to Z-23
44 77-78 (Morton), NX 800Z-48 to Z-49 4 139 (Rosse), NX 822A-D))
the Free Press rate is lower based on total circulation. AX 534F.
93a
109. Detroit advertising rate cards bear little resemblance
to the actual prices paid. And while the published rates of the
Free Press and the News have increased each year since
19761%°, severe discounting is rampant at both papers to the
point that Detroit newspaper advertising rates are among the
lowest in the nation.!% Discounting of advertising rates has
severely impacted on Free Press and News profits.19”
110. There is no convincing evidence that the Free Press,
without regard to the News’s reaction, could increase its
advertising revenue by adhering to published rates (i.e., by
refusing to discount).'* The record indicates that any attempt
by the Free Press to increase unilaterally the price of adver-
tising would result in still further erosion of its share of linage,
which would give the News additional circulation, a still lower
milline rate in the PMA, and greater attraction as a duplicate
buy. 199
1*5Hall 1092, 1270, Lawrence 3022-23; NX 200Z-14 to Z-15 4 83 (Hall),
NX 617A-B; IX 35D.
'6Clark 1373-74, 1376, 1395, 1467-68, Chapman 1953, 2065, Lawrence
2964, Nelson 3368, 3373; NX 100J-K 4 23 (Chapman), NX 200Z-16 to
Z-17 4 86 (Hall), NX 800Z-48 4 138 (Rosse); AX 503E, AX 504D, AX
534C-F, AX 538A-B, AX 539A, AX 541A, AX 546A-B, AX 581C; IX 164A,
IX 219, [IX 256B, IX 361.
197AX 503E, AX 534A; IX 219.
16Clark 1373, Neuharth 1539, Lawrence 2882-83, Nelson 3434; NX
100Z-48 4 152 (Chapman), NX 200Z-14 to Z-18 44 83-88 (Hall), NX
700Z-20 to Z-23, Z-38 to Z-39 44 76, 78, 104, 105 (Morton), NX 800Z-48
to Z-49, Z-52 to Z-53 {4 138-39, 145-46 (Rosse); AX 546A-B.
1Hall 1272, Chapman 1961-62, Morton 2355-61; NX 100Z-48 4 152
(Chapman), NX 200Z-14 to Z-18 44 83-88 (Hall), NX 400Z-4 to Z-5 4 66
(Clark), NX 700Z-20 to Z-23, 44 76-78 (Morton), NX 800Z-48 to Z-49
{ 139 (Rosse); AX 534F, AX 536A. Similarly, estimates made by the
News's staff showed that the News could not unilaterally adhere to rate
card prices. AX 546A-B. See also Clark 1373-74 for evidence that in the
face of Free Press discounting, the News had to discount in order to hold
on to the linage lead.
94a t
111. It is also clear that at least prior to the Gannett ac-
quisition there was no inclination at the News to give the Free
Press breathing space in the form of a News-initiated cease
fire in the advertising discount phase of the Detroit newspaper
war.2 On the contrary, despite the prospect of deep losses
for each year since 1981, the News resisted any advertising
price increases (in the form of a return to rate card prices)
as part of its strategy of achieving market domination or alter-
natively the negotiation of a favorable JOA.?°! Gannett has thus
far followed a similar policy which has been summarized by
a News executive as ‘‘no thought to have realistic rate card
pricing mow’’ .2°2
112. Free Press executives stated that neither the News
nor the Free Press is likely to initiate an advertising price in-
crease because their pricing flexibility is limited by competi-
tion from other media.?®° This testimony is entitled to no
weight. For despite competition from other media (and the
possibility of some loss of advertising to these competitors
if rates are increased) it is virtually certain that advertising
prices for the combined Free Press and News will increase
if JOA is approved.2 Besides, newspapers outside of Detroit,
which charge much higher advertising rates than the Free
200Clark 1394-96, Nelson 3409-10; NX 400Z-4 to Z-5 { 66 (Clark).
201Hall 986, Clark 1371-74, 1394-96, Nelson 3367-69, 3373, 3409-10.
The News’s strategy can be justified in terms of the positive effects on
the Free Press of an advertising price increase. Free Press executives
estimated that if advertising rates in Detroit were to become consistent
with other markets, this would generate $14 million for the Free Press
and return it to profitability even without a circulation price increase. AX
534A.
2021X 256B. See also Neuharth 1528-30, 1617-18, 1633, 1738-40, IX
274B.
203Hall 1092, 1270, Lawrence 3017.
204See Finding 117.
95a
Press or the News, are flourishing, reflecting generally the
pexception of many advertisers that newspaper advertising
represents a unique method of conveying commercial mes-
sages.?°5 As it happens, Detroit, in contrast to other metro-
politan areas, is characterized by relatively little effective com-
petition from suburban papers which suggests that there is
less not more pressure on Applicant’s advertising rates than
exists elsewhere.?° As for the contention that Gannett has
no incentive to increase advertising prices since it is in a
‘“win/win’’ situation (that is, it will either gain dominance and
future profitability or a JOA on the basis of the Free Press’s
poor financial performance?°’), this argument fails to take
into account the record proof that neither paper can gain pro-
fitability if the JOA is denied and present pricing practices con-
tinue .2%8
113. Contemporaneous evaluations indicate that at higher
circulation and advertising prices, Detroit can sustain two pro-
fitable newspapers. The record shows the following:
2°SNewspapers have generally performed impressively against other
media in recent years. After suffering a sharp decline following the initial
growth of television, newspaper advertising is now growing faster than
either television or radio. See Chapman 1989, 1992-93, Morton 2165-73,
Rosse 2601-02; NX A, pp. 8, 11; AX 578B-C; IX 131E. Many advertisers
favor newspaper advertising because it requires a purchase, it allows for
instantaneous changes in content, and it passes from hand to hand to all
the persons in a household. Morton 2221-23, Lawrence 3021-22: NX 700X
{ 37 (Morton). See also IX 131E.
206Rosse 2597-99; NX 816A-K; AX 509B; IX 22A.
207See Finding 95. See also IX 395A for ENA’s articulation of a similar
policy.
208See finding 107. Note, moreover, that Neuharth ‘‘did not preclude
[an advertising increase] in the normal course of business’. Neuharth 1740.
See also Neuharth 1699-1701, 1705-06, 1709-1722, and IX 170A-H for
evicence that even without a JOA, Gannett may eventually have to move
to higher prices in order to justify the ENA acquisition and to prevent dilu-
tion of corporate earnings with the adverse effect this would have on Gan-
nett common stock.
96a
In September 1982, the Free Press projected profits on the
basis of a circulation price increase alone.?°
In August 1985, Free Press management stated that —
. . . if competitive pricing becomes rational and con-
sistent with other markets around the country the
Free Press would have generated another $14
million in advertising for the year 1985. We would
have been profitable without a circulation price in-
crease.710
In an October 1985 presentation to Knight-Ridder ex-
ecutives, Free Press management sized up the Detroit market
as follows:
We are structuring this process in terms of action
by the News and reaction by the Free Press for two
basic reasons: First, the News is the current unit
leader in our market. Second, one of the prerequi-
sites to returning to profitability — for both
newspapers — is restoring rational pricing in the
market. Within the limits of the law and sensible
business practices, we would hope the News would
adopt more realistic (meaning higher) prices in both
advertising and circulation. Looked at another way,
our reactive posture actually will be a pro-active
strategy.?!!
209AX 514A. On the other hand, Chapman predicted losses of almost
$40 million in the following four years if circulation prices were not in-
creased. AX 514B.
210AX 534A. See also Hall 1091.
211AX 504U. The Free Press calculated that if it increased its daily price
to 25°, it would result in an increase in monthly operating profit of $550,000
while each 5* increase in the price of the News would increase its mon-
thly profit by $575,000. AX 504V. At the same time it was estimated that
a Sunday price increase to $1.00 would result in a monthly increase of
operating profit for the News of $711,000 and $603,000 for the Free Press.
AX 504W.
97a
In March 1986, Free Press management declared ‘‘If you
recast 1985 with the Free Press at 25* daily and $1 Sunday,
our bottomline picture would have improved by $13 million.’’2!2
The same planning document connected profitability to an an-
nual 8% increase in advertising rates.
The five year forecast for the News (drawn up in March
1982 at the height of the auto industry depression) projected
profits of $3.7 million by 1984 if there were circulation and
advertising price increases.?1%
Applicants’ retained expert, John Morton, said in November
1983 that ‘‘Both newspapers in Detroit were profitable until
1980, and both could make money now if circulation prices
were higher’’.214
In 1983, the ENA Vice-President for finance projected from
an economic model that under conditions of ‘‘normalized com-
petition,’’ the Free Press would earn $1.5 million per year
and the News $5 million.?15
In August 1985, Gannett was informed that by increasing
the daily price of the News to 20° it could increase operating
income by nearly $4 million per year and ‘‘put The News in
the black in 1986 with an operating income of $2,171,000"’.?1°
212AX 503G-H. The January 20, 1986, draft budget of the Free Press
projected a sharp reduction in Free Press losses on the basis of a daily
circulation price increase to 25*. Hall 1088, 1318-19; AX 553A. Cancella-
tion of this price increase was estimated to have cost the Free Press $4.3
million. IX 231E-F.
213Clark 1418-22; IX 36A to Z-35. The cost to the News of maintaining
a 15* cover price has been estimated at $7 million a year since 1979. AX
501H.
214Morton 2370-71.
2151X 72H.
2161X 162W. See also IX 165B.
98a
In still another August 1985 assessment (characterized as
“too optimistic’’), Gannett officials projected that if the daily
price increased to 25* in January 1986 and then 35* in January
1987 (with the Sunday paper at $1.00) profits would be $7.2
million in 1986, $21.7 million in 1987, and $26.4 million in
1988.217
114. Beyond the generalizations noted in Finding 113, In-
tervenors and the Antitrust Division presented no economic —
model showing the level of circulation and advertising prices
required to return the Free Press and News to profitability
or how these price increases would impact on demand func-
tions. Since the Free Press is already at 20* for its daily paper,
any revenue it can reasonably anticipate from a daily circula-
tion increase (i.e., to 25*) might not be a guarantee of pro-
fitability.21® Speculation about an additional increase in Sun-
day circulation price seems perilous at best given the poor
consumer reception in 1985 when both papers increased cover
prices from 50* to 75*. Based upon these considerations, it
is fair to assume that if a JOA application is denied the Free
Press and the News will have to consider market strategies
that would allow for an increase in both circulation and adver-
tising prices in order to bring them well into the black.?!9
115. If circulation and advertising prices do not increase,
Detroit cannot sustain two profitable papers as shown in the
financial results reported in Findings 83 and 92 and the
following:
217AX 558A, E. See also AX 559A and AX 560A for similar assessments
in September and December 1985. Free Press management had reached
conclusions which substantially agreed with these News projections. [X
315A-C. a"
218See AX 504V-W, IX 46, IX 99L for the wide range of possible revenue
gain from a circulation increase.
219See Hall 1091, AX 534A, IX 35C.
99a
In a December 1981 assessment which took into account
‘‘the unpredictability of the Detroit News primarily as it relates
to their willingness to incur substantial operating losses through
wholesale discounting to advertisers and through circulation
promotion and pricing policies’’??°, Free Press planners
concluded:
. . . we cannot let our assault on the News’ lead
be anything less than sustained. The sense is more
widespread than ever that the conditions of metro-
politan dailies in general and the Detroit economy
in particular have changed in some basic ways. We
can no longer count on the long-range prosperity of
two 600,000-plus-circulation daily newspapers in this
city. The recent examples of the Washington Star,
the Philadelphia Bulletin, the New York Daily News
are sobering. And economic forecasts indicate the
economy of Detroit and southeastern Michigan is in
for a long and painful readjustment as it struggles
toward diversification while its current base, the auto
industry, sorts out some fundamental changes.??!
In March 1982, the Free Press’s future profitability was
directly linked to increased circulation rates?2?, and in October
of that same year, a Free Press executive concluded that so
long as the News continued its policies (low circulation prices
and advertising rate discounts) ‘‘I do not see how two news-
papers in this market will ever show a profit’ .22%
2201X 26C.
2211X 26Z-77. The same thoughts were expressed in September 1982.
IX 27B. See also Clark 1398-99 for similar views at the News about
Detroit’s inability ‘‘to sustain two major daily
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