# Appendix — Michigan Citizens for an Independent Press v. Thornburgh > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0471%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1989 - **Citation:** 490 U.S. 1045 ## Text 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. ° .