Despite the Justice Department's concern over increasing ownership concentration in the newspaper industry, antitrust division chief John H. Shenefield has told a Senate hearing that the government is "not yet prepared to conclude that legislation should be enacted in this extremely sensitive area."
At the same time, he conceded that without such legislation the department virtually will be unable to challenge acquisitions of newspapers by chains, and thereore that the trend toward control of more newspapers by fewer hands is likely to continue.
Shenefield noted that of the 1,753 daily newspapers in this country last year, 1,095 were owned by publishing groups that controlled two or more papers in different cities. The share of newspaper circulation sales garnered by the four top chains increased from 18 percent in 1966 to 21.7 percent in 1977. However, even the largest chain had only 6.3 percent of total daily circulation that year.
In a related news development, Shenefield also disclosed that the department is investigating the proposed Gannett-Combined Communications merger. Gannett Co., which now has 78 daily newspapers, will have 80 if the merger is consummated. The Federal Communications Commission still must act on broadcast licenses involved and Gannett's president, Allen H. Neutharth, told stockholders yesterday that there is "every indication" the agency will approve the transfers.
Neutharth also said the chain is seeking to acquire magazines and book publishing ventures as well as newspapers. Gannett, which has concentrated on acquiring small papers, will now be looking at newspaper opportunities in large cities, he added.
Evidence of the trend toward concentration was presented Thursday on the first day of hearings by the Senate Small Business Committee by New York analyst Ellen Sachar of Paine Webber. Sachar said that 'at the rate individually owned properties have been selling out to chains recently, roughtly 50 per year, it could be argued that there will be no individually owned properties left by the year 1992."
Newspapers are natural takeover candidates, Sachar added, because their pre-tax return on equity is about 21 percent, or three times that of the oil industry. Sen. Larry Presler (R.-S.D.) expressed concern that in 10 years newspapers might be controlled by tycoons who only are interested in profits and don't know anything about newspapers. Pressler wants to limit the number of newspapers a chain can own, much the way the government now restricts the number of broadcasting stations a chain may own.
Experts say another factor that is speeding the disappearance of individually owned papers is the federal estate tax. Newspaper companies currently are selling at about 50 times earnings, or 10 times the average for businesses. For estate purposes, the Internal Revenue Service places the highest market value on a company, with the result that an owner's heirs are often forced to sell the paper to pay taxes.
Sen. Robert Morgan (D-N.C.) has introduced legislation to permit the establishment of trusts for prepayment of estate taxes. At the hearing, Jerry W. Friedheim, executive vice president of the American Newspaper Publishers Association, opposed special legislation for the newspaper industry and called instead for an across-the-board cut in estate taxes.
Friedham argued that the First Amendment prohibits the government from deciding who shall or shall not own newspapers. This viewpoint was refuted by George Washington University law professor Jerome A. Barron, who declared that freedom of the press is meant to protect the content, but not the ownership, of newspapers. "In my opinion," Barron said, "the First Amendment presents no barrier whatever to legislative efforts designed to cope with the problem of concentration of ownership in the media."