The rapid growth of major publishing chains through acquisitions of small, independent newspapers has occurred not because of economies or efficiencies of scale but because of tax laws that encourage the urge to merge, according to a Rand Corp. study.
"In the abscence of alternative economic motivations," say the authors of the report, "we are left with the implication that tax laws are a primary cause of mergers in the newspaper industry."
"If such merger activity is encouraged by tax laws which appear to have little or no economic justification, appropriate government agencies should consider remedial policies," they said in the study released yesterday.
The report, "Newspaper Groups: Economies of Scale, Tax Laws, and Merger Incentives," was financed with a $100,000 grant from the Small Business Administration. Its authors, Dr. James N. Dertouzosv, an economist, and Kenneth E. Thorpe, a doctoral candidate, work at Rand.
Industry officials disagree with the findings. While those questioned about the report agree that high estate taxes have caused some owners to sell their newspapers, they don't see taxes as the only cause of the changing structure of the business.
"They just don't understand the business," said Ken Noble, First Vice President of Paine Webber Mitchell Hutchins in New York, when he was told of the Rand report findings.
In 1910, the report says, only 13 companies owned more than a single newspaper. By 1980, 155 newspaper groups owned over 60 percent of the nation's newspapers which had 70 percent of the total newspaper circulation.
The authors expect more of the same in the future, even though tax incentives were modified somewhat in 1981.
Noble agrees that tax laws encourage mergers and acquisitions in all fields, but said there is another reason newspaper chains buy newspapers and not some other business: "Newspaper people traditionally have felt more comfortable with others newspaper people."
The authors base their conclusions on a computer model of a daily newspaper. Among their findings:
* Groups do not seem to enjoy "pecuniary advantages" over independents in such areas as the cost of newsprint and wages.
* Groups do not show significantly lower marginal costs for the production of circulation, advertising space, and news content.
* Groups have not adopted new technology at a faster pace than independents.
The biggest group or chain is Gannett Co. with 89 newspapers, including USA Today, followed by Knight-Ridder (32), Newhouse (27) and Dow-Jones (20).
Douglas McCorkingdale, senior vice president and Gannett's chief financial officer, disagrees with a number of conclusions of the study which were read to him.
He says that while people sell out because of the threat of estate taxes, it is not the only reason.
John Morton, a newspaper analyst for Lynch, Jones & Ryan, agrees that "the tax laws do encourage concentration in this as well as other industries." But he disagrees that there are no economies of scale. "There are also efficiencies involved in a large newspaper company taking over a small one," he said.