The wave of takeovers that are restructuring the media industry is sweeping through Detroit, where it threatens to end the nation's fiercest newspaper dogfight.
At a time when single newspaper monopolies are the rule in most major cities, Detroit is unique. The city boasts two giant, competitive newspapers, The Detroit News and the Detroit Free Press, each of which sells more than 700,000 daily newspapers, with The News holding a slim 20,000 daily newspaper lead and capturing about 60 percent of the city's newspaper advertising.
But the competition is bleeding both rivals, which have been losing millions of dollars for the last several years as they slashed advertising and circulation rates and improved news operations in an intense struggle to win the coveted and lucrative title of dominant Detroit daily.
Now, if experts in Detroit and on Wall Street are right, a cease fire is just around the corner. Ironically, the truce is expected to emerge not because one newspaper has prevailed, but because the parent of The News, The Evening News Association (ENA), appears likely to be sold soon for more than $600 million. As speculation about a sale increased during the last six months, the price of ENA shares has risen from $250 a share to $1,300.
The ENA board of directors, which announced last week that the company is officially for sale, will meet this Wednesday after its financial adviser, Salomon Brothers Inc., has an opportunity to solicit bids for the company. The only public bid outstanding now is a hostile $1,250-a-share offer, worth $566.3 million, from television producers Norman Lear and Jerry Perenchio. ENA, which repurchased some shares in December for $250 a share, has urged stockholders to reject that offer while Salomon Brothers searches for superior bids.
Wall Street investment bankers say Rosslyn-based Gannett Co. Inc. tops the list of likely buyers for The Detroit News, while CBS Inc. is a likely buyer for Washington, D.C.'s WDVM-TV, Channel 9, ENA's most valuable asset.
Regardless of who ends up with ENA's flagship newspaper, experts believe the new owner will move quickly to try and make The Detroit News profitable by forming a joint operating agreement with Knight-Ridder Newspapers Inc., owner of the Free Press. A joint operating agreement, a special antitrust exemption granted to struggling newspapers that requires federal approval, would improve the profitability of both newspapers significantly by allowing them to combine their business operations, while maintaining separate editorial staffs.
The behind-the-scenes fight for control of ENA has resembled a spy novel recently, with clandestine meetings to leak confidential financial information to bidders and carefully planted rumors that have increased the pressure to sell the company.
Interviews last week with top officials of both Detroit newspapers, major ENA shareholders and Wall Street investment bankers provided an inside look at the newspaper fight and the struggle for control at ENA, the latest major media company to be caught up in 1985's storm of media takeovers.
It is impossible to understand ENA and the mounting pressure that forced the company to put itself up for sale last week without first understanding the Detroit newspaper battle. While ENA is a closely held media company with 330 stockholders that owns a chain of profitable television stations and smaller newspapers, its flagship newspaper, The Detroit News, dominates the emotions and the attention of top management.
The News was founded in 1873 by James E. Scripps, the great-grandfather of ENA Chairman Peter B. Clark. Despite tremendous losses at the newspaper in recent years, Clark and other Scripps descendants vowed to carry on the fight with the Free Press to maintain family ownership of The News. They financed the losses at The News with profits from the company's successful broadcast and publishing operations, which include television stations in Washington, D.C., Mobile, Ala., Tucson, and Austin, Tex., and smaller newspapers in California and New Jersey.
The News is primarily an afternoon newspaper that has survived while other afternoon dailies have perished, partly because Detroit is a city where many people go to work and return home relatively early and, thus, want to read an afternoon newspaper. Recently, The News has hedged its bets on the afternoon market by becoming "an all-day newspaper," with 30 percent of its circulation in the morning and 70 percent in the afternoon.
The editorially conservative News leads the more liberal morning newspaper, The Detroit Free Press, in circulation. Overall circulation figures are close -- The News has a daily circulation of 667,000, which is 20,473 more than the Free Press figure, and its Sunday circulation of 885,000 is 107,000 more than the Sunday circulation of the Free Press. About 20 percent of readers subscribe to both newspapers. The News' lead is larger in the six-county Detroit metropolitan area, the primary market that retail and classified advertisers are interested in reaching, according to News officials.
Free Press officials argue that, even though their newspaper reaches a smaller market, its readers are younger, more affluent, better educated and more likely to respond to ads by buying new products and services.
The competition, which intensified just before the recession in 1979, has kept advertising and circulation rates in Detroit well below the rest of the nation. The News sells in newsstands for 15 cents daily and only recently increased the newsstand price of its Sunday paper from 50 to 75 cents. Significant discounts off these prices are available for home subscribers. The Free Press sells for 20 cents daily and raised its newsstand price from 50 to 75 cents on Sunday in January, about three months before The News. It also offers significant discounts for home delivery. Competition also has pushed down ad rates in Detroit, which are at least 25 percent below the rest of the nation, one Free Press official said. Officials of both newspapers agree that a weaker economy here makes this newspaper fight much tougher than the battles going on in Denver and Dallas.
"Competition like this makes both newspapers better," said Robert Nelson, publisher of The News. "We're the predominant paper in the marketplace and we carry 62 percent of all the ads and bring in 70 percent of ad dollars. We also don't discount our ad rates like the Free Press does. They go out and wheel and deal all over the damn place.
Knight Ridder, owner of Detroit Free Press and The Philadelphia Inquirer, "put The Philadelphia Bulletin out of business. They said 'okay, now we'll go to Detroit.' They must have thought [we] were not going to suffer through the battle. They thought their pockets were bigger than Evening News Association's pockets. 'Our daddy is bigger than your daddy,' or 'I'll wear you down because you'll run out of money before I run out' -- that is their motive, I believe," Nelson said.
Detroit Free Press Publisher David Lawrence and President Jerome Tilis deny the allegations that they have slashed ad rates to try and put The News out of business. They say they have a detailed operational plan, known as "The Tiger Plan," which is designed to make them the dominant newspaper by concentrating on building the Free Press, not destroying The News.
"The competition here is intense, at times it is fierce, and, as a result, people get better newspapers," Lawrence said .
But competition also has produced a lack of trust between the competitors.
If they [Detroit News officials] told me it was Wednesday, I'd go out and buy a calendar," Tilis said. Tilis, who moved to the Free Press in January after quarterbacking a victory for Knight Ridder's Philadelphia Inquirer over The Bulletin, said he thinks a joint operating agreement between the new owner of The News and Knight Ridder is likely to end the Detroit newspaper war.
"I think a joint operating agreement is the most sensible course of action for the new owners of The News to take," Tilis said. He said he could imagine the new owner approaching Knight Ridder and saying, " 'Hey Knight Ridder, what do you say we preserve two great newspapers for the community, consolidate our business operations and turn two losers into two contributors.'
"That just makes a lot of sense," Tilis said. You preserve two separate and distinct editorial voices. . . . Who is not served?"
One group that would not be served well are Detroit advertisers, who would see their newspaper ad rates increase immediately if competition were replaced by the joint operating agreement.
"One of the largest advertisers in town, the president of one of the big supermarkets, called me up and asked what was going to happen with ENA," said Robert Vlasic, chairman of the finance committee of Cranbrook Educational Community, the largest single stockholder in ENA, with 6.5 percent. "I said, 'You know what's going to happen' a joint operating agreement . He said, 'You know what that is going to do to our advertising costs? They are going to go right through the roof.' He said the price of groceries will go up to pay for the advertising."
The Wall Street firm of Bear Stearns estimates that Knight Ridder, which owns 29 daily newspapers, is losing about $9 million a year on the Detriot Free Press, its largest newspaper. Bear Stearns estimates that Knight Ridder would earn a pretax profit of $20 million a year if financial competition were replaced by a joint operating agreement.
According to an employe who was fired for leaking confidential financial information to Lear and Perenchio, The Detroit News lost $8 million, $11 million, $14 million and $8.5 million from 1981 through 1984.
The former ENA employe, Peter Kizer, said the company poured the profits from its broadcast operations into the newspaper battle in Detroit, neglecting needed capital investment in broadcasting. He said The Detroit News was budgeted to lose $11.5 million in 1985, while the broadcast division was expected to generate profits of $32 million.
Some observers believe ENA Chairman Clark's emphasis on winning the newspaper war in Detroit upset some ENA shareholders and led to pressure to sell the company. However, others believe that many of the shareholders, who are Scripps family members who inherited the shares, want to sell the company because they want cash for their shares now, for two reasons: Takeover bids for media companies are reaching new heights, and ENA stock until recently has not been actively traded and was difficult to convert to cash at its fair value if a shareholder needed funds.
"This overheated marketplace with the Capital Cities and ABC merger and the Des Moines Register deal [Gannett agreed to buy Des Moines Register earlier this year for a premium price exceeding expectations] just brought what was going to happen eventually to the surface immediately," said Vlasic, the trustee for 6.5 percent of ENA's shares.
"I think to a substantial degree that Peter Clark and those people who wanted to keep ENA were a victim of the times and the circumstances. Maybe these prices for media companies are unreasonable. But you can't put your head in the sand and forget about it. If it is there, you have to recognize it, and take advantage of it," Vlasic said.
"At this point in time, [ENA Chairman] Peter Clark is front and center stage and everybody is cleared off," said Ralph Booth, a major stockholder in the company who has been trying to encourage Clark to help him form a group to buy ENA. "This company is going to be sold."