The Justice Department may have stalled an effort by owners of Detroit's two metropolitan dailies to win swift approval of a merger of their printing and commercial operations that their parent companies hoped would convert losses at the newspapers over the last five years into profits.
In a report to Attorney General Edwin Meese III, Assistant Attorney General Douglas H. Ginsburg of the Antitrust Division recommended that hearings be held to determine whether a joint operating agreement (JOA) should be allowed in Detroit under the Newspaper Preservation Act of 1970.
The hearings would be designed to allow Gannett Co. Inc., which owns The Detroit News, and Knight-Ridder Inc., which owns the Detroit Free Press, to prove their argument that the Free Press would fail unless Meese approves the antitrust exemption designed to save dying newspapers.
After studying more than 140,000 pages of documents and interviewing interested parties, Ginsburg and his staff decided that so far the companies do not qualify for the exemption because the Free Press did not appear to be "a newspaper publication which . . . is probably in danger of financial failure."
In his conclusion, Ginsburg said: "Without further evidence that the economic choice facing Knight-Ridder was much bleaker than these objective facts indicate, approval of the application does not appear necessary to prevent the loss of the Free Press as an independent voice."
The JOA would allow the two newspapers, whose cutthroat competition brought Detroit readers and advertisers some of the cheapest rates in the nation, to merge their printing, advertising and circulation departments. Editorial functions would remain separate.
The proposed agreement in Detroit, which would be the biggest and possibly most lucrative of 21 such arrangements in this country, could eventually allow the two companies to split profits of more than $110 million a year for about 95 years, according to several newspaper analysts. The two newspaper companies estimated they lost $63 million over the last five years.
Gannett Chairman Allen H. Neuharth said yesterday that the recommendation for a hearing came as "no surprise" to him, given growing political pressure in Michigan to scrutinize the JOA proposed for the nation's sixth and seventh largest newspapers in terms of circulation.
Detroit Mayor Coleman Young, Reps. John D. Dingell (D-Mich.) and William D. Ford (D-Mich.) were among those calling for a hearing on an agreement that some press analysts believe could bring an untimely end to editorial competition so intense that it has frequently been called "the great newspaper war" in journalism circles.
"We made a factual case, but we didn't jump up and down and get on a soapbox and wave the flag like those who were opposed to it," Neuharth said.
However, he said he believes that the hearing only delays the approval of the agreement by Meese, adding, "It's just a matter of timing."
The report said that the Free Press appeared to be losing money because the company was trying to move from second place in the Detroit market to a position of dominance, not because the paper was slowly dying.
The company's plan, developed in 1984 and nicknamed "Operation Tiger," involved a $22 million printing facility to allow more readers to receive later editions of the paper. The plan also resulted in gains in circulation and advertising revenues for the Free Press last year, the report said.
The Justice Department recommendation noted that despite arguments that the Free Press was failing, at the time the agreement application was announced both company chairmen said that the two newspapers had "fought to a virtual draw."
Executives of the two major newspaper companies also argued that they wanted to bypass a hearing because they believed that any delays would cause increased financial problems for the Detroit papers, especially the Free Press.
The Antitrust Division staff said, however, that Gannett and Knight-Ridder "demonstrated almost unseemly haste" in considering a JOA, even before Gannett had agreed to buy The News last year.
"If the Free Press was indeed in probable danger of financial failure, thus leaving The News as the monopoly newspaper in Detroit, why was Gannett immediately interested in negotiating a JOA upon entering the Detroit market?" Ginsburg asked in the report.
In one section, he seemed to answer the question by referring to a memo last year from Gannett controller Larry Miller to Vice Chairman Douglas McCorkindale. The memo said, "It appears the only way this investment could be self-supporting would be through substantial earnings gains at The Detroit News. Obviously, this would be very difficult without a JOA . . . . "