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A-KEY QUOTATIONS
QUOTES: Detroit exchanges seen as end of emotional attachment to newspapers and distraction from industry problems
By The New York Times
Aug 4, 2005, 11:20

The original version of this story may be found at the New York Times website:

http://www.nytimes.com/2005/08/04/business/media/04paper.html

Published: August 4, 2005

HEADLINE: 2 Huge Publishing Chains Swap Newspapers
 
By katharine Q. Seelye
The New York Times
 
Two media giants swapped newspapers in multiple cities yesterday. The companies, Knight Ridder and Gannett, called the transactions "an exchange of assets."

In one deal, Knight Ridder is giving up its interest in Detroit, selling The Free Press to Gannett. In turn, Gannett, which owns The Detroit News, is selling that paper to the MediaNews Group, headed by Dean Singleton.

In a separate deal, Knight Ridder is acquiring three papers from Gannett: The Idaho Statesman in Boise, The Olympian in Olympia, Wash., and The Bellingham Herald, also in Washington. Gannett is getting The Tallahassee Democrat in Florida, and an undisclosed amount of cash.

Details of the transactions, which are subject to regulatory approval, were not disclosed. Top editors at almost all the papers are being reshuffled.

The biggest papers affected were in Detroit. Like most newspapers, The News and The Free Press have lost circulation, and have also been involved in labor strife and suffered from the decline in the auto industry.

Knight Ridder has wanted out of Detroit for some time, largely because it has been the minority partner in a joint operating agreement with Gannett. "We feel the need to go our own way," Tony Ridder, chief executive of Knight Ridder, said in a statement. The operating agreement gave Gannett three members on the board, while Knight Ridder had two.

"There were things Gannett wanted to do and things Knight Ridder wanted to do," a Knight Ridder spokesman, Polk Laffoon, said. "We decided if we could develop an exit strategy that would leave us whole, it would be a positive thing for both parties."

The Free Press, with a daily circulation of 347,000, has been the Detroit area's dominant paper. The News sold 218,000 copies a day.

"At the end of the day," Mr. Laffoon said, "we did want to exit Detroit, but we wanted to do it in a way that mitigated the circulation loss and come away with an equivalent cash flow, so we were able to negotiate the swap."

While the circulation of the Idaho and Washington papers are less than that of The Free Press, he said, "the cash flow is better."

Asked what Gannett received in the deal, a spokeswoman, Tara Connell, said simply, "Detroit."

Knight Ridder's exit enhances Gannett's dominance there. Not only is it getting the higher-circulation Free Press, but it has renegotiated the joint operating agreement. Where once it split the profit in half with Knight Ridder, Ms. Connell said that Gannett would receive more than 70 percent in the arrangement with MediaNews Group.

Under the old arrangement, The Free Press and The News published jointly on Saturday and Sunday. Under the new one, both papers will still share back-office operations in advertising and circulation but will publish separate papers on Saturday. Perhaps most significantly, The News will leave Sunday, usually the most profitable day of the week, to The Free Press.

In exchange, Gannett is allowing MediaNews to make The News, published primarily in the afternoon, a full-fledged morning paper.

John Morton, a media analyst, said that in Detroit, "Gannett winds up with an overwhelming advantage." Despite the city's problems, he said, it is a big market, and the company can "cross-sell and cross-promote" with the papers it has acquired in suburban Detroit.

Similarly, Gannett wanted to acquire the Tallahassee paper because it fit into what Ms. Connell called its growing hub in Florida.

Mr. Morton said such a swap was highly unusual. While there have been bigger newspaper transactions - Tribune's acquisition of Times Mirror, for instance - he could not recall a deal in which so many papers had been traded.

He found that cause for lament. "This is further evidence," he said, "of how financially driven these companies are. The era of when newspaper companies had an emotional attachment to their properties has really withered away."

Colby Atwood, vice president of Borrell Associates, a media research firm, viewed the swap as an act of desperation. "Elaborate property-swapping deals are kind of a distraction from the main thing that's going on in the industry," he said, "and that's declining readership and declining share of ad revenue.

"People have a relationship with their newspaper, and if they feel that it's just a device that a giant corporation is using to make money, they feel taken advantage of. This doesn't do much to build brand loyalty, and that's what newspapers need more of, not less of."


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