I. Total Advertising Linage (Source: Media Records, an independent advertising measurement firm): II. Total Paid Circulation (Source: Publisher's Statement to the Audit Bureau of Circulation, an independent circulation Although, as the foregoing figures clearly reflect, there has been no significant deterioration in the competitive position of the Post as against the Chronicle, there is included in S. 1410 a provision to the effect that any private foundation owning an independent local newspaper covered by the bill would benefit from the provisions of the bill only as long as such newspaper is operated in accordance with standards of efficiency and profitability prevailing in the newspaper industry in the United States from time to time. Surely such a provision will provide adequate assurance to Congress and protection to the Houston Post. Houston Endowment has established a long, proud and economically significant tradition of charitable endeavors. With retention of the Houston Chronicle (as permitted in S. 1410), this tradition would be strengthened at a time when the federal government has reduced its role, compelling all other enterprises to do more to make the advantages of America available to all. s. 1410 preserves and encourages a constitutionally free, independent local newspaper at no revenue lost to the Government and should be adopted. Senate panel is told why newspaper groups continue to grow in the U.S. Golden Dozen to Baker's Dozen-there are now 13 newspaper groups in the United States that qualify for membership in the millionaires' club (those whose aggregate weekday circulation exceeds one million copies). These 13 groups (or "chains" as they are called in congressional hearings and academic treatises) had ABCcertified weekday sales of 26.268.955 copies and Sunday sales of 27,529,095 as of September 30, 1978 audits. The totals represent about 42 percent of U.S. daily circulation and 50% of Sunday circulation. Group newspapers have been responsible for a large part of the upward surge in Sunday circulation by adding scores of Sunday editions. In this annual compilation based on statistics in the 1979 Editor & Publisher International Year Book, the KnightRidder group holds its place as No: 1 in aggregate circulation with 34 dailies in 25 markets. Gannett became a close second, the merger with Combined Communications Corp. adding two major papers Oakland Tribune and Cincinnati Enquirer-for a total of 80 in 68 markets. Also in the 3-million class. Newhouse Newspapers (29 in 22 markets) was not far behind Gannett nor was the Tribune Company (9 in 9 markets). Acquisition of the Hartford Courant moved Times-Mirror over the 2-million mark. Eleven groups have aggregate weekday circulation of more than 500.000 copies. They are: Pulliam in four markets. Copley in eight markets. Evening News (Detroit) in four markets. Harte-Hanks in 22 markets. Independent (McLean et al) in four markets. Media General in four markets. One aspect of newspaper ownership is attracting greater attention by advocates of legislation to curb monopoly. That is the extent to which the Newspaper Preservation Act of 1971 provides anti-trust exemption in group newspaper business operations. Of the 20 situations where joint arrangements are protected, group owners are partners in 16. Gannett Company recently acquired controlling interest in the printing corporation by switching from the Banner to the Tennessean in Nashville. The four situations where both partners in the joint plant operation are local independents are in Fort Wayne, Ind., Tulsa, Okla., Franklin-Oil City, Pa. and Salt Lake City, Utah. Gannett is a partner with non-group papers in Honolulu, Shreveport, La. and Nashville; with Pulitzer in Tucson and with Scripps-Howard in El Paso. An application for approval of a Gannett-Scripps tieup in Cincinnati has been before the Department of Justice for more than a year. Scripps-Howard is involved in six partnershipsPittsburgh (with Block), Albuquerque (with a non-group owner). Columbus, O. (with a non-group owner), Knoxville. (with non-group owner), Birmingham (with Newhouse) and El Paso (with Gannett). Newhouse and Pulitzer have a joint operation in St. Louis. Hearst and an independent have a joint arrangement in San Francisco. Lee and independents share plants in Madison, Wis. and Lincoln, Neb. Knight Ridder and Cox have a joint arrangement in Miami and Clay operates with an independent in Charleston, W. Va. A review of the Newspaper Preservation Act (originally called the Failing Newspaper Act) would be an item on the agenda of a government commission which Rep. Morris K. Udall of Arizona proposes to study the level of competition in publishing and other industries. Sen. Gary Hart of Colorado and Sen. Larry Pressler of South Dakota are coauthors with Udall of the Competition Review Act authorizing a five-year study. A similar bill, providing for a threeyear study, failed to attract much support in the last Congress. Millionaires' Club Circulation No. of Weekday Sunday markets 3,732,191 4,347,532 25 Group No. of dailies 1. Knight-Ridder 34 80 3,390,136 3,396,253 68 3. Newhouse 29 3,229,320 3,302,888 22 4. Tribune 9 The trend toward group purchases of family-owned independent newspapers continues this year, according to the number of sales reported in E&P. In seven months of this year 38 daily newspapers changed hands and 34 of them have gone into groups. They include five dailies of the Lindsay-Schaub group that went to Lee Enterprises and two Carter Glass properties that joined the Worrell list. So the actual number of groups has declined from 167 in 1978 to 164 this year. A group. by E&P definition, is composed of two or more dailies in different markets under common ownership. "In current transactions three notable family enterprises have been transferred to wide-ranging groups. They are the Buffalo (N.Y.) Courier Express, the Conners family's morning-Sunday paper bought by the Cowies interests of Minneapolis and Des Moines; the Nashville Tennessean, morning-Sunday, which Gannett takes over from the Evans family in a deal which puts the Nashville Banner, evening, into the hands of a local group; and the Hartford (Conn.) Courant, morning-Sunday, for which Times-Mirror Company of California is paying about $105 million to a large number of shareholders. The Courant price, incidentally, tops the amount paid by Capital Cities Communications Inc. for the Kansas City Star and Times-$96 million after divesting two paper-making concerns in 1977. This year's transactions have focused attention on the growth of groups in one state-Florida. The purchase of the Winter Haven News-Chief by Multimedia Corp. left only six dailies out of 41 in local ownership. Multimedia became the 14th "national" group to own a daily newspaper in Florida. Meanwhile, in Washington, the staff of the U.S. Senate (Continued on page 14) Select Committee on Small Business has been considering the question of how much longer a 25.000-circulation daily such as the Salisbury (N.C.) Post might resist tempting offers from a group and remain a family operation. Third-generation publisher James F. Hurley III told his answer to that question in a document which is a part of the thick file of testimony recorded by the committee. In December. the chairman. U.S. Senator Robert Morgan of North Carolina, has promised a full report to the public on what it has learned about the state of the newspaper industry and what could be done by legislation to stem the tide toward concentration of ownership of the free press. Morgan opened the special inquiry declaring that "there appears to be more misinformation than good information." He wanted to know, he said, what is the makeup of the newspaper industry... what is the government position regarding it. how do the chains operate and carry out editorial policy . . . when does concentration of ownership become a true threat to freedom of the press... and what is the state of competition between the newspapers and other communication media. "Many people who wish to start papers are small businessmen and these hearings will better acquaint them with the possibilities and pitfalls." Senator Morgan remarked. "Many small businessmen enter the newspaper business with the intention of selling out to a chain at some point and then retiring. Many do not and wish to pass the paper on to their children but find they cannot." Jim Hurley, whose family has owned the Salisbury Post since 1912. provided the committee with a factual-though hypothetical-case history of two newspapers (Family Times and Family News), one of which was sold to a group. His presentation to the committee follows, in part: Newspaper A (Family Times) has circulation of 25,000 and does a business of $3 million per year. Its advertising rate is $2 per inch and its subscription price is $4 per month. (These figures are very low). Out of its operating revenues, Family Times earns 20 percent or $600,000 before taxes. The owners of the community paper elect to put 10 percent of pre-tax profits into a profit-sharing plan for employes and 5 percent into local charities, etc. Thus the taxable revenue is, about $500,000, half of which is left for the owners. Internal Revenue Service has "strongly recommended" that the company pay half of its net earnings in dividends because it can't prove a need for retaining much more than the allowable $150,000. Family Times, IRS says, is not using its retained earnings to buy other newspapers so it can't justify more than $1 million in retained earnings. Thus only $125.000 is paid in dividends to owners who have other income and find themselves in the 60 percent tax bracket. Therefore, $75,000 of the dividends from the newspaper go to pay federal income taxes, leaving the five owners $50,000 to share. The press. purchased 10 years ago for $500,000; cannot be replaced for $500,000 allowed as depreciation. A new press of the same capacity would cost $2 million. Thus, Family Times must set aside all of its undistributed profits for 12 years merely to replace the press. Meanwhile, Newspaper B (Family News) is located 20 miles down the road. It also has a circulation of 25,000, an advertising rate of $3 per inch, and a subscription price of $4 per month, and annual revenues of $3 million. It has 20 owners, all descendants of the original owner. Ten still live in town, but lú have scattered to various parts of the country. Disgusted with their return of $2,500 in after-tax dividends (50.000 divided by 20), the out-of-town nieces, nephews and cousins demand more money. Family News has its annual 14 continue to grow stockholders meeting and faces three options: 1. It can operate as it always has operated, paying some dividends and investing the remainder in new equipment and in its employes and its community. 2. Tighten up by eliminating any investment in employe benefits (i.e. profit sharing) or the community or in saving its profits for re-investment and thus, pay out all after tax earnings in dividends. This pleases, at least temporarily, the cousins but management realizes it will take its toll in efficiency as each year goes by. 3. Sell the paper for $20 million to Group Communications, Inc. After much heated debate, the stockholders decide on Option 2. Fewer benefits for employes. Little community involvement. No money set aside to replace equipment. Soon Family News realizes it has made a disastrous choice. Employes, not having the advancement opportunities on a single paper they have on a group newspaper, demand more money and security for the same jobs. The community feels the newspaper no longer helps with worthwhile causes and thus the paper loses some key support. Most importantly, Family News' press begins breaking down more and more often. Its production equipment begins to be outmoded. Its profits begin to dip, and Family News must make a huge investment to remain profitable. Since money has not been set aside to replace this equipment, Aunt Susie in San Francisco must come up with an investment of $200,000 or go on a note of that amount as her share to keep the paper profitable. Other stockholders must provide an equal amount. The Family News, whether it decides on Option 3 immediately or delays sale by taking Option 2, sooner or later will get around to Option 3, i.e. selling the paper to Group Communications, Inc. How can Group Communications, Inc., profit by paying $20 million for the Family News? Group Communications, Inc., borrows $20 million to pay to stockholders of Family News. This costs Group Commo $2 million per year in interest. Therefore it is tax deductible if Group Commo can make a before tax profit of $2 million in Family News, which we shall now call Group News. Group Commo, Inc., noting that the advertising and circulation rates are extremely low, raises the advertising rate 50 percent to $3 an inch and the subscription rates to 56 per month. Group News now has an income of $4.5 million versus the old Family News' income of $3 million. (Because of the increase, some customers quit initially but Group Commo finds some efficiencies, so the changes balance out.) Since Group Commo, Inc., does not improve the paper materially, other than through its own expertise, expenses of Group News remain the same as that of the old Family News. As a result, Group News earns $600,000, plus all the increase in revenues brought in by the rate increases. Income becomes $2.1 million before taxes, not $600,000. Group Commo Inc., the parent company, will pay off the principal either out of its 50 other profitable newspapers, the profits over and above the $2 million interest and/or with inflation. Taxes, because of interest expense. are zero. Meanwhile, what happened to the 20 owners? Each received $1 million from the sale. Let's say capital gains cost 25 percent or $250,000 for each of the stockholders. Each one received $750,000 after tax. He invests the money in tax-free bonds at 6 percent. Aunt Susie's income now is $45,000 after each tax year instead of $2,500. Why shouldn't she sell? Group Communications Inc., taking advantage of legislation which saves the company money, operates Group News very efficiently. It may even make improvements because corporate headquarters can supply experts in everything. EDITOR & PUBLISHER for September 1, 1979 |