Court Weighs Detroit Merger

THE United States Supreme Court is considering a case that could change the face of daily newspapering in the United States. In the first high-court test of the Newspaper Preservation Act of 1970, the justices must decide whether to let two Detroit newspapers merge - in effect creating a joint monopoly - or force them to continue a costly fight for survival.

At stake in this case are billions of dollars in potential profits for the nation's two largest newspaper chains and, quite probably, the future of daily newspaper competition in America, say several legal experts.

For publishers in the 25 cities that still have competing daily newspapers, approval of the Detroit merger ``would provide a road map to monopoly,'' says Stephen Barnett, a law professor at the University of California at Berkely.

The Detroit News is owned by Gannett Newspapers Inc., the nation's largest newspaper chain; the Detroit Free Press is run by Knight-Ridder, Inc., the second largest chain. Each paper has fought the other for a decade, and each has lost millions.

``This is a case that is going to turn on its facts and circumstances, huge losses, a valiant attempt to keep the [Free Press] alive, proper competition - that fits squarely within the statute,'' Stephen Shapiro, a Knight-Ridder lawyer, told the Detroit News early this week.

Ironically, the red ink has gushed in Detroit even though it is the nation's fifth largest newspaper market. Because of the heavy losses, both parent chains, though profitable as a whole, turned to then-US Attorney General Edwin Meese, asking that they be allowed enter into a a joint operating agreement (JOA).

A JOA is an exception to US antitrust laws permissible under the Newspaper Preservation Act of 1970. Newspapers compete head-to-head in just 25 US cities, including New York, San Antonio, Boston, Denver, Chicago and Dallas. Nineteen JOAs join 38 US newspapers.

Under a Detroit JOA, both papers would be keep separate editorial staffs, but merge advertising and business operations. The JOA provides for a 50/50 split in profits over the next 100 years.

In August 1988, Mr. Meese okayed the JOA.

``What's significant about Detroit, is that it's a whole new concept of failure,'' Mr. Barnett says.

Both newspapers have robust circulations in the 500,000 to 600,000 range. But ``both papers are losing money, and the reason is simply that they started a price war,'' Barnett says. ``Two papers in any city can create a price war and request a lucrative JOA.''

``What Congress clearly did not envision was a device for newspapers themselves to eliminate competition,'' says James Ponsoldt, a law professor at the University of Georgia in Athens.

Industry analysts concur that a Supreme Court decision favoring the Detroit JOA would be mimicked elsewhere. ``Of the markets remaining there will clearly be a greater incentive to form a JOA,'' notes Drew Marcus, a publishing industry analyst with Kidder Peabody, a New York brokerage house.

The court must consider two central issues:

Were the lower courts correct in upholding the JOA simply because the US attorney general has the authority under the statute to grant it?

Given the facts in Detroit, was Meese's decision reasonable and consistent with the NPA?

Arguing this week in favor of the merger, US Deputy Solicitor General Thomas Merrill told justices that Meese was ``preserving two or more editorial voices'' and that the Free Press would otherwise fail. William Schultz, attorney for advertisers and citizens opposing the merger, said even Meese acknowledged Detroit could support both papers.

Aftershocks from this decision will be widely felt, close observers say. ``It's much broader than just Detroit,'' says John Kelly, a Michigan state senator who opposes the merger. ``If the court rules in favor of the JOA it's the end of competitive daily newspaper journalism.''