Newspaper Alliance ?Smells Like Acquisition?

Donrey Media Group’s expansion was among the factors that prompted an “alliance” announced Aug. 19 between Community Publishers Inc. and Wehco Media Inc.’s northwest edition of the Arkansas Democrat-Gazette, Wehco president and CEO Walter Hussman said.

The unprecedented deal will deliver each company’s newspapers to the other’s subscribers and combine the companies’ business operations under Wehco’s management. The newsrooms will remain separate, although Hussman indicated that there may be some sharing of editorial content and some coordination of coverage between the former competitors.

CPI and Wehco hope to level the playing field with Donrey’s dominant Morning News of Northwest Arkansas. Hussman said packaging the northwest edition of his Democrat-Gazette with CPI’s Northwest Arkansas Times and Benton County Daily Record, will give the merged operations a daily circulation of more than 30,000, just behind the Morning News’ daily circulation of 35,996.

“It looks and smells more like an acquisition than it does a merger,” said Donrey President Sherman Frederick.

CPI and Wehco’s move is a deafening answer to Donrey’s recent strikes in the Northwest Arkansas newspaper war.

In June, Donrey hired away Democrat-Gazette columnist John Brummett and two other Little Rock staffers; confirmed that the Morning News will start editions in Fayetteville, Springdale, Rogers and Bentonville in September; and announced that the Morning News and its Fort Smith sister, Southwest Times Record, will be redesigned.

Frederick is skeptical of the contract between Wehco and CPI. He wouldn’t say whether Donrey, which is owned by Stephens Group Inc. of Little Rock, would consider legal action to stop the deal. But he thinks there’s more to the alliance than CPI and Wehco have disclosed.

“Well, you know, here’s my advice: You can’t have your cake and eat it too,” he said. “You’re either totally independent or you’re not, and we will see.”

The news-sharing agreement between the newspapers got even muddier on Aug. 27 when the D-G carried a story on the Northwest Arkansas section front under the headline “No plans for change at papers.”

The biggest change, however, wasn’t mentioned in the story. It was the byline, which stated: “Lori Harrison-Stone, Northwest Arkansas Times” and ran alongside the D-G staffer bylines on the page. It appears the D-G will be using the Times and Daily Record stories in its pages as well.

Sowing seeds

Hussman’s Little Rock company joined CPI in a joint bid for the Northwest Arkansas Times in 1995 (see related story), and Hussman said he had once suggested a similar plan for joining forces that “really didn’t go anywhere.”

“So they called us this time … so it was just a continuation of that dialogue,” he said last week.

CPI President Steve Trolinger didn’t return phone calls for comment.

Hussman said CPI was facing a “large capital expenditure” for an expansion, including a new printing facility, and the promise of Donrey’s expansion also loomed.

“[Donrey was] going to proceed with putting out zoned editions in every town up there, all four of the major towns in two counties,” Hussman said. “So [CPI] perceived that probably as a serious competitive threat, and so did we. And so that’s kind of what got the discussions going.”

The Morning News already dominates Springdale and Rogers, with subscribers in 69 percent of households in Springdale and 67 percent of households in Rogers. According to the Audit Bureau of Circulations figures for six-month average circulation ending March 31, the Morning News had a daily circulation of 35,996, the Northwest Arkansas Times had a daily circulation of 14,884, and the Arkansas Democrat-Gazette has a daily circulation of 16,142.

Under the new agreement, Hussman envisions a region in which each newspaper dominates its respective niche. Advertisers who want to cover the entire market, however, might have to advertise with Donrey and Wehco/CPI.

Advertisers who want to place ads in Wehco and CPI newspapers will deal with the companies’ combined advertising sales staff, which Hussman said will be led by the Democrat-Gazette’s advertising director, Jim Blakenship.

Hussman said Times and Daily Record advertising rates will probably remain the same. The Democrat-Gazette’s will likely rise to the level of the Morning News, he said, because of the increase in circulation it will see. The Democrat-Gazette will circulate in twice the markets its CPI sister papers will.

‘Not a JOA’

CPI and Wehco last week emphasized that the deal is not a joint-operating agreement. Joint-operating agreements, or JOAs, are sometimes formed in two-newspaper markets where one newspaper is likely to go out of business. To continue news competition and preserve the failing paper’s editorial voice, the papers agree to share business expenses while keeping newsrooms and editorial pages separate.

While the Wehco/CPI deal resembles such an arrangement, Hussman pointed out that a JOA is only available under the Failing Newspapers Act of 1970, which he said didn’t apply to either company’s newspapers.

A JOA is an exemption to federal antitrust statutes and, as such, much be approved by the U.S. Department of Justice. Wehco and CPI submitted their proposed contract to the Justice Department in June.

“We are aware of it, we evaluated it and decided to take no action,” Justice Department spokeswoman Gina Talamona said.

“I think they thought this merger of our economic interests in Northwest Arkansas was really pro-competitive,” Hussman said. “Instead of one very dominant newspaper in the market — the Morning News — and three weaker newspapers — Benton County Daily Record, Northwest Arkansas Times and the Democrat-Gazette — you would essentially have two fairly strong competitors, almost an equilibrium with each other in circulation.”

In that way, Hussman said, the Wehco/CPI deal is different from the Stephens family’s thwarted attempt to purchase the Northwest Arkansas Times in 1995, which a federal court ruled would violate fair-trade practices by establishing a Stephens monopoly in the area.

The Stephens family, through the Times and the Morning News, would have owned better than 75 percent of the market. Hussman said the Wehco/CPI deal gives the two companies a market share of 45 to 50 percent.

Not convinced

Donrey’s Frederick, meanwhile, isn’t sure the Wehco/CPI deal is everything the two companies claim. Nor is he certain they’ve heard the last of the Department of Justice on the matter.

“I know that the Justice Department does not tell you ‘You’re okay.’ It may have no comment, and the parties can then take that information and presume that that’s okay,” he said.

Hussman said that the Democrat-Gazette and CPI papers may share news and coordinate staffing of routine news events, a level of cooperation that Frederick said the Department of Justice might not be aware of.

“I think [CPI and Wehco] told the Justice Department, from their news release, that the newsrooms are independent. We’re going to see. I mean, you tell me: If somebody’s coordinating news coverage, are they independent or not?” Frederick said.

Meanwhile, he said Donrey will go ahead with its expansion strategies.

“We knew sooner or later that the market would narrow, the only question was who was going to go first, and I think we’re getting ready to get that answer,” he said.

“We’re not trying to be No. 2. We only want to be No. 1. So, consequently, we’re concentrated on that goal. We’d be foolish not to survey the competitive landscape, but we’ve done that. Whether those two newspapers are delivered together or not, really doesn’t fundamentally change [things] … We have to beat both of them.”

The art of the deal

The Wehco/CPI arrangement may not change Donrey’s strategy, but it dramatically alters the balance of power in a newspaper war involving three of the state’s wealthiest families.

CPI, which owns Northwest Arkansas Times and Benton Country Daily Record, is owned by Jim Walton, son of Wal-Mart Stores Inc. founder Sam Walton. Donrey Media Group, which owns the Morning News, is owned by the family of Little Rock financier Jackson Stephens.

The Democrat-Gazette is owned by Little Rock resident Hussman, whose Arkansas Democrat defeated the venerable Arkansas Gazette after a decade-long newspaper war that drained Gannett Corp., the Gazette’s owner in the last five years, of some $100 million.

Major points of the deal, according to CPI and Wehco:

• Subscribers to the Northwest Arkansas Times and the Benton County Daily Record will receive the northwest edition of the Democrat-Gazette with their subscription. Democrat-Gazette subscribers in Fayetteville will receive the Fayetteville-based Times; subscribers in Bentonville and Bella Vista will receive the Bentonville-based Daily Record.

“Eventually, what’s going to happen is the Democrat-Gazette will be taken down to Fayetteville and up to Bentonville or vice versa … the papers will be combined, the carriers will put a rubber band around it,” Hussman said. “So when it gets delivered to the home in Fayetteville, there’ll be a Fayetteville paper and a Democrat-Gazette all around in one rubber band.”

• Each newspaper is responsible for its own editorial content and editorial pages. Advertising, circulation, production, printing and distribution operations have been merged.

According to Hussman, the Democrat-Gazette will manage those business operations. It will collect all revenue and pay all expenses. It will also share profits with CPI.

“The people who are in the press room in Bentonville, or in the press room in Fayetteville, or on the advertising staffs in those towns, they’ll be on the Democrat-Gazette payroll,” Hussman said. “But we will keep an accounting of how we do — how the joint enterprise does — and we will share in the rewards of that with CPI.”

• Both Wehco and CPI have the option to join the other in future newspaper purchases in the 12-county, Northwest Arkansas region. For example, CPI recently purchased the Harrison Daily Times. Hussman said CPI will probably invite Wehco to own the newspaper jointly. Hussman, for the record, said he’s not sure whether Wehco will join CPI in Harrison.

• Existing subscriptions will be honored at existing prices at expiration. New subscribers will pay $29.75 for three months of seven-day delivery. Single copy prices will be 50 cents daily and $1.25 on Sunday.

• Both companies stop short of saying no layoffs will occur, but Hussman pointed out that no one has yet lost his job.

“You know, given the competitive nature of the market up there, I don’t really see where we’re going to need less people,” he said. “We may need people in different positions from where they are now …

“But given Donrey’s announced plans to [produce zoned editions] in all four towns, I seriously doubt we’ll need fewer people,” he said.