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The Honolulu Advertiser
Posted on: Saturday, February 27, 2010

It's not first time Gannett gave up fight

 •  Honolulu newspaper merger would mean name change, layoffs

By Rob Perez
Advertiser Staff Writer

Little Rock all over again?

For some, the impending sale of The Honolulu Advertiser to the owner of its smaller, money-losing rival, The Honolulu Star-Bulletin, has striking similarities to a deal that involved The Advertiser's owner nearly 20 years ago in Little Rock, Ark.

In that 1991 transaction, Gannett, the nation's largest newspaper publisher, stepped away from a years-long war with the rival owner of the other paper in town, leaving both bloodied and bleeding red ink. Gannett sold The Arkansas Gazette to the owner of the Arkansas Democrat and departed the market, leaving Little Rock a one-newspaper town.

"Gannett just got tired of fighting," said media analyst John Morton in Maryland.

Fast forward to today: After a nine-year newspaper war with David Black's Oahu Publications Inc. and an industrywide downturn that prompted The Advertiser to make substantial cuts, temporarily pushing it into red-ink territory, Gannett has reached a deal to sell the newspaper and, like in Little Rock, is aiming to leave the market.

Industry analysts and even Black himself say the transaction likely will result in Honolulu becoming a one-newspaper town.

"The dynamic is very similar," said Max Brantley, who was a political columnist and former assistant managing editor for the Gazette when it was sold to the Democrat's owner.

Another similarity was that the Gazette, like The Advertiser, was a small part of Gannett's extensive holdings nationally, while the Democrat, like the Star-Bulletin, was a larger paper among mostly small holdings of a company run by an entrepreneur or family, according to Walter E. Hussman Jr., publisher of what is now the Arkansas Democrat-Gazette.

In that context, the paper becomes more important to the smaller company and the owner is more willing to fight to keep it going, said Hussman, whose family has run the paper since the 1970s.


But Hussman, Brantley, now editor of the alternative Little Rock weekly Arkansas Times, and others stressed that the Arkansas transaction had some key differences.

While Gannett said The Advertiser is profitable, both papers in the Little Rock fight were losing money, according to Evan Ray, a Gannett executive who worked at the Gazette at the time, and Hussman.

"Both were hemorrhaging millions of dollars," added Brantley, who at the time was involved in an unsuccessful effort by the Gazette's employees to purchase the paper.

Also, unlike The Advertiser, which has a roughly 2-to-1 circulation edge over its rival and is Honolulu's dominant paper, both Arkansas papers were nearly even in circulation in 1991. The Gazette was the dominant paper when Gannett acquired it several years earlier.

"It's just not a real comparable situation," said Ray, who is now a senior vice president for Gannett and came to Honolulu to announce the deal Thursday to The Advertiser Staff.

Oahu Publications made a substantial offer that Gannett accepted, he said. In the Little Rock deal, Gannett initiated the transaction, according to Brantley.

Ray told Advertiser Staff the sale is expected to close in six to eight weeks, pending regulatory approval. As part of an agreement with the U.S. Department of Justice, Black is putting the Star-Bulletin up for sale. But virtually no one expects a buyer to step forward by early April, the announced time line, given the challenges facing the industry.

"I would say only an idiot would buy it," Morton said.

The Star-Bulletin has never made money in the nine years Black has owned it.

"This is not the time to be selling newspapers," added analyst Alan Mutter in California.


If Honolulu joins the ranks of one-newspaper towns, it will be only the latest evidence of a trend that dates back years. Denver and Seattle are among the newer members to the club. Only a handful of metropolitan areas, including New York, Boston, Chicago, Washington, D.C., and San Francisco, still have at least two newspapers, according to Morton.

If Honolulu loses one paper, "it will be kind of a sad ending to what had been a storied competition," he said.

A deal involving the smaller rival acquiring the stronger paper is not without precedent.

"It's not the first time the underdog came out and bought the dominant newspaper," said John Flanagan, a former Star-Bulletin publisher.

A decade ago, the Hearst Corp., owner of the San Francisco Examiner, purchased its stronger rival, the San Francisco Chronicle, and unloaded the Examiner to a family-run company.

The Little Rock example provides some indications of possible outcomes to the Honolulu newspaper drama playing out in the headlines today.

The remaining paper, analysts said, has a better chance of improving its financial condition because of the loss of competition.

In Little Rock, the Democrat-Gazette returned to profitability in about two years and has remained profitable ever since, according to Hussman, the publisher.

But there are clear downsides, including the loss of an editorial voice and of jobs.

Black already has acknowledged that layoffs will occur if no Star-Bulletin buyer is found, which will lead to combining the operations of the two Honolulu dailies. An undetermined number of Advertiser employees are likely to be hired by Black, but many more are expected to lose their jobs.

In Little Rock, close to 700 Gazette workers ended up jobless in 1991, while less than 100 were hired by the rival paper, according to Brantley and Hussman.

Asked what Advertiser employees can expect in the months ahead, Brantley said, "You're cooked. You're toast."