Analyst: Profit Concerns Likely Driving Knight Ridder’s Detroit Pullout

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By: Jennifer Saba

Today’s blockbuster announcement that Knight Ridder is pulling out of the Detroit market, has to do with money, speculates John Morton, a leading media analyst. “Knight Ridder has been promising Wall Street it was going to improve its profit margins,” Morton said Wednesday. “One of the biggest drags on that was Detroit.”

As reported on Tuesday by E&P and updated here, Knight Ridder has agreed to sell the Detroit Free Press to Gannett and walk away from the joint operating agreement formed in 1989.

Under the old JOA, profits from the two papers would be split roughly evenly between Knight Ridder and Gannett. With a new deal, the ratio changed in Gannett’s favor as the company becomes the general partner. That ratio would have to be approved by the Department of Justice.

As for MediaNews’ interest in Detroit, Morton explains that as circulation goes down it will take fewer employees to produce the editorial product. Expenses will decrease while the share of profits will stay the same.

According to the most recent report from the Audit Bureau of Circulations, daily circulation at the Free Press dropped 2% to 347,447 and it slipped 2.8% to 218,841 at the News. The combined Sunday paper decreased 3.1% to 682,798.

One thing Morton is sure about: “The grand old time when newspaper companies had sentimental attachments to properties they own is long gone.”

As of 3:09 p.m. Wednesday, Gannett’s stock was trading down $.28 from yesterday’s closing price of $72.27. At the same time, Knight Ridder’s stock was up $.05 from yesterday’s closing price of $61.91.

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