Detroit Shuffle Causes Some Key Changes in JOA

By: Mark Fitzgerald When Gannett Co., Knight Ridder Inc., and MediaNews Group rearranged the ownership of six dailies in four states this summer in a newspaper version of musical chairs, the Detroit Free Press and The Detroit News at first said little publicly about how the deal would change their joint operating agreement (JOA).

Now that the amended JOA has been filed with the U.S. Department of Justice, however, it is clear the changes to the arrangement are as unprecedented as the deal in which Gannett sold the Detroit News to MediaNews and bought the market-leading Detroit Free Press from Knight Ridder.

At the time, Gannett announced that MediaNews, the new owner of the Detroit News, would be a "limited partner," and implied that William Dean Singleton's chain would get a significantly smaller stake in the JOA than the 50% split that Knight Ridder had. The announcement also noted that the News would move to morning publication in early 2006, and that the JOA's expiration had been changed from 2089 to 2025.

What neither side said at that time was just how limited a limited partner MediaNews is. According to the amended JOA, the Denver-based company holds just a 5% interest in the renamed Detroit Newspaper Partnership LP. MediaNews won't be sharing any profits, either, until at least 2009. Instead, it will be given annual payments that start at $5 million next year, and gradually decline to a final installment of $1.9 million in 2012.

The new agreement ? at 26 pages, a relatively terse document compared to the 79-page agreement Gannett had with Knight Ridder ? spells out other limitations as well.

Gannett, for instance, gets to determine the editorial expense and newshole budget not only at its Free Press, but at the News as well. The agreement pledges that it will not make "disproportionate decreases" of the News' editorial space or spending. The papers can take extra space, but they must reimburse the JOA.

These annual editorial budgets are not written in stone, though. Gannett reserves the right to reduce the budgets if, during any three-month period, "aggregate operating profits fall below the budgeted levels."

Under this new JOA, the Free Press will be the only Sunday paper, but the News "at its cost" can run a page of editorials and opinion under its masthead in the Sunday paper, the agreement stipulates. In an October telephone interview, News Publisher/Editor David L. Butler told E&P the paper intends to exercise that option. A date for the first Sunday Free Press had not yet been announced.

Gannett has also learned from the experience of the Seattle Times Co., which has had to fight a lengthy court battle in its attempts to end the JOA with Hearst's Seattle Post-Intelligencer. In Seattle, one issue is whether losses suffered during the 2000 strike should count in triggering a breakup of the JOA, or if they should be excluded because they were caused by an uncontrollable force majeure event.

That won't be an issue in Detroit. The agreement allows either party to break up the JOA if, after 2015, the partnership suffers three consecutive years of operating losses "for any reason, including, without limitation, losses due to labor difficulties, shortages, strikes, stoppages of any sort or any other causes designated Acts of God or force majeure by any court of law."