What's Next After Arkansas Democrat-Gazette, Morning News Merger in Northwest Arkansas

The U.S. Department of Justice will allow the merger between Stephens Media LLC and the Arkansas Democrat-Gazette Inc., clearing the way for both entities to seek a return to profitability.

In Tuesday's announcement, the Arkansas Democrat-Gazette said advertising revenue for the first nine months of 2009 is down 18.5 percent, and ad revenue for calendar 2008 was down 13.2 percent. The Morning News of Northwest Arkansas' publisher Tom Stallbaumer declined to reveal any financial information for that publication.

Declining revenue has been an ongoing concern for the newspaper industry as a whole. According to the Newspaper Association of America, total print advertising decreased from $44.9 billion in 2003 to $34.7 billion in 2008, a 23 percent decline.

The NAA reported an even more significant drop in classified advertising. According to the NAA, revenues from classified advertising dropped from $15.8 billion in 2003 to $10 billion in 2008, a 37 percent decline.

"As a result," deputy assistant attorney general Carl Shapiro told a House of Representatives subcommittee in April, "the continued viability of many newspapers has been put in serious doubt."

Steve Trolinger, president of Community Publishers Inc. of Bentonville, said that's become the case in Northwest Arkansas, too. CPI, which owns a string of newspapers in Arkansas, Missouri and Oklahoma, sold the Northwest Arkansas Times and the Benton County Daily Record to Arkansas Democrat-Gazette-owner Walter Hussman's Wehco in 2005.

"This merger is a natural evolution of the newspaper business in Northwest Arkansas," Trolinger said of the deal between Stephens Media and Wehco. "From what were basically four distinct markets just 20 years ago, we really now have one major metropolitan market. The fundamentals of the newspaper business are changing rapidly and there is no space for profit in competing daily newspapers in a single market."

Warren Stephens is the CEO of Stephens Inc. and owner of Stephens Media of Las Vegas. Hussman is the owner and chief executive of Wehco Media Inc., which owns the Democrat-Gazette and 10 other daily newspapers, including six more in Arkansas. Despite circulation gains by the Democrat-Gazette in Northwest Arkansas since 2005, both appeared poised to go the distance before the announcement of the proposed merger on Sept. 3.

Following the Justice Department's decision that the merger does not violate antitrust policies, Stephens Media will contribute its Northwest Arkansas assets to a limited liability company and Arkansas Democrat-Gazette Inc. will do the same. The two contributing companies will each own a 50 percent interest in the new company, to be called Northwest Arkansas Newspapers LLC.

Per statements from both sides, Stephens Media will be responsible for editorial control of the local newspapers in Northwest Arkansas, while Arkansas Democrat-Gazette Inc. will control advertising, business, production and circulation. The Democrat-Gazette will control the editorial functions of its Northwest Arkansas edition.

Beginning Sunday, the Democrat-Gazette will be circulated with the Morning News in Rogers and Springdale. The Democrat-Gazette will continue to be circulated with the Times in Fayetteville and the Daily Record in Bentonville.

Another result of the merger will be a reduction in workforce of about 40 percent, according to one source close to the merger. Employees of The Morning News, the Times and the Daily Record interviewed with Morning News management members for staff positions last week.

Under the federal Worker Adjustment and Retraining Notification Act, letters were delivered on Monday to all employees of both companies. The letters indicated their jobs will be terminated by Oct. 31, with an undetermined number of those employees to be immediately hired by the new Northwest Arkansas Newspapers LLC.

According to the report in the Democrat-Gazette, those who aren't hired will receive at least a two-month severance package. Some will receive more based on their tenures, and some will continue to work during the 60-day period.

Arkansas Democrat-Gazette Inc. reported 369 employees in Northwest Arkansas, including 101 part-time workers. Stephens Media has 188 total employees in the area.

In the End

Besides the expected packaging and delivery changes, and disappearance of some familiar names, readers might not notice a lot of initial differences in their news products. But ultimately, Mark Fitzgerald, editor-at-large at trade journal Editor & Publisher, said readers could pay a higher price.

"I think you've got to conclude that it's not good for the reader in the long run," Fitzgerald said of the proposed merger.

Fitzgerald was quick to add each case is unique, but certain principles seem to be constant in such situations. For starters, fewer reporters in an area means more news is apt to "fall through the cracks," Fitzgerald said.

There's also the notion reporters might not be as inclined to work hard for exclusives and/or scoops when the competitive element between publications is removed from the equation.

"I've found that if you don't have competition, it's hard to keep yourself on edge," Fitzgerald said.
Trolinger said such a scenario would be regrettable, and that it's his hope "that good journalism and local news will not suffer from the lack of the competition that we have had for many years."

Finally, which reporters are retained isn't always based on merit. In addition to the likelihood of editors in charge of hiring choosing their own employees, more experienced reporters also can become casualties.

Fitzgerald said that's especially a danger when companies are looking to cut costs. Getting rid of older, higher-paid reporters in favor of lower-paid ones is not uncommon.

"I'd be a little more wary if I was an older staffer, just as a general rule," Fitzgerald said.
A Wehco employee described the mood among its workers as "dismal" due to the belief Morning News staffers will dominate the new enterprise.

"There's a huge leaning towards Morning News people," the source said. "It's like picking friends in a sandlot football game."

Final Score

Many, including Fitzgerald and Trolinger, predicted the proposed merger in Northwest Arkansas would be approved. Fitzgerald said the government recognizes the struggles of the newspaper industry and generally has looked favorably on such agreements.

Even Attorney General Eric Holder said earlier this year he was open to re-examining antitrust policies that limit mergers in the newspaper industry.

"I think it's important for this nation to maintain a healthy newspaper industry, so to the extent that we have to look at our enforcement policies and conform them to the reality that the industry faces, that's something I'm going to be willing to do," Holder told reporters.

"I'd like to think that 20, 30, 40 years from now people will still be reading newspapers."

How many newspapers will be available in Northwest Arkansas at that time remains to be seen. More than one insider has painted Hussman as a patient and disciplined businessman.

Hussman lived up to that reputation when he bought the Fayetteville and Bentonville newspapers in 2005, the fifth year of a 10-year lease agreement. Hussman had an option to buy at any time during that 10-year period, and CPI had a similar option to force him to buy.

At the time, Hussman said the Democrat-Gazette's Northwest edition had been profitable for four consecutive months and that it "seemed like a good time to buy."

(Associate Editor Susannah Patton contributed to this story.)