By Richard McCord (2001)
A Tale of Four Cities:
Gannett can't kill Honolulu paper
By Richard McCord
Except for the palm trees and the gentle push of trade winds, it seemed like just a routine Gannett extermination job.
The 118-year-old Honolulu Star-Bulletin regrettably must close, said the September 1999 announcement, leaving its Gannett-owned rival, the Honolulu Advertiser, as the only daily paper in Hawaii's capital city. Just another monopoly.
What Gannett had not reckoned on, however, was Hawaii's and Honolulu's grim refusal to let the Star-Bulletin die. As a result of that miscalculation, Honolulu has now joined the tiny ranks of American cities with two fully separate daily papers, going at each other in fierce and open competition.
The story was expected to end quite differently. Several times in its march to become the nation's largest newspaper chain, Gannett has presided over the death of rivals.
Sometimes, as in Salem, Ore., in the 1980s, Gannett's tactics have been viciously and blatantly illegal and have resulted in the bankruptcy of its competitors. At other times the rich chain has simply paid off a paper to fold.
Honolulu was supposed to be one of the latter cases. Business as usual.
For 30 years Gannett has published a daily paper in Honolulu. Ironically, it first entered that market as owner of the same paper it eventually decided to kill. In 1971 Gannett purchased the afternoon Star-Bulletin, which already was a partner with the morning Advertiser in a Joint Operating Agreement, under a unique federal law designed to preserve two editorial voices in cities where one might die.
Whenever a JOA proposal is submitted to the U.S. Justice Department, the applicants make noble statements about the absolute, core importance to the American Way for a city to preserve two newspapers at all costs. Yet after a JOA is in place, financial statements are usually the ones that count.
In various cities, Gannett has first participated in JOAs, and then when it felt that more money could be made by closing one of the papers, has moved to do so. As recently as 1998, Gannett terminated the second-oldest JOA in the country by paying the owners of the Nashville Banner $65 million to cease publication, and make Tennessee's capital city a monopoly market for Gannett's Tennesseean.
With that precedent, the deal in Honolulu seemed cut-and-dried. After entering Hawaii with the afternoon daily in 1971, Gannett had bought the larger-circulation morning Advertiser in 1992, and sold the Star-Bulletin to a Florida company, Liberty Newspapers. As part of the switch the JOA partners entered a new agreement, which gave Gannett full control but promised to keep both papers going until 2012.
Yet in 1999, just seven years into a 20-year contract, Gannett and Liberty decided to close the Star-Bulletin. Thus Liberty's president, Rupert Phillips, came to Hawaii - which he had seldom visited - and held a Sept. 22 press conference. With the usual expressions of regret, Phillips said he could make more money on the U.S. mainland than with his investment in Hawaii. And so, he said, his paper would close in 45 days.
A flurry of articles lamenting the demise of Hawaii's oldest newspaper - articles familiar in American journalism in recent decades - quickly appeared in the Honolulu dailies. But just days later they were followed by other, unfamiliar, stories announcing lawsuits filed to prevent the closure.
Almost overnight a citizens group called SOS - for "Save Our Star-Bulletin" - arose in Honolulu. It had impressive members, including a former lieutenant governor and a former state Democratic Party chairman. From court documents, SOS revealed that Gannett was planning to pay Phillips $26.5 million in one lump sum to put down his newspaper. SOS filed a lawsuit to keep the deal from going through.
Days later the Hawaii Attorney General's Office joined the battle. "We thought Phillips was terminating publishing the Star-Bulletin for the payment of $26.5 million," said a deputy attorney general. "In legal terms we called that a conspiracy, a restraint of trade, an attempt at monopoly, and a conspiracy to monopolize." On antitrust grounds he requested a federal restraining order to block the deal.
A key reason for the opposition to the Star-Bulletin's closure was that it was clearly Honolulu's better paper. In press competitions, it routinely humbled the Gannett product, winning, for example, 10 first prizes and 21 awards in the 2000 Hawaii Publishers Association contest, in contrast to the Advertiser's two first prizes and total of nine awards.
Even more tellingly, the Star-Bulletin had shamed the Advertiser in 1997 by bravely publishing Hawaii's biggest news story since statehood, an expose of corruption within a $10 billion trust fund, permeating multiple levels of state government. Before the afternoon daily ran it, the story had been turned down by the timid and ignorant Gannett paper.
To fan the flames of the SOS movement, Star-Bulletin supporters circulated a petition among tailgaters at a University of Hawaii football game, calling for actions to keep the paper alive. The effort drew 15,000 signatures in one day. "Everyone wanted to sign," the former Democratic Party chairman told the American Journalism Review. "In all my political life, I've never seen people so willing to sign a petition."
For multiple reasons, evidently, Honolulu was not ready to accept the demise of its second daily newspaper, simply to enable two companies to make more money than before.
Yet the opposition seemed doomed. Gannett and Liberty fought the lawsuits adamantly, and many similar deals had gone through. So it was a surprise when on Oct. 13, 1997, a federal judge issued an injunction delaying the deal. Immediately Gannett and Liberty appealed, but a week later, on Oct. 20 - just 10 days before the Star-Bulletin was to vanish into history - an appeals court refused to overturn the judge.
Day by day, on borrowed time, the Star-Bulletin kept coming out. In April 2000 a federal magistrate in Hawaii put together an agreement to offer the paper for sale.
Insisting that an afternoon daily was economically unfeasible, Gannett and Liberty had not until then even tried to find a buyer. On Nov. 9, 2000, a Canadian publisher named David Black bought the Star-Bulletin, for $10,000. For his money he got little more than the name. Still determined to kill Hawaii's best and oldest newspaper, Gannett and Liberty did not even offer a newsroom as one of the assets for sale. After the purchase, Gannett paid Liberty $25 million to end the JOA.
After his last-minute heroics, Black was hailed as the "savior" of the Star-Bulletin - and the fact that his first name was David (as in David and Goliath) did not go unnoted in the press. At once he set out to reassure the Honolulu community that he intended to be a force for good in Hawaii.
Black emphasized that unlike Gannett, he did not demand 30 percent or more in profits as a publisher. He would be content with 5 or 10 percent, he said, adding: "I don't need to make much to make myself feel good." At the same time, however, he said he did not want his paper to lose money.
So before buying the Star-Bulletin, Black made a survey of major Honolulu advertisers, which he later described to the journalism trade magazine Brill's Content: "I talked to a number of senior people in the market, advertisers, ad agencies, to get a sense of the opportunities here ... and as I talked to the advertisers, they said, 'Look, if you come, we'll split our budgets to make sure you're kept in the game.' I've never had that kind of response anywhere. So that was a big factor in my decision. I thought that the state and the city wanted the paper so badly that there was a good chance that we would be successful."
Though encouraged by such signs of welcome, Black knew that he faced a ruthless adversary in Gannett. To warn his supporters what to expect, he distributed dozens of copies of the 1996 book "The Chain Gang: One Newspaper vs. the Gannett Empire" by this writer. It describes the struggle of The Green Bay News-Chronicle to survive in this Wisconsin city and is, according to Brill's Content, "a damning book, detailing Gannett's monopolistic and predatory practices." Black did not have long to wait before discovering for himself the way Gannett operates.
On Dec. 13, 2000, barely a month after purchasing the Star-Bulletin, he made a speech to the Honolulu Media Council. In it he described Gannett as "an arrogant, Eastern bureaucracy" that was doing everything in its power to hamper him.
"The competition has moved beyond petty to viciousness," Black declared. "Their game is to make life as miserable as possible and do everything they can to prevent the Star-Bulletin from competing." Black had several specific complaints against Gannett. Among them: that it had taken the Star-Bulletin's newsprint allocation and was going to use it on the mainland; that it was "leaning" on newsprint mills to stop selling to the Star-Bulletin; that it was trying to hire away several of his key staffers; that it had launched new special sections with discounted ad rates; that it was sending free samples of the Advertiser to Star-Bulletin subscribers; that it was not stocking Star-Bulletin news racks during the waning months of the JOA; that it was spreading lies saying he was planning wholesale firings at the newspaper.
Responding to Black's remarks, a Gannett spokesman said his company was operating under the transition terms set by the federal court, and was looking forward to a new era of competition between the Advertiser and the Star-Bulletin.
On March 15, 2001, the 40-year-old JOA in Honolulu expired, and the Star-Bulletin became a fully independent paper, owned by Black. Already in his short time as publisher he has added a morning edition and a Sunday paper. Gannett has responded by publishing an afternoon edition, and in a move that Black calls predatory, is delivering its paper free for 24 weeks to tens of thousands of his subscribers.
In journalism circles, the story of the newspaper battle in Honolulu has made many headlines, including "War in the Pacific" and "Showdown in Paradise." But according to a business writer for the underdog Star-Bulletin, the essence of the struggle can be boiled down to two words: "We're alive." Then as an afterthought, he adds seven more: "And the Advertiser should be very afraid."
Richard McCord wrote this piece for the The Green Bay News-Chronicle (which, of course, retains copyright), as part of his ongoing coverage of the Star-Bulletin battle and his even longer career of covering Gannett's business practices. He is the author of the highly-acclaimed book, The Chain Gang: One Newspaper versus the Gannett Empire.