Chain Building: The Consolidation of the American Newspaper Industry, 1955-1980

Elizabeth M. Neiva • Columbia University

Before1955, small, family-owned dailies dominated the American newspa- per industry.Publishers saw themselves as guardians of age-oldeditorial traditions andviewed their papers as local institutions, not as commercial enterprises. But by 1980,large, publicly traded media conglomerates dominated the industry, and chief executivesreplaced family patriarchsas the arbitersof newspapers'content and editorialfocus. What happenedduring this twenty-five year period to causesuch a fundamentalshift in ownershipstructure, and why did the changehappen when it did? Scholars,including business historians, have tended to overlookthe industry. In their view newspapers-...areidiosyncratic. The industry defies broad generalizationand, therefore,does not contributeto our largerunderstanding of either organizationaldevelopment or the rise of managerialcapitalism. Instead, they have focusedon weightier manufacturingindustries--such as steel and automobiles--whichrepresent, they believe, the bedrockof our economy. Becausemany scholars consider the newspaperindustry atypical, few have examinedits evolution,particularly during the postwarperiod. This is a mistake. For nearly three centuriesnewspapers have provided a vital public service, interpreting,synthesizing, and packaging affordable information. But the industry's consolidationhas attenuatednewspapers' important role, leaving readers and employeesincreasingly vulnerable to thevicissitudes of absenteeownership. Thus, the centralquestion remains, how andwhy did thisimmense change take place in sucha shortperiod of time? The consolidationof the Americannewspaper industry occurred in three stages,each marked by a differentexternal change. Analysis of thesethree changes representsthe core of my argument. They are: the introductionof electronic typesetting;the applicationof new labornegotiating techniques; and a shift in the InternalRevenue Service's estate tax appraisalpractices. To underscorethe centralrole that enterprisingindividuals played in the industry's development,each stagealso profilesthe careerof a representative entrepreneurwho capitalized on oneof thethree external changes. The individuals

I Thisdissertation waswritten atHarvard University under the supervision ofThomas K. McCraw.

BUSINESS AND ECONOMIC HISTORY, Volume twenty-four,no. 1, Fall 1995. Copyright¸1995 by the BusinessHistory Conference. ISSN 0849-6825.

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are: PrescottLow of the QuincyPatriot Ledger,Lloyd Schermerof Lee Enterpris- es, Inc., and Paul Miller of GannettCompany, Inc. What follows is an examinationof the interrelationshipbetween the enterprisingindividual and the largercompetitive environment within which he or sheoperates. It is arrangedin threeparts: technology,labor, and chain building.

Technology

The originsof the newspaperindustry's rapid transformation can be traced to 1945. Beforethat time, the industry had enjoyed nearly seventy years of relative stability.There were no significanttechnological innovations, few newcompetitive threats,and only minorcost increases. In the wordsof onepublisher, "The whole industrysimply coasted through the first half of the twentiethcentury." But, in 1945,after the governmenthad lifted wartimewage freezes, produc- tionworkers began demanding substantial salary increases. Production costs--made worse by postwarinflation--soared [9, p. 275]. But most publisherswere ill- equippedto copewith thesesudden cost increases. According to a 1953 Harvard BusinessSchool study, publishersof the period had little knowledgeof, and considerablecontempt for, the skills normallyassociated with runninga business [2, p. 361. But that study also maintainedthat all publisherswere not alike. The authorsdescribed "a progressivepaper in Quincy, Massachusetts,"the 30,000- circulation,Patriot Ledger, whose owner, Prescott Low, differedmarkedly from his colleagues.Low hadstumbled upon and hadbegun promoting a new production technologythat he believedwould revolutionize the newspaper industry. This new technologywas photocomposition. Priorto theinvention of photocompositionnearly all newspapertype was set on a massive,noisy mechanical contraption called a Linotypemachine. The Linotypewas inventedin 1886by a Germanwatchmaker, who had designed his devicewith precision,not simplicityin mind. The machine,which set type in moltenlead, had over 10,000moving parts, and took morethan four yearsto learn how to operate. In 1944,a Frenchinventor and amateur photographer witnessed a Linotype in use. Instantly,he decidedto thatthere had to be of a faster,more efficient way to composetype. With a partner,he designeda machinethat wouldset characters on film not in lead. But, in war-tornFrance, the inventorscould not get the financingthey neededto completetheir prototype. They thereforesailed to Americawhere they sought investment partners. Among those they approached was VannevarBush, one of thekey scientists behind development of the atomicbomb. With a handfulof otherinvestors, Bush organized a non-profitfoundation to fund the promotionof the new Frenchtypesetter [7, p. 141]. Afterfinishing their machine, which they called the Photon, the Frenchmen movedto Bostonand arranged a seriesof demonstrationsfor localpublishers. It wasat oneof thesegatherings that Prescott Low first sawthe Photonin operation. He was astonished.The machineset type at a pace six times faster than the Linotype,and it did so neatlyand quietly. Low submittedan immediateorder and thefirst commercial Photon was installed in Quincyin 1953. Fortwo years Low andhis staff worked on integrating photocomposition into the newspaper's produc- tion process,and, after resolving countless complications, production costs at the 24

Patriot Ledgerplummeted. Low no longerneeded a largeteam of skilled$4.00-an- hourprinters; instead, he found he could hire a handfulof inexpensive,off-the-street clericalworkers to composethe same amount of type.Low channelled the resulting savingsinto the paper'seditorial department, and, before long, the Patriot Ledger hadestablished itself as one of New England'smost widely respected newspapers [6].

Unions

Due largely to Low's endorsement,other publishersbegan making the conversionfrom mechanical Linotypes to electronicPhoton machines. According to onestudy, some papers were realizing immense savings, as muchas $250,000 a year [1, p. 215]. Yet, in spiteof the widespreadpublicity and the considerable savingsavailable, the number of publisherswho actually invested in photocomposi- tionremained small. Many fearedthat, if theyinstalled new Photonmachines, the InternationalTypographical Union (ITU) wouldstrike, and without skilled printers, dailieswere paralyzed. For example,during the famous city-wide strike in 1963, productionunions forced every Manhattan newspaper to shutdown for overfour months. But strongunions were not publishers'only concernin the early 1960s. Televisionand magazines had begun penetrating markets that newspapers long had monopolized. Between 1955 and 1965, advertisinglineage at the New York HeraM,for example,fell by nearly2 millionlines [3, p. 57]. Sandwichedbetween rising productioncosts and falling revenues,a handfulof frustratedpublishers soughtways to sidestepthe powerful union printers. Amongthose publishers was Lloyd Schermerof the Missoula,Missoulian. In theearly 1960s,The Missoulianwas on thebrink of bankruptcy,and Schermer realizedthat the paper would never regain its financialfooting unless it converted to photocomposition.But, Schermerwas aware that leaders from the ITU's national headquartershad instructed every local union to strikeif a publishertried to install Photonmachines. Unsure how to proceed,Schermer turned to a laborlawyer who specializedin helpingpublishers negotiate more effectively with productionunions [81. In 1966, the two developeda complexplan for peacefullyconverting the Missoulianto photocomposition.Although their strategyinvolved an intricate seriesof negotiationswith eachof the paper'ssix unions,the cornerstoneof their plan wasa simpledeal withthe ITU. If the printerswould agree to give up their unionaffiliation and would allow Schermer to installPhoton machines, he promised to give thema generouspension and benefits package in exchange.Just a few years earlier,such an offer wouldhave been unthinkable. No right-mindedunion member ever would have considereddecertification. But, as photocompositionbecame increasinglyprevalent, and as the demandfor skilled printersfell, fewer new membersjoined the ITU. As theirnumbers declined, so too did theirpension funds, andmembers of all agesbegan worrying about their financialfutures. The union ultimatelydecided that Schermer'sattractive offer far surpassedthe haphazard benefitstheir representatives had negotiated for them. In 1974.local ITU leaders acceptedSchermer's offer andrenounced their national affiliation [10]. Within ten years,executives at nearlyevery major newspaper were relying on lawyersto assist 25

themduring bargaining sessions, and by 1982, the ITU--the nation'soldest union-- ceasedto existas an independentorganization.

The Internal Revenue Service

As the ITU's power dissipated, and as more papers converted to photocomposition,newspaper profits skyrocketed. But these rapid revenue increasesdid notgo unnoticed.In the 1960s,appraisers from the InternalRevenue Servicebegan studying all family-ownedbusinesses, including newspapers. As the IRS learnedmore about photocompositionand newspapers'windfall profits, it beganappraising papers according to theirmarket values (or whata potentialbuyer mightpay), not according to theirbook values (or the sumtotal of their assets)[4]. After the IRS beganchanging its appraisalpractices, the heirsof deceased publishersfound it increasinglydifficult to meettheir estatetax obligations.Since manypapers simply did not generateenough cash to pay thegovernment what it demanded,families had no choice but to sell. Between 1960 and 1980, 57 different newspaperowners all soldtheir properties to thesame person: Paul Miller of Gan- nett. Throughouthis fifty-year career Paul Miller wasa newspaperinglegend. As a bureauchief with theAssociated Press through the 1930sand 40s, Miller earned a reputationas bothan exceptionalfeature writer and a skilledmanager. His talents were so well-known that the owner of the nation'slargest regional chain, Frank Gannett,chose Miller to succeedhim as president of theGannett Newspaper Group. Oncepromoted, Miller begantransforming the sleepy chain of 25 upstateNew York papersinto a nationwidepublishing empire. Nothingwould assist him morein his effortsthan the IRS' new appraisalpractices. Beginning in the early 1960s, Miller, begancriss-crossing the country courtingpublishers who owned monopoly papers in growingmarkets. To finance his frequentpurchases, Miller becameone of the very first newspaperexecutives to takehis company public. He thentraded the public shares of Gannettfor thepri- vately held stock of the papershe purchased. In 1971, Miller acquiredone newspaperevery three weeks, and by the time he retiredin 1979, the Gannettchain hadexpanded to 79 papers. The firm's competitorswere soon aware of Gannett'srapid growth and immenseprofits, and manybegan imitating Miller's strategy.Between 1969 and 1973, ten newspapercompanies also went public, amongthem The New York Times,Washington Post, and Times Mirror. But, oncepublic, Wall Street'ssecurity analystsbegan exerting considerable pressure on thesefirms to grow. Executives at thesefirms therefore spawned what would become an all-outacquisitions frenzy. By 1977,the nation's 170 newspaper groups owned two-thirds of thenation's 1,700 dailies [5]. But by theend of the 1970s,the poolof availableindependent newspapers had all but dried up. This posedan immenseproblem for the nation'spublicly traded papers. Becauseof securityanalysts' incessant demand for growth, these companiesneeded to continueexpanding, but there was nothingto buy. Many thereforebegan exploring other news-related ventures. Gannett unveiled the first nationalnewspaper, USA Today, in 1982, and otherfirms diversifiedinto cable television.As manychains began to channelever-increasing portions of theirprofit intothese new businesses,the quality of theirnewspaper properties declined. By 26

coddlingreaders with homogenized,technicolor journalism, chain papersslowly carvedthe soulsout of the localpapers that long had boundcommunities together.

So, what are the larger implications of the newspaperindustry's consolidation,and what does it contributeto ourlarger understanding of theprocess of organizationaldevelopment? From this research it is evidentthat the forcesthat triggeredthe rapid transformationof the Americannewspaper industry were not self-servingpublishing moguls nor a clusterof irresponsiblemedia executives, but the inventionand popularizationof a relatively simple new technology,photo- composition.This machineprompted a sequenceof cumulativechanges, each of which was recognizedand exploitedby one or more savvyentrepreneurs. Yet, while it is usefulto understandhow and why the newspaperindustry consolidated, the real contributionof thisresearch is muchbroader. This work offersa systematic model of industrialdevelopment that demonstratesnot only that changeoccurs in cumulativeand sequentialstages, but also that individuals do matterin the process of industrialchange.

References

1. JamesBright, Research, Development, and TechnologicalInnovation (Homewood, IL, 1964). 2. Davidsonet al., "[R]evolutionin thePrinting Industry," Manufacturing Report (May 1953),Baker Archives. 3. David Goodman,"Labor, Technology, and the Ideologyof Progress,"(Undergraduate thesis, HarvardUniversity, 1983). 4. JohnGrimes, "Methods of Evaluationfor Interestsin NewspaperPublishing Enterprises," (October 1958). NewspaperAssociation of AmericaArchives. 5. WilliamJones, "Endangered Independents," Washington Post (3 August1977). A groupis defined as a firm owningtwo or more dailies. 6. PrescottLow, Chairman,Quincy Patriot Ledger, interview by author(6 April 1992). 7. Alan Marshall, Ruptureset Continuitdsdans un Changementde SystemeTechnique (Rennes, France, 1992). 8. "Letterfrom RichardE. Morrisonto Don Anderson,"(30 January1960), Don AndersonPapers, Universityof Montana. 9. JamesE. Pollard,"Spiraling Costs Outrun Revenues," Journalism Quarterly (September 1949). 10. LloydSchermer, Chairman, Lee Enterprises, interview by author(21 February1992).