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Gannett shadow stretches over media business with Evening News

The headline in USA Today was understated: ``Gannett buys media company.'' It didn't have the usual zip of USA Today headlines, as did the story just above it, ``Harley revs after idling in early '80s.''

Perhaps that's because USA Today was talking about its parent company, Gannett. But beneath the dry prose is the widely reported refrain of chairman Allen Neuharth: Gannett will be the largest media company in the United States.

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With the proposed $717 million purchase of the Evening News Association announced last Thursday, Gannett is lengthening its shadow across the news business. But it is also deepening its quality, something the company has shown more inclination to do in recent months. Indeed, as the number of independent newspapers dwindle, Gannett may be thinking along the same lines as Gary Hart when he said about defense spending, ``More isn't better and less isn't better -- only better is better.''

Gannett clearly still thinks that more is better. It publishes 86 daily newspapers, including USA Today, which has a circulation of 1.3 million, and 38 nondaily papers. It also operates six television stations and 14 radio stations. With Evening News, it is adding the Detroit News, the nation's sixth-largest daily newspaper; nine other weekly or daily newspapers; WDVM-TV, the CBS affiliate in Washington, D.C.; 4 other TV stations; and 2 radio stations.

Gannett probably will have to sell some properties in Detroit, Oklahoma City, and Tucson, Ariz., because a single company may not own two media outlets in overlapping markets.

The purchase of Evening News may show a new emphasis for Gannett: putting precious jewels in its very big crown. In January, Gannett paid about $200 million for the Des Moines Register, considered one of the top 10 newspapers in the United States, and three other smaller papers.

While the price popped many eyes on Wall Street, the move was seen as an attempt to upgrade Gannett's newspapers, whose overall ``depth and liveliness are questionable,'' says one observer. ``I would think Gannett would consider the Detroit News one of its crown jewels,'' he says.

A bigger plus, says David McKearnan, an analyst at Donaldson, Lufkin & Jenrette Securities, are the television stations. ``This is a TV deal,'' he says. He estimates that the TV stations represent about three-fourths of the value of the properties, while Detroit News may be 15 percent, and the radio stations and other papers represent the rest.

``The real gem is the CBS affiliate in Washington. The value of a news gathering service in Washington is enormous, especially to Gannett,'' which has a national newspaper across the Potomac. USA Today usually deemphasizes Washington politics for general national news, leaving the Washington beat to its wire service, the Gannett News Service. WDVM-TV will enhance local coverage.

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If you own stock in Evening News, this is a happy day. Gannett paid $1,583 a share; two years ago, the stock was selling at less than $50 a share.

But the price Gannett is paying for Evening News is fair, says Mr. McKearnan. Gannett got the TV stations for about 15 times their broadcast earnings, in line with other media transactions. Moreover, he says, the TV stations are all probably underperforming, and Gannett could probably increase their financial performances by 10 percent.

Gannett has a reputation for running a tight ship. ``Their earnings record is spectacular,'' says Samuel Kennedy III at the S.I. Newhouse School at Syracuse University. ``Gannett's management can take a marginal newspaper and turn it into a highly profitable one.''

Gannett can parlay those management skills into TV and radio, he says, because it has already developed experience in those media.

The company has leaped headlong into Detroit's fierce newspaper war. It finds a worthy competitor in the Detroit Free Press, owned by another big media chain with deep pockets, Knight-Ridder Newspapers Inc. The Free Press lags the Detroit News in circulation and advertising revenues but has won a lot more Pulitzers in the last 20 years.

Both papers have lost money in recent years. There has been talk of consolidating noneditorial functions of the papers, which is kosher if one of the two papers is likely to fail. Gannett has not dismissed that option, but ``Gannett brings more money to the battle than the Evening News Association did'' and may try to win the war, says McKearnan.

And the media giant is willing to spend freely to gain dominance.

USA Today has been soaking in red ink since it was started three years ago. Its deficit is expected to be in the $95 million range this year and may exceed $350 million before -- and if -- it breaks even, which Gannett projects will be in 1987.

But the investment is beginning to pay off: USA Today has nearly doubled its advertising revenues in the last year, and is now the No. 3 paper in circulation.

With the recent purchase of the Sunday magazine supplement Family Week, Gannett has given USA Today crucial weekend coverage. Renamed USA Weekend, the magazine will look and read like USA Today. This has caused more than 120 newspapers to drop the magazine for the larger rival, Parade. They see USA Weekend as free advertising for USA Today, which many consider a competitor.

USA Today also went abroad a year ago. It now circulates in some 30 countries in Europe and the Mideast.

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