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Meese decision keeps Detroit a two-newspaper city. Observers disagree: Is public served, or will competition suffer?

Like a small stone tossed into a still pond, Attorney General Edwin Meese's decision to allow Detroit's two daily newspapers to merge business operations will have ripple effects on newspaper competition in the United States. Analysts are divided in their views as to what the impact will be. Some feel Mr. Meese's decision is in accord with the intent of federal law. Others believe competition will gradually decline.

``It could mark the end of the line for newspaper competition in American cities,'' says Stephen Barnett, a professor of law at the University of California at Berkeley of Meese's decision. ``If these two hugely profitable companies can gain a monopoly in the nation's fifth largest newspaper market - then anyone can get one.''

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Mr. Meese ruled Monday that the Detroit Free Press, owned by Knight-Ridder Inc., and the Detroit News, owned by Gannett Company, should be permitted an exception to the nation's antitrust laws under the Newspaper Preservation Act passed by Congress in 1970.

Mr. Barnett and others say Meese set a bad precedent by permitting the nation's two largest media corporations (Gannett Company is largest, Knight-Ridder is second) to obtain a monopoly in Detroit because neither paper was failing.

Meese's decision Monday overrode two separate recommendations against the merger. The Justice Department's antitrust division and an administrative law judge Meese picked to review the case both opposed a merger, saying it was not permissable under Newspaper Preservation Act guidelines.

In his 15-page decision, Meese concluded that ``continuing and persistent operating losses'' at the Free Press for nearly a decade showed there was little prospect for reversing the situation - and that the newspaper was therefore ``failing.''

John Martel, a San Francisco lawyer who helped draft the Newspaper Preservation Act, says he believes Meese's decision was sound.

``I do not think it sets a bad precedent,'' Mr. Martel says. ``Mr. Meese did what I would be predicting he would do. In the last analysis, he responded to the public need.''

The preservation act is intended to permit newspapers to merge advertising and circulation functions to become a business monopoly in cities where one of two daily newspapers is ``failing.'' A merger results in a ``joint operating arrangement,'' or JOA, where editorial functions remain separate in order to fulfill the aim of Congress to preserve a diversity of viewpoints. There are JOAs in 19 US cities; Detroit will become the 20th.

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``This decision reaffirms the will of the Congress that two independent editorial voices should be preserved wherever possible in the cities of America,'' Alvah H. Chapman Jr., Knight-Ridder chairman, said in a statement issued in Miami. The merged company will save costs by cutting 500 jobs, said a company spokesman.

Knight-Ridder said in January that the Free Press's operating losses had totaled $100 million since 1979, and that the News had lost about $75 million in the same period. The Free Press lost $18 million on revenues of $172 million in 1987. Gannett has also claimed millions went down the drain battling the Free Press.

Despite those losses, Meese's own antitrust division and a judge he picked to review the facts of the case both concluded that a merger should not be permitted.

Administrative Law Judge Morton Needleman concluded in December that Gannett and Knight-Ridder had embarked on a money-losing battle for dominance in Detroit secure ``in the belief that failure, too, has its reward'' in the form of a lucrative JOA.

Needleman's decision caught Knight-Ridder management by surprise. But in the past eight months the company launched a powerful public relations and lobbying campaign. The effort turned the political tide in Michigan, neutralizing opposition from Detroit Mayor Coleman Young, Michigan congressmen, and newspaper unions that opposed, but then dropped their objections to, the merger.

``The majority of our members decided to go along with it,'' says Lou Mleczko, a reporter for the Detroit News and president of Newspaper Guild Local 22. ``But as a professional journalist I feel bad because here are two of the largest media companies in the world being given a monopoly they don't need.''

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