Even if the Tucson Citizen stops publishing in March, the business agreement that binds its publisher with the Arizona Daily Star will remain in effect.
That means the Citizen's owner, Gannett Co. Inc., can continue to make money from Tucson Newspapers Inc. for years, even if it doesn't produce a newspaper and a Web site.
Gannett announced Jan. 16 that it was putting the Citizen up for sale and will close the paper March 21 if it can't find a buyer.
For decades the Citizen and the Star, now owned by Lee Enterprises Inc., have participated in a joint operating agreement. Under the arrangement, which expires in 2015, each paper operates an independent newsroom and produces its own editorial content. Distribution, production, advertising and other non-news operations are handled by a third company, Tucson Newspapers, that is equally owned by both publishers.
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The two companies split profits equally.
Joint operating agreements, or JOAs, have been used to preserve two-newspaper towns across the country, allowing companies to share big expenses, such as printing presses and delivery trucks. But news consumption is changing, experts say, and JOAs are rapidly crumbling as ad revenue plummets.
The number of JOAs has dwindled from a peak of 28 to nine, Poynter Institute media business analyst Rick Edmonds wrote in a recent piece.
"Joint operating agreements only delay the inevitable," said newspaper analyst John Morton of Maryland-based Morton Research Inc. "It's managed to keep the Citizen alive, but all the things that have killed off newspapers in dozens of markets are still working against them."
While the JOA can sustain two newspapers in a town for a time, ultimately the smaller paper can become a drag on the one that's the market leader, Morton said.
The Citizen's average daily circulation is about 20,000 newspapers, Gannett said in a news release. That compares with the Star's 94,055 on weekdays and 147,558 on Sundays, according to Lee's annual report. The Citizen, which has been published since 1870, comes out in the afternoons Monday through Saturday, and the Star is published every morning. Similar situations elsewhere
Other newspapers in JOAs have been in similar situations recently.
The Albuquerque Tribune, the smaller partner in a JOA with the Albuquerque Journal, stopped publishing in February 2008 after a failed six-month effort to sell.
In December, the E.W. Scripps Co. put the Rocky Mountain News in Denver up for sale. In 2001, that paper joined a 50-50 joint operating agreement with The Denver Post, which is owned by MediaNews Group.
According to Scripps, the cash flow generated by the Denver Newspaper Agency, which handled non-news operations, isn't enough to support the News. The Post has reported that it is also losing money.
Then this month Hearst Corp. announced it is seeking a buyer for the Seattle Post-Intelligencer and that if one cannot be found, it will pursue other options — such as running a digital-only operation with a smaller staff, or shutting the paper.
The Post-Intelligencer and The Seattle Times entered a joint operating agreement in 1983. The two papers split profits 60-40, with the Times getting the greater share. Both say they are losing money.
While the owners in Tucson are making a profit and those in Denver and Seattle are not, there's also a significant difference in what Hearst and Scripps are offering compared with Gannett's sale of the Citizen.
The Citizen's masthead, its Web site and Web address, some editorial equipment, its subscriber list, vendor and contractor contacts and wire services are for sale, said Tara Connell, a Gannett spokeswoman. Gannett's share of the JOA is not. The sales in Denver and Seattle include each owner's piece of the JOA.
A buyer of the Citizen would have to arrange production and distribution of the paper.
"I don't think there's a buyer in his right mind who'd want to do that," Morton said.
The Justice Department, which regulates JOAs, requires a publisher to make an effort to sell its paper before shutting it down, said Larry Aldrich, who was president and CEO of Tucson Newspapers from 1992 to 2000 and helped negotiate the current extension of the Tucson JOA.
Aldrich, who is interim CEO of University Physicians Healthcare, agreed that prospects for selling the Citizen are dim, but if someone wants to buy it, Gannett would have to sell.
When Bob Dickey, president of Gannett's U.S. community publishing division, told Citizen staffers the company's plan to sever its connection with the newspaper, he said its circulation and ad revenues don't justify the cost. Dickey said in a news release it isn't viable for Gannett, in partnership with Lee, to produce two newspapers in Tucson.
Still, Gannett makes money from its Tucson partnership. The combined operating income for Tucson Newspapers for the 12 months ending Sept. 30 was $21 million, according to Lee's annual report. That's a 42 percent drop from the previous year.
"We are a profitable company. Gannett is making money, and so is Lee," said TNI CEO and President Mike Jameson. "Everybody pretty much knows it's been decreasing, and if you look at the Citizen newspaper on its own, it wouldn't survive."
With the growth of the Internet, more and more readers are going online for news. The Star and the Citizen run separate Web sites, and the JOA runs a third, Tucson.com. The Star site averaged 8.2 million page views a month in 2008, compared with 2 million for the Citizen and 2.6 million for Tucson.com, which gets most of its page views for classified advertising. Smaller paper closed
In some JOAs, large companies that owned the smaller paper have closed it and then taken control of the larger one.
It occurred in San Francisco in 2000, when Hearst Corp. was able to break the existing JOA by selling its afternoon paper, the San Francisco Examiner, and purchasing the larger family-owned San Francisco Chronicle, said Alan Mutter, an independent media analyst, former newspaper editor and tech-company executive.
The financial situation of the Star's owner, Lee Enterprises, could motivate the company to sell a property such as the Star, said Mutter, who writes a blog, "Reflections of a Newsosaur."
Lee is trying to avoid technical default on debt agreements. This month it received a waiver until Jan. 30 on conditions related to $306 million worth of debt held by its St. Louis Post-Dispatch LLC. That debt matures in April.
Lee took on the debt in June 2005 when it paid $1.46 billion to acquire the Pulitzer newspaper chain, which included the Star. By last fall Lee had repaid $463 million in debt, but the credit crisis and the recession have hit it hard.
In the quarter ending Dec. 31, Lee's earnings dropped 69 percent, the company reported Tuesday. Total revenue fell 13 percent to $243.6 million, as total advertising revenue slid 15 percent.
The question, Mutter said, is whether — given current economic conditions — Gannett has any interest in acquiring an additional newspaper.
In the long term, Southern Arizona could become a more profitable market again, and Gannett has enough capital to buy another newspaper, said Ed Atorino, a media analyst with Benchmark Research in New York City.
"If your paper (the Star) is profitable and it has that kind of circulation, it does give Gannett the opportunity to pick up the bigger newspaper," Atorino said.
Still, he said, Gannett hasn't shown interest in expanding in the publishing business. The company, based in McLean, Va., has 85 daily newspapers in the United States, including The Arizona Republic in Phoenix and USA Today. Lee also has another Arizona paper, the Daily Sun in Flagstaff.
Gannett has been trimming expenses recently, cutting the payroll of its community publishing division by 10 percent. Earlier this month it announced that nearly all employees at its publications and broadcast outlets will be furloughed for one week without pay during the first quarter of 2009 to help avoid layoffs.
Newspaper analyst Morton said Gannett would likely want to buy the Star, but he said Lee would probably want to keep it as a long-term source of profit.
Aldrich, the former TNI CEO, said the Citizen has struggled for years, but he is confident one local paper will thrive when the economy turns around.
"I'm hoping this will lead to a stronger Star, and a stronger newspaper for this community," Aldrich said.