Star-Bulletin might
be a tough sell, media
analysts say

However, if the deal involves a
joint operating agreement rather
than assets alone, that could
make a big difference

By Crystal Kua
Star-Bulletin

If the Honolulu Star-Bulletin were put on the market, it would have its name, subscribers, advertisers and possibly more to offer.

But it might be a tough sell, media analysts believe.

"I think it makes a difference on what you're buying," said Gerald Kato, a University of Hawaii journalism professor.

While a deal might involve only the assets, it also could include continuing as a partner in the joint operating agreement with the Honolulu Advertiser.

When U.S. District Judge Alan Kay last week granted a preliminary injunction requested by the state to put on hold the announced Oct. 30 shutdown of the Star-Bulletin, some observers said that could lead to the Star-Bulletin being put up for sale.

And while it may not be clear what a buyer would get, the circumstances surrounding the Star-Bulletin would not make it a lucrative investment, one newspaper broker said.

"It's an afternoon paper and it's declining in circulation," like other afternoon papers across the country, said Tom Bolitho, an Oklahoma-based newspaper broker.

In 1993, when Gannett Co. sold the Star-Bulletin to Liberty Newspapers Limited Partnership to buy the morning Advertiser, the Star-Bulletin's daily circulation was about 88,000 and the Advertiser's was approximately 105,000.

An audit this year put the Star-Bulletin's daily circulation at about 67,000 and the Advertiser's at nearly 105,000.

Potential buyers also would have to compete against the Advertiser, which is backed by a large media conglomerate in Gannett, Bolitho said."It's tough," he said.

The 12 percent return

Rupert Phillips, the general partner of Liberty Newspapers, said last month when he announced the Star-Bulletin's closing that he was receiving a 12 percent return on his investment but that he could have made 20 percent or more at a mainland newspaper.

In 1993, Star-Bulletin employees explored buying the newspaper, retired Star-Bulletin reporter Phil Mayer recalled."There was exploration on the possibility of employee ownership, but it was decided that at the time it shouldn't be pursued," he said.

Mayer said he was uncertain if the same conditions are in place now, but "yes, I think it should be considered again as one of several options."

Bolitho said an employee buyout has been done in other places, such as at the Kansas City Star, but that those employees ended up selling to a large chain. "Employee ownership is tough because everyone wants to run the thing," he said.

Hunting potential investors

While rumblings of local investor interest in buying the Star-Bulletin have been heard, Kato is skeptical."Given the economy (in Hawaii), I don't know what kind of local group can put together a package like that," he said.

Phillips' Liberty Newspapers Partnership paid Gannett $15 million for the Star-Bulletin in 1993. Gannett plans to pay Phillips $26.5 million as part of the agreement to terminate the Star-Bulletin.

Mayer, also a member of the Save Our Star-Bulletin group that has filed a lawsuit to stop the closure, said the committee is sending feelers to potential investors in the event the newspaper is offered for sale.

Kato said the best thing for Gannett and Liberty to do in light of Kay's injunction is to put the Star-Bulletin up for sale. They then could go back to court and say, "We tried. We made a good faith-effort," he said.

Because the federal court case is treading on uncharted legal ground, it is not known what role, if any, the court could play in overseeing any sale of the Star-Bulletin.

"The court puts a new wrinkle in the whole thing," Kato said.

Clues on what could be included in a sale of the Star-Bulletin can be found in the document that sets out the terms of the combined operations of the Honolulu dailies.

What the agreement provides

Commonly called the joint operating agreement between the Advertiser and Star-Bulletin, the Jan. 30, 1993, agreement also sets up a partnership to oversee the "new" Hawaii Newspaper Agency, the entity that carries out the joint operations of the two newspapers. That includes functions such as printing and handling advertising and delivery for both papers.

Under the agreement:

(PI) Liberty acquired certain Star-Bulletin "assets" from Gannett Pacific, a Gannett subsidiary that had owned the Star-Bulletin.

(PI) Gannett Pacific transferred to the Advertiser all of its capital stock in the "old" HNA.

(PI) All the assets of the old HNA were transferred to the Advertiser, which also assumes the liabilities of the old HNA.

(PI) Capital assets for the joint business operations of the two newspapers were contributed to or made available to the new HNA partnership.

In exchange for its interest in the limited HNA partnership, the Star-Bulletin's contribution included a list of subscribers and advertisers, its name, title, masthead, all intangible rights and privileges including copyrights and trademarks, and $100.

The Advertiser's contribution would be the same, except that it also contributed 100 percent of the assets of HNA and its interest in capital used to operate both newspapers.

Kato said the ability to assume Liberty's role in the joint operating agreement and Liberty's interest in the HNA partnership would make the Star-Bulletin more attractive.

"If you're buying Rupert Phillips' share of the JOA, that might make it a little better."

Wayne Cahill, administrative officer of the Hawaii Newspaper Guild, the union which represents most of the Star-Bulletin employees, said the ability for a new owner to continue in the joint operating agreement is essential to the sale of the Star-Bulletin."That's what would make it viable,"he said. "Otherwise, you'd have to build a brand new printing plant, and that would cost upwards of $100 million to $150 million."

Does the JOA come with it?

The state attorney general's office apparently also believes Liberty's limited partnership interests in HNA and Liberty's contractual rights under the joint operating agreement could be sold to a new owner, according to its suit.

That lawsuit is asking a federal judge "that defendant Liberty be enjoined from ceasing to publish the Honolulu Star-Bulletin unless such defendants give public notice that all assets of the Honolulu Star-Bulletin, its limited partnership interests in HNA and the contractual rights under the Joint Operating Agreement are for sale."

Deputy Attorney General Rodney Kimura, who is handling the state case, could not be reached for comment. Lawyers on the mainland for Liberty and Gannett lawyers did not return calls for comment. Gannett's Honolulu lawyer, Lisa Munger, said: "I really couldn't comment."

All things considered, newspaper broker Bolitho believes that investors looking for just a financial gain might be better off putting their money somewhere else.

"You'd rather put it in CDs (certificates of deposit)," he said.

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‘Broken Trust’ authors
worry about a one-
newspaper town

By Treena Shapiro
Star-Bulletin

If the Honolulu Advertiser becomes the city's only daily newspaper, the community will need to be doubly vigilant and doubly committed to holding it accountable, said "Broken Trust" co-author Randall Roth.

Roth and two other co-authors -- retired state Appellate Judge Walter Heen and senior U.S. District Judge Samuel King -- yesterday addressed the Honolulu Community-Media Council about their concerns with a one-newspaper town.

"Right now, I'm concerned about what the newspaper that's going to be left has in the way of ethics, in the ways of journalistic policy, integrity," Roth said.

The discussion was based on the authors' negotiations with the Advertiser and the Honolulu Star-Bulletin over publication of the "Broken Trust" article in 1997. The article prompted the investigations of Bishop Estate that led to the removal of the estate's trustees this year.

Roth suggested that if the Advertiser had published the article, it would have done so in a way that would have stripped it of impact. It originally was submitted to the Advertiser, but after weeks of negotiation, Roth said the authors failed to reach a satisfactory publication agreement with Advertiser Editor Jim Gatti.

The authors left negotiations with Gatti after reaching a tentative agreement to publish the article in the Advertiser's Aug. 17, 1997, edition as an editorial with no lead story.

"I'm not at all sure that it would have ever been published if we had stuck with the Advertiser," Roth said.

Roth took "Broken Trust" to Star-Bulletin editors Dave Shapiro and Diane Chang on Aug. 8. The article appeared in the Star-Bulletin the following day.

Roth said the Advertiser's Focus section Aug. 17 was filled with criticism of the article, and included a column by Gatti explaining why he refused to print it.

Gatti yesterday said it had been the Advertiser's intent to print the article, after clarifying certain points and giving every person named in it an opportunity to respond. However, he said the authors insisted the article be printed on Aug. 10 or they would take it to the Star-Bulletin.

Gatti said his response at the time was: "We cannot publish this under threat of what appears to be an ultimatum."

During a question-and-answer period, Jeff Portnoy, an attorney for the Advertiser speaking on his own behalf, criticized the media council for what he saw as an unwarranted and unseemly feeding frenzy that followed the announcement of the Star-Bulletin closure. "I think many of you have lost sight of all the good things the Advertiser has done and will continue to do," he said.

"The one media outlet that has done more for opening up government, for fighting closed government, for spending money to attack institutional bureaucracy and secrecy has been the Advertiser," Portnoy said.

As for maintaining two papers, Portnoy, who subscribes to both, said, "We have been spoiled, we have been lucky and we are not being realistic."

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Star-Bulletin closing Oct. 30, 1999
Kay issues preliminary injunction
Text of preliminary injunction
Text of refusal to lift injunction