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The next media mega-merger

Gannett Co, the largest newspaper owner by circulation in the U.S., and its rival GateHouse Media, the largest newspaper owner by number of papers in the U.S., are currently in talks to merge, The Wall Street Journal reports.

Why it matters: The combination of the two publishing powerhouses means that a single company would own 1 in every 6 newspapers in the United States.

Yes, but: For an industry facing near-collapse, consolidation is still considered a better alternative than closures.

  • There's been a net loss since 2004 of almost 1,800 local newspapers. About 70% (1,300 papers) that closed or merged were in metro areas (suburbs).

Details: GateHouse, which is owned by New Media Investment Group Inc, has a reputation for slashing costs and consolidating resources.

  • Industry analysts say they expect cost synergies between the two companies to come from sales and operational roles and point to examples of ways the newspaper giant has consolidated resource hubs around the country, like GateHouse's Center for News and Design in Texas.

Between the lines: Gannett may have finally found a friendly suitor after blocking a hostile takeover attempt from New York hedge fund Alden Global Capital in May. Another suspected takeover of Tribune, by McClatchy, also derailed last winter.

Be smart: Unlike some recent mergers in broadcast and telecom — also legacy industries upended by technology — experts don't believe that the deal would cause any regulatory concerns, because the companies don't really overlap in key markets.

  • "People get excited about consolidation among media properties, but I think these two companies still represent a small percentage of news publishing and I don't see in them any true antitrust concerns," says David Chavern, CEO of the News Media Alliance, a newspaper trade association that represents thousands of papers.

The big picture: Consolidation in the newspaper industry is rapidly increasing as consumers and advertisers flock to digital alternatives. Large, publicly-traded, newspaper holding groups are consolidating most of the power.

  • For example, a study from UNC's School of Media and Journalism last year found newspaper sales and closures/mergers via the 7 largest newspaper owners have increased over the past 5 years.

The bottom line: "I think this is part of a continuation of local news publishers trying to get to an economically sustainable business model," says Chavern.

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