Court gives UPI breathing room to seek buyer and reorganize its news operation

The second ``take'' in the United Press International story is in, and it holds some comfort for the struggling news service. UPI filed for protection from its creditors under Chapter 11 of the bankruptcy code on Sunday. On Tuesday a federal bankruptcy judge approved an interim plan for UPI that will allow it to pay its employees and continue operating.

The wire service is also negotiating with the British news service Reuter and a Florida-based group of investors about buying UPI.

New ownership may be the wire service's best option, analysts say.

``UPI can't survive in its present form,'' says Sam Kuczun, a professor at the School of Journalism at the University of Colorado at Boulder. When newspapers cut costs, he says, UPI often ends up on the scrap table because there are so many other news sources today. UPI's 20-year-old deficit, which has forced the company to hold down costs while the other major wire service, the Associated Press, has expanded operations, has also dealt UPI a blow, he says.

``They are a for-profit organization and their major competitor is a nonprofit cooperative [AP],'' he says. AP, which is the older and bigger of the two major wire services in the United States, consists of member newspapers that pool stories and services. As such, member papers have an interest in keeping it afloat. When AP expects a deficit, it can raise the amount it charges members, and the members comply.

``AP has always been supported by the biggest and most profitable papers in the country,'' says Cortland Anderson, director of the E. W. Scripps School of Journalism at Ohio University at Athens. ``Whatever needed to be done to keep AP going, they [the members] did. It's a unique attitude.''

That is an attitude that clients of UPI do not have, says Professor Kuczun, who worked for UPI in the 1950s. UPI's contracts with its clients don't allow the same rate flexibility. And since World War II, UPI has often sold its services at a discount to attract and keep clients, dousing the company in red ink. The last quarter of 1984 was the first time UPI has turned a profit in 20 years.

The losses did not become an overriding problem until the E. W. Scripps Company sold UPI in 1982. E. W. Scripps, who founded UPI in 1907 and was said to have considered UPI his proudest achievement, had deep pockets. But UPI's debts have overwhelmed the new owners, the Media News Corporation. On Tuesday, UPI attorney Richard Levine said that the company's liabilities were $35.4 million against approximately $12.8 million in assets. (When it filed for bankruptcy on Sunday, it said it had $45 million in liabilities against an estimated $20 million in assets.) Levine said UPI's annual revenues were about $92 million.

The deficit has created an attitude of frugality that is damaging company morale and to UPI's ability to cover events, especially during busy news periods such as a presidential election year, says Kuczun. ``When you have a for-profit organization and world events erupt within a constrained budget, the order to hold down expenses comes earlier in the year. The `downhold mentality' pervades the organization.''

Beyond UPI's unique problems, changes in the news business have hurt UPI far more than AP, analysts say. In the 1970s and early '80s, many newspapers closed or merged with their competitors. Smaller papers have sprung up, leaving almost the same number of potential clients. But that does not translate into the same revenue potential, because UPI and AP charge larger papers a higher rate than smaller papers.

UPI is finding competition in another arena: the syndicated wire services. The supplemental news services -- from the New York Times, the Los Angeles Times-Washington Post, KNT (Knight-Ridder and the Tribune Company), Dow Jones, Gannett, and Scripps-Howard -- sell subscribers a package of their best news and features stories.

Because most major newspapers have correspondents in key foreign capitals, small papers, who have traditionally had to rely on UPI and AP for their foreign coverage, now have a reliable second voice without UPI. The number of supplementals has increased rapidly in the last 10 years. Today, estimates David Astor, associate editor at Editor and Publisher magazine, there are some 20 to 25 supplemental news services.

UPI spokesman David Wickenden says there is room enough for everyone. UPI hopes to tap the nonmedia market, including people with personal computers. But Mr. Anderson is skeptical of that, contending that there are not yet enough people who want to get their news via computer: ``UPI's needs are immediate. They can't wait for the 12-year-old hackers to become heads of households.''

The best option may be a merger partner such as Reuter or a group of investors headed by Pedro Ramon Lopez, chairman of General Federal Savings & Loan Association of Miami. Reuters, 10 percent of which is owned by Rupert Murdoch, bought UPI's photo operations outside of the US in June. While it has only a handful of bureaus in the US, Reuter has become a major presence in the financial news services market.

If UPI cannot find a merger partner, the outlook for the wire service is bleak, says the University of Colorado's Kuczun. It could strip itself of its overseas bureaus and concentrate on the US and on specific markets such as financial news, where Reuters is a major force, he says. But since UPI's asset is that it has bureaus in obscure places, he says, that would probably hurt as much as it would help.

``One hope that some farsighted editor would see the necessity for two American voices, and subsidize UPI,'' he says.