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Edition: U.S. / Global



By B. DRUMMOND AYRES Jr., Special to the New York Times
Published: July 24, 1981

WASHINGTON, July 23— The Washington Star, a 128-year-old daily long regarded as one of the best afternoon newspapers in the country, will cease publication on Aug. 7 because of continuing circulation and economic losses.

The decision by Time Inc., which has owned The Star for three and a half years, comes after an $85 million effort to make the paper profitable and competitive in a leading journalism market. The closing will leave the capital with only one daily, The Washington Post, a morning publication.

Time announced its decision this morning, saying that it was losing about $20 million a year because The Star's 25 percent share of the Washington area advertising market had not increased and because daily and Sunday circulation was declining with each press run.

Continuing Circulation Decline

The Star informed its readers of the decision in a black-bordered article headlined simply, ''An Announcement.'' Most of the paper's 1,400 employees learned about the closure from early morning radio and television news reports.

The Star, regarded in Washington political circles as moderate to conservative in editorial outlook, printed 323,000 copies today, compared with 349,000 printed the day it was purchased by Time Inc. from Joe L. Allbritton, a Texas financier. The Post, liberal in editorial outlook, printed about 618,000 papers this morning, compared with 568,000 when The Star changed hands.

''This is a sad day for all those connected with The Star,'' J. Richard Munro, president and chief executive officer of Time Inc., said this morning in announcing that the attempt to assure Washington a ''second voice'' would be abandoned in two weeks. ''Despite our substantial investment,'' he added, ''the newspaper continues to lose money and shows no prospect of financial improvement. Regrettably, we have no choice but to close it.''

Mr. Munroe said that Time Inc. had invested more than $85 milliof in The Star, including the $20 million paid Mr. Albritton, who bought the paper in 1974 from two Washington families that had closely controlled it for more than a century. Mr. Munro put after-tax losses at about $35 million. Much of the $85 million was used to hire new journalistic talent and to make the paper more spritely, readable, and more distinct, in the hope of setting it apart from The Post and thereby luring new readers and advertising.

Like many other evening papers, The Star has found it hard to compete with evening television and to deliver papers in late afternoon traffic. But the main problem for The Star, Washington's dominant paper into the early 1950's, has been formidable competition from The Post. Published by The Washington Post Company, owner of Newsweek, Time magazine's major competitor, The Post has a wealth of journalistic talent and an aggressive business office.

''We were either naive enough or unrealistic enough to think that we could come in and steal some of the market share from one of the most powerful papers in the country,'' Mr. Munro said at a news conference. ''People buy papers for ads as well as they do for the editorial. We could not wrestle that away from The Post. We bought the paper cheap. That, coupled with maybe our arrogance that we could cgme down here and make an inroad in this market, is what became a conflict.'' Joint Publishing Idea Fails

A last-minute attempt by Star officials to work out a joint publishing arrangement with The Post fell through. Under the proposal, the news operations of the two papers would have remained separate but some commercial functions would have been combined to cut operating costs. Such cooperation, permissible under the Newspaper Preservation Act, exists in a score of cities around the country.

James R. Shepley, chairman of the board of The Star, said the negotiations collapsed because The Post had ''prospects of profit margins'' that it did not want to endanger. ''They have a successful paper,'' he continued ''and they wanted to keep it that way and we weren't able to work out a way to meet their requirements.''

Mr. Shepley added that The Star would continue to publish for two weeks in the hope that someone might make a ''serious'' offer to buy it and keep it alive. But he was pessimistic about that possibility. He warned that the paper might shut down sooner if employees began drifting off in search of new jobs.

In its unsuccessful effort to compete with The Post, The Star brought in new writers and editors, dressed up its pages with more pictures and bolder headlines, added columnists to its moderate editorial pages and began publishing five suburban editions and an early morning edition. A gossip column called ''The Ear'' became must reading. Advertising Edge Unbeatable

For a while, Mr. Munro said, it appeared that The Star was picking up ''modest momentum.'' But the paper, he added, could never overcome The Post's huge edge in advertising. Furthermore, it was forced to deal with labor problems more difficult than those The Post faced, particularly in the circulation area. Mr. Munro also said tight economic conditions contributed to The Star's demise.

''The Post turned out to be an even more formidable competitor than we imagined,'' he said. ''They controlled 75 per cent of the advertising market when we arrived and they control 75 per cent as we exit.''

The announcement that The Star would close not only shocked its staff but also drew comments of concern from the White House, from Capitol Hill and from publishers, editors and reporters around the country.

''It is an extremely sad day when a newspaper announces it will cease publication,'' President Reagan said in a statement released by his press office.

''A sad day for Washington and the newspaper business,'' said Donald E. Graham, publisher of The Post. ''The Star is a great newspaper,'' he added.

The closing of The Star widl leave only about 50 cities in the United States with two or more separately owned newspapers. In 1930, there were more than 280 such cities. Employees Cite Raises Given Up

Although Time Inc. announced that it would help The Star's employees find new jobs and would honor union severance agreements, many complained of being treated unfairly. They said that management had pledged to keep the paper going through 1982. They observed that many had forgone raises in an effort to keep the paper afloat.

''I never believed they'd do it,'' said Mary McGrory, the veteran Star columnist. ''Here we have the capital of the Western world with one newspaper.''

Jack Germond, a co-author, with Jules Witcover, of a Star political column with a national following, said the announcement left him ''angry and sick in my heart.'' As he arrived for work and made his way through reporters and photographers gathered outside the Star building, he paused for a moment to ponder his future.

''I don't know where it goes from here,'' he said. ''We'll just have to see.''

Illustrations: photo of J. Richard Munro, James R. Shepley, and Henry A. Grunwald



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