Lawyers for the SF Weekly and its corporate parent tried mightily today to discredit the testimony of the Guardian’s expert on the damages caused by the chain’s predatory pricing in San Francisco.
It was a classic legal strategy: The Weekly lawyers tried to find flaws in Clifford Kupperberg’s detailed damage report, then brought in their own expert to argue that our expert was wrong.
But in the end, I didn’t see anything presented that undermined the Guardian’s basic argument: The Weekly’s below-cost sales damaged the local paper, and those damages were in the millions of dollars.
The crux of the attack on Kuppergberg’s data: The projections he showed for lost profits during 2001-2007, the period when the Guardian is charging the Weekly was selling ads below cost, exceeded the level of profits the paper had made in the previous few years.
Projecting damages in a case like this is an inexact science: You have to try to establish what would have happened if the illegal conduct hadn’t happened. Kupperberg used a series of different models to do that, and came up with damages of between $5 million and $11 million.
How, Weekly attorney Rod Kerr asked, could Kupperberg suggest that the Guardian would have made profits of well over 10 percent a year when the most the paper had earned in the previous decade was about 5 percent?
Well, Kupperberg noted, the 1990s were a period of rapid growth for the Guardian and the alternative press in general, and during periods of rapid growth, many companies re-invest profits in expanding their infrastructure. When a market starts to level off and mature, those investments pay off; that’s a period he called the “profit maximization level.”
So it wouldn’t be at all unreasonable to assume that, after spending money to expand in the 1990s, the Guardian might have been able to hold costs down and see real economic gains in the next decade.
The other point, of course, is that the Guardian’s owners, Bruce Brugmann and Jean Dibble, have never looked for high profits – all the money has been re-invested in the paper. So the money that the Guardian lost to SF Weekly’s predatory pricing might not have appeared on a balance sheet as “profit” – it might have appeared as higher expenses associated with improving the paper.
Kupperberg made another important point in his testimony: Ralph Alldredge, the Guardian’s lawyer, asked him directly: “Is there any doubt in your mind that the SF Weekly sold a significant percentage of its ads below cost during this period?”
“No,” said Kupperberg.
Then the Weekly brought in it’s expert, Everett Harry, who did the opposing-expert-witness thing and tried to say that Kupperberg’s figures were all wrong. His basic line was the same thing the Weekly has been retailing all along: The early part of this decade was marked by a recession, 9/11 and the rise of the Internet, all of which hit local newspapers and led to a decline in revenues.
But other weekly newspapers in the region (and weeklies all over the country) came out of the recession fairly quickly and saw revenues (from display ads, which are what this case is about) come back strongly. And between 2001 and 2007, there is no evidence that the Guardian lost any display ads to the Internet.
The San Francisco alternative weekly market was unlike markets anywhere else: One competitor, with $13 million in chain money to back it up, was systematically depressing the price of display ads. And the Guardian suffered damages as a result.
I have more when Harry finished his testimony and is cross-examined tomorrow.