SFBG Blogs

I’ll start with a correction: I wrote last week that Cleveland and San Francisco were the only two cities where the chain that owns the SF Weekly faces direct competition from another alternative paper.

Actually, Village Voice Media, which used to be called New Times, owns the Seattle Weekly. The Stranger, owned by Tim Keck, competes directly against the Weekly.

And the LA Weekly, also a VVM paper, competes against the much smaller Los Angeles City Beat.

My point – and the point that we brought up in trial – was that VVM does very well in markets where there is no direct, head-to-head competition from another alternative paper of the same size and market share, but does badly when it faces real competition. I’m not the only one who thinks this; allow me to quote a Jan 27, 2003 filing by the U.S. Department of Justice, which had accused New Times and VVM, which were still separate companies, of conspiring to kill competition in two cities.

“In markets where they faced no direct alternative newsweekly competitor,” the federal complaint reads, “both defendants had double-digit annual profit margins. However, in Cleveland and Los Angeles … their profit margins were pinched.”

So I think that’s pretty clear.

The bigger story, of course, is that testimony ended today in the Guardian’s predatory-pricing case against the SF Weekly and its corporate parent. Judge Marla Miller has set closing arguments for Thursday morning. Then the case, which has been pending since 2004, will finally go to a jury.

The Weekly’s lawyers pulled a weird move at the very end of the trial, recalling Guardian publisher Bruce Brugmann to the witness stand and asking him a question that had almost nothing to do with the issues at hand. Brugmann had testified early in the trial, and on cross-examination, he was asked if he knew that the San Francisco Chronicle had lost some $300 million over the past few years.

No, Bruce said; Hearst Corp, which owns the Chron, is a privately held corporation and nobody’s sure exactly what the numbers are.

This time around, Weekly lawyer H. Sinclair Kerr pulled out a Guardian story from a year ago that reported on court records showing a $330 million Chronicle loss. I guess the implication was the Bruce didn’t remember what was in his own paper (frankly, I didn’t remember the exact figure either; I review almost every one of the hundreds of news stories we run every year, but I can’t swear to recall every detail of every single one).

Bruce’s response: Sure, we reported on the best figures we could find. And the point was?

Of course, the Weekly is trying to argue that since some daily newspapers are losing money, it would be reasonable to expect any an alternative newspaper in San Francisco to lose money, too. And thus any financial hit the Guardian has taken over the past seven years is the fault of market conditions, not predatory pricing by a big Phoenix-based chain.

The final witness in the case – Bill Johnson, the publisher of the Palo Alto Weekly, called by the Guardian to rebut the Weekly’s financial experts – made a strong case that the whole “dailies-are-losing-money-so-the-weeklies-should-too” line of argument is deeply flawed.

Johnson, whose company also owns the Pacific Sun and four community papers, testified that “there are big differences between the way market forces have affected dailies and non-daily papers.”

He pointed out that dailies have been hit much harder by the Internet: Before sites like Craiglist emerged, a large percentage of the revenue of daily papers came from classified ads, most of which have moved to the web. Weeklies were never as dependent as classified, he said.

Perhaps more important, much of the information that readers used to get from their morning daily paper – national and international news – can now be found just as easily on the web.

But papers like the Guardian still offer unique local content that can’t be found anywhere else. “Local papers have this connection with their local audience,” he explained. In fact, he said, “most non-daily publishers I know have done very well” during the past seven years, the time period the lawsuit covers.

He explained that the Palo Alto Weekly saw its display-ad revenues drop in 2002, but quickly rebounded. The dot-com bust and 9/11 had an impact, of course, he said, but after a year or so, “we held our ground and regained ground.” That was also true of his other Bay Area papers, Johnson said.

Johnson also discussed the Weekly’s theory that the San Francisco market is so full of media that the two alternative papers aren’t direct competitors in their own market. “Those two papers are looking for the same audience,” he said.

Johnson, who sat through the testimony of Harvard economist Joseph Kalt, completely dismissed the eminent professor’s theory that it would be irrational for the Weekly to try to damage the Guardian through below-cost selling. If one paper has deeper pockets and can drop its prices, it will gain market share. The smaller competitor will be forced to lower its prices, and both papers will start to lose money. But the paper with greater resources can continue to grow, showing advertisers that it’s becoming dominant in the market, and the paper with no source of outside capital won’t be able to keep up.

“It happens all the time,” Johnson said.

Kerr objected, and Judge Miller ordered that last remark stricken from the record.