The jury in the Guardian’s lawsuit against the SF Weekly got a primer today on how prdatory pricing by a big chain works.
Guardian controller Sandy Lange took the stand, and outlined the results of information she’d compiled on below-cost sales by the Weekly and the East Bay Express. The Guardian is charging that Village Voice Media, formerly known as New Times, which owns the Weekly and until recently owned the Express, has been selling ads below the cost of producing them to harm a competitor.
That’s a violation of California law.
Lange explained how she and other Guardian staffers and legal assistants had entered into an Excel spreadsheet some 20,000 sales transactions from the Weekly and the Guardian, involving 128 accounts, over eight years, from 1999 to 2007. In each case, the computer tracked whether the Weekly’s ads were sold below cost — and how often those cut-rate sales were linked to the Guardian either losing a client or being forced to cut prices to salvage the deal.
The spreadsheet showed that in 91 percent of the transactions, the Weekly’s sale price was below cost. That’s consistent with data Lange presenting showing that the Weekly had consistently lost money. In 2003, she noted, the cost of producing a page of the SF Weekly was $1,936.17 — and the paper’s revenue was just $1,634.36. That meant the Weekly was losing about $300 for every page it produced. A few years later, the gap had grown: The cost of producing a page was $2,730 and the revenue was $1,900 — meaning the Weekly was losing $800 a page.
How was this possible? Simple: The chain kept pouring in money from its 15 other markets to prop up San Francisco and the East Bay.
Then Lange explained her correlation report: In 34 percent of the transactions involving below-cost sales, the Weekly’s rate-cutting was associated with the Guardian deeply discounting its own ads (threatening the financial viability of a local paper with no deep-pockets parent). And when she added in the accounts that the Guardian lost entirely after the Weekly’s predatory pricing, the total came to 66 percent.
In other words, in two-thirds of the cases where the Weekly had sold below cost, the Guardian had either had to follow suit and sell for less than the ads were worth — or lost the account and the business.
Lange also presented charts that showed how the predatory behavior had eroded the Guardian’s share of the local alternative-weekly ad market.
On cross-examination, Weekly attorney Ivo Labar tried to argue that the market itself had shrunk. In 2000, he pointed out, the two papers together sold $13 million worth of display ads. By 2007, that number had shrunk to $8.8 million. “Isn’t it true,” Labar asked, “that advertisers chose to spend only $8.8 million in 2007?”
Lange said she disagreed with the premise of the question. “Because of your predatory pricing,” she testified, “you put negative pressure on the market.” In other words, the Weekly depressed the costs of all alt-weekly ads in San Francisco.
Labar then pointed to a handful of accounts in which the Weekly either sold ads for a higher price than the Guardian or the Guardian appeared to have lost the business for reasons that had nothing to do with price, and tried to discredit the entire report on the basis of a few examples. That’s been the Weekly’s practice in this case: Take a clear trend (years of below-cost pricing) and clear results (damage to the Guardian) and try to poo-poo it by saying there are a few cases here and there that don’t fit the pattern.
Lange’s testimony will continue tomorrow morning.