Tim Redmond

Our expert, their expert

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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.

The damages: $5 – $11 million

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An accountant with more than 30 years experience analyzing damage claims in lawsuits testified today that the SF Weekly’s practice of selling ads below cost damaged the Bay Guardian badly – and he put the financial toll at between $5 million and $11 million.

Clifford Kupperberg took the stand in the Guardian’s predatory-pricing suit against the SF Weekly and its corporate owner. The Guardian is charging that the Weekly for more than seven years violated the state law barring companies from selling a product below cost for the purpose of harming a competitor.

Guardian attorney Ralph Alldredge walked Kupperberg through the detailed process of how he evaluated the Weekly’s and the Guardian’s costs, the price of display ad space in the two papers, and the projections he made of how much the Weekly rate-cutting had harmed the locally owned paper.

If the jury finds that the Weekly and Village Voice Media, the chain formerly known as New Times, broke the law, Kupperberg’s calculations will be the basis for awarding monetary damages.

Editor’s Notes

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› tredmond@sfbg.com

There comes a time in any campaign, a political consultant once told me, when you just have to hang up the phone, stop looking at polling data, walk away from the office, and leave it in the hands of the voters. You do everything you can; you work every angle, make the case every possible way you can … and in the end, someone else is going to decide. You can only hope that if you told the truth, played by the rules, and showed why your side was right, in the end you’ll come out on top.

And sometime around the day this issue hits the stands, the Guardian‘s case against the big national chain that owns the SF Weekly will go to the jury. We have the facts on our side. We have the law on our side. We have the truth on our side. And all we can do now is hope the jury sees it.

If you haven’t been following this on the blogs or in the paper: we’re suing the Weekly and Village Voice Media, which used to be known as New Times, for predatory pricing. Our claim is that the Weekly (and until recently, the East Bay Express, which VVM just sold) has been selling ads below cost for the purpose of hurting a local, independent competitor.

Over the past three weeks I’ve been in the courtroom almost every day, watching the story unfold. I’ve learned a lot: the Weekly, for example, has lost money every single year since New Times bought it in 1995. In the past few years the losses have only escalated (to nearly $2 million per year). The paper is still publishing because the corporate parent in Phoenix has shipped more than $16 million to San Francisco to prop it up.

That’s pretty good evidence of the first part of our claim: if the Weekly keeps losing money, the paper is clearly selling ads below cost.

I’ve also seen evidence that the Weekly prepared special Guardian reports every month to send to Phoenix, that the Weekly‘s publishers devoted a special section of their regular financial reports to competition with the Guardian, and that the senior staff regularly talked about the war they were waging on us. Three witnesses testified to hearing Mike Lacey, one of the principals of VVM, announce that he wanted to drive the Guardian out of business.

I’ve seen memos and heard testimony showing the Weekly paid its sales staff bonuses to take ads away from the Guardian. I’ve seen a study showing that in 91 percent of key accounts, the Weekly sold below cost — and in 66 percent of those cases the Guardian either lost the ad or had to deeply discount rates to keep it.

I’ve heard witnesses from the Weekly‘s side testify that the Guardian was just one of many competitors in the market and that they treated it no differently than any other publication. I’ve heard misdirection and lies so blatant that I’ve wanted to stand up and point my fingers at the witnesses and call them out and demand they be indicted for perjury.

And now a jury will have to sort that out. In the end, I think this is a pretty clear case: we are a small, locally owned independent business under assault by a chain competitor that is vioutf8g state law in an effort to take monopoly control of the market. I think we’ve proved that. We’ll know soon.

Weekly publisher dodges the facts

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The publisher of the SF Weekly took the stand Friday and today in the Guardian’s predatory-pricing suit and presented all of the Weekly’s positions as if he’d been rehearsing for weeks.

And in fact, Fromson has been sitting in the courtroom watching most of the trial so far. Most witnesses in legal cases don’t get to watch the proceedings until after they’re done with their turn in the box – it might influence their testimony – but Judge Marla Miller has been pretty lax on that front. She’s allowed one representative from each paper to sit in for the entire case, and Fromson has apparently been the Weekly’s designate.

(She’s also allowed me to sit there and watch, and then write about, the proceedings even though it’s theoretically possible that the Weekly’s lawyers will try to put me back on the stand.)

I have no objection to any of this; I’m simply pointing it out because Fromson’s testimony was carefully targeted to hit all the major points where the Weekly has been weak.

But his carefully buffed lines, delivered like the salesman he is, don’t exactly jibe with the evidence.

Fromson’s line – and the line of the lawyers for the 16-paper chain now known as Village Voice Media – is that the poor beleaguered Weekly was trying really hard to raise its ad rates so that it wouldn’t be selling below cost and would be starting to make a profit. The company, he said, is “concerned with rate growth, revenue growth, and increased profit.”

But the facts show that over the 12 years the chain has owned the Weekly, the paper has never made a profit. In fact, for every one of those years, the Weekly has been selling ads below cost.

Fromson tried to argue that in many cases, the Guardian’s ad rates were actually lower than the Weekly’s, and that he as publisher has had to cut prices to meet the competition from the Guardian. But again, the evidence shows otherwise – while there are no doubt a few cases here and there where the Guardian rates were lower, the overall financial statements from both companies make very clear that the Weekly’s rates were consistently below the Guardian and consistently below cost.

Then he tried to argue that he was cutting rates to meet other competition. In fact, the notion that the Guardian was not the Weekly’s prime competitor – that there were dozens of other media outlets fighting for every ad dollar – is central to the Weekly’s defense.

Fromson talked about fighting with the Onion, the neighborhood newspapers and SFStation.com, among others, for ads, and cited some cases in which he said he’d had to lower rates to meet those competitors’ prices.

But again, the evidence doesn’t lie. The Weekly publishers before Fromson all had to prepare regular special reports on the Guardian – and on no other competitor. Fromsom filed some “Guardian reports” of his own – and he couldn’t point to a single similar report he’d filed on any other competitor.

And anyone with any common sense knows that there’s a market niche for alternative weeklies; if there weren’t, neither the Guardian nor the New Times/VVM chain would have survived and grown over the past three decades.

In fact, Fromson as much as admitted that on cross-examination. Guardian attorney Rich Hill asked if any of the neighborhood papers, or the Onion, were members of the Association of Alternative Newsweeklies or represented by either of the two national ad firms that specialize in alternative weeklies. No, he acknowledged. The neighborhood papers, Hill asked, have much lower circulation and very different types of editorial, don’t they? Yes, said Fromson.

“Are there serious investigative pieces in the Onion?” asked Hill.

“They don’t see themselves doing that,” Fromson replied.

In other words, Hill said, those supposed competitors are actually quite different products, right?

“I don’t agree with that,” Fromson said.

But it became very clear during cross-examination that Fromson did, indeed, see the Guardian as his chief competitor – and that he and the top executives at New Times/VVM were looking for ways to hurt the competitor.

Hill took Fromson through the paper’s finances. In 2005, when he arrived, the Weekly lost $1.8 million. In 2006, with Fromson at the helm, the loss was $2.5 million. And the steep losses continued in 2007.

Hill pointed to several memos showing how Fromson and his bosses, chain president Scott Tobias and CEO Jim Larkin, saw the competition with the Guardian. In one memo, dated Feb/ 24, 2006, Larkin warned Fromson that the Guardian had more ads in the paper. “No way they should be ahead of us in ad count like this,” Larkin wrote.

“They won’t,” replied Fromson. “That is the loudest drum I am beating around here.”

The point of that exchange: Fromson and the higher-ups were concerned not with increasing their rates or making a profit, but with making sure they had more total ads than the Guardian.

“I’m not OK with losing to anyone, least of (sic) Brugman (sic),” Fromson’s email continued.

In July, 2006, Fromson sent an email back to corporate headquarters stating that “we are doing a great job, all things considered.” That came at a time when Fromson’s paper had lost more than a million dollars in just the previous six months.

In November, 2006, Fromson wrote that he was “feeling good about working them over the rest of the year.” Who, Hill asked, is the “them” referred to in that message?

“I imagine it would be the Guardian,” Fromson said.

That same month, while the Weekly was losing $179,000, Larkin wrote to Fromson and said: “great work, let’s keep it going.”

And in Fromson’s Nov. 30,2006 “Guardian report” to Larkin, he wrote: “As you can see, we are winning the battle locally and nationally.”

Since that clearly wasn’t a battle to be profitable or a successful business, Fromson had to be referring to something else. As Hill put it: “Is that the battle to wreck the Guardian?”

Fromson: “There was no battle to wreck the Guardian.”

One of the things the jury will have to do is decide is which witnesses are telling the truth, and which ones, as the lawyers say, lack credibility.

The Weekly’s expert, laid low

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The chain that owns the SF Weekly brought its star witness to court today, a Harvard economist with a stack of academic credentials who typically works for oil companies and who charges $1,075 an hour. He delivered quite a lecture on his own economic theory of predatory pricing – and then was laid low by a little newspaper called the Bodega Bay Navigator.

Some background before we get into the juicy details.

I was an economics major way back when. I have sat through many lectures by learned economists, have read their learned papers, and have tried to keep up somewhat on the dismal science. And I can say without hesitation that most academic economists live in a world devoid of reality.

Economists try to study human behavior as it’s manifested in markets, but they don’t want to be confused with people who actually study human behavior. They will tell you they aren’t (gasp) sociologists; they want to make everything fit in nice little mathematical theories.

To do that with such non-mathematical concepts as the actions of a small business and its owners in a community, you have to make a lot of assumptions. That’s what economists do; they make assumptions. They assume, for example, that all the participants in a market have the necessary knowledge and information to make the proper decisions. They assume that random factors like politics, love, passion, pride, anger, envy or simple nastiness are never part of the economic equation. They assume that everyone in a marketplace acts “rationally.”

That, of course, is an irrational assumption, particularly when it comes to small businesses (and even more so when it comes to the alternative press). If all of us in this business had acted rationally, there would be no Bay Guardian. There would be no SF Weekly, New Times or Village Voice Media. The entire alternative press exists because some utterly irrational people with little background in business and no rational hope for success decided to start little newspapers. They were – and many still are – motivated by politics, community service, excitement and a lot of other things, but rational business motives were never really high on the list.

Which brings us to the eminent Dr. Joseph Kalt.

Weekly publisher admits below-cost sales

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The former publisher of the SF Weekly admitted today to a key part of the Guardian’s lawsuit against the Weekly and its corporate parent.

Chris Keating, who was the Weekly publisher between 2004 and 2006, was on the stand for cross-examination by Guardian lawyer Ralph Alldredge. After a lengthy discussion in which he discussed numerous examples of efforts to win ads away from the Guardian by cutting rates, Alldredge asked him directly:

“You knew those [prices] were below your cost, right?”

Keating replied, “Yes.”

That’s a significant admission: The Guardian is claiming that the Weekly sold ads below cost with the intent to harm the locally owned paper. That’s a violation of California law.

The SF Weekly’s war of attrition

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Another fascinating day in court in the Guardian’s predatory-pricing lawsuit against the SF Weekly and its corporate owner. The Weekly is now well into its defense case, and the lawyers for the 16-paper chain that owns the paper are making the same arguments they’ve made all along. And they aren’t holding up very well.

The Guardian, as readers of this blog know by now, is claiming that the Weekly and Village Voice Media, the chain formerly known as New Times, sold ads below cost in an effort to harm the local competitor.

Today’s main witness was Jed Brunst, the company’s Phoenix-based CFO. H. Sinclair Kerr, the Weekly’s lead attorney, asked Brunst why New Times decided to buy the Weekly in 1995. “We saw San Francisco as a very vibrant market,” Brunst testified. “We saw it as an opportunity to make money and to practice good journalism.”

It was clear that Brunst was well prepared – much of his testimony seemed pre-rehearsed, which is not terribly surprising. Lawyers in a case like this typically make sure their own witnesses aren’t going to surprise them.

But Brunst got out of the box with a big problem: He said the chain saw San Francisco as a good opportunity to make money. And it became clear as the day went on that the Weekly had never made any money at all. Neither had the East Bay Express, which New Times bought in 2001. Both lost huge amounts of cash.

Mike Lacey ducks the big ones

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I missed the trial on Friday, so if the SF Weekly’s hit man, Andy Van De Voorde, wants to take a swing at me for posting information on the testimony, fine: I’m smiling, Andy. (I’m also not the only person in the courtroom from the Guardian who knows what’s going on and can take notes.)

But before we get to the day’s events, let me do my all-too-regular Van De Voorde correction file. From his most recent blog:

“What’s your official title?” asked Weekly attorney H. Sinclair Kerr Jr. in what is a traditional first question for witnesses.

“I’m the executive editor of the company and apparently the mascot,” Lacey replied.

The remark was a reference to testimony from Guardian executive editor Tim Redmond, who last week said under oath he thought of Lacey as a New Times mascot.

Um, no Andy. I didn’t say that, under oath or otherwise. That testimony was from Jennifer Lopez, who used to work for the SF Weekly.

And jeez, Andy’s in court every day.

Another correction:

[Guardian attorney Ralph] Alldredge was also skeptical about why [New Times CEO Jim] Larkin hasn’t attended the trial—an odd question given that he could have subpoenaed the New Times executive.

Actually, Andy, you might check with your lawyers: This is a California case, and as long as Larkin doesn’t live here and can’t be found within the borders of the state, we can’t subpoena him. Interesting that he hasn’t shown up once for the trial; if he had, we could have compelled him to take the stand and answer a few questions.

Now then, since we have that cleared up, let me go to the day’s events. Here’s our report:

Mike Lacey took the stand in the Guardian’s predatory pricing trial against the SF Weekly and had some trouble answering some key questions.

The editor in chief of the SF Weekly’s parent chain, the VVM/New Times/SF Weekly, said at one point that the SF Weekly was a better paper in “most all respects” to its competitor, the Guardian.

Lacey said that the Weekly was better in layout, stories, design, graphics, readers, everything. Also, he said that the Guardian was “obsessed with City Hall and City Hall minutiae” and the city was full of young people who didn’t vote and weren’t interested in politics and they came to the Weekly.

If the Weekly is such a better paper, Guardian Attorney Ralph Alldredge prodded on cross examination, why does the Weekly sell its advertising at rates so much lower than the Guardian? Why doesn’t a Weekly advertising sales person sell its advertising space at a rate higher than the Guardian? Why doesn’t the Weekly command a premium price?

Lacey ducked the questions.

Predatory pricing: A primer

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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.

Gee, the SF Weekly is bored

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Some interesting evidence emerged in the Guardian’s lawsuit against the SF Weekly and its corporate parent today, most of it in the form of depositions from witnesses. If you were looking for the kind of drama we had yesterday, this was fairly mundane stuff — but if you listened to what a former publisher of the Weekly said in his depositions, it showed exactly why this case has gone to trial.

Before I start on that, though, one note: I’m trying to play this fairly straight, and not get into personality stuff, but I have to say: The Weekly’s hit man, Dandy Andy Van De Voorde, is … how else can I say this? Making stuff up.

From the lead of his blog (if you can call it that) tonight:

After yesterday’s fireworks from Bruce Brugmann, Guardian attorneys returned to their plodding ways Wednesday, subjecting the jury to an entire day of testimony from witnesses who weren’t there.

Brugmann, who treated the court to a three-hour display that included spluttering, shouting and fist pounding yesterday, sat quietly in the gallery as his lawyers put on a noticeably dull performance that had at least two jurors visibly napping at times

Um … I was there yesterday, and I can say with absolute certainty that Bruce Brugmann never once pounded anything with his fist and never shouted. That’s just wrong. It didn’t happen. (I don’t know what “sputtering” is, so I can’t comment on that.)

And Andy: Most bloggers use links to connect to other stuff they’re talking about. You’ve blasted me a few times, but your poor readers don’t have the help of these simple little bits of HTML code that let you go from one blog to another so they can see what you’re attacking. It’s not that hard; I bet someone at your 16-paper chain could teach you how to do it.

Now then, back to the story:

Most of the morning was devoted to the (admittedly unexciting) reading of the deposition of Chris Keating, who until early 2007 was publisher of the SF Weekly and group publisher for the Weekly and the East Bay Express. Keating started out the deposition insisting that when he came to San Francisco (and to a paper that was losing lots of money) he was determined to control expenses and bring them into line with revenues.

In fact, he testified, one of his primary goals was to raise ad rates.

But somehow, that didn’t happen. The losses kept rising — and, apparently with Keating’s permission, the Weekly continued to sell ads below cost.

In fact, Keating admitted that “given the level of costs, [the Weekly was] not pricing at a level to cover those costs.”

In other words, the Village Voice Media chain, which owned the Weekly, was selling ads below what it cost to produce them.

There are three elements required to prove the Guardian’s case: The Weekly and Express had to be selling ads below cost, for the purpose of harming a competitor, and there had to be damages.

Keating as much as admitted to the first part.

Then he proceeded to come close to admitting to the second.

In a Sept. 26, 2005 email that was presented to the jury, Keating, discussing a national ad buy, said the Weekly and Express “would give the most amount of rate break to get the business over the Guardian. If that means I net $18 an inch I’ll take it.”

Keating had previously said that the Weekly needed to sell ads for at least $18.75 to $19.25 an inch to make any profit.

And his deposition was filled with references the the Guardian as the Weekly’s main competitor (a fact that undermines the chain’s argument that the San Francisco market is so diversified that the head-to-head between the Guardian and the Weekly is only a small part of the competitive landscape.)

Evidence admitted this morning showed that the Weekly prepared regular “Guardian reports” on how the locally owned paper was doing in ad count — and that there was no other competitor that rated that sort of treatment.

The Guardian lawyers also presented parts of the deposition of Jed Brunst, the chain’s top financial officer, who was asked what happened when the Weekly was losing money and couldn’t pay its bills. Simple, he said: The Weekly got “cash advances from the parent.”

Did those “advances,” he was asked, come with promissory notes or anything else that would suggest they were loans?

No, Brunst said. Nothing like that.

In other words, the chain was propping up a money-losing operating in San Francisco, which was selling ads below cost in an effort to get the business away from the Guardian.

That’s quite a set of admissions. Sorry Dandy Andy was bored.

Weekly tries a “gotcha” — and fails

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It was a wild day in court in the Guardian’s lawsuit against the SF Weekly. Bruce Brugmann took the stand. He generally made the SF Weekly’s lawyer look silly – but the Weekly’s out-of-town hit man, Andy Van De Voorde, was almost giddy with his attempts to say that Bruce Brugmann did poorly as a witness.

I’m biased, of course (so is the hit man), but I have to disagree: Bruce laid out the Guardian’s history, explained how the Weekly had attacked us, and stood up remarkably well under a cross-examination that may have given Van De Voorde something to write about, but didn’t really present many relevant facts to the jury.

Several times during cross examination, Weekly attorney H. Sinclair Kerr tried to pull the legal equivalent of a “gotcha.” He kept pushing the notion that the media marketplace in San Francisco is so crowded with so many competitors that the Weekly and the Guardian really aren’t fighting over a discrete slice of that market. Bruce had none of it. Kerr kept trying to get Bruce to talk about competition in general and kept trying to get him to admit that the Weekly isn’t our biggest or most important competitor; Bruce would have none of it.

“I’m talking about competition in general,” Kerr said at one point.
“Well, I’m talking about competition with New Times,” Bruce replied.

Kerr tried to say Bruce wasn’t much of a publisher because he didn’t go on sales calls, but Bruce made quick work of that, too, saying that he was the Guardian’s editor as well, that editors generally don’t do sales calls, that we have a sales staff to do that, and besides “I’m a busy guy – I’m blogging.”

The jury members laughed.

Guardian trial heats up

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› tredmond@sfbg.com

The fireworks have started to explode in the trial of the Guardian‘s lawsuit against the SF Weekly and its chain parent corporation as three witnesses testified that the chain’s top executive had vowed to put the Guardian out of business.

Lawyers for the Weekly and Village Voice Media, which owns the San Francisco paper and 15 others, tried aggressively to undermine the critical testimony. The Guardian is claiming the SF Weekly sold ads below cost for years in an effort to damage the local competitor. That’s illegal in California.

The Weekly lawyers aren’t putting up much of a fight so far over whether the paper sold ads at such cheap rates that it was losing money. In fact, evidence presented in court shows that VVM has lost $25 million over the past 11 years in San Francisco and the East Bay, where the chain until recently owned the East Bay Express.

But VVM lawyers H. Sinclair Kerr and Ivo Labar have contended the Weekly and the Express were simply cutting rates to meet competition or were trying to increase market share — and harming a competitor was never a motivation.

Three Guardian witnesses provided evidence to the contrary. Jennifer Lopez, Carrie Fisher, and Andrew O’Hehir all worked for the Weekly when the chain, then known as New Times, bought it in 1995. Lopez sold ads, Fisher was copublisher, and O’Hehir was the editor.

All three testified that Mike Lacey, one of the two top executives at the chain, arrived at the Weekly offices in January 1995 to announce the sale and told a meeting of the staff that he intended to wipe out the local competitor. At one point, Fisher said, Lacey picked up a copy of the Guardian, threw it on the floor, and said, "We don’t just want to compete — we want to put the Guardian out of business."

Two of the early witnesses were Guardian copublisher Jean Dibble and me. Dibble talked about how the paper had survived recessions, economic changes, and legions of competitors over the years but was put on the ropes by the chain’s predatory tactics. I talked about the impact — how the Guardian, which has to live on its revenue and has no chain with deep pockets to subsidize it, has been forced to cut costs, lay off staff, and reduce the size of the paper.

Kerr and Labar pushed us both, trying to make the case that it was the rise of the Internet and the changing demographics of the city that caused the Guardian‘s problems. But in fact, Dibble stated, the Guardian has lost very little display advertising business to the Internet.

On Feb. 4 the Guardian lawyers read from the depositions of Jim Larkin, VVM’s chairman, and Scott Tobias, the chain’s president. Among the fascinating information: Larkin testified that VVM paid between $5 million and $6 million for the East Bay Express and sold it for around $3 million, taking a big loss on the deal. Larkin also said both the Weekly and the Express were profitable when the chain bought them but that they’ve lost money ever since.

Most important, both Larkin and Tobias testified that they received monthly "Guardian reports" focusing on how the Weekly and the Express had been competing with the local alternative newspaper in San Francisco. The depositions were riddled with references to the Guardian as the two VVM papers’ main competitor — which undermines the claim by VVM lawyers that the chain papers were focused on a broad range of other media, not just the alternative-paper market.

In one instance, the depositions show, VVM cut a deal with Clear Channel for naming rights at the Warfield theater that specifically stated the Weekly and the Express would get 85 to 90 percent of the ads from concert promoter Bill Graham Presents, then owned by Clear Channel — and the Guardian would get "15 percent to nothing."

The next phase of the trial will focus on financial data, as the Guardian presents records to the jury that show how the Weekly and the Express were consistently selling ads below cost.

Clinton takes CA: Projection

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CNN is projecting that Clinton will win California. If that’s the case, it will be thanks to her agressive absentee program; she banked a lot of votes over the past month, long before Obama began to pick up momentum.

That’s a big political bounce for Clinton, even if it won’t amount to a huge difference in delegates.

A real convention — or two

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The California results aren’t in, but it’s clear that nationwide, nobody dominated Super Tuesday. Clnton and Obama have split the big states, and will split the delegates in California (even if one of them wins the popular vote). Same for the GOP — there’s no clear winner tonight.

So it looks to me right now as if there’s a very good chance that both parties will go into their nominating conventions without a clear nominee. For the first time in my adult life, the conventions may actually mean something. We could have a pair of brokered conventions, perhaps even with no winner on the first ballot.

Could be wild.

All quiet at City Hall

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San Francisco City Hall — normally a beehive of activity on election nights — is nearly empty. One reporter (Rick Knee, stringing for AP), a couple of political junkies … and that’s about it. The Department of Elections doesn’t even have its usual display screen for election results.

Frankly, nobody’s paying attention to the local election. California’s a big deal tonigh, and the state primary is huge news; municipal elections are lost in the whirlwind. (Of course, let’s remember that the state’s delegate total, which is what really counts, will probably be split pretty close to even, whoever “wins” the state; Paul Hogarth has a good analysis here.

But there IS a local election, and there are results, and we can pretty much call the three ballot measures now.

Prop. A, the parks bond, needs 66 percent of the vote, and has 64.9 percent in the (generally conservative) absentees. That should pass. Prop. B, the police retirement plan, is a slam dunk and will probably get 70 percent of the vote. The rather wacky Prop. C, the Alcaraz “peace center,” is toast, with 73 percent voting no.

An interesting note the the local vote: Hillary Clinton’s absentee-vote effort had paid off, big time. 65,000 people voted absentee, and Clinton is ahead in those votes, 53-38. I think we’re going to see this statewide — Obama will probably win on election day, but Clinton has a huge bank of absentees that he will have to overcome.

Lacey: I’ll bury the Guardian

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lacey.jpg
Mike Lacey, waving, is flanked by attorneys Ivo Labar and H. Sinclair Kerr, left, and Don Moon (who actually IS wearing a puffy coat) right, after hearing testimony about how Lacey told SF Weekly staffers that he wanted to put the Guardian out of business. Photo By Luke Thomas, fogcityjournal.

Three witnesses have testified in the Guardian v. SF Weekly trial that they heard Mike Lacey, a top executive with the chain that owns the Weekly, say he wanted to put the Guardian out of business.

That’s a key part of the case: The Guardian has to prove that the Weekly sold ads below cost – which isn’t much in dispute, since the chain has essentially admitted it – for the purpose of injuring a competitor. The evidence that Lacey, executive editor and one of the two primary owners of Village Voice Media (formerly New Times) intended to damage the Guardian bolsters that point.

The witnesses, former Weekly sales rep Jennifer Lopez, former Weekly co-publisher Carrie Fisher, and former Weekly editor Andrew O’Hehir, all described a January 1995 meeting at which Lacey arrived to tell the staff that New Times had bought the Weekly.

Lacey, along with Jim Larkin, the chain’s other top exec, marched into the Weekly office on Brannan street “with a very intimidating entrance,” Fisher testified. With Lacey and Larkin were Hal Smith, who headed up the chain’s ad sales, and Patty Calhoun, the editor of Westword, a New Times paper.

Lacey launched into a profanity-laced diatribe, Fisher testified, “insulting the office space, insulting the neighborhood and making comments on the quality of the writing” in what was then a small locally owned paper.

At one point, she said, Lacey picked up a copy of the Bay Guardian, threw it on the floor and said “we don’t just want to compete, we want to put the Guardian out of business.” While she said she couldn’t swear to the exactly language Lacey used, “the gist of what he said was very clear.”

Jennifer Lopez, who was a sales rep, testified to the same point yesterday.
Andrew O’Hehir, who was editor of the SF Weekly at the time of New Times purchase in l995, confirmed that story, describing Lacey throwing the Guardian on the floor and saying that the New Times was coming to San Francisco to “bury the Bay Guardian.”

O’Hehir said that Lacey told the Weekly staff that the New Times had “deep pockets and deep resources” and would compete aggressively on both editorial and business fronts with the Guardian, the dominant alternative in San Francisco.

“We intend to beat the Guardian,” he quoted Lacey as saying. In answer to a question a question about the “future relations with the Guardian,” Lacey said that “we are going to bury the Bay Guardian. We would like to put the Bay Guardian out of business.” O’Hehir is now living in New York City and working as columnist for Salon, the online magazine.

H. Sinclair Kerr, attorney for VVM/New Times, sought to minimize the impact of Lacey’s quote by suggesting that Lacey was like a coach coming in to “fire up the team.” No, replied E. Craig Moody, Guardian attorney — in the case of the old Weekly the team was “quickly disbanded.”

In fact, O’Heir was soon fired and most of the rest of the staff either quit or were fired.

The last event of the day was the reading of the deposition of Jim Larkin, the CEO of VVM/New Times. Richard Hill, a Guardian attorney, read the questions from the deposition that he took earlier this year in Larkin’s Phoenix, Arizona office. Ralph Alldredge, another Guardian attorney, sat in the witness box and played Larkin to Hill’s questions.

Larkin admitted in his deposition that the New Times was in a rate battle with the Bay Guardian in San Francisco, but refused to acknowledge that the chain had an advantage because of its size and assets.

Larkin had trouble remember lots of things. He couldn’t remember the Bay Guardian Report that the Weekly publisher prepared each week and sent to him. He was at the Lacey meeting but he couldn’t remember what Lacey about the Guardian or even what Lacey said about anything at the meeting. He denied ever saying he was “going to run the Bay Guardian out of business.”

Larkin also refused to say if he ever put a floor under the Weekly’s below cost sales.

“I try to make money,” he said. “I try to break even. I don’t do things this way.”

Well, if Larkin and his publishers at the SF Weekly and the East Bay Express were operating under Larkin’s mandate to make money, something was going very wrong, because the chain lost $25 million dollars over 11 years, without having one profitable year.

The Guardian claims this is no coincidence – the chain was willing to lose money through below-cost sales in an effort to harm a local competitor, which is illegal under California business law.

The jury trial continues Monday morning at 8:30 before Superior Court Judge Marla Miller.

PS: Andy Van De Voorde is not only nasty, he has no sense of humor. Jesus, Andy, I’m nowhere near cool enough to wear a puffy coat. I do, however, put either my Langlitz Leathers bomber jacket (made by a locally owned independent business) or a waterproof ski jacket over my clothes when it’s pouring rain.

Lighten up, Andy.

Guardian v. SF Weekly update

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I wasn’t in court today in the Guardian’s lawsuit against the SF Weekly and its corporate parent – the lawyers for Weekly wanted me to stay out of the courtroom because they might call me back as their own witness later (I look forward to it, guys). Judge Marla Miller ruled later that I could, indeed, attend in the future, so I’ll continue my first-hand accounts shortly.

Meanwhile, other Guardian representatives were there today, and I’ve gotten a report:

Jody Colley, the Guardian’s former sales and marketing manager, testified about her problems fighting the low advertising prices of the SF Weekly/VVM/New Times during her seven years at the Guardian.
Then she testified, as the new publisher of the East Bay Express,
about the challenges she faces in trying to increase the “unacceptably low prices” that she inherited from the

VVM/New Times ownership of the EBX. The paper was purchased in May 2007 by an independent group headed by Hal Brody.

EBX had losses of $l3 million during its six years of New Times ownership. The SF Weekly and EBX combined lost $25 million during the 11 years of New Times ownership, according to financial exhibits presented by the Guardian. This was evidence of consistent below-cost pricing.

Colley testified that she had agreed to honor the New Times advertising contracts with the EBX, but ran into difficulties because of their low prices. One example that she gave involved the Bill Graham Presents/Clear Channel concert advertising contract. She asked for a copy of the contract but neither BGP nor SF Weekly publisher Josh Fromson would give it to her. She then went directly to BGP to renegotiate the rates, but the company refused.

The trial continues at 8:30 a.m. Friday in the Superior Court of Judge Marla Miller. Carrie Fisher, associate publisher of the SF Weekly at the time of the sale in l995, and Guardian advertising rep Mary Samson are scheduled to testify.

STOP THE PRESSES: Mike Lacey, the executive of the VVM/New Times chain, was given a new title at the hearing.

It was bestowed by Jennifer Lopez, former SF Weekly and Guardian advertising sales rep. She was testified that Lacey, at a meeting of the SF Weekly staff at the time of the New Times purchase in l995, called the Guardian “a piece of shit” and threw the Guardian on the floor and stomped on it. She quoted him as saying, “We want to be the only game in town.” Then Craig Moody, a Guardian attorney, asked her if Lacey was speaking for the New Times and who he was.

She said she thought he was “the mascot for the New Times.”

By the way (and that concludes the court report, and it’s back to me again): VVM, the chain formerly known as New Times, has an out-of-town hit man named Andy Van De Voorde covering the trial. He was happy to take nasty swings at Jean Dibble and Colley (though he wasn’t quite so mean to me, go figure), but he still hasn’t explained why VVM/New Times was willing to lose $25 million in San Francisco, selling ads below cost for 11 years, if the goal wasn’t to damage the locally owned competitor.

I don’t want my coverage of this trial to be about Mr. Van De Voorde. I don’t expect him to be fair (and I’m sure nobody expects me to be fair, either – we work for the two parties to the case).

But I have to say: his reporting has been breathtaking in its personal viciousness. I’ve seen a lot of hit pieces over the years, and been subject to them myself, but this is another order of magnitude altogether.

Personal note to Andy: I don’t believe I own a “puffy jacket.”You might want to run a correction.

BG v SFW lawsuit: I take the stand

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I took the witness stand today to testify in the Guardian’s lawsuit against the SF Weekly and its parent, Village Voice Media, the chain formerly known as New Times. I talked about why I worked for the Guardian, why I’d stuck around for more than 25 years and why I believe in the paper’s misssion.

The point I tried to make: The Guardian is a community institution. We care about this city; we care about people and issues and arts and culture, and whether you agree or disagree with our political stands, we’re part of San Francisco — and our readers have always known that. The Weekly is part of a chain based in Phoenix.

And yeah, I think local ownership matters, and I think independent papers matter, and I think it sucks that the Weekly has been selling ads below cost and trying to hurt our ability to compete. The Weekly has been losing tons of money; when VVM/New Times owned the East Bay Express, that paper lost tons of money, too. Over the past 11 years, the chain has lost $25 million in the Bay Area. That’s what happens when you sell ads for less than the cost of producing them.

And it only works, and it only makes sense, if you have a big chain that can subsidize the losses in the hope that the locally owned competitor will be driven out of business. (That, by the way, is what this suit is all about.)

As I pointed out, I don’t have the luxury the SF Weekly editors do; I have to live with the money we make by selling ads. If that revenue goes down, I have to cut costs. The Weekly editors don’t have to meet that kind of budget; they can just get more money from headquarters.

The Weekly’s lawyer, Ivo Labar, went after me pretty hard on cross-examination. He tried that old saw that the Guardian writes too many stories about PG&E; I told him that if the Washington Post had decided that Watergate was a one-day story, American history would be very different. He suggested that I was a bad editor and that the paper was losing readers because we had nothing valuable to say. I’m afraid I have to disagree.

But in the end, the facts and the law are on our side in this case. I’ll keep you posted.

PS: BeyondChron has been doing a good job covering the trial, which, the online news outlet points out, is about more than just a business dispute — it’s crucial to the future of independent media.

Guardian lawsuit: Opening statements

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The Guardian v. SF Weekly trial swung into high gear today with both sides presenting opening statements and the first Guardian witnesses taking the stand. The early presentations gave a clear sense of where the trial will go.

Ralph Alldredge, representing the Guardian, laid out the essence of the case:

Over the past 11 years, the SF Weekly, later joined by the East Bay Express, have systematically sold ads below cost. The cost-cutting was so dramatic, he said, that during that period the two papers lost a total of $25 million, and those losses have been escalating.

That, he explained, was not because the people who run the Weekly and ran the Express are bad managers. It’s because they were attempting to damage the locally owned competitor. “If you’re not trying to make a profit,” he asked, “what are you trying to do?”

In fact, while the Weekly lawyers have argued consistently (and would argue later in the day) that the market is packed with different competitors, and that the Weekly didn’t see the Guardian as its only or even primary competition, internal memos show that Weekly and New Times staffers were obsessed with beating the Guardian. The memos consistently refer to the “battle” and “the way” and use terms like “frontal assault.” And those memos weren’t discussing the entire universe of competition – they focused only on the Guardian.

In fact, New Times executives put together a quarterly “Guardian report” focused entirely on how well the Weekly was doing taking ads away from the local paper.

In just one instance that Alldredge mentioned, The Weekly inked a deal with Clear Channel in 2005 that was designed in part to take ads away from the Guardian. Under the terms of the deal, the Weekly would get the bulk of the company’s alternative weekly ads – and “the competing paper [the Guardian],” a memo from a Clear Channel official states, “gets 15% to 0.”

H. Sinclair Kerr, attorney for the Weekly, didn’t deny that his client had sold ads below cost; in fact, he admitted it, right up front. But he insisted that all of those sales were perfectly legal because they were done either to increase the paper’s market share or to meet competition.

Kerr posted a graphic showing that the Bay Area is home to more than 140 newspapers and scores of radio and TV stations, and he argued that all of those outlets were part of the Weekly’s competition. “The reason we were selling below cost,” he said, “is because that’s the only price we could get.”

However, memos from his clients that were presented by Alldredge don’t mention any other newspapers or other types of media. It appears clear from the evidence presented so far that the Weekly and New Times executives considered the Guardian their single most important competitor.

The presentations today suggest that the trial will come down to the question of intent and the damage that the Weekly and its chain owners have done to the Guardian.

The Times’ tortured endorsement

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I finally read the entire New York Times endorsement editorial tonight. I’m not surprised the paper endorsed the hometown senator, and I respect the logic (the two top candidates have similar policy positions, but at a time when things are a godawful mess in this country, you need someone who can hit the ground running etc etc.). I disagree, but I understand.

Still, as someone who has been writing editorials for 20 years, and reading NY Times editorials even longer, I have to say: This is the most tortured, inelegant work I’ve seen out of that shop in a long time. It’s a string of choppy paragraphs, held together with no transitions or logic; it reads like it was written by a committee, and it probably was.

You can fault the Times for their positions, and I often do, but damn: There was a time when they had some outstanding editorial writers. And this was a perfect chance to make some resounding, important and inspiring points about the future of the Democratic Party, American democracy and public policy. I’m really disappointed.

Us v. SF Weekly: Some perspective

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Well, jury selection is almost complete in the Bay Guardian lawsuit against the SF Weekly. It now appears that opening arguments could begin Monday morning in Judge Marla Miller’s courtroom in San Francisco Superior Court.

Since the Weekly continues to use its blog posts on the trial as a way to bash us (and me), I was pleased to see a little bit of perspective from another source: BeyondChron.org had a nice piece by Randy Shaw that points out that the Weekly may not be a confident as its blog bluster suggests and that there are larger issues here.

Bronstein kicked upstairs?

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TN-399068_Bronsteinpic.jpg

That’s what it sounds like. The Chron reports that editor Phil Bronstein, who has been a key part of the operation since Hearst bought the paper in 2000, is “leaving his post to take a larger role in the newspaper division of Hearst.”

His new title will be “editor at large.” His job duties haven’t quite been established yet.

It’s funny — a year ago, I would have said the paper desperately needed new direction. The Chron was flailing, heading nowhere, losing circulation and tons of money. But in the past few months, we’ve actually seen some life — opinion pieces and campaigns on the front page (bad ones, for sure, like Chuck Nevius’s crap on the homeless, but at least they were taking on issues), better design, some decent City Hall pieces etc.

So now we get a new editor with deep local roots. I’m holding my breath.

Guardian v. SF Weekly: Here we go

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Lawyers for the SF Weekly failed today to get a delay in the trial of the Guardian’s lawsuit against the paper and its chain parent, Village Voice Media. So jury selection will begin Thursday morning.

The Weekly’s lawyers, H. Sinclair Kerr and Ivo Labar, argued a computer file the Guardian had turned over to them last week amounted to a huge new pile of data that would take considerable time to review. They asked Judge Marla Miller to postpone the trial for 90 days.

But the Guardian’s lawyers, Ralph Alldredge and Craig Moody, pointed out that the computer file was just an Excel spreadsheet containing data that VVM and the Guardian had exchanged some time ago. There was, they said, nothing new in the file, and Miller agreed.

The Guardian is suing the weekly for predatory pricing, arguing that the big national operation has been selling ads bleow cost in an effort to harm a locally owned, independent competitor. As part of his presentation, Alldredge noted that that Weekly lost close to $2 million in 2007, evidence that the paper continues to sell ads below cost.

Jury selection is expected to take no more than two days, and Miller has set opening arguments for Monday.

Editor’s Notes

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› tredmond@sfbg.com

There’s a January report from the San Francisco Controller’s Office that says the city’s transportation policy is failing.

It doesn’t say that in so many words — that might have gotten some media attention — but the implication is clear.

The report is on the taxicab industry, always a fascinating topic, and it’s filled with charts and graphs discussing how much money the cab companies make and how little the drivers make. But in the middle of all of that is a remarkable paragraph that says:

"The resident population in San Francisco appears to be increasing. Since 2000, the Department of Finance reports it has grown by 4.7 percent, or by approximately 0.6 percent per year. Although the Census Bureau believes San Francisco lost population from 2000 to 2005, it too has reported population increase since 2005. Muni trips have slightly declined over the same period — a cumulative negative change of 2.5 percent — while vehicle registrations in San Francisco have increased by 1.5 percent. This suggests that residents may be substituting away from mass transit and into private and personal transport modes."

That reads like, well, a Controller’s Office report, but here’s the translation: More San Franciscans are driving cars. Fewer are taking Muni. It’s not exactly shocking news to anyone who pays attention to traffic patterns in town, but it’s a serious indictment of city policy.

The statistics show a couple of things. One is that the city is, indeed, getting richer — generally speaking, wealthier people are more likely to use private cars. Another is that Muni hasn’t been performing: all of the national and local data show there’s a direct correlation between on-time transit service and ridership (and of course there’s a direct, or rather inverse, correlation between the number of people riding Muni and the number of cars on the streets.)

But what it says to me is that city hall doesn’t really consider the car glut a top priority.

There is no official city goal to reduce the number of cars in town or the number of car miles traveled or the number of vehicles on the streets. The city Planning Department continues to base its land-use decisions on projections of increased car traffic (which has to be accommodated with more garages). Nobody’s calling for a five-year plan to turn the trend around.

It’s going to be a big year for transit policy: the city’s Transit Effectiveness Study comes out in February, and the report on congestion management should be done in June. Perhaps the supervisors can use that information to create goals, timelines, and programs that will reduce — instead of accommodate — cars on the streets.

I’m part of the problem, and I know it: I drive a car, and I drive it too often. I do it because it’s difficult to get my kids to and from school on a bus.

That’s one of the tricky parts of this equation (school buses in a city where everyone has choice and kids from any neighborhood can go to any school), but I have to say, the parking lot at McKinley Elementary School is packed every single morning with people driving schoolkids. You’d think the city could work with the San Francisco Unified School District — maybe organize car pools. Maybe the mayor’s $130,000 per year global warming coordinator could get involved.

We could start with a citywide survey: Why do you drive? Where? What would get you out of your car? Aim for 5 percent per year. It’d be better than what we’re doing now.

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