By Melissa Houston

Media industry watchers were abuzz with speculation last week after the U.S. Department of Justice revealed it was investigating possible antitrust problems with a Village Voice Media and New Times Corp. deal in which each company agreed to close a newspaper in the two markets where the chains competed, leaving both cities with one alternative weekly.

News of the probe circulated after attorneys in the federal agency's antitrust division contacted numerous people who might have information about an agreement announced Oct. 2 to close VVM's 10-year-old Cleveland Free Times while New Times shut down its 6-year-old New Times Los Angeles. Under the deal, according to an Oct. 7 New York Times article, VVM paid New Times $8 million and gained exclusive control of the lucrative alternative press market in L.A. The closures leave New Times, the nation's largest alternative newspaper chain, with 11 publications, including San Francisco's SF Weekly and the East Bay Express.

A source who once worked at VVM's remaining LA Weekly, and who was interviewed by the Justice Department, told the Bay Guardian that 15 to 20 former and current employees of the LA Weekly and New Times Los Angeles have so far been contacted by federal attorneys. The investigation has also included former employees of the Cleveland Free Times.

The Los Angeles Times reported Nov. 16 that federal prosecutors issued an order Nov. 8 demanding New Times and VVM turn over all documents, correspondence, e-mails, and telephone messages related to the negotiations. VVM CEO David Schneiderman and New Times executive editor Michael Lacey could not be reached for comment before press time.

According to a Washington, D.C., source, attorneys launched the probe a few days after receiving a complaint Oct. 11 from U.S. Rep. Dennis Kucinich (D-Ohio), who was highly critical of the deal and suggested the media companies violated the 1890 Sherman Antitrust Act, which outlaws persons or companies from conspiring to monopolize an industry. Kucinich represents Cleveland as part of his district.

Critics of the New Times-VVM deal say the agreement may be a textbook case in illegal market sharing. Each of the now defunct weeklies, after all, handed over its advertising client lists and automatically directed all Web viewers and callers to its former competitor (see "Bad Times," 10/09/02).

"Frankly, there is nothing to investigate," Joseph M. Alioto, a noted antitrust attorney based in San Francisco, told the Bay Guardian. "The federal government ought to be embarrassed by the obvious and blatant violation of the law that they might be forced to actually do something."

The deal is likely to lead to increased advertising rates in Los Angeles and in Cleveland, not to mention one fewer editorial voice in each city.

If VVM and New Times are found to have violated the Sherman Act, each company could be liable for up to $10 million in fines, and their executives could be penalized by as much as $350,000 a person, according to the law.

The LA Times also reported Nov. 16 that, in addition to Justice Department attorneys, lawyers from the U.S. Attorney's Office were involved in the investigation, meaning the federal government could be considering criminal charges against the two alternative newspaper chains and those in upper management involved in the negotiations. A Justice Department spokesperson did not return two telephone calls for comment.

Attorney General John Ashcroft's Justice Department hasn't aggressively scrutinized large-scale corporate mergers, leaving some in legal circles skeptical that much would come of the ongoing federal review. But Ashcroft isn't the only one involved: California attorney general Bill Lockyer's office confirmed this week that it is involved in the investigation. Lockyer, a Democrat, has pursued legal action against Microsoft, Pacific Gas and Electric Co., and other energy suppliers.

"We are reviewing the transaction to determine if there are any violations to the state [antitrust] statutes," Lockyer spokesperson Tom Dressler said. Dressler declined to specify if his department was moving forward with a criminal or civil investigation. Ohio state prosecutors are also believed to be involved in the probe.

Though the Justice Department has rarely pursued antitrust suits against daily newspapers, it's entirely possible the Republican administration is eager to go after the alternative industry, particularly the left-leaning Village Voice. "One has to suspect John Ashcroft's motives in all of this," said Danny Schechter, who runs the media-issues Web site Mediachannel.org. "Weakening the alternative/independent media sector is an issue. It is hard to imagine that the government will wink at consolidation in other media sectors and step in here."

Media pundits have also discussed what the potential fallout could be, particularly for New Times. Indeed, the Phoenix-based chain, with its reported $80 million in yearly revenues, has long been considered a ruthless player in the alt-weekly market. For years the company has built its reputation for buying up papers in key markets and moving to crush competition. In at least three markets, New Times has bought and shut down competing papers. Newspapers in its chain have also been known to undercut competitors by virtually giving away advertising space.

In January 2002, Bay Guardian attorneys formally demanded the SF Weekly stop engaging in anticompetitive practices, including offering free color ads to music retailers and huge discounts to club promoters, among other incentives to lure advertisers from the Bay Guardian (see "The Predatory Chain," 3/06/02).

The scope of the current investigation thus far remains unclear, but there is at least some indication the Justice Department is looking into the situation in San Francisco. Bay Guardian editor and publisher Bruce B. Brugmann received a telephone call Nov. 8 from the same federal attorneys, Maurice Stucke and Carol Bell, who are conducting the Los Angeles and Cleveland probe. The interview, however, was cut short when Brugmann informed the government's attorneys he would not talk privately with Justice Department officials, would provide only public information, and would reserve the right to publish anything from the discussion.

Another possible indication: on Sept. 30, two days before the deal between New Times and VVM was made public, San Jose-based newspaper chain Metro, which publishes the Metro Silicon Valley, the Metro Santa Cruz, and the North Bay Bohemian, announced it was shutting down its Urban View in Oakland, where it competed against New Times' East Bay Express. It also announced it was handing over its national sales effort to the Ruxton Group – also operated by New Times.

The press release crowed, "[The Metro-Ruxton Group agreement] will allow advertisers the most comprehensive coverage of the highly coveted 18 to 49-year-old demographic group in the SF Bay Area."

Metro owner Dan Pulcrano could not be reached for comment by press time on whether the Justice Department lawyers had contacted him.
E-mail Melissa Houston at melissa@sfbg.com.