February 12, 2003

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Monopolies may not hold
Challengers emerge to take on alternative chains

By Camille T. Taiara

Just two weeks after the U.S. Department of Justice reached a settlement in its antitrust case against Village Voice Media and SF Weekly's parent company, New Times Corp., several publishers have stepped forward to fill the void left in Los Angeles and Cleveland when the chains agreed to stop competing against each other in those cities and each shuttered a paper.

On the surface, the emergence of new contenders in those markets indicates that the settlement may very well succeed in what it was intended to do: restore competition where the defendants had granted each other monopolies. But while some hail the deal as a success, others say it isn't doing nearly enough.

On Oct. 1, 2002, top executives at New Times and VVM signed off on a deal to shut down New Times Los Angeles and the Cleveland Free Times. That left VVM with a monopoly in L.A. and New Times with exclusive control of the alternative-newspaper market in Cleveland. VVM paid New Times $9 million for accepting the smaller market (see "New Times Nailed, 1/29/03).

The Justice Department charged the companies with conspiracy and argued the market allocation agreement violated the Sherman Act. Prior to the deal, "competition between the defendants' alternative newsweeklies [in Los Angeles and Cleveland] provided both readers and advertisers with better editorial coverage, heavily discounted advertising rates, and higher quality service," reads the Competitive Impact Statement, filed Feb. 3. "The clear intent and explicit design of the defendants' contractual provisions were to eliminate competition in these markets and prevent others from meaningfully entering."

The VVM-New Times deal included "non-competition" clauses, under which each chain agreed not to publish a weekly in any of the other's markets nationwide, nor solicit each other's advertisers, for a period of at least 10 years. It also prevented anyone from using the shuttered papers' names or assets. Advertisers and Web users were automatically redirected to the closed papers' former competitors.

The U.S. attorney general, along with attorneys general in California and Ohio, challenged the deal, arguing it violated antitrust laws. The government's settlement proposal, filed Jan. 27, requires VVM and New Times to put up for sale all assets associated with the closed papers, including the dead weeklies' names and logos, "for the purpose of establishing a viable competitive alternative newsweekly in both geographic markets." If the companies don't get rid of the assets within 30 days, the government will appoint a trustee to carry out the sale for them – at a price approved by the court.

The Feb. 3 documents specifically leave the door open for future lawsuits on the part of advertisers or readers who have been harmed by the weeklies' closures.

But critics say New Times and VVM still did well in the deal. The Justice Department's settlement did not include any financial penalties. The fines levied by California and Ohio – a total of $440,000 for each paper – represent a fraction of the closed papers' sale price – and amount to chump change for the nation's two largest alternative weekly conglomerates. According to documents filed by the government as part of its investigation, VVM brought in $92 million in revenues in 2001. New Times' revenues for the same year totaled $104 million.

"They recouped their losses," says Silver Lake Press publisher Marin Albornoz, whose publication serves the East Los Angeles neighborhoods, including Silver Lake and Echo Park. "Now they're being rewarded by being able to sell these assets, which in a sense had already been sold. So it's a win-win situation for New Times."

"It is somewhat unusual in that the provisions for divestiture of these assets is to be within 30 days," says Don T. Hibner Jr., an anti-trust lawyer with Sheppard Mullin Richter and Hampton LLP in Los Angeles who has been following the case. "It tells me that there must be somebody out there who is part of this deal at this time – that they're not just searching for a would-be purchaser but that they probably have one in mind that perhaps has already done this deal."

At least one venture in each city is potentially interested in bidding on the assets of the closed papers. In Los Angeles, former mayor Richard Riordan is launching the Los Angeles Examiner, a weekly set to hit the streets June 5 and reportedly targeting an affluent West Side readership. In Cleveland, former Free Times publisher Matt Fabyan and former Free Times editor David Eden have been recruiting some of their old staffers with the intent to resuscitate the folded paper.

"The way it looks now is that someone with deep pockets is just going to outbid everybody else," says Albornoz, who plans to relaunch his paper Feb. 19 as the Los Angeles Alternative Press and increase its circulation, with the eventual goal of expanding from a monthly to a weekly publication. He says the bid proposal offered through the settlement doesn't really help him.

Former Cleveland Free Times associate editor Daniel Gray-Kontar agrees. Gray-Kontar recently launched Urban Dialect, a Web-based weekly with a diverse staff of Cleveland natives, which, as with Alboronz's paper, targets local communities that have remained largely ignored by the chain weeklies. Urban Dialect is set to include monthly print editions beginning March 5. "When we first learned there was the possibility of a settlement, we were very hopeful, because we thought that would mean there would be dollars going toward a start-up that would be able to actually compete with [New Times' Cleveland Scene]," he told us. What we found is that the settlement, in being so restrictive, isn't really benefiting the city at all.

P.S.: The Competitive Impact Statement lists five major anticompetitive acts by VVM and New Times. It's available at www.usdoj.gov/atr/cases/village.htm

P.P.S.: Michael Lacey, New Times executive editor, denounced the antitrust investigation in a letter to the Wall Street Journal, saying the Justice Department was attacking the freedom of the press. L.A. District Attorney Steve Cooley responded strongly to this charge in an interview with the L.A. Times. Lacey, he said, was "putting on the very important mantle of the free press – which I respect – when what we're really talking about is [VVM and New Times] possibly inappropriate business practices.

E-mail Camille T. Taiara at camille@sfbg.com.