Predatory pricing: A primerThe 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.
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Comments (5)
by this logic, then, shouldn't you be suing Craigslist.org since they charge nothing for classified ads (aside from job listings) and just about every newspaper and weekly paper (chain or not) has been taking a beating as a result?
what about the fact that you have an array of chain owned blogs (Sfist, Gawker Media, Metroblogging, etc) that also take ads and provide news and commentary that is similar to what you used to be able to get only at an alt-weekly? Are you suggesting that has had no bearing on your decisions?
and the other side raises a good question - why can't you produce one single human being who can say "I stopped advertising with the Guardian because the weekly cut their rates so low?" Can no one say this under oath or what?
Posted by not-craig | February 8, 2008 12:59 PM
hey can we help andy find a better suit?
Posted by fomer employee | February 10, 2008 03:19 AM
What the Guardian went though is not the same as the competition from the Internet. Craig is not for profit, and thus not selling ads below cost, as the SF Weekly has done for years.
If the Weekly intentionally lost money for reasons other than to put the Guardian out of business, I have yet to see them.
Posted by try some logic | February 10, 2008 12:21 PM
As try some logic suggests, the argument is apples-to- oranges, as we are talking about SF Weekly print ads selling for below cost; a model that differs drastically in the online world where print overhead (M&D) and margins are worlds apart from those in online.
As someone familiar with the weekly business model, The SF Weekly clearly entered SF with a singular purpose: not to compete, but to destroy. Fortunately, they have been unsuscessful.
Posted by Drew Dix | February 11, 2008 05:40 PM
How does a newspaper that charges for classified advertising compete with "free?"
I have heard countless angry tirades from both VVM and the Guardian about how Craigslist "destroyed" alt-weeklies because of the loss of classified ads. If that isn't predatory, I don't know what is.
Just because CL run on a low margin (they ARE NOT A NON PROFIT, EBAY OWNS PART OF THEM) and most of it is free doesn't mean it hasn't had a pretty big effect on alt-weeklies around the USA.
New Times papers suck, and let's face it Lacey is a douchebag (he actually thinks people in SF don't vote) and they have the neuroses of the staff (one gal can't find a decent boyfriend, another gets WLS) as front page "news."
It's just too bad the BG has lost its edge with regards to breaking news, and is now just one of many choices, online and elsewhere. Tough times for all.
Posted by not-craig | February 12, 2008 11:40 AM