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speaker.gif SF Weekly witnesses make the Guardian's case


An expert witness for the SF Weekly put a bunch of charts before the jury Friday, trying to undermine the Guardian’s predatory pricing case – but every one of the charts seemed to prove exactly what we’ve been trying to say.

The Guardian is suing the Weekly and its corporate parent, Village Voice Media, for predatory pricing. The claim is that the 16-paper chain poured millions into propping up the San Francisco paper, which for 12 years has lost money while it sold ads below the cost of producing them. That, we argue, was done to harm the locally owned competitor.

Clifford Kupperberg, the Guardian’s expert witness, put the damages at between $5 million and $11 million.

Everett Harry, an accountant who specializes in analyzing damage claims in litigation, tried to take apart Kupperberg’s analysis. One of his weapons: A series of “scattergrams,” graphic representations of large numbers of sales transactions for clients that have advertised in both the Weekly and the Guardian.

Harry tried to use the charts to argue that the Guardian wasn’t losing business to lower-priced Weekly ads. But the stunning fact was that every single scattergram showed that the Weekly was indeed selling ads below cost.

When Guardian lawyer Ralph Alldredge started in on his cross-examination of Harry, he first asked if the accountant had chosen the six accounts he presented to the jury by any scientific method. No, said Harry; he chose them “haphazardly.”

Then Alldredge started in:

A chart depicting sales from a club called Studio 181showed that the SF Weekly had made almost all the sales, suggesting that the Guaridan never had that business to begin with (and thus couldn’t have lost it to cheap ads). Alldredge asked the obvious question: Isn’t it possible that the Guardian tried to sell ads to this club, but couldn’t meet the Weekly’s prices?

Harry ducked.

“These are all below cost sales according to Mr. Kuppergerg’s analysis, right,”

“Yes,” said Harry.

Then on to Gold’s Gym. The chart showed that the Guardian had been selling ads to this client at around $25 an inch, and then dropped its rate to $13. “Is it possible,” Alldredge asked, “that the Guardian had to meet an offer at a lower rate?”

Harry tried to duck, but had to admit it was possible.

Alldredge moved on to a club called Tongue and Groove. The scattergram again showed a long series of below-cost SF Weekly sales. “When the Bay Guardian had prices below the [Weekly], they got the ads,” Alldredge said. “When they raised the price, they lost the business, right?”

He added:

“Is that not consistent with the interpretation that the Weekly’s below-cost pricing kept the Guardian from getting business?”

Harry ducked again.

When Harry tried to argue that some of the sales might not have been below cost, Alldredge pulled out written answers that former SF Weekly publisher Troy Larkin had given to legal questions posed to him earlier in the lawsuit proceeding. In those answers, he admitted that sales to Suite 181, Gold’s Gym and most of the other clients at issues were in fact below cost.

Alldredge then went through all of Harry’s critiques of Kupperberg’s work – and demonstrated that Harry had been either misinterpreting the data or twisting figures to try to undermine the Guardian expert’s claims.

In one case, Harry presented a chart that represented a central part of the Weekly’s case. The number of people aged 20-29 living in San Francisco, he insisted, had dropped by 38 percent between 2000 and 2005.

That, Harry and the Weekly lawyers say, is a prime reason the Guardian saw its revenue fall during that period. The group in question is considered a prime demographic for alternative papers. The implication: The Guardian was losing readers.

But Alldredge actually presented to the jury the data that Harry’s claim was based on. The figures came from the Association of Bay Area Governments – and they were hardly solid census numbers. In fact, the 2005 number was nothing but a “projection” – a guess that ABAG’s people made based on various factors. Nobody had actually counted the 20-29-year-olds in 2005.

“But you didn’t tell the jury the 2005 number was a projection, did you?” Alldredge asked Harry. The expert admitted he didn’t.

An even the projections show that the number of people 20-40 declined only 10 percent, a fairly insignificant number – and most experts say that 20-40 is a much better range of the typical demographic of an alternative newspaper.

Then the Weekly brought Jeffrey Mars, the vice president for financial operations of Village Voice Media, to the stand.

Mars was another of the line of witnesses retailing the SF Weekly line: The Guardian was suffering from the dot-com bust, the post-9/11 recession, and the rise of internet advertising. And, of course, the Weekly never engaged in predatory pricing. He admitted the Weekly has never been profitable, but said that was because the local market was so weak that the paper couldn’t sell ads at a high enough rate to cover costs.

Alldredge got right to the point on cross examination.

“Is there any other city where the local [VVM] paper has lost money every year for the past five years?”

Yes, said Mars. In Cleveland.

“Is it true that there is a direct alternative weekly competitor in Cleveland?”

“Yes.”

In fact, there’s no other city where a VVM paper faces direct competition from another alt-weekly. The two cities where there’s real competition have been financial disasters for the chain. Although the judge won't let the jury hear about it, that's why the chain has tried to shut down competition in the past.

Noting that the Weekly had lost money for 12 straight years and that VVM had poured $13 million into keeping it alive, Alldredge asked: “If the Weekly wasn’t run by a corporation that could afford to make up all the losses, what would have happened?”

Mars: “They could have cut costs further.”

They also could have raised ad rates, right? Alldredge asked.

Mars ducked.

But the finance guy did admit that, year after year, VVM budgeted for the Weekly to lose money. And he admitted that if the Weekly’s rates were below the Guardian’s, it was possible that the Weekly would be taking business away from the Guardian (thus causing economic harm). And he admitted that if the Weekly had raised its rates enough to stop losing money, it might have lost some ads to the Guardian.

Buy the time that witness slunk back to Phoenix, he, like Harry, had done a lot to make the Guardian’s case.

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Comments (5)

student:

Tim, good to see you've returned to the fold. I asked earlier if your paper loses does that mean you'll have to shut it down? And if you win, does that mean the damages awarded will be used to hire more reporters?

You know, at this point I can't say what we would do if we got some money, since we don't know what's going to happen. This goes to the jury Thursday, and if we win, I'll be happy to talk about the money.

Tim

Oh the trial is underway! I remember hearing about this a few months ago. I will be crossing my fingers for you guys. Hopefully justice will be served appropriately, and it will have nothing to do with my fingers being crossed, but just in case...

Janet:

As an advertiser, I do not buy with the guardian due to their pricing; I do not buy with the guardian because I don't like the publication.

Maybe they should spend less time analyzing the competition and focus on producing a quality newspaper. In my experience with the guardian sales, they redefine "predatory". I get regular email messages from the guardian slamming the publications my company advertisers with. Did it ever occur to the guardian that it’s their garbage publication that is failing and not the fault of SF Weekly? Whose next on the guardians "blame" list, The Examiner?

“We have not sought to injure the bay guardian; we just don't want to read it."

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