Weekly publisher admits below-cost salesThe 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 Weekly's lawyers have hemmed and hawed around the issue, and tried not to admit that the paper was in fact selling below cost, but the testimony of Keating made clear that in fact, over the course of many years, the Weekly was doing exactly that.
The Weekly's lawyers tried to suggest that any below-cost sales were simply done to get ads into the chain paper, not to take them away from the Guardian. "All I wanted was to get the ads in the Weekly," Keating testified.
But evidence presented during Keating's testimony indicated otherwise.
Alldredge presented a March, 2005 email from Keating to Weekly ad rep Peter Sienkiewicz regarding a club advertiser named Towns End. The publisher asked the question directly: "What do we need to do to get them out of the Guardian?"
Sienkiewicz replied: "frontal assault ... we'll discuss."
The email made it clear: The Weekly wasn't just trying to win ad accounts -- it was determined to make sure the competitor didn't get the business.
Another Keating email, dated Sept. 12, 2005, confirmed the Weekly's plans. The memo was sent back to corporate headquarters in Phoenix, and discussed the fact that the Guardian still had a few more club ads than the Weekly.
"In order to win this battle," Keating wrote, "I am going to model in the [first quarter] budget 200" at $13 - $15."
Translation: Keating planned to sell a substantial amount of club advertising (measured by column inches) at a rate that would nowhere near cover costs; at the time, Keating's own testimony showed, the paper needed more than $18 an inch to make money.
Alldredge asked Keating if he offered his sales staff bonuses to take business out of the Guardian. "I may have," Keating said.
The Weekly brought three more witnesses to the stand today. The first, Jennifer Vernon, was an executive with Clear Channel at the time when the giant national outfit, which owned the concert promoter Bill Graham Presents, signed a deal with the Weekly that largely cut the Guardian out of concert ads.
Under the deal, the Weekly bought the naming rights to the Warfield Theater and in exchange got a promise that the big concert promoter would give at least 85 percent of its advertising to the Weekly. A memo from Vernon stated specifically that "the competing paper" would get "15 percent to 0."
Vernon testified that she came up with the notion of the near-exclusive ad deal. At first she suggested that it wasn't any big deal, since the Weekly already got more of the Clear Channel ad buys than the Guardian. She later acknowledged that the deal cost the Guardian a significant amount of money; she said $160,000 a year.
Then the Weekly brought in James Higginbotham, chairman of International Demographics, the company that runs Media Audit, a market-research firm that conducts phone surveys to measure the readership of various newspapers. Higginbotham presented some charts showing that the Guardian's readership had declined.
Under cross-examination by Alldredge, Higginbotham admitted that the data was based on only 100 interviews in San Francisco. That, he acknowledged, was a small enough sample that the sampling errors could be very large.
He also admitted that none of the survey calls went to cell phones -- a big problem since many of the people in the Guardian's target demographic use only cell phones these days.
The Weekly then called Joseph Kalt, a Harvard economist best known for his arguements against price controls on oil and against windfall-profits taxes on the oil industry. Before Kalt, who is charging the Weekly $1,075 an hour for his work, could say much of anything, Alldredge objected to his testimony, and the lawyers went into conference with Judge Marla Miller. That battle will continue tomorrow.
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Comments (6)
Jesus Christ, Tim, your naivete is blinding to all who look upon it. It's not illegal to offer discount ads--even below cost--in order to survive a crap economy. Businesses lose money all the time (you should know). It's only illegal if you do it in an intentional scheme to drive your competitor out of business so that you can then jack up prices. And nothing in this testimony even comes close to establishing that claim.
Posted by You give reporters a bad name | February 14, 2008 07:52 AM
tim,
i'm interested in one aspect of this case. if the guardian loses, and the paper continues to publish, doesn't that make your original claim moot? after all, the key evidence for most predatory price plaintiffs is the fact that they've actually gone out of business.
follow up: if the guardian wins, and gets the damages it says it's owed, does this mean the guardian and sf weekly then have to establish a fixed rate for ads to maintain "a level playing field" in the market?
thanks.
Posted by student | February 14, 2008 09:04 AM
http://www.azcentral.com/news/articles/0211French0208.html
Follow the link.
Posted by Maurice in AZ | February 14, 2008 10:38 AM
Do you think anyone gives a shit about this case? In proportion to the amount of ink you're spilling on it?
Posted by Jeffrey W. Baker | February 14, 2008 10:50 AM
"The email made it clear: The Weekly wasn't just trying to win ad accounts -- it was determined to make sure the competitor didn't get the business." Isn't this the very nature of competition? This is clearly a situation where an advertiser insisted that they would advertise in only one paper or the other. Anyone in sales can relate to this situation.
I wish that more San Franciscans were following this case, so that they would see the Bay Guardian as the totalitarian, dictatorial organization that it is - "what we can't do to a competitor in a free market, we will attempt to do at the end of a gun."
Posted by sfcitizen | February 14, 2008 12:04 PM
It's refreshing to see that the Guardians days are truly, finally numbered, and that we will soon be rid of the aging, tiresome hulk that should have easily beaten back its carpetbagging competitor if it had any street sense.
This "locally owned and operated" soapbox will soon fade into the fond obscura of yesterday - like kozmo.com and The Party Crashers - and we will wax raphsodically about the good, old days, when we used to pick up the Guardian to find out which windmill was being predictably tilted at that week...
The Guardian - just like Bush/Cheney - doesn't tolerate dissent; if you're not with the Guardian, you're against them - and you support terror! This lawsuit is the last, flailing death-throe of its pathetic existence and - while I'm no fan of SF Weekly's - I will celebrate its well-deserved demise.
Posted by sfcitizen | February 14, 2008 12:37 PM