Weekly publisher dodges the factsThe publisher of the SF Weekly took the stand Friday and today in the Guardian’s predatory-pricing suit and presented all of the Weekly’s positions as if he’d been rehearsing for weeks.
And in fact, Fromson has been sitting in the courtroom watching most of the trial so far. Most witnesses in legal cases don’t get to watch the proceedings until after they’re done with their turn in the box – it might influence their testimony – but Judge Marla Miller has been pretty lax on that front. She’s allowed one representative from each paper to sit in for the entire case, and Fromson has apparently been the Weekly’s designate.
(She’s also allowed me to sit there and watch, and then write about, the proceedings even though it’s theoretically possible that the Weekly’s lawyers will try to put me back on the stand.)
I have no objection to any of this; I’m simply pointing it out because Fromson’s testimony was carefully targeted to hit all the major points where the Weekly has been weak.
But his carefully buffed lines, delivered like the salesman he is, don’t exactly jibe with the evidence.
Fromson’s line – and the line of the lawyers for the 16-paper chain now known as Village Voice Media – is that the poor beleaguered Weekly was trying really hard to raise its ad rates so that it wouldn’t be selling below cost and would be starting to make a profit. The company, he said, is “concerned with rate growth, revenue growth, and increased profit.”
But the facts show that over the 12 years the chain has owned the Weekly, the paper has never made a profit. In fact, for every one of those years, the Weekly has been selling ads below cost.
Fromson tried to argue that in many cases, the Guardian’s ad rates were actually lower than the Weekly’s, and that he as publisher has had to cut prices to meet the competition from the Guardian. But again, the evidence shows otherwise – while there are no doubt a few cases here and there where the Guardian rates were lower, the overall financial statements from both companies make very clear that the Weekly’s rates were consistently below the Guardian and consistently below cost.
Then he tried to argue that he was cutting rates to meet other competition. In fact, the notion that the Guardian was not the Weekly’s prime competitor – that there were dozens of other media outlets fighting for every ad dollar – is central to the Weekly’s defense.
Fromson talked about fighting with the Onion, the neighborhood newspapers and SFStation.com, among others, for ads, and cited some cases in which he said he’d had to lower rates to meet those competitors’ prices.
But again, the evidence doesn’t lie. The Weekly publishers before Fromson all had to prepare regular special reports on the Guardian – and on no other competitor. Fromsom filed some “Guardian reports” of his own – and he couldn’t point to a single similar report he’d filed on any other competitor.
And anyone with any common sense knows that there’s a market niche for alternative weeklies; if there weren't, neither the Guardian nor the New Times/VVM chain would have survived and grown over the past three decades.
In fact, Fromson as much as admitted that on cross-examination. Guardian attorney Rich Hill asked if any of the neighborhood papers, or the Onion, were members of the Association of Alternative Newsweeklies or represented by either of the two national ad firms that specialize in alternative weeklies. No, he acknowledged. The neighborhood papers, Hill asked, have much lower circulation and very different types of editorial, don’t they? Yes, said Fromson.
“Are there serious investigative pieces in the Onion?” asked Hill.
“They don’t see themselves doing that,” Fromson replied.
In other words, Hill said, those supposed competitors are actually quite different products, right?
“I don’t agree with that,” Fromson said.
But it became very clear during cross-examination that Fromson did, indeed, see the Guardian as his chief competitor – and that he and the top executives at New Times/VVM were looking for ways to hurt the competitor.
Hill took Fromson through the paper’s finances. In 2005, when he arrived, the Weekly lost $1.8 million. In 2006, with Fromson at the helm, the loss was $2.5 million. And the steep losses continued in 2007.
Hill pointed to several memos showing how Fromson and his bosses, chain president Scott Tobias and CEO Jim Larkin, saw the competition with the Guardian. In one memo, dated Feb/ 24, 2006, Larkin warned Fromson that the Guardian had more ads in the paper. “No way they should be ahead of us in ad count like this,” Larkin wrote.
“They won't," replied Fromson. “That is the loudest drum I am beating around here.”
The point of that exchange: Fromson and the higher-ups were concerned not with increasing their rates or making a profit, but with making sure they had more total ads than the Guardian.
“I’m not OK with losing to anyone, least of (sic) Brugman (sic),” Fromson’s email continued.
In July, 2006, Fromson sent an email back to corporate headquarters stating that “we are doing a great job, all things considered.” That came at a time when Fromson’s paper had lost more than a million dollars in just the previous six months.
In November, 2006, Fromson wrote that he was “feeling good about working them over the rest of the year.” Who, Hill asked, is the “them” referred to in that message?
“I imagine it would be the Guardian,” Fromson said.
That same month, while the Weekly was losing $179,000, Larkin wrote to Fromson and said: “great work, let’s keep it going.”
And in Fromson’s Nov. 30,2006 “Guardian report” to Larkin, he wrote: “As you can see, we are winning the battle locally and nationally.”
Since that clearly wasn’t a battle to be profitable or a successful business, Fromson had to be referring to something else. As Hill put it: “Is that the battle to wreck the Guardian?”
Fromson: “There was no battle to wreck the Guardian.”
One of the things the jury will have to do is decide is which witnesses are telling the truth, and which ones, as the lawyers say, lack credibility.
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Enjoy, Tim.
Guardian: Weekly Capitalists Too “Aggressive”
Tue Feb 19, 2008 at 05:26:37 PM
Plus: Brugmann's expert witness talks about imaginary profits and damages
By Andy Van De Voorde
SF Weekly publisher Josh Fromson returned to the witness stand Tuesday in the Bay Guardian’s predatory pricing suit against his paper and spent most of his time—and most of the day--undergoing a contentious cross-examination by Guardian attorney Richard P. Hill.
In a familiar pattern, Hill returned early and often to a series of internal Weekly emails in which its publishers talked about their interest in beating the Guardian.
Guardian attorneys have shown those emails to the jury as many as five times, and continue to refer to them in an effort to bolster their claim that the Weekly has been intentionally selling ads below its costs for the past thirteen years as part of a plot to put the Guardian out of business.
Hill began by showing the jury a November 17, 2005 email from Fromson’s predecessor as publisher, Chris Keating. In it, Keating noted that the Weekly’s “rate has been declining the past several weeks” and advised his sales bosses to “rein in the deals” unless discounts were offered for competitive reasons or for anchor accounts.
Hill then called Fromson’s attention to deposition testimony in which the publisher said it was his understanding that Keating parted ways with the company because “he wasn’t getting it done.”
Why bring up Fromson’s deposition?
Because Hill wanted to know if executives at New Times (now Village Voice Media), which has owned the Weekly since 1995, thought Keating was too soft.
“Was part of the reason the company was dissatisfied with Mr. Keating that he wasn’t aggressive enough?” asked Hill.
“I don’t know what you mean by ‘aggressive,’” replied Fromson.
Hill then proceeded to show him, bringing up a February 24, 2006 email exchange between Fromson and New Times chief executive officer Jim Larkin in which they discussed the paper’s performance relative to the Guardian.
In the email, Larkin noted, “No way [the Guardian] should stay ahead of us in ad count like this.”
Fromson responded by writing that ad count “is the loudest drum I’m beating around here.”
“Was that the loudest drum you were beating, that you had to stay ahead of the Guardian on ad count?” asked Hill.
"No," said Fromson, “the drum was that we needed to increase ad count.”
Hill then got to his point about “aggression,” pointing to something else Fromson had written.
“I’m not okay with losing to anyone, least of [all Guardian publisher Bruce] Brugmann,” wrote Fromson. “On my worst day I better beat him on his best.”
“If there’s anyone more competitive than I am, it might be you and [New Times chief operating officer Scott] Tobias,” noted Larkin.
If talk of competitiveness and not losing wasn’t enough, there was even an email in which Fromson talked about “kicking [the Guardian’s] ass.”
This is the “aggressive” rhetoric the Guardian continues to cite as evidence of the Weekly’s predatory behavior. The Guardian is seeking an injunction against the Weekly prohibiting it from selling below-cost ads in the future. Such judicial intervention would pave the way for the government to monitor the Weekly's ad rates to ensure they don’t constitute below-cost selling.
And the Guardian has continued to make the argument despite the introduction of evidence that its own employees have written far more disparaging things about the Weekly. Those documents include a February 1997 memo by Guardian executive editor Tim Redmond in which he openly discussed his goal of “forcing the New Times to admit they can’t make it in San Francisco” and added that he wanted to see the Weekly shut down.
No documents have surfaced in which Weekly employees talk about wanting to shut down the Guardian, and Redmond admitted on the witness stand that he “got a little carried away” when he fantasized about “sending the guys from Phoenix packing.”
By contrast, Guardian attorneys have persisted in casting Weekly emails about the Guardian in a sinister light.
Noting that Fromson had only been at the helm of the Weekly for a short time when he wrote the email about “beating Brugmann,” Hill asked another question.
“Had anyone at New Times said anything to you that made you dislike Mr. Brugmann?”
“You mean aside from the obvious?” responded Fromson.
Hill repeated the question.
“He’s suing us for something we never did,” said Fromson, who inherited the Brugmann lawsuit when he took over the paper in 2006. (The lawsuit was originally filed in October 2004.)
“I certainly don’t intend to lose to a guy who doesn’t go on any sales calls,” added the publisher.
The comment was a reference to testimony from Brugmann and his co-publisher, Jean Dibble, that they are detached from their paper’s day-to-day sales operations. Although Dibble described herself as the person in charge of the paper’s “business side,” she said she hadn’t been on a sales call in 35 years.
Hill also did his best to pursue the Guardian theme that publications such as The Onion and the city’s various neighborhood newspapers aren’t really competitors of the Weekly.
The Guardian is making that claim because it wants to be able to blame its poor financial performance on the Weekly and not on media competition generally.
Neighborhood papers and The Onion tend to have lower circulation and ad count than the Weekly or the Guardian and offer different stories, noted Hill, who at one point suggested that because The Onion specializes in satirical content it simply can’t be compared to its other Weekly competitors.
“They’re different, aren’t they?” asked Hill.
“Not to a local advertiser,” responded Fromson.
Fromson repeatedly told Hill that his goal was to increase sales at the Weekly, not to strip them from the Guardian or anyone else. And in fact several of the emails produced by Hill himself included Fromson bragging to his bosses about the Weekly’s performance.
Rather than accepting those rah-rah emails (example: “We’re doing a great job, all things considered”), Hill began contrasting them with income statements from the corresponding years.
Those statements showed the Weekly losing more than a million dollars in 2006.
“That’s the context in which you are reporting to your bosses that you’re doing a great job?” inquired a skeptical Hill.
The attorney pointed to another email from November 3, 2006 in which Fromson reported to Larkin that “we kicked [Brugmann’s] ass on ad count.”
Yes, still more talk of ass-kicking, which drew not condemnation but praise from an approving Larkin.
Yet at the time Larkin wrote his note, said a quizzical Hill, the paper was losing money.
“I don’t think he was patting me on the back for that,” said Fromson.
“He was patting you on the back…for something different?” asked Hill.
“For increasing my ad count, which is my job,” replied the publisher.
When Weekly attorney Ivo Labar began his redirect examination, he asked Fromson to explain the importance of ad count.
Increasing the number of ads can lead to profitability because it helps build readership, as well as strengthening sections in the paper and making them a reference point for other advertisers, said Fromson.
In testimony that echoed what he told the jury last week, the publisher also described his efforts to cut costs, but noted that while editorial expenses have been trimmed slightly, they have held steady because the Weekly doesn’t want to dilute the quality of its content.
“If someone wants to read it, that’s certainly a good sales pitch,” he said.
Fromson also noted that, contrary to the Guardian’s theory that the Weekly has been slashing rates faster than Freddy Krueger, he has raised rates every year since taking the helm.
He told the jury that Weekly losses have narrowed under his leadership (from $1.5 million in 2006 to $1 million in 2007 to an estimated $500,000 in 2008), and that, in part thanks to rising Internet advertising revenue, he expects the paper to become profitable next year.
And in testimony that notably went uncontested by the Guardian’s Hill, Fromson listed half a dozen customers who have told him the Guardian is undercutting the Weekly on price, not the other way around. Those included the Café du Nord restaurant, Bill Graham Presents and the Ferry Building.
However, when Fromson attempted to provide specifics about Weekly prices versus Guardian prices for a list of 128 customers identified by Guardian controller Sandy Lange as examples of “below cost” sales by the Weekly, Hill objected.
Superior Court Judge Marla J. Miller ruled that Fromson couldn’t provide the information, which means the Weekly may have to call Lange back to the stand in order to get it onto the record.
After Fromson was excused to go back to work, the Guardian called one of its own witnesses out of order.
Accountant Clifford Kupperberg was out of the country during the plaintiff’s case, and the Weekly consented to squeezing him in between defense witnesses.
Kupperberg is the Guardian’s damages expert—the man hired to tell the jury how much money the Weekly should fork over as a result of its alleged misdeeds. The accountant didn’t get that far on Tuesday; most of the afternoon was consumed by an exhaustive description of his methodology.
But the information Kupperberg provided about his background made it clear that, if nothing else, he is comfortable in a courtroom.
After graduating from San Francisco State University with a bachelor’s degree in finance in 1967, Kupperberg became a certified public accountant in 1970. He didn’t waste any time kick-starting his career as a professional witness, making a court appearance that same year.
The courthouse CPA must have enjoyed it, because, according to his resume, he has since worked on more than 350 legal cases, or an average of ten per year.
Guardian attorney Ralph C. Alldredge didn’t ask Kupperberg about those astounding numbers, but did get him to say he spends anywhere from 10 to 35 percent of his time in any given year doing what he described as “litigation work.”
Kupperberg’s going rate is $500 per hour.
His testimony has included past work under California’s Unfair Practices Act, the Depression-era statute under which the Guardian sued the Weekly.
That law was originally intended to prevent Safeway from putting mom ‘n’ pop grocery stores out of business by charging below-cost prices for food items. Perhaps because of the political climate in which it was passed, it requires a much lower burden of proof than federal anti-trust legislation, which unlike the California law has evolved over time and now holds predatory pricing claims to a very high standard because of their inherently anti-competitive nature.
That presumably explains why Brugmann filed the lawsuit in state court instead of in federal court.
Whether the UPA succeeded in allowing independent grocers to thrive is clearly questionable. But the law has occasionally been dragged out and dusted off by plaintiffs who allege a competitor is using below-cost selling to hurt them.
Even Kupperberg acknowledged the difficulty of estimating damages in such cases, where accountants such as he are called upon to estimate how much money a company could have made if they hadn’t faced a particular competitor.
In this case, that process includes estimating not only imaginary profits from customers the Guardian lost, but imaginary profits for customers it never even had.
“It’s a ‘but-for’ world,” Kupperberg told the jury. “The obvious problem is it [the profits] never happened.”
The trial resumes Wednesday at 8:30 a.m. at the courthouse on McAllister Street with a return to the “but-for world" of Clifford Kupperberg.
Posted by Anyone With Any Common Sense | February 19, 2008 06:50 PM
SFBG needs to limit the character count in the comments. I hate having to scroll a mile just to skip the trash that the New Times posts here.
Posted by Maurice in AZ | February 19, 2008 07:20 PM
I know, it's annoying. They could do the same thing with a link. I'm all for presenting all sides of this, but this is just a childish way of doing it.
Posted by tim redmond | February 19, 2008 07:35 PM
Tim--
That's not the only thing the SF Weekly did last week. The Weekly ran an article attempting to "out" a Wikipedia editor.
Essentially what happened was that the author's sister got dinged on Wikipedia, so she took the dispute out of Wikipedia and onto the pages of her newspaper. It's a big controversy at Wikipedia. You can read about it here:
http://en.wikipedia.org/wiki/Wikipedia:Administrators%27_noticeboard/Incidents#Attempted_Outing_of_Wikipedia_Editor_User:Griot_by_Tawdry_Tabloid_Journalist
Posted by Dave in SF | February 20, 2008 09:01 AM
good GOD this is the third time in 2 months the weekly has devoted a cover story to the fucking insecurities and personal agendas of its 'writers." WTF?
Posted by poxonboth | February 20, 2008 10:33 AM
"The author has trouble distinguishing between investigative journalism and theater."
Great link, Dave.
Posted by Maurice in AZ | February 20, 2008 11:09 AM
But his carefully buffed lines, delivered like the salesman he is, don’t exactly jibe with the evidence.
Golly, Tim, you use the word "salesman" like it's some sort of social disease. Does the Guardian employ salesmen? Or are your salesmen merely paid in soybeans and carbon credits, so that makes them OK?
Posted by sfcitizen | February 20, 2008 01:39 PM
Paying their salespeople in soybeans and carbon credits might actually constitute a raise!!
Posted by formersfbger | February 20, 2008 03:59 PM
More fodder:
http://www.azcentral.com/news/pdf/NewTimes.pdf
Posted by Maurice in AZ | February 20, 2008 08:45 PM