By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
New Times executives declined to be interviewed, but Lacey, in this week‘s company memo, questioned the feds’ motives in pursuing the segment of the press that embodies the Bush administration‘s most unrelenting critics. “After a long winter’s slumber during which American media was concentrated in the hands of owners with a taste for numbing mediocrity,” Lacey wrote, “government attorneys awoke with a start following the sale of two weekly newspapers, one in Cleveland, the other in Los Angeles.”
The chief executive of Village Voice Media was less inclined to lob grenades. “I don‘t think this was political,” said Schneiderman. “These guys saw something they thought was an antitrust violation, and they went after it. But I am frustrated knowing that the federal government has permitted all kinds of other anti-competitive combinations. I have no idea why. Is it because Rupert Murdoch has expensive lobbyists in Washington?”
Government interviews with witnesses included at least one remarkable line of questioning, exploring whether the Weekly bought out New Times to permit the cheapening of its own product, turning away from news coverage, for example, to celebrity pablum that would appeal to advertisers. “There maybe would have been a touch of that in a trial,” said Kathleen J. Tuttle, deputy-in-charge of the antitrust section for the county District Attorney’s Office. “Let‘s say the L.A. Weekly devolved months from now into three pages of news and the rest was adult ads. There was no such suggestion of that. But we were beginning to pay attention to the question of what does this one paper evolve into, absent of competition. Does it become something much less informative and useful?”Ultimately, the government’s complaint, filed on the same day as the settlement, dealt almost exclusively with matters of dollars and cents.
The federal complaint recounts how New Times proposed a swap of markets in the middle of last year. “Village Voice Media‘s chief financial officer succinctly summarized the deal’s effect: ‘These are the only two markets where Village Voice Media and New Times directly compete, and this transaction effectively ends the war . . .’” The complaint quotes a Village Voice board member explaining, “What we are paying for is for them to go away forever.”
In Los Angeles, Village Voice Media allegedly paid $11 million to New Times, only 7 percent of which was the value of assets. In Cleveland, New Times paid $2 million, of which only 24 percent was the value of assets. The L.A. deal closed down a smaller but feisty competitor whose presence had resulted in “lower advertising rates, better advertisement placement and improved service,” according to the complaint. In Cleveland, it was the Free Times, the paper with the larger circulation, that was shuttered.
Schneiderman claimed that New Times was losing more money in Cleveland than his company was, but that the situation was untenable: “It was really a one-paper market in terms of profitability. Look,” he added, “we operate in a world of profit and loss. We don‘t operate in an alternative business world.”
After the October shutdowns, New Times told its Cleveland advertisers that rates would increase and that its Cleveland Scene was “the only game in town,” in a quotation cited in the complaint. New Times reported to its board on October 22 that the market swap was a “success” because it provided additional revenue of “nearly $40,000 a week.”
At Village Voice Media, meanwhile, executives recommended rate hikes, although some advertisers might be offered “rate protection for some period of time before the next price increase if they sign up for it right away,” the complaint quotes a witness as saying.
Schneiderman countered that ad rates were not affected by the deal. But he did acknowledge modest rate increases for “adult” businesses and the termination of some discounted rates. These changes, he said, had been in the works well before the New Times negotiations.
As part of the settlement, advertisers have the right to cancel contracts, but get no future price protection. “The theory is that by restoring competition, market forces will govern the rates,” said spokesman Tom Dresslar of the California Attorney General’s Office.
He added: “This was a straight-out classic, illegal market-allocation agreement between two competitors who were colluding to eliminate competition. It is the classic case that our laws are designed to prevent and punish. What is kind of interesting was how public and proud the two companies were about what they did.”
That theme was echoed by the county D.A.‘s Tuttle: “I am amazed by the seeming innocence with which the parties approached this scheme. What caught our attention from the get-go was a joint press release from the two companies.”
This openness is cited by Schneiderman as evidence that the companies had nothing to hide.
No matter, said attorney Eliot G. Disner, former chair of the antitrust section of the State Bar of California. “This case was like killing someone in Times Square in broad daylight. It was like Goldilock’s bed: It was just right. The government had to act almost. Maybe there was a perception at these companies that, because this is the Bush administration, it would be asleep. But the antitrust people cut a different path.”