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
Never before had all the employees of the L.A. Weekly been asked to assemble in the parking lot. But then, it isn‘t every day that the boss from New York City has the thorny job of explaining that he definitely is not a capitalist pig, while also reassuring his leftie crew that the company’s capitalist bottom line is doing just fine thank you.
David Schneiderman, CEO of Village Voice Media, jetted in Tuesday to answer questions about the settlement of the antitrust case against his company (which owns the Weekly) and New Times, the company that is usually his main competitor.
The nation‘s two largest chains of alternative weekly newspapers agreed this week to pay close to a million dollars to settle alleged violations of state and federal antitrust law. Neither company admitted wrongdoing, but both chains submitted to terms, as part of a consent decree, that are designed to help launch or assist competing weekly newspapers in Los Angeles and Cleveland.
Investigators had accused New York--based Village Voice Media and Phoenix-based New Times of carving up markets in Los Angeles and Cleveland, the two cities where they competed head-to-head. This collusion, said authorities, resulted in illegal regional monopolies, which drove up advertising rates and deprived readers of diverse news and commentary.
The probe began last October, when New Times shut down its paper in Los Angeles. In exchange, Village Voice Media closed its publication in Cleveland and paid a net sum of $9 million to New Times, according to government documents. The transaction left both cities with one major, citywide alternative publication.
In the parking lot, under threatening skies, Schneiderman told Weekly employees that he’d have had a 5050 chance of persuading a judge that the company had done nothing wrong. But that it wasn‘t worth millions of dollars in legal fees -- or worse -- to find out.
Aside from the hassle and cost of the investigation, he noted, the end result was “what we wanted to accomplish in the first place.”
He had a point.
In the settlement itself, both the media companies and the government could claim a victory of sorts. For their part, investigators touted one of the largest civil antitrust penalties in California history and a remedy that could foster competition. The two chains must sell assets of the closed papers, including office equipment, software, advertiser lists and archives of articles. The government must approve the buyer during a 30-day sale period. If no legitimate buyer comes forward, a trustee will hold the assets pending later offers.
The companies agreed to pay California fines of $305,000 each and to split investigation costs of $140,000. In Ohio each company agreed to pay $20,000 in attorneys fees and $45,000 in civil forfeitures. Schneiderman also acknowledged “at least a few hundred thousand dollars” in attorney fees.
“This was unbelievably time consuming, a huge distraction, and it was costing a ton of money in legal fees,” Schneiderman said.
Still, the weeklies negotiated a quick exit from costly litigation that, in the end, did little to impede the regional market dominance that each coveted. Village Voice Media got the big prize it sought -- the coveted L.A. market without competition from New Times. And New Times pocketed millions from a hated competitor while dumping a business that hemorrhaged millions. The settlement makes no attempt to rewrite history, so New Times gets to keep the Voice’s money -- which left New Times executive editor Mike Lacey room to gloat.
“This development will lead to an inevitable news blitz and general media caterwauling over the next day or two,” wrote Lacey in a company memo. “Well, never mind the noise. The heads you see on the sticks aren‘t ours.”
Nonetheless, there is some potential competition in the wings, both in Cleveland and in Southern California. In L.A., one upstart weekly paper already is expanding, while former Mayor Richard Riordan is starting another. Neither paper was thwarted by the deal-making of the two major chains, and neither is likely to benefit from the settlement.
Riordan told the Weekly that the consent decree “makes no difference” for his debuting publication, which would serve an upscale Westside readership. “I can get lists of advertisers by looking at the ads in the newspaper.” He might want to purchase the licenses to news racks or archived articles from New Times, such as pieces by Jill Stewart, who may continue her column in his paper.
Another local editor saw little value in the New Times L.A. masthead or its archives. “We didn’t see the closing of New Times as an opportunity to fill their shoes,” said Yvette Doss, editor of the biweekly Silver Lake Press, which launched in April 2002, about half a year before New Times closed. “We‘re not coming from a neoconservative place, like New Times.”
Doss is pushing ahead with plans to expand distribution from the Silver Lake area to Highland Park, Eagle Rock, downtown and Hollywood. The paper re-launches on February 19 as the L.A. Alternative Press.
“If they’re talking about making news racks available for resale,” she added, “so what? We can get news racks.”
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.”
Disner added that the two companies might well have escaped the attention of regulators if they‘d achieved the same ends by other means.
Schneiderman has heard the same thing from his new attorneys -- he’s no longer using the firm that signed off on the New Times deal. “Our new antitrust attorneys said the transactions in Cleveland and Los Angeles would have been fine if there had been a gap of some sort between them -- if these deals had happened, like three months apart, so there was no appearance of dividing the markets. But the result would have been the same.”
Disner, the antitrust expert, noted that “Settlements always have something for both sides. Superficially, the consent decree is a complete capitulation. But maybe it‘s not enough to get a new paper running.”