Unfair Lawsuit Act

SF Weekly moves to dismiss the Guardian's lawsuit, which is light on witnesses and evidence

The Weekly's motions argue that the Guardian hasn’t met the burden of proof for showing a conspiracy to put it out of business because there never was one. And while the Guardian blames the loss of 65 advertisers on the Weekly’s alleged predatory pricing scheme, that is a only a fraction of the 7,639 individual advertisers who bought space in the Weekly or Express since 2001, Village Voice Media’s attorneys say. Some of those ex-Guardian advertisers never even bought ads in the Weekly or the Express.

There’s no question the Weekly and Guardian have overlapping ad markets: Beer companies, record stores, concert promoters, pot clubs, escorts. But as Brugmann would have it, the market in which his paper competes is a duopoly consisting of the Guardian and the Weekly. The advertising market here is much more broad and competitive, but calling it a duopoly sounds good and it conveniently plays into Brugmann’s case: Village Voice Media is trying to put him out of business so the evil corporate giant can have a local monopoly.

But would the Weekly really rule the ad market in such a scenario? Who’s to say that if the Guardian goes out of business, the Weekly would get all their ad dollars and not, say, Craigslist, Lovings.com, Citysearch, the Onion, the Bay Area Reporter, or dozens of other outlets?

Lacey goes so far as to say he doesn't even consider the Guardian as the Weekly's top rival for news or ad dollars. The media market is too diffuse now, he says, with lots of players fighting for the same advertisers. He recalls recently seeing Weekly advertisers in the Chronicle's Sunday pink pages and its weekly supplement, "96 Hours."

The point is that it would make no economic sense for the Weekly to slash its own prices and suffer major losses, because there’s no guarantee the paper would get all the ad money in town if the Guardian went belly-up. In legal terms it's known as "recoupment," and the Weekly's lawyers contend it's a necessary element in proving a predatory pricing case. In an extraordinarily competitive market like the Bay Area's, recoupment just isn't guaranteed.

"The reality, unpleasant for [the Guardian] and [the Weekly] alike, is that both are trapped in a sea of alternatives that are eating away at newsweeklies' abilities to attract and hold advertisers at prices those newsweeklies would prefer," opines Joseph Kalt, a Harvard economist hired by Village Voice Media as an expert witness in the lawsuit.

Kalt suggests in a 35-page court brief that the Guardian should be more worried about losing advertising to the Internet in general and Craigslist in particular than to the Weekly. According to Kalt, in 2006 the Internet accounted for 12 percent of the overall U.S. ad market while newspaper classified sales dropped 8 percent since 1998 nationwide. Kalt argues that the combination of reduced demand for print advertising space, the dot-com bust, and the rise of online sites like Craigslist have created a "perfect storm" hurting Bay Area newspapers' bottom lines.

It's in the context of the Bay Area's hypercompetitive market and sluggish post-9/11 economy, the Weekly's lawyers say, that this paper sold ads below cost. However, they also say the paper's publishers did so for "pro-competitive" reasons like generating new sales and to "increase the customer base in a severely depressed market."

The strongest denial of any conspiracy from on-high to put the Guardian out of business came from VVM CEO Jim Larkin. In his court declaration, Larkin said he neither directed anyone to sell ads below cost to destroy the Guardian nor was he aware of any such strategy. "Such a scheme or strategy could not have existed without my knowledge," Larkin wrote.

The Guardian’s lawsuit also accuses the Weekly of offering "secret rebates" — basically kickbacks — to keep key advertisers from advertising in the Guardian. The original court complaint didn't cite any specific instances of these secret rebates. After three years of litigation, the Guardian has identified only two alleged instances of these ad kickbacks.

One involves a company named Golden Brands Distributing, a local beer distributor. The Guardian alleges that the Weekly offered Golden Brands a 33 percent discount in the form of free concert tickets. Josh Fromson, the group publisher for the Weekly and the Express (when VVM still owned it), said in his declaration that on occasion the papers provided free concert tickets to ad customers. "We do not discriminate between customers when providing these tickets. We do our best to provide tickets upon request to our customers when available," Fromson claims. "These promotional tickets are provided merely to increase or maintain the customer base and thank them for their business."

The other alleged secret rebate involves the controversial deal between the Weekly and concert promoter Bill Graham Presents (now LiveNation) for the naming rights to the Warfield Theater. The 2005 agreement — made nearly one year after the Guardian filed its lawsuit — immediately created controversy. The Guardian said Bill Graham Presents (BGP) — affiliated with media giant Clear Channel — pulled its advertising from the paper after the naming-rights deal went down. Tim Redmond, the Guardian's executive editor, told the Berkeley Daily Planet that BGP had been one of the paper’s top 10 advertisers.

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