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Thursday, February 14, 2008

Actual, Living Advertiser Testifies

Posted By on Thu, Feb 14, 2008 at 9:01 AM

But not for the Guardian

By Andy Van De Voorde

The first advertiser to testify in the Bay Guardian’s predatory pricing lawsuit against the Weekly and its parent company, New Times, took the stand Wednesday.

She testified not for the plaintiff but for the defense.

Despite filing a lawsuit about advertising rates, the Guardian has not called a single advertiser, local or national, to testify.

Jennifer Vernon, a national vice president for the Live Nation concert promotion firm, told the jury about a sponsorship deal between the Weekly and Live Nation’s predecessor company, Clear Channel Concerts, involving the Warfield Theater.

Her testimony put the deal in a far different light than has been suggested by the Guardian.

The Guardian initially claimed that the Weekly had given Clear Channel a “secret rebate” in 2005 when the Weekly agreed to buy naming rights to the Warfield and Clear Channel agreed to buy a certain amount of advertising in the Weekly.

The Guardian dropped that allegation before the trial started, but continues to insist that the Warfield sponsorship is an example of “below-cost pricing” aimed at driving it out of business.

Vernon, however, told the jury the Warfield deal was similar to dozens of other sponsorships, including ones where soft-drink companies get exclusive rights in particular venues or companies pay to have their logos painted on NASCAR vehicles.

She said the sponsorship deal was her idea, not the Weekly’s. And she added that she never discussed the Guardian with New Times or Weekly executives while working out the details of the contract. She didn’t particularly care, she explained, because her intent was to consolidate the concert firm’s print advertising.

“I know we were probably going to go down to one weekly, anyway,” she said under questioning from Weekly attorney Ivo Labar.

Clear Channel was pulling back its print spending, she said, because it wanted to divert more advertising dollars to the Internet and radio given sagging readership trends in print and the fact that the company was selling about 60 to 70 percent of its tickets online.

The Weekly had young readers who went to concerts, meaning such a partnership “made perfect sense,” Vernon said.

It was her idea, too, she said, to suggest that 85 percent of Clear Channel’s local weekly newspaper buys go to the Weekly.

Guardian attorneys have seized on the 85 percent figure, implying that it was part of a scheme to drive the Guardian out of business. The 85-to-15 split also sent Guardian publisher Bruce Brugmann through the roof during his testimony. The 6-foot-5 behemoth slammed his hand down on the witness stand as he shouted that “two chains got together to screw an independent newspaper out of hundreds of thousands of dollars!”

The Guardian exploded in equally righteous anger when the deal was announced, running crude cartoon advertisements that depicted the Weekly and Clear Channel in bed together and describing Clear Channel as “a greedy Texas corporation that’s hell-bent on muzzling dissenting voices and homogenizing the media.”

However, Vernon revealed something that had not yet been mentioned by Guardian attorneys — but which ironically came out during her cross-examination by the Guardian’s Richard P. Hill: that her company was already giving about 80 percent of its local weekly newspaper advertising to the Weekly when the deal was struck.

As a result, “we weren’t spending that much more [with the Weekly] after the deal,” she explained.

What’s more, she earlier told Labar, the Weekly negotiated higher, not lower rates, as part of the agreement.

Throughout the trial, indignation at the thought that people could find the newspaper irrelevant has been a hallmark of the Guardian’s case. And Hill seemed incredulous at Vernon’s assertion that the Guardian’s name never came up while she was cutting the deal with the Weekly.

Vernon told him the Guardian simply didn’t matter. Her company wanted to consolidate its spending, and the Weekly was the better option.

“They never singled out any particular paper,” she said of New Times.

The Warfield deal also came up when former Weekly publisher Chris Keating finished his testimony, mostly covering ground already trodden when Guardian attorneys read his deposition testimony into the record last week.

The themes raised by the Guardian’s Ralph C. Alldredge were the same ones that the Guardian has trotted out with every New Times witness: The Weekly lost money (roughly $13 million since its purchase in 1995); the Weekly kept tabs on the Guardian’s ad count; and the Weekly sold lots of ads for less than the Guardian charged.

For instance, the attorney quizzed Keating about an e-mail he had received from New Times chief executive officer Jim Larkin asking if it was true that Clear Channel was still advertising with the Guardian following the Warfield deal.

Alldredge suggested that Larkin must have been angry when he saw the competitor getting business from Clear Channel.

Actually, said Keating, the e-mail exchange reflected surprise that Clear Channel was still running ads in the Guardian despite the insulting cartoon.

“I was shocked that the Bay Guardian actually got a couple of ads after they ran house ads slamming Clear Channel,” said Keating, who noted he was perfectly aware the company had the right to do so under the sponsorship deal.

“You weren’t complaining that Clear Channel put advertising in the Guardian?” asked Alldredge.

No, said Keating, which as if on cue prompted an audible snort from amidst the ever-expressive contingent of Guardian employees attending the trial.

Alldredge also forced the jury to revisit a series of internal New Times e-mails, nearly all of which have now been shown to the jury at least three times.

The missives are intended to bolster the Guardian’s claim that New Times illegally sought to “injure” it, in part by wooing away its advertisers.

But in what is becoming a common refrain, most of the messages were mixed, containing information just as damaging to the Guardian as to the Weekly — if aggressive free-market competition can be described as damaging.

For instance, Alldredge brought up a July 12, 2005 e-mail to Larkin in which Keating noted he was going to sell 200 inches of ads at reduced rates. But a careful examination of the document showed why Keating intended to do so: “The Bay Guardian is discounting their ads plus bump ups,” and he felt he needed to keep up.

Alldredge also revisited a by-now-familiar e-mail from June 15, 2005 in which Keating told his top sales executives that he had “finally gone through the Guardian and there are far too many accounts that should be in our book.”

The intention was to imply that the Weekly had an obsessive interest in its competitor. But the same e-mail noted that “[Guardian salespeople] are walking around with a one-shot illustrating the difference between us and them,” suggesting that both papers were selling against each other.

Also of interest to Alldredge was an e-mail exchange from April 28, 2005, in which Weekly saleswoman Allison Gill described her effort to sell an ad to a client already running in the Guardian.

The Guardian attorney steered the jury’s attention to the fact Gill proposed a much lower rate than the Guardian was charging. But he didn’t point out something else: Gill’s observation that the advertiser was already “scheduled to run with the Guardian through the end of the year,” but still “had more in her budget for this year.”

For those who read the whole document, not just the part highlighted by Alldredge, the suggestion was that, rather than taking business away from the Guardian, the Weekly was simply trying to get some of that leftover advertising money for itself.

As another exchange between Keating and Alldredge illustrated, though, the capitalist concept of better deals for consumers has the power to inspire great suspicion on the part of the Guardian.

In fact, at one point Alldredge came perilously close to suggesting that a simple price-fixing agreement between the papers could have saved everybody — except the customers, of course — a lot of aggravation.

After Keating testified that, as the local publisher, he had full authority to set rates, Alldredge asked him why then he didn’t just charge the same rates as the Guardian.

“You could have said, ‘We will meet them, but not beat them,’ couldn’t you?” Alldredge inquired.

“Correct,” said Keating.

“You could have told your ad salespeople not to go below the Guardian, couldn’t you?” the attorney continued.

“I could have done a lot of things, that included,” said Keating, who seemed amused by the questioning.

Alldredge wouldn’t let the subject drop.

“You could have offered the advertiser the opportunity to choose between the two papers at the same price, couldn’t you?” he said.

Later, Alldredge returned to the same theme, again showing the jury an e-mail in which Keating told his superiors, “I strongly suggest going for less volume and more rate.”

Keating noted that he’d made the suggestion more than once. That seemed to intrigue Alldredge, who clearly viewed it as a sign that, while Keating wanted to raise rates, his bosses wouldn’t let him.

Keating rejected that line of reasoning. “Suggesting it and whether I can actually execute and implement it in the marketplace is a whole other question,” he noted — the same basic response he’d already given when Alldredge had read his deposition testimony into the record.

But Alldredge was interested in a conspiracy, and both his questions and his tone became uglier as Keating’s testimony drew to a close.

“Were you asked to leave?” asked Alldredge, referring to Keating’s departure from the Weekly in February 2006 shortly after he penned the “rate versus volume” memo.

No, said Keating. In fact, he said, he was the one who initiated his own departure. New Times chief operating officer Scott Tobias, he added, “gave me as much time as I needed.”

Keating had already testified that he was burned out after more than two years in the publisher’s job during a stressful economic environment. He’d also noted that he came to the job with more experience as an accountant than as a salesman, which may have complicated the situation.

But Alldredge seemed intent on getting Keating to say he’d been fired because he refused to raise rates.

“Were you aware this was the last e-mail you sent to anyone in the corporate office?” demanded the attorney.

That never occurred to him, responded Keating.

Alldredge then resorted to questioning the integrity of Keating, who left the Weekly to work for St. Vincent de Paul charities and now is employed by a marketing firm in Fresno.

The attorney’s only evidence was the e-mail Keating had written on his way out the door recommending an effort to sell fewer ads at higher prices.

But that was enough for Alldredge to suggest to the jury that Keating either was fired because his bosses were insistent on losing money or quit because he was a crook.

Noting that the Guardian’s lawsuit already was filed when Keating quit, Alldredge asked, “Did your decision to leave at that time have anything to do with the legality of what you were doing as the publisher?”

Clearly taken aback, Keating responded, “No. Absolutely not.”

“Mr. Keating, you know you were selling ads below cost,” continued Alldredge.

“I was trying to get the best price,” Keating replied.

In a familiar tactic, Alldredge then turned to Superior Court Judge Marla J. Miller and asked her to strike Keating’s remark as “nonresponsive.”

The judge complied.

“Mr. Keating, you know at least since that lawsuit was filed in 2004 you had been selling ads on a regular basis below your costs, don’t you?” Alldredge said.

Sure, said Keating, who may have been tempted to point out that any business that’s losing money is technically “selling below cost.”

What Keating didn’t know, but Alldredge did, was that the Guardian itself has admitted to numerous instances of below-cost selling, but has blamed them on the Weekly in what amounts to “the Devil made me do it” defense.

Prior to the trial, the Guardian asked that the Weekly be barred from mentioning its below-cost sales. The motion was denied.

But Alldredge did his best to keep the focus on the Weekly’s alleged misdeeds.

“You were taking business away from [the Guardian], weren’t you?” Alldredge asked.

“And they were taking business from us as well,” replied Keating.

Pursing his lips and adopting a notably more sober tone, Alldredge then asked his final question.

“Did you have any concern about the morality of what you were doing?” he asked.

Alldredge put special emphasis on the word “morality,” a bit of borderline histrionics that rendered his query vaguely reminiscent of the famous radio broadcast of the Hindenburg dirigible disaster. That was the famous sound bite in which a high-pitched announcer exclaims, “Oh, the humanity!”

Alldredge’s performance gave the blimp crash a run for its money.

Keating just shook his head. “No,” he said. “Absolutely not.”

It should not come as a surprise at this point that the Guardian equates opposition to it, either in the field of commerce or the marketplace of ideas, as a presumptively immoral act.

What was surprising was Alldredge’s decision to apply his scorched-earth campaign to the presumably impartial witness who next took the stand.

The Weekly called Jim B. Higginbotham, chairman of the firm that publishes the Media Audit readership survey, to testify about general readership declines at newspapers.

“We notice that for all print publications, readership is down,” Higginbotham told Labar.

By contrast, he said, Web sites are enjoying a general increase as readers, primarily younger ones, migrate to the Internet.

Higginbotham also presented statistics suggesting that the Guardian’s readership has declined far more precipitously than the Weekly’s—by nearly 200,000 since its peak in 2000.

In fact, according to Media Audit, though the Weekly distributes fewer copies, it now boasts more readers than its competitor.

That didn’t sit well with Alldredge, who, somewhat remarkably, proceeded to question the accuracy of Media Audit’s entire approach.

The decision was remarkable because the Guardian itself cites Media Audit readership statistics when making sales pitches to prospective advertisers.

Alldredge first questioned Higginbotham about the fact his company sells readership information to numerous New Times papers.

“So your group contract with New Times would pay more than the Bay Guardian could ever pay?” he asked.

That much seems obvious, replied Higginbotham, who, if he resented the implication that he would lie on the stand in order to collect a few more dollars, didn’t let on.

Alldredge then picked at Media Audit’s methodology, noting that the company estimates readership based on questioning a tiny slice of the population. He called into question Higginbotham’s assertion that newspaper readership is trending downward, pointing to Media Audit figures that suggest the San Francisco Chronicle has lost “only” about 65,000 readers since the mid-1990s.

Denial about the Chronicle’s travails is a common tactic for the Guardian, which hopes to convince the jury that its financial troubles should be blamed on the Weekly’s low prices, not a general decline in print publications.

In fact, during Brugmann’s testimony, he was derisive of the notion that the Chronicle has lost millions of dollars in recent years, and demanded to know where Weekly attorney H. Sinclair Kerr Jr. had gotten the information. Brugmann even went so far as to suggest that his nemesis, New Times executive editor Michael Lacey, was the source of the information.

Actually, as this blogger has reported, the Guardian itself ran a story some time before the trial in which it noted that the Chronicle’s money woes were well established.

Such past peccadillos didn’t stop Alldredge from chipping away at Higginbotham’s numbers, though. Among other things, he noted that media survey firms don’t call people with cell phones, meaning they miss an ever-growing slice of the population.

True, said Higginbotham. But it’s illegal for his company to call people on their cell phones. He added that he was working on the problem and hoped to have a solution some time this year.

If Alldredge’s point was to raise doubt regarding the precise reliability of newspaper readership surveys, he may well have succeeded. Less clear was how the paper’s advertisers will react to the Guardian arguing in court that the readership numbers it has been providing to them are not to be trusted.

Next up was Weekly expert witness Joseph P. Kalt, a professor of economics at Harvard who teaches classes in market pricing and has testified before Congress numerous times on issues related to competition and economic development.

Kerr was just beginning his examination by asking Kalt to tell the jury what conclusions he had drawn about the dispute between the Weekly and the Guardian when Alldredge jumped to his feet and objected.

Kalt was telling the jury about the first of three conclusions he’d drawn: That New Times’ conduct in relation to the Guardian was normal market behavior. But Miller told him to stop, and he was forced to stand next to the witness box for fifteen minutes as the judge and the attorneys for both sides convened to her chambers.

When they emerged, Miller announced that Kalt would resume his testimony tomorrow; as a result, about the only salient fact brought forth from the witness was how much he charges for his services: a whopping $1,075 per hour.

“That seems like a lot of money,” observed Kerr.

“It feels like hard work,” responded Kalt.

The Guardian’s own economic expert, Clifford Kupperberg, has yet to testify because of a scheduling conflict. When he does, it will undoubtedly be noted that he charges $500 per hour. That number would appear to put Kalt’s seemingly exorbitant rates in context, given that Kalt is a published author with a master’s degree and a Ph.D. from Harvard who has advised numerous foreign governments on economic development, while Kupperberg is a CPA with a bachelor’s degree from San Francisco State.

As a result of the decision to move Kalt’s testimony to Thursday, the day’s final witness was Guardian account executive Adam Shandobil.

Though he still works for the Guardian as its chief clubs salesman, Shandobil was called by the Weekly, presumably because his testimony, which appeared via a videotaped deposition, doesn’t hew to the line followed by his Guardian colleagues.

Among other things, Shandobil told Labar that he regularly gives customers “extras” such as free color on their ads, has lost advertisers to the Internet, has lost advertisers because they aren’t happy with the results they get from the Guardian, and has lost advertisers because they wanted a younger demographic.

In fact, Shandobil told Labar, “I’m sure I’ve heard over 100 different reasons in my time [for not advertising in the Guardian].”

All of those answers are consistent with arguments that have been presented by the Weekly, but contradict testimony from other Guardian sales executives, who have attempted to suggest that the Weekly’s better rates are the only significant source of lost business.

The Weekly’s use of a carefully prepared videotape to present deposition testimony stood in contrast to the Guardian attorneys’ decision to slowly read dozens of pages of deposition testimony from New Times witnesses, two of whom, Keating and New Times chief financial officer Jed Brunst, wound up testifying in person for the defense. As a result, either intentionally or by oversight, the Guardian wasted approximately one day of the jury’s time by covering the same ground twice.

The trial will resume Thursday morning at 8: 30 at the courthouse on McAllister.

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Tom Walsh


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