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Tuesday, February 19, 2008

Guardian: Weekly Capitalists Too “Aggressive”

Posted By on Tue, Feb 19, 2008 at 5:26 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 e-mails in which its publishers talked about their interest in beating the Guardian.

Guardian attorneys have shown those e-mails 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 e-mail from Fromson’s predecessor, 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 e-mail 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 e-mail, 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 been at the helm of the Weekly for only a short time when he wrote the e-mail 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 e-mails produced by Hill himself included Fromson bragging to his bosses about the Weekly’s performance.

Rather than accepting those rah-rah e-mails (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 e-mail 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, 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 return 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.

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