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VOLUME 8
PAGES 1499 - 1696
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
BEFORE THE HONORABLE VAUGHN R. WALKER, JUDGE
CLINTON REILLY, )
)
PLAINTIFF, )
)
VS. ) NO. C 00-0119 VRW
)
THE HEARST CORPORATION, )
ET AL., )
)
DEFENDANTS. )
____________________________)
SAN FRANCISCO, CALIFORNIA
THURSDAY, MAY 11, 2000
TRANSCRIPT OF PROCEEDINGS
APPEARANCES:
FOR PLAINTIFF: JOSEPH M. ALIOTO LAW FIRM
ONE EMBARCADERO CENTER, SUITE 4000
SAN FRANCISCO, CALIFORNIA 94111
BY: JOSEPH M. ALIOTO
ANGELINA ALIOTO-GRACE
ATTORNEYS AT LAW
SHULMAN, WALCOTT & SHULMAN, P.A.
121 WEST FRANKLIN AVENUE
MINNEAPOLIS, MINNESOTA 55404
BY: DANIEL R. SHULMAN
JAMES HILBERT
ATTORNEYS AT LAW
(APPEARANCES CONTINUED ON FOLLOWING PAGE)
REPORTED BY: JO ANN BRYCE, CSR, RMR, CRR, FCRR
JUDITH N. THOMSEN, CSR, RMR, FCRR
OFFICIAL REPORTERS, USDC
COMPUTERIZED TRANSCRIPTION BY ECLIPSE
1500
1 APPEARANCES: (CONTINUED)
2 FOR DEFENDANT SHEPPARD, MULLIN, RICHTER & HAMPTON
HEARST CORPORATION: FOUR EMBARCADERO CENTER, 17TH FLOOR
3 SAN FRANCISCO, CALIFORNIA 94111
BY: GARY L. HALLING
4 THOMAS D. NEVINS
ATTORNEYS AT LAW
5
BAKER & HOSTETLER LLP
6 1050 CONNECTICUT AVE., N.W.
SUITE 1100
7 WASHINGTON, D.C. 20036
BY: GERALD A. CONNELL
8 ATTORNEY AT LAW
9 FOR DEFENDANT LATHAM & WATKINS
CHRONICLE PUBLISHING 505 MONTGOMERY STREET
10 COMPANY: SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
11 BY: PETER K. HUSTON
J. THOMAS ROSCH
12 GREGORY P. LINDSTROM
ATTORNEYS AT LAW
13
FOR INTERVENOR- MC CUTCHEN, DOYLE, BROWN & ENERSEN
14 DEFENDANT EXIN, LLC: THREE EMBARCADERO CENTER, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94111
15 BY: DAVID M. BALABANIAN
CHRISTOPHER B. HOCKETT
16 ATTORNEYS AT LAW
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DEFENDANTS' WITNESSES PAGE VOL.
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FALK, STEVEN
5 REDIRECT EXAMINATION BY MR. HALLING 1553 8
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7 ROSSE, JAMES
DIRECT EXAMINATION BY MR. CONNELL 1567 8
8 CROSS-EXAMINATION BY MR. ROSCH 1657 8
CROSS-EXAMINATION BY MR. SHULMAN 1659 8
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1 I N D E X
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4 DEFENDANTS' EXHIBITS W/DRAWN IDEN EVID VOL.
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6 H-954 1569 8
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FALK - CROSS / ALIOTO
1 THE COURT: VERY WELL. GOOD MORNING, COUNSEL.
2 MR. HALLING: GOOD MORNING, YOUR HONOR.
3 MR. ALIOTO: GOOD MORNING, YOUR HONOR.
4 THE COURT: A STIPULATION HAS BEEN PLACED BEFORE ME.
5 MR. BALABANIAN, THIS IS -- THIS STIPULATION IS NOT
6 SIGNED BY THE OTHER PARTIES, BUT I GATHER IT'S AGREEABLE TO ALL
7 PARTIES? THIS IS A STIPULATION THAT WAS FILED -- IT WAS
8 RECEIVED YESTERDAY, A STIPULATION AND ORDER. IT'S REGARDING
9 CERTAIN EXHIBITS.
10 MR. BALABANIAN: YES, YOUR HONOR. THE COURT
11 REQUESTED WE DO IT IN WRITING RATHER THAN READING IT INTO THE
12 RECORD.
13 THE COURT: OH, THIS IS THAT --
14 MR. BALABANIAN: THAT'S CORRECT.
15 THE COURT: OKAY. GOOD. VERY WELL. THAT WILL BE
16 FILED, THEN. I WILL GIVE THAT TO THE CLERK FOR FILING.
17 CLERK?
18 THE LAW CLERK: I'M SORRY.
19 THE COURT: ALL RIGHT. MR. ALIOTO, ARE YOU READY TO
20 CONTINUE YOUR CROSS-EXAMINATION OF MR. FALK?
21 MR. ALIOTO: I AM, YOUR HONOR.
22 THE COURT: VERY WELL.
23 MR. FALK, DO YOU UNDERSTAND THAT YOU ARE STILL UNDER
24 THE OATH THAT YOU TOOK YESTERDAY?
25 THE WITNESS: YES.
1504
FALK - CROSS / ALIOTO
1 THE COURT: AND IT APPLIES TO THIS TESTIMONY, AS
2 WELL AS YOUR TESTIMONY YESTERDAY?
3 THE WITNESS: YES.
4 MR. ALIOTO: MAY IT PLEASE YOUR HONOR.
5 I RESPECTFULLY POINT OUT TO THE COURT, I DID SAY I
6 WOULD TAKE ABOUT 20 MINUTES. IT MAY BE A LITTLE MORE AFTER --
7 I HOPE NOT TOO MUCH MORE BUT . . .
8 THE COURT: ALL RIGHT. WELL, IT WILL TAKE LONGER IF
9 YOU KEEP TALKING ABOUT IT.
10 MR. ALIOTO: OKAY.
11 IF I MAY APPROACH THE EASEL, YOUR HONOR?
12 THE COURT: YES. GO AHEAD.
13 STEVEN FALK,
14 CALLED AS A WITNESS FOR THE DEFENDANTS, HAVING BEEN PREVIOUSLY
15 DULY SWORN, TESTIFIED FURTHER AS FOLLOWS:
16 CROSS-EXAMINATION (RESUMED)
17 BY MR. ALIOTO:
18 Q. MR. FALK, YESTERDAY WE PUT ON THE EASEL THE DIVISION OR
19 APPROXIMATE DIVISIONS OF THE REVENUES FROM THE TWO NEWSPAPERS
20 THAT WOULD GO INTO THE SAN FRANCISCO NEWSPAPER AGENCY AND THEN
21 BEFORE THERE WOULD BE THE NET EXCESS DIVIDED.
22 DO YOU REMEMBER WE WENT OVER THIS -- THIS CHART ON
23 THE EASEL?
24 A. YES.
25 Q. AND IT WAS SHOWING, FOR THE RECORD, THAT ADVERTISING
1505
FALK - CROSS / ALIOTO
1 REVENUE WAS APPROXIMATELY 80 PERCENT OF THE REVENUE AND
2 CIRCULATION REVENUE WAS APPROXIMATELY 20 PERCENT OF THE TOTAL
3 REVENUE. SO THAT ADVERTISING WOULD BE SOMEWHERE IN THE RANGE
4 OF $350 MILLION. DO YOU REMEMBER THAT?
5 A. YES.
6 Q. NOW, WITH REGARD TO THE ADVERTISING REVENUE, I BELIEVE YOU
7 STATED YESTERDAY THAT APPROXIMATELY 99 PERCENT OF THAT IS SOLD
8 ON A COMBINATION BASIS.
9 A. YES.
10 Q. AND BY "COMBINATION BASIS," THAT MEANS THAT IT'S SOLD ON
11 BEHALF OF BOTH THE EXAMINER AND THE CHRONICLE.
12 A. IT'S A COMBINATION RATE.
13 Q. SO LET'S SEE IF WE GET THIS.
14 SO FROM THE ADVERTISER'S STANDPOINT -- I WILL PUT
15 "ADVERTISER" UP ON THE TOP -- I WILL WRITE "ADVERTISER."
16 SO WHAT THEY GET IS THERE WILL BE ONE RATE, CORRECT,
17 ONE PRICE?
18 A. ONE COMBO RATE, PRICE.
19 Q. YES. ONE RATE.
20 AND FOR THAT THEY GET TWO NEWSPAPERS, THE CHRONICLE
21 AND EXAMINER?
22 A. YES, MULTIPLE EDITIONS OF TWO NEWSPAPERS.
23 Q. OKAY. MULTIPLE EDITIONS OF THE CHRONICLE AND THE
24 EXAMINER.
25 WOULD YOU EXPLAIN THAT, "MULTIPLE EDITIONS"? DO YOU
1506
FALK - CROSS / ALIOTO
1 MEAN THE MULTIPLE EDITIONS OF THE EXAMINER, ONE COMING OUT AT
2 11:00 O'CLOCK, 12:00 O'CLOCK?
3 A. YES.
4 Q. ONE AT 1:00 O'CLOCK, ONE LATER?
5 A. THERE IS A HOME DELIVERY EDITION, SINGLE COPY EDITION,
6 LATE COPY EDITION, SAME ON THE CHRONICLE.
7 Q. OKAY. SO THEY GET ONE RATE, THEY GET -- AND THEY GET BOTH
8 PAPERS, AND, OF COURSE, THEY GET THE CIRCULATION OF BOTH,
9 RIGHT?
10 A. YES.
11 Q. OKAY. NOW I WOULD LIKE TO SHOW YOU WHAT WAS ON YOUR
12 CROSS-EXAMINATION -- ON YOUR DIRECT EXAMINATION YOU WERE SHOWN
13 BY YOUR COUNSEL WHAT IS MARKED IN EVIDENCE AS H-0983 AND 8 --
14 IF I MAY APPROACH THE WITNESS, YOUR HONOR?
15 THE COURT: YES.
16 BY MR. ALIOTO:
17 Q. 0983 THAT YOU WERE QUESTIONED ON BY YOUR COUNSEL YESTERDAY
18 IS HEAD NOTED "JOA - AM ONLY, P&L COMPARISON, PD 4 PRO FORMA
19 AGAINST AM ONLY."
20 DO YOU REMEMBER YOU WERE QUESTIONED BY YOUR COUNSEL
21 ON THAT YESTERDAY?
22 A. YES, I DO.
23 Q. ALL RIGHT. NOW, I WOULD LIKE TO -- I AM GOING TO USE THE
24 ELMO ON THIS.
25 AND, FIRST OF ALL, LET'S FOCUS IN ON -- LET'S FOCUS
1507
FALK - CROSS / ALIOTO
1 IN ON THE TOP. OKAY. IT SAYS, "JOA - AM ONLY, P&L COMPARISON,
2 PD 4 PRO FORMA AGAINST AM ONLY."
3 NOW, WHEN YOU SAY "JOA - AM ONLY," WHAT DOES THAT
4 MEAN?
5 A. "JOA" STANDS FOR JOINT OPERATING AGREEMENT, AM ONLY.
6 Q. WHAT IS "AM ONLY"?
7 A. "AM ONLY" WOULD REFER TO THE CHRONICLE.
8 Q. SO WHAT -- SO WE COULD SUBSTITUTE FOR "AM ONLY" -- WE
9 COULD SUBSTITUTE "CHRONICLE ONLY"; IS THAT RIGHT?
10 A. CHRONICLE ONLY.
11 Q. OKAY. SO THIS IS A COMPARISON OR MEANT TO BE A P&L
12 COMPARISON BETWEEN THE PERFORMANCE OF THE JOA AND THE
13 PERFORMANCE OF THE CHRONICLE ONLY, OUTSIDE THE JOA, RIGHT?
14 A. THE SIMPLEST EXPLANATION IS THIS WAS A FINANCIAL ANALYSIS
15 OF WHAT SAN FRANCISCO NEWSPAPER AGENCY'S FINANCES WOULD LOOK
16 LIKE IF THERE WAS NO EXAMINER.
17 Q. OKAY.
18 A. IF THE EXAMINER WAS CLOSED.
19 Q. OKAY. THEN -- ALL RIGHT. SO THEN LET'S USE THAT
20 EXPRESSION.
21 SO WHEN WE HAVE "AM ONLY," WE COULD SUBSTITUTE THAT
22 FOR MEANING EXAMINER GONE, CLOSED. OKAY? IS THAT RIGHT? IS
23 THAT WHAT YOU JUST SAID?
24 A. OKAY.
25 Q. OKAY. SO THIS IS A COMPARISON.
1508
FALK - CROSS / ALIOTO
1 ALL RIGHT. NOW, IN THIS COMPARISON YOU HAVE "PD 4
2 PRO FORMA." WHAT IS THE "PD 4"?
3 A. PERIOD 4, AS OF PERIOD 4, ACTUAL, AND PROJECTION FOR THE
4 REST OF THE YEAR, WHICH IS WHAT "PRO FORMA" MEANS. THAT'S WHAT
5 THE PROJECTIONS FOR EIGHT MONTHS --
6 Q. OKAY.
7 A. -- EIGHT MONTHS AHEAD, FOUR MONTHS ACTUAL, LOOKED LIKE AT
8 THE TIME.
9 Q. WAIT A MINUTE. BY "PD 4," ARE YOU TALKING ABOUT THE
10 FOURTH QUARTER? IS THAT WHAT YOU ARE SAYING?
11 A. NO, PERIOD 4.
12 Q. PERIOD 4?
13 A. YES.
14 Q. I'M SORRY. I DIDN'T UNDERSTAND YOUR EXPLANATION. WOULD
15 YOU STATE AGAIN?
16 A. THERE ARE 12 PERIODS, MONTHS. IT'S AN ACCOUNTING PERIOD.
17 Q. OKAY.
18 A. AS OF -- THIS WAS DONE IN MAY, SO THE FIGURES WERE ACTUAL
19 THROUGH APRIL, PROJECTED FOR MAY THROUGH DECEMBER.
20 Q. OKAY. ALL RIGHT.
21 SO ON THE PD 4 -- IN OTHER WORDS, YOU JUST TAKE IN
22 ONE MONTH. IS THAT WHAT YOU ARE TELLING ME?
23 A. FOUR MONTHS ACTUAL, EIGHT MONTHS PROJECTED.
24 MR. ALIOTO: OKAY.
25 THE COURT: THE EXHIBIT NUMBER HERE IS WHAT?
1509
FALK - CROSS / ALIOTO
1 MR. HALLING: 983.
2 MR. ALIOTO: 983, YOUR HONOR.
3 THE COURT: SORRY FOR THE INTERRUPTION.
4 BY MR. ALIOTO:
5 Q. OKAY. NOW, FOR THE "PD PRO FORMA," THE FIRST ITEM ON THE
6 LEFT-HAND COLUMN UNDER "REVENUES," YOU HAVE "ADVERTISING." AND
7 THEN YOU BREAK UP THE ADVERTISING BETWEEN RETAIL, NATIONAL,
8 CLASSIFIED, AND THEN YOU HAVE A GROSS ADVERTISING REVENUE.
9 CORRECT?
10 A. YES.
11 Q. THAT'S THE WAY IT'S BROKEN DOWN.
12 AND THEN FOR THE PD OR FOR THE PRO FORMA, YOU COME
13 OUT WITH $332 MILLION AND FOR THE NO EXAMINER YOU ALSO COME OUT
14 WITH $332 MILLION. CORRECT?
15 A. YES.
16 Q. SO THAT THERE IS NO DIFFERENCE ON THAT ONE.
17 A. YES.
18 Q. ALL RIGHT?
19 AND THEN FOR -- THEN YOU HAVE "TRADE DEALS", BAD
20 DEBTS." THERE IS -- AND THERE IS NO DIFFERENCE ON THOSE,
21 EITHER?
22 A. THAT'S CORRECT.
23 Q. OKAY. THEN YOU HAVE "CIRCULATION REVENUE," AND FOR THE
24 PD -- AND FOR PD YOU HAVE 90 -- FOR THE PD YOU HAVE 94.9
25 MILLION, AND THEN FOR THE NO EXAMINER YOU HAVE 90 FOR A
1510
FALK - CROSS / ALIOTO
1 DIFFERENCE OF ABOUT, YOU SAY HERE -- I'M SORRY, IT'S 94. YOU
2 HAVE A DIFFERENCE OF ABOUT 4.2 MILLION, RIGHT?
3 A. YES.
4 Q. OKAY. DOES THAT MEAN THAT ON THE CIRCULATION -- THAT THE
5 CIRCULATION OF THE CHRONICLE WITH THE JO -- IN THE JOA WITH THE
6 EXAMINER, THE REVENUE IS 94 MILLION BUT WITHOUT THE EXAMINER IT
7 WILL BE 90 MILLION?
8 A. YES.
9 Q. OKAY. SO THAT THERE WOULD BE A SLIGHT REDUCTION IN THE
10 REVENUE, $4.2 MILLION, IF THE EXAMINER IS NO LONGER THERE,
11 RIGHT?
12 A. YES.
13 Q. OKAY. AND THEN YOU HAVE "OTHER REVENUE" OF NO CHANGE, AND
14 SO THEN THE TOTAL DIFFERENCE BETWEEN THE TOTAL REVENUE UNDER
15 THE JOA WITH BOTH NEWSPAPERS AND WITHOUT THE EXAMINER IS A
16 COMPARISON OF 429 MILLION TO 424.7 MILLION OR THE DIFFERENCE OF
17 4.291. CORRECT?
18 A. YES.
19 Q. AND THAT DIFFERENCE IS DIRECTLY ATTRIBUTABLE TO SOME
20 DECREASE IN THE CIRCULATION. CORRECT?
21 A. YES.
22 Q. THE IDEA THERE IS THAT UNDER THE JOA, THE CIRCULATION, IF
23 YOU COMBINE BOTH THE CHRONICLE AND THE EXAMINER, WOULD YIELD
24 THE 94 MILLION IF THE EXAMINER WAS CLOSED, YOU WOULD LOSE SOME
25 CIRCULATION BECAUSE OF THAT, BUT YOU WOULD PICK UP A LOT OF IT.
1511
FALK - CROSS / ALIOTO
1 IS THAT THE IDEA?
2 A. WE --
3 Q. SO THAT YOU WOULD HAVE A NET LOSS OF ABOUT 4 MILLION?
4 A. YES, THAT'S RIGHT.
5 Q. OKAY. THEN YOU GO TO THE EXPENSES. OKAY.
6 NOW, ON THE TOP IS THE "PAYROLL," THE FIRST EXPENSE
7 YOU HAVE, AND THE FIRST LINE IS "CIRCULATION." SO THAT UNDER
8 THE PRO FORMA JOA FOR CIRCULATION, PAYROLL, YOU ARE TALKING
9 ABOUT 30.7 MILLION AS OPPOSED TO IF THE EXAMINER IS CLOSED 25
10 AND A HALF MILLION. CORRECT?
11 A. YES.
12 Q. AND THAT'S A DIFFERENCE, YOU HAVE ON THE FAR SIDE, RIGHT
13 SIDE, OF $5 MILLION. RIGHT?
14 A. YES.
15 Q. SO THAT MEANS THAT SOME PEOPLE, THAT WOULD BE WORKING
16 UNDER THE JOA, IF THE CHRONICLE WERE CLOSED, YOU WOULDN'T NEED
17 THEM ANYMORE AND YOU DON'T HAVE TO PAY THEIR PAYROLL. RIGHT?
18 THE COURT: I THINK YOU MEAN THE EXAMINER.
19 THE WITNESS: IF THE EXAMINER WAS CLOSED?
20 BY MR. ALIOTO:
21 Q. IF THE EXAMINER WAS CLOSED, YES.
22 A. WE WOULD NOT NEED AS MANY PEOPLE, THAT'S CORRECT.
23 Q. ALL RIGHT. SO, I MEAN, I DON'T WANT TO GET INDELICATE,
24 BUT, I MEAN, SOME PEOPLE WILL BE FIRED. RIGHT?
25 A. THERE WILL DEFINITELY BE LESS WORK, YES.
1512
FALK - CROSS / ALIOTO
1 Q. THERE WILL BE LESS WORK AND LESS WORKERS, CORRECT, AND
2 LESS PAYROLL. RIGHT?
3 A. THAT'S TRUE.
4 Q. OKAY?
5 THE COURT: LET ME INTERRUPT, MR. ALIOTO.
6 WHAT IS "FTE" THAT'S REFERRED TO?
7 THE WITNESS: FULL TIME. IT STANDS FOR FULL-TIME
8 EQUIVALENT, A FULL-TIME --
9 THE COURT: EQUIVALENT EMPLOYEES?
10 THE WITNESS: EMPLOYEE, YES.
11 BY MR. ALIOTO:
12 Q. THAT'S ON THE RIGHT SIDE, "REDUCTION OF 125 FTE'S."
13 A. 125 JOBS.
14 Q. 125 JOBS?
15 A. EMPLOYEES.
16 Q. OKAY. AND THOSE 125 EMPLOYEES WILL ACCOUNT FOR A
17 $5 MILLION SAVING FROM THE CHRONICLE IS -- IF THE EXAMINER IS
18 CLOSED. CORRECT?
19 A. YES.
20 Q. OKAY. BACK TO THE SECOND LINE IS "PRODUCTION AND BUILDING
21 SERVICES."
22 NOW, ARE THESE EMPLOYEES IN CONNECTION WITH THE
23 PRESSES OR WHAT?
24 A. YES.
25 Q. OKAY. AND, AGAIN, HERE THERE IS A DIFFERENCE OF
1513
FALK - CROSS / ALIOTO
1 $3.3 MILLION IN THE PAYROLL. SO IT MEANS THAT THERE WILL BE A
2 REDUCTION OF 83 EMPLOYEES. CORRECT?
3 A. YES.
4 Q. AND THEN ALL OTHERS, THERE IS NO DIFFERENCE. SO THERE IS
5 A TOTAL DIFFERENCE HERE WITH REGARD TO THE PAYROLL OF
6 $8.4 MILLION. CORRECT?
7 A. YES.
8 Q. AND IT WOULD BE -- AND IT WOULD BE APPROXIMATELY 208 JOBS?
9 A. YES.
10 Q. OKAY. NOW, "H/W & PENSION," WHAT'S THAT?
11 A. HEALTH, WELFARE AND PENSION.
12 Q. OKAY. AND, AGAIN, THAT'S IN REFERENCE TO THE EMPLOYEES,
13 CORRECT?
14 A. THAT'S THE BENEFIT PORTION OF PAYROLL, YES.
15 Q. OKAY. SO THAT IF THERE IS THIS REDUCTION OF THIS 208
16 EMPLOYEES BY REASON OF CLOSING THE EXAMINER, THEN THERE WOULD
17 BE A SAVINGS OF APPROXIMATELY $2.4 MILLION. CORRECT?
18 A. YES.
19 Q. AND THAT, AGAIN, IS BROKEN OUT TO CIRCULATION, PRODUCTION,
20 ET CETERA.
21 ALL RIGHT. THEN THERE ARE TRADE DEALS. YOU HAVE
22 ZERO DIFFERENCE.
23 NEWSPRINT. SO NEWSPRINT, INK AND SUPPLEMENTS, WE
24 HAVE A DIFFERENCE THERE OF $71 MILLION -- $71.3 MILLION WITH
25 THE -- BOTH NEWSPAPERS AND IT'S LOOKS LIKE 55 -- 65. 65. WAIT
1514
FALK - CROSS / ALIOTO
1 A MINUTE.
2 A. 66.
3 Q. 66. OKAY. THANK YOU. I CAN'T SEE IT UP THAT CLOSE. ALL
4 RIGHT. 66.5 FOR NEWSPRINT.
5 NOW, THAT MEANS THAT THERE WILL BE LESS PAPER NEEDED
6 TO PUT OUT JUST THE CHRONICLE WITH THE EXAMINER CLOSED. RIGHT?
7 A. YES.
8 Q. OKAY.
9 A. IT CORRELATES WITH CIRCULATION.
10 Q. ALL RIGHT. SO THERE -- THERE IS THE SO-CALLED "SAVINGS"
11 THERE OF $4.7 MILLION. CORRECT?
12 A. YES.
13 Q. OKAY. NOW, THEN, OTHER EXPENSES, YOU HAVE CIRCULATION,
14 PRODUCTION, ALL OTHER DEPARTMENTS, AND YOU ALSO HAVE A
15 DIFFERENCE THERE. AND THERE YOU HAVE -- UNDER "CIRCULATION,"
16 IT GOES FROM $68 MILLION DOWN TO $59.89 MILLION, AND THAT
17 EXPENSE IS -- THOSE ARE, YOU SAY ON THE SIDE, "CONTRACTUAL PAY,
18 SOLICITATION, RETENTION, ET CETERA."
19 DO YOU SEE THAT?
20 A. YES.
21 Q. OKAY. SO THAT MEANS THAT YOU DON'T NEED TO DO A LOT OF
22 THE ADVERTISING TO GET THE CIRCULATION, AND YOU DON'T NEED TO
23 MAKE THE CONTRACTS AND YOU DON'T NEED TO DO AS MUCH AS YOU
24 WOULD HAVE TO DO IF THERE WERE BOTH PAPERS.
25 A. YES. MOST OF THAT IS THE CARRIER DELIVERY FEES.
1515
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1 Q. CARRIER DELIVERY FEES. OKAY. SO YOU DON'T NEED AS MANY
2 CARRIER DELIVERERS THAT YOU DID WHEN YOU WOULD HAVE BOTH
3 PAPERS?
4 A. THAT'S CORRECT.
5 Q. PRODUCTION. THERE IS ALSO A SAVINGS THERE OF
6 APPROXIMATELY A MILLION DOLLARS, AND YOU ATTRIBUTE THAT TO
7 FILM, PLATES AND PARTS. THOSE ARE PIECES OF EQUIPMENT
8 ASSOCIATED WITH THE PRESS INK, CORRECT?
9 A. CORRECT.
10 Q. AND YOU DON'T NEED THOSE ANYMORE BECAUSE YOU DON'T NEED
11 TWO DIFFERENT MASTHEADS, I GUESS; YOU DON'T NEED TWO DIFFERENT
12 TYPES OF TYPING, THAT KIND OF THING?
13 A. YES.
14 Q. OKAY. AND THEN, FINALLY, SO YOU HAVE YOUR TOTAL EXPENSES,
15 AND THE DIFFERENCE IN THE TOTAL EXPENSES IS THE 24 ON THE FAR
16 RIGHT, THE TOTAL EXPENSE IS 322.9 MILLION WITH BOTH PAPERS. IF
17 THE EXAMINER IS CLOSED, IT'S 298 MILLION FOR A SAVINGS OF
18 $24 MILLION. RIGHT?
19 A. YES.
20 Q. AND THEN YOU HAVE WHAT'S CALLED THE "GROSS EXCESS." AND,
21 I TAKE IT, THAT THE GROSS EXCESS IS DEDUCTING THE EXPENSES FROM
22 THE TOTAL REVENUE THAT WE DID UP HERE. YOU WOULD TAKE, FOR
23 EXAMPLE, THE 429 MILLION, WHICH IS THE TOTAL REVENUE. YOU
24 WOULD DEDUCT THE TOTAL EXPENSES, 322 MILLION, TO GET UP TO 106.
25 CORRECT?
1516
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1 A. YES.
2 Q. AND SO THERE IS A DIFFERENCE HERE BETWEEN $106 MILLION
3 WITH BOTH PAPERS AND EXPENSES -- I MEAN, GROSS EXCESS OF
4 $106 MILLION. AND IF YOU CLOSE THE EXAMINER, THERE IS
5 $126 MILLION. SO THERE IS A DIFFERENCE HERE OF $20 MILLION --
6 20 AND A HALF MILLION DOLLARS. RIGHT?
7 A. YES, ON IMPROVEMENT.
8 Q. WHAT'S THAT?
9 A. AN IMPROVEMENT OF $20 MILLION.
10 Q. IMPROVEMENT. OKAY. AN IMPROVEMENT.
11 THE IMPROVEMENT AT THE SACRIFICE OF THE EXAMINER?
12 A. WITH NO EXAMINER.
13 Q. WITH NO EXAMINER. OKAY.
14 NOW, THAT 20 AND A HALF MILLION DOLLARS WOULD, I
15 TAKE IT -- BASICALLY, IT GOES DOWN TO THE -- THERE IS NO
16 SERVICE CHARGE SO IT GOES DOWN TO THE NET EXCESS OF
17 $20.545 MILLION.
18 AND THAT, BASICALLY, WOULD GO TO THE BOTTOM LINE,
19 WOULDN'T IT?
20 A. THAT IS THE BOTTOM LINE --
21 Q. THAT IS THE BOTTOM LINE.
22 OKAY. NOW --
23 A. -- OF THE NEWSPAPER AGENCY.
24 Q. RIGHT. NOW, THIS PAPER -- NOW, THIS DOCUMENT WAS
25 PREPARED -- WHO DID YOU SAY YOU PREPARED THIS FOR?
1517
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1 A. I -- IT HAS NO COVER MEMO. IT WAS PREPARED FOR BOTH THE
2 CHRONICLE AND HEARST.
3 Q. OKAY. CHRONICLE AND HEARST.
4 OKAY. NOW, EVEN THOUGH YOU ARE CLOSING THE
5 EXAMINER, ON THE REVENUE SIDE OF THE ADVERTISING, YOU KEEP THAT
6 THE SAME. CORRECT?
7 A. YES.
8 Q. SO THAT THESE ADVERTISERS -- SO THAT THE ADVERTISERS HERE,
9 WHEN THAT -- WHAT THEY ARE PAYING -- THEY WILL STILL PAY THE
10 SAME RATE. RIGHT?
11 A. YES.
12 Q. BUT THEY WON'T GET THE EXAMINER, WILL THEY?
13 A. NO.
14 Q. AND THEY WON'T GET THE MULTIPLE EDITIONS, EITHER, WILL
15 THEY?
16 A. THAT'S CORRECT.
17 Q. AND THEY WON'T GET THE CIRCULATION OF BOTH OF THEM,
18 EITHER, WILL THEY? WILL THEY?
19 A. WELL, THEY'LL -- THEY'LL, OBVIOUSLY, NOT GET EXAMINER
20 CIRCULATION. THEY WILL GET MORE CHRONICLE CIRCULATION.
21 Q. SO THEY WILL LOSE CIRCULATION, CORRECT?
22 A. IN THIS ANALYSIS THE COMBINED DAILY CIRCULATION DECREASES
23 SLIGHTLY, YES.
24 Q. OKAY. SO THAT THE ADVERTISERS -- SO THAT THE ADVERTISERS,
25 THEN -- SO THAT THE ADVERTISERS, THEN, WILL BE PAYING THE SAME
1518
FALK - CROSS / ALIOTO
1 RATE, BUT NOW INSTEAD OF TWO PAPERS THEY WILL ONLY GET ONE
2 PAPER. INSTEAD OF THE COMBINED CIRCULATION THEY WILL ONLY GET
3 ONE CIRCULATION. IS THAT RIGHT?
4 A. YES, AND THEY WILL GET CLOSE TO THE SAME READERSHIP.
5 Q. IS THAT RIGHT?
6 A. YES. I SAID, "YES."
7 Q. OKAY. SO THEY GET LESS FOR THE SAME PRICE, CORRECT?
8 A. NOT LESS READERSHIP, PROBABLY, LESS -- LESS CIRCULATION.
9 REMEMBER, YESTERDAY THE DUPLICATION. THERE IS 60 PERCENT
10 DUPLICATION BETWEEN THE EXAMINER AND CHRONICLE READERSHIP.
11 Q. AND THESE ADVERTISERS, BY THE WAY, HAVE ANY OF THEM
12 CONTACTED YOU AND SAID, "HEY, LOOK, IF THE EXAMINER -- IF WE
13 ARE LOSING THE EXAMINER, WE NEED TO HAVE AN ADJUSTMENT IN THE
14 RATE. WE ARE GETTING LESS. WE ARE NOT GOING TO PAY THE SAME
15 PRICE."
16 A. THIS WAS AN INTERNAL DOCUMENT, NOT ONE THAT WE PRESENTED
17 TO ADVERTISERS.
18 Q. OKAY. AND THIS FINAL PRICE, THIS $20 MILLION WHICH YOU
19 HAVE NOW SAID GOES TO THE BOTTOM LINE, THIS IS A RESULT OF
20 KEEPING THE SAME RATES BUT WITHOUT THE COST OF THE EXAMINER.
21 RIGHT?
22 A. KEEPING -- THIS PROJECTION CALLED FOR THE SAME ADVERTISING
23 REVENUE.
24 Q. OKAY. AND THE ONLY REASON THAT YOU ARE ABLE TO DO THAT IS
25 BECAUSE THE CHRONICLE AND THE EXAMINER TOGETHER PRESENTLY HAVE
1519
FALK - CROSS / ALIOTO
1 98 PERCENT OF THE SAN FRANCISCO MARKET.
2 A. 98 PERCENT OF WHAT MARKET?
3 Q. SAN FRANCISCO.
4 A. HOUSEHOLDS? NO. IT HAS TO BE 98 PERCENT OF SOMETHING.
5 Q. WOULD YOU DESCRIBE THIS PROFIT AS A MONOPOLY PROFIT?
6 A. A MONOPOLY PROFIT?
7 Q. YES.
8 A. NO.
9 Q. LET ME SHOW YOU -- WHAT IS THE DROP, BY THE WAY, IN THE
10 CIRCULATION?
11 A. ON PAGE 2 IS -- IS THE DETAIL. IT'S -- I'D HAVE TO LOOK
12 AT IT HERE FOR A MINUTE -- (WITNESS READING DOCUMENT) -- A LOSS
13 OF 70,000.
14 Q. 70,000.
15 AND IS THAT -- AND WHEN YOU SAY "A LOSS OF 70,000,"
16 DOES THAT MEAN FROM THE COMBINED CIRCULATION?
17 A. YES.
18 Q. OKAY. SO THE ADVERTISER NOW HAS ONE PAPER INSTEAD OF TWO,
19 70,000 CIRCULATION LESS THAN HE HAD BEFORE, BUT PAYS THE SAME
20 PRICE. CORRECT? IS THAT CORRECT?
21 A. THAT'S WHAT THIS ANALYSIS -- I MEAN, THIS IS A SNAPSHOT IN
22 TIME OF THE FINANCIAL ANALYSIS ON WHAT A DAY ONE SCENARIO WOULD
23 LOOK LIKE.
24 Q. THAT IS NOT THE QUESTION. THE QUESTION IS, NOW THE
25 ADVERTISERS WILL GET ONE NEWSPAPER LESS THAN THEY HAD, 70,000
1520
FALK - CROSS / ALIOTO
1 CIRCULATION LESS, BUT THEY WILL PAY THE SAME PRICE. IS THAT
2 TRUE?
3 A. YES.
4 Q. AND THIS ANALYSIS WAS GIVEN IN MAY OF '99. RIGHT?
5 A. YES.
6 Q. AND THIS WAS GIVEN TO THE HEARST OFFICIALS, AMONG OTHERS.
7 CORRECT?
8 A. YES.
9 Q. AND NOW I WANT TO GO TO EXHIBIT 982. EXHIBIT 982 WAS THE
10 STRATEGIC MARKETING PLAN 2000 THAT YOU WERE QUESTIONED ABOUT
11 YESTERDAY.
12 IF I MAY I APPROACH THE WITNESS, YOUR HONOR?
13 THE COURT: YES, YOU MAY.
14 BY MR. ALIOTO:
15 Q. I WOULD LIKE YOU TO TURN TO WHAT IS BATES NUMBER 0122031.
16 I DO NOT HAVE A CLEAN COPY OF THAT, YOUR HONOR. IF
17 THERE IS -- IF YOU DO HAVE ANOTHER COPY, I WOULD LIKE TO USE
18 IT.
19 ARE YOU THERE? ARE YOU ON THAT PAGE?
20 A. 031?
21 Q. YES, 0122031.
22 A. YES, I AM.
23 MR. ALIOTO: THANK YOU VERY MUCH, COUNSEL.
24 THE WITNESS: IT'S HARD TO READ.
25 THE COURT: THAT'S IN THE MARKETING --
1521
FALK - CROSS / ALIOTO
1 MR. ALIOTO: PARDON ME, YOUR HONOR?
2 THE COURT: THAT'S IN THE MARKETING PLAN? THE
3 WITNESS TESTIFIED ABOUT THIS?
4 MR. ALIOTO: YES. THAT IS THE STRATEGIC MARKETING
5 PLAN FOR 2000, AND I AM DIRECTING THE WITNESS' ATTENTION --
6 BECAUSE THE PAGES ARE DIFFERENT IN DIFFERENT SECTIONS -- TO THE
7 PAGE WITH THE BATES NUMBER 0122031. AND I WILL PUT THAT ON THE
8 ELMO TO THE EXTENT THAT I CAN.
9 BY MR. ALIOTO:
10 Q. OKAY. NOW, FIRST OF ALL, THIS MAP PURPORTS TO BE THE SAN
11 FRANCISCO AND THE BAY AREA, VARIOUS COUNTIES THROUGHOUT THE BAY
12 AREA, CORRECT?
13 A. YES.
14 Q. AND WITH REGARD TO EACH OF THOSE DIFFERENT COUNTIES, IT
15 ATTEMPTS TO PUT OUT THE CIRCULATIONS OF DIFFERENT PAPERS IN THE
16 DIFFERENT COUNTIES, CORRECT?
17 A. DAILY NEWSPAPERS ONLY.
18 Q. PARDON ME?
19 A. DAILY NEWSPAPERS ONLY, YES.
20 Q. DAILY NEWSPAPERS ONLY.
21 AND THAT'S SHOWN IN THE TOP RIGHT-HAND CORNER OF THE
22 DOCUMENT WHERE THEY HAVE DONE THOSE FIGURES. CORRECT?
23 A. YES.
24 Q. AND LET'S SEE IF WE CAN ZERO IN ON THAT.
25 AND THAT IS DIVIDED -- THAT IS DIVIDED ON THE
1522
FALK - CROSS / ALIOTO
1 LEFT-HAND SIDE BY THE DIFFERENT COUNTIES. THE FIRST COLUMN,
2 VERTICAL COLUMN, IS THE TOTAL COMPETITION DAILY CIRCULATION.
3 DO YOU SEE THAT?
4 A. YES.
5 Q. TOTAL -- YES.
6 A. THAT SAYS, "TOTAL COMPETITOR DAILY CIRCULATION."
7 Q. "TOTAL COMPETITOR DAILY CIRCULATION."
8 THEN IT HAS SAN FRANCISCO CHRONICLE DAILY
9 CIRCULATION, SAN FRANCISCO EXAMINER DAILY CIRCULATION, AND THEN
10 IT HAS THE CHRONICLE AND EXAMINER'S JOINT SHARE, CORRECT?
11 A. OF DAILY NEWSPAPER READER CIRCULATION, YES.
12 Q. ALL RIGHT. NOW, ACCORDING TO THIS DOCUMENT, IN SAN
13 FRANCISCO ALONE -- AND THAT'S THE ONE, TWO, THREE, FOUR -- THE
14 FIFTH ONE DOWN -- IT SHOWS, DOES IT NOT, THAT THE SAN FRANCISCO
15 CHRONICLE HAS A CIRCULATION OF 110.4 THOUSAND AND THE EXAMINER
16 HAS A CIRCULATION OF 54.378 THOUSAND, AND THEIR COMBINED SHARE
17 OF SAN FRANCISCO IS SHOWN AT 98 PERCENT. IS THAT RIGHT?
18 A. 98 PERCENT OF ALL DAILY NEWSPAPER CIRCULATION.
19 Q. OKAY. AND SO FOR OTHER DAILIES -- THE CIRCULATION OF
20 OTHER DAILIES IN SAN FRANCISCO ARE SHOWN AS 3500 COPIES.
21 RIGHT?
22 A. YES.
23 Q. OKAY. AND YOU TESTIFIED ON DIRECT EXAMINATION THAT YOU
24 THOUGHT THAT THE SAN JOSE MERCURY NEWS WAS MAKING ADVANCES IN
25 SAN FRANCISCO, EVEN ATTEMPTING TO ESTABLISH MAYBE EVEN AN
1523
FALK - CROSS / ALIOTO
1 OUTLET HERE.
2 A. THEY ANNOUNCED THAT SEVERAL WEEKS AGO, YES.
3 Q. AND YOU VIEWED THAT AS AN INVASION OF YOUR BACKYARD,
4 THROWING A GRENADE IN YOUR BACKYARD. YOU REMEMBER THAT
5 YESTERDAY?
6 A. YES, I DO.
7 Q. OKAY. AND BY "BACKYARD," YOU MEANT SAN FRANCISCO?
8 A. YES.
9 Q. BECAUSE YOU FEEL THAT YOU HAVE -- THE COMBINED PAPERS WITH
10 98 PERCENT HAVE A DEFINITE HOLD ON SAN FRANCISCO?
11 A. WE HAVE THE MAJORITY OF DAILY NEWSPAPER READERSHIP IN SAN
12 FRANCISCO, YES.
13 Q. WELL, NO. YOU HAVE 98 PERCENT.
14 A. YES.
15 Q. CORRECT?
16 A. YES.
17 Q. YES. OKAY.
18 THAT'S MORE THAN -- IT'S NOT A SIMPLE MAJORITY,
19 ANYWAY, CORRECT?
20 A. IT'S A LARGE -- LARGE MAJORITY.
21 Q. IT'S ALMOST EVERYTHING, RIGHT?
22 A. IT'S 98 PERCENT.
23 THE COURT: ALL RIGHT.
24 MR. ALIOTO: OKAY. OKAY.
25 ////
1524
FALK - CROSS / ALIOTO
1 BY MR. ALIOTO:
2 Q. NOW, FROM THAT MARKET IF SOMEONE WANTED TO ADVERTISE --
3 OH, I THINK YOU SAID YESTERDAY, TOO, THAT THE TOTAL ADVERTISING
4 REVENUE OF THE PAPERS, SAN FRANCISCO ADVERTISING REVENUE, WAS
5 $3.4 MILLION OUT OF THE $350 MILLION. YOU SAID THAT, RIGHT?
6 A. SPECIFICALLY, THAT WAS SAN FRANCISCO ZONES, ADVERTISING
7 THAT APPEARS IN ZONED EDITIONS IN SAN FRANCISCO ONLY, YES.
8 Q. THOSE WOULD BE ADVERTISERS THAT WANT TO ADVERTISE TO SAN
9 FRANCISCO, OR ARE THEY ADVERTISERS FROM SAN FRANCISCO?
10 A. ADVERTISERS IN THE ZONED EDITIONS REACHING SAN FRANCISCO
11 ONLY READERS.
12 Q. ONLY READERS. OKAY.
13 SO THEN IF SOMEBODY WANTED TO ADVERTISE TO SAN
14 FRANCISCO READERS -- IF THEY WANTED TO ADVERTISE, THEY WOULD --
15 IF THEY -- AND THEY WANTED TO GET THE MESSAGE OUT IN SAN
16 FRANCISCO, SINCE YOU HAVE 98 PERCENT OF THE MARKET, YOU WOULD
17 BE THE PLACE TO GO, CORRECT?
18 A. IF YOU WERE A DAILY NEWSPAPER ADVERTISER, YES.
19 Q. BY THE WAY, IN THIS STUDY, IF YOU WILL GO TO PAGE 6 OF THE
20 STUDY, YOU REFER TO SAN FRANCISCO AS THE "CORE MARKET,"
21 CORRECT?
22 A. SAN FRANCISCO IS -- IS WHERE WE ARE BASED, WHICH LEADS TO
23 THAT PHRASE "CORE MARKET."
24 THOUGH, REMEMBER, LESS THAN A THIRD OF OUR COMBINED
25 CIRCULATION IS IN THAT PART OF THE MARKET.
1525
FALK - CROSS / ALIOTO
1 Q. ARE YOU AGREEING WITH ME OR NOT, THAT YOU REFER TO SAN
2 FRANCISCO AS YOUR CORE MARKET?
3 A. YES, I DO.
4 Q. IF YOU WILL GO TO PAGE 6, YOU WILL SEE HERE -- AND
5 BEGINNING ON PAGE 6 ON THE LEFT-HAND COLUMN, THE SECOND FULL
6 PARAGRAPH WHICH BEGINS, "GEOGRAPHICALLY." DO YOU SEE THAT?
7 A. YES.
8 Q. AND YOU STATE THIS, QUOTE:
9 "GEOGRAPHICALLY SUBURBAN MARKET PENETRATION
10 HAS NOT IMPROVED DESPITE HIGH SUBURBAN HOUSEHOLD
11 GROWTH."
12 DO YOU SEE THAT?
13 A. YES.
14 Q. NOW, "SUBURBAN MARKET PENETRATION," DOES THAT MEAN MARKETS
15 OUTSIDE OF SAN FRANCISCO?
16 A. YES.
17 Q. THEN YOU GO ON TO SAY:
18 "RESEARCH INDICATES THAT THE NEWSPAPER'S
19 CORE SAN FRANCISCO MARKET IS PROBLEMATIC.
20 READERS ARE MORE PRICE SENSITIVE. CIRCULATION
21 IS DECREASING AT THE HIGHEST RATE AND READER
22 SATISFACTION IS LOWEST THERE."
23 DO YOU SEE THAT?
24 A. YES.
25 Q. OKAY. WHEN YOU SAY THAT THE READERS IN SAN FRANCISCO ARE
1526
FALK - CROSS / ALIOTO
1 "PRICE SENSITIVE," THAT MEANS THEY REACT TO PRICE, CORRECT?
2 A. YES.
3 Q. THAT'S WHAT YOU MEAN BY THAT?
4 A. YES.
5 Q. AND WHEN YOU SAY "CORE SAN FRANCISCO MARKET," AGAIN, YOU
6 ARE REFERRING TO YOUR HOLD ON SAN FRANCISCO, YOUR BACKYARD?
7 A. I AM REFERRING TO THE GEOGRAPHY OF THE CITY AND COUNTY OF
8 SAN FRANCISCO.
9 Q. ALL RIGHT. AND ON THE TOP OF THAT PAGE, YOU ALSO STATE,
10 QUOTE -- AND THIS IS IN THE FIRST PARAGRAPH, BUT IT'S NOT A
11 FULL PARAGRAPH. IF YOU WILL LOOK AT THE VERY TOP OF THE PAGE
12 ON PAGE 6, LEFT-HAND COLUMN. THIS IS IN REFERENCE TO CERTAIN
13 WEAKNESSES. YOU SAY, QUOTE:
14 "THESE PROBLEMS MAY BECOME MORE ACUTE FOR
15 THE SAN FRANCISCO NEWSPAPER AGENCY AS A RESULT
16 OF THE LOSS OF THE EXAMINER THROUGH SALE OR
17 CLOSURE AND ASSOCIATED READERSHIP (AND
18 POTENTIALLY ADVERTISING REVENUE)."
19 DO YOU SEE THAT?
20 A. YES.
21 Q. OKAY. AND IT IS CORRECT, ISN'T IT, THAT WHEN YOU USE OR
22 YOU USED THE EXPRESSION "SAN FRANCISCO AS THE CORE MARKET,"
23 THAT MEANS THAT'S THE AREA IN WHICH YOU ARE STRETCHING OUT
24 PERHAPS TO OTHER MARKETS, BUT THAT'S YOUR BASIC MARKET?
25 A. AGAIN, THAT -- THAT IS THE PUBLISHING HEADQUARTERS OF THE
1527
FALK - CROSS / ALIOTO
1 NEWSPAPERS. WE HAVE THREE PRINTING PLANTS, FOR INSTANCE, THAT
2 ARE SPREAD THROUGHOUT THE BAY AREA. IT -- BY DEFINITION
3 BECAUSE THAT IS THE HOME ADDRESS OF THE NEWSPAPER, THAT'S
4 GENERALLY CONSIDERED WHAT WE WOULD CALL THE CORE MARKET.
5 Q. OKAY. AND THIS PARTICULAR MAP, BY THE WAY, SO THAT WE CAN
6 GET A BROADER LOOK OF IT -- THIS PARTICULAR MAP WILL NOT ONLY
7 SHOW ALL OF THE AREAS, DIFFERENT COUNTIES IN THE GREATER BAY
8 AREA, BUT ALSO IT SHOWS THE NEWSPAPERS THAT EXIST IN EACH
9 PARTICULAR MARKET. IS THAT RIGHT?
10 A. YES, IT DOES.
11 Q. SO, FOR EXAMPLE, IF ONE WANTED TO KNOW WHAT THE
12 CIRCULATION WAS OF ANY OF -- OF ANY PARTICULAR NEWSPAPER IN ANY
13 PARTICULAR MARKET, THEY COULD GO TO THIS MAP AND THIS MAP WOULD
14 TELL THEM.
15 A. YES, DAILY NEWSPAPERS.
16 Q. NOW, IN SAN FRANCISCO -- I WANT TO FOCUS DOWN ON THAT --
17 IN THIS PARTICULAR STUDY THAT YOU DO ON THE BOTTOM OF THE
18 PAGE -- BY THE WAY, THIS DOCUMENT WAS PREPARED AFTER THE
19 AGREEMENT BETWEEN HEARST AND THE CHRONICLE FOR THE PURCHASE OF
20 THE CHRONICLE, WASN'T IT?
21 A. WHAT WAS THAT DATE?
22 Q. THAT'S AUGUST.
23 A. YES. THIS WAS RIGHT IN THAT TIME FRAME.
24 Q. RIGHT. WAS THIS -- AND WAS THIS GIVEN TO THE DEPARTMENT
25 OF JUSTICE?
1528
FALK - CROSS / ALIOTO
1 A. YES, IT WAS.
2 Q. SO DID YOU MAKE ALL OF THESE STUDIES FOR THAT PURPOSE?
3 A. PARDON ME?
4 Q. DID YOU MAKE ALL OF THESE STUDIES FOR THAT PURPOSE?
5 A. THIS WAS OUR FOURTH ANNUAL SUCH MARKETING PLAN.
6 Q. OKAY. NOW, HERE YOU HAVE SAN FRANCISCO CITY AND COUNTY.
7 AND YOU HAVE SAN FRANCISCO CHRONICLE AND THERE 110,000; SAN
8 FRANCISCO EXAMINER, 54,000. BUT YOU ALSO HAVE SAN FRANCISCO
9 INDEPENDENT, 211,000; BAY GUARDIAN, 120,000; SF WEEKLY,
10 195,000. DO YOU SEE THAT?
11 A. YES.
12 Q. NOW, THE REASON THAT YOU DO NOT -- THE REASON THAT YOU DO
13 NOT INCLUDE THOSE OTHER PAPERS IN YOUR TOP GRAPH IS BECAUSE YOU
14 BELIEVE THOSE MARKETS ARE TWO DIFFERENT MARKETS. CORRECT?
15 A. NO. THE TOP GRAPH IS DAILY CIRCULATION NEWSPAPERS.
16 Q. YOU BELIEVE THAT THE MARKET FOR FREE DISTRIBUTION OF
17 PAPERS AND PAID CIRCULATION -- YOU BELIEVE THAT THOSE ARE
18 DIFFERENT MARKETS, DON'T YOU?
19 A. THEY ARE CERTAINLY NOT DIFFERENT ADVERTISING MARKETS.
20 IT'S A DIFFERENT TYPE OF PRODUCT.
21 Q. AS A MATTER OF FACT, THE REASON THAT YOU DID NOT -- OR
22 HAVE NOT GONE TO A FREE NEWSPAPER IS BECAUSE YOU DON'T THINK
23 THAT'S A GOOD WAY TO MAKE MONEY. IS THAT RIGHT?
24 A. A -- YOU COULD CERTAINLY MAKE MONEY WITH A FREE NEWSPAPER.
25 PEOPLE MAKE MONEY WITH FREE NEWSPAPERS EVERYWHERE.
1529
FALK - CROSS / ALIOTO
1 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
2 THE COURT: YES, YOU MAY.
3 BY MR. ALIOTO:
4 Q. LET ME SHOW YOU A COPY OF YOUR DEPOSITION. I DIRECT YOUR
5 ATTENTION TO PAGE 48, IN PARTICULAR BEGINNING ON LINE 2, I ASK
6 YOU WHETHER OR NOT YOU WERE ASKED THESE QUESTIONS AND YOU GAVE
7 THESE ANSWERS.
8 MR. HALLING: COULD YOU HOLD ON ONE SECOND, PLEASE?
9 OKAY.
10 MR. ALIOTO:
11 "Q. HAVE YOU EVER DETERMINED OR HAVE YOU
12 EVER CONSIDERED ASKING THE -- EITHER THE
13 CHRONICLE OR THE EXAMINER TO BE A FREE
14 CIRCULATION PAPER, FREE PAPER?
15 "A. NO.
16 "Q. WHY NOT?
17 "A. IT'S NOT A GOOD WAY TO MAKE MONEY."
18 BY MR. ALIOTO:
19 Q. DID YOU GIVE THOSE ANSWER TO THOSE QUESTIONS?
20 MR. HALLING: CAN YOU PLEASE KEEP READING?
21 MR. ALIOTO: OH, I WILL.
22 BY MR. ALIOTO:
23 Q. DID YOU GIVE THOSE ANSWERS TO THOSE QUESTIONS?
24 A. I DID.
25 Q. AND ARE THEY TRUE?
1530
FALK - CROSS / ALIOTO
1 A. IT'S -- IT'S VERY OUT OF CONTEXT. YES, IT'S TRUE. I
2 ANSWERED IT TRUTHFULLY.
3 Q. AND THEN I ASKED YOU:
4 "Q. WHY NOT?
5 "A. AGAIN, FREE CIRCULATION. I HESITATE
6 BECAUSE IT'S DIFFERENT BUSINESS MODEL. A PAID
7 CIRCULATION NEWSPAPER, DAILY PAID CIRCULATION
8 NEWSPAPER, IS A DIFFERENT BUSINESS MODEL THAN A
9 FREE CIRCULATION DAILY, WEEKLY, MONTHLY PAPER."
10 DID YOU SAY THAT?
11 A. YES.
12 Q. AND WERE THOSE STATEMENTS TRUE?
13 A. YES.
14 Q. AND, AS FAR AS YOU WERE CONCERNED, IT WOULD HAVE A
15 DIFFERENT ADVERTISING MODEL, TOO, WOULDN'T IT, A DAILY PAID
16 PAPER AS OPPOSED TO A FREE PAPER?
17 A. I DON'T THINK THE ADVERTISING MODEL IS NECESSARILY
18 DIFFERENT. OBVIOUSLY, THE CIRCULATION MODEL IS DIFFERENT. WE
19 HAVE $95 MILLION IN CIRCULATION REVENUE. IT WOULDN'T MAKE A
20 LOT OF SENSE TO MAKE IT FREE.
21 Q. OKAY. GO TO YOUR DEPOSITION AGAIN AND LOOK AT -- AND I
22 WILL ASK YOU WHETHER OR NOT YOU WERE ASKED THESE QUESTIONS AND
23 YOU GAVE THESE ANSWERS -- SAME PAGE, BEGINNING, PAGE 48, LINE
24 18:
25 "Q. YOU HAVE BEEN IN THIS BUSINESS AND YOU
1531
FALK - CROSS / ALIOTO
1 BELIEVE IT'S A DIFFERENT BUSINESS MODEL. AND I
2 WOULD LIKE YOU TO STATE TO THE BEST OF YOUR
3 ABILITY FROM YOUR EXPERIENCE WHY YOU SAY WHAT
4 YOU JUST SAID.
5 "A. IT'S DIFFERENT FOR A LOT OF REASONS.
6 NEXT PAGE -- "Q. OKAY. WHAT ARE SOME OF
7 THOSE REASONS?
8 "A. OBVIOUSLY, IN ONE BUSINESS MODEL YOU
9 HAVE CIRCULATION REVENUE AND ONE YOU DO NOT.
10 "Q. OKAY. ANY OTHER REASONS?
11 "A. IT TENDS TO BE A DIFFERENT KIND OF
12 ADVERTISING MODEL."
13 DID YOU GIVE THOSE ANSWERS TO THOSE QUESTIONS?
14 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
15
16
17
18
19
20
21
22
23
24
25
1532
FALK - CROSS / ALIOTO
1 Q. AND ARE NOT THEY TRUE?
2 A. YES.
3 MR. HALLING: WOULD YOU READ THE NEXT QUESTION AND
4 ANSWER.
5 MR. ALIOTO: I'LL READ AS MANY AS YOU LIKE.
6 "Q. HOW SO?
7 "A. A FREE DISTRIBUTION NEWSPAPER MODEL,
8 FROM AN ADVERTISING PERSPECTIVE, GENERALLY IS A
9 BROAD -- A FREE PUBLICATION IS A BROADER REACH,
10 GENERALLY MORE CONCENTRATED KIND OF
11 DISTRIBUTION."
12 MR. HALLING: THANK YOU.
13 THE COURT: I'M NOT SURE THAT I UNDERSTAND THAT
14 ANSWER. LET'S ASK THE WITNESS TO CLARIFY.
15 YOUR ANSWER WAS:
16 "A FREE DISTRIBUTION NEWSPAPER MODEL FROM AN
17 ADVERTISING PERSPECTIVE GENERALLY IS A BROAD --
18 A FREE PUBLICATION IS A BROADER REACH, GENERALLY
19 MORE CONCENTRATED KIND OF DISTRIBUTION."
20 ISN'T THAT INCONSISTENT?
21 THE WITNESS: WELL, MEANING --
22 MR. ALIOTO: LET ME, IF I MIGHT, YOUR HONOR. THE
23 NEXT --
24 THE COURT: "BROADER REACH" AND "MORE CONCENTRATED
25 DISTRIBUTION" SEEM TO BE INCONSISTENT.
1533
FALK - CROSS / ALIOTO
1 MR. ALIOTO: WELL, THE NEXT QUESTION IS, YOUR HONOR:
2 "Q. I DON'T UNDERSTAND HOW YOU SAY BROADER
3 REACH BUT MORE CONCENTRATION."
4 (LAUGHTER)
5 MR. ALIOTO: AND THE ANSWER WAS:
6 "A. WELL --
7 "Q. CAN YOU EXPLAIN TO ME WHAT YOU MEAN BY
8 THAT? IT SOUNDS CONTRADICTORY, AND I MUST BE
9 MISUNDERSTANDING YOU. HOW COULD IT BE BROADER?
10 "A. BROADER MEANING REACHING MORE
11 HOUSEHOLDS WITHIN A MORE TARGETED GEOGRAPHIC
12 AREA. THE -- GENERALLY THE WAY A FREE
13 CIRCULATION NEWSPAPER OPERATES, IT'S MORE OF A
14 SATURATION COVERAGE. I MEAN, THERE ARE ALL --
15 "Q. RATHER THAN WHAT?
16 "A. THERE ARE MULTITUDES OF NEWSPAPER
17 MODELS BETWEEN FREE AND PAID.
18 "Q. WHAT ARE THEY?
19 "A. FREE TENDS TO BE MORE A LOCAL,
20 CONCENTRATED, BLANKET COVERAGE MODEL VERSUS A
21 PAID CIRCULATION MODEL WHERE CONSUMERS OBVIOUSLY
22 SELF-SELECT WHETHER THEY WANT THE PUBLICATION
23 AND WANT TO PAY FOR IT. GENERALLY A FREE
24 DISTRIBUTION MODEL DOES NOT INVOLVE A CONSUMER'S
25 DECISION ON SUBSCRIBING OR NOT SUBSCRIBING."
1534
FALK - CROSS / ALIOTO
1 I'M NOT SAYING THAT ANSWERS THE COURT'S QUESTION,
2 BUT THAT'S THE ANSWER THAT THE WITNESS GAVE.
3 THE COURT: ALL RIGHT. THANK YOU.
4 BY MR. ALIOTO:
5 Q. AND WHEN IT SAYS THERE THAT A CONSUMER'S DECISION -- IT
6 DOESN'T INVOLVE A CONSUMER'S DECISION ON SUBSCRIBING OR NOT,
7 YOU UNDERSTAND THAT THAT IS ONE OF THE REASONS WHY ABC, WHEN
8 THEY DO THEIR SURVEYS, THEY HAVE THE SURVEYS WITH REGARD TO
9 PAID CIRCULATION NEWSPAPERS?
10 A. YES.
11 Q. AND ADVERTISERS TEND TO BELIEVE, AND IT'S YOUR
12 UNDERSTANDING THEY TEND TO BELIEVE THAT IF IT IS, IN FACT, A
13 PAID CIRCULATION, THEN THEY KNOW THAT THAT PAPER IS GOING TO A
14 CERTAIN PLACE AND THEY HAVE MORE TRUST IN THOSE CIRCULATION
15 NUMBERS?
16 A. ADVERTISERS LIKE PAID CIRCULATION AUDITED NUMBERS, YES.
17 Q. NOW, YOU HAVE STATED, HAVE YOU NOT, THAT AS FAR AS YOU'RE
18 CONCERNED, THE CHRONICLE ALSO HAS BEEN HELPED BY REASON OF THE
19 COMBINATION RATES? WHEN YOU SELL TO ADVERTISERS ON THE
20 COMBINATION RATE, THAT THAT HELPS THE CHRONICLE AS WELL AS THE
21 EXAMINER.
22 A. OUR ADVERTISING RATES HELP THE ENTIRE ENTERPRISE.
23 Q. AND YOU UNDERSTAND AND BELIEVE, DO YOU NOT, THAT IF THE
24 EXAMINER WERE ELIMINATED, THAT THAT WOULD LIMIT CONSUMER
25 CHOICE, MEANING SUBSCRIBERS OR PURCHASERS OF THE DIFFERENT
1535
FALK - CROSS / ALIOTO
1 PAPERS?
2 A. THERE WOULD OBVIOUSLY BE ONE LESS MASTHEAD.
3 Q. YES. THE PEOPLE -- GOING BACK TO THIS, TO THE CALCULATION
4 YOU MADE UP HERE, THE PEOPLE THAT -- UNDER THE CIRCULATION OF
5 THE EXAMINER FOR SAN FRANCISCO, 54,378 PEOPLE APPARENTLY BOUGHT
6 THE EXAMINER. DO YOU SEE THAT?
7 A. NO. WHAT --
8 Q. ON THE TOP RIGHT OF EXHIBIT 982 -- THIS IS THE MAP --
9 A. YES.
10 Q. -- AT PAGE 0122031 OF THE BATES NUMBERS. DO YOU SEE THAT?
11 A. YES.
12 Q. OKAY. SO THAT PERSONS -- AT LEAST 54,378, ACCORDING TO
13 THIS, PERSONS IN SAN FRANCISCO MADE THE DECISION TO BUY THE
14 EXAMINER; CORRECT?
15 A. YES.
16 Q. AND, OF COURSE, IF THE EXAMINER WERE ELIMINATED, THAT
17 CHOICE WOULD BE ELIMINATED TOO; CORRECT?
18 A. YES.
19 Q. NOW, IT IS CORRECT, IS IT NOT, THAT YOU DON'T KNOW WHETHER
20 OR NOT THE EXAMINER IS A FAILING NEWSPAPER?
21 A. REPEAT THE QUESTION.
22 Q. YOU DON'T KNOW WHETHER OR NOT THE EXAMINER IS A FAILING
23 NEWSPAPER.
24 A. YES, I DO KNOW.
25 Q. OKAY. YOU HAVE YOUR DEPOSITION. I'LL DIRECT YOUR
1536
FALK - CROSS / ALIOTO
1 ATTENTION -- I'M GOING TO DIRECT YOUR ATTENTION TO PAGE -- I
2 BELIEVE IT WILL BE -- I HAVE IT READY.
3 I'M GOING TO DIRECT YOUR ATTENTION TO PAGE 32 AND
4 I'M GOING TO SHOW -- I'M GOING TO SHOW YOU THE TESTIMONY THAT
5 YOU GAVE ON THAT OCCASION.
6 MR. ALIOTO: AND IF YOU COULD PUT IT UP.
7 MR. SHULMAN: IT STARTS AT 31, 18.
8 MR. ALIOTO: YES, I'M SORRY. IT STARTS ON PAGE 31,
9 LINE 18.
10 (WHEREUPON, VIDEOTAPE WAS PLAYED AS FOLLOWS:)
11 "Q. IT'S TRUE, THEREFORE, IS IT NOT, THAT
12 YOU DO NOT KNOW WHETHER OR NOT THE CHRONICLE --
13 SINCE THE TIME THAT YOU'VE BEEN THE SENIOR VICE
14 PRESIDENT OF SALES AND MARKETING FOR THE SAN
15 FRANCISCO NEWSPAPER AGENCY, YOU DON'T KNOW
16 WHETHER THE CHRONICLE HAS BEEN A FAILING
17 NEWSPAPER?
18 "A. AGAIN, I DO NOT DEAL WITH THEIR
19 FINANCIAL RECORDS.
20 "Q. SO YOU DON'T KNOW?
21 "A. NOT DIRECTLY.
22 "Q. OKAY. SO THE ANSWER TO -- MY QUESTION
23 IS WHETHER YOU KNOW AND YOUR ANSWER IS YOU DON'T
24 KNOW; ISN'T THAT TRUE?
25 "A. DO NOT KNOW DIRECTLY.
1537
FALK - CROSS / ALIOTO
1 "Q. WOULD THE ANSWER BE THE SAME FOR THE
2 EXAMINER? WOULD YOUR ANSWER BE THE SAME FOR THE
3 EXAMINER?
4 "A. I WOULD NOT -- I DO NOT HAVE ACCESS TO
5 THEIR FINANCIAL RECORDS DIRECTLY.
6 "Q. AND, THEREFORE, YOU DON'T KNOW; ISN'T
7 THAT TRUE?
8 "A. YES."
9 BY MR. ALIOTO:
10 Q. YES, OKAY. SO THAT TESTIMONY YOU GAVE WAS UNDER OATH; WAS
11 IT NOT?
12 A. YES, IT WAS.
13 Q. AND WAS IT TRUE?
14 A. YES, IT WAS.
15 Q. SO, THEREFORE, WHEN YOU WERE ASKED THE QUESTIONS, YOU
16 SAID -- "THEREFORE, YOU DON'T KNOW," YOU SAID, "YES," DID YOU
17 MEAN THAT?
18 A. I SAID I DO NOT KNOW THAT DIRECTLY. I DO NOT DEAL WITH
19 THE FINANCIAL RECORDS OF THE CHRONICLE AND THE EXAMINER.
20 Q. SO MY QUESTION WAS TO YOU -- I'LL ASK IT AGAIN.
21 A. I KNOW TODAY.
22 Q. OH, TODAY. SINCE YOUR -- SINCE THE DEPOSITION YOU MEAN?
23 SINCE THE DEPOSITION?
24 A. I KNOW TODAY JUST AS I KNEW INDIRECTLY IN MY DEPOSITION.
25 Q. YOU SAID YOU KNOW TODAY. YOU MEAN SINCE YOUR DEPOSITION?
1538
FALK - CROSS / ALIOTO
1 IS THAT WHAT YOU MEAN?
2 A. I KNOW TODAY JUST FROM SITTING IN COURT LISTENING TO YOUR
3 EXPERT WITNESSES.
4 Q. YOU HAD AN OPPORTUNITY, DIDN'T YOU, TO READ YOUR
5 DEPOSITION? IF YOU WANTED TO MAKE ANY CHANGE, YOU COULD?
6 A. YES, I DID.
7 Q. YOU DIDN'T MAKE ANY CHANGE THERE; DID YOU?
8 A. NO, I DID NOT.
9 Q. BUT WHEN YOU GOT UP WITH YOUR COUNSEL, YOU WERE FREE TO BE
10 ABLE TO SAY, "THERE'S NO QUESTION ABOUT IT, THE EXAMINER IS A
11 FAILING PAPER"? YOU SAID THAT TIME AND AGAIN; DIDN'T YOU?
12 A. THERE --
13 Q. DIDN'T YOU?
14 A. THERE APPEARS TO BE NO QUESTION ABOUT THAT.
15 Q. THAT'S NOT WHAT YOU SAID IN YOUR DEPOSITION; IS IT?
16 THE COURT: ALL RIGHT.
17 THE WITNESS: I SAID I DID NOT KNOW THE NUMBERS
18 DIRECTLY.
19 THE COURT: MOVE ON.
20 MR. ALIOTO: VERY WELL, YOUR HONOR.
21 THE COURT: MOVE ON, MR. ALIOTO.
22 MR. ALIOTO: YES, SIR.
23 Q. NOW, THE SAN FRANCISCO NEWSPAPER AGENCY IS A PARTY OF THE
24 JOA; ARE THEY NOT?
25 A. YES.
1539
FALK - CROSS / ALIOTO
1 Q. AND YOU UNDERSTAND -- AS A PARTY, YOU UNDERSTAND WHAT'S
2 SUPPOSED TO HAPPEN AT THE TERMINATION OF THE JOA; DO YOU NOT?
3 A. I HAVE READ THE TERMINATION LANGUAGE ONCE OR TWICE.
4 Q. AND YOU UNDERSTAND -- AND DO YOU HAVE THE -- LET ME HAND
5 IT TO YOU. I WANT TO DIRECT YOUR ATTENTION TO PAGE 47 OF THE
6 JOA.
7 MR. ALIOTO: IF I MAY APPROACH THE WITNESS, YOUR
8 HONOR.
9 THE COURT: YES.
10 MR. ALIOTO: THANK YOU.
11 Q. THIS IS EXHIBIT 1. IT IS THE JOA AGREEMENT BETWEEN THE
12 CHRONICLE PUBLISHING COMPANY AND THE HEARST PUBLISHING COMPANY
13 OF OCTOBER, 1964. I DIRECT YOUR ATTENTION TO PAGE 47 UNDER THE
14 HEADNOTE "4.4 TERM."
15 FIRST OF ALL, THAT'S THE TERM OF THE AGREEMENT;
16 CORRECT?
17 A. IT SAYS, "THE TERM OF THIS AGREEMENT WILL BE..."
18 Q. OKAY. AND WITH REGARD TO THE TERM, YOU UNDERSTOOD THAT IT
19 WAS A 30-YEAR TERM?
20 A. "... WILL BE FOR A PERIOD OF 30 YEARS."
21 Q. AND YOU UNDERSTOOD THAT THE EFFECTIVE DATE WAS JANUARY OF
22 1965?
23 A. I BELIEVE THAT IS CORRECT, YES.
24 Q. WELL, ON PAGE 48, IF YOU'LL JUST TURN THE PAGE, JUST SO
25 WE'RE SURE ABOUT IT, PAGE 48 ON THE BOTTOM, PARAGRAPH 4.5,
1540
FALK - CROSS / ALIOTO
1 EFFECTIVE DATE, QUOTE:
2 "THE EFFECTIVE DATE OF THIS AGREEMENT WILL
3 BE JANUARY 4, 1965."
4 DO YOU SEE THAT?
5 A. YES, I DO.
6 Q. OKAY. SO JANUARY 4, 1965, IS THE BEGINNING DATE.
7 THE FIRST PART OF THE TERM OF THE AGREEMENT IS FOR
8 30 YEARS; IS IT NOT?
9 A. THAT'S WHAT IT SAYS.
10 Q. OKAY. AND THEN AFTER THE 30 YEARS, AFTER THE 30 YEARS
11 THERE IS AN OPTION BY EITHER HEARST OR BY CHRONICLE TO EXTEND
12 IT ANOTHER 10 YEARS; CORRECT?
13 A. YES.
14 Q. ALL RIGHT.
15 MR. ALIOTO: MAY I APPROACH THE EASEL, YOUR HONOR?
16 THE COURT: YOU MAY.
17 BY MR. ALIOTO:
18 Q. NOW, WE HAD THIS -- DREW THIS BEFORE. OH, IT MUST HAVE
19 BEEN THE OTHER ONES. I'LL DO IT AGAIN.
20 I'M DRAWING ON THE EASEL A HORIZONTAL LINE AND I'M
21 BEGINNING ON JANUARY, '65, AND ON THE TOP I'M PUTTING "JOA
22 TERM."
23 AND THE FIRST TERM GOES FROM JANUARY, '65, TO 30
24 YEARS, JANUARY, '95; CORRECT?
25 A. YES.
1541
FALK - CROSS / ALIOTO
1 Q. NOW, THE HEARST CORPORATION THEN EXTENDED THAT DATE AT
2 THEIR OPTION, THEY EXTENDED IT FOR 10 YEARS TO 2005; RIGHT?
3 A. THAT'S MY UNDERSTANDING.
4 Q. SO I'LL PUT 2005 ON THE TOP.
5 AND IF THE CHRONICLE WANTED TO EXTEND IT 10 YEARS,
6 THEY WOULD BE ABLE TO EXTEND IT 10 MORE YEARS TO 2015; CORRECT?
7 A. I BELIEVE SO, YES.
8 Q. BUT THAT WOULD BE THE MAXIMUM AMOUNT UNDER THE AGREEMENT;
9 ISN'T THAT CORRECT?
10 A. I BELIEVE SO.
11 Q. OKAY. SO THE FIRST PERIOD WE'LL PUT "JOA TERM." THEN THE
12 SECOND PERIOD FROM 1995 TO 2005 WE'LL PUT "H EXTENSION." AND
13 THEN THIS NEXT ONE WAS THE OPTION OF THE CHRONICLE.
14 NOW, THE CHRONICLE HAS ALREADY ADVISED BOTH HEARST
15 AND YOU THAT THEY DO NOT INTEND TO EXTEND THE JOA PAST 2005; IS
16 THAT RIGHT?
17 A. YES.
18 Q. OKAY. SO WE CAN FORGET THAT PERIOD.
19 SO NOW AT 2005 YOU UNDERSTAND -- I DIRECT YOUR
20 ATTENTION TO PAGE 47 WHERE WE ARE UNDER THE TERM AND SECTION A
21 AND THE PREAMBLE TO IT. IT STATES:
22 "EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
23 PARAGRAPH 4.3..."
24 AND I WILL TELL YOU THAT 4.3 REFERS TO BANKRUPTCY.
25 AND IF YOU WILL LOOK AT THAT. IT SAYS INSOLVENCY AND
1542
FALK - CROSS / ALIOTO
1 BANKRUPTCY ON PAGE 44. DO YOU SEE THAT?
2 A. YES.
3 Q. OKAY. NOW, DID THE CHRONICLE GO BANKRUPT?
4 A. NO.
5 Q. HAS THE CHRONICLE GONE INSOLVENT?
6 A. DID THEY GO SOLVENT?
7 Q. ARE THEY INSOLVENT?
8 A. NO.
9 Q. DID THE EXAMINER GO BANKRUPT?
10 A. NO.
11 Q. EXAMINER INSOLVENT?
12 A. NO.
13 Q. AS FAR AS YOU KNOW, HAS ANYBODY AT ANY TIME SUGGESTED THAT
14 THE REASON TO TERMINATE THE JOA IS BECAUSE EITHER THE EXAMINER
15 OR THE CHRONICLE IS BANKRUPT OR INSOLVENT?
16 A. NO.
17 Q. NO.
18 A. NO.
19 Q. OKAY. SO THAT REASON DOESN'T APPLY.
20 SO THEN WE GO BACK TO PAGE 47, QUOTE:
21 "EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
22 PARAGRAPH 4.3," WE JUST WENT OVER THAT, "UPON
23 THE TERMINATION OF THIS AGREEMENT, WHETHER BY
24 EXPIRATION OF THE TERM HEREOF OR ANY EARLIER
25 TERMINATION BY MUTUAL CONSENT OF THE PARTIES OR
1543
FALK - CROSS / ALIOTO
1 OTHERWISE, CHRONICLE AND HEARST WILL REASONABLY
2 COOPERATE IN THE FORMULATION AND ORDERLY
3 EXECUTION OF A JUST AND EQUITABLE PLAN WHICH
4 SHALL..."
5 DO YOU SEE THAT "SHALL"?
6 A. "SHALL," YES.
7 Q. "SHALL," OKAY.
8 "... SHALL ENABLE EACH OF SAID PARTIES TO ENGAGE
9 INDEPENDENTLY..."
10 DO YOU SEE THAT?
11 A. YES.
12 Q. "... OF THE PRINTING COMPANY IN THE NEWSPAPER
13 PUBLISHING BUSINESS."
14 DO YOU SEE THAT?
15 A. YES.
16 Q. SO THE IDEA -- AND THEN IT GOES ON NUMBER TWO. WE SHOULD
17 READ THIS TOO, QUOTE:
18 "AND," ITEM NUMBER TWO OF A, "RESULT IN THE
19 DISSOLUTION OF THE PRINTING COMPANY..."
20 THAT'S SAN FRANCISCO NEWSPAPER AGENCY; RIGHT?
21 A. YES.
22 Q. "... RESULT IN THE DISSOLUTION OF THE PRINTING
23 COMPANY AT SUCH TIME AND IN SUCH MANNER AS WILL
24 ACCOMPLISH THE OBJECTIVE SET FORTH IN THE
25 FOREGOING CLAUSE. ONE..."
1544
FALK - CROSS / ALIOTO
1 DO YOU SEE THAT?
2 A. YES.
3 Q. AND THAT FOREGOING CLAUSE ONE, AGAIN, IS TO ENABLE EACH TO
4 OPERATE INDEPENDENTLY OF THE PRINTING COMPANY WHENEVER THE JOA
5 IS TERMINATED; CORRECT?
6 A. YES.
7 Q. SO THE NOTION HERE -- IF I MAY USE THE EASEL AGAIN, YOUR
8 HONOR -- SO THE NOTION HERE AT 2005, WE HAD DONE IT BEFORE
9 WHERE THERE WOULD BE THE CHRONICLE AND THE EXAMINER AND THEN
10 THEY'VE GOT THE SAN FRANCISCO NEWSPAPER AGENCY.
11 I'M PUTTING CHRONICLE AND EXAMINER, DRAWING A LINE
12 SHOWING A BOX OF THE SAN FRANCISCO NEWSPAPER AGENCY AND THEN
13 SPLITTING THE NET BACK TO THE CHRONICLE 50-50 TO THE EXAMINER.
14 THE IDEA IS, IS THAT AT THE TERMINATION, THE
15 PUBLISHING COMPANY IS DISSOLVED; RIGHT?
16 A. YES.
17 Q. AND THEN THERE'S JUST REMAINING THE CHRONICLE AND THE
18 EXAMINER COMPETING HEAD TO HEAD INDEPENDENT OF ANY PUBLISHING
19 COMPANY AGAINST EACH OTHER; CORRECT?
20 A. IF THEY ELECTED TO DO SO, YES.
21 Q. IF THEY ELECTED TO COMPETE? WHAT DO YOU MEAN? YOU JUST
22 SAID, "IF THEY ELECTED TO DO SO." IT SAYS THIS IS WHAT
23 HAPPENS. IT'S NOT AN ELECTION. THIS IS WHAT HAPPENS.
24 A. WELL --
25 Q. IT'S NOT AN ELECTION; IS IT?
1545
FALK - CROSS / ALIOTO
1 A. THE TERMS OF THIS 30-YEAR-OLD DOCUMENT PROVIDE FOR THAT
2 OPTION, YES.
3 Q. IT'S NOT AN OPTION. IT SAYS THAT'S WHAT HAPPENS. WOULD
4 YOU LOOK AT IT AGAIN, PLEASE? YOU'RE THE PRESIDENT. LOOK AT
5 IT. IT SAYS, IT SAYS -- IN YOUR EXPERIENCE -- I DO NOT MEAN TO
6 BE INSULTING, YOUR HONOR. I HOPE YOU DON'T TAKE IT THAT WAY.
7 I MEAN IT SPECIFICALLY.
8 YOU ARE THE PRESIDENT AND YOU ARE THE CHIEF
9 EXECUTIVE OFFICER OF THE SAN FRANCISCO NEWSPAPER AGENCY;
10 CORRECT?
11 A. YES.
12 Q. THIS DOCUMENT IS BASICALLY YOUR CONSTITUTION; ISN'T IT?
13 THIS IS WHAT YOU -- THIS IS WHAT GIVES YOU AUTHORITY; ISN'T IT?
14 THIS DOCUMENT.
15 A. I WOULD NOT REFER TO THIS DOCUMENT AS MY CONSTITUTION.
16 HOWEVER, IT IS THE DOCUMENT ON WHICH THE NEWSPAPER AGENCY WAS
17 ORIGINALLY FORMED, YES.
18 Q. OKAY. AND ALSO YOU ARE A PARTNER IN THIS AGREEMENT?
19 A. YES.
20 Q. SPECIFICALLY?
21 A. YES.
22 Q. YOU'RE NAMED AS A PARTNER, OKAY.
23 A. THE NEWSPAPER AGENCY IS.
24 Q. THE NEWSPAPER AGENCY IS NAMED AS A PARTY.
25 OKAY. NOW, THIS PROVISION -- THIS IS NOT AN OPTION.
1546
FALK - CROSS / ALIOTO
1 IT DOESN'T SAY THAT THAT'S AN OPTION; DOES IT? IT SAYS
2 INSTEAD, CHRONICLE/HEARST --
3 A. IT SAYS, "ENABLE EACH OF SAID PARTIES TO ENGAGE
4 INDEPENDENTLY."
5 Q. IT SAYS "SHALL" NOT "MAYBE," NOT "AT YOUR OPTION," NOT "AT
6 YOUR ELECTION" BUT "SHALL."
7 MR. HALLING: OBJECTION, YOUR HONOR. IT'S
8 ARGUMENTATIVE. THE DOCUMENT SPEAKS FOR ITSELF.
9 THE COURT: OVERRULED.
10 MR. ROSCH: MAY I OBJECT, YOUR HONOR, AS WELL?
11 THE COURT: IT'S CROSS-EXAMINATION.
12 MR. ROSCH: I KNOW, YOUR HONOR, BUT IT'S CONTRARY TO
13 THE LANGUAGE.
14 THE COURT: COUNSEL IS SEEKING THE WITNESS'
15 UNDERSTANDING OF THE DOCUMENT.
16 MR. ROSCH: BUT, YOUR HONOR, IT SAYS EXCEPT FOR A
17 MUTUAL AGREEMENT.
18 THE COURT: OBJECTION OVERRULED.
19 BY MR. ALIOTO:
20 Q. THAT IS THE TERMINATION BUT WHAT HAPPENS ON THE
21 TERMINATION IS CLEAR. WE'LL DO IT AGAIN. IT SAYS:
22 "EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
23 PARAGRAPH 4.3."
24 THAT'S INSOLVENCY AND BANKRUPTCY. WE KNOW THAT
25 THAT'S GOT NO REASON WHATSOEVER TO DO WITH ANY EFFORT TO
1547
FALK - CROSS / ALIOTO
1 DISSOLVE THE JOA. WE ALREADY WENT OVER THAT.
2 THE SECOND PART SAYS:
3 "UPON THE TERMINATION OF THIS AGREEMENT,
4 WHETHER BY EXPIRATION OF THE TERM HEREOF..."
5 THAT MEANS JUST DIES OUT, OR ANY EARLIER TERMINATION
6 BY MUTUAL CONSENT, IF THEY BOTH AGREE, OR OTHERWISE, HOWEVER IT
7 IS TERMINATED. IT THEN GOES ON TO SAY, QUOTE:
8 "... CHRONICLE AND HEARST WILL REASONABLY
9 COOPERATE IN THE FORMULATION AND ORDERLY
10 EXECUTION OF A JUST AND EQUITABLE PLAN WHICH
11 SHALL ENABLE EACH OF SAID PARTIES TO ENGAGE
12 INDEPENDENTLY A PRINTING COMPANY IN THE
13 NEWSPAPER PUBLISHING BUSINESS AND RESULT IN THE
14 DISSOLUTION OF THE PRINTING COMPANY AT SUCH TIME
15 AND IN SUCH MANNER AS WILL ACCOMPLISH THE
16 OBJECTIVE SET FORTH IN THE FOREGOING CLAUSE."
17 NOW, THAT IS NOT AN ELECTION BY EITHER THE CHRONICLE
18 OR HEARST OR YOUR COMPANY; IS IT?
19 MR. HALLING: OBJECTION. IT CALLS FOR A LEGAL
20 CONCLUSION.
21 THE COURT: OBJECTION OVERRULED. THE QUESTION CALLS
22 FOR THE WITNESS' UNDERSTANDING OF THIS DOCUMENT.
23 BY MR. ALIOTO:
24 Q. IT'S NOT AN ELECTION; IS IT?
25 A. AN ELECTION OF WHAT? THE PROCESS? NO, THE DOCUMENT
1548
FALK - CROSS / ALIOTO
1 CLEARLY CALLS FOR A PROCESS FOR THE END OF THE JOA.
2 Q. IT IS YOUR UNDERSTANDING, IS IT NOT, THAT THE CHRONICLE
3 WOULD HAVE NO RIGHT TO SAY, IF IT WANTED TO, "I DON'T WANT TO
4 DO THIS"?
5 A. "I DON'T WANT TO PUBLISH"?
6 Q. NO. "I DON'T WANT TO ENABLE ANYBODY ELSE IN ANY KIND OF
7 JUST PLAN TO PUBLISH INDEPENDENTLY."
8 A. THIS SAYS THEY WILL ENABLE.
9 Q. THEY SHALL.
10 A. THEY SHALL.
11 Q. SO THE CHRONICLE ALONE COULDN'T DECIDE NOT TO AND THE
12 HEARST ALONE COULDN'T DECIDE NOT TO; COULD THEY?
13 THE COURT: COULD NOT OR --
14 MR. ALIOTO: COULD NOT.
15 THE COURT: COULD NOT.
16 MR. ALIOTO: COULD NOT DECIDE INDEPENDENTLY THAT
17 THEY DIDN'T WANT TO DO THIS.
18 THE COURT: WHAT'S YOUR UNDERSTANDING IS THE
19 QUESTION.
20 THE WITNESS: I DON'T KNOW THAT I HAVE A CLEAR
21 UNDERSTANDING, YOU KNOW, LEGALLY OF WHAT IT MEANS. THOSE ARE
22 WHAT THE WORDS SEEM TO INDICATE, YES.
23 BY MR. ALIOTO:
24 Q. OKAY. NOW YOU KNOW THAT WHAT IS GOING ON RIGHT NOW AND
25 THE REASON WE'RE HERE IS THAT HEARST AND THE CHRONICLE ARE NOT
1549
FALK - CROSS / ALIOTO
1 DOING THIS WHAT IS SAID ON PAGE 47; ARE THEY? YOU KNOW THAT.
2 A. I KNOW THAT THE TERMS OF THIS PARAGRAPH 4.4 DO NOT APPLY
3 IN THIS SITUATION, YES.
4 Q. I'LL ASK YOU THE QUESTION AGAIN. PLEASE LISTEN TO THE
5 QUESTION. TRY TO ANSWER IT.
6 YOU KNOW THAT THEY ARE NOT TODAY, IN THEIR EFFORT
7 TODAY FOR HEARST TO BUY THE CHRONICLE, THEY ARE NOT DOING THE
8 PROVISIONS OF THIS PARAGRAPH THAT WE'VE BEEN TALKING ABOUT FOR
9 15 MINUTES; ARE THEY? THEY'RE NOT DOING THIS; ARE THEY?
10 A. THIS DOESN'T APPLY.
11 Q. ARE THEY DOING IT OR NOT?
12 A. NO.
13 Q. THANK YOU.
14 LET ME SHOW YOU A DOCUMENT THAT I BELIEVE THAT YOU
15 WERE QUESTIONED ABOUT ON CROSS-EXAMINATION BUT IT'S DOCUMENT
16 NUMBER 91.
17 I NEED 91. IT'S NOT HERE.
18 WHILE WE'RE GETTING THAT DOCUMENT, I DO HAVE A
19 QUESTION TO ASK YOU AND I ASK IT IN TERMS OF -- BEFORE I GIVE
20 YOU THIS DOCUMENT, I'LL ASK THIS IN TERMS OF ANOTHER MATTER
21 THAT IS INVOLVED IN THE CASE.
22 IN YOUR RESPONSIBILITIES AND DUTIES AS THE CHIEF
23 EXECUTIVE OFFICER AND THE PRESIDENT OF THE SAN FRANCISCO
24 NEWSPAPER AGENCY, YOU ARE BASICALLY RESPONSIBLE FOR ALL OF THE
25 REVENUES OF THE TWO NEWSPAPERS AND ALL OF THE EXPENSES OF THE
1550
FALK - CROSS / ALIOTO
1 TWO NEWSPAPERS AND THEN DELIVERING THE NET EXCESS TO THE TWO
2 COMPANIES; CORRECT?
3 A. OF THE NEWSPAPER AGENCY, YES.
4 Q. OKAY. AND THIS IS OBVIOUSLY A FULL-TIME JOB AND MORE.
5 A. MOST WEEKS, YES.
6 Q. OKAY. NOW IT'S CORRECT, ISN'T IT, THAT WHEN YOU BEGAN AS
7 THE CHAIRMAN -- I MEAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT,
8 YOUR SALARY WAS $325,000?
9 MR. HALLING: YOUR HONOR, I OBJECT TO QUESTIONS
10 CONCERNING SALARY.
11 THE COURT: WHAT IS THE RELEVANCE OF THIS,
12 MR. ALIOTO?
13 MR. ALIOTO: WITH REGARD TO THE CONTRACT WITH THE
14 INDEPENDENT OR THE FANG GROUP THERE'S A PROVISION THERE FOR THE
15 HEARST CORPORATION TO PAY -- SUBSIDIZE AS MUCH AS A SALARY OF
16 $500,000 TO MR. TED FANG. AND I AM POINTING OUT WHAT THE
17 SALARY OF THIS --
18 THE COURT: I SEE.
19 MR. ALIOTO: -- PERSON IS AND THE JOB THAT HE'S
20 DOING AND WHAT THE HEARST CORPORATION IS SUGGESTING IN THEIR
21 OTHER ARRANGEMENT.
22 MR. HALLING: YOUR HONOR, IF HE HAS ANY NEED FOR
23 THIS, IT'S CERTAINLY TANGENTIAL AND HE COULD SUBMIT IT TO THE
24 COURT USING DEPOSITION TESTIMONY. HE'S TAKEN THIS WITNESS'
25 DEPOSITION. HE DOESN'T NEED TO ASK THESE QUESTIONS HERE AND
1551
FALK - CROSS / ALIOTO
1 NOW.
2 MR. ALIOTO: THAT'S FINE.
3 THE COURT: ALL RIGHT.
4 MR. ALIOTO: IT DOESN'T MAKE ANY DIFFERENCE TO ME
5 WHETHER THAT MATTER IS --
6 THE COURT: ALL RIGHT. PROCEED IN THAT FASHION.
7 MR. ALIOTO: OKAY. THEN I WOULD RESPECTFULLY DIRECT
8 YOUR HONOR'S ATTENTION --
9 THE COURT: THIS IS IN THE WITNESS' DEPOSITION?
10 MR. ALIOTO: YES, IT IS, YOUR HONOR. AND IT WILL BE
11 AT PAGE 113 AND IT IS LINES 6 THROUGH 8, THE STARTING AND THE
12 PRESENT SALARY.
13 THE COURT: 113, LINES?
14 MR. ALIOTO: SORRY, JUDGE.
15 THE COURT: I'VE GOT IT HERE.
16 MR. ALIOTO: I JUST HAD IT AND I LOST IT HERE.
17 THE COURT: I'VE GOT IT.
18 MR. ALIOTO: IT IS PAGE 113.
19 THE COURT: 2 THROUGH 8 APPARENTLY.
20 MR. ALIOTO: LINES 4 THROUGH 8.
21 THE COURT: ALL RIGHT. OKAY.
22 BY MR. ALIOTO:
23 Q. ALL RIGHT. NOW, LET ME SHOW YOU EXHIBIT 91. EXHIBIT 91
24 IS A DOCUMENT DATED AUGUST 20, 1999. IT IS FROM A MR. FRANK
25 ROBERT. IT IS DIRECTED TO MR. FRANK BENNACK, MR. GEORGE IRISH,
1552
FALK - CROSS / ALIOTO
1 JOHN THACKERAY, AND IT PURPORTS TO BE A RUNDOWN OF THE
2 HISTORICAL PROFIT AND LOSS AND NET CASH FLOW FROM THE BEGINNING
3 OF THE JOA IN 1965 THROUGH 1998.
4 HAVE YOU SEEN THAT DOCUMENT BEFORE?
5 A. (WITNESS EXAMINES DOCUMENTS.) NO.
6 Q. DO YOU KNOW WHO THIS PERSON IS, MR. FRANK ROBERT?
7 A. YES.
8 Q. WHO IS HE?
9 A. HE WORKS IN THE NEWSPAPER DIVISION OF THE HEARST
10 CORPORATION.
11 Q. ALL RIGHT. NOW, WILL YOU TAKE A LOOK AT -- WOULD YOU TAKE
12 A LOOK AT PAGE 3 OF 3?
13 A. (WITNESS EXAMINES DOCUMENT.) OKAY.
14 Q. AND ON THE SECOND LINE OF PAGE 3 OF 3 IT REFERS TO THE
15 EXAMINER ONLY OPERATING EXPENSES. DO YOU SEE THAT?
16 A. YES.
17 Q. DO YOU KNOW WHAT THOSE REPRESENT?
18 A. (WITNESS EXAMINES DOCUMENT.) NO.
19 Q. DO YOU SEE THAT THE MAXIMUM THERE IS 29 MILLION -- NO,
20 THERE'S 30 MILLION IN 1992 BUT THAT THE COSTS OR THESE
21 OPERATING EXPENSES WENT DOWN SINCE 1992? THE FIRST YEAR THEY
22 WENT DOWN ABOUT A MILLION DOLLARS, THE SECOND YEAR ABOUT
23 ANOTHER HALF A MILLION, STAYING THE SAME, THEN WENT DOWN
24 ANOTHER 4 MILLION, WENT BACK A MILLION AND THEN APPROXIMATELY
25 THE SAME. DO YOU SEE THAT?
1553
FALK - REDIRECT / HALLING
1 A. YES.
2 Q. AND IN THOSE NUMBERS, AT LEAST FROM THAT TIME PERIOD, THE
3 LARGEST AMOUNT SHOWN THERE ON THE EXAMINER ONLY OPERATING
4 EXPENSES IS $29 MILLION -- 29.9 MILLION?
5 A. YES.
6 Q. AND YOU SEE ON THE TOP THAT IT IS SUPPOSED TO BE
7 SEPARATING OUT JUST THE EXAMINER ONLY?
8 A. IT SAYS "EXAMINER ONLY," YES.
9 Q. OKAY. BUT YOU HAVEN'T SEEN THAT DOCUMENT?
10 A. NO.
11 THE COURT: MR. ALIOTO --
12 MR. ALIOTO: THAT'S ALL, YOUR HONOR.
13 THE COURT: VERY WELL.
14 MR. ALIOTO: THANK YOU VERY MUCH.
15 THE COURT: REDIRECT?
16 MR. ALIOTO: THANK YOU.
17 REDIRECT EXAMINATION
18 BY MR. HALLING:
19 Q. MR. FALK, IS THERE COMPETITION BETWEEN THE
20 CHRONICLE/EXAMINER ON THE ONE HAND AND FREE CIRCULATION
21 NEWSPAPERS ON THE OTHER?
22 A. YES.
23 Q. CAN YOU DESCRIBE THAT COMPETITION?
24 A. WELL, ONE OF THE REASONS ON THAT CIRCULATION MAP THAT A
25 COUPLE OF THE FREE CIRCULATION NEWSPAPERS ARE NOTED, AND I
1554
FALK - REDIRECT / HALLING
1 BELIEVE THEY WERE THE INDEPENDENT, THE SF WEEKLY AND THE BAY
2 GUARDIAN, IS BECAUSE JUST WITHIN THE CITY LIMITS THOSE THREE
3 PUBLICATIONS HAVE A SIGNIFICANT AMOUNT OF ADVERTISING REVENUE.
4 THE INDEPENDENT, FOR EXAMPLE, HAS A MAJORITY IF NOT
5 ALL OF THE FOOD BUSINESS, SUPERMARKETS, DRUGSTORES. THE BAY
6 GUARDIAN AND THE SF WEEKLY HAVE THE LION'S SHARE OF
7 ENTERTAINMENT AND CLOTHES AND RESTAURANTS ALONG WITH RETAIL
8 ADVERTISING, ALONG WITH SOME NATIONAL ADVERTISING.
9 IT IS -- I MEAN, JUST BECAUSE A PUBLICATION IS FREE
10 DOES NOT MEAN IT IS NOT OR CAN'T BE A VERY HEALTHY ADVERTISING
11 MEDIUM. THESE PUBLICATIONS ARE THREE EXAMPLES OF THREE VERY
12 HEALTHY ADVERTISING MEDIUMS.
13 Q. TAKE A LOOK, IF YOU WOULD, AT THE MARKETING PLAN, EXHIBIT
14 982, SPECIFICALLY AT PAGE A5, THE APPENDIX.
15 A. (WITNESS EXAMINES DOCUMENT.) OKAY.
16 Q. ON THIS EXHIBIT THERE IS A LISTING OF MEDIA ADVERTISING
17 EXPENDITURES. CAN YOU DESCRIBE FOR EACH OF THESE CATEGORIES
18 WHAT TYPES OF COMPETITION, IF ANY, THERE ARE BETWEEN THE
19 CHRONICLE AND EXAMINER AND THE MEDIA OR ADVERTISING VEHICLES
20 LISTED, STARTING WITH MAGAZINES?
21 A. WELL, STARTING WITH MAGAZINES, ALL OF THESE CATEGORIES OF
22 BUSINESS CLEARLY COMPETE WITH THE CHRONICLE/EXAMINER FOR
23 ADVERTISING.
24 MAGAZINES WOULD COMPETE FOR NATIONAL ADVERTISING. I
25 THINK, AS WE'VE NOTED EARLIER, WE HAVE REVENUES IN THE NATIONAL
1555
FALK - REDIRECT / HALLING
1 ADVERTISING CATEGORY OF $120 MILLION. THESE ARE ADVERTISERS
2 WHO BUY TOP MARKETS ACROSS THE COUNTRY; AND WHEN MEDIA BUYERS
3 PLAN THOSE PURCHASES, THEY PUT INTO THE MIX DAILY METROPOLITAN
4 NEWSPAPERS AND MAGAZINES AND DIVIDE UP THEIR EXPENDITURES
5 ACCORDINGLY. SO IT'S VERY COMPETITIVE ON THE NATIONAL
6 ADVERTISING FRONT.
7 Q. WHAT ABOUT BROADCAST TV?
8 A. BROADCAST TV ACTUALLY COMPETES IN TWO WAYS. IT'S NOT ONLY
9 FOR NATIONAL ADVERTISING DOLLARS. MUCH LIKE MAGAZINES, WHEN
10 NATIONAL ADVERTISERS PLAN THEIR MEDIA BUDGETS ACROSS TOP
11 MARKETS, THEY PLAN FOR MAJOR METROPOLITAN NEWSPAPERS, THEY PLAN
12 FOR MAGAZINES AND THEY PLAN FOR TV. SO WE COMPETE WITH TV FOR
13 NATIONAL AD DOLLARS.
14 BUT ON THE LOCAL LEVEL, IT'S -- WE COMPETE FOR WHAT
15 IS CALLED SPOT TV, LOCAL TV PURCHASES THAT COULD BE RETAIL.
16 MACY'S, FOR INSTANCE, MAY DIVIDE UP THEIR ADVERTISING SPENDING
17 BETWEEN THE CHRONICLE/EXAMINER AND TELEVISION STATIONS IN THE
18 BAY AREA. SO, YOU KNOW, BOTH NATIONAL AND MORE DIRECTLY RETAIL
19 FOR TV.
20 Q. HOW ABOUT THE NEXT CATEGORY, CABLE TV?
21 A. CABLE TV CAN BE A COMBINATION OF ALL OF THE ABOVE. CABLE
22 TV COMPETITION TENDS TO BE MORE FOR LOCAL RETAIL ADVERTISING
23 DOLLARS. THE CABLE MARKET IS VERY FRAGMENTED. THERE ARE LOTS
24 OF CABLE CHOICES. SO THEY TEND TO ATTRACT LOCAL RETAILERS
25 WHICH, OF COURSE, ARE A THIRD OF OUR TOTAL REVENUE.
1556
FALK - REDIRECT / HALLING
1 Q. HOW ABOUT RADIO?
2 A. RADIO IS VERY SIMILAR TO CABLE TV. MOSTLY -- NOT A LOT OF
3 COMPETITION FOR NATIONAL ADVERTISING. THERE IS COMPETITION IN
4 THE RETAIL CATEGORY FOR RADIO. THERE'S ALSO SIGNIFICANT
5 COMPETITION FOR CLASSIFIED ADVERTISING.
6 CAR DEALERS LOVE TO USE RADIO. OF COURSE, YOU KNOW,
7 CAR DEALERS ACCOUNT FOR A SIGNIFICANT AMOUNT OF OUR REVENUE.
8 SO WE ARE IN DIRECT COMPETITION FOR -- WITH RADIO FOR THOSE
9 CATEGORIES.
10 Q. THE NEXT CATEGORY IS DIRECT MAIL. HOW WOULD YOU DESCRIBE
11 COMPETITION WITH DIRECT MAIL?
12 A. DIRECT MAIL IS ONE OF THE FASTEST GROWING SEGMENTS OF THE
13 TOTAL MEDIA MIX. IT'S A DIFFERENT KIND OF ADVERTISER. IT
14 TENDS TO BE SMALL RETAILERS, SMALL RETAILERS THAT USE COUPONS
15 FOR DISCOUNTING. THERE ARE A LOT OF COUPON PACKAGES. ADVO,
16 FOR INSTANCE, IS A COMPANY THAT COMPILES GROUPINGS OF COUPON
17 ADVERTISERS.
18 SO WE'RE COMPETING WITH DIRECT MAIL FOR LOCAL
19 ADVERTISE -- RETAIL ADVERTISING DOLLARS AND LOCAL CLASSIFIED
20 ADVERTISING DOLLARS.
21 Q. THE NEXT CATEGORY LISTED IS OUTDOOR. WHAT'S OUTDOOR
22 ADVERTISING?
23 A. OUTDOOR ADVERTISING, WHICH IS BILLBOARDS, BUS SHELTERS,
24 THE SIDES OF BUSES, CAN BE EITHER NATIONAL ADVERTISING BUT IN
25 GREAT MANY CASES IT'S LOCAL ADVERTISING. AGAIN, MACY'S, FOR
1557
FALK - REDIRECT / HALLING
1 INSTANCE, WHEN THEY DIVIDE UP THEIR MEDIA BUDGET, WE ARE
2 COMPETING WITH OUTDOOR FOR MACY'S ADVERTISING DOLLARS.
3 Q. THE NEXT CATEGORY IS YELLOW PAGES. IS THERE COMPETITION
4 WITH THE YELLOW PAGES?
5 A. MANY PEOPLE DON'T THINK OF YELLOW PAGES AS COMPETITION,
6 BUT IN A VERY REAL, EVERYDAY SENSE YELLOW PAGES COMPETE WITH US
7 FOR CLASSIFIED ADVERTISING.
8 IF YOU THINK ABOUT CLASSIFIED -- WHAT YELLOW PAGES
9 DO, THEY PROVIDE A DIRECTORY OF SERVICES AND THAT'S WHAT
10 CLASSIFIED ADVERTISING PAGES DO. THEY PROVIDE DIRECTORIES OF
11 CAR DEALERS, DIRECTORIES OF RESTAURANTS. SO ACTUALLY IT'S
12 TOUGH COMPETITION FOR THE CLASSIFIED MARKET.
13 Q. THE NEXT CATEGORY OR THE FINAL CATEGORY IS INTERNET. I'LL
14 SKIP THE MISCELLANEOUS. IS THERE COMPETITION BETWEEN THE
15 CHRONICLE AND EXAMINER?
16 A. WELL, THE INTERNET, AS WE ALL KNOW, IS GROWING
17 EXPONENTIALLY. INTERNET USE, WE'RE SITTING IN THE MOST WIRED
18 MARKET IN THE COUNTRY AND THE DOOMSAYERS WOULD HAVE YOU BELIEVE
19 THAT THE INTERNET WILL BE THE DEATH OF NEWSPAPER CLASSIFIED
20 ADVERTISING. I HAPPEN NOT TO SHARE THAT BELIEF.
21 BUT THE INTERNET IS BECOMING VERY, VERY COMPETITIVE
22 FOR CLASSIFIED ADVERTISING DOLLARS. NUMBER ONE, THE INTERNET
23 RIGHT NOW IS FREE. YOU CAN GENERALLY PLACE AN AD ON THE
24 INTERNET FOR CLASSIFIED, WHETHER IT'S A HELP WANTED JOB AD,
25 WHETHER YOU'RE SELLING YOUR CAR OR SELLING A HOUSE, YOU CAN DO
1558
FALK - REDIRECT / HALLING
1 IT FREE ON THE INTERNET. SO IT'S BECOMING VERY COMPETITIVE.
2 Q. WHAT'S THE APPROXIMATE VOLUME OF SFNA'S CLASSIFIED
3 ADVERTISING REVENUE?
4 A. CLASSIFIED ADVERTISING IS APPROXIMATELY 120 MILLION.
5 Q. SO THAT'S ABOUT A THIRD OF TOTAL REVENUE?
6 A. IT'S ABOUT A THIRD. GENERALLY SPEAKING, A THIRD IS
7 CLASSIFIED, A THIRD IS RETAIL, A THIRD IS NATIONAL.
8 Q. NOW, MR. ALIOTO ASKED YOU ABOUT THE TERMINATION PROVISION
9 OF THE JOA, SECTION 4.4, AND I BELIEVE YOU SAID YOU DIDN'T
10 THINK THE LANGUAGE HE WAS READING ABOUT DIVIDING UP THE ASSETS
11 APPLIED HERE. DO YOU RECALL THAT?
12 A. YES.
13 MR. ALIOTO: I OBJECT TO THE FORM OF THE QUESTION,
14 YOUR HONOR.
15 THE COURT: OVERRULED.
16 BY MR. HALLING:
17 Q. WHAT'S YOUR UNDERSTANDING AS TO WHY THAT PROVISION DOESN'T
18 APPLY HERE?
19 A. WELL, MY UNDERSTANDING -- MY LAYMAN'S UNDERSTANDING OF WHY
20 THAT PROVISION DOESN'T APPLY HERE IS BECAUSE THAT LANGUAGE
21 SEEMED TO SPECIFICALLY POINT TO A PERIOD IN TIME THAT WOULD
22 COME AT THE END OF, YOU KNOW, EITHER THE 30-YEAR PERIOD OR END
23 OF THE EXTENSION PERIOD.
24 Q. MR. ALIOTO ALSO ASKED YOU ABOUT SOME DEPOSITION TESTIMONY
25 CONCERNING WHETHER THE EXAMINER WAS A FAILING NEWSPAPER. DO
1559
FALK - REDIRECT / HALLING
1 YOU RECALL THAT?
2 A. YES, I DO.
3 Q. DO YOU BELIEVE THAT THE EXAMINER IS A FAILING NEWSPAPER?
4 A. YES, I BELIEVE IT IS.
5 Q. AND WHAT'S YOUR BASIS FOR THAT BELIEF?
6 A. WELL, THE BASIS FOR THAT BELIEF IS THE FACT WE'VE LOOKED
7 AT OVER THE YEARS THE EXPENSES AS BEST WE COULD RELATED TO THE
8 EXAMINER. WE MADE SOME ASSUMPTIONS ON THE REVENUE THAT WOULD
9 CERTAINLY BE IN EXISTENCE OR NOT IN EXISTENCE IF THERE WAS NO
10 EXAMINER.
11 AND AS WE WENT OVER YESTERDAY IN THOSE A.M. ONLY
12 ANALYSES, I MEAN, WE'VE IDENTIFIED SOMEWHAT WHAT THE EXPENSES
13 RELATED TO THE EXAMINER WOULD BE AND WE KNOW THAT, YOU KNOW,
14 LITTLE OR NO REVENUE WOULD DISAPPEAR WITHOUT THE EXAMINER. SO
15 ONE CAN INFER FROM THOSE FINANCIAL MODEL EXERCISES THAT THE
16 EXAMINER IS A FINANCIAL BURDEN ON THE ENTERPRISE.
17 Q. IN YOUR LAST ANSWER YOU MADE A REFERENCE TO THE A.M. ONLY
18 STUDIES AND THE FACT THAT YOU DID NOT BELIEVE THAT ANY REVENUE,
19 AD REVENUE, WOULD BE LOST IF THE EXAMINER WERE CLOSED. WHAT'S
20 YOUR BASIS FOR THAT?
21 A. WHEN WE PUT TOGETHER THOSE A.M. ONLY ANALYSES, THERE ARE A
22 LOT OF ASSUMPTIONS THAT GO INTO THAT EXERCISE THAT AREN'T
23 NECESSARILY SPELLED OUT IN A DOCUMENT LIKE WE LOOKED AT.
24 ONE OF THE ASSUMPTIONS WAS WE WOULD INVEST MORE
25 HEAVILY IN PROMOTION. WE DON'T PROMOTE VERY WELL NOW. IT'S
1560
FALK - REDIRECT / HALLING
1 VERY FRAGMENTED. AS I SAID YESTERDAY, WE DON'T PROMOTE THE
2 SUNDAY PRODUCT VIRTUALLY AT ALL.
3 SO BURIED WITHIN THE ASSUMPTIONS WOULD BE A REDIRECT
4 OF RESOURCES, A CONSOLIDATION OF RESOURCES IN PROMOTING THE
5 CHRONICLE, AND THE ASSUMPTION IS THE CHRONICLE CIRCULATION
6 WOULD GROW. IT WOULD BE A BETTER NEWSPAPER, A BETTER-PROMOTED
7 NEWSPAPER, CIRCULATION WOULD GROW.
8 AND WHILE THE DAY ONE CIRCULATION MAY BE LESS, YOU
9 KNOW, IT WOULD ONLY BE A MATTER OF A SHORT PERIOD OF TIME
10 THROUGH THE APPROPRIATE SALES AND MARKETING APPLICATIONS THAT
11 CIRCULATION WOULD GROW AND ADVERTISERS WOULD GET MORE
12 READERSHIP AND MORE CIRCULATION THAN THEY'VE EVER HAD IN THE
13 PAST THROUGH THE COMBINATION.
14 Q. MAYBE YOU JUST ANSWERED THIS, BUT LET ME JUST BE CLEAR.
15 YOU TOLD MR. ALIOTO YOU DIDN'T THINK THERE WOULD BE ANY
16 SIGNIFICANT LOSS OF READERSHIP IF THE EXAMINER WERE CLOSED, AND
17 THAT WOULD HAVE AN IMPACT ON YOUR CONCLUSION CONCERNING
18 ADVERTISING. DO YOU RECALL THAT?
19 A. YES.
20 Q. WHY IS THAT?
21 A. WELL, CIRCULATION AND READERSHIP ARE TWO DIFFERENT
22 MEASURES OF THE SAME ACTIVITY. WE COUNT THE NUMBER OF
23 NEWSPAPERS AND ABC AUDITS THE NUMBER OF NEWSPAPERS THAT ARE
24 SOLD EVERY DAY.
25 THE GALLUP ORGANIZATION MEASURES HOW MANY READERS
1561
FALK - REDIRECT / HALLING
1 READ THE NEWSPAPER. OBVIOUSLY TWO PEOPLE CAN READ THE SAME
2 NEWSPAPER. THERE'S PASS-ALONG READERSHIP. AND WE KNOW FROM
3 THOSE STUDIES THAT THERE IS 60 PERCENT DUPLICATION OF
4 READERSHIP.
5 SO TO THE EXTENT ADVERTISERS ARE INTERESTED NOT ONLY
6 IN THE AUDITED CIRCULATION, ADVERTISERS ARE BECOMING VERY
7 SOPHISTICATED AND LOOKING AT READERSHIP, HOW MANY READERS, HOW
8 MANY UNIQUE READERS. AND UNDER THIS SCENARIO OF NO EXAMINER,
9 BASED ON THE DUPLICATION, BASED ON A THIRD TO A HALF OF THOSE
10 READERS PROBABLY SWITCHING FROM EXAMINER TO CHRONICLE, BETWEEN
11 THAT AND THE DUPLICATION, THERE WOULD PROBABLY BE NO LOSS EVEN
12 ON DAY ONE OF UNIQUE READERS TO AN ADVERTISER'S AD.
13 Q. MR. FALK, DO THE EXAMINER AND CHRONICLE COMPETE ON
14 CIRCULATION RATES?
15 A. NO.
16 Q. I BELIEVE YOU REFERENCED VARIOUS EDITIONS OF THE TWO
17 NEWSPAPERS IN YOUR TESTIMONY ON CROSS-EXAMINATION. CAN YOU
18 TELL US SPECIFICALLY WHAT ARE THE VARIOUS EDITIONS THAT THE
19 CHRONICLE AND EXAMINER HAVE TODAY?
20 A. WE PUBLISH THREE EDITIONS OF THE CHRONICLE, THE FIRST
21 GOING TO PRESS AT 8:00 O'CLOCK IN THE EVENING. IT'S WHAT WE
22 CALL THE THREE STAR COUNTRY EDITION. IT'S THE EDITION OF THE
23 CHRONICLE THAT GOES 50 MILES OR MORE OUTSIDE OF THE BAY AREA.
24 IT'S THE NORTHERN CALIFORNIA EDITION OF THE CHRONICLE.
25 WE COME BACK ON THE PRESS AT MIDNIGHT WITH THE BAY
1562
FALK - REDIRECT / HALLING
1 AREA EDITION, THE EDITION THAT CIRCULATES IN THE 11-COUNTY BAY
2 AREA. IT'S CALLED THE FIVE STAR.
3 WE THEN COME BACK AT 1:30 OR SO WITH A FIVE STAR DOT
4 WHICH HAS THE LATEST SPORTS, ANY SPORTS THAT WERE MISSED.
5 SPORTS RESULTS THAT MAY HAVE BEEN MISSED IN THE MIDNIGHT
6 EDITION WOULD BE PRINTED AT 1:30.
7 SO THOSE ARE THE THREE EDITIONS OF THE CHRONICLE.
8 THE EXAMINER ALSO HAS THREE EDITIONS. STARTING AT
9 ABOUT 8:00 O'CLOCK IN THE MORNING IT'S WHAT WE CALL THE ONE
10 STAR EDITION. IT'S THE SINGLE COPY EDITION THAT WE GET OUT TO
11 THE MARKET BEFORE NOONTIME.
12 WE COME BACK WITH THE HOME DELIVERY EDITION OF THE
13 EXAMINER AT NOON AND WE PRINT A FINAL EDITION, A FOUR STAR WE
14 CALL IT, THAT HAS LATE SPORTS AND CLOSING STOCKS EARLY
15 AFTERNOON FOR STREET SALES IN THE AFTERNOON.
16 THE COURT: WHEN DOES THAT GO TO PRESS?
17 THE WITNESS: IT GOES TO PRESS AT ABOUT 2:00
18 O'CLOCK.
19 THE COURT: 2:00 P.M.?
20 THE WITNESS: 2:00 P.M.
21 BY MR. HALLING:
22 Q. WHY ARE THERE SO MANY EDITIONS FOR THE TWO PAPERS?
23 A. WELL, I MEAN, THIS IS A SINGLE ENTERPRISE, A SINGLE, YOU
24 KNOW, BUSINESS THAT IS OFFERING MULTIPLE EDITIONS TO ATTRACT AS
25 MANY CONSUMERS, AS MANY READERS AND AS MANY ADVERTISERS AS WE
1563
FALK - REDIRECT / HALLING
1 CAN. YOU KNOW, THE MORE PRODUCTS YOU HAVE AVAILABLE, THE MORE
2 LIKELIHOOD THAT YOU'LL ATTRACT READERS AND ADVERTISERS.
3 MR. HALLING: NOTHING FURTHER.
4 THE COURT: VERY WELL. MR. FALK, PICKING UP ON THAT
5 POINT, IF THE AGENCY WERE TO GO TO AN A.M. ONLY MODEL --
6 THE WITNESS: YES.
7 THE COURT: -- OF THE KIND THAT'S BEEN DESCRIBED IN
8 YOUR TESTIMONY, WOULD THAT REDUCE THE NUMBER OF EDITIONS BY
9 THREE? WOULD YOU STILL PUT OUT THE THREE CHRONICLE EDITIONS AT
10 THOSE TIMES OR WOULD YOU MAKE SOME ADJUSTMENT?
11 THE WITNESS: WELL, THE THREE EXAMINER EDITIONS
12 WOULD --
13 THE COURT: DISAPPEAR, I ASSUME.
14 THE WITNESS: -- DISAPPEAR. WE MAY OR MAY NOT. I
15 DON'T THINK WE'VE THOUGHT QUITE ENOUGH ABOUT IT, WHETHER WE
16 WOULD EXPAND THE EDITIONS OF THE CHRONICLE. PROBABLY NOT.
17 THE COURT: I SEE. SO A CHANGE IN THE NUMBER OF
18 DAILY EDITIONS OF THE CHRONICLE IS NOT INCLUDED IN THE
19 CALCULATIONS THAT ARE DESCRIBED IN SOME OF THESE EXHIBITS?
20 THE WITNESS: YES, THAT'S CORRECT.
21 THE COURT: ALL RIGHT. NOW, DO YOU HAVE EXHIBIT 983
22 BEFORE YOU? THAT IS THE PRO FORMAS THAT YOU WERE TALKING
23 ABOUT, I BELIEVE.
24 THE WITNESS: I HAVE ONE OF THEM.
25 THE COURT: IS THAT --
1564
FALK - REDIRECT / HALLING
1 THE WITNESS: YES, I HAVE 983.
2 THE COURT: ALL RIGHT. AND YOU HAVE EXHIBIT 91, I
3 BELIEVE; DO YOU NOT?
4 THE WITNESS: YES.
5 THE COURT: ALL RIGHT. IF I UNDERSTAND YOUR
6 TESTIMONY AND EXHIBIT 983, THE NEWSPAPER AGENCY WOULD HAVE
7 INCREASED NET EXCESS BY APPROXIMATELY 20 AND A HALF MILLION
8 DOLLARS IF THE EXAMINER WERE TO BE ELIMINATED?
9 THE WITNESS: YES.
10 THE COURT: OKAY. IF I UNDERSTAND EXHIBIT 91, I
11 REALIZE THAT THIS IS NOT A DOCUMENT WITH WHICH YOU HAVE PRIOR
12 FAMILIARITY, BUT IF I UNDERSTAND IT, USING THE 1998 FIGURES,
13 ELIMINATION OF THE EXAMINER WOULD SAVE HEARST JUST UNDER
14 $30 MILLION IN EXAMINER ONLY EXPENSES NET OF EXAMINER ONLY
15 INCOME, 29.9 MILLION ROUGHLY?
16 THE WITNESS: YES.
17 THE COURT: THAT WOULD YIELD A NET GAIN TO BOTH
18 PARTIES, IF I UNDERSTAND THESE DOCUMENTS, OF APPROXIMATELY
19 $50 MILLION BY CLOSING THE EXAMINER.
20 ASSUMING THAT THAT STREAM OF INCOME AND EXPENSES
21 WERE TO BE PROJECTED OUT OVER THE REMAINING LIFE OF THE JOINT
22 OPERATING AGREEMENT AND CONSERVATIVELY VALUING THAT ON THAT
23 VALUE BASIS OF MY HANDY-DANDY LITTLE HEWLETT PACKARD
24 CALCULATOR, THAT WOULD YIELD A NET PRESENT VALUE OF
25 APPROXIMATELY $200 MILLION A YEAR.
1565
FALK - REDIRECT / HALLING
1 IS THAT CONSISTENT WITH YOUR BELIEF OR UNDERSTANDING
2 OF WHAT THE SAVINGS WOULD BE BY THE ELIMINATION OF THE EXAMINER
3 OR DO YOU HAVE A BASIS -- PERHAPS YOU DON'T HAVE A BASIS UPON
4 WHICH TO --
5 THE WITNESS: WELL, I JUST -- I KNOW WHAT I KNOW.
6 NEWSPAPER AGENCY GROSS EXCESS WOULD IMPROVE BY 20 MILLION.
7 EXAMINER EXPENSES, AND I ASSUME THEY INCLUDE NEWSROOM EXPENSES,
8 PROMOTION EXPENSES, GENERAL MANAGEMENT OVERHEAD EXPENSES, WOULD
9 BE REDUCED BY 30 MILLION. AND THAT IS $50 MILLION. AND
10 WHATEVER THAT MATHEMATICAL CALCULATION IS, YES, THAT WOULD BE
11 MY UNDERSTANDING.
12 THE COURT: PRESENT VALUE THAT OVER ABOUT A
13 FIVE-YEAR PERIOD OF TIME AT A CONSERVATIVE INTEREST RATE AND
14 YOU REACH ABOUT $200 MILLION PRESENT DAY?
15 THE WITNESS: THAT SOUNDS REASONABLE.
16 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
17
18
19
20
21
22
23
24
25
1566
FALK - REDIRECT / HALLING
1 THE COURT: ACTUALLY, IF YOU WERE TO SPLIT THAT
2 BETWEEN THE PARTIES, HALF OF THE SAVINGS OR HALF OF THE
3 INCREASE IN THE NET EXCESS TO THE NEWSPAPER WOULD BE SPLIT
4 50/50 --
5 THE WITNESS: YES.
6 THE COURT: -- BETWEEN THE CHRONICLE AND THE HEARST.
7 SO THE GAIN TO THE PARTIES THERE WOULD BE
8 APPROXIMATELY $10 MILLION, $10 AND A QUARTER MILLION, AND THE
9 SAVINGS TO HEARST, AS WE INDICATED, WOULD BE JUST UNDER
10 $30 MILLION.
11 AND IF YOU PRESENT VALUE THAT, THAT WOULD BE A
12 SAVINGS TO CHRONICLE OF ABOUT -- OR AN INCREASE, I WOULD THINK,
13 AN INCREASE IN CHRONICLE'S NET CASH FLOW OF ABOUT $40 MILLION
14 ON A NET PRESENT VALUE BASIS AND $160 MILLION TO HEARST.
15 DOES THAT SOUND RIGHT TO YOU?
16 THE WITNESS: YES.
17 THE COURT: ALL RIGHT. THANK YOU, MR. FALK, FOR
18 YOUR TESTIMONY, SIR.
19 THE WITNESS: THANK YOU.
20 THE COURT: YOU ARE EXCUSED.
21 WE WILL TAKE A BREAK NOW, COUNSEL.
22 ARE YOU READY WITH YOUR NEXT WITNESS?
23 MR. CONNELL: YES, SIR.
24 THE COURT: WHO WILL THAT BE?
25 MR. CONNELL: DR. ROSSE.
1567
ROSSE - DIRECT / CONNELL
1 THE COURT: ALL RIGHT. FINE.
2 LET'S TAKE UNTIL 25 AFTER.
3 (RECESS TAKEN AT 10:10 A.M.)
4 (PROCEEDINGS RESUMED AT 10:30 A.M.)
5 THE LAW CLERK: PLEASE REMAIN SEATED. COME TO
6 ORDER. THIS COURT IS NOW IN SESSION.
7 THE COURT: MR. CONNELL?
8 MR. CONNELL: GOOD MORNING, YOUR HONOR.
9 THE COURT: GOOD MORNING.
10 MR. CONNELL: WE WILL CALL DR. JAMES ROSSE.
11 THE COURT: VERY WELL.
12 THE LAW CLERK: PLEASE RAISE YOUR RIGHT HAND TO BE
13 SWORN.
14 JAMES ROSSE,
15 CALLED AS A WITNESS FOR THE DEFENDANT, HAVING BEEN DULY SWORN,
16 TESTIFIED AS FOLLOWS:
17 THE LAW CLERK: PLEASE BE SEATED.
18 PLEASE STATE YOUR FULL NAME AND SPELL YOUR LAST
19 NAME.
20 THE WITNESS: MY NAME IS JAMES NELSON ROSSE OR JAMES
21 N. ROSSE. THE LAST NAME IS SPELLED R-O-S-S-E.
22 THE COURT: MR. CONNELL, PROCEED.
23 DIRECT EXAMINATION
24 BY MR. CONNELL:
25 Q. DR. ROSSE, GOOD MORNING.
1568
ROSSE - DIRECT / CONNELL
1 A. GOOD MORNING.
2 Q. DR. ROSSE, IS THIS THE FIRST OCCASION IN WHICH YOU HAVE
3 GIVEN TESTIMONY IN THE DISTRICT COURT FOR THE NORTHERN DISTRICT
4 OF CALIFORNIA ON ISSUES RELATING TO THE SAN FRANCISCO JOINT
5 NEWSPAPER OPERATING AGREEMENT?
6 A. IT IS NOT.
7 Q. WHEN WAS THE FIRST TIME?
8 A. IT WAS IN, I BELIEVE, 1979. I BELIEVE IT WAS IN 1979 WHEN
9 A PRIVATE ACTION WAS BROUGHT BY PACIFIC SUN AGAINST THE JOA. I
10 DON'T REMEMBER THE EXACT DESCRIPTION, LEGAL DESCRIPTION, OF THE
11 CASE.
12 Q. WELL, WE WILL GET TO THAT IN A MOMENT, SIR.
13 DR. ROSSE, YOU ARE ON ECONOMIST?
14 A. YES, I AM.
15 Q. WHAT DEGREES DO YOU HOLD?
16 A. I HOLD A BACHELOR OF SCIENCE IN ECONOMICS WITH A
17 JOURNALISM MINOR; A MASTER OF ARTS IN ECONOMICS WITH A
18 MATHEMATICAL ECONOMICS MINOR AND A PH.D. IN ECONOMICS WITH A
19 MATHEMATICS MINOR, ALL THREE DEGREES FROM THE UNIVERSITY OF
20 MINNESOTA.
21 Q. AND WHAT WAS THE YEAR OF YOUR PH.D.?
22 A. 1966.
23 Q. HOW OLD ARE YOU, SIR?
24 A. SIXTY-EIGHT.
25 Q. DO YOU HAVE IN FRONT OF YOU A DOCUMENT THAT IS ENTITLED
1569
ROSSE - DIRECT / CONNELL
1 "DECLARATION," WHICH IS MARKED AS H-0954? IT SHOULD BE AT THE
2 TOP OF THAT BUT PERHAPS NOT.
3 IT'S YOUR DECLARATION SO IT'S RELATIVELY THICK. DID
4 WE NOT PUT IT UP THERE?
5 WE HAVE NOW. DR. ROSSE, THERE IT IS.
6 A. THANK YOU.
7 THE COURT: 954?
8 MR. CONNELL: 954, H-954.
9 I CAN HAND ONE UP, YOUR HONOR.
10 THE COURT: NO. WE HAVE GOT ANOTHER ONE. GO AHEAD.
11 MR. CONNELL: (INDICATING).
12 THE COURT: THANK YOU.
13 BY MR. CONNELL:
14 Q. DR. ROSSE, IS THAT A DECLARATION THAT YOU PREPARED AND
15 DOES IT HAVE YOUR SIGNATURE AT THE PAGE 16?
16 A. YES, IT IS, AND, YES, THAT'S MY SIGNATURE.
17 Q. AND THAT IS A TRUE AND ACCURATE STATEMENT BY YOU -- BY
18 YOU, SIR?
19 A. YES, IT IS.
20 MR. CONNELL: YOUR HONOR, I WOULD OFFER DR. ROSSE'S
21 DECLARATION IN EVIDENCE.
22 MR. SHULMAN: NO OBJECTION, YOUR HONOR.
23 THE COURT: VERY WELL. 954 WILL BE RECEIVED.
24 (DEFENDANT'S EXHIBIT H-954
25 RECEIVED IN EVIDENCE)
1570
ROSSE - DIRECT / CONNELL
1 BY MR. CONNELL:
2 Q. DR. ROSSE, IN YOUR -- IN YOUR DECLARATION IF YOU COULD
3 TURN TO THE PORTION OF IT THAT IS LABELED "APPEARANCES OF JAMES
4 N. ROSSE."
5 AND IF I COULD ASK IF THAT PART OF THE DECLARATION
6 COULD BE PUT UP ON THE SCREEN.
7 ACTUALLY, I WILL JUST LEAVE THAT THERE FOR A MOMENT,
8 DR. ROSSE, BECAUSE I THINK FIRST I SHOULD ASK YOU, IN YOUR --
9 IN YOUR STUDIES HAVE YOU SPECIALIZED IN ANY AREAS?
10 A. OVER THE YEARS I HAVE BEEN MOST INTERESTED IN
11 COMMUNICATIONS INDUSTRIES AND MOST ESPECIALLY WITHIN
12 COMMUNICATIONS INDUSTRIES IN NEWSPAPERS.
13 Q. UPON COMPLETING YOUR EDUCATION, DID YOU -- WHERE WERE YOU
14 FIRST EMPLOYED?
15 A. AT STANFORD UNIVERSITY.
16 Q. WHEN DID YOU GO TO STANFORD?
17 A. IN 1965.
18 Q. AND WHAT WAS YOUR TITLE WHEN YOU FIRST WENT TO STANFORD?
19 A. ASSISTANT PROFESSOR OF ECONOMICS.
20 Q. AND DID YOU THEN CONTINUE TO STAY AT STANFORD AND TO RISE
21 THROUGH THE RANKS?
22 A. YES, I DID. I SPENT 27 YEARS AT STANFORD.
23 Q. AND DID YOU HOLD ASSOCIATE PROFESSORSHIP AND FULL
24 PROFESSOR JOBS?
25 A. I DID, YES.
1571
ROSSE - DIRECT / CONNELL
1 Q. AND WERE YOU -- DID YOU AT ONE POINT BECOME A PROVOST OF
2 STANFORD UNIVERSITY?
3 A. YES, I DID.
4 Q. WHEN WAS THAT?
5 A. IN 1984, IN SEPTEMBER OF 1984.
6 Q. AND HOW LONG DID YOU HOLD THAT POSITION?
7 A. UNTIL APRIL OF 1992.
8 Q. WHAT ARE THE RESPONSIBILITIES OF THE PROVOST OF STANFORD
9 UNIVERSITY?
10 A. THE PROVOST POSITION IS MOST LIKE A CHIEF OPERATING
11 OFFICER IN A -- IN A PRIVATE BUSINESS. I FUNCTIONED AS THE
12 CHIEF ACADEMIC OFFICER, AS THE CHIEF BUDGET OFFICER, AND AS THE
13 NUMBER TWO PERSON TO THE PRESIDENT OF THE UNIVERSITY.
14 Q. YOU LEFT STANFORD IN 1992?
15 A. YES, I DID.
16 Q. WHERE DID YOU GO WHEN YOU LEFT STANFORD?
17 A. I WAS HIRED BY FREEDOM COMMUNICATIONS, INCORPORATED, AT
18 THAT TIME KNOWN AS FREEDOM NEWSPAPERS. THERE WAS A SUBSEQUENT
19 NAME CHANGE. AND I -- I WAS HIRED BY THEM TO BECOME THEIR
20 PRESIDENT AND CHIEF EXECUTIVE OFFICER.
21 Q. HOW LONG DID YOU HOLD THAT JOB?
22 A. UNTIL SEPTEMBER 30TH, 1999.
23 Q. AT WHICH POINT YOU DID WHAT?
24 A. I RETIRED.
25 Q. DR. ROSSE, AS CEO OF FREEDOM COMMUNICATIONS -- WELL, LET
1572
ROSSE - DIRECT / CONNELL
1 ME ASK YOU A LITTLE DIFFERENTLY.
2 COULD YOU JUST DESCRIBE THE BUSINESS OF FREEDOM
3 COMMUNICATIONS? WHAT PROPERTIES DOES IT OWN AND WHERE ARE THEY
4 LOCATED?
5 A. CERTAINLY. IT'S A NATIONWIDE GROUP OF NEWSPAPERS,
6 TELEVISION AND MAGAZINES. THE FLAGSHIP NEWSPAPER IN THE GROUP
7 IS THE ORANGE COUNTY REGISTER, WHICH IS A NEWSPAPER CURRENTLY
8 OF ABOUT 380,000 CIRCULATION DAILY AND ABOUT 440,000
9 CIRCULATION ON SUNDAYS. IT'S A -- SINCE IT'S NOT THE MAIN
10 NEWSPAPER IN AN URBAN AREA -- IT'S NOT AS WELL KNOWN NATIONALLY
11 AS, FOR INSTANCE, THE LOS ANGELES TIMES. WITHIN THE BUSINESS
12 IT'S KNOWN AS AN OUTSTANDING INNOVATIVE NEWSPAPER, AND IT HAS
13 WON A NUMBER OF PULITZERS, INCLUDING PULITZER FOR INVESTIGATIVE
14 REPORTING RECENTLY.
15 IT ALSO WAS NAMED AMONG THE TOP 20 NEWSPAPERS IN THE
16 WORLD SEVERAL TIMES IN RECENT YEARS ON THE BASIS OF ITS DESIGN
17 AND OVERALL QUALITY.
18 Q. AND THAT'S THE LARGEST NEWSPAPER --
19 A. THAT'S THE LARGEST NEWSPAPER IN THE GROUP.
20 Q. ALL RIGHT.
21 A. THERE ARE ABOUT --
22 Q. WHAT IS THE TOTAL COMBINED CIRCULATION OF ALL THE
23 NEWSPAPERS OWNED BY FREEDOM?
24 A. SOMETHING OVER A MILLION ON WEEKDAYS AND ABOUT A
25 MILLION -- ABOUT A MILLION ONE, A MILLION TWO ON SUNDAYS. I
1573
ROSSE - DIRECT / CONNELL
1 DON'T REMEMBER EXACTLY.
2 Q. AND THE CEO OF THE CHRONICLE CORPORATION WAS YOUR -- YOU
3 HAD THE RESPONSIBILITY -- YOU HAD THE RESPONSIBILITY FOR ALL OF
4 THOSE NEWSPAPERS?
5 A. YES, I DID, AS WELL AS --
6 Q. AND OTHER PROPERTIES, AS WELL?
7 A. WELL, AT THE TIME I LEFT FREEDOM, WE HAD EIGHT TELEVISION
8 BROADCAST STATIONS, ALL NETWORK STATIONS, AGAIN, NATION --
9 SCATTERED ACROSS THE NATION. AND WE ALSO HAD 15 OR 16 MAGAZINE
10 TITLES AND -- AS WELL AS, OF COURSE, A VERY ACTIVE PROGRAM OF
11 DEVELOPMENT -- MEDIA DEVELOPMENT ON THE INTERNET.
12 THE COURT: ARE YOU GOING TO ASK THE WITNESS WHERE
13 THOSE OTHER DAILY NEWSPAPERS ARE LOCATED AND THE TELEVISION
14 STATIONS?
15 BY MR. CONNELL:
16 Q. CAN YOU TELL WHERE YOUR OTHER PAPERS ARE LOCATED? SPREAD
17 OUT ACROSS THE COUNTRY?
18 A. THEY'RE PRETTY WELL SPREAD OUT, MOSTLY ACROSS THE SOUTHERN
19 PART OF THE UNITED STATES. BUT WITHIN THE STATE OF CALIFORNIA,
20 THERE IS ONE IN PORTERVILLE, THERE IS ONE IN MARYSVILLE, ONE IN
21 VICTORVILLE -- ALL QUITE SMALL COMMUNITIES -- IN ADDITION TO
22 ORANGE COUNTY.
23 AMONG THE LARGER OF THE COMMUNITY NEWSPAPERS, THERE
24 ARE THREE OF THEM IN THE TEXAS VALLEY, IN THE RIO GRANDE, GRAND
25 VALLEY AND ODESSA, TEXAS.
1574
ROSSE - DIRECT / CONNELL
1 THE COURT: THAT WOULD BE, WHAT, MC ALLEN?
2 THE WITNESS: MC ALLEN, HARLINGEN AND BROWNSVILLE.
3 MC ALLEN HAS THE DISTINCTION OF BEING THE MOST RAPIDLY GROWING
4 NEWSPAPER MARKET IN THE UNITED STATES AT THE PRESENT TIME --
5 AGAIN, NOT A VERY WELL-KNOWN MARKET BUT A VERY RAPIDLY GROWING
6 ONE.
7 THEY ALSO HAVE NEWSPAPERS IN WESTERN FLORIDA, PANAMA
8 CITY AND FORT WALTON BEACH. IN NORTH CAROLINA THERE ARE ALL
9 TOGETHER, I BELIEVE, SIX DAILIES IN NORTH CAROLINA AND SEVERAL
10 WEEKLIES, A DAILY IN LIMA, OHIO, ANOTHER ONE IN JACKSONVILLE,
11 ILLINOIS, ANOTHER ONE IN SEDALIA, MISSOURI.
12 AND THEN, OF COURSE, THE SECOND LARGEST NEWSPAPER IN
13 THE GROUP IS THE COLORADO SPRINGS GAZETTE LOCATED IN COLORADO
14 SPRINGS, COLORADO.
15 BY MR. CONNELL:
16 Q. THANK YOU, SIR.
17 A. YOU ASKED ABOUT TELEVISION?
18 THE COURT: YES, SIR.
19 MR. CONNELL: OH.
20 THE WITNESS: STARTING WITH THE LARGEST MARKETS --
21 AS YOU KNOW, MARKETS ARE RANKED BY SIZE. THE SMALLER THE
22 NUMBER, THE LARGER THE MARKET. THE NUMBER 37 MARKET IS -- IS
23 GRAND RAPIDS, KALAMAZOO, BATTLE CREEK, MICHIGAN. THE NUMBER 42
24 MARKET IS WEST PALM BEACH, FLORIDA. THE NUMBER 49 MARKET, I
25 BELIEVE IT IS, IS PROVIDENCE, RHODE ISLAND. THE NUMBER 52
1575
ROSSE - DIRECT / CONNELL
1 MARKET IS -- IS ALBANY, NEW YORK. AND THEN I LOSE TRACK OF THE
2 NUMBERS, BUT THEY -- IN ADDITION TO THAT THERE ARE TELEVISION
3 STATIONS IN CHATTANOOGA, TENNESSEE, AND LANSING, MICHIGAN; IN
4 BEAUMONT, TEXAS AND MEDFORD, OREGON. I THINK THAT'S IT.
5 THE COURT: ARE THESE PROPERTIES THAT HAVE BEEN HELD
6 BY THE COMPANY FOR A LONG PERIOD OF TIME, OR WERE THEY ACQUIRED
7 DURING THE TIME THAT YOU WERE CHIEF EXECUTIVE OFFICER?
8 THE WITNESS: SOME OF THE PROPERTIES DATE BACK TO
9 1927 AND 1935. IT WAS A COMPANY -- IT'S A FAMILY COMPANY BUILT
10 BY A MAN NAMED R.C. HOILES, AND SOME OF THE ORIGINAL PROPERTIES
11 ARE STILL A PART OF THE PORTFOLIO.
12 AT THE TIME THAT I JOINED THE COMPANY, THERE WERE
13 ABOUT 27 DAILIES. AT THE TIME I LEFT THERE WERE STILL ABOUT
14 27. HOWEVER, THERE WAS SOME CHURN BECAUSE WE -- WE SOLD SOME
15 AND WE BOUGHT SOME.
16 AT THE TIME I JOINED THE COMPANY, THERE WERE FIVE
17 TELEVISION STATIONS AND WE ADDED THREE MORE.
18 AT THE TIME I JOINED THE COMPANY THERE WERE NO
19 MAGAZINES AND WE ADDED A WHOLE NEW MAGAZINE DIVISION.
20 AT THE TIME THAT I JOINED THE COMPANY THERE WAS NO
21 INTERNET, AND BY THE TIME I LEFT, WE HAD A PRETTY ACTIVE
22 INTERNET ACTIVITY.
23 THE COURT: FINE.
24 SORRY FOR THE INTERRUPTION.
25 ////
1576
ROSSE - DIRECT / CONNELL
1 BY MR. CONNELL:
2 Q. SO NEWSPAPERS, T.V., MAGAZINES, INTERNET, IS THAT THE
3 SCOPE OF FREEDOM?
4 A. THAT'S THE SCOPE OF IT, THAT'S CORRECT.
5 Q. AND IT WAS ONCE KNOWN AS HOILES NEWSPAPERS?
6 A. WELL, ONCE UPON A TIME, YES. IT HAS BEEN KNOWN AS FREEDOM
7 SINCE -- SINCE THE EARLY '50'S.
8 Q. BUT IT IS THE HOILES FAMILY?
9 A. IT'S THE HOILES FAMILY. MR. HOILES NAMED IT FREEDOM IN
10 SPITE OF HIS FAMILY'S PROTESTATIONS. THEY WANTED IT NAMED
11 HOILES, HIS CHILDREN. HE NAMED IT FREEDOM BECAUSE HE SAID,
12 "ONLY GREAT IDEAS COUNT. FAMILY NAMES COME AND GO AND FREEDOM
13 IS THE GREATEST IDEA I KNOW."
14 Q. DO YOU -- DO YOU SIT ON THE BOARD OF DIRECTORS OF FREEDOM
15 COMMUNICATIONS?
16 A. I DO.
17 Q. PERHAPS INSTEAD OF HAVING DR. ROSSE'S APPEARANCE, IF WE
18 COULD PUT THE PUBLICATIONS UP ON THE SCREEN.
19 AND IF I COULD ASK YOU, SIR, IF YOU COULD TURN TO
20 THAT IN YOUR DECLARATION. IT'S -- I HOPE YOU CAN FIND IT.
21 IT'S PAGE H-2069 IS WHERE IT BEGINS.
22 DO YOU HAVE IT, DR. ROSSE?
23 A. YES, I DO HAVE IT.
24 Q. AND IT'S UP ON THE SCREEN. AND I JUST INVITE YOUR
25 ATTENTION TO THAT FIRST ONE LISTED.
1577
ROSSE - DIRECT / CONNELL
1 A. I BEG YOUR PARDON?
2 Q. THE FIRST ONE LISTED IN 1966.
3 A. 1966 WAS MY DISSERTATION, DAILY NEWSPAPERS, MONOPOLISTIC
4 COMPETITION AND ECONOMIES OF SCALE.
5 Q. WOULD YOU DESCRIBE WHAT THAT DISSERTATION WAS ALL ABOUT?
6 A. WELL, IT WAS A -- IT HAD ATTEMPTED TO -- NOT ONLY
7 ATTEMPTED BUT ACCOMPLISHED SEVERAL THINGS. ONE IS THAT IT --
8 IT WAS -- I WAS TRYING TO BUILD -- I DID, IN FACT, BUILD A
9 UNIFIED THEORY OF A NEWSPAPER FIRM FOR THE -- FOR THE FIRST
10 TIME, ONE THAT COULD BE PUT INTO MATHEMATICAL FORMS SO THAT IT
11 COULD -- SO THAT YOU COULD CARRY OUT ECONOMETRIC ESTIMATION
12 USING IT.
13 SO THE SECOND CHALLENGE OF THE -- OF THE
14 DISSERTATION WAS TO IN FACT CARRY OUT THAT EMPIRICAL STUDY, TO
15 MEASURE AND TEST FOR ECONOMIES OF SCALE.
16 IN ADDITION TO THAT, THERE WERE SOME OTHER STUDIES
17 THAT -- THAT LOOKED AT THE HISTORY OF THE NEWSPAPER INDUSTRY IN
18 A VARIETY OF WAYS AND TRIED TO PUT IT ALL TOGETHER IN A -- IN
19 THE BEST WAY I COULD AT THAT TIME TO UNDERSTAND HOW THE
20 INDUSTRY WAS ORGANIZED AND WHAT CAUSED IT TO BE ORGANIZED THE
21 WAY IN WHICH IT WAS ORGANIZED AND HOW THAT HISTORY HAD PLAYED
22 ITSELF OUT.
23 Q. WHAT ARE ECONOMIES OF SCALE?
24 A. ECONOMIES OF SCALE ARE A SHORTHAND WAY ECONOMISTS USE OF
25 DESCRIBING A TECHNOLOGY THAT PERMITS ONE SINGLE FIRM TO PRODUCE
1578
ROSSE - DIRECT / CONNELL
1 AT A LOWER PER UNIT OR PER PRODUCT COST THAN -- THAN TWO
2 UNITS -- TWO PRODUCERS COULD -- TWO OR MORE PRODUCERS COULD
3 PRODUCE THE SAME PRODUCT.
4 IN OTHER WORDS, THE LARGER THE ENTERPRISE, THE LOWER
5 THE COST PER UNIT IS; AND, THEREFORE, ONE UNIT -- ONE PRODUCING
6 UNIT CAN USUALLY SUPPLY THE MARKET MORE CHEAPLY THAN SEVERAL
7 CAN.
8 Q. ALL RIGHT, SIR. THE TITLE OF YOUR DISSERTATION INCLUDES
9 THE TERM "MONOPOLISTIC COMPETITION."
10 NOW, WE HAVE HEARD IN THIS COURTROOM THE WORD
11 "MONOPOLY" AND THE WORD "COMPETITION." YOU ARE PUTTING THEM
12 TOGETHER. CAN YOU TELL US WHY?
13 A. WELL, I DIDN'T PUT THEM TOGETHER. THEY WERE PUT TOGETHER
14 BY AN ECONOMIST BY THE NAME OF EDWARD CHAMBERLAIN.
15 MR. CHAMBERLAIN, RANGING IN THE '20'S AND '30'S AND ON INTO THE
16 '40'S, NOTED THAT MANY KINDS OF INDUSTRIES PRODUCED PRODUCTS
17 THAT WERE DIFFERENTIATED ONE FROM THE OTHER. A DIFFERENTIATED
18 PRODUCT IS ONE WHERE THE BUYER -- WHERE IT MATTERS TO THE BUYER
19 WHO PRODUCED THE PRODUCT. YOU DON'T CARE WHO PRODUCES THE
20 POUND OF WHEAT THAT YOU BUY BECAUSE ALL WHEAT IS ALIKE, BUT YOU
21 DO CARE WHO PRODUCES THE PAPER YOU BUY BECAUSE NO TWO
22 NEWSPAPERS ARE EXACTLY THE SAME.
23 SO MR. CHAMBERLAIN NOTED THAT THERE -- THAT IN THOSE
24 CIRCUMSTANCES THE THEORY OF -- OF PURE COMPETITION DIDN'T
25 APPLY, THE CLASSICAL THEORY, BECAUSE BUYERS -- SELLERS WERE NOT
1579
ROSSE - DIRECT / CONNELL
1 ANONYMOUS TO BUYERS.
2 AND SO HE DEVELOPED A THEORY OF MONOPOLISTIC
3 COMPETITION IN WHICH EACH FIRM PRODUCES A -- OR CAN PRODUCE A
4 UNIQUE PRODUCT AND YET THEY ARE STILL SUBSTITUTES ONE FOR
5 ANOTHER AND ENTRY AND EXIT INTO THE MARKETPLACE TAKES PLACE
6 JUST AS IT WOULD IN A PERFECTLY COMPETITIVE MODEL AND --
7 ECONOMY AND THE RESULT OF THAT IS TO -- TO, OF COURSE, DRIVE
8 EXCESS PROFIT OUT TO BRING THE RETURN OF THE REMAINING FIRMS
9 DOWN TO WHAT ECONOMISTS WOULD CALL A NORMAL PROFIT. AND THAT'S
10 A -- THAT'S MONOPOLY -- THAT'S A COMPLETE DESCRIPTION OF
11 MONOPOLISTIC COMPETITION.
12 HE SPELLED THAT OUT IN A BOOK TITLED MONOPOLISTIC
13 COMPETITION, AND THE PHRASE HAS REMAINED IN THE -- IN THE
14 PROFESSION EVER SINCE.
15 Q. DR. ROSSE, JUST LOOKING AT THE FIRST PAGE OF YOUR LIST OF
16 PUBLICATIONS, COULD YOU JUST IDENTIFY WHICH OF THOSE DEAL WITH
17 THE NEWSPAPER BUSINESS.
18 A. THE --
19 Q. OR WHICH OF THEM, AT LEAST, INCLUDE THE NEWSPAPER
20 BUSINESS. AND IF YOU JUST TELL US WHICH ONES THEY ARE.
21 A. THE FIRST ONE WE HAVE ALREADY MENTIONED IN 1966.
22 Q. RIGHT.
23 A. IN 1967 I PUBLISHED A MUCH ABBREVIATED VERSION OF THAT
24 SAME PAPER, THE AMERICAN ECONOMIC REVIEW. IN 1970 I PUBLISHED
25 A METHODOLOGY PAPER CALLED ON ESTIMATING COST FUNCTION
1580
ROSSE - DIRECT / CONNELL
1 PARAMETERS WITHOUT USING COST DATA, THAT TOOK THE METHODOLOGY
2 OF THAT DISSERTATION AND SPELLED IT OUT USING NEWSPAPER DATA.
3 Q. COULD YOU PAUSE THERE FOR A MOMENT?
4 WHAT DOES IT MEAN TO ESTIMATE COST FUNCTION
5 PARAMETERS? COULD YOU JUST EXPLAIN THAT?
6 A. A COST FUNCTION IS A MATHEMATICAL REPRESENTATION OF THE
7 WAY COSTS BEHAVE AS VARIOUS FACTORS THAT ENTER INTO THE -- THE
8 FIRM'S DECISION PROCESSES CHANGE. SO, FOR INSTANCE, AS PRICES
9 OF INPUTS CHANGE OR AS -- AS DIFFERENT PRODUCTION CHOICES ARE
10 MADE.
11 Q. ALL RIGHT, SIR. WHAT IS THE NEXT ONE IN YOUR LIST THAT
12 DEALS WITH NEWSPAPERS?
13 A. ECONOMIC ISSUES OF JOINT OWNERSHIP OF NEWSPAPER AND
14 TELEVISION MEDIA.
15 Q. AND WHAT WAS THAT -- WHAT WAS THAT ABOUT?
16 A. THAT WAS ABOUT THE QUESTION OF WHETHER OR NOT THE DATA
17 SHOWED THAT THE JOINT OWNERSHIP OF A DAILY NEWSPAPER AND A
18 TELEVISION STATION IN A SINGLE MARKETPLACE HAD ANY IMPACT ON
19 THE PRICING OF EITHER -- ADVERTISING PRICING OF EITHER.
20 Q. ALL RIGHT, SIR.
21 THE COURT: WHAT DID YOU CONCLUDE?
22 THE WITNESS: I CONCLUDED THAT BASED ON THE DATA
23 THAT WE HAD AT THAT TIME THAT IT DID.
24 THE COURT: THAT IT DID?
25 THE WITNESS: YES.
1581
ROSSE - DIRECT / CONNELL
1 THE COURT: TO WHAT DEGREE?
2 THE WITNESS: I DON'T REMEMBER THE EXACT NUMBERS,
3 BUT IT WAS ON THE ORDER OF, AS I RECALL, SIX TO EIGHT PERCENT.
4 THE COURT: SIXTEEN?
5 THE WITNESS: SIX TO EIGHT PERCENT, AS I RECALL.
6 THE COURT: SIX TO EIGHT PERCENT.
7 THE WITNESS: THAT WAS, OF COURSE -- I REMIND YOUR
8 HONOR, THAT WAS BASED ON DATA WHEN THERE WERE ONLY THREE OR
9 FOUR TELEVISION STATIONS PER MARKETPLACE, DRAMATICALLY
10 DIFFERENT FROM THE WAY IT IS TODAY.
11 BY MR. CONNELL:
12 Q. YOU HAVE DOWN IN 1975 -- YOU HAVE A PAPER TITLED "THE
13 ECONOMIC LIMITS OF PRESS RESPONSIBILITY."
14 WHAT WAS THAT ABOUT?
15 A. THIS ADDRESSED THE QUESTION THAT -- THAT MANY JOURNALISTS
16 ADDRESS OF PROFESSIONALISM AND ETHICS AND STANDARDS WITHIN THE
17 PRESS.
18 WHAT ARE THE -- WHAT IS THE RESPONSIBILITY OF THE
19 PRESS TO -- TO SERVE AS A FOURTH ARM OF GOVERNMENT, SO TO
20 SPEAK, TO PROVIDE THE INFORMATION THAT MAKES AN ECONOMY IN A
21 SOCIETY WORK WELL. THAT'S A VERY POPULAR TOPIC AMONG
22 JOURNALISTS, AND IT'S A VERY POPULAR ONE WITH ME, AS WELL.
23 THIS PAPER SIMPLY POINTS OUT THAT THERE ARE LIMITS
24 TO THAT -- TO HOW FAR YOU CAN EXERCISE THAT BECAUSE, AFTER ALL,
25 THE NEWSPAPER HAS TO SURVIVE, AND THEN IT POINTS OUT ALSO THAT
1582
ROSSE - DIRECT / CONNELL
1 THAT IS NOT ONLY A LIMITATION, THAT'S AN ADVANTAGE. BECAUSE --
2 BECAUSE WE HAVE A NEWSPAPER INDUSTRY THAT IS A FREE ENTERPRISE
3 INDUSTRY, YET IT DOES NOT DEPEND ON GOVERNMENT, AND, THEREFORE,
4 IT CAN BE COUNTED ON TO SPEAK FREELY. SO IT'S BOTH -- THE FACT
5 THAT YOU ARE INDEPENDENT AND COMPETITIVE IS BOTH A BLESSING IN
6 THE SENSE THAT YOU DON'T HAVE GOVERNMENT TO TELL YOU WHAT TO DO
7 AND A LIMITATION IN THE SENSE THAT YOU HAVE TO BE ABLE TO MAKE
8 A PROFIT IN ORDER TO SURVIVE.
9 Q. THE FINAL ONE ON THAT PAGE IS LABELED "TRENDS IN THE DAILY
10 NEWSPAPER INDUSTRY, 1923 TO 1973."
11 WHAT WAS THE -- THE ESSENCE OF THAT PAPER?
12 A. THAT SIMPLY WAS A LISTING OF STATISTICS THAT HAD TO DO
13 WITH THE -- WITH HOW THE INDUSTRY HAS EVOLVED OVER THAT PERIOD
14 OF TIME.
15 Q. DID THAT INCLUDE A STUDY OR AN EXAMINATION OF THE NUMBER
16 OF NEWSPAPERS IN THE CITY -- IN EACH CITY?
17 A. IT SURELY DID, YES.
18 Q. HAS THAT SUBJECT, THE -- THE EXISTENCE OF COMPETING
19 NEWSPAPERS IN CITIES OR THE DECLINE OF COMPETING NEWSPAPERS IN
20 CITIES, BEEN A TOPIC THAT YOU HAVE STUDIED AT SOME LENGTH?
21 A. YES, IT REALLY HAS. IT AS MUCH AS ANYTHING WAS THE
22 QUESTION THAT DREW ME INTO A FOCUS ON NEWSPAPERS WAS A DESIRE
23 TO UNDERSTAND THE ECONOMIC PROCESSES THAT WERE AT WORK.
24 THE INDUSTRY IS -- BECAUSE OF ITS -- THE PROTECTION
25 OF THE FIRST AMENDMENT HAS BEEN AMONG THE LEAST REGULATED OF
1583
ROSSE - DIRECT / CONNELL
1 INDUSTRIES IN THE UNITED STATES. THEREFORE, ECONOMIC
2 MARKETPLACES HAVE PLAYED OUT -- PLAYED THEMSELVES OUT
3 RELATIVELY UNCONSTRAINED BY -- BY NON-ECONOMIC PHENOMENA. AND
4 SO REALLY FROM THE STANDPOINT OF AN ECONOMIST, IT'S REALLY
5 QUITE FASCINATING TO -- TO STUDY AND EXAMINE WHY IT IS THAT THE
6 INDUSTRY EVOLVED IN THE WAY IT DID AND RESULTED IN A KIND OF AN
7 INDUSTRIAL STRUCTURE THAT WE HAVE.
8 Q. THE -- IF YOU LOOK ON PAGE -- THE SECOND PAGE OF YOUR
9 PUBLICATIONS, DR. ROSSE, COULD YOU POINT TO THE -- THE PAPERS
10 ON THAT PAGE THAT YOU WOULD THINK WOULD MOST DIRECTLY DEAL WITH
11 THE ISSUES OF NEWSPAPER COMPETITION?
12 A. WELL, NEWSPAPER COMPETITION. I POINT TO THE DAILY
13 NEWSPAPER FIRM OF 24 EQUATION REDUCED FORM MODEL IS SIMPLY A
14 PAPER THAT -- THAT LAYS OUT A BODY OF DATA THAT CONFIRMS THE
15 STRUCTURE OF THE COMPETITIVE MODEL THAT I CREATED.
16 CHAMBERLAIN VERSUS ROBINSON, AN EMPIRICAL TEST FOR
17 MONOPOLY RENTS, WAS AN EMPIRICAL STUDY THAT MADE USE OF
18 NEWSPAPER DATA, AND IT REALLY WAS A TEST TO SEE WHETHER OR NOT
19 THE CHAMBERLAINIAN VIEW OF COMPETITION IN THE INDUSTRY WAS THE
20 CORRECT ONE AND IT -- AND THE ANSWER WAS, YES, IT VERY MUCH WAS
21 SO.
22 Q. DR. ROSSE, THERE IS A PAPER THERE --
23 A. THE EVOLUTION OF ONE NEWSPAPER CITIES. SORRY.
24 Q. THAT'S ALL RIGHT. I WAS JUST GOING TO DIRECT YOUR
25 ATTENTION TO THAT.
1584
ROSSE - DIRECT / CONNELL
1 A. YES.
2 Q. WAS -- THAT SUGGESTS THAT YOU DID A STUDY TRYING TO
3 DETERMINE WHY ONE NEWSPAPER CITIES WERE EVOLVING.
4 A. ALL OF THESE STUDIES PLAY SOME ROLE OR ANOTHER IN
5 UNDERSTANDING HOW ONE NEWSPAPER CITIES EVOLVE.
6 WHAT THIS WAS WAS SIMPLY PUTTING THAT INTO A -- THE
7 RELEVANT PARTS OF THAT THEORY AND EMPIRICAL DATA INTO A SINGLE
8 SMALL PAPER THAT PEOPLE COULD READ.
9 Q. WERE ANY OF THE PAPERS ON THIS PAGE PREPARED FOR
10 SUBMISSION TO THE FEDERAL TRADE COMMISSION?
11 A. YES, THEY WERE.
12 Q. WHICH ONES?
13 A. IN FACT, THAT WAS ONE OF THEM.
14 THE FEDERAL TRADE COMMISSION IN 1978 ASKED ME AND
15 SEVERAL OF MY STUDENTS TO PREPARE A BODY OF PAPERS ON THE
16 NEWSPAPER INDUSTRY TO -- AND OTHER COMMUNICATIONS INDUSTRIES --
17 TO -- TO PRESENT AT A LARGE CONFERENCE THAT THEY HELD IN
18 DECEMBER OF THAT YEAR. AND THE -- THERE WERE OTHER PEOPLE
19 INVITED, BUT WE WERE THE -- THE CORE PRESENTERS AND THE -- THE
20 CONFERENCE -- THE PURPOSE OF THE CONFERENCE WAS TO HELP EDUCATE
21 FTC LAWYERS AND STAFF, AS WELL AS OTHER INTERESTED PARTIES, ON
22 THE ECONOMICS OF THIS INDUSTRY -- OR THESE INDUSTRIES.
23 AND SO THESE PAPERS -- THE ONE THAT SAYS, "EVOLUTION
24 OF ONE NEWSPAPER CITIES, ECONOMIC ISSUES AND MASS COMMUNICATION
25 INDUSTRIES ON BASIC CONCEPTS AND MASS MEDIA ECONOMICS," WERE
1585
ROSSE - DIRECT / CONNELL
1 ALL PREPARED FOR THAT CONFERENCE, AS WERE SEVERAL OTHERS.
2 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1586
ROSSE - DIRECT / CONNELL
1 THE COURT: EXCUSE ME. LET ME GO BACK TO
2 CHAMBERLAIN VERSUS ROBINSON.
3 THE WITNESS: YES. CHAMBERLAIN IS, OF COURSE,
4 PROFESSOR EDWARD CHAMBERLAIN THAT YOU MENTIONED. WHO WAS
5 ROBINSON?
6 THE WITNESS: THAT WAS JOAN ROBINSON, AN ENGLISH
7 ECONOMIST WHO WROTE A BOOK ENTITLED "IMPERFECT COMPETITION"
8 THAT THE PRINCIPAL -- IT WAS SIMILAR IN MANY RESPECTS TO
9 ROBINSON -- TO CHAMBERLAIN'S THEORY EXCEPT THAT JOAN ROBINSON
10 MAINTAINED THAT THESE KINDS -- THAT THIS KIND OF AN INDUSTRIAL
11 STRUCTURE CREATED MONOPOLY RENTS. THAT IS WHAT ECONOMISTS
12 CALLED EXCESS -- WHAT ORDINARY PEOPLE WOULD CALL EXCESS
13 PROFITS, THE ECONOMISTS CALL MONOPOLY RENTS.
14 JOAN ROBINSON MAINTAINED THAT THIS INDUSTRIAL
15 STRUCTURE WOULD CREATE MONOPOLY RENTS WHICH WOULD NOT DISAPPEAR
16 AS A RESULT OF COMPETITION. CHAMBERLAIN SAID, NO, THAT, IN
17 FACT, ENTRY OF CLOSE SUBSTITUTES AND COMPETING PRODUCTS WILL
18 DRIVE AWAY EXCESS RENTS; AND SO THIS WAS A TEST OF THAT
19 HYPOTHESIS, WAS CHAMBERLAIN RIGHT OR WAS ROBINSON RIGHT IN THE
20 NEWSPAPER INDUSTRY.
21 THE COURT: WHAT DID YOU CONCLUDE?
22 THE WITNESS: I CONCLUDED THAT CHAMBERLAIN WAS RIGHT
23 RATHER DECISIVELY ACTUALLY.
24 THE COURT: CAN YOU BRIEFLY SUMMARIZE WHY?
25 THE WITNESS: WELL, IT'S A STATISTICAL STUDY AND
1587
ROSSE - DIRECT / CONNELL
1 REQUIRES FORMULATION OF THIS PROBLEM IN A MATHEMATICAL FORM
2 THAT I'M AFRAID I CAN'T GIVE YOU VERY BRIEFLY.
3 THE COURT: OKAY.
4 BY MR. CONNELL:
5 Q. DR. ROSSE, LET ME TURN TO YOUR APPEARANCES AND FOR THAT
6 PURPOSE I'D LIKE YOU TO START AT PAGE 6, I THINK. YES, SIR, IF
7 YOU COULD TURN TO PAGE 6 OF YOUR APPEARANCES.
8 AND CAN YOU TELL ME WHICH ITEM ON THIS PAGE IS THE
9 FIRST APPEARANCE WHERE THE ISSUES INVOLVED NEWSPAPERS?
10 A. IT'S NUMBER 29, KNUDSEN VERSUS DAILY REVIEW.
11 Q. ALL RIGHT, SIR. PRIOR TO THE TIME YOU ENTERED -- YOU
12 APPEARED IN THAT CASE AND GAVE ORAL TESTIMONY, HAD YOU BEEN
13 ASKED BY PERSONS EARLIER THAN THAT IF YOU WOULD PROVIDE EXPERT
14 TESTIMONY ON ECONOMIC ISSUES RELATING TO NEWSPAPERS?
15 A. YES, I HAD.
16 Q. WAS ONE OF THOSE REQUESTED APPEARANCES HAVING TO DO WITH
17 THE NEWSPAPER PRESERVATION ACT?
18 A. YES. I WAS ASKED IF I WANTED TO -- I WOULD BE WILLING TO
19 PROVIDE TESTIMONY THERE.
20 Q. DID YOU?
21 A. NO, I DID NOT.
22 Q. WAS IT A FINANCIALLY-ATTRACTIVE OFFER?
23 A. YOU BETTER BELIEVE IT. I WAS A STARVING ASSISTANT
24 PROFESSOR.
25 Q. WHY DIDN'T YOU DO IT? WHY DIDN'T YOU TAKE THE JOB?
1588
ROSSE - DIRECT / CONNELL
1 A. MY RESEARCH IN THE NEWSPAPERS WAS STILL IMMATURE. I
2 HADN'T FINISHED MY WORK. I WASN'T SATISFIED WITH WHERE I WAS,
3 AND I DIDN'T WANT TO PUT MYSELF IN A POSITION WHERE I WOULD BE
4 FORMING OPINIONS PREMATURELY, AND SO I STAYED AWAY.
5 I WAS ASKED ALSO TO APPEAR IN SOME LITIGATION AND
6 FOR THE SAME REASON DID NOT APPEAR.
7 Q. DR. ROSSE, STARTING IN 1965 AND MOVING FORWARD I SUPPOSE
8 TO THE PRESENT DAY, HAVE YOU UNDERTAKEN TO KEEP ADVISED OF WHAT
9 IS HAPPENING IN THE NEWSPAPER BUSINESS, PARTICULARLY IN THE
10 DAILY NEWSPAPER BUSINESS?
11 A. PRETTY MUCH SO, YES. IT'S BEEN AN IMPORTANT PART OF MY
12 LIFE.
13 Q. DO YOU KEEP TRACK OF NEWSPAPER CLOSINGS?
14 A. YES.
15 Q. DO YOU KEEP --
16 A. DURING THE YEARS THAT I WAS AT STANFORD AND MAINTAINING AN
17 ACTIVE RESEARCH PROGRAM, THAT WAS A PART OF MY RESEARCH TO DO
18 SO, TO KEEP TRACK OF WHAT WAS GOING ON IN THE INDUSTRY.
19 THEN AFTER THAT I BECAME -- WHEN I BECAME PRESIDENT
20 OF THE FREEDOM, OF COURSE IT WAS NOT ONLY INTERESTING TO ME BUT
21 IT WAS A PART OF MY JOB AS A CEO OF FREEDOM TO KEEP TRACK OF
22 WHAT WAS GOING ON IN THE INDUSTRY.
23 Q. DR. ROSSE, COULD YOU LOOK AT ITEM 27 ON THIS PAGE --
24 A. YES.
25 Q. -- WHICH CONCERNS THE APPLICATION BY THE CINCINNATI
1589
ROSSE - DIRECT / CONNELL
1 ENQUIRER, AND SO FORTH, UNDER THE NEWSPAPER PRESERVATION ACT?
2 WAS THAT THE FIRST APPLICATION FILED UNDER -- THE
3 FIRST HEARING HELD UNDER THE NEWSPAPER PRESERVATION ACT FOR
4 APPROVAL OF A JOA?
5 A. I BELIEVE IT WAS.
6 Q. AND DID YOU PROVIDE TESTIMONY IN THAT HEARING ON BEHALF OF
7 THE NEWSPAPERS?
8 A. YES, I DID.
9 Q. AND WHAT HAPPENED TO THE APPLICATION?
10 A. IT WAS APPROVED AND THE CINCINNATI JOA WAS FORMED.
11 Q. IS THAT JOA STILL IN EFFECT?
12 A. YES, IT IS.
13 Q. LET ME ASK YOU A MORE GENERAL QUESTION. IN THE COURSE OF
14 YOUR TESTIFYING OVER TIME, HAVE YOU UNDERTAKEN FROM TIME TO
15 TIME TO DEFINE NEWSPAPER MARKETS, DEFINE THE MARKETS IN WHICH
16 NEWSPAPERS COMPETE?
17 A. YES. IN VIRTUALLY EVERY APPEARANCE THAT INVOLVES
18 NEWSPAPERS I HAVE TAKEN THE TIME TO LOOK AT THAT PARTICULAR
19 NEWSPAPER AND IDENTIFY THE STRUCTURE OF THE MARKET IN WHICH IT
20 IS EMBEDDED. IT'S AN IMPORTANT PART OF THE ANALYSIS.
21 Q. AND IN DOING THAT -- WELL, LET ME STRIKE THAT.
22 LET ME ASK YOU TO TURN TO PAGE 5 OF YOUR APPEARANCES
23 AND LOOK AT ITEM 25.
24 A. YES.
25 Q. IS ITEM 25 THE ONE THAT YOU MENTIONED RIGHT AT THE START
1590
ROSSE - DIRECT / CONNELL
1 OF YOUR TESTIMONY?
2 A. THAT'S THE ONE, YES.
3 Q. IN THAT CASE, DR. ROSSE, WHAT DID YOU TESTIFY ABOUT?
4 A. I TESTIFIED GENERALLY ABOUT THE ECONOMIC FORCES THAT WERE
5 AT WORK IN SHAPING THE NEWSPAPER INDUSTRY, WHY IT WAS THAT IT
6 WAS VERY DIFFICULT FOR TWO NEWSPAPERS TO SURVIVE IN DIRECT
7 COMPETITION WITH ONE ANOTHER IN URBAN MARKETS AT THAT TIME.
8 I ALSO LOOKED AT THE MARKET IN WHICH THOSE
9 NEWSPAPERS ARE EMBEDDED TO SEE WHETHER OR NOT -- THE EXTENT TO
10 WHICH THEY HAD COMPETITION FROM OTHER MEDIA, AND I LOOKED TO
11 SEE ON WHAT STAGE OF EVOLUTION THAT MARKET WAS.
12 AND I LOOKED AT THE FINANCIAL DATA FROM THOSE
13 NEWSPAPERS TO TRY TO ASSESS WHETHER OR NOT I THOUGHT EITHER OR
14 ANY OF THEM WERE FINANCIALLY UNABLE TO CONTINUE OR FAILING
15 NEWSPAPERS AT THAT TIME.
16 Q. WHAT CONCLUSION DID YOU DRAW ON THAT ISSUE?
17 A. WELL, I CONCLUDED THAT THE EXAMINER -- THAT THE NEWS CALL
18 BULLETIN WAS A LOST CAUSE AND THAT THE EXAMINER WAS ON THE
19 VERGE OF WHAT ECONOMISTS CALL A DOWNWARD SPIRAL AS IT WAS BEING
20 PUSHED -- IT WAS LOSING A LOT OF MONEY. IT WAS AT THE STAGE
21 WHERE IT WAS BEGINNING TO LOSE SIGNIFICANT MARKET SHARE IN
22 TERMS OF ADVERTISING AND READERSHIP TO THE CHRONICLE.
23 THE CHRONICLE WAS NOT MAKING MONEY EITHER, BUT IT
24 WAS CLEARLY MOVING UPWARDS WHILE THE EXAMINER WAS MOVING
25 DOWNWARDS. SO I IDENTIFIED THE EXAMINER AS THE FAILING
1591
ROSSE - DIRECT / CONNELL
1 NEWSPAPER AT THAT TIME.
2 THE COURT: THIS WAS, OF COURSE, THE JOINT OPERATING
3 AGREEMENT THAT IS AT ISSUE IN THIS CASE.
4 THE WITNESS: I UNDERSTAND THAT, YOUR HONOR.
5 THE COURT: BASICALLY WHAT WAS YOUR UNDERSTANDING OF
6 THE CLAIM ASSERTED BY THE PLAINTIFF IN THIS ACTION?
7 THE WITNESS: IN THIS ACTION HERE?
8 THE COURT: IN PACIFIC SUN VERSUS SAN FRANCISCO
9 NEWSPAPERS.
10 THE WITNESS: MY UNDERSTANDING WAS THAT THE
11 PLAINTIFF SAID THAT THE FORMATION OF THE JOA WAS A SHERMAN ACT
12 VIOLATION, THAT IT WAS A FORMATION OF A MERGER IN CONFLICT WITH
13 THE ACT.
14 THE COURT: DID THE CASE GO TO TRIAL?
15 THE WITNESS: SHERMAN OR CLAYTON. I'M NOT SURE
16 EXACTLY HOW IT WAS CAST.
17 THE COURT: DID THE CASE GO TO TRIAL?
18 THE WITNESS: YES, IT DID.
19 THE COURT: AND THE PERIOD OF TIME THAT YOUR
20 ANALYSIS IN THAT CASE COVERED WAS WHAT, SIR?
21 THE WITNESS: THE '50'S UP THROUGH 1965.
22 THE COURT: THANK YOU.
23 THE WITNESS: OR '64, I THINK. I CAN'T REMEMBER THE
24 DATE. I THINK THE '65 DATE.
25 BY MR. CONNELL:
1592
ROSSE - DIRECT / CONNELL
1 Q. LET ME INVITE YOUR ATTENTION TO THE TOP OF THAT SAME PAGE,
2 PAGE 5, AND THERE'S AN ITEM UNITED STATES VERSUS AT&T. YOU
3 PROVIDED TESTIMONY IN THAT CASE, I TAKE IT, DR. ROSSE. COULD
4 YOU TELL THE COURT WHAT WAS THE SUBJECT OF YOUR TESTIMONY IN
5 THE AT&T CASE?
6 A. I WAS CALLED ON BY THE COURT TO PROVIDE TESTIMONY ABOUT
7 ECONOMIES OF SCALE IN THE TELECOMMUNICATIONS INDUSTRY AND WHAT
8 THE AT&T HAD A RIGHT TO BELIEVE ABOUT ITS OWN TECHNOLOGIES AS A
9 RESULT OF THOSE ECONOMIES OF SCALE.
10 Q. IF YOU'LL TURN NOW, SIR, TO PAGE 4, AND I WOULD ASK YOU TO
11 LOOK AT ITEM 20. ITEM 20 IS ORAL TESTIMONY IN THE SEATTLE JOA
12 IS MY ABBREVIATED WAY OF DESCRIBING THAT; IS THAT CORRECT?
13 A. THAT'S CORRECT.
14 Q. AND YOU PROVIDED TESTIMONY ON BEHALF OF THE NEWSPAPERS
15 OWNED BY HEARST AND BY THE SEATTLE TIMES?
16 A. THAT'S CORRECT.
17 Q. AND WHAT DID YOUR -- WHAT WAS THE SUBSTANCE OF YOUR
18 TESTIMONY IN THAT CASE?
19 A. AGAIN, IT WAS A STUDY OF THE MARKETPLACE TO SEE IF THAT
20 MARKETPLACE HAD EVOLVED AS I EXPECTED THAT IT WOULD EVOLVE.
21 IT WAS -- I LOOKED AT THE NEWSPAPERS THEMSELVES,
22 THEIR HISTORY, AND I LOOKED AT THE SITUATION IN WHICH THEY
23 FOUND THEMSELVES AND CAME TO THE CONCLUSION THAT THE POST
24 INTELLIGENCER, WHICH WAS THE HEARST PAPER, WAS A FAILING
25 NEWSPAPER.
1593
ROSSE - DIRECT / CONNELL
1 UNDER THE -- AS AN ECONOMIST I DETERMINED THAT IT
2 WAS A FAILING NEWSPAPER. THE LAWYERS HAD MADE THE ARGUMENT
3 THAT IT WAS A FAILING NEWSPAPER UNDER THE NEWSPAPER
4 PRESERVATION ACT.
5 Q. AND WHAT HAPPENED TO THAT APPLICATION?
6 A. THAT WAS APPROVED AND IS STILL THE JOA TODAY.
7 Q. ALL RIGHT, SIR.
8 IF YOU WOULD TURN OVER TO PAGE 3, ITEM 16 IS
9 DEPOSITION AND ORAL TESTIMONY IN HONOLULU VERSUS HAWAII
10 NEWSPAPER AGENCY, INC. IS THE HAWAII NEWSPAPER AGENCY THE
11 AGENCY FOR THE WHOLE HONOLULU JOA?
12 A. THAT'S CORRECT.
13 Q. AND WHAT WAS THE SUBJECT OF YOUR TESTIMONY IN THAT
14 PROCEEDING?
15 A. THIS WAS ANOTHER -- ANOTHER ACTION IN THIS CASE BROUGHT BY
16 THE CITY AND COUNTY OF HONOLULU.
17 THE HONOLULU JOA HAD BEEN FORMED PRIOR TO THE
18 PASSAGE OF THE NEWSPAPER PRESERVATION ACT AND SO THEY BROUGHT A
19 CASE ON GROUNDS SIMILAR TO THE PACIFIC SUN CASE; NAMELY, THAT
20 THE FORMATION HAD BEEN A VIOLATION OF THE SHERMAN OR CLAYTON
21 ACT. I'M NOT SURE EXACTLY WHICH.
22 MY TESTIMONY, WHICH ALMOST TOOK THE FORM OF ECONOMIC
23 ARCHAEOLOGY SINCE THIS HAD TAKEN PLACE SOME 17 YEARS EARLIER, I
24 HAD TO GO BACK AND RECONSTRUCT WHAT THE MARKET LOOKED LIKE AT
25 THAT TIME AND THE EVENTS OF THAT TIME AND TO FORM AN OPINION AS
1594
ROSSE - DIRECT / CONNELL
1 TO WHETHER OR NOT THE ADVERTISER OR THE BULLETIN OR BOTH WERE
2 FAILING NEWSPAPERS. THOSE WERE THE TWO NEWSPAPERS IN PLACE AT
3 THAT TIME.
4 AND I CAME TO THE CONCLUSION THAT THE ADVERTISER
5 WAS, INDEED, A FAILING NEWSPAPER. IN FACT, IT WAS IN THE
6 THROES OF A DOWNWARD SPIRAL AT THAT VERY TIME. IT WAS SO CLOSE
7 TO BANKRUPTCY THAT IT WAS AMAZING THAT THEY MANAGED TO GET THE
8 JOA PUT TOGETHER BEFORE IT ACTUALLY FAILED.
9 Q. WHAT WAS THE OUTCOME OF THAT CASE?
10 A. FORMED A JOA WHICH IN ONE FORM OR ANOTHER STILL EXISTS
11 TODAY.
12 THE COURT: WHO DID YOU DETERMINE WAS THE FAILING
13 NEWSPAPER IN THAT SITUATION?
14 THE WITNESS: THE ADVERTISER.
15 THE COURT: THE ADVERTISER.
16 BY MR. CONNELL:
17 Q. NOW, IF YOU'LL TURN TO THE FIRST PAGE OF YOUR APPEARANCES,
18 DR. ROSSE, ITEM 4 IS ENTITLED "THE APPLICATION OF THE DETROIT
19 NEWS AND THE DETROIT FREE PRESS FOR APPROVAL OF A JOINT
20 OPERATING AGREEMENT."
21 YOU GAVE TESTIMONY IN THAT PROCEEDING?
22 A. YES, I DID.
23 Q. TO WHAT EFFECT, SIR?
24 A. AGAIN, IT WAS A RATHER CAREFUL STUDY OF IN THIS CASE A
25 VERY LARGE URBAN MARKETPLACE AND OF THE NEWSPAPERS IN
1595
ROSSE - DIRECT / CONNELL
1 COMPETITION WITHIN THAT MARKETPLACE AND OF THE HISTORY, THE
2 EVOLUTION OF THOSE NEWSPAPERS IN THAT COMPETITION.
3 IT ALSO INCLUDED A RATHER CLOSE LOOK AT BOTH OF
4 THOSE NEWSPAPERS TO FORM AN OPINION AS TO WHETHER I THOUGHT
5 THEY WERE CAPABLE OF SURVIVING INDEPENDENTLY.
6 AT THAT TIME BOTH NEWSPAPERS WERE LOSING MONEY AT A
7 VERY LARGE RATE, VERY MASSIVE AMOUNTS OF MONEY; AND AFTER
8 LOOKING AT IT RATHER CLOSELY, I CAME TO THE CONCLUSION THAT THE
9 FREE PRESS WAS THE LIKELY EXITER OF THAT MARKET. UNLESS
10 SOMETHING WERE DONE, THEN THE KNIGHT-RIDDER HAD NO CHOICE BUT
11 TO CLOSE THAT PAPER UNLESS A JOA WERE FORMED, AND I SO
12 TESTIFIED.
13 Q. WHAT WAS THE OUTCOME OF THAT APPLICATION?
14 A. THE OUTCOME OF THAT CASE WAS ULTIMATELY THAT A JOA WAS
15 APPROVED AND STILL EXISTS TODAY.
16 Q. DETROIT, SEATTLE AND CINCINNATI ARE THE ONLY THREE
17 INSTANCES WHERE THERE'S BEEN A HEARING UNDER THE NEWSPAPER
18 PRESERVATION ACT; IS THAT RIGHT?
19 A. I DON'T KNOW THAT THOSE ARE THE ONLY THREE. I THINK IT
20 IS. THEY'RE CERTAINLY THE ONLY THREE I WAS INVOLVED IN.
21 Q. DR. ROSSE, WHEN WERE YOU RETAINED TO CONSULT WITH HEARST
22 OR WITH MY LAW FIRM ON BEHALF OF HEARST IN THIS PROCEEDING --
23 IN THIS --
24 A. SOMETIME --
25 Q. -- NOT IN THIS PROCEEDING, BUT WHEN RELATIVE TO ISSUES
1596
ROSSE - DIRECT / CONNELL
1 ARISING UNDER THE PROPOSED ACQUISITION OF THE CHRONICLE BEFORE
2 THIS CASE EXISTED, WHEN WERE YOU FIRST RETAINED?
3 A. SOMETIME MID-OCTOBER OF 1999.
4 Q. AND THAT WAS --
5 THE COURT: LET ME INTERRUPT YOU JUST LONG ENOUGH,
6 MR. CONNELL.
7 MR. CONNELL: YES.
8 THE COURT: SINCE YOU BROUGHT UP THE FACT THAT IN
9 DETROIT, SEATTLE AND CINCINNATI THERE WERE HEARINGS BEFORE AN
10 ADMINISTRATIVE LAW JUDGE --
11 MR. CONNELL: YES.
12 THE COURT: -- I ASSUME THAT THERE WAS A WRITTEN
13 DECISION.
14 MR. CONNELL: OH, YES, SIR. YES, SIR.
15 THE COURT: ARE THOSE DECISIONS IN ANY OF THE
16 MATERIALS THAT HAVE BEEN SUBMITTED?
17 MR. CONNELL: ANY OF THE --
18 THE COURT: MATERIALS THAT HAVE BEEN SUBMITTED HERE.
19 MR. CONNELL: GOOD QUESTION, JUDGE. THEY CERTAINLY
20 CAN BE. IN EACH OF THOSE SITUATIONS WHAT YOU WILL HAVE, YOUR
21 HONOR, IS IT'S A HEARING, AN ADMINISTRATIVE PROCEEDING UNDER AN
22 ADMINISTRATIVE LAW JUDGE.
23 THE COURT: CORRECT.
24 MR. CONNELL: SO YOU'LL HAVE A DECISION OF THE
25 ADMINISTRATIVE LAW JUDGE -- EXCUSE ME, A RECOMMENDED DECISION
1597
ROSSE - DIRECT / CONNELL
1 OF THE ADMINISTRATIVE LAW JUDGE RECOMMENDED TO THE ATTORNEY
2 GENERAL AND YOU WILL HAVE OTHER THINGS, PARTIES FILING COMMENTS
3 ON IT AND SO FORTH, AND THEN YOU WILL HAVE AN OPINION AND ORDER
4 OF THE ATTORNEY GENERAL. IN EACH OF THOSE CASES YOU'LL HAVE
5 SUBSEQUENT LITIGATION AS WELL. AS A MATTER OF FACT, YOU DID
6 HAVE SUBSEQUENT LITIGATION.
7 SO ALL OF THOSE THINGS ARE AVAILABLE AND CAN BE
8 PROVIDED YOUR HONOR, AND I WONDER WHAT YOUR PLEASURE IS.
9 THE COURT: DID THE LITIGATION RESULT IN PUBLISHED
10 OPINIONS?
11 MR. CONNELL: YES, SIR. YES, SIR.
12 THE COURT: IN EACH OF THE THREE CASES?
13 MR. CONNELL: YES, SIR. IN THE CASE OF CINCINNATI I
14 THINK IT WAS DISTRICT COURT ONLY. IN THE CASE OF BOTH DETROIT
15 AND SEATTLE THERE ARE COURT OF APPEALS DECISIONS. INDEED, THE
16 ONLY DECISION MENTIONED BY DR. COMANOR WHEN HE WAS ON THE STAND
17 WAS THE PI DECISION IN THE NINTH CIRCUIT.
18 THE COURT: OKAY.
19 MR. CONNELL: BUT THERE'S THE D. C. COURT OF APPEALS
20 HAS A RATHER LENGTHY OPINION UPHOLDING THE ATTORNEY GENERAL'S
21 APPROVAL OF THE DETROIT JOA APPLICATION; AND, YOUR HONOR, THAT
22 CASE WENT TO THE SUPREME COURT WHICH IT FIRST TOOK IT AND
23 SUBSEQUENTLY AFFIRMED THE LOWER -- THE COURT OF APPEALS BY A
24 4-TO-4 RULING AND NO OPINION.
25 THE COURT: I'M FAMILIAR WITH THE SEATTLE CASE.
1598
ROSSE - DIRECT / CONNELL
1 PERHAPS WE BETTER DO A LITTLE DIGGING ON CINCINNATI.
2 MR. CONNELL: IF YOU'D LIKE TO HAVE ANY OF THE OTHER
3 THINGS FROM THE ATTORNEY GENERAL ON DOWN, WE CAN CERTAINLY
4 PROVIDE THEM.
5 THE COURT: ALL RIGHT. THANK YOU. SORRY FOR THE
6 INTERRUPTION.
7 BY MR. CONNELL:
8 Q. YOU WERE RETAINED IN MID-OCTOBER?
9 A. THAT'S CORRECT.
10 Q. A COUPLE OF WEEKS AFTER YOU HAD RETIRED; IS THAT CORRECT?
11 A. THAT'S CORRECT.
12 Q. ALL RIGHT. I CALLED YOU IN HAWAII. AND YOU'RE IN HAWAII;
13 RIGHT?
14 A. THAT'S CORRECT.
15 Q. SO YOU WERE ORIGINALLY RETAINED TO CONSULT NOT WITH
16 RESPECT TO THIS CASE, WHICH DIDN'T EXIST, BUT WITH RESPECT TO
17 ISSUES ARISING, WHATEVER WOULD ARISE UNDER THE PROPOSED
18 ACQUISITION OF THE CHRONICLE.
19 A. THAT'S CORRECT.
20 Q. AND IN THAT CAPACITY YOU HAVE PROVIDED -- YOU HAVE
21 CONSULTED WITH HEARST AND THEN WITH MY LAW FIRM AND SO FORTH;
22 CORRECT?
23 A. THAT'S CORRECT.
24 Q. FROM WHAT YOU SAID, DOCTOR, I TAKE IT THAT YOU, DR. ROSSE,
25 YOU SPENT A GOOD PART OF TIME STUDYING THE CAUSES OF WHY IT IS
1599
ROSSE - DIRECT / CONNELL
1 THAT COMPETING NEWSPAPERS DISAPPEAR; IS THAT A FAIR STATEMENT?
2 A. THAT WAS THE CENTRAL THRUST OF MY RESEARCH PROGRAM, THAT'S
3 CORRECT.
4 Q. LET ME ASK IF WE COULD LOOK AT EXHIBIT H-1155 -- AH, THERE
5 IT IS -- IN EVIDENCE.
6 MR. HALLING: IT'S NOT IN EVIDENCE.
7 MR. CONNELL: EXCUSE ME?
8 (PAUSE IN PROCEEDINGS.)
9 MR. CONNELL: YOUR HONOR, THIS IS A PART OF THE
10 ECONOMIST, INCORPORATED, REPORT, WHICH IS A LARGE EXHIBIT. 94
11 I THINK IS WHAT THE NUMBER IS. YES, IT'S HEARST 94.
12 THE COURT: 94.
13 BY MR. CONNELL:
14 Q. DR. ROSSE, COULD YOU JUST, BY PICKING SOME YEAR HERE AT
15 YOUR PLEASURE, COULD YOU JUST DESCRIBE WHAT IT IS -- WHAT KIND
16 OF INFORMATION THIS CHART DEPICTS?
17 A. THIS IS A TABULATION OF THE NUMBER OF CITIES IN THE UNITED
18 STATES THAT HAVE DAILY NEWSPAPERS. THAT'S THE TOP LINE, THE
19 RED LINE IN THE COLORED CHART. AND IT SHOWS FROM THE YEARS
20 1910 THROUGH 2000 THAT THAT NUMBER OF CITIES HAS GROWN SOMEWHAT
21 BUT IT'S FLATTENED OUT AND PERHAPS DECLINED A LITTLE BIT IN THE
22 LAST COUPLE OF DECADES.
23 BUT THAT'S WHAT THE OVERALL -- I THINK OF THAT AS A
24 BASELINE, SO TO SPEAK, OF THE NUMBER OF CITIES THAT HAVE AT
25 LEAST ONE DAILY NEWSPAPER FOR -- LOCATED WITHIN THE CONFINES OF
1600
ROSSE - DIRECT / CONNELL
1 THAT CORPORATE CITY.
2 THE YELLOW LINE THAT STARTS AT ABOUT 700 IN 1910 AND
3 DECLINES TO VANISH BY YEAR 2000 OR IS CLOSE TO VANISHING BY THE
4 YEAR 2000 IS THE NUMBER OF CITIES THAT HAVE TWO OR MORE DAILY
5 NEWSPAPER FIRMS LOCATED IN THEM.
6 "FIRM" IN THIS CASE IS DEFINED AS AN INDEPENDENT
7 ENTITY WITHIN THE COMPETITION, THE COMPETITIVE MATRIX OF THAT
8 CITY. SO THAT, FOR INSTANCE, IF GANNETT AND NEW YORK TIMES
9 BOTH HAD OPERATIONS IN THE CITY ALTHOUGH THEY WERE PART OF A
10 MUCH LARGER ENTERPRISE, NEVERTHELESS THEY WOULD BE COMPETITORS
11 WITHIN THAT SAME CITY.
12 SIMILARLY, JOA ENTERPRISES ARE ALSO CLASSED FOR
13 THESE PURPOSES AS SINGLE FIRM -- AS A SINGLE FIRM SINCE THERE'S
14 NO ECONOMIC COMPETITION FOR ADVERTISING OR CIRCULATION.
15 AND SO THAT LOWER LINE, THEN, SHOWS THE NUMBER OF
16 CITIES IN WHICH THERE HAS BEEN MORE THAN ONE DAILY NEWSPAPER
17 STEADILY DECLINING FROM ITS HIGH POINT FROM ABOUT THE TIME OF
18 THE FIRST WORLD WAR TO THE CURRENT LOW POINT, WHICH IS
19 VANISHINGLY SMALL.
20 THE ORANGE LINE THAT LIES ABOVE IT SIMPLY IS A
21 REFLECTION OF THAT; THAT IS, THE NUMBER OF CITIES THAT HAVE A
22 SINGLE DAILY NEWSPAPER FIRM. AND, AS YOU CAN SEE, THAT HAS TO
23 BE THE DIFFERENCE BETWEEN THE TOP LINE AND THE BOTTOM LINE, AND
24 IT GOES UP AND CONVERGES ON THE NUMBER OF CITIES WITH DAILIES.
25 THE MAIN POINT OF THAT IS THAT THE DAILY
1601
ROSSE - DIRECT / CONNELL
1 COMPETITION, DIRECT DAILY COMPETITION AMONG NEWSPAPERS, WAS
2 RELATIVELY COMMON IN THE EARLY PART OF THE LAST CENTURY. IT
3 BEGAN TO DISAPPEAR IN THE SMALLEST CITIES AT AN EARLY STAGE.
4 IT BEGAN TO DISAPPEAR IN THE SMALL COMMUNITIES IN THE '20'S AND
5 '30'S. IN THE LARGER COMMUNITIES IN THE '30'S AND '40'S AND
6 THE CITIES IN THE '50'S AND '60'S, IN THE METROPOLITAN AREA IN
7 THE '70'S AND '80'S. AND IT'S A FACT THAT CULMINATE NOW THAT
8 IN THE TOP 50 CITIES THERE ARE ONLY A HANDFUL OF TOP 50
9 NEWSPAPERS; THAT IS, THERE ARE ONLY A HANDFUL THAT HAVE DAILY
10 NEWSPAPER COMPETITION.
11 Q. WELL, LET'S SEE IF WE CAN SPECIFY THAT. IF WE COULD LOOK
12 AT EXHIBIT H-1153, WHICH IS A CHART LIMITED TO THE TOP 50
13 CITIES. DO YOU SEE THAT, SIR?
14 A. (WITNESS EXAMINES DOCUMENT.) YES.
15 Q. AND THIS WOULD -- THIS PORTRAYS DATA JUST FOR THE 50
16 LARGEST CITIES; IS THAT CORRECT?
17 A. THAT'S CORRECT.
18 Q. AND, AGAIN, YOU HAVE A SEPARATE LINE SHOWING JOINT
19 OPERATING ARRANGEMENTS IN THOSE CITIES. AND, OF COURSE, THIS
20 ONE, THIS CHART HAS A TABLE WITH IT WHERE THE NUMBERS ARE
21 SPELLED OUT SHOWING THAT BETWEEN 1980 AND 1998 THE CITIES WITH
22 COMPETING NEWSPAPERS HAS GONE FROM 16 TO 5.
23 DO YOU KNOW WHAT THE FIVE CITIES ARE THAT ARE LEFT
24 WITH COMPETING NEWSPAPERS?
25 A. AMONG THOSE TOP 50, YES.
1602
ROSSE - DIRECT / CONNELL
1 Q. WHAT ARE THEY?
2 A. NEW YORK CITY, BOSTON, WASHINGTON, D. C., CHICAGO AND
3 DENVER.
4 Q. NOW, I'D LIKE TO FIND, IF I CAN, THE INFORMATION FROM
5 APPENDIX 2 OF THE ECONOMISTS, INCORPORATED, REPORT, WHICH --
6 AH.
7 MR. CONNELL: I'M NOT GOING TO ASK DR. ROSSE TO GO
8 THROUGH EVERY ITEM HERE, BUT I DO HAVE A WAY, YOUR HONOR, OF
9 HAVING HIM SUMMARIZE THAT DATA IF I CAN FIND THAT.
10 THE COURT: THIS IS IN THE --
11 MR. CONNELL: THAT'S IN THE -- THAT'S IN EXHIBIT 94,
12 YOUR HONOR.
13 THE COURT: ALL RIGHT.
14 THE WITNESS: H-1196.
15 THE COURT: 1196.
16 (PAUSE IN PROCEEDINGS.)
17 THE COURT: ARE YOU SURE IT'S IN 94?
18 MR. CONNELL: LET ME -- IF I MAY APPROACH THE
19 WITNESS, YOUR HONOR.
20 (PAUSE IN PROCEEDINGS.)
21 MR. CONNELL: AH, YOU HAVE IT.
22 THE COURT: WHAT'S THE BATES STAMP NUMBER OF THE
23 PAGE?
24 MR. CONNELL: YOUR HONOR, IT LOOKS LIKE 10128.
25 THE COURT: IN EXHIBIT 94?
1603
ROSSE - DIRECT / CONNELL
1 MR. CONNELL: YES, SIR.
2 THE WITNESS: NO.
3 MR. CONNELL: THAT'S WHAT'S UP ON THE SCREEN.
4 THE COURT: WHAT I HAVE AS EXHIBIT 94 IS THE
5 MC ANNENY REPORT PREPARED FOR SUBMISSION TO THE ANTITRUST
6 DIVISION.
7 MR. CONNELL: OH, YOUR HONOR, I APOLOGIZE. I'M
8 ADVISED THAT IT HAS -- OUR NUMBER IS 900. IT'S NOT 94. THEIR
9 NUMBER APPARENTLY IS 94. SO THAT H-900 IS THE DOCUMENT.
10 THE COURT: ALL RIGHT. 94 APPARENTLY IS NOT A
11 COMPLETE COPY OF THE MC ANNENY REPORT.
12 MR. CONNELL: IT'S NOT?
13 THE COURT: ALL RIGHT.
14 MR. CONNELL: 900 IS, YES, SIR.
15 THE COURT: OKAY. THANK YOU. I'M WITH YOU NOW.
16 BY MR. CONNELL:
17 Q. DR. ROSSE, YOU HAVE IN FRONT OF YOU A DOCUMENT THAT'S BEEN
18 MARKED AS 1196; IS THAT RIGHT?
19 A. YES, I DO.
20 Q. AND WHAT IS 1196? IT'S NOT IN EVIDENCE YET, SO I'LL JUST
21 ASK YOU. IS THAT SOMETHING THAT YOU PREPARED?
22 A. YES, I PREPARED THAT. IT WAS BASED ON THE INFORMATION
23 THAT WAS CONTAINED IN APPENDIX 2 OF JOSEPH MC ANNENY'S REPORT.
24 Q. AND THAT WAS AN ATTEMPT BY YOU TO SUMMARIZE THE
25 INFORMATION THAT APPEARS IN THAT?
1604
ROSSE - DIRECT / CONNELL
1 A. YES. I FOUND THAT DIFFICULT TO TRACK IT TO HIS TABLES,
2 AND SO I JUST PUT IT IN A SUMMARY FORM SO I COULD BETTER
3 UNDERSTAND IT.
4 MR. CONNELL: I WILL OFFER 1196, YOUR HONOR.
5 MR. SHULMAN: NO OBJECTION.
6 THE COURT: VERY WELL. 1196 WILL BE ADMITTED.
7 (DEFENDANTS' EXHIBIT 1196
8 RECEIVED IN EVIDENCE)
9 BY MR. CONNELL:
10 Q. DR. ROSSE, COULD YOU JUST DESCRIBE FOR US WHAT YOU'VE DONE
11 HERE? WHAT HAVE YOU TRIED TO PORTRAY?
12 A. WELL, WHAT I'VE DONE IS GO THROUGH THE APPENDIX 2 OF THIS
13 LARGER REPORT AND TABULATE IN THE FIRST CASE ALL OF THE
14 COMPETITIVE CITIES BY NAME IN 1980 AND THEN ALL OF THEM BY NAME
15 IN 1998. AND THEN I USED THE REFERENCE -- THE FOOTNOTE
16 COMMENTS THAT APPEAR SEPARATELY IN THAT APPENDIX TO CREATE THE
17 SECTION THAT'S CALLED "NOTES" THAT EXPLAIN WHAT WENT ON.
18 SO IN 1980 IT SHOWS THAT THERE WERE 16 CITIES OUT OF
19 THE TOP 50 THAT WERE COMPETITIVE AND IT LISTS THEM BY NAME FROM
20 NEW YORK THROUGH AUSTIN, AND THEN IN 1998 IT LISTS THE FIVE
21 THAT I MENTIONED EARLIER: NEW YORK, CHICAGO, WASHINGTON,
22 BOSTON AND DENVER.
23 AND THEN IN THE NOTES IT EXPLAINS WHICH PAPER FOLDED
24 OR TO THE EXTENT THAT IT'S POSSIBLE WHAT HAPPENED. IN SOME
25 CASES A JOA WAS FORMED.
1605
ROSSE - DIRECT / CONNELL
1 Q. ALL RIGHT. SO YOU HAVE JOA CITIES AS WELL?
2 A. THAT'S CORRECT.
3 Q. INCLUDING JOA CITIES WHERE THE JOA ENDED; CORRECT?
4 A. THIS IS A -- THAT'S CORRECT.
5 Q. DR. ROSSE, LOS ANGELES, WHICH IS UP TOWARDS THE TOP OF
6 PAGE 1 OF THIS EXHIBIT, IS LISTED BY YOU AS A CITY WITH NO
7 COMPETING NEWSPAPER; CORRECT?
8 A. THAT'S CORRECT.
9 Q. BUT IS THERE A NEWSPAPER CALLED THE LOS ANGELES NEWS?
10 A. NOT -- WELL, THERE IS A NEWS. LOS ANGELES NEWS IS LOCATED
11 IN THE SAN FERNANDO VALLEY, THAT'S CORRECT.
12 Q. YOU DON'T REGARD THAT AS A LOS ANGELES NEWSPAPER, I TAKE
13 IT?
14 A. NO, IT IS NOT. IT IS NOT DESIGNED TO SERVE THE LARGER LOS
15 ANGELES AREA NOR IS IT LOCATED IN THE CORE OF THE LOS ANGELES
16 MARKET.
17 Q. ALL RIGHT. THIS EXHIBIT ON PAGE 3 -- I'M SORRY, ON PAGE 2
18 HAS A LIST OF CITIES WITH EVENING NEWSPAPERS. AND ASIDE FROM
19 THE JOA CITIES THAT HAVE EVENING NEWSPAPERS, THERE ARE -- WELL,
20 HOW MANY ARE THERE THAT ARE NOT JOA CITIES?
21 A. ON THIS LIST IN 1998 THERE WERE THREE OUT OF THE 50:
22 PHILADELPHIA, INDIANAPOLIS AND ATLANTA.
23 Q. AND ARE THOSE INSTANCES OF ONE OWNER HAVING BOTH A MORNING
24 AND AN EVENING NEWSPAPER?
25 A. THAT'S CORRECT.
1606
ROSSE - DIRECT / CONNELL
1 Q. DR. ROSSE, THE EXHIBITS WE'VE BEEN LOOKING AT SHOW THE
2 DECLINE IN THE NUMBER OF CITIES WITH COMPETING NEWSPAPERS
3 STARTING IN 1910 AND CONTINUING UP TO 1998.
4 DO YOU HAVE AN OPINION AS TO WHY -- WHAT HAS CAUSED
5 THE DECLINE OF COMPETING NEWSPAPERS?
6 A. I CERTAINLY DO.
7 Q. COULD YOU ELUCIDATE -- EXPLAIN THAT TO THE COURT?
8 A. CERTAINLY. THE PRINCIPAL CAUSE, ACTUALLY TWO PRINCIPAL
9 CAUSES, ONE OF THEM HAS ALREADY BEEN ALLUDED TO, NAMELY THE
10 EXISTENCE OF SIGNIFICANT SCALE ECONOMIES. THE SECOND ONE WE
11 HAVEN'T TALKED ABOUT YET, AND THAT IS THE WAVE AFTER WAVE OF
12 NEW MEDIA THAT HAVE COME ON THE SCENE DURING THIS TIME PERIOD
13 BEGINNING WITH EARLY ARRIVAL OF NATIONAL MAGAZINES AROUND THE
14 BEGINNING OF THE LAST CENTURY, THE DEVELOP OF RADIO, THE
15 EXPLOSION OF NATIONAL MAGAZINES DURING THE '30'S, THE
16 DEVELOPMENT OF MAJOR RADIO, NETWORK RADIO IN THE '30'S, THE
17 DEVELOPMENT OF CABLE -- I MEAN, OF BROADCAST TELEVISION IN THE
18 '50'S AND '60'S STARTING ACTUALLY IN THE LATE '40'S BUT IN THE
19 '50'S AND '60'S NAMELY, THE CHANGES IN TECHNOLOGY THAT MADE
20 MORE CHEAPER PRODUCTION POSSIBLE FOR WEEKLIES AND THROW-AWAY
21 PUBLICATIONS AND OTHER SPECIALIZED PUBLICATIONS THAT BEGAN TO
22 APPEAR IN THE '60'S AND '70'S.
23 AND ONE COULD GO ON. THE EMERGENCE OF DIRECT MAIL.
24 THE EMERGENCE OF CABLE TELEVISION. THE EMERGENCE OF INTERNET.
25 THE HISTORY OF COMMUNICATION MEDIA HAS BEEN ONE OF
1607
ROSSE - DIRECT / CONNELL
1 SUCCESSIVE WAVES OF INNOVATION, OF NEW PRODUCTS, OF NEW MEDIA
2 PRODUCTS. A CONSEQUENCE OF THAT FOR NEWSPAPERS IS THAT EACH OF
3 THOSE NEW MEDIAS THAT COME ON LINE FINDS A PLACE IN THE MENU OF
4 CHOICE THAT CONSUMERS AND ADVERTISERS HAVE AVAILABLE TO THEM,
5 AND EACH OF THEM PROVIDES -- HAS SOME COMPARATIVE ADVANTAGE, AT
6 LEAST SOME SEGMENT OF THE MARKET, OF THE OVERALL COMMUNICATION
7 MARKETPLACE, AND IT TAKES UP THAT SPACE.
8 SO, YOU KNOW, AN ALMOST TRIVIAL EXAMPLE AND ONE THAT
9 ONLY HISTORIANS KNOW, IS THAT ONCE UPON A TIME NEWSPAPERS
10 PERFORMED A SOMEWHAT DIFFERENT ENTERTAINMENT FUNCTION THAN THEY
11 DO TODAY BECAUSE THEY PUBLISHED NOVELS. MANY OF THE GREAT
12 NOVELS OF THE LAST CENTURY WERE FIRST PUBLISHED SERIALLY IN
13 NEWSPAPERS BECAUSE THERE WASN'T ANY OTHER WAY TO PUBLISH THEM
14 SHORT OF A BOOK AND NEWSPAPERS WERE IN THE BUSINESS OF
15 ENTERTAINING AND INFORMING. SO THEY PUBLISHED NOVELS.
16 WELL, GUESS WHAT? THERE ARE OTHER MEDIA THAT ARE
17 MUCH BETTER AT PUBLISHING NOVELS THAN NEWSPAPERS ARE, AND SO
18 THAT'S SOMETHING THAT'S DISAPPEARED FROM THE NEWSPAPER ARENA.
19 SIMILARLY, AT ONE TIME PEOPLE REALLY DID LOOK TO
20 NEWSPAPERS FOR POLITICAL OPINIONS MUCH MORE SO THAN THEY DO
21 TODAY, AND PEOPLE WOULDN'T READ A NEWSPAPER IF IT WAS A
22 DEMOCRATIC NEWSPAPER IF THEY WERE REPUBLICAN, OR VICE VERSA; OR
23 THERE WERE LABOR PAPERS AND THERE WERE MANAGEMENT OR, YOU KNOW,
24 UPSCALE PAPERS.
25 THERE WERE A WHOLE VARIETY OF PAPERS THAT WERE
1608
ROSSE - DIRECT / CONNELL
1 DESIGNED FOR SPECIALIZED AUDIENCES THAT AS OTHER MEDIA BECAME
2 AVAILABLE, AS IT BECAME EASIER FOR PEOPLE TO MAKE CHOICES
3 ACROSS OTHER MEDIA, THE RANGE OF SPACE WITHIN WHICH NEWSPAPERS
4 COULD DIFFERENTIATE THEIR PRODUCT SHRANK BECAUSE THEY NO LONGER
5 HAD THE FULL CANVAS, SO TO SPEAK, ON WHICH TO CREATE THEIR
6 PRODUCTS.
7 NOW, AN IMPORTANT COMPONENT OF THIS, OF COURSE, IS
8 THAT NEWSPAPERS ARE THE ULTIMATE DIFFERENTIATED PRODUCT. THERE
9 IS NO SUCH THING AS A GENERIC NEWSPAPER. NEWSPAPERS HAVE TO BE
10 DESIGNED ANEW WITH EACH EDITION, AND SO THEY'RE ENTIRELY --
11 THEY'RE AN ENTIRELY DIFFERENTIATED PRODUCT. AND AS A RESULT,
12 NEWSPAPERS, AS THEY FOUND THE SPACE WITHIN WHICH THEY COULD
13 COMPETE BY DIFFERENTIATION SHRINKING, FOUND THEMSELVES MORE AND
14 MORE COMPETING DIRECTLY WITH ONE ANOTHER FOR ADVERTISING AND
15 FOR READER ATTENTION.
16 AND AS THEY COMPETED MORE DIRECTLY, ECONOMIES OF
17 SCALE BEGAN TO PLAY AN IMPORTANT ROLE AND THAT FORCED
18 NEWSPAPERS INTO COMPETITION, INTO A KIND OF COMPETITION WHERE
19 ONLY THE LARGER ONES COULD SURVIVE.
20 Q. COULD YOU EXPAND ON THAT ECONOMIES-OF-SCALE ISSUE AND TRY
21 AND APPLY IT, LET'S SAY, WITH SOME REFERENCE TO A CITY WITH TWO
22 DAILY NEWSPAPERS, ONE WITH, LET'S SAY, 450,000 CIRCULATION AND
23 THE OTHER WITH MAYBE 107,000 CIRCULATION?
24 A. YES.
25 Q. CALL IT SAN FRANCISCO.
1609
ROSSE - DIRECT / CONNELL
1 THE COURT: NUMBERS YOU JUST PULLED OUT OF THE AIR.
2 BY MR. CONNELL:
3 Q. CALL IT SAN FRANCISCO, IF YOU'D LIKE. BUT COULD YOU JUST
4 ADDRESS THE QUESTION OF HOW THE ECONOMIES OF SCALE WORK IN THAT
5 SETTING?
6 A. WELL, I NEED TO SAY A LITTLE BIT ABOUT WHAT THE SOURCE OF
7 ECONOMIES OF SCALE ARE TO BEGIN WITH.
8 Q. INDEED, YES, SIR.
9 A. THE PRINCIPAL SOURCE OF ECONOMIES OF SCALE ARE WHAT ARE
10 CALLED FIRST COPY COSTS. SINCE THE NEWSPAPER IS CREATED ANEW
11 EACH DAY, IT HAS TO COLLECT THE CONTENT, THE EDITORIAL CONTENT,
12 THE NEWS CONTENT, THE ENTERTAINMENT CONTENT. IT HAS TO COLLECT
13 THE ADVERTISING CONTENT. IT HAS TO CREATE THE PAGES DESIGN AND
14 CREATE THE PAGES THAT THOSE GO ON, AND TO PREPARE THE PLATES TO
15 PRINT THEM.
16 ALL OF THOSE COSTS ARE INCURRED BEFORE A SINGLE COPY
17 IS PRODUCED, AND THAT'S THE REASON THEY'RE CALLED FIRST COPY
18 COSTS.
19 ONCE YOU HAVE CREATED THAT FIRST COPY, YOU CAN
20 REPLICATE IT ANY NUMBER OF TIMES.
21 NOW, AS IT TURNS OUT, THE PROCESSES OF REPRODUCTION
22 AND OF DISTRIBUTION ARE WHAT ARE KNOWN TODAY IN MODERN PARLANCE
23 AS BASICALLY SCALABLE PROCESSES; THAT IS, THERE AREN'T ANY --
24 THERE ARE ECONOMIES OF SCALE BUT THEY'RE NOT VERY PRONOUNCED IN
25 THE REPRODUCTION AND DISTRIBUTION SIDE OF THE BUSINESS.
1610
ROSSE - DIRECT / CONNELL
1 THE PEOPLE WHO FIRST COME TO NEWSPAPERS, STUDY
2 NEWSPAPER ECONOMICS, ARE OFTEN IMPRESSED BY THE HUGE PRESSES
3 AND THE NOISE THEY MAKE AND THE COMPLEX ORGANIZATION AND
4 EVERYTHING ELSE THAT TAKES TO GET A NEWSPAPER OUT TO REPRODUCE
5 IT AND DISTRIBUTE IT, AND THEY THINK OF THAT AS THE SOURCE OF
6 THE ECONOMIES OF SCALE. THAT'S NOT IT AT ALL. IT'S THE COSTS
7 OF CREATING THE PRODUCT ITSELF.
8 NOW, OF COURSE, ALL PRODUCTS HAVE TO BE DESIGNED OR
9 ALL DIFFERENTIATED PRODUCTS; BUT IN THE CASE OF A NEWSPAPER, IT
10 REALLY IS A VERY IMPORTANT COMPONENT OF COSTS. AS MUCH AS 30
11 TO 45 PERCENT OF COSTS ARE ATTRIBUTABLE TO FIRST COPY COSTS.
12 AND, AGAIN, AS I SAY, THOSE CAN GET AMORTIZED OVER
13 ANY NUMBER OF COPIES. WHAT THAT MEANS IS THAT WHEN YOU LOOK AT
14 THE COST OF PRODUCING ADDITIONAL COPIES OF A NEWSPAPER, THERE
15 IS A CONSTANT COST FOR REPRODUCTION AND DISTRIBUTION, SO TO
16 SPEAK, AND A SHARPLY DECLINING COST OF AVERAGE COST OF CONTENT.
17 AND SO THE FARTHER YOU ARE OUT ON THAT CURVE, THE LOWER YOUR
18 COSTS ARE.
19 ASSUMING THAT YOU'RE COMPARING PRODUCTS OF
20 EQUIVALENT QUALITY, THAT IS THE SAME AMOUNT OF EDITORIAL
21 CONTENT, THE SAME NUMBER OF PAGES, EVERYTHING OF EQUIVALENT
22 QUALITY, A NEWSPAPER OF A HUNDRED THOUSAND CIRCULATION IS GOING
23 TO HAVE COSTS VERY, VERY MUCH GREATER THAN, ON A PER-UNIT
24 BASIS, THAN A NEWSPAPER OF 450,000 CIRCULATION. IT'S JUST A
25 LAW OF ECONOMIES OF SCALE. IT'S A FACT. IT'S ONE THAT CAN BE
1611
ROSSE - DIRECT / CONNELL
1 VERIFIED FAIRLY EASILY BY LOOKING ACROSS NEWSPAPERS OF VARYING
2 SIZES.
3 Q. ARE THERE FACTORS THAT DISADVANTAGE AN EVENING NEWSPAPER?
4 A. YES.
5 Q. WHAT ARE THEY?
6 A. EVENING NEWSPAPERS ONCE WERE DOMINANT, STILL HAVE A VERY
7 LARGE NUMBER. MANY OF THE SMALLER NEWSPAPERS ARE IN THE
8 EVENING. BUT, FOR INSTANCE, IN MINNEAPOLIS, WHICH IS THE CITY
9 I LIVED IN FOR MANY YEARS, THE EVENING PAPER WAS ABSOLUTELY THE
10 DOMINANT PAPER IN THE URBAN AREA WITH WELL OVER 300,000
11 CIRCULATION; WHEREAS, THE MORNING PAPER WAS THE SMALLER PAPER
12 WITH ONLY A COUPLE HUNDRED THOUSAND CIRCULATION. THAT WAS BACK
13 IN THE '50'S AND '60'S.
14 ALL THAT BEGAN TO CHANGE WITH THE EVOLUTION OF
15 TELEVISION, CHANGING OF LIFESTYLES. SO THAT DURING THE '70'S
16 THE EVENING PAPER BEGAN TO SUFFER IN COMPETITION WITH OTHER
17 MEDIA.
18 IT REALLY BECAME A SERIOUS MATTER IN THE '80'S,
19 BECAUSE IN THE 1980'S DIRECT MAIL -- TWO THINGS HAPPENED
20 ACTUALLY. DIRECT MAIL AND SUBSTANTIAL GROWTH OF ALTERNATIVE
21 WEEKLY AND SHOPPING PUBLICATIONS BEGAN TO DO A BETTER JOB OF
22 SUPPLYING LOCAL HIGH-DENSITY CIRCULATION FOR GROCERY STORES AND
23 FOR DRUGSTORES AND FOR OTHER KINDS OF ADVERTISING THAT HAD BEEN
24 THE STAPLE OF THE EVENING PAPERS.
25 SO THE EVENING PAPERS WERE LARGELY KILLED BY CHANGE
1612
ROSSE - DIRECT / CONNELL
1 IN LIFESTYLE AND BY DIRECT MAIL AND BY THE NEW WAVE OF
2 RELATIVELY INEXPENSIVE WEEKLIES AND SPECIALIZED PUBLICATIONS
3 THAT EMERGED FROM THE NEW TECHNOLOGIES IN THE '80'S AND '90'S.
4 Q. DR. ROSSE, YOU HAVE IN FRONT OF YOU WHAT'S BEEN MARKED AS
5 EXHIBIT H-1195, THE TITLE OF WHICH IS "LIST OF JOA'S."
6 A. (WITNESS EXAMINES DOCUMENT.) YES, I DO HAVE THAT.
7 Q. OKAY. AND WHAT -- THAT'S NOT YET IN EVIDENCE.
8 MR. HALLING: RIGHT.
9 BY MR. CONNELL:
10 Q. WAS THAT PREPARED UNDER YOUR DIRECTION?
11 A. YES, IT WAS. IT WAS PREPARED BY MY COLLEAGUES AT
12 ECONOMISTS, INCORPORATED.
13 Q. AND WHAT DOES IT PURPORT TO BE? WHAT IS IT, A LIST OF --
14 A. WELL, IT LISTS ALL OF THE JOA'S THAT THEY WERE ABLE TO
15 TRACK DOWN. AS FAR AS I KNOW, IT'S A COMPLETE LISTING OF ALL
16 JOA'S FROM THE BEGINNING OF TIME.
17 Q. AND WITH VARIOUS INFORMATION ABOUT STARTING DATES AND
18 TERMINATION DATES; CORRECT?
19 A. THAT'S CORRECT.
20 MR. CONNELL: I WOULD OFFER 1195.
21 MR. SHULMAN: NO OBJECTION.
22 THE COURT: VERY WELL. 1195 WILL BE ADMITTED.
23 (DEFENDANTS' EXHIBIT 1195
24 RECEIVED IN EVIDENCE)
25 BY MR. CONNELL:
1613
ROSSE - DIRECT / CONNELL
1 Q. DR. ROSSE, IF YOU WOULD LOOK DOWN AT THE -- I'M GOING TO
2 TRY AND PICK OUT THE NUMBER HERE. THE COLUMN HEADED UNDER --
3 OVER TO THE RIGHT THERE IT SAYS "START OF JOA," "TERMINATION,"
4 "SCHEDULE" AND "ACTUAL."
5 A. YES.
6 Q. AND, OF COURSE, UNDER "ACTUAL" I WOULD INVITE YOUR
7 ATTENTION TO, FIRST TO THE ONE LISTED BY -- UNDER CHATTANOOGA,
8 TENNESSEE. DO YOU SEE THERE'S TWO ENTRIES FOR CHATTANOOGA,
9 TENNESSEE.
10 A. YES.
11 Q. CAN YOU EXPLAIN WHY THERE WERE TWO ENTRIES FOR
12 CHATTANOOGA, TENNESSEE?
13 A. WELL, IN CHATTANOOGA THE TIMES AND THE FREE PRESS HAD A
14 JOA WHICH TERMINATED ACTUALLY IN 1966 AND AT THAT TIME
15 MR. MAC DONALD, WHO RAN THE FREE PRESS, THREW THE TIMES OUT AND
16 THEY HAD TO CREATE A PRINTING PLANT OF THEIR OWN. THEY DID
17 PRINT IT FOR SOME YEARS AND ATTEMPTED TO COMPETE AND SURVIVE.
18 AND CONCLUDED ULTIMATELY THAT THEY COULDN'T, AND SO THEY
19 APPLIED FOR AND RECEIVED A JOA. ACTUALLY I THINK THEY FORMED A
20 JOA AND THEN APPLIED FOR IT, IF I REMEMBER CORRECTLY.
21 Q. THAT WAS IN 1980?
22 A. IN 1980.
23 Q. AND THAT JOA HAD A TERMINATION -- SCHEDULED TERMINATION
24 DATE OF 2015?
25 A. YES.
1614
ROSSE - DIRECT / CONNELL
1 Q. AND ACTUALLY CLOSED DOWN IN 1999?
2 A. IT RECENTLY WAS CLOSED DOWN, THAT'S CORRECT. BOTH THE
3 MAC DONALD PAPER AND THE TIMES PAPER -- THE TIMES WAS CLOSED
4 DOWN AND THE MAC DONALD PAPER WAS SOLD TO ANOTHER PARTY.
5 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1615
ROSSE - DIRECT / CONNELL
1 THE COURT: WHAT WAS THE OWNERSHIP OF THESE PAPERS?
2 THE WITNESS: THE MACDONALD PAPER, THE FREE PRESS,
3 WAS LOCALLY OWNED BY A MAN BY THE NAME OF MACDONALD, WHO HAD --
4 I THINK HE HAD SEVERAL OTHER PAPERS, TOO, BUT THIS IS HIS
5 PRINCIPAL PAPER.
6 THE CHATTANOOGA TIMES HAD A RATHER INTERESTING
7 HISTORY BECAUSE THAT WAS OWNED BY MEMBERS OF THE OX FAMILY AND
8 HAD BEEN OWNED SINCE THE 1870'S, AS I UNDERSTAND IT. AND THE
9 OX FAMILY, OF COURSE, IS THE SAME FAMILY THAT ULTIMATELY CAME
10 TO OWN AND CONTROL THE NEW YORK TIMES. SO THESE WERE -- THIS
11 WAS -- THESE WERE RELATIVES OF THE NEW YORK TIMES FAMILY.
12 THE COURT: WHEN THE CHATTANOOGA TIMES RESTARTED AS
13 AN INDEPENDENTLY PUBLISHED PAPER, WAS IT STILL OWNED BY THE OX
14 FAMILY?
15 THE WITNESS: YES, IT WAS.
16 THE COURT: AND THEN DID THEY CONTINUE TO OWN IT?
17 THE WITNESS: YES, THEY CONTINUED TO OWN IT.
18 THE COURT: TO ITS DEMISE?
19 THE WITNESS: UP UNTIL THE TIME IT ULTIMATELY
20 CLOSED.
21 THE COURT: IN 19 -- WELL, LAST YEAR?
22 THE WITNESS: LAST YEAR, CORRECT.
23 THE COURT: ALL RIGHT.
24 BY MR. CONNELL:
25 Q. AND THE CHATTANOOGA TIMES WAS ADOLF OX'S FIRST NEWSPAPER?
1616
ROSSE - DIRECT / CONNELL
1 A. IT WAS, CORRECT.
2 Q. THEN THE NEXT ONE I WOULD LIKE TO DIRECT YOUR ATTENTION TO
3 IS -- EXCUSE ME -- EL PASO, TEXAS. DO YOU SEE THE NUMBER 11
4 EL PASO WITH A SCHEDULED TERMINATION DATE UNDER THE JOA OF 2015
5 AND AN ACTUAL TERMINATION DATE OF 1997?
6 A. YES.
7 Q. AND ARE YOU AWARE OF WHAT HAPPENED IN THAT AGENCY?
8 A. I THINK -- MY RECOLLECTION IS THAT GANNETT BOUGHT OUT
9 SCRIPPS AND CLOSED DOWN THE EVENING PAPER.
10 Q. AND AT THE TIME THAT HAPPENED, THE RELATIVE CIRCULATIONS
11 ARE SHOWN.
12 I TAKE IT, THEY ARE SHOWN HERE AT THE TIME THE
13 JOA -- THE YEAR BEFORE THE JOA WAS SHUT?
14 A. YES. AND THE EVENING PAPER -- WELL, IT DOESN'T SAY THAT
15 IT WAS AN EVENING PAPER, BUT IN FACT IT WAS AN EVENING PAPER.
16 IT WAS QUITE A BIT SMALLER.
17 Q. AND IN -- LET ME SEE. IN KNOXVILLE, TENNESSEE, NUMBER 16,
18 AGAIN, THAT APPEARS TO BE AN EXAMPLE WHERE IT HAD A TERMINATION
19 DATE OF 2005 AND AN ACTUAL TERMINATION IN 1991.
20 DO YOU HAVE ANY ADDITIONAL INFORMATION ABOUT THAT
21 SITUATION, DR. ROSSE?
22 A. YES. YES. THE -- THE SURVIVING PAPER WAS THE SCRIPPS
23 PAPER, THE NEWS-SENTINEL. THE OTHER PAPER, THE KNOXVILLE
24 JOURNAL PAPER, WAS OWNED BY PERSIS CORPORATION, WHICH WAS A --
25 PERSIS CORPORATION WAS THE OWNER, ORIGINAL OWNER, OF THE
1617
ROSSE - DIRECT / CONNELL
1 HONOLULU EXAMINER -- HONOLULU ADVERTISER, ACTUALLY.
2 MY UNDERSTANDING THERE WAS THAT -- THAT THEY --
3 THERE WAS SOME LITIGATION ABOUT THE LIMITS OF THE JOA
4 AGREEMENT, AND THE LITIGATION WAS SETTLED BY SIMPLY SPECIFYING
5 THAT THE -- THAT THE JOA AGREEMENT WOULD HAVE A FINITE TERM, A
6 LIMITED TERM, AFTER THE CLOSE OF THE -- AFTER THE SETTLEMENT OF
7 THE LITIGATION, I THINK, OF 18 MONTHS OR TWO YEARS OR SOMETHING
8 LIKE THAT, AND THAT -- AND THAT DURING THAT TIME PERIOD,
9 MR. TWIG-SMITH, THE OWNER OF PERSIS CORPORATION, TRIED TO SELL
10 IT BUT DIDN'T SUCCEED SO THEY ULTIMATELY HAD TO CLOSE IT DOWN.
11 THE COURT: MR. CONNELL?
12 MR. CONNELL: YES, SIR.
13 THE COURT: COULD YOU ASK THE WITNESS TO CLARIFY
14 OWNER ONE, OWNER -- NEWSPAPER TWO AND SO FORTH?
15 MR. CONNELL: YES, SIR.
16 THE COURT: WELL, MY QUESTION IS, IN EACH OF THESE
17 INSTANCES IS THE SURVIVING NEWSPAPER ONE?
18 THE WITNESS: NOT NECESSARILY.
19 THE COURT: AHA.
20 THE WITNESS: NOT NECESSARILY.
21 MR. CONNELL: IT TURNED OUT TO BE AN ARBITRARY LIST
22 IN THAT RESPECT, YOUR HONOR.
23 THE WITNESS: PRETTY ARBITRARY. I WISH -- I WISH
24 THAT WE'D HAVE HAD MORE TIME TO GET THIS PREPARED. WE COULD
25 HAVE GOTTEN IT A LITTLE BETTER ORGANIZED. I'M SORRY, YOUR
1618
ROSSE - DIRECT / CONNELL
1 HONOR.
2 BY MR. CONNELL:
3 Q. DR. ROSSE, IF YOU WOULD LOOK AT NUMBER -- NUMBER 20,
4 MIAMI, FLORIDA?
5 A. YES.
6 Q. WHICH HAD A SCHEDULED TERMINATION DATE OF THE JOA OF 1996
7 BUT AN ACTUAL EXPIRATION DATE OF 1988.
8 WHAT -- WHAT WAS THE OUTCOME IN MIAMI?
9 A. WELL, THE -- THE -- THE COX OWNED THE EVENING PAPER THERE
10 AND IT WAS CLEARLY A -- DRAGGED ON THE ENTERPRISE, AND SO THEY
11 REACHED AN AGREEMENT WITH KNIGHT RIDDER TO CLOSE IT. IT WAS
12 CLOSED IN 1998 -- IN 1988.
13 Q. AND DID COX HAVE A PARTICIPATION WITH KNIGHT RIDDER
14 THEREAFTER?
15 A. I BELIEVE THEY DO.
16 THE COURT: CAN WE JUST GO THROUGH AND HAVE THE
17 WITNESS IDENTIFY THE SURVIVING PAPERS IN THOSE INSTANCES WHERE
18 A JOINT OPERATING AGREEMENT HAS CLOSED?
19 BY MR. CONNELL:
20 Q. THE SURVIVING PAPER IN MIAMI, SIR, IS WHAT?
21 A. THE MIAMI HERALD.
22 THE COURT: BUT LET'S GO DOWN THE WHOLE LIST.
23 THE SURVIVING PAPER IN ANCHORAGE?
24 THE WITNESS: IT'S THE MCCLATCHY PAPER, THE
25 ANCHORAGE DAILY NEWS.
1619
ROSSE - DIRECT / CONNELL
1 THE COURT: ALL RIGHT. AND IN --
2 THE WITNESS: CHATTANOOGA WE HAVE ALREADY DISCUSSED
3 IS THE FREE PRESS.
4 THE COURT: ALL RIGHT.
5 THE WITNESS: COLUMBUS, IT WAS THE --
6 THE COURT: DISPATCH?
7 THE WITNESS: THE WOLF PAPER. IT DOESN'T CALL IT
8 WOLF PAPER HERE BUT IT'S THE --
9 THE COURT: DISPATCH?
10 THE WITNESS: DISPATCH.
11 THE EL PASO WAS THE -- THE GANNETT PAPER.
12 THE COURT: THE TIMES?
13 THE WITNESS: THE EL PASO TIMES.
14 IN EVANSVILLE I -- I AM TRYING TO REMEMBER EXACTLY
15 WHAT HAPPENED THERE. I BELIEVE THE SURVIVOR IS IN FACT THE
16 EVANSVILLE COURIER, BUT I AM NOT ABSOLUTELY CERTAIN ON THAT.
17 BY MR. CONNELL:
18 Q. IS THE EVANSVILLE COURIER THE ONE THAT IS LISTED AS THE
19 SCRIPPS PAPER?
20 A. YES.
21 Q. IN --
22 A. FRANKLIN OIL I DON'T KNOW ANYTHING ABOUT OTHER THAN --
23 MR. CONNELL: THAT ONE, YOUR HONOR, IS IN THE RECORD
24 IN THIS CASE ALREADY.
25 THE COURT: CORRECT.
1620
ROSSE - DIRECT / CONNELL
1 WHAT ABOUT KNOXVILLE?
2 THE WITNESS: KNOXVILLE? THE SURVIVING PAPER WAS
3 THE SCRIPPS PAPER.
4 BY MR. CONNELL:
5 Q. THE NEWS-SENTINEL?
6 A. THE NEWS-SENTINEL.
7 THE COURT: OKAY. AND LINCOLN?
8 THE WITNESS: I BELIEVE IT WAS THE -- THE STAR, BUT
9 I DON'T KNOW THAT ONE. I DON'T KNOW THAT CASE VERY WELL, IN
10 SPITE OF HAVING LIVED IN NEBRASKA FOR THE FIRST 20 YEARS OF MY
11 LIFE.
12 THE COURT: MIAMI YOU TALKED ABOUT.
13 AND NASHVILLE?
14 BY MR. CONNELL:
15 Q. NASHVILLE.
16 A. NASHVILLE, IN THIS CASE THE -- THE SURVIVING PAPER IS
17 OWNED BY GANNETT. GANNETT, I BELIEVE, HAD THE EVENING PAPER
18 AND BOUGHT -- AND SWITCHED FIELDS AND -- BY BUYING THE MORNING
19 PAPER AND SWITCHED ITS OWNERSHIP TO THE MORNING PAPER AND
20 OFFERED THE EVENING PAPER FOR SALE, AND, IN FACT, IT WAS RUN BY
21 SOMEBODY ELSE FOR SOME YEARS UNTIL IT FINALLY CLOSED DOWN.
22 THE COURT: SO THE SURVIVOR THERE WAS THE
23 TENNESSEAN?
24 THE WITNESS: YES.
25 THE COURT: ALL RIGHT. AND --
1621
ROSSE - DIRECT / CONNELL
1 BY MR. CONNELL:
2 Q. PITTSBURGH?
3 THE COURT: PITTSBURGH.
4 THE WITNESS: PITTSBURGH, THE SURVIVING PAPER IS
5 THE -- IS THE JUNIOR PAPER IN THIS CASE, THE BLOCK PAPER, THE
6 POST GAZETTE.
7 THE COURT: OKAY. SHREVEPORT?
8 BY MR. CONNELL:
9 Q. SHREVEPORT.
10 THE WITNESS: I BELIEVE THAT WAS THE TIMES, THE
11 GANNETT PAPER.
12 THE COURT: WE KNOW ABOUT ST. LOUIS.
13 AND, FINALLY, TULSA?
14 THE WITNESS: ST. LOUIS WAS THE PULITZER.
15 THE COURT: RIGHT.
16 THE WITNESS: AND TULSA WAS THE -- I AM NOT SURE
17 ABOUT TULSA. I AM NOT -- I AM NOT CERTAIN, YOUR HONOR.
18 THE COURT: CAN YOU REFRESH THE WITNESS'
19 RECOLLECTION, MR. CONNELL?
20 MR. CONNELL: YOUR HONOR, I FORGOT.
21 THE COURT: ALL RIGHT. WE WILL FILL IN.
22 MR. CONNELL: THAT'S READILY -- WE CAN GET THAT OUT
23 OF EDITOR AND PUBLISHER ANNUAL YEARBOOK EASILY ENOUGH, YOUR
24 HONOR. I DO APOLOGIZE.
25 THE COURT: ALL RIGHT.
1622
ROSSE - DIRECT / CONNELL
1 BY MR. CONNELL:
2 Q. DR. ROSSE, IS IT SURPRISING TO YOU TO FIND THAT NEWSPAPERS
3 THAT HAVE COMBINED THEIR COMMERCIAL OPERATIONS UNDER A JOINT
4 NEWSPAPER OPERATING ARRANGEMENT NONETHELESS TERMINATE THE
5 OPERATION AND SHUT DOWN ONE OF THE NEWSPAPERS?
6 A. NO.
7 Q. WHY NOT?
8 A. THE WORLD CHANGES AND THE CIRCUMSTANCES UNDER WHICH THEY
9 WERE ORIGINALLY CREATED CHANGE AND THEY NEED TO FIND WAYS TO
10 ADJUST TO THAT CHANGE.
11 THE THING THAT HAS BEEN SURPRISING TO ME IS THE --
12 IS THE SLOWNESS WITH WHICH JOA'S HAVE MADE THOSE ADJUSTMENTS,
13 WHICH CONFIRM MY -- MY VIEW THAT THE JOA ORGANIZATIONAL
14 STRUCTURE IS A PRETTY CLUMSY ONE.
15 MR. CONNELL: YOUR HONOR, THE TULSA WORLD SURVIVED.
16 BY MR. CONNELL:
17 Q. YOU ARE FAMILIAR WITH THE SITUATION IN ST. LOUIS,
18 DR. ROSSE, AND AT THE TIME THAT THE JOA TERMINATED THAT WAS,
19 WHAT, NEWHOUSE AND PULITZER?
20 A. THAT'S CORRECT.
21 Q. DID NEWHOUSE THEREAFTER HAVE A CONTINUING INTEREST WITH
22 PULITZER IN THE PUBLICATION OF THE SURVIVING PAPER?
23 A. YES, THEY DID. THEY CONTINUED TO HOLD THAT, A FINANCIAL
24 INTEREST, AND TO RECEIVE A SHARE OF THE -- OF THE REVENUE, OF
25 THE PROFIT, THAT WAS GENERATED.
1623
ROSSE - DIRECT / CONNELL
1 IT WAS A -- THERE WAS A NEWS ITEM JUST RECENTLY THAT
2 ANNOUNCED THAT -- THAT PULITZER HAD BOUGHT OUT THAT AGREEMENT
3 AT A FAIRLY SUBSTANTIAL SUM, I REMEMBER. A COUPLE HUNDRED
4 MILLION IS MY RECOLLECTION. I DON'T REMEMBER THE EXACT AMOUNT.
5 BUT, IN ANY EVENT, THEY -- UP FROM 19 -- WHENEVER
6 THAT CLOSED WAS '84 UNTIL THE PRESENT TIME THEY'VE -- NEWHOUSE
7 HAS RECEIVED ANNUAL PAYMENTS FROM -- AND WOULD HAVE CONTINUED
8 TO RECEIVE THEM UNTIL THE END OF THE JOA, WHICH I DON'T KNOW
9 WHEN THAT WOULD HAVE BEEN. BUT THE PULITZER HAS BOUGHT OUT
10 THAT INTEREST.
11 Q. ALL RIGHT, SIR.
12 DR. ROSSE, ON THE QUESTION OF MARKETS IN THE MARKETS
13 IN WHICH NEWSPAPERS COMPETE, YOU HAVE HEARD THE TESTIMONY IN
14 THIS COURT OF DR. COMANOR, HAVE YOU NOT?
15 A. YES, I DID.
16 Q. AND YOU HEARD DR. COMANOR TESTIFY THAT THE APPROPRIATELY
17 DEFINED RELEVANT MARKET IN THIS SITUATION CONSISTS OF THE SAN
18 FRANCISCO EXAMINER AND THE SAN FRANCISCO CHRONICLE IN THE CITY
19 OF SAN FRANCISCO.
20 IS THAT -- HAVE I CORRECTLY STATED WHAT DR. COMANOR
21 STATED?
22 A. THAT WAS MY UNDERSTANDING.
23 Q. WHAT DO YOU THINK ABOUT THAT?
24 A. I THINK THAT'S FAR TOO NARROW A DEFINITION FOR PURPOSES OF
25 ANALYZING SUCCESS OR FAILURE OF NEWSPAPERS IN THIS MARKETPLACE.
1624
ROSSE - DIRECT / CONNELL
1 Q. LET ME ASK YOU A SUBSIDIARY QUESTION. YOU HAVE HEARD
2 DR. COMANOR SITE AS A BASIS, ONE OF THE BASES FOR HIS OPINION,
3 SOME COUPLE OF JUDICIAL DECISIONS HE HAD READ WHICH DEFINED THE
4 MARKET THAT WAY; IS THAT RIGHT? YOU HEARD THAT?
5 A. I HEARD -- I HEARD THAT, YES. I SAW IT IN HIS DEPOSITION.
6 Q. IS THAT AN APPROPRIATE BASE FOR AN ECONOMIST'S OPINION?
7 THE COURT: BE CAREFUL.
8 THE WITNESS: IT'S NOT THE BASE I WOULD CHOOSE.
9 BY MR. CONNELL:
10 Q. IS THAT AN APPROPRIATE BASE FOR AN ECONOMIST TO REACH AN
11 OPINION ON MARKET DEFINITION?
12 A. IT'S NOT MY -- IT'S NOT THE BASE I WOULD CHOOSE.
13 Q. WHY NOT?
14 A. WELL, IT SEEMS TO ME THAT IT'S UP TO THE ECONOMIST TO
15 FIGURE OUT THE MARKET THAT HE NEEDS TO UNDERSTAND IN ORDER TO
16 EXPLAIN THE -- WHATEVER PHENOMENON IS AT ISSUE AND THAT IT'S UP
17 TO THE LAWYERS TO DEFINE WHAT'S A RELEVANT MARKET FOR LEGAL
18 PURPOSES, BUT AN ECONOMIST CAN'T REALLY BE HELD TO A LEGAL
19 STANDARD IN THAT REGARD. YOU SIMPLY HAVE TO BE ABLE TO -- TO
20 DEFINE THAT YOURSELF IF YOU ARE GOING TO UNDERSTAND WHAT'S
21 GOING ON.
22 Q. AND IS THAT WHAT YOU DID IN THOSE INSTANCES WHERE YOU HAVE
23 TESTIFIED EITHER IN JOA APPLICATIONS OR IN OTHER COURT
24 PROCEEDINGS -- WHEN YOU HAVE TESTIFIED ABOUT THE DEFINITION OF
25 A NEWSPAPER MARKET, IS THAT WHAT YOU HAVE DONE, YOU HAVE LOOKED
1625
ROSSE - DIRECT / CONNELL
1 AT THE FACTS?
2 A. YES, I HAVE.
3 MR. CONNELL: I WONDER IF WE COULD HAVE PUT UP ON
4 THE SCREEN THE PIE CHART THAT WE SAW THIS MORNING IN FALK'S
5 TESTIMONY. I DON'T REMEMBER THE NUMBER.
6 BY MR. CONNELL:
7 Q. I KNOW THAT YOU DIDN'T PREPARE THIS, DR. ROSSE. BUT YOU
8 WERE HERE WHEN IT WAS TALKED ABOUT IN THE TESTIMONY.
9 DO YOU HAVE AN OPINION AS TO WHETHER OR NOT IT'S
10 APPROPRIATE TO INCLUDE IN A MARKET IN WHICH THE SAN FRANCISCO
11 DAILY NEWSPAPERS OPERATE THE MEDIA THAT ARE LISTED ON THIS --
12 ON THIS CHART?
13 A. ALL OF THOSE MEDIA ARE IN ONE WAY OR ANOTHER COMPETITORS
14 OF -- OF NEWSPAPERS, THAT IS, AS CLASSES OF MEDIA. NOT
15 EVERY -- NOT EVERY UNIT WITHIN EACH CLASSIFICATION OF PERSONS
16 IS -- IS NECESSARILY A COMPETITOR OR A CLOSE COMPETITOR. THEY
17 ARE ALL COMPETITORS AT SOME DISTANCE. SOME OF THEM ARE MORE
18 DISTANT THAN OTHERS. BUT THAT'S THE RIGHT LIST, AND THERE --
19 AND THAT'S -- THAT'S THE PLACE AT WHICH YOU BEGIN -- I WOULD
20 BEGIN TO DEFINE THE OUTER -- OUTER CIRCUMSTANCES OF THE MARKET
21 FOR A NEWSPAPER.
22 Q. DO -- DESCRIBE THE WAYS IN WHICH YOU PERCEIVE THAT DAILY
23 NEWSPAPERS COMPETE WITH BROADCAST T.V. DO THEY COMPETE FOR
24 READERS OR DISTANT VIEWERS?
25 A. THEY COMPETE IN A VARIETY OF WAYS. THE MOST IMPORTANT
1626
ROSSE - DIRECT / CONNELL
1 ONE -- THE MOST IMPORTANT MARKETPLACE FOR -- MARKETPLACES FOR
2 NEWSPAPERS ARE IN FACT ADVERTISING MARKETS. AND THE -- MUCH OF
3 THE MODERN HISTORY OF URBAN NEWSPAPERS COULD NOT BE UNDERSTOOD
4 IF WE DIDN'T UNDERSTAND THAT TELEVISION HAS COME IN AND -- AND
5 TAKEN A VERY LARGE SHARE OF THE NATIONAL ADVERTISING
6 MARKETPLACE AWAY FROM NEWSPAPERS.
7 DOES THAT MEAN THAT NEWSPAPERS NO LONGER COMPETE FOR
8 THOSE NATIONAL ADS? NOT AT ALL. THEY DO COMPETE, AND THAT'S
9 A -- AND THAT'S AN ACTIVE COMPETITION FOR NATIONAL ADVERTISING
10 BY TELEVISION AND BY NEWSPAPERS.
11 I HEARD MR. FALK'S DESCRIPTION OF THE COMPETITION
12 FOR ADVERTISING WITH TELEVISION, AND THAT WAS GENERALLY, I
13 THOUGHT, AN ACCURATE DESCRIPTION.
14 I WOULD GO ON TO SAY, THOUGH, THAT ONE OF THE THINGS
15 THAT HAS HAPPENED IS THAT MORE AND MORE PEOPLE GET THEIR NEWS,
16 THEIR INFORMATION AND THEIR ENTERTAINMENT, FROM TELEVISION
17 AND -- AND READERSHIP OF NEWSPAPERS HAS SUCCESSFULLY --
18 SUCCESSFULLY DECLINED AS MORE -- AS VIEWERSHIP OF TELEVISION
19 HAS INCREASED. SO THERE IS COMPETITION FOR -- FOR THE
20 ATTENTION OF READERS, AS WELL.
21 BUT I WOULD HAVE TO SAY THE ECONOMIC COMPETITION FOR
22 ADVERTISING IS BY FAR THE MOST IMPORTANT.
23 Q. HOW ABOUT CABLE T.V.? IS THAT AN IMPORTANT PART OF THE
24 COMPETITIVE MIX?
25 A. IT'S LESS IMPORTANT BUT IT'S BECOMING MORE IMPORTANT.
1627
ROSSE - DIRECT / CONNELL
1 CABLE TELEVISION IS NATURALLY ABLE TO -- TO TARGET
2 PRETTY NARROW LOCAL MARKETS, WHICH IS ONE OF THE THINGS THAT
3 NEWSPAPERS ARE ABLE TO DO FAIRLY WELL, TOO. AND SO I EXPECT
4 THAT OVER TIME CABLE WILL BECOME MORE COMPETITIVE WITH
5 NEWSPAPERS THAN IT IS NOW, BUT IT'S A -- IT'S A GROWING AREA OF
6 COMPETITION.
7 Q. HOW ABOUT --
8 THE COURT: WHAT KIND OF NEWSPAPER ADVERTISING DOES
9 CABLE TELEVISION COMPETE FOR?
10 THE WITNESS: LOCAL RETAIL AND DISPLAY, LIKE, AUTO
11 ADS, FOR INSTANCE, ARE PRIMED FOR. ENTERTAINMENT IS ANOTHER
12 PRIME CANDIDATE FOR CABLE TELEVISION. SOME REAL ESTATE.
13 THE COURT: THAT WOULD BE CLASSIFIED?
14 THE WITNESS: NO, NOT CLASSIFIED, NEW DEVELOPMENTS.
15 THE COURT: I SEE.
16 THE WITNESS: IT WOULD SHOW UP IN NEWSPAPERS
17 PRIMARILY AS CLASSIFIED ADVERTISING, OR ELSE AS SPECIAL
18 SECTIONS FOR REAL ESTATE ON CABLE TELEVISION, IT SHOWS UP AS --
19 AS, YOU KNOW, LITTLE SPIELS WITH HOW GREAT IT IS TO LIVE IN
20 HIDDEN VALLEY OR WHEREVER.
21 THE COURT: OKAY.
22 BY MR. CONNELL:
23 Q. HOW ABOUT THE INTERNET? IS THAT AN IMPORTANT OR BECOMING
24 AN IMPORTANT PART OF THE COMPETITION?
25 A. YES, IT IS. INTERNET HAS A -- I TALKED A LITTLE BIT
1628
ROSSE - DIRECT / CONNELL
1 EARLIER ABOUT EACH OF THE MEDIA HAVING COMPARATIVE ADVANTAGES.
2 AND ONE OF THE COMPARITIVE ADVANTAGES THAT THE INTERNET HAS IS
3 IT CAN MANAGE LARGE VOLUMES OF DATA FAIRLY EASILY AND GIVE YOU
4 ACCESS FAIRLY EASILY.
5 THAT WORKS VERY WELL FOR CLASSIFIED ADVERTISING,
6 CERTAIN KINDS OF CLASSIFIED ADVERTISING, AND I THINK THAT --
7 THAT THE INTERNET HAS ALREADY BEGUN TO HAVE AN IMPACT ON
8 EMPLOYMENT OR RECRUITMENT ADVERTISING AND ON REAL ESTATE
9 ADVERTISING AND ON AUTO ADVERTISING, AND I THINK IT WILL
10 PROGRESSIVELY HAVE MORE IMPACT. IT'S -- I AGREE WITH MR. FALK.
11 I DON'T THINK IT'S GOING TO TAKE IT ALL AWAY, BUT IT'S,
12 NEVERTHELESS, AN IMPORTANT COMPETITOR.
13 THE BANNER ADS THAT YOU SEE ON THE INTERNET ARE --
14 CAN BE THOUGHT OF AS MINOR IRRITANTS IN THE COMPETITIVE ARENA
15 TRANSPORT. BUT AS IMPORTANT LOCAL PORTALS BEGIN TO DEVELOP,
16 THEY COULD BECOME IMPORTANT MEANS OF ADVERTISING, TOO, BUT THEY
17 AREN'T NOW.
18 Q. ARE FREE CIRCULATION NEWSPAPERS, WHETHER THEY'RE WEEKLY OR
19 DAILY OR WHATEVER -- ARE THEY -- DO THEY COMPETE WITH DAILY
20 NEWSPAPERS IN SAN FRANCISCO FOR ADVERTISING?
21 A. ESPECIALLY IN SAN FRANCISCO THEY DO. THAT IS, IF YOU --
22 IF YOU LOOK AT THE MAP OF -- OF THE BAY AREA, YOU WILL NOTICE
23 THAT -- THAT THE SAN FRANCISCO CHRONICLE, AND TO A LESSER
24 EXTENT THE EXAMINER, COVER A LARGE AREA, AND THEY -- THEY'RE
25 SORT OF A LAYER ABOVE MANY OF THE -- OF THE SUBURBAN NEWSPAPERS
1629
ROSSE - DIRECT / CONNELL
1 THAT LIE OUT IN THE SMALLER COMMUNITIES.
2 IN SAN FRANCISCO ITSELF THERE IS NO LOWER LEVEL
3 NEWSPAPER THAT THEY ARE COMPETING WITH AS A DAILY. BUT,
4 INSTEAD, THERE ARE SOME RATHER VIGOROUS WEEKLIES. AND THOSE
5 WEEKLIES HAVE SHOWN THEMSELVES ABLE TO DO A TERRIFIC JOB OF
6 ADVERTISING CERTAIN KINDS OF ADVERTISING, AND THEY ALSO PROVIDE
7 A FAIR AMOUNT OF BOTH ENTERTAINMENT AND INFORMATION TO -- TO
8 READERS. AND SO THEY'VE -- THEY'VE PLAYED A ROLE.
9 I WOULD SAY THAT WEEKLIES, ALONG WITH DIRECT MAIL,
10 PROBABLY ARE THE PRIMARY REASONS THE EVENING NEWSPAPERS HAVE
11 BEEN -- HAVE BEEN HURT AS HARD AS THEY HAVE.
12 NOW, THE -- IF YOU LOOK AT DAILY NEWSPAPERS, YOU
13 LOOK AT THE WEEKLY NEWSPAPERS, YOU WILL SEE ADS IN BOTH PLACES.
14 THAT IS, SOME GROCERY STORES WILL ADVERTISE BOTH PLACES. AND
15 THAT'S AN INDICATION THAT IN FACT THERE IS SOME TRANSFER BACK
16 AND FORTH.
17 THE WEEKLY NEWSPAPER PHENOMENA, AS WE KNOW IT TODAY,
18 IS CREATED BY THE TREMENDOUS TECHNOLOGY REVOLUTION THAT TOOK
19 PLACE OVER THE PAST 20 TO 30 YEARS IN THE NEWSPAPER INDUSTRY
20 THAT'S MADE THE TYPESETTING AND PAGE MAKEUP AND ALL OF THE
21 PROCESSES OF CREATING A NEWSPAPER CONSIDERABLY CHEAPER. IT
22 MEANS THERE IS RELATIVELY LOW ENTRY INTO THIS BUSINESS AND A
23 LOT OF PEOPLE HAVE ENTERED AND PRODUCED VERY GOOD PRODUCTS.
24 IT HAS ALSO LED TO A LARGE NUMBER OF SPECIALIZED
25 ADVERTISING PUBLICATIONS LIKE AUTO TRADERS AND REAL ESTATE
1630
ROSSE - DIRECT / CONNELL
1 GUIDES AND EMPLOYMENT GUIDES -- LITERALLY DOZENS OR HUNDREDS OF
2 THEM ARE PRODUCED AT VERY LOW COST. AND, OF COURSE, THEY
3 PROVIDE A FOCUSED MEANS OF ADVERTISING THAT, FOR SOME
4 ADVERTISERS, AT LEAST, IS BOTH CHEAPER AND BETTER THAN -- THAN
5 WHAT THEY CAN GET IN THE DAILY NEWSPAPER.
6 Q. HOW ABOUT THE SAN JOSE MERCURY? DOES IT COMPETE WITH THE
7 SAN FRANCISCO EXAMINER AND CHRONICLE? YES OR NO?
8 A. YES.
9 Q. IN WHAT WAY?
10 A. WELL, IT'S -- IT'S COMPETING -- SAN JOSE USED TO BE A
11 SUBURBAN OR SATELLITE CITY MARKET THAT LAY UNDERNEATH THE SAN
12 FRANCISCO MARKET, AND THE SAN FRANCISCO MARKET USED TO ACTUALLY
13 INCLUDE THAT AREA AS A -- AS A DOMINANT URBAN NEWSPAPER.
14 SAN JOSE, OF COURSE, HAS BECOME AN URBAN CENTER IN
15 ITS OWN RIGHT AND HAS GROWN UP AND BECOME A REGIONAL CENTER.
16 IT'S VYING WITH SAN FRANCISCO NOW FOR -- FOR CIRCULATION AND
17 FOR ADVERTISING UP AND DOWN THE PENINSULA AND QUITE
18 SUCCESSFULLY, I MIGHT ADD. AS SOMEBODY WHO SUBSCRIBED TO THE
19 SAN JOSE MERCURY FOR 27 YEARS, IT'S A -- IT HAS BEEN A VERY
20 SUCCESSFUL NEWSPAPER. IN THAT SENSE IT'S COMPETING FOR
21 ADVERTISING READERSHIP UP AND DOWN THE PENINSULA.
22 THERE IS A LESSER ELEMENT OF COMPETITION FOR
23 NATIONAL ADVERTISING BECAUSE THERE IS AN OVERLAP IN THEIR
24 MARKETS THERE, BUT IT'S NOT AS STRONG AS IT ONCE WAS.
25 Q. DO THE SAN FRANCISCO EXAMINER AND CHRONICLE COMPETE WITH
1631
ROSSE - DIRECT / CONNELL
1 THE SUBURBAN NEWSPAPERS IN WHICH THEY SERVE -- IN THE AREAS IN
2 WHICH THEY SERVE?
3 A. YES, THEY DO.
4 Q. DESCRIBE THAT FOR ME.
5 A. IN EACH CASE I WILL JUST DESCRIBE ONE.
6 THE INDEPENDENT JOURNAL IN MARIN COUNTY -- IF YOU
7 ARE A RESIDENT OF MARIN COUNTY, YOU CAN GET EITHER THE
8 EXAMINER -- GET THE CHRONICLE OR THE -- OR THE INDEPENDENT
9 JOURNAL. THE INDEPENDENT JOURNAL WILL NOT DO AS GOOD A JOB ON
10 REGIONAL JOB OR NATIONAL ADVERTISING -- REGIONAL -- REGIONAL
11 NEWS OR NATIONAL NEWS, AND IT WON'T NECESSARILY GIVE YOU THE
12 ADVERTISING THAT -- THAT IS SPECIALIZED TO SAN FRANCISCO. BUT
13 IF YOU'RE -- IF YOU'RE LOCATED IN MARIN COUNTY, YOU MAY NOT
14 CARE. IN FACT, YOU MAY PREFER TO GET THAT BY OTHER MEANS, BY
15 MEANS OF A -- OF A SAN FRANCISCO MAGAZINE OR BY TELEVISION OR
16 BY -- BY INTERNET OR WHATEVER.
17 AND SO IT'S A REAL CHOICE THAT ADVERTISERS -- THAT
18 READERS CAN MAKE BETWEEN TAKING ONE OR THE OTHER OR BOTH. AND
19 INCREASINGLY METROPOLITAN NEWSPAPERS HAVE HAD A PROBLEM IN
20 HOLDING -- GRABBING AND HOLDING THAT LOCAL AUDIENCE. AND THE
21 MAIN REASON FOR IT IS BECAUSE PEOPLE CAN GET THE KINDS OF
22 REGIONAL OR NATIONAL NEWS THAT -- THAT THE REGIONAL NEWSPAPER
23 PROVIDES BY OTHER MEANS.
24 SO, FOR INSTANCE, IN MARIN COUNTY YOU COULD AS WELL
25 KEEP -- SUBSCRIBE TO THE MARIN PAPER AND TO THE NEW YORK TIMES
1632
ROSSE - DIRECT / CONNELL
1 AND TO THE WALL STREET JOURNAL OR TO THE USA TODAY AND NEVER
2 MIND WORRYING MUCH ABOUT THE SAN FRANCISCO PAPERS.
3 THE COURT: WHEN YOU REACH A CONVENIENT BREAKING
4 POINT.
5 MR. CONNELL: SIR?
6 THE COURT: WHEN YOU REACH A CONVENIENT BREAKING
7 POINT.
8 MR. CONNELL: THIS WOULD BE VERY PLEASANT, YOUR
9 HONOR, RIGHT NOW.
10 THE COURT: OKAY. I DON'T MEAN TO --
11 MR. CONNELL: NO, THAT'S FINE.
12 THE COURT: -- INTERRUPT.
13 ALL RIGHT. THEN WHY DON'T WE RECESS UNTIL -- CAN WE
14 BACK AND READY TO GO AT 1:15? IS THAT TOO SHORT A TIME FOR
15 COUNSEL?
16 MR. CONNELL: 1:30, YOUR HONOR?
17 THE COURT: ALL RIGHT. 1:15, COUNSEL, I WILL SEE
18 YOU AT THAT TIME.
19 MR. HALLING: THANK YOU, YOUR HONOR.
20 THE COURT: ALL RIGHT.
21 (LUNCHEON RECESS WAS TAKEN AT 12:15 A.M.)
22 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
23
24
25
1633
ROSSE - DIRECT / CONNELL
1 AFTERNOON SESSION 1:18 P.M.
2 THE COURT: BEFORE WE BEGIN FURTHER EXAMINATION OF
3 THIS WITNESS, THESE REMARKS ARE ADDRESSED TO THE COUNSEL.
4 WE ARE PRESENTLY TRAILING ANOTHER CIVIL CASE WHICH
5 WAS SCHEDULED TO GO OUT IT WAS EITHER THE SAME DAY THAT THIS
6 CASE WENT OUT OR PERHAPS THE FOLLOWING MONDAY. I'M NOT NOW
7 SURE. AND WE ARE SCHEDULING IN A CRIMINAL TRIAL ON MONDAY.
8 NOW, I'LL GIVE THE PARTIES HERE ALL THE TIME THEY
9 NEED AND WANT TO PRESENT THEIR CASE, BUT I WOULD APPRECIATE IT
10 IF YOU WOULD GIVE SOME THOUGHT TO, FIRST, HOW MUCH LONGER WE
11 HAVE IN THIS CASE AND THEN BE IN A POSITION TO DISCUSS WITH ME,
12 EITHER AT THE CLOSE OF PROCEEDINGS TODAY OR TOMORROW, WHAT YOUR
13 THINKING IS WITH REFERENCE TO ARGUMENT AND POSTTRIAL BRIEFS SO
14 THAT I'LL HAVE SOME IDEA OF WHAT SCHEDULE WE NEED TO BE
15 PROCEEDING ON.
16 SO I'M NOT ASKING FOR YOUR RESPONSE TO THESE
17 INQUIRIES NOW. OBVIOUSLY YOU'LL WANT TO CONFER AMONGST YOUR
18 RESPECTIVE TEAMS AND THEN I'D APPRECIATE IT IF YOU EXCHANGE
19 YOUR IDEAS. PERHAPS YOU CAN AGREE ON WHAT WOULD BE AN
20 APPROPRIATE SCHEDULE WITH RESPECT TO ARGUMENT AND CLOSING
21 BRIEFS; BUT, IN ANY EVENT, I RAISE THE SUBJECT BECAUSE I WOULD
22 LIKE SOME INFORMATION FROM YOU ON IT.
23 ALL RIGHT. NOW, BEFORE YOU CARRY ON, MR. CONNELL --
24 MR. CONNELL: YES.
25 THE COURT: -- CAN I EXPLORE A COUPLE OF MATTERS
1634
ROSSE - DIRECT / CONNELL
1 THAT WERE TOUCHED UPON BY THE WITNESS, DR. ROSSE, JUST TO
2 CLARIFY THINGS IN MY OWN UNDERSTANDING?
3 YOU HAVE BEFORE YOU, I BELIEVE, EXHIBITS 1196, 1195;
4 DO YOU NOT?
5 THE WITNESS: I HAVE 1195, YOUR HONOR.
6 THE COURT: SORRY?
7 THE WITNESS: I HAVE 1195.
8 THE COURT: HOW ABOUT 1196? THAT WAS YOUR
9 RECAPITULATION OF APPENDIX 2 IN THE MC ANNENY STUDY.
10 THE WITNESS: YES, I HAVE THAT RIGHT HERE.
11 THE COURT: FIRST ON PAGE 1 OF 3, "COMPETITIVE
12 CITIES," YOU SEE THE REFERENCE TO THE FIRST TABLE "1980-1990"?
13 THE WITNESS: I SEE THAT, YES.
14 THE COURT: UNDER THE NOTE SECTION, WHICH, IF ANY OF
15 THE PAPERS REFERRED TO WERE HEARST-OWNED PAPERS?
16 THE WITNESS: THE HERALD EXAMINER IN LOS ANGELES
17 WAS, NEWS AMERICA IN BALTIMORE WAS, THE LIGHT HAD BEEN IN SAN
18 ANTONIO. HEARST OWNED THE LIGHT BUT SOLD IT OR ACTUALLY BOUGHT
19 THE OTHER PAPER AND THEN TRIED TO SELL THE LIGHT; AND WHEN IT
20 COULDN'T BE SOLD, FOLDED IT.
21 IN SEATTLE THE POST INTELLIGENCER IS A HEARST
22 NEWSPAPER. I BELIEVE THAT'S ALL I KNOW OF.
23 THE COURT: ALL RIGHT. THEN TURNING TO THE NEXT
24 PAGE, I BELIEVE YOU SAID, CORRECT ME IF I MISUNDERSTOOD YOUR
25 TESTIMONY, THAT OF THE CITIES LISTED UNDER THE 1998 COLUMN
1635
ROSSE - DIRECT / CONNELL
1 HAVING EVENING NEWSPAPERS, THE EVENING NEWSPAPERS IN
2 PHILADELPHIA, INDIANAPOLIS AND ATLANTA WERE OWNED BY AND
3 PUBLISHED BY THE SAME FIRM.
4 THE WITNESS: THAT'S CORRECT.
5 THE COURT: AND ALL OF THE REMAINING EVENING
6 NEWSPAPERS WERE PRODUCED BY JOINT OPERATING AGREEMENT --
7 THE WITNESS: THAT'S CORRECT, YOUR HONOR.
8 THE COURT: -- OPERATORS?
9 SO WOULD IT BE FAIR, THEN, TO SAY THAT IN THE TOP 50
10 UNITED STATES CITIES OR 50 LARGEST UNITED STATES CITIES, THERE
11 IS NO EVENING NEWSPAPER THAT IS NOT PUBLISHED EITHER BY THE
12 PUBLISHER OF THE MORNING NEWSPAPER OR PURSUANT TO A JOINT
13 OPERATING AGREEMENT?
14 THE WITNESS: I BELIEVE THAT'S CORRECT, YOUR HONOR.
15 THE COURT: THEN WITH REFERENCE TO EXHIBIT 1195, I
16 ASK YOU TO GO THROUGH THAT EXHIBIT AND TO IDENTIFY THE
17 SURVIVING NEWSPAPERS WHERE A JOINT OPERATING AGREEMENT HAD BEEN
18 TERMINATED.
19 THE WITNESS: (WITNESS EXAMINES DOCUMENT.)
20 THE COURT: LET'S SEE, YOU HAVE TERMINATIONS IN 16
21 OF THE 30 CITIES; IS THAT CORRECT?
22 THE WITNESS: (WITNESS EXAMINES DOCUMENT.) WELL,
23 ONE OF THEM IS UNKNOWN. I COUNT FIFTEEN.
24 THE COURT: OKAY. THE UNKNOWN WOULD BE THE BRISTOL,
25 TENNESSEE, SITUATION?
1636
ROSSE - DIRECT / CONNELL
1 THE WITNESS: YES, SIR.
2 THE COURT: ALL RIGHT. 15 OR POSSIBLY 16
3 TERMINATIONS OUT OF 30?
4 THE WITNESS: THAT'S CORRECT, YOUR HONOR.
5 THE COURT: OF THOSE 15 OR 16, IS IT FAIR TO
6 INTERPRET THIS AS INDICATING THAT IN FOUR OF THOSE INSTANCES
7 THE SMALLER NEWSPAPER SURVIVED; NAMELY, ANCHORAGE, CHATTANOOGA,
8 PITTSBURGH AND ST. LOUIS?
9 THE WITNESS: I BELIEVE THAT THERE ARE CIRCUMSTANCES
10 IN OTHER MARKETS, YOUR HONOR, WHERE THE SMALLER PAPER SURVIVED
11 BY SWITCHING FIELDS, BY MOVING TO THE MORNING.
12 AND THEN EVANSVILLE, ILLINOIS, FOR INSTANCE --
13 EVANSVILLE, INDIANA, SORRY, THE CASE WAS THAT THE SCRIPPS
14 COMPANY WAS IN THE SMALLER PAPER, THE JUNIOR PAPER. THE OWNER
15 OF THE SENIOR PAPER WANTED OUT, AND SO THE SCRIPPS BOUGHT THE
16 SENIOR PAPER AND PUT THE JUNIOR PAPER IN THE HANDS OF A FORMER
17 EMPLOYEE TO OPERATE AS AN INDEPENDENT PAPER DURING THE TERM OF
18 THE -- THE REMAINING TERM OF THE JOA AND CLOSED IT DOWN AT THE
19 END OF THE JOA.
20 THE COURT: SO EVANSVILLE WOULD BE ANOTHER INSTANCE
21 IN WHICH THE SMALLER PAPER SURVIVED; IS THAT CORRECT?
22 THE WITNESS: YES. THERE'S ANOTHER CASE AS WELL,
23 AND THAT'S IN HONOLULU. THE ADVERTISER WAS THE MORNING
24 PAPER -- SORRY, SORRY, THE STAR BULLETIN WAS THE EVENING PAPER.
25 THE ADVERTISER WAS OWNED BY MR. TWIG-SMITH AND THE STAR
1637
ROSSE - DIRECT / CONNELL
1 BULLETIN WAS OWNED BY GANNETT. SOME YEARS AGO GANNETT BOUGHT
2 THE MORNING PAPER, THE ADVERTISER, AND PUT THE EVENING PAPER UP
3 FOR SALE. AND ULTIMATELY IT WAS SOLD TO A COMPANY CALLED
4 LIBERTY WHICH THEN BECAME THE JUNIOR PAPER, AND THAT IS TO THIS
5 DAY.
6 THE COURT: OKAY. AND THAT'S, OF COURSE, LED TO THE
7 CASE THAT WE'VE DISCUSSED IN THIS LITIGATION.
8 THE WITNESS: YES, THAT'S CORRECT, YOUR HONOR.
9 THE COURT: ARE THERE ANY OTHER?
10 THE WITNESS: THOSE ARE ALL THE ONES THAT I'M
11 FAMILIAR WITH, YOUR HONOR.
12 THE COURT: ALL RIGHT. SO SIX OUT OF 15 OR 16
13 INVOLVE INSTANCES IN WHICH THE SMALLER NEWSPAPER WOULD BE THE
14 SURVIVING NEWSPAPER?
15 THE WITNESS: THAT'S CORRECT, IN THE SENSE THAT THE
16 OWNER OF THE SMALLER NEWSPAPER ULTIMATELY ENDED UP OWNING THE
17 SURVIVING NEWSPAPER.
18 THE COURT: AND THAT WOULD BE THE CIRCUMSTANCE HERE?
19 THE WITNESS: YES, IT WOULD BE, YOUR HONOR.
20 THE COURT: ALL RIGHT. THANK YOU, MR. CONNELL.
21 MR. CONNELL: IF I MAY, JUST TO FOLLOWUP ON THAT.
22 Q. ARE YOU SAYING, DR. ROSSE, THAT -- ARE THERE ANY INSTANCES
23 WHERE WHEN THE DUST HAD SETTLED AND THERE WAS ONE NEWSPAPER
24 LEFT, WHERE THAT ONE NEWSPAPER WAS THE SMALLER CIRCULATION
25 PAPER?
1638
ROSSE - DIRECT / CONNELL
1 A. NO. WHEN THE DUST HAS SETTLED, IT'S ALWAYS THE LARGER
2 NEWSPAPER THAT SURVIVES, BUT THE OWNERSHIP MAY CHANGE HANDS. I
3 TOOK THAT TO BE WHAT THE JUDGE WAS ASKING ME ABOUT.
4 THE COURT: FAIR ENOUGH. THANK YOU FOR CLARIFYING
5 THAT. I WAS NOT SUFFICIENTLY PRECISE.
6 BY MR. CONNELL:
7 Q. AND ALONG THE SAME LINES, DR. ROSSE, WAS NASHVILLE
8 MENTIONED IN THIS DISCUSSION OR, TO PUT IT ANOTHER WAY, IS
9 NASHVILLE A SITUATION WHERE THE OWNERS --
10 A. NASHVILLE WAS A CASE WHERE THAT HAPPENED ACTUALLY WHERE
11 GANNETT BOUGHT THE -- SHIFTED FIELDS FROM THE EVENING TO THE
12 MORNING AND ULTIMATELY WAS THE SURVIVOR.
13 Q. ALL RIGHT, SIR.
14 THE COURT: SO THAT WOULD BE SEVEN OUT OF THE 15 OR
15 16; IS THAT CORRECT?
16 THE WITNESS: IF THAT'S YOUR COUNT, YOUR HONOR, I
17 BELIEVE THAT'S CORRECT; BUT WITHOUT GOING BACK AND DOING THEM
18 ALL AGAIN, I'M NOT ABSOLUTELY CERTAIN.
19 THE COURT: OKAY.
20 BY MR. CONNELL:
21 Q. DR. ROSSE, DURING YOUR TESTIMONY BEFORE LUNCH, ONE OF THE
22 THINGS YOU SAID IN DISCUSSING THE DECLINE OF CITIES WITH
23 COMPETING NEWSPAPERS WAS THAT THERE WERE FIVE LEFT AND YOU
24 NAMED NEW YORK, CHICAGO, BOSTON, WASHINGTON AND DENVER. HAS
25 SOMETHING HAPPENED SINCE THE TIME OF YOUR TESTIMONY RELATIVE TO
1639
ROSSE - DIRECT / CONNELL
1 THE SITUATION IN DENVER?
2 A. YES, I BELIEVE SOMETHING HAS.
3 Q. WHAT IS IT?
4 A. I BELIEVE THAT IT'S BEEN ANNOUNCED ONLY A FEW MINUTES AGO
5 THAT THE DENVER NEWSPAPERS ARE SEEKING A JOA, HAVE FILED AN
6 APPLICATION FOR A JOA.
7 Q. YES.
8 THE COURT: WELL, COUNSEL, THERE MAY BE OTHER FISH
9 TO FRY.
10 (LAUGHTER)
11 MR. ALIOTO: WE'RE HEADING OUT TO DENVER, JUDGE.
12 BY MR. CONNELL:
13 Q. AND WITH RESPECT TO THE OTHER FOUR CITIES, DO YOU HAVE ANY
14 INFORMATION ABOUT WHETHER OR NOT IN THOSE CITIES BOTH OR IN THE
15 CASE OF NEW YORK ALL THREE OF THE SURVIVING PAPERS ARE
16 OPERATING PROFITABLY?
17 A. I HAVE SOME INFORMATION ABOUT SOME OF THEM. IN NEW YORK
18 THERE HAVE BEEN PRESS REPORTS THAT THE DAILY NEWS AND THE POST
19 HAVE BEEN IN TROUBLE FROM TIME TO TIME. IN FACT, THAT'S BEEN
20 THE SUBJECT OF A FAIR AMOUNT OF SENSATIONALIST PRESS.
21 I DON'T KNOW TO WHAT EXTENT THEY COULD BE CLASSED AS
22 FAILING NEWSPAPERS. PART OF THE PROBLEM WAS THE NEW YORK
23 PRESS, IT'S A CERTAIN AMOUNT OF VANITY PRESS AND PEOPLE LIKE TO
24 OWN THOSE PAPERS, AND SO --
25 THE COURT: THANK GOODNESS WE LIVE IN SAN FRANCISCO.
1640
ROSSE - DIRECT / CONNELL
1 (LAUGHTER)
2 THE WITNESS: IN CHICAGO THE SUN TIMES HAS BEEN THE
3 WEAKER OF THE TWO NEWSPAPERS THERE FOR DECADES ACTUALLY.
4 HOLLINGER HAS JUST ANNOUNCED THAT IT'S FOR SALE. I DON'T KNOW
5 THE EXACT CIRCUMSTANCES OF THE SALE, BUT HOLLINGER IS SELLING
6 BOTH THE SUN TIMES AND A WHOLE BUNCH OF OTHER NEWSPAPERS.
7 WASHINGTON IS AN INTERESTING CASE BECAUSE THE STAR
8 WAS THE LAST NEWSPAPER THAT COULD BE THOUGHT OF AS A COMMERCIAL
9 NEWSPAPER. THE TIMES IS A VERY EFFECTIVE NEWSPAPER AND A
10 STRONG NEWSPAPER, BUT IT'S VERY HEAVILY SUBSIDIZED BY REVEREND
11 MOON AND HIS ORGANIZATION AND IT HAS BEEN. I THINK THE NEWS
12 PRESS RELEASES HAVE INDICATED A CUMULATIVE SUBSIDY ON THE ORDER
13 OF A VERY LARGE NUMBER.
14 BOSTON I HAVE NO PARTICULAR INFORMATION ABOUT AND
15 DENVER HAS -- DENVER HAS BEEN A VERY RAPIDLY-GROWING MARKET,
16 AND THAT'S HELPED KEEP COMPETITION GOING THERE AS LONG AS IT
17 DID. THAT'S FOR DECADES BEEN A BACK-AND-FORTH MARKET. FIRST
18 ONE IS IN THE LEAD, THEN THE OTHER. AND APPARENTLY NOW THEY'VE
19 DECIDED THAT ONE OF THEM IS DEFINITELY A LOSER.
20 BY MR. CONNELL:
21 Q. IN OTHER WORDS, AN APPLICATION FOR APPROVAL OF A JOA
22 REQUIRES THAT ONE OF THE PAPERS SHOW THAT IT'S A FAILING
23 NEWSPAPER?
24 A. THAT'S CORRECT.
25 MR. CONNELL: YOUR HONOR, MAY I ALSO MENTION ON THE
1641
ROSSE - DIRECT / CONNELL
1 SUBJECT OF INFORMATION ABOUT JOA'S, I'M TOLD THAT IN EVIDENCE
2 IN THIS CASE IS HEARST 959, A LETTER THAT -- OF WHICH I HAPPEN
3 TO BE THE AUTHOR SENT TO THE ANTITRUST DIVISION ON
4 SEPTEMBER 23, 1999. AND I WANTED TO ADVISE THE COURT OF THE
5 FACT THAT IT'S THERE FOR WHATEVER VALUE YOUR HONOR ATTACHES TO
6 IT.
7 THE COURT: I BELIEVE I'VE SEEN IT. NINE FIVE?
8 MR. CONNELL: 959, YOUR HONOR.
9 THE COURT: YES, I HAVE SEEN THIS.
10 BY MR. CONNELL:
11 Q. DR. ROSSE, YOU'D ALREADY TESTIFIED THAT YOU'VE GIVEN
12 TESTIMONY IN THIS COURT IN AN EARLIER CASE SOME YEARS AGO
13 DURING WHICH YOU CONCLUDED THAT THE SAN FRANCISCO EXAMINER WAS
14 A FAILING COMPANY AT THE TIME IT ENTERED INTO A JOA IN 1965; IS
15 THAT CORRECT?
16 A. THAT'S CORRECT.
17 Q. DO YOU HAVE AN OPINION AS TO WHETHER OR NOT TODAY,
18 OPERATED INSIDE THE JOA, THE SAN FRANCISCO EXAMINER IS A
19 FAILING NEWSPAPER?
20 A. YES, I DO.
21 Q. AND WHAT'S YOUR OPINION?
22 A. MY OPINION IS THAT IT IS A FAILING NEWSPAPER INSIDE OF THE
23 JOA.
24 Q. I'M GOING TO INVITE YOUR ATTENTION TO EXHIBIT 1158, WHICH
25 HAS BEEN UP ON THE SCREEN.
1642
ROSSE - DIRECT / CONNELL
1 DR. ROSSE, DO YOU RECOGNIZE THAT AS A SUMMARY TABLE
2 TAKEN FROM A STUDY THAT YOU DID JOINTLY WITH DR. MC ANNENY?
3 A. YES, I DO.
4 Q. AND COULD YOU EXPLAIN TO THE COURT THE STUDY, WHAT IT
5 MEANS, HOW IT WAS DONE AND WHAT THE SIGNIFICANCE IS OF THE
6 CONCLUSION?
7 A. YES. THIS WAS A STUDY CARRIED OUT BY DR. MC ANNENY AND I
8 IN WHICH WE WANTED TO INVESTIGATE THE EXTENT TO WHICH THE
9 CHRONICLE WAS A NET CONTRIBUTOR TO THE OVERALL PROFITABILITY OF
10 THE JOINT OPERATING ARRANGEMENT OF THE JOA.
11 IN ORDER TO CARRY OUT THAT KIND OF AN INCREMENTAL
12 STUDY --
13 Q. YOU MEAN THE EXAMINER?
14 A. I'M SORRY, THE EXAMINER, YES. MY APOLOGIES.
15 Q. YES.
16 A. IN ORDER TO CARRY OUT THAT STUDY, WE TOOK -- MADE USE OF
17 DATA OPERATING RESULTS FOR THE YEAR 1999 FOR THE COMBINED
18 CHRONICLE AND EXAMINER, THE TOTAL JOA OPERATION AS IT EXISTED.
19 THAT DATA WAS ACTUAL NUMBERS THROUGH, I BELIEVE, THE FIRST 10
20 MONTHS AND THEN PRO FORMAS FOR THE BALANCE OF THE YEAR, BUT IT
21 WAS ALMOST A YEAR, CLOSE ENOUGH TO THE ACTUALS THAT WE WERE
22 QUITE COMFORTABLE WITH THAT.
23 AND SO THE FIRST COLUMN OF THIS SHOWS TOTAL REVENUES
24 AT 437 MILLION, TOTAL AGENCY EXPENSES AT 324, TOTAL NON-AGENCY
25 EXPENSES OF 83 FOR A BEFORE -- COMBINED BEFORE-TAX PROFIT FOR
1643
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1 BOTH ENTERPRISES, THAT IS BOTH THE EXAMINER AND CHRONICLE, OF
2 JUST SHORT OF $30 MILLION.
3 THEN WE IMAGINED -- CARRIED OUT THE EXERCISE, THE
4 LOGICAL EXERCISE, OF ASKING WHAT IT WOULD HAVE COST TO HAVE
5 PRODUCED THE CHRONICLE ONLY ON THE ASSUMPTION THAT THE EXAMINER
6 HAD BEEN CLOSED THROUGHOUT THE ENTIRE YEAR.
7 WE CARRIED THAT OUT UNDER TWO ASSUMPTIONS. ONE WAS
8 AN ASSUMPTION THAT 40,000 OF THE EXAMINER'S CIRCULATION WOULD
9 BE SWITCHED TO THE CHRONICLE AND THE SECOND ASSUMPTION WAS THAT
10 20,000 WOULD BE SWITCHED.
11 MY OWN VIEW IS THAT THE 40,000 NUMBER IS THE MORE
12 REALISTIC NUMBER. THE 20,000 IS A TEST TO SEE WHETHER OR NOT
13 IT STILL WORKS. AND, IN FACT, WE CARRIED IT OUT WITH ZERO
14 SWITCH AND GOT EXACTLY THE SAME KINDS OF RESULTS, BUT THAT'S SO
15 FAR OUT OF REASONABLENESS TO MAKE IT IRRELEVANT.
16 WE LOOKED AT WHAT THE CHRONICLE ONLY WOULD HAVE
17 BEEN, AND IN ORDER TO DO THAT WE PRICED THE ADVERTISING IN THE
18 NEW -- IN THE SINGLE CHRONICLE HOLDING THE COST PER THOUSAND OF
19 CIRCULATION FIXED. AND SINCE THAT WOULD HAVE BEEN LESS
20 CIRCULATION THAN THE COMBINED OPERATING BEFORE, THAT MEANT THAT
21 WE WERE IN EFFECT ASSUMING A REDUCTION IN ADVERTISING PRICES.
22 I DON'T HAPPEN TO BELIEVE THAT THAT WOULD -- THAT IS
23 WHAT ACTUALLY WOULD HAVE HAPPENED, BUT WE THOUGHT THAT WAS THE
24 MORE CONSERVATIVE ASSUMPTION TO MAKE.
25 WE ALSO, OF COURSE, COULD NET OUT THE CIRCULATION
1644
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1 REVENUE OF THE EXAMINER, AND THAT LEFT THE EXAMINER -- I MEAN,
2 THE CHRONICLE PUBLISHING BY ITSELF WITH A TOTAL REVENUE OF
3 411 MILLION.
4 WE THEN WENT THROUGH THE ACCOUNTS OF THE AGENCY AND
5 SEPARATED OUT THE OPERATING COSTS OF PRODUCING THE EXAMINER,
6 INCLUDING THE -- ALL COMPONENTS THAT WE COULD IDENTIFY, AND WE
7 DID THAT BY IDENTIFYING POSITIONS, WORK POSITIONS, WITHIN THE
8 ORGANIZATION THAT WOULD NOT BE NEEDED IF YOU WERE GOING TO
9 PRODUCE ONLY THE EXAMINER -- I MEAN, ONLY THE CHRONICLE.
10 SORRY.
11 AND SO WE WENT THROUGH THE ENTIRE SET OF ACCOUNTS
12 WITH THE HELP OF MR. FALK AND SOME OF HIS ASSISTANTS, AND WE
13 CAME UP WITH A NUMBER THAT SAID THAT THE EXPENSES FOR THIS
14 CHRONICLE-ONLY OPERATION WOULD HAVE BEEN 294 MILLION.
15 THAT LEFT -- THEN WE LOOKED AT THE NON-AGENCY
16 EXPENSES. NON-AGENCY EXPENSES, OF COURSE, WOULD HAVE BEEN A
17 LARGER BILL FOR EDITORIAL FOR THE CHRONICLE SINCE IT WAS TAKING
18 OVER A LARGER BURDEN. HOWEVER, THE EXAMINER EDITORIAL WOULD
19 HAVE DISAPPEARED.
20 THE OTHER -- THE CAPITAL COSTS, FOR INSTANCE, WERE
21 CARRIED IN; THAT IS, YOU STILL HAD TO DEPRECIATE, CARRY THE
22 DEPRECIATION OF THE CAPITAL.
23 WE ELIMINATED THE MANAGEMENT COSTS THAT THE EXAMINER
24 HAD FOR MANAGING ITS OWN OPERATION, OTHERWISE WE INCLUDED ALL
25 OF THE CHRONICLE EXPENSES PLUS THE ONES I'VE JUST IDENTIFIED.
1645
ROSSE - DIRECT / CONNELL
1 AND THAT CAME TO A NON-AGENCY EXPENSE TOTAL OF 65 MILLION.
2 THAT ENDED UP GIVING A BEFORE-TAX PROFIT, I BELIEVE
3 CONSERVATIVELY STATED, OF 51 MILLION, ALMOST 52 MILLION.
4 IF YOU SUBTRACT COLUMN TWO FROM COLUMN ONE, YOU GET
5 THE INCREMENTAL EFFECT OF DROPPING THE EXAMINER. AND THAT
6 LITTLE NUMBER THERE SPEAKS FOR ITSELF. YOU SEE A DECLINE IN
7 REVENUE. YOU SEE A LARGER DECLINE IN AGENCY EXPENSES. YOU SEE
8 A SIGNIFICANT DECLINE IN NON-AGENCY EXPENSES.
9 THE RESULT IS, WHEN YOU ADD THOSE ALL UP, IS A
10 POSITIVE NUMBER; THAT IS, THE BEFORE-TAX PROFIT WOULD GO UP BY
11 20 -- ALMOST $22 MILLION AS A RESULT OF NOT HAVING PRODUCED THE
12 EXAMINER.
13 THIS IS -- THIS CONFORMS TO WHAT AN ECONOMIST WOULD
14 THINK OF AS AN INCREMENTAL ANALYSIS, AND THAT'S THE REASON WE
15 CALLED IT THAT.
16 WE ALSO -- I WON'T REPEAT THE NUMBERS, BUT WE DID
17 THE SAME EXERCISE, AS I SAID, FOR 20,000 OF THE EXAMINER
18 CIRCULATION MOVING TO THE CHRONICLE AND WE GOT A
19 17 MILLION-DOLLAR SWING IN PROFITABILITY.
20 Q. WITH THAT ANALYSIS IN MIND, IF THE EXAMINER AND THE
21 CHRONICLE WERE BOTH PUBLISHED BY A SINGLE OWNER, WHAT WOULD IT
22 TELL THAT OWNER TO DO?
23 A. IT WOULD TELL HIM THAT HE WAS BEHIND THE BALL. HE SHOULD
24 HAVE CLOSED IT SOME TIME AGO.
25 Q. DID YOU ALSO -- HAVE YOU ALSO EXAMINED THE QUESTION OF THE
1646
ROSSE - DIRECT / CONNELL
1 RESULTS IF THE EXAMINER WERE OPERATING OUTSIDE THE JOA AS A
2 FULLY, SEPARATE, INDEPENDENT, COMPETING NEWSPAPER?
3 A. YES, IN TWO WAYS. ONE OF THEM I DIDN'T ACTUALLY DO
4 MYSELF. IT WAS DONE BY MR. MC ANNENY, DR. MC ANNENY, AND
5 APPEARED IN HIS -- IN THE ANALYSIS THAT HE PROPOSED.
6 Q. IF WE COULD LOOK AT HEARST 1157.
7 AND IS THIS THE ANALYSIS TO WHICH YOU HAD REFERENCE?
8 A. YES. THIS IS A SUMMARY OF THE MATERIAL THAT'S IN THE
9 LARGER DOCUMENT.
10 Q. AND THIS IS IN THE LONGER REPORT THAT --
11 MR. CONNELL: WELL, I GOT THE NUMBER ON THAT ONE
12 WRONG BEFORE, JUDGE. I DON'T WANT TO TRY AGAIN.
13 MR. HALLING: H-900.
14 MR. CONNELL: I'M SORRY?
15 MR. HALLING: 900.
16 MR. CONNELL: H-900. IT'S PART OF 900. THAT
17 SUMMARY THERE IS PART OF 900.
18 THE COURT: THANK YOU.
19 BY MR. CONNELL:
20 Q. AND JUST EXPLAIN HOW THE ANALYSIS WAS DONE.
21 A. DR. MC ANNENY AND HIS ASSISTANTS WENT THROUGH THE EXERCISE
22 OF TRYING TO COST OUT WHAT IT WOULD COST TO RUN -- TO RUN THE
23 EXAMINER AS A SEPARATE FREE-STANDING ENTITY TAKING INTO ACCOUNT
24 THE PRODUCTION COSTS AND ALL OF THE OTHER COSTS THAT WERE
25 ASSOCIATED, AGAIN WITH THE HELP OF MR. FALK AND HIS OFFICE.
1647
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1 AND THEY CALCULATED THE REVENUES ON, I THINK, PRETTY
2 GENEROUS TERMS. THEY ACTUALLY ASSIGNED REVENUE ON THE BASIS
3 THAT I THOUGHT WAS PRETTY GENEROUS.
4 AND WHEN THEY GOT ALL DONE, THEY GOT THE RESULTS
5 HERE THAT SHOW THE FREE-STANDING EXAMINER WOULD BE LOSING ABOUT
6 $33 MILLION A YEAR; WHEREAS, THE FREE-STANDING CHRONICLE WOULD
7 STILL BE SIGNIFICANTLY PROFITABLE.
8 Q. DR. ROSSE, YOU WERE IN COURT YESTERDAY DURING THE
9 EXAMINATION OF MR. WEAVER; CORRECT?
10 A. UH-HUH. YES, I WAS.
11 Q. AND YOU SAW -- I DON'T KNOW IF IT'S STILL UP ON THE EASEL
12 OR NOT.
13 (PAUSE IN PROCEEDINGS.)
14 BY MR. CONNELL:
15 Q. IT IS. YOU SAW A RECAP OF WHAT MR. REILLY'S EXPERTS HAD
16 CONCLUDED RELATIVE TO THE RESULTS OF OPERATING THE EXAMINER IN
17 FULL COMPETITION WITH THE CHRONICLE.
18 AND IF YOU JUST TAKE A LOOK AT THOSE, I RECOGNIZE
19 THAT THE NUMBERS ARE -- YOU KNOW, THERE'S DIFFERENT NUMBERS
20 THERE, BUT DO YOU REGARD THOSE RESULTS AS CONSISTENT WITH THE
21 RESULTS THAT DR. MC ANNENY REACHED?
22 A. YES, APPROXIMATELY. I THINK ONE OF THE WEAKNESSES OF
23 DR. MC ANNENY'S STUDY IS THAT HE HAS NOT CREATED AN EXAMINER
24 THAT'S LARGE ENOUGH TO COMPETE SUCCESSFULLY OVER THE LONG HAUL
25 WITH THE CHRONICLE, IF THAT'S POSSIBLE. I'M NOT SURE IT'S
1648
ROSSE - DIRECT / CONNELL
1 POSSIBLE TO DO SO.
2 BUT AS A RESULT, HE'S SHOWN A LOWER COST OPERATION
3 THAN SOME OF THESE PEOPLE HAD IN MIND, SO THESE PEOPLE HAD IN
4 MIND A MUCH LARGER OPERATION.
5 Q. OKAY. DR. ROSSE, IS THE TERM "DOWNWARD SPIRAL" ONE THAT'S
6 FAIRLY WELL KNOWN IN THE FIELD IN WHICH YOU OCCUPY?
7 A. YES, IT IS.
8 Q. WHAT DOES IT MEAN AND WHAT'S IT ALL ABOUT?
9 A. WELL, IT'S A -- IT'S SOMETHING THAT COMES OUT OF THE
10 RATHER UNIQUE ECONOMICS OF NEWSPAPER FIRMS THAT HAS CAUGHT THE
11 FANCY OF HEADLINE WRITERS AND LAWYERS.
12 THE COURT: I NOTICE YOU LINK THE TWO.
13 (LAUGHTER)
14 THE WITNESS: I'VE SOMETIMES BEEN CHARGED WITH BEING
15 THE AUTHOR OF IT. IN FACT, I AM NOT. HOWEVER, I'M THE
16 PERSON --
17 BY MR. CONNELL:
18 Q. WHO IS?
19 A. I THINK ACTUALLY JUDGE RENFREW PRETTY MUCH. AT LEAST
20 THAT'S WHERE I FIRST -- THE FIRST TIME I EVER HEARD IT WAS FROM
21 HIS MOUTH.
22 Q. WHAT IS THE DOWNWARD SPIRAL IN THE NEWSPAPER BUSINESS?
23 A. DOWNWARD SPIRAL -- DOWNWARD SPIRAL RECOGNIZES THE FACT
24 THAT AN EQUILIBRIUM AMONG COMPETING NEWSPAPERS CAN BE QUITE
25 UNSTABLE. I'VE ALREADY TOLD YOU THAT IT'S VERY DIFFICULT FOR
1649
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1 TWO NEWSPAPERS TO COMPETE FOR THE SAME MARKET; THAT IS, IF
2 THEY'RE PRODUCING VERY CLOSELY SUBSTITUTABLE PRODUCTS, THE
3 ECONOMIES OF SCALE MAKE IT VERY DIFFICULT FOR THAT MARKET TO
4 SURVIVE -- FOR THAT COMPETITION TO SURVIVE.
5 HOWEVER, IF THEY'RE ABOUT THE SAME SIZE SO THEY BOTH
6 HAVE ABOUT THE SAME COSTS AND UNDER OTHER MARKET CIRCUMSTANCES,
7 THEY CAN IN FACT BOTH CONTINUE TO SURVIVE IN AN EQUILIBRIUM IN
8 THE SENSE THAT THEY'RE BOTH MAKING ENOUGH MONEY TO STAY.
9 THE PROBLEM ARISES IF ONE GETS TO BE SMALLER THAN
10 THE OTHER FOR WHATEVER REASON. BECAUSE OF BAD BUSINESS
11 JUDGMENTS, BECAUSE OF A STRIKE, BECAUSE OF CHANGING MARKET
12 CIRCUMSTANCES, FOR WHATEVER REASONS ONE OF THEM STARTS TO SLIP
13 BEHIND THE OTHER ONE, THEN THE FORCES OF DOWNWARD SPIRAL TAKE
14 PLACE.
15 THE MARKET -- THE EQUILIBRIUM IS NOT A STABLE ONE.
16 AND THE REASON THAT IT'S NOT STABLE IS BECAUSE, AS YOU LOSE
17 ADVERTISING -- AS YOU LOSE CIRCULATION, YOU'LL LOSE
18 ADVERTISING. AND SINCE READERS VALUE ADVERTISING ALMOST AS
19 MUCH AS THEY DO NEWS ACTUALLY, WHEN YOU LOSE ADVERTISING, YOU
20 TEND TO LOSE MORE CIRCULATION. IF YOU LOSE MORE CIRCULATION,
21 YOU LOSE MORE ADVERTISING, AND SO FORTH.
22 THAT'S AN INTERACTIVE PROCESS THAT SOMETIMES HAPPENS
23 PRETTY FAST. I'VE SEEN RECORDS OF CASES WHERE IT HAPPENED
24 WITHIN A MATTER OF MONTHS OR A YEAR. IN OTHER CASES IT TAKES A
25 LONG TIME BECAUSE THE TWO NEWSPAPERS ARE PRETTY EVENLY MATCHED.
1650
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1 BUT THE POINT OF IT IS THAT EQUILIBRIA IN NEWSPAPER
2 MARKETS ARE QUITE UNSTABLE AND THAT IF YOU GET PUSHED AWAY FROM
3 AN EQUILIBRIUM, IT'S VERY HARD FOR THE LOSER IN SUCH AN
4 EXERCISE TO REGAIN THE POSITION OF EQUALITY IN THE MARKETPLACE.
5 HISTORICALLY IN MIDDLE- TO LARGE-SIZE MARKETS ONCE
6 THE NEWSPAPER GETS BELOW ABOUT 40 PERCENT SHARE OF CIRCULATION,
7 CERTAINLY DOWN INTO THE 30'S, WHY, IT'S BEYOND THE POINT WHERE
8 IT'S USUALLY ABLE TO COME BACK. AT THAT POINT THE FORCES OF
9 THE DOWNWARD SPIRAL USUALLY ARE ENOUGH TO DRIVE IT OUT OF
10 BUSINESS ULTIMATELY OR ELSE INTO A JOA OR INTO OTHER SOLUTIONS,
11 OTHER PROBLEMS.
12 Q. AND THAT'S WHAT LED TO THE STATISTICS WE'VE SEEN ABOUT THE
13 DECLINE IN COMPETITIVE CITIES WITH COMPETING NEWSPAPERS, AT
14 LEAST IN PART?
15 A. IN MOST OF THOSE CASES A DOWNWARD SPIRAL TOOK PLACE IN ONE
16 FORM OR ANOTHER. IT'S -- THAT'S JUST THE WAY NEWSPAPERS FAIL.
17 THEY FAIL VERY RAPIDLY.
18 AND, IN FACT, THAT WAS AN ARGUMENT THAT WAS USED TO
19 JUSTIFY THE NEWSPAPER PRESERVATION ACT. PEOPLE OBSERVED THAT
20 NEWSPAPERS FAILED FAIRLY RAPIDLY, AND SO THOSE WHO ADVOCATED
21 THAT ACT, ADVOCATED -- SAID WE NEEDED AN EXCEPTION ON THE
22 FAILING NEWSPAPER -- ON THE FAILING BUSINESS DOCTRINE TO PERMIT
23 NEWSPAPERS TO ACT MORE QUICKLY IN ORDER TO KEEP FROM FALLING
24 INTO THE CLUTCHES OF THE DOWNWARD SPIRAL.
25 Q. ALL RIGHT, SIR. IF THE EXAMINER WERE TO -- SOMEONE WERE
1651
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1 TO UNDERTAKE TO PUBLISH THE EXAMINER AS A METROPOLITAN DAILY
2 NEWSPAPER IN FULL COMPETITION WITH THE CHRONICLE, WOULD THE
3 DOWNWARD SPIRAL KICK IN?
4 A. WELL, THE FORCES OF THE DOWNWARD SPIRAL ARE THERE. IF THE
5 EXAMINER WERE TO BECOME A FULLY-COMPETITIVE NEWSPAPER FACING
6 DIRECTLY THE CHRONICLE, IF IT WERE OF SIMILAR SIZE, IT COULD
7 PERHAPS SURVIVE, ALTHOUGH MOST LIKELY IN THAT CIRCUMSTANCE BOTH
8 OF THEM WOULD BE LOSING MONEY. WHETHER THAT'S AN EQUILIBRIUM
9 OR NOT IS HARD TO SAY. THAT'S A PRETTY FARFETCHED CIRCUMSTANCE
10 AND ONE CAN ONLY CONSTRUCT THE IMAGINATION.
11 MORE THAN LIKELY, IF THE EXAMINER WERE TO BE A PAPER
12 OF ABOUT THE SAME SIZE AS IT IS NOW, MORE OR LESS, AND ATTEMPT
13 TO DO A JOB OF COMPETING FACE TO FACE DIRECTLY AS A
14 METROPOLITAN MORNING NEWSPAPER AGAINST THE CHRONICLE, IT WOULD
15 BE VERY SEVERELY HANDICAPPED BY ITS MUCH SMALLER SIZE ON THE
16 ONE HAND.
17 ON THE OTHER HAND, THE EFFECTS OF THE DOWNWARD
18 SPIRAL WOULD BE PRESENT IN THE SENSE THAT WHENEVER -- WHATEVER
19 MISTAKES WERE MADE OR WHENEVER THAT POSITION WAS DISTURBED AT
20 ALL, THEY WOULD BE PUSHED NOT IN THE DIRECTION OF BECOMING MORE
21 EQUAL BUT BE IN THE DIRECTION OF BEING LESS EQUAL, PUSHING THEM
22 AWAY FROM BEING EQUAL COMPETITORS.
23 Q. LET ME SHOW YOU EXHIBIT H-1160, WHICH PORTRAYS FROM 1990
24 TO 1999 THE EXAMINER NET PAID CIRCULATION.
25 DR. ROSSE, IS THAT A SURPRISING DECLINE IN THE
1652
ROSSE - DIRECT / CONNELL
1 CIRCULATION FOR AN EVENING NEWSPAPER OVER THAT PERIOD OF TIME?
2 A. NO.
3 Q. WOULD YOU EXPECT -- WHAT WOULD YOU EXPECT TO HAPPEN TO
4 THAT LINE THAT CURRENTLY ENDS IN 1999 AS WE GO ON NEXT YEAR,
5 THE YEAR AFTER?
6 A. UNDER WHAT ASSUMPTIONS?
7 Q. UNDER THE ASSUMPTIONS -- I'M SORRY. THAT'S A VERY GOOD
8 QUESTION.
9 (LAUGHTER)
10 Q. BETTER THAN MINE.
11 UNDER THE ASSUMPTION THAT IT'S OPERATING INSIDE THE
12 JOA.
13 A. IT'S GOING TO CONTINUE TO DECLINE. EVENING MARKETS SIMPLY
14 ARE NOT ECONOMIC; AND EVEN THOUGH IT'S APPARENT THAT A FAIR
15 AMOUNT OF MONEY HAS BEEN THROWN AT THIS MARKET IN AN ATTEMPT TO
16 KEEP THE PAPER STRONG, IT'S NOT GOING TO CONTINUE TO DRAW THE
17 KIND OF ADVERTISING OR READERSHIP THAT WILL MAKE IT A STRONG
18 PAPER. IT'S GOING TO LOSE MORE CIRCULATION.
19 Q. DR. ROSSE, FROM YOUR PERSPECTIVE AS AN ECONOMIST, LET'S
20 ASSUME THAT THE TWO CHOICES AVAILABLE WERE TO CONTINUE -- WELL,
21 BEFORE I ASK YOU THAT QUESTION, LET ME ASK YOU A DIFFERENT ONE.
22 LET'S ASSUME HYPOTHETICALLY THAT THE JOA HAS TO
23 CONTINUE UNTIL 2005. THERE'S NO WAY OUT. IT'S GOING TO GO ON.
24 THE TWO PARTIES THAT ARE IN IT ARE GOING TO HAVE TO CONTINUE TO
25 PUBLISH THE CHRONICLE AND THE EXAMINER INSIDE THE JOA AND
1653
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1 EVERYBODY KNOWS THAT 2005 IS THE END OF THE JOA.
2 AS YOU GET CLOSER, AS YOU NEAR 2005, WHAT'S GOING TO
3 HAPPEN TO THE EXAMINER AS FAR AS ITS EMPLOYEES ARE CONCERNED
4 OR --
5 A. WELL, IT WILL FIND IT HARDER AND HARDER TO HOLD ON TO
6 PEOPLE AND PEOPLE WILL BEGIN TO THINK ABOUT ALTERNATIVES FOR
7 READERSHIP. THE ADVERTISERS WON'T BE MUCH AFFECTED SINCE I
8 DON'T THINK THEY PAY MUCH ATTENTION, ALL THAT MUCH ATTENTION TO
9 WHETHER THEIR ADVERTISEMENTS ARE IN THE EXAMINER NOW OR NOT,
10 AND I THINK THEY'RE MAINLY BUYING SPACE IN THE CHRONICLE.
11 SO I WOULD THINK THAT IT WOULD BE HARDER AND HARDER
12 TO MAINTAIN THE QUALITY OF THAT PRODUCT AS THAT TIME COMES ON
13 BECAUSE YOU SIMPLY WON'T BE ABLE TO KEEP THE PEOPLE IN PLACE TO
14 PRODUCE A GOOD PRODUCT.
15 Q. YOU SAID IN THE COURSE OF THAT ANSWER THAT YOU THOUGHT
16 THAT CURRENTLY ADVERTISERS ARE REALLY BUYING THE CIRCULATION OF
17 THE CHRONICLE. WHY DO YOU SAY THAT?
18 A. BECAUSE THAT'S WHERE THE STRONG, UNDUPLICATED ADVERTISING
19 IS. THE FACT THAT THEY GET EXAMINER ADVERTISING, WHICH
20 DUPLICATES TO A LARGE EXTENT THE MORNING NEWSPAPER, IT'S JUST
21 KIND OF A BONUS.
22 THE EXAMINER IS STRONGER IN THE INNER CITY MARKET;
23 THAT IS, YOU KNOW, CLOSER IN. SO IF THEY WANTED TO BUY JUST
24 THE EXAMINER, THEY COULD, AND GET A SLIGHTLY SMALLER MARKET AT
25 SOMEWHAT LESS COST, BUT THEY CHOOSE NOT TO DO THAT. THAT TELLS
1654
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1 ME THAT MOST OF THE ADVERTISERS IN THE CHRONICLE AT THIS STAGE
2 ARE INTERESTED IN THE MARKET AS A WHOLE, AND THAT'S THE MARKET
3 THAT THE CHRONICLE SERVES BEST.
4 Q. LET ME GO BACK TO THE QUESTION THAT I STARTED TO ASK YOU.
5 ASSUME THAT THERE ARE TWO OPTIONS. ONE IS TO CONTINUE THE
6 CURRENT OPERATION OF THE TWO PAPERS WITHIN THE JOINT OPERATING
7 ARRANGEMENT AND THE OTHER IS TO SHUT THE EXAMINER DOWN.
8 FROM YOUR POINT OF VIEW AS AN ECONOMIST, WHAT'S THE
9 APPROPRIATE THING TO DO?
10 A. SPEAKING NOW IN TERMS OF POLICY OR WHAT ECONOMISTS WOULD
11 CALL NORMATIVE ANALYSIS, IT'S CLEAR IN MY MIND THAT IT WOULD BE
12 FAR BETTER THAT EVERYONE, THAT IS -- I DON'T MEAN EVERYONE, BUT
13 CERTAINLY SOCIETY OR THE PEOPLE IN SAN FRANCISCO WOULD BE
14 BETTER OFF IF THE EXAMINER WERE CLOSED DOWN. THAT WOULD LEAVE
15 THE CHRONICLE AS THE LEADING AND DOMINANT PAPER IN THIS
16 MARKETPLACE BUT IT WOULD LEAVE IT IN A MUCH STRONGER POSITION,
17 A POSITION WHERE IT CAN DO A BETTER JOB OF PROVIDING NEWS AND
18 INFORMATION AND ENTERTAINMENT TO THIS MARKETPLACE; AND, MORE
19 IMPORTANTLY, PROVIDING COMPETITIVE LEADERSHIP IN THIS COMMUNITY
20 VIS-A-VIS THE OTHER MEDIA THAT ARE ENCROACHING ON SAN
21 FRANCISCO.
22 I THINK SAN FRANCISCO HAS BEEN UNDERNEWSPAPERED FOR
23 SOME TIME. I DON'T THINK IT HAS AS STRONG A NEWSPAPER AS IT
24 SHOULD HAVE, AND I THINK FRANKLY THE JOA HAS BEEN AT FAULT.
25 THE JOA IS OUTDATED AND SHOULD BY ONE MEANS OR ANOTHER BE
1655
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1 CONVERTED INTO A SINGLE, STRONG DAILY NEWSPAPER THAT CAN DO A
2 MUCH BETTER JOB FOR SAN FRANCISCO THAN THE TWO VOICES NOW.
3 I SOMETIMES FEEL LIKE DARTH VADER, THE DARTH VADER
4 OF DAILY NEWSPAPERS, BECAUSE I'M SO OFTEN CALLED UPON TO
5 PREDICT THE DEMISE OF ONE NEWSPAPER OR ANOTHER.
6 THE TRUTH OF THE MATTER IS THE CAUSE OF THIS OUGHT
7 TO BE A CAUSE FOR CELEBRATION, AND THE CAUSE OF IT ALL IS
8 ENORMOUS GROWTH OF MEDIA CHOICE THAT'S AVAILABLE TO ALL OF US,
9 TO US AS CONSUMERS, AS READERS, AS VIEWERS, AND TO ADVERTISERS.
10 THAT'S WHAT'S CAUSING THE DEMISE OF THE EXAMINER. IT'S NOT
11 ANYTHING OTHER THAN THAT.
12 WE NOW HAVE MUCH MORE CHOICE, AND GIVEN THAT CHOICE
13 WE MAKE OTHER CHOICES. AND IF THIS MARKET IS GOING TO WORK
14 RIGHT, WE SHOULD LET PEOPLE MAKE THOSE CHOICES IN A WAY THAT
15 WILL BEST SERVE THEIR INTERESTS AND THE COMMUNITY'S INTEREST AT
16 LARGE.
17 Q. YOU'RE AWARE THAT HEARST HAS AGREED TO TRANSFER THE
18 EXAMINER TO THE FANG FAMILY TOGETHER WITH A SUBSIDY OVER A
19 PERIOD OF THREE YEARS OF $66 MILLION; CORRECT?
20 A. YES, I AM.
21 Q. ASSUME THAT HAPPENS, ASSUME THAT HEARST BUYS THE CHRONICLE
22 AND EXIN LLC TAKES POSSESSION OF THE EXAMINER AND THE
23 66 MILLION-DOLLAR SUBSIDY.
24 AT THAT POINT IS, FROM YOUR POINT OF VIEW AS AN
25 ECONOMIST, IS THE COMPETITIVE SITUATION IN SAN FRANCISCO BETTER
1656
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1 OR WORSE?
2 A. WELL, THERE WOULD BE MORE NEWSPAPER COMPETITION THAN THERE
3 WAS BEFORE, BECAUSE AT LEAST FOR THREE YEARS NOW THERE WILL BE
4 A DAILY NEWSPAPER THAT WILL PROVIDE AT LEAST SOME COMPETITION
5 FOR THE CHRONICLE.
6 Q. AND UNDER THE JOA WAS THERE ANY COMMERCIAL COMPETITION
7 BETWEEN THEM --
8 A. THERE WAS NONE.
9 Q. -- BETWEEN THE EXAMINER AND THE CHRONICLE?
10 A. THERE WAS NONE.
11 Q. DO YOU HAVE A VIEW AS TO THE LIKELY OUTCOME OF THE
12 EXAMINER UNDER THE OWNERSHIP OF EXIN LLC? WELL, PERIOD.
13 THAT'S A QUESTION MARK THERE. DO YOU HAVE AN OPINION ON THAT?
14 A. YES, I DO.
15 Q. WHAT IS IT?
16 A. I THINK IT WILL NOT -- THE PRODUCT THAT'S PRODUCED WILL
17 NOT BE A FULL-BLOWN DAILY METROPOLITAN COMPETITOR FOR THE
18 CHRONICLE. I THINK THE TESTIMONY THAT I'VE HEARD IN THIS
19 COURTROOM ALL IS CONSISTENT IN THAT. I DON'T THINK ANYBODY
20 BELIEVES THAT.
21 WHETHER IT CAN FIND A NICHE TO SURVIVE I THINK
22 DEPENDS ON THE INGENUITY OF ITS MANAGERS AND ITS OWNERS. I
23 THINK THAT IT'S MORE PROBABLE THAN NOT THAT THEY WILL HAVE
24 PROBLEM -- THAT THEY WON'T BE ABLE TO FIND THAT NICHE.
25 HOWEVER, I WOULDN'T RULE IT OUT ENTIRELY.
1657
ROSSE - CROSS / ROSCH
1 I WOULD REMIND MYSELF AND OTHERS THAT A LOT OF US
2 PREDICTED THAT U.S.A. TODAY WOULD NEVER FIND A NICHE; AND,
3 GUESS WHAT? THEY DID. IT'S POSSIBLE. IT'S POSSIBLE. SO I
4 WOULDN'T RULE IT OUT ENTIRELY.
5 AS I VIEW MR. FANG'S OPERATION, IT SEEMS LIKE HE IS
6 A PRETTY INGENIOUS OPERATOR, AND SO IF ANYONE HAS A CHANCE AT
7 IT, IT'S PROBABLY AS LIKELY HIM AS ANYBODY.
8 MR. CONNELL: THANK YOU, DR. ROSSE.
9 THE COURT: VERY WELL, MR. ROSCH? I ASSUME THIS
10 WILL BE A DIRECT EXAMINATION.
11 MR. ROSCH: IT WILL, YOUR HONOR. IT WILL BE VERY
12 BRIEF.
13 CROSS-EXAMINATION
14 BY MR. ROSCH:
15 Q. DR. ROSSE, YOU WERE IN THE COURTROOM WHEN DR. COMANOR
16 TESTIFIED; WERE YOU NOT?
17 A. I WAS.
18 Q. AND YOU HEARD HIM TELL THE COURT AT THAT TIME THAT, QUOTE,
19 "AN IMPORTANT ATTRIBUTE OF AN ECONOMIC MARKET IS THE RULE OF
20 ONE PRICE, THAT THE SINGLE PRICE EXISTS THROUGHOUT THE MARKET,"
21 END QUOTE, AND HIS FURTHER TESTIMONY THAT, "IF A FIRM IS
22 SELLING THE SAME PRODUCT AT DIFFERENT PRICES, THAT'S AN
23 IMPORTANT INDICATION THAT THE FIRM IS SELLING INTO DIFFERENT
24 MARKETS"? DO YOU REMEMBER HIM GIVING THAT TESTIMONY?
25 A. YES, I DO.
1658
ROSSE - CROSS / ROSCH
1 Q. NOW, ARE YOU OVER 60 YEARS OF AGE? I WOULDN'T ASK YOU
2 UNLESS I WERE MYSELF, BUT --
3 THE COURT: I BELIEVE HE SAID HE WAS 68.
4 THE WITNESS: THAT'S CORRECT, I AM.
5 BY MR. ROSCH:
6 Q. OKAY. YOU ARE. DO YOU GO TO THE MOVIES?
7 A. OCCASIONALLY WHEN MY WIFE CAN DRAG ME.
8 Q. OKAY. DO YOU PAY THE SAME PRICE AT THE MOVIES THAT PEOPLE
9 UNDER 60 PAY?
10 A. NO.
11 Q. WHEN YOU WERE A KID, DID YOU PAY THE SAME PRICE AT THE
12 MOVIES THAT ADULTS DID?
13 A. NO.
14 Q. NOW, DOES THAT INDICATE TO YOU AS AN ECONOMIST THAT THE
15 MOVIE THEATER IS SELLING INTO THREE DIFFERENT MARKETS?
16 A. NO.
17 Q. WHAT DOES THAT TELL YOU ABOUT THE RULE OF ONE PRICE?
18 A. I DON'T THINK -- I DON'T THINK THE RULE OF ONE PRICE HAS
19 MUCH MEANING.
20 MR. ROSCH: THANK YOU, SIR.
21 THE COURT: MR. BALABANIAN, ANY DIRECT EXAMINATION
22 OF THIS WITNESS?
23 MR. BALABANIAN: NO QUESTIONS, YOUR HONOR.
24 THE COURT: OR CROSS.
25 ALL RIGHT. MR. SHULMAN?
1659
ROSSE - CROSS / SHULMAN
1 THE COURT: YOU MAY PROCEED.
2 MR. SHULMAN: MAY IT PLEASE THE COURT.
3 CROSS-EXAMINATION
4 BY MR. SHULMAN:
5 Q. MR. ROSSE, YOU JUST SAID I DON'T THINK THE RULE OF ONE
6 PRICE HAS MUCH MEANING. DO YOU REMEMBER THAT?
7 A. YES, I DID SAY THAT.
8 Q. OKAY. IS THAT AS A GENERAL PRINCIPLE OF ECONOMICS YOU
9 DON'T THINK IT HAS MUCH MEANING?
10 A. NO. IN THE CONTEXT -- I SHOULD HAVE AMPLIFIED A BIT,
11 MR. SHULMAN. IN THE CONTEXT PARTICULARLY OF DIFFERENTIATED
12 MARKETS OF THE KIND FACED BY MEDIA COMPANIES, I DON'T THINK IT
13 MAKES MUCH SENSE BECAUSE THAT SAYS THAT NO TWO PRODUCTS CAN
14 POSSIBLY BE SUBSTITUTED FOR ONE ANOTHER UNLESS THEY LOOK
15 EXACTLY ALIKE AND ARE PRICED EXACTLY THE SAME WAY, AND THAT'S
16 JUST PLAIN NOT SENSIBLE.
17 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
18
19
20
21
22
23
24
25
1660
ROSSE - CROSS / SHULMAN
1 BY MR. SHULMAN:
2 Q. SO YOU ARE NOT SAYING THAT THE RULE OF ONE PRICE DOESN'T
3 MAKE MUCH SENSE AS AN ECONOMIC PRINCIPLE. THAT'S NOT YOUR
4 TESTIMONY, RIGHT?
5 A. THAT'S NOT MY TESTIMONY, NO.
6 Q. ALL RIGHT. YOU -- I WANT TO ASK YOU ABOUT EXHIBIT 1195
7 FOR A MINUTE.
8 A. WHAT IS THAT EXHIBIT ABOUT SO . . .
9 Q. IT'S THE -- IT'S THE CHART ON THE -- THE JOA.
10 A. OKAY.
11 Q. HAVE YOU GOT THAT ONE?
12 A. YES.
13 Q. AND I THINK THAT YOU SAID THAT THIS WAS PREPARED BY
14 ECONOMISTS, INCORPORATED. DO YOU REMEMBER THAT?
15 A. THAT'S CORRECT.
16 Q. NOW, THAT IS THE -- THAT'S THE CONSULTING FIRM IN
17 WASHINGTON THAT -- WELL, YOU ARE ON THE BOARD OF THAT, RIGHT?
18 A. I AM JUST IN THE PROCESS OF JOINING THE BOARD OF THAT,
19 THAT'S CORRECT.
20 Q. OKAY. AND THEY DID THE SUBMISSION BY HEARST TO THE
21 DEPARTMENT OF JUSTICE THAT -- TO TRY TO ESTABLISH THAT THE
22 EXAMINER WAS A FAILING COMPANY? THAT'S PLAINTIFFS EXHIBIT 94.
23 IT'S A DIFFERENT ONE UP THERE.
24 A. THAT'S CORRECT.
25 Q. AND, OF COURSE, THE DEPARTMENT OF JUSTICE DIDN'T BUY THAT,
1661
ROSSE - CROSS / SHULMAN
1 DID THEY? THEY DIDN'T AGREE WITH THAT?
2 A. I DON'T KNOW THAT THEY OFFERED AN OPINION AS TO WHETHER
3 THEY AGREED WITH IT OR NOT.
4 Q. AND THEY ALSO DID THE STUDY THAT YOU DID -- OR YOU -- THEY
5 HELPED WITH THE STUDY THAT YOU DID TO SHOW THAT THE -- THE
6 INCREMENTAL PRICE AND -- OR COSTS AND EXPENSE STUDY, RIGHT?
7 A. CORRECT.
8 Q. OKAY. NOW, DID -- AND I PRESUME YOU WENT OVER THE WORK
9 THAT WAS DONE BY THIS FIRM TO CHECK THE ACCURACY, AT LEAST ON
10 THE JOA EXHIBIT 1195?
11 A. TO THE BEST OF MY ABILITY. I HAD ACCESS TO -- THERE
12 SHOULD BE ANOTHER PAGE ATTACHED HERE THAT GOES -- SHOWS THE
13 SOURCES, AND I CHECKED THE SOURCES AND THE SOURCES ALL SEEMED
14 REASONABLE SOURCES TO ME.
15 Q. OKAY. THE ONE I WANT TO ASK YOU ABOUT IS THE ONE THAT'S
16 INVOLVED IN THIS CASE, SAN FRANCISCO.
17 A. YES.
18 Q. ARE YOU WITH ME?
19 A. YES, I AM.
20 Q. LINE 24?
21 A. YES.
22 Q. OKAY. NOW, THAT SHOWS THAT THE JOA FOR SAN FRANCISCO, THE
23 START OF THE JOA FOR SAN FRANCISCO --
24 A. WHOOPS.
25 Q. -- WAS 1954?
1662
ROSSE - CROSS / SHULMAN
1 A. WHOOPS. THERE IS AN ERROR.
2 Q. A BIG ONE, HUH?
3 A. YES.
4 Q. OKAY.
5 A. I KNOW BETTER THAN THAT AND SO DO YOU.
6 Q. WELL, THAT'S WHY I WAS SURPRISED TO SEE IT. AREN'T YOU?
7 A. I BEG YOUR PARDON?
8 Q. I WAS SURPRISED TO SEE THAT MISTAKE.
9 A. I WAS SURPRISED TO SEE IT, YES.
10 Q. YES.
11 A. IN FACT, I HAD FOCUSED ON ALL OF THEM EXCEPT SAN
12 FRANCISCO.
13 Q. OKAY. AND THERE IS A --
14 MR. ALIOTO: WE CAN'T SEE IT.
15 MR. SHULMAN: WHAT?
16 MR. ALIOTO: WE CAN'T SEE IT.
17 BY MR. SHULMAN:
18 Q. THERE IS A COLUMN THAT SAYS, "CIRCULATION OF NEWSPAPER
19 ONE." AND THAT'S BLANK, RIGHT?
20 A. THOSE CIRCULATIONS ARE AS OF THE TIME OF CLOSING OF THE
21 ENDING OF THE JOA.
22 Q. I SEE. OKAY.
23 A. SO THERE WOULDN'T BE ANYTHING THERE SINCE THIS JOA IS NOT
24 TERMINATED.
25 Q. OKAY. AND THEN FOR THE SUNDAY NEWSPAPER IT SAYS "JOINT."
1663
ROSSE - CROSS / SHULMAN
1 IS THAT CORRECT?
2 A. THE SUNDAY PAPER IS PRODUCED UNDER THE TITLE OF THE
3 CHRONICLE AND EXAMINER. THE EXAMINER PROVIDES THE BULK BUT NOT
4 ALL OF THE -- OF THE EDITORIAL STAFF FOR IT. AND THE -- THE
5 ADVERTISING THAT'S SOLD INTO IT, OF COURSE, IS SOLD AS A SINGLE
6 ENTITY.
7 Q. ARE THERE ANY OTHER MISTAKES IN HERE?
8 A. I TRUST YOU TO FIND THEM IF THERE ARE ANY. I JUST GOT
9 THIS.
10 Q. SO DID I.
11 A. AND SO I HAVE NOT HAD A CHANCE TO -- TO LOOK AT IT IN THAT
12 KIND OF DETAIL. BUT I DID CHECK ALL OF THE REFERENCES, AND THE
13 ONES THAT I WAS PRETTY CLOSELY FAMILIAR WITH ALL LOOKED
14 CORRECT.
15 I REGRET THAT I DID NOT LOOK THAT CLOSELY AT SAN
16 FRANCISCO ON THE GROUNDS THAT WE ALL KNEW EVERYTHING THERE WAS
17 TO KNOW ABOUT SAN FRANCISCO ANYHOW.
18 Q. ALL RIGHT. I THINK YOU SAID THAT FROM YOUR STANDPOINT IT
19 WOULD BE APPROPRIATE AT THIS POINT, IN YOUR VIEW, AS A POLICY
20 MATTER, TO SHUT DOWN THE EXAMINER RIGHT NOW; IS THAT RIGHT?
21 A. NO. WHAT I -- I WAS ASKED THE QUESTION, "WHAT WOULD BE
22 THE BETTER SOLUTION FROM THE STANDPOINT OF ECONOMIC WELFARE?"
23 HE DIDN'T USE THAT WORD BUT THAT'S HOW I INTERPRETED IT. AND
24 THAT'S THE WAY I ANSWERED IT.
25 Q. IN FACT, YOU SAID IT WOULD BE BETTER FOR THE PEOPLE OF SAN
1664
ROSSE - CROSS / SHULMAN
1 FRANCISCO IF THE EXAMINER WERE SHUT DOWN, RIGHT?
2 A. I DID SAY THAT. THAT'S -- AND THAT'S WHAT I HAD IN MIND
3 WHEN I TALKED ABOUT THE WELFARE OF THE BUYERS.
4 Q. AND IT WOULD BE BETTER FOR THE PEOPLE OF SAN FRANCISCO IF
5 THEY HAD ONE NEWSPAPER VOICE AND NOT TWO. I THINK YOU SAID
6 THAT?
7 A. I SAID THEY WOULD BE BETTER OFF WITH A ONE NEWSPAPER --
8 WITH THE ONE NEWSPAPER, A STRONG CHRONICLE, THAT -- AND I GAVE
9 THE REASONS FOR IT.
10 Q. THEY WOULD BE BETTER OFF WITH ONE VOICE AND NOT TWO,
11 RIGHT?
12 A. THAT'S RIGHT.
13 Q. OKAY. NOW, YOU KNOW, DO YOU NOT, THAT THAT IS EXACTLY
14 CONTRARY TO THE POLICY THAT HAS BEEN ENACTED INTO LAW BY THE
15 CONGRESS OF THE UNITED STATES IN THE NEWSPAPER PRESERVATION
16 ACT?
17 MR. CONNELL: OBJECTION. HE HAS NOT BEEN QUALIFIED
18 AS A LEGAL EXPERT.
19 THE COURT: OBJECTION OVERRULED.
20 THE WITNESS: IT APPEARS TO BE IN CONFLICT WITH
21 THAT -- WITH THAT POLICY. IT WOULD NOT BE THE FIRST TIME I
22 EVER DISAGREED WITH AN ACT OF CONGRESS, HOWEVER.
23 BY MR. SHULMAN:
24 Q. HOW ABOUT THE SHERMAN ACT? DO YOU AGREE OR DISAGREE WITH
25 THAT ONE?
1665
ROSSE - CROSS / SHULMAN
1 A. WELL, THAT TAKES A LITTLE DEEPER DISCUSSION.
2 Q. SO IT'S YOUR TESTIMONY, THEN, THAT YOU DISAGREE WITH THE
3 POLICY OF THE NEWSPAPER PRESERVATION ACT; IS THAT CORRECT?
4 A. THAT'S NOT MY TESTIMONY.
5 Q. AT LEAST IN TERMS OF SAN FRANCISCO, YOU DISAGREE WITH IT?
6 A. IN TERMS OF THE -- THE SITUATION IN SAN FRANCISCO, AS IT
7 IS FOUND TODAY, UNDER THE CURRENT CIRCUMSTANCES, MY ANSWER IS
8 UNQUALIFIED SAN FRANCISCO WOULD BE BETTER OFF WITH A SINGLE
9 NEWSPAPER. THAT'S AS FAR AS -- THAT'S ALL I WAS ASKED.
10 Q. BUT YOU ACKNOWLEDGE THAT THAT IS CONTRARY TO THE POLICY OF
11 THE NEWSPAPER PRESERVATION ACT, DO YOU NOT?
12 A. I SAID IT WOULD APPEAR TO BE IN CONFLICT WITH THE
13 NEWSPAPER PRESERVATION ACT, BUT THE NEWSPAPER PRESERVATION ACT
14 WAS WRITTEN TO TAKE -- TO DEAL WITH A MUCH BROADER SET OF
15 CIRCUMSTANCES THAN THOSE THAT ARE PRESENT RIGHT HERE TODAY.
16 Q. WELL, EXCEPT, I GUESS, FOR SAN FRANCISCO, YOU IN FACT
17 FAVOR VIGOROUS ENFORCEMENT OF THE NEWSPAPER PRESERVATION ACT,
18 DO YOU NOT?
19 A. THE ANSWER IS I AM -- I HAVE WRITTEN THAT, AND, YES, I
20 HAVE SAID THAT AND I AM NOT TRYING TO -- TO WEASEL ON THAT IN
21 ANY WAY, SHAPE OR FORM. I DID NOT CAST MY POSITION ON SAN
22 FRANCISCO IN THE CONTEXT OF THE NEWSPAPER PRESERVATION ACT.
23 YOU DID.
24 Q. WELL, DO YOU FAVOR VIGOROUS ENFORCEMENT OF THE NEWSPAPER
25 PRESERVATION ACT IN SAN FRANCISCO OR NOT?
1666
ROSSE - CROSS / SHULMAN
1 A. YOU HAVE TO HELP ME UNDERSTAND WHAT "VIGOROUS ENFORCEMENT"
2 MEANS.
3 Q. THOSE ARE YOUR WORDS.
4 A. WHAT?
5 Q. THOSE ARE YOUR WORDS, RIGHT?
6 A. ALL RIGHT. "VIGOROUS ENFORCEMENT" MEANS THAT YOU LOOK
7 CLOSELY TO MAKE SURE THAT THE ENTERPRISES ARE FAILING BEFORE
8 YOU PERMIT THE EXISTENCE OF A JOA. THEN, YES, I AM IN FAVOR OF
9 VIGOROUS ENFORCEMENT OF A JOA.
10 THE COURT: YOU MEAN, OF THE NEWSPAPER PRESERVATION
11 ACT?
12 THE WITNESS: OF THE NEWSPAPER PRESERVATION ACT.
13 THANK YOU, YOUR HONOR.
14 BY MR. SHULMAN:
15 Q. YES. YOU HAVE WRITTEN ON -- MORE THAN ONCE THAT YOU ARE
16 IN FAVOR OF VIGOROUS ENFORCEMENT OF THE NEWSPAPER PRESERVATION
17 ACT, CORRECT?
18 A. I WILL LEAVE IT TO YOU TO COUNT THEM BECAUSE I AM NOT SURE
19 I COULD. I DON'T KNOW. I DON'T KNOW THE ANSWER TO THAT
20 QUESTION.
21 Q. YOU HAVE DONE IT AT LEAST ONCE, RIGHT?
22 A. I THINK IN THE CASE OF THE -- OF THE PAPERS WE HAVE
23 PREPARED FOR THE FTC, I THINK I IN FACT STATED THAT IN ONE OF
24 THOSE PAPERS.
25 Q. NOW, YOU'VE SAID ALSO THAT YOU HAVE TESTIFIED OR YOU HAVE
1667
ROSSE - CROSS / SHULMAN
1 GIVEN TESTIMONY -- IN FACT, YOU HAVE DONE IT HERE TODAY --
2 ABOUT WHETHER THE EXAMINER IS A FAILING COMPANY. CORRECT?
3 A. FAILING NEWSPAPER.
4 Q. FAILING NEWSPAPER.
5 ARE YOU FAMILIAR WITH THE LEGAL REQUIREMENTS OF THE
6 FAILING COMPANY DEFENSE UNDER THE ANTITRUST LAWS?
7 A. NOT CLOSELY, NO.
8 Q. ARE YOU FAMILIAR WITH THE REQUIREMENTS FOR -- TO QUALIFY
9 AS A FAILING COMPANY UNDER THE NEWSPAPER PRESERVATION ACT?
10 A. NOT PARTICULARLY BECAUSE THAT'S NOT AN AREA -- I DON'T
11 THINK OF MYSELF AS A LEGAL EXPERT.
12 Q. YOU ALSO WERE ASKED SOME QUESTIONS ABOUT THE RELEVANT
13 MARKET AND DR. COMANOR'S TESTIMONY. AND I THINK COUNSEL SAID
14 TO YOU THAT DR. -- HE ASKED YOU DID YOU KNOW THAT DR. COMANOR
15 DEFINED THE RELEVANT MARKET AS THE CHRONICLE AND THE EXAMINER.
16 DO YOU REMEMBER THAT?
17 A. IN SAN FRANCISCO COUNTY, I THINK HE SAID. THAT'S HOW I
18 INTERPRETED IT.
19 Q. WELL, YOU KNOW -- YOU WERE HERE FOR DR. COMANOR'S
20 TESTIMONY, RIGHT?
21 A. YES.
22 Q. YOU KNOW THAT HE DEFINED THE "RELEVANT MARKET" AS DAILY
23 NEWSPAPERS IN THE CITY AND COUNTY OF SAN FRANCISCO, RIGHT?
24 A. YES, YES, THAT'S CORRECT.
25 Q. AND YOU ALSO KNOW THAT HE PRESENTED ECONOMETRIC STUDIES OF
1668
ROSSE - CROSS / SHULMAN
1 PRICES FOR ADVERTISING WITHIN THE -- WITHIN THE AREA OF SAN
2 FRANCISCO AND THE SURROUNDING AREA, RIGHT?
3 A. YES. I WOULDN'T CALL IT AN "ECONOMETRIC" STUDY. HE
4 TABULATED SOME NUMBERS.
5 Q. YOU HAVEN'T DONE THAT, HAVE YOU?
6 A. YES, I HAVE. I ASKED THAT THAT BE DONE AND WE HAVEN'T --
7 WE DIDN'T GET AROUND TO TALKING ABOUT THAT.
8 Q. DO YOU HAVE THAT WITH YOU?
9 A. I BELIEVE IT HAS BEEN IDENTIFIED AS H-1197.
10 Q. THAT SHOWS PRICES -- HERE. WE WILL PUT THAT UP.
11 THAT SHOWS PRICES THROUGHOUT THE ENTIRE AREA, RIGHT,
12 NOT BY LOCALITY?
13 A. THAT'S CORRECT. AND THAT'S THE PROPER WAY TO SHOW IT.
14 Q. IN YOUR OPINION.
15 A. DR. COMANOR WAS IMAGINING THAT AN ADVERTISER WOULD BUY
16 SPACE IN THE CHRONICLE IN ORDER TO REACH READERS IN, FOR
17 INSTANCE, SAN MATEO COUNTY AND -- AND, AS A RESULT, IN HIS
18 CALCULATIONS HE LOOKED AT THE CHRONICLE'S CIRCULATION --
19 CHRONICLE/EXAMINER CIRCULATION INTO THAT COUNTY AND CALCULATED
20 A COST PER THOUSAND BASED ON THE COST OF THE ENTIRE CIRCULATION
21 IN ORDER TO REACH THAT SMALL CIRCULATION. THAT'S AN ENTIRELY
22 INAPPROPRIATE WAY OF LOOKING AT COMPETITION AND PRICES IN THIS
23 MARKETPLACE.
24 AND SO WHAT I PUT TOGETHER HERE IS A LISTING OF COST
25 PER THOUSAND FROM THE PUBLICATIONS THAT HE MENTIONED IN A FORUM
1669
ROSSE - CROSS / SHULMAN
1 THAT MAKES MORE SENSE FROM AN ECONOMIC STANDPOINT.
2 Q. YOU DID NOT DO THE SAME TYPE OF -- YOU DID NOT DO THE
3 ANALYSIS HE DID OF PRICING BY THE SPECIFIC LOCALITIES. YOUR
4 ANALYSIS IS FOR THE ENTIRE AREA. CORRECT?
5 A. THAT'S CORRECT. I DID NOT DO IT THAT WAY BECAUSE THAT'S
6 THE WRONG WAY TO DO IT.
7 Q. OKAY. YOU WOULD AGREE THAT THERE IS A FORM OF NEWSPAPER
8 COMPETITION THAT'S QUITE EASY TO IDENTIFY, WHICH IS THE
9 FACE-TO-FACE COMPETITION OF NEWSPAPERS' GENERAL APPEAL LOCATED
10 IN AND IDENTIFIED WITH A SINGLE CITY. ISN'T THAT TRUE?
11 A. COULD I HEAR THE FIRST PART OF THAT AGAIN?
12 Q. YES. THERE IS A FORM -- YOU WOULD -- IS THIS TRUE OR
13 FALSE, THAT THERE IS A FORM OF NEWSPAPER COMPETITION THAT IS
14 QUITE EASY TO IDENTIFY, THE FACE-TO-FACE COMPETITION OF
15 NEWSPAPERS OF GENERAL APPEAL LOCATED IN AND IDENTIFIED WITH A
16 SINGLE CITY?
17 A. YES, I -- THOSE SOUND LIKE WORDS THAT I'VE USED.
18 Q. THAT'S A TRUE STATEMENT, ISN'T IT?
19 A. YEAH, I BELIEVE SO.
20 Q. OKAY. YOU WERE ASKED ABOUT THE -- WELL, YOU DID CERTAIN
21 ANALYSES OR YOU WERE ASKED ABOUT CERTAIN ANALYSES SHOWING
22 WHETHER THE EXAMINER IS A FAILING NEWSPAPER IN OR OUT OF THE
23 JOA, DO YOU REMEMBER THAT?
24 A. YES.
25 Q. IT IS A FACT, IS IT NOT, THAT AS THINGS STAND TODAY UNDER
1670
ROSSE - CROSS / SHULMAN
1 THE TERMS OF THE JOA AGREEMENT, THE EXAMINER SHOWS A PROFIT?
2 A. AS A COMPANY, YES, IT SHOWS A PROFIT.
3 Q. AND IN YOUR OPINION IT'S LIKELY THAT THE EXAMINER WILL
4 CONTINUE TO SHOW A PROFIT THROUGH THE END OF THE JOA AT LEAST?
5 A. AS A COMPANY THAT'S LIKELY TO BE TRUE BASED ON THE
6 PROJECTIONS THAT I'VE SEEN, THAT'S CORRECT.
7 Q. ON THE TERMS OF WHICH PROFITS ARE MEASURED UNDER THE JOA,
8 IF THE JOA CONTINUES, THE EXAMINER WILL CONTINUE TO SHOW A
9 PROFIT. IS THAT TRUE?
10 A. THAT'S WHAT I MEANT TO SAY WHEN I SAID "AS A COMPANY," THE
11 EXAMINER.
12 Q. SO THAT IS TRUE THEN?
13 A. THAT IS TRUE.
14 Q. AND ONE OF THE ANALYSES THAT YOU LOOKED AT IS -- WELL,
15 THERE WERE TWO. LET'S TAKE FIRST, THERE WAS ONE OF OCTOBER 5.
16 THE COURT: THIS IS EXHIBIT?
17 MR. SHULMAN: YOUR HONOR, THIS IS EXHIBIT 1157.
18 THE COURT: THANK YOU.
19 MR. SHULMAN: AND THIS IS THE ONE THAT -- THIS WAS
20 DONE BY ECONOMISTS, INC., RIGHT?
21 THE WITNESS: THAT'S CORRECT.
22 THE COURT: DON'T WE HAVE A BETTER PROJECTION FOR
23 THE WITNESS?
24 MR. HALLING: WHAT'S THE NUMBER?
25 MR. SHULMAN: IT'S 1157.
1671
ROSSE - CROSS / SHULMAN
1 MR. ALIOTO: IT'S THE MIDDLE ONE.
2 BY MR. SHULMAN:
3 Q. AND THIS WAS DONE ON OCTOBER 5, 1999, RIGHT?
4 A. THAT'S CORRECT.
5 Q. AND THIS ONE BREAKS OUT THE EXPENSES AND REVENUES FOR THE
6 EXAMINER SEPARATELY, RIGHT?
7 A. THIS IS AN -- WAS DR. MCANNENY'S ATTEMPT TO CONSTRUCT WHAT
8 AN EXAMINER WOULD LOOK LIKE AS A FREE-STANDING ENTITY.
9 Q. OKAY. AND YOU SAID THAT MR. FALK HELPED WITH THIS?
10 A. NO. MR. -- MR. MCANNENY -- DR. MCANNENY DIDN'T CONSTRUCT
11 THIS OUT OF THE WHOLE CLOTH. HE HAD TO GO THROUGH THE BASIC
12 DATA FOR IT. SO I AM SURE THAT HE ASKED MR. FALK FOR DATA.
13 Q. OKAY. ARE YOU AWARE THAT MR. FALK TESTIFIED IN THIS CASE
14 ON APRIL 28 IN HIS DEPOSITION -- THIS IS AT PAGE 26, LINE 2:
15 "Q. ARE YOU ABLE TO SAY HOW MUCH OF THE --
16 MR. CONNELL: OBJECTION.
17 THE COURT: OBJECTION?
18 MR. CONNELL: OBJECTION.
19 THE COURT: ON WHAT GROUND?
20 MR. CONNELL: ON THE GROUNDS THAT THIS IS AN
21 INAPPROPRIATE THING TO CONFRONT THIS WITNESS WITH, PARTICULARLY
22 GIVEN STEVEN FALK'S SUBSEQUENT TESTIMONY.
23 THE COURT: I THOUGHT WE HAD A STIPULATION UNDER
24 RULE 32 --
25 MR. SHULMAN: THIS IS --
1672
ROSSE - CROSS / SHULMAN
1 THE COURT: -- WITH REGARD TO MR. FALK'S DEPOSITION.
2 MR. SHULMAN: RIGHT, RIGHT, DEPOSITION OF A PARTY.
3 THE COURT: HE MAY BE USED AS A PARTY WITNESS.
4 MR. CONNELL: THAT PART OF IT DOESN'T GO TO MY
5 OBJECTION, YOUR HONOR, WHETHER HE IS A PARTY OR NONPARTY.
6 THE COURT: ALL RIGHT. WELL, LET'S -- I THINK THE
7 APPROPRIATE WAY TO HANDLE IT IS TO HAVE MR. SHULMAN READ THE
8 TESTIMONY, AND THEN IF THERE IS A QUESTION WHICH FOLLOWS, HE
9 CAN ASK A QUESTION.
10 MR. SHULMAN: OKAY.
11 "Q. ARE YOU AWARE THAT MR. FALK GAVE THIS
12 TESTIMONY ON APRIL 28, 2000, THE FRIDAY BEFORE
13 TRIAL STARTED IN THIS CASE?
14 THE COURT: WELL, READ THE TESTIMONY AND THEN ASK
15 YOUR QUESTION.
16 MR. SHULMAN: OKAY, PAGE 26, LINE 2:
17 "Q. ARE YOU ABLE TO SAY HOW MUCH OF THE
18 REVENUE IS ATTRIBUTABLE TO ONE PAPER AS OPPOSED
19 TO ANOTHER?
20 "A. NO.
21 "Q. ARE YOU ABLE TO SAY HOW MUCH IS
22 ATTRIBUTABLE TO THE EXPENSES -- HOW MUCH OF THE
23 EXPENSES ARE ATTRIBUTABLE, HOW -- MUCH OF THE
24 EXPENSES IS ATTRIBUTABLE TO ONE PAPER AS
25 DISTINGUISHED FROM ANOTHER?
1673
ROSSE - CROSS / SHULMAN
1 "THE WITNESS: IT IS DIFFICULT TO DO."
2 BY MR. SHULMAN:
3 Q. ARE YOU AWARE THAT HE GAVE THAT TESTIMONY?
4 MR. CONNELL: OBJECTION.
5 THE COURT: ARE YOU AWARE THAT HE GAVE THAT
6 TESTIMONY?
7 THE WITNESS: I WAS NOT AWARE, BUT THOSE ARE -- ARE
8 WORDS OF A SONG THAT I THINK AFTER SIX DAYS OF COURT I COULD
9 SING RIGHT ALONG WITH YOU.
10 (LAUGHTER)
11 BY MR. SHULMAN:
12 Q. WELL, HE APPARENTLY DID THAT HERE, DIDN'T HE?
13 A. I AM AWARE OF THAT, THAT MR. FALK UTTERED WORDS OF THAT
14 KIND.
15 Q. YOU ALSO -- THE SECOND ANALYSIS THAT YOU LOOKED AT WAS --
16 WAS IN EXHIBIT 1158.
17 A. YES.
18 Q. DO YOU HAVE THAT?
19 A. YES.
20 Q. OKAY. AND 1158, THIS CONTAINS NO SEPARATE BREAKOUT OF
21 REVENUES AND EXPENSES FOR THE EXAMINER, RIGHT?
22 A. ONLY AS DERIVED FROM THE INCREMENTAL ANALYSIS, THAT'S
23 CORRECT.
24 Q. OKAY. AND I THINK YOU SAID MR. FALK HELPED WITH THIS ONE,
25 TOO?
1674
ROSSE - CROSS / SHULMAN
1 A. HE HELPED -- HELPED US SORT THROUGH THE DATA, AND HE DID
2 NOT PARTICIPATE IN ANY OF THE JUDGMENTS AS TO HOW TO USE THAT
3 DATA. THAT WAS A JOB THAT DR. MCANNENY AND I CARRIED OUT. BUT
4 HE -- WE NEEDED HIS HELP TO HAVE ACCESS TO THE DATA AND HOW TO
5 INTERPRET IT.
6 Q. OKAY. NOW -- AND I THINK YOU SAID YOU -- THIS -- I MEAN,
7 THIS SHOWS WHAT THE NEWSPAPER AGENCY WOULD LOOK LIKE PUBLISHING
8 JUST ONE PAPER, RIGHT?
9 A. THAT'S CORRECT.
10 Q. AND YOU MADE THE ASSUMPTION THAT THE ADVERTISING RATES
11 WOULD NOT INCREASE?
12 A. NO. WHAT I MADE THE ASSUMPTION WAS THAT THEY WOULD IN
13 FACT DECREASE BECAUSE I ASSUMED THAT THE COSTS PER THOUSAND
14 WOULD REMAIN THE SAME. AND SINCE CIRCULATION WOULD BE DOWN,
15 THE -- THE SPACE COSTS OF ADVERTISING WOULD BE -- WOULD BE
16 LOWER.
17 Q. OKAY. YOU WERE HERE THIS MORNING WHEN MR. FALK TESTIFIED,
18 RIGHT?
19 A. YES, I HEARD THAT.
20 I ALSO SAID DURING MY TESTIMONY THAT A CASE COULD BE
21 MADE THAT PRICES WOULD REMAIN THE SAME, BUT IN ORDER TO BE
22 CONSERVATIVE IN OUR INCREMENTAL ANALYSIS, WE HAD MADE THE OTHER
23 ASSUMPTION.
24 Q. WELL, IN FACT, YOU KNOW FROM MR. FALK'S TESTIMONY THIS
25 MORNING THAT WITH ONLY ONE PAPER, THE PLAN OF THE AGENCY IS TO
1675
ROSSE - CROSS / SHULMAN
1 RAISE PRICES, RIGHT?
2 A. I DON'T KNOW THAT AS A MATTER OF FACT. I HAVE HEARD
3 CONFLICTING TESTIMONY TO THAT. I ALSO HEARD PEOPLE TALK ABOUT
4 INCREASE IN CIRCULATION AND THE OPPORTUNITY THAT THAT MIGHT
5 AFFORD FOR -- FOR RAISING THE PRICE OF ADVERTISING.
6 Q. OKAY. I WOULD LIKE YOU TO LOOK AT -- IF WE CAN -- IF YOU
7 COULD PUT UP FOR ME EXHIBIT 983, THE SECOND PAGE.
8 OKAY. AND THIS IS -- DO YOU HAVE THAT UP THERE?
9 A. NO, I DON'T HAVE THAT ONE.
10 Q. OR DO WE NEED TO GET THAT FOR YOU?
11 A. IT'S NOT ONE I HAVE SEEN BEFORE.
12 Q. OKAY. WE WILL GET THAT FOR YOU.
13 MAY I APPROACH THE WITNESS, YOUR HONOR?
14 THE COURT: YES, YOU MAY.
15 BY MR. SHULMAN:
16 Q. (INDICATING). OKAY. DO YOU HAVE THAT NOW?
17 A. YES, I DO.
18 Q. OKAY. AND IF YOU LOOK AT THE -- THIS IS THE PRO FORMA
19 THAT WAS DONE ASSUMING JUST ONE PAPER, RIGHT? DO YOU REMEMBER
20 THAT?
21 A. THIS IS THE -- THE A.M. -- JOA A.M. ONLY STUDY THAT
22 MR. FALK WAS TESTIFYING ABOUT THIS MORNING?
23 Q. OKAY. AND --
24 A. IS THAT RIGHT? I MEAN, THAT'S . . .
25 Q. YES, IT IS.
1676
ROSSE - CROSS / SHULMAN
1 A. OKAY.
2 Q. YES, IT IS.
3 AND THE ASSUMPTION THAT IS MADE -- IF YOU LOOK AT
4 "ADVERTISING," THERE IS A LINE THAT SAYS, "NET ADVERTISING
5 REVENUE."
6 CAN WE BRING THAT UP?
7 DO YOU SEE THAT, "NET ADVERTISING REVENUE"?
8 A. "NET ADVERTISING REVENUE"?
9 Q. ARE YOU WITH ME?
10 A. NO.
11 Q. IT'S IN YELLOW ON THE MONITOR.
12 A. I SEE. OKAY. OKAY. I GOT IT.
13 Q. OKAY. AND THE ASSUMPTION IS THAT THE -- THAT IF THERE IS
14 ONLY AN A.M. PAPER, ALL OF THE ADVERTISING REVENUE IS RETAINED,
15 RIGHT?
16 A. THAT'S CORRECT. AND IF YOU LOOK AT THE FOOTNOTES IN THE
17 BACK, IT SAYS UNDER "ADVERTISING REVENUE," "NO CHANGE IN
18 RATES."
19 Q. WELL --
20 A. "POSSIBLE FUTURE DELAY IN ADVERTISING RATE INCREASE UNTIL
21 CIRCULATION INCREASES."
22 AND SO WHAT HE HAS ASSUMED IS RATES WILL REMAIN THE
23 SAME WITH THE A.M. ONLY PUBLICATION?
24 Q. WELL, LET'S LOOK AT THAT A LITTLE BIT. THE REVENUE
25 REMAINS THE SAME.
1677
ROSSE - CROSS / SHULMAN
1 THEY KEEP ALL THE ADVERTISING REVENUE, RIGHT?
2 A. CORRECT.
3 Q. OF COURSE, THAT DOESN'T BODE VERY WELL FOR MR. FANG'S
4 VENTURE IF HE STARTS A NEW PAPER, RIGHT, AND ALTERNATIVES WERE
5 TO STAY WITH THE -- WITH THE CHRONICLE?
6 A. MR. FANG WILL -- NEEDS FAR LESS ADVERTISING REVENUE TO
7 SURVIVE THAN THIS. HE NEEDS ONLY SMALL CHANGE AS A PART OF
8 WHAT THIS IS.
9 Q. WE'LL SEE.
10 NOW, THE -- ON THE NEXT PAGE, SECOND PAGE -- SORRY,
11 THE THIRD PAGE, THERE IS SOME INFORMATION ABOUT THE
12 CIRCULATION, RIGHT?
13 A. YES.
14 Q. OKAY.
15 MAY I USE THE EASEL, YOUR HONOR?
16 THE COURT: YES, YOU MAY.
17 BY MR. SHULMAN:
18 Q. AND THE -- FIRST THERE IS INFORMATION ABOUT THE CURRENT
19 CIRCULATION. I WILL WRITE "CURRENT CIRCULATION."
20 AND IT SHOWS THE CHRONICLE AT 469,000?
21 A. CORRECT.
22 Q. I WILL PUT "CHRON 469,000."
23 AND THE EXAMINER AT 111,000?
24 A. CORRECT.
25 Q. SO THAT'S A TOTAL OF 580,000, RIGHT?
1678
ROSSE - CROSS / SHULMAN
1 A. THEY DON'T ADD IT UP HERE. I PRESUME YOUR ADDITION IS
2 CORRECT.
3 Q. OKAY.
4 A. IT'S RIGHT.
5 Q. AND THE TOTAL ADVERTISING REVENUE FOR THAT CIRCULATION IS
6 $330 MILLION, ROUGHLY, RIGHT?
7 A. RIGHT.
8 THE COURT: LET'S SEE. WHERE DO YOU SEE THAT,
9 MR. SHULMAN?
10 MR. SHULMAN: THAT'S ON THE FIRST PAGE, YOUR HONOR,
11 "ADVERTISING REVENUE."
12 THE COURT: YES.
13 MR. SHULMAN: OKAY.
14 BY MR. SHULMAN:
15 Q. SO THE ADVERTISERS ARE PAYING -- AND YOU WILL HAVE TO
16 TRUST MY DIVISION HERE -- ROUGHLY $569 PER SUBSCRIBER?
17 A. WHATEVER YOU SAY. I HAVE NOT -- I AM NOT HERE TO TRY TO
18 DIVIDE IT OUT HERE.
19 Q. ALL RIGHT. I HAVE DONE IT ON A CALCULATOR.
20 THE COURT: YOU MEAN, ALL ADVERTISERS WILL GENERATE
21 ADVERTISING REVENUE --
22 MR. SHULMAN: RIGHT.
23 THE COURT: -- OF $580 PER --
24 MR. SHULMAN: $569 PER SUBSCRIBER.
25 THE COURT: PER 69. OKAY. 569, I'M SORRY.
1679
ROSSE - CROSS / SHULMAN
1 BY MR. SHULMAN:
2 Q. THE -- WITH THE NEW NEWSPAPER, A.M. ONLY, THE CIRCULATION
3 IS CALCULATED -- IS SUPPOSED TO BE 509,000, RIGHT?
4 A. THAT'S CORRECT.
5 Q. AND THE ADVERTISING REVENUE REMAINS THE SAME,
6 $330 MILLION, RIGHT?
7 A. UNDER THE ASSUMPTIONS THAT HE HAS USED HERE, THAT'S
8 CORRECT.
9 Q. OKAY. SO THAT MEANS IF THAT -- IF YOU DIVIDE THAT BY
10 509,000, THAT'S $648 PER SUBSCRIBER, RIGHT?
11 A. I WILL TAKE YOUR WORD FOR IT.
12 Q. WHICH IS 14 PERCENT MORE THAN THEY WERE PAYING PER
13 SUBSCRIBER BEFORE, RIGHT?
14 A. ANOTHER WAY OF PUTTING THAT, AND THE WAY I WOULD HAVE PUT
15 IT --
16 Q. BEFORE YOU PUT IT YOUR WAY, WOULD YOU ANSWER MY QUESTION,
17 PLEASE?
18 A. I SAID, "YES."
19 Q. OKAY.
20 A. AND ANOTHER WAY OF PUTTING THAT IS THAT UNDER THESE
21 ASSUMPTIONS, THE COST PER THOUSAND WOULD ARISE -- WOULD RISE,
22 ALTHOUGH THE SPACE COST WOULD REMAIN THE SAME.
23 Q. THE COST PER THOUSAND RISES 14 PERCENT?
24 A. THAT IS CORRECT, UNDER THIS -- UNDER THIS SCENARIO.
25 Q. RIGHT.
1680
ROSSE - CROSS / SHULMAN
1 THE COURT: I SUPPOSE ONE CAVEAT IS NOT ALL OF THE
2 CIRCULATION ARE SUBSCRIBERS. BUT THAT'S A -- SOME OF THOSE ARE
3 STREET SALES.
4 THE WITNESS: WELL, YOUR HONOR, WHEN I USE THE WORD
5 "SUBSCRIBER," I USE IT IN A GENERIC SENSE TO INCLUDE ALL PEOPLE
6 WHO PAID FOR THE PAPER.
7 A MORE INTERESTING QUESTION IN THIS CASE IS HOW MANY
8 OF THESE WERE DUPLICATE READERS, WHICH IS A QUESTION MR. FALK
9 RAISED.
10 BY MR. SHULMAN:
11 Q. YOU TALKED ABOUT OTHER MEDIA AND THE GROWTH OF OTHER MEDIA
12 AND WHAT THEY -- THE EFFECT OF THAT ON NEWSPAPERS. RIGHT?
13 A. THAT'S CORRECT.
14 Q. BUT DESPITE THAT NEWSPAPERS HAVE BEEN LEFT WITH A RESIDUAL
15 ROLE IN THE INFORMATION AND ENTERTAINMENT FIELD. THEY HAVE
16 BECOME SORT OF A PUBLIC UTILITY CATALOG OF DAILY NEWS FEATURES
17 AND INFORMATION, CORRECT?
18 A. IT SOUNDS LIKE WORDS I MIGHT HAVE WRITTEN AT ONE POINT IN
19 TIME.
20 Q. YOU DID.
21 IS THAT CORRECT?
22 A. THAT IS CORRECT.
23 Q. YOU ALSO MENTIONED THE FIRST COPY COSTS. DO YOU RECALL
24 THAT?
25 A. YES.
1681
ROSSE - CROSS / SHULMAN
1 Q. AND HOW THEY TEND TO DISADVANTAGE SMALLER NEWSPAPERS.
2 A. THAT'S CORRECT, YES.
3 Q. YOU DO BELIEVE, DON'T YOU, THAT NEW NEWSPAPER TECHNOLOGIES
4 ARE ALREADY PROVING THAT THEY CAN REDUCE FIRST COPY COSTS?
5 A. THEY HAVE ALREADY REDUCED FIRST COPY COSTS.
6 Q. AND, IN FACT, YOU BELIEVE THAT THEY ARE -- NEW NEWSPAPER
7 TECHNOLOGIES ARE ALREADY PROVING THAT THEY CAN REDUCE FIRST
8 COPY COSTS TO THE POINT WHERE REAL NEWSPAPER COMPETITION MAY
9 RECUR?
10 A. THOSE ARE ALSO WORDS THAT I ONCE WROTE, AND I DON'T THINK
11 THAT'S HAPPENED YET, AND I GUESS I AM LESS OPTIMISTIC NOW THAT
12 IT'S GOING TO HAPPEN.
13 Q. YOU WROTE THIS, RIGHT?
14 A. YES.
15 Q. DID YOU BELIEVE IT WHEN YOU WROTE IT?
16 A. I -- YES, I BELIEVED IT WHEN I WROTE IT. I THOUGHT THAT
17 WAS AN INTERESTING SPECULATION. THAT WAS WRITTEN IN ABOUT 1979
18 OR 1980 AT THE DAWN OF MUCH OF THE NEW TECHNOLOGY. AND MANY OF
19 US HAD MORE HOPE AT THAT TIME THAN WE NOW HAVE IN THAT RESPECT.
20 Q. THAT WAS BEFORE THE -- WELL BEFORE THE INTERNET, RIGHT?
21 A. YES.
22 Q. DID YOU EVER USE THE TERM "DIRECT NEWSPAPER
23 COMPETITION"?
24 A. YEAH, I HAVE USED THAT FROM TIME TO TIME --
25 Q. OKAY.
1682
ROSSE - CROSS / SHULMAN
1 A. -- TO DESCRIBE A SITUATION IN WHICH TWO DAILY NEWSPAPERS
2 FACE EACH OTHER ON ESSENTIALLY EQUIVALENT TERMS AND PRODUCE
3 ESSENTIALLY THE SAME PRODUCT FOR VERY CLOSELY SIMILAR MARKETS.
4 Q. YOU MENTIONED THAT THE -- IN DENVER THEY JUST ANNOUNCED
5 THEY WERE GOING TO APPLY FOR A JOA?
6 A. THAT'S CORRECT.
7 Q. AND THOSE ARE NEWSPAPERS THAT ARE BASICALLY OF EQUIVALENT
8 CIRCULATION, RIGHT?
9 A. THEY'RE PRETTY CLOSE.
10 Q. DIRECT NEWSPAPER COMPETITION IS INDEPENDENTLY OWNED AND
11 OPERATED FIRMS SEPARATELY PRODUCING DAILY NEWSPAPERS THAT
12 ACTIVELY COMPETE WITH ONE ANOTHER FOR GENERAL AUDIENCE READER
13 ATTENTION AND FOR ALL TYPES OF ADVERTISER DOLLARS. CORRECT?
14 A. THAT'S A DEFINITION. THAT'S A DEFINITION I'VE USED IN A
15 LOT OF MY ANALYSIS, THAT'S CORRECT.
16 Q. IS IT -- IS IT ALSO CORRECT THAT IN ADVERTISING MARKETS
17 THE COMPARATIVE ADVANTAGE OF NEWSPAPERS VIS-A-VIS OTHER MEDIA
18 LIES IN HIGH DENSITY -- I'M SORRY -- LIES IN HIGH DENSITY
19 LOCALIZED DISTRIBUTION?
20 A. THAT'S GENERALLY TRUE. IT'S CERTAINLY TRUE FOR MOST
21 NEWSPAPERS THAT ARE -- HAVE THE PRIMARY DIFFERENTIATION ON THE
22 BASIS OF GEOGRAPHY.
23 IN RECENT YEARS -- EXCUSE ME -- WE HAVE SEEN THE
24 RISE OF SOME NATIONAL NEWSPAPERS THAT HAVE FOUND OTHER GROUNDS
25 FOR DIFFERENTIATION AND HAVE -- HAVE SUCCEEDED IN CAPTURING --
1683
ROSSE - CROSS / SHULMAN
1 RECAPTURING SOME OF THE NATIONAL ADVERTISING MARKETPLACE.
2 Q. OKAY.
3 A. I HAVE IN MIND USA TODAY AND OTHERS.
4 Q. YOU WROTE, DID YOU NOT, "IN ADVERTISING MARKETS THE
5 COMPARATIVE ADVANTAGE OF NEWSPAPERS VIS-A-VIS OTHER MEDIA LIES
6 IN HIGH DENSITY, LOCALIZED DISTRIBUTION"?
7 A. I WROTE THAT AND -- AND I HAD IN MIND THE TYPICAL LOCAL --
8 LOCALLY DIFFERENTIATED NEWSPAPER PRODUCT OF AMERICAN CITIES,
9 THAT'S CORRECT.
10 Q. AND IN FACT -- AND IS IT ALSO TRUE THAT RELATIVE TO OTHER
11 MEDIA A NEWSPAPER IS MOST COST EFFECTIVE WHEN IT IS ABLE TO
12 DELIVER A LARGE PERCENTAGE OF THE POTENTIAL AUDIENCE IN ITS
13 LOCALIZED MARKET?
14 A. THOSE ARE WORDS THAT I'VE WRITTEN AND THEY ARE CERTAINLY
15 TRUE.
16 Q. AS A RESULT -- IS THIS TRUE, AS A RESULT SEGMENTATION OF
17 AUDIENCE BY THE AMERICAN PRESS IS ALMOST EXCLUSIVELY ON THE
18 BASIS OF LOCATION OF LOCAL COMMUNITY INTERESTS?
19 A. SEGMENTATION OF READERSHIP AUDIENCE, THAT'S CORRECT.
20 Q. THIS -- AND IS IT ALSO TRUE THAT THIS SEGMENTATION BY
21 LOCAL READERSHIP IS THE MOST PROFITABLE KIND OF AUDIENCE THAT A
22 NEWSPAPER CAN SELL TO ADVERTISERS IN COMPETITION WITH OTHER
23 MEDIA?
24 A. THAT'S CERTAINLY BEEN HISTORICALLY TRUE IN THE UNITED
25 STATES.
1684
ROSSE - CROSS / SHULMAN
1 Q. AND IS IT ALSO TRUE THAT AMERICAN NEWSPAPERS HAVE ALWAYS
2 BEEN STRONGLY ORIENTED TO THEIR LOCAL COMMUNITIES, BOTH
3 AUDIENCE AND ADVERTISING COMMUNITIES?
4 A. THAT'S CERTAINLY TRUE OF THE -- PARTICULARLY OF THE MIDDLE
5 SIZED TO SMALLER NEWSPAPERS. THE LARGER, THE URBAN NEWSPAPERS,
6 HAVE BEEN A LITTLE MORE STRONGLY ORIENTED TOWARDS NATIONAL
7 ADVERTISING. BUT, STILL, EVEN THEY ARE REGIONAL IN THEIR
8 DEFINITION AND LOCATION SPECIFIC.
9 Q. WOULD YOU AGREE WITH THIS STATEMENT, "WITH VERY FEW
10 EXCEPTIONS THE AMERICAN PRESS IS A LOCAL PRESS"?
11 A. IT'S DIFFERENTIATED BY LOCATION, YES, WHICH SIMPLY REPEATS
12 WHAT I SAID A FEW MINUTES AGO.
13 Q. THE IMPORTANCE OF A GIVEN NEWSPAPER DERIVES NOT SO MUCH
14 FROM WHAT IT DOES ITSELF BUT WHERE IT HAPPENS TO BE LOCATED.
15 IS THAT TRUE?
16 A. I DIDN'T CATCH THE BEGINNING OF THAT.
17 Q. THE IMPORTANCE OF A GIVEN NEWSPAPER DERIVES NOT SO MUCH
18 FROM WHAT IT DOES ITSELF BUT WHERE IT HAPPENS TO BE LOCATED.
19 A. THAT'S CERTAINLY AN IMPORTANT TRUTH. THE NEWSPAPERS
20 LOCATED IN LARGER CITIES BECOME LARGER NEWSPAPERS, THAT IS,
21 DAILY NEWSPAPERS, AND ASSUME LARGER MARKETS SPREAD OUT OVER A
22 LARGER REGION, WHEREAS NEWSPAPERS IN SMALL MARKETS LOCATED
23 IN -- IN CITIES OF 40,000 POPULATION ARE GOING TO BE SMALL
24 NEWSPAPERS AND -- AND NOT -- AND NOT HAVE ANY CHANCE OF BEING
25 THE KIND OF A NEWSPAPER THAT A LARGE CITY NEWSPAPER CAN BE.
1685
ROSSE - CROSS / SHULMAN
1 THE TRUTH OF THE MATTER IS THAT NEWSPAPER --
2 NEWSPAPERS ARE SPECIFIC TO PARTICULAR REGIONS AND THEY -- AND
3 IF THEY ATTEMPT TO GROW BEYOND THOSE REGIONS, THEY'RE NOT VERY
4 SUCCESSFUL.
5 Q. THE SAN FRANCISCO CHRONICLE AND EXAMINER HAPPEN TO BE MORE
6 INFLUENTIAL AND IMPORTANT THAN THE PALO ALTO TIMES AND THE SAN
7 JOSE MERCURY NEWS BECAUSE THEY ARE LOCATED AT THE CENTER OF A
8 LARGER LOCAL COMMUNITY THAN ARE THE OTHERS. IS THAT TRUE?
9 A. WELL, IT'S NO LONGER TRUE BECAUSE THE PALO ALTO TIMES NO
10 LONGER EXISTS. BUT EXCEPT FOR THAT, YES, THAT'S TRUE.
11 Q. WELL, IT WAS TRUE WHEN YOU WROTE IT, RIGHT?
12 A. IT WAS TRUE WHEN I WROTE IT.
13 Q. IS IT TRUE THAT BECAUSE SAN FRANCISCO IS A LARGER
14 COMMUNITY, THE CHRONICLE AND EXAMINER HAVE LARGER CIRCULATION?
15 A. YES.
16 JUST OUT OF CURIOSITY, I DON'T REMEMBER WHEN I WROTE
17 ALL OF THOSE THINGS. I'M KIND OF CURIOUS.
18 Q. WELL, I WILL HELP YOU OUT.
19 THIS WAS FOR THE PROCEEDINGS OF THE SYMPOSIUM ON
20 MEDIA CONCENTRATION, BUREAU OF COMPETITION, FTC, IT LOOKS LIKE,
21 DECEMBER OF 1979.
22 A. '79, WAS IT? I THOUGHT IT WAS '78.
23 Q. YES.
24 A. OKAY. THAT PLACES IT.
25 Q. RIGHT.
1686
ROSSE - CROSS / SHULMAN
1 A. IT'S AMAZING HOW SOME THINGS REMAIN TRUE FOR SO LONG.
2 Q. RIGHT.
3 HOW ABOUT THIS? NEWSPAPER PUBLICATIONS, EDITORS AND
4 MANAGERS HAVE BEEN HYPNOTIZED BY THEIR OWN WORDS INTO THINKING
5 THAT THEY HAVE SOME SPECIAL PLACE IN THE MARKETPLACE. FOR THIS
6 AND OTHER REASONS THE USUAL APPROACH OF NEWSPAPERS TO THE
7 BUSINESS OF MANAGEMENT IS POSITIVELY ANTEDILUVIAN.
8 DO YOU BELIEVE THAT?
9 A. IT WAS CERTAINLY TRUE AT THAT TIME. I THINK IT'S MUCH
10 LESS TRUE TODAY. I THINK PARTLY AS A RESULT OF SOME OF THE
11 WORK THAT I HAVE DONE OVER THE YEARS BUT MORE IMPORTANTLY
12 BECAUSE OF CHANGES IN THE MARKETPLACE, PEOPLE HAVE HAD TO WAKE
13 UP AND REALIZE THAT DOING IT THE OLD WAY DOESN'T WORK ANYMORE.
14 Q. WELL, AND ISN'T IT TRUE THAT THE THING THAT MAINLY NEEDS
15 TO BE DONE IS TO GET THE INDUSTRY TO THINK OF ITSELF AS A
16 VIGOROUS COMPETITOR RATHER THAN AS A SACRED COW?
17 A. THOSE ARE CERTAINLY WORDS THAT I UTTERED. I GUESS I WOULD
18 EVEN STILL UTTER THEM. HOWEVER, I THINK THEY HAVE GOTTEN OVER
19 THE SACRED COW PHASE PRETTY MUCH.
20 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
21
22
23
24
25
1687
ROSSE - CROSS / SHULMAN
1 Q. LET ME ASK YOU SOME QUESTIONS ABOUT YOUR VIEWS ON
2 MR. FANG.
3 IS IT CORRECT THAT IF MR. FANG GETS THE EXAMINER,
4 YOU DON'T THINK HE'S GOT A CHANCE --
5 A. NO, I THINK --
6 Q. -- IF HE TRIES TO PRODUCE A NEWSPAPER WHICH ATTEMPTS TO
7 DUPLICATE THE ADVERTISING AND CIRCULATION CHARACTERISTICS OF
8 THE CHRONICLE; ISN'T THAT CORRECT?
9 A. I DON'T THINK THERE'S ANY CHANCE IN THE WORLD HE COULD
10 CREATE THAT KIND OF A PRODUCT.
11 Q. THAT'S RIGHT, NO CHANCE IN THE WORLD; RIGHT?
12 A. YES.
13 Q. OKAY. IF HE TRIES TO DO THAT, HE SIMPLY WILL NOT HAVE A
14 LARGE ENOUGH NEWSPAPER AND THE ECONOMIES OF SCALE WILL MAKE IT
15 VERY, VERY DIFFICULT FOR HIM TO SURVIVE WITH THAT KIND OF
16 PAPER; ISN'T THAT TRUE?
17 A. THOSE SOUND LIKE WORDS I'VE WRITTEN.
18 Q. YOU SAID THEM IN YOUR DEPOSITION.
19 A. DID I? OKAY.
20 THE COURT: AND I GATHER YOU STILL AGREE WITH THEM?
21 THE WITNESS: I STILL AGREE WITH THEM, YES.
22 BY MR. SHULMAN:
23 Q. OKAY. IF MR. FANG WERE TO TRY TO PRODUCE THE SAME NUMBER
24 OF PAGES, THE SAME AMOUNT OF NEWS, THE DEPTH OF NEWS COVERAGE
25 OF THE PRESENT EXAMINER, HE COULDN'T AFFORD TO AND HE WOULD NOT
1688
ROSSE - CROSS / SHULMAN
1 BE ABLE TO HIRE THAT MANY PEOPLE IN HIS NEWSROOM; RIGHT?
2 A. I DON'T BELIEVE HE COULD.
3 Q. AND YOU KNOW THAT IT IS THE ANNOUNCED INTENTION OF
4 MR. FANG TO SPEND 15 TO $25 MILLION A YEAR FOR THIS NEWSPAPER,
5 RIGHT, AS A BUDGET?
6 A. I UNDERSTAND THAT'S THE AMOUNT THAT IS AVAILABLE IN THE
7 FORM OF A SUBSIDY. I DON'T HAVE ANY CLEAR VIEW OF WHAT
8 MR. FANG'S BUSINESS PLAN IS.
9 Q. WELL, YOU'VE READ HIS TESTIMONY, HAVEN'T YOU, HIS
10 DEPOSITION?
11 A. I THINK I HAVE, BUT I DON'T REMEMBER FOR SURE.
12 Q. OKAY.
13 A. I THINK I -- I'M SURE I READ IT. WHETHER ANY OF IT STUCK
14 OR NOT IS ANOTHER MATTER.
15 MR. SHULMAN: WELL, LET ME, IF I CAN REFRESH THE
16 WITNESS' RECOLLECTION WITH HIS DEPOSITION.
17 THE COURT: VERY WELL.
18 MR. SHULMAN: I CAN GIVE YOUR HONOR... THIS IS THE
19 WITNESS' DEPOSITION.
20 THE COURT: OH, THIS IS THE WITNESS' DEPOSITION?
21 MR. SHULMAN: YES.
22 THE COURT: ALL RIGHT.
23 MR. SHULMAN: MAY I APPROACH THE --
24 THE COURT: YES, YOU MAY.
25 MR. CONNELL: THIS IS DR. ROSSE'S DEPOSITION YOU'RE
1689
ROSSE - CROSS / SHULMAN
1 SHOWING TO HIM?
2 THE COURT: YES.
3 MR. SHULMAN: YES.
4 MR. CONNELL: OH.
5 (PAUSE IN PROCEEDINGS.)
6 BY MR. SHULMAN:
7 Q. DR. ROSSE, IF YOU'LL LOOK AT PAGE 33, LINE 17.
8 A. (WITNESS EXAMINES DOCUMENT.)
9 Q. "Q. OKAY. HAVE YOU READ MR. FANG'S
10 DEPOSITION?
11 "A. YES, I HAVE."
12 YOU HAVE READ IT; RIGHT?
13 A. YES.
14 Q. "Q. ARE YOU FAMILIAR WITH HIS
15 TESTIMONY THAT HE PLANS TO -- THAT HIS BUDGET
16 FOR THE PAPER IS BETWEEN 15 AND $25 MILLION A
17 YEAR?
18 "A. YES. I HAVE READ THAT, YES."
19 A. YES, I HAVE READ THAT.
20 Q. OKAY. SO YOU WERE AWARE OF THAT; RIGHT?
21 A. YEAH.
22 Q. SO YOU KNOW THAT IN TERMS OF DEPTH OF REPORTING AND DEPTH
23 OF FEATURES, MR. FANG SIMPLY DOESN'T HAVE THE RESOURCES
24 AVAILABLE TO COMPETE WITH THE CHRONICLE; ISN'T THAT RIGHT?
25 A. WELL, NOT TO COMPETE HEAD ON. THERE ARE ENOUGH RESOURCES
1690
ROSSE - CROSS / SHULMAN
1 THERE TO PRODUCE A -- PRODUCE A NEWSPAPER, A DAILY NEWSPAPER.
2 IN MY TESTIMONY I LIKENED IT, FOR INSTANCE, TO ONE OF FREEDOM'S
3 NEWSPAPERS OF ABOUT 50,000 CIRCULATION THAT'S PRODUCED FOR
4 SIGNIFICANTLY LESS MONEY THAN THAT, AND IS AN INTERESTING PAPER
5 TO READ.
6 IT'S CERTAINLY NOT OF THE SAME DEPTH AND CALIBER AS
7 THE EXAMINER -- AS THE CHRONICLE, I MEAN; BUT THE TRUTH OF THE
8 MATTER IS FOR 15 TO $25 MILLION A YEAR, YOU CAN PRODUCE A
9 50,000 CIRCULATION NEWSPAPER, WHICH I THINK IS WHAT HE WAS
10 AIMING TO DO.
11 Q. WELL, YOU KNOW THAT IF HE TRIES TO PRODUCE A PAPER THAT
12 WILL RESEMBLE WHAT'S CURRENTLY PUBLISHED AS THE EXAMINER, IN
13 TERMS OF DEPTH OF REPORTING AND DEPTH OF FEATURES, HE SIMPLY
14 WON'T HAVE THE RESOURCES AVAILABLE; ISN'T THAT RIGHT?
15 A. HE WILL NOT.
16 MR. CONNELL: ASKED AND ANSWERED.
17 THE COURT: OVERRULED.
18 THE WITNESS: WAS THERE AN OBJECTION?
19 THE COURT: THERE WAS AN OBJECTION. IT WAS
20 OVERRULED.
21 THE WITNESS: OKAY. NO, HE WON'T HAVE THE RESOURCES
22 TO DO THAT. HE CAN PRODUCE A PAPER THAT LOOKS -- MAY EVEN BE
23 PRETTIER THAN THE EXAMINER BECAUSE HE HAS ACCESS TO TECHNOLOGY
24 AT A SCALE THAT MAKES IT POSSIBLE FOR HIM TO DO SOME THINGS
25 THAT THE EXAMINER FINDS IT DIFFICULT TO DO; BUT WHEN IT COMES
1691
ROSSE - CROSS / SHULMAN
1 TO DEPTH OF REPORTING AND TO EXTENSION OF -- EXTENT OF
2 REPORTING, HE SIMPLY WILL NOT HAVE THOSE RESOURCES.
3 BY MR. SHULMAN:
4 Q. OKAY. SO IF MR. FANG SUCCEEDS, IN YOUR VIEW IT'S NOT
5 GOING TO BE BY COMPETING WITH THE CHRONICLE?
6 A. THE SHORT ANSWER TO THAT IS HE WILL NOT BE A DIRECT
7 FACE-TO-FACE COMPETITOR. HE WILL BE ANOTHER COMPETITOR WITHIN
8 THE MARKETPLACE THAT WILL NEED TO FIND A NICHE AND IT WILL NEED
9 TO FIND THAT NICHE BY TAKING SOME BITS AND PIECES OF THE MARKET
10 FROM WHEREVER IT CAN FIND IT, AND IT MAY BE SOME COMPETITION
11 FOR THE CHRONICLE BUT IT'S NOT GOING TO BE A VERY BIG OR MAJOR
12 COMPETITOR.
13 Q. RIGHT. IF HE'S GOING TO SURVIVE, HE'S GOING TO HAVE TO
14 FIND SOME NICHE TO GET INTO BECAUSE HE'S NOT GOING TO SURVIVE
15 BY COMPETING WITH THE CHRONICLE; ISN'T THAT RIGHT?
16 A. THAT'S CORRECT. THAT'S TRUE.
17 Q. I THINK YOU'VE SAID EARLIER THAT IN YOUR OPINION THERE
18 WERE LOW BARRIERS TO ENTRY INTO THE NEWSPAPER BUSINESS.
19 A. CORRECT.
20 Q. YOU'RE FAMILIAR --
21 A. WHAT I SAID ACTUALLY WAS THAT THE BARRIERS HAVE LOWERED AS
22 A RESULT OF NEW TECHNOLOGIES THAT ARE LESS NOW THAN THEY USED
23 TO BE.
24 Q. WELL, YOU'RE FAMILIAR WITH -- OF COURSE, YOU'RE FAMILIAR
25 WITH THE ECONOMISTS, INC.'S, STUDIES. THAT'S EXHIBIT 94;
1692
ROSSE - CROSS / SHULMAN
1 RIGHT?
2 A. THAT'S THE -- YES.
3 (PAUSE IN PROCEEDINGS.)
4 BY MR. SHULMAN:
5 Q. AND ARE YOU ALSO FAMILIAR WITH THE RESPONSES TO
6 INTERROGATORIES THAT HEARST MADE TO THE DEPARTMENT OF JUSTICE?
7 A. I'M NOT SURE THAT I'VE SEEN THOSE. I DON'T RECALL THEM AS
8 I SIT HERE.
9 Q. OKAY. WELL --
10 THE COURT: THOSE ARE EXHIBIT WHAT, MR. --
11 MR. SHULMAN: 16.
12 THE COURT: 16?
13 MR. SHULMAN: YES.
14 (PAUSE IN PROCEEDINGS.)
15 BY MR. SHULMAN:
16 Q. WELL, AS A GENERAL PROPOSITION, IS IT TRUE THAT YOU DO NOT
17 BELIEVE THAT ENTRY INTO THE METROPOLITAN DAILY NEWSPAPER
18 BUSINESS IN THE CITY OF SAN FRANCISCO IN DIRECT COMPETITION
19 WITH THE SAN FRANCISCO CHRONICLE AND EXAMINER NEWSPAPERS OR THE
20 CHRONICLE ALONE IS EITHER ECONOMICALLY FEASIBLE OR RATIONAL
21 BUSINESS BEHAVIOR? YOU AGREE WITH THAT; DON'T YOU?
22 A. I CERTAINLY AGREE WITH THAT.
23 THE COURT: MR. SHULMAN, WE'RE GOING TO HAVE TO
24 BREAK OFF HERE IN A FEW MINUTES FOR OTHER MATTERS.
25 MR. SHULMAN: OKAY.
1693
ROSSE - CROSS / SHULMAN
1 THE COURT: SO WHEN YOU REACH A CONVENIENT BREAK --
2 MR. SHULMAN: THIS IS FINE, YOUR HONOR.
3 THE COURT: -- BREAKING POINT, WHY, WE CAN RECESS
4 FOR TODAY AND WE'LL HAVE TO RESUME TOMORROW MORNING WITH
5 MR. ROSSE'S TESTIMONY.
6 COUNSEL, I ASKED A COUPLE OF QUESTIONS ABOUT
7 SCHEDULES AND TIMING AND SO FORTH. UNLESS YOU'RE PREPARED TO
8 ANSWER THOSE QUESTIONS RIGHT NOW, CAN WE TALK ABOUT THOSE IN
9 THE MORNING?
10 MR. SHULMAN: I'M PREPARED.
11 MR. ALIOTO: NO, THE JUDGE SAID IN THE MORNING.
12 MR. SHULMAN: OH.
13 MR. ALIOTO: NOW, YOUR HONOR, DID YOU SAY?
14 MR. SHULMAN: I CAN DO IT NOW.
15 MR. HALLING: IT WOULD BE USEFUL IF WE COULD CONFER.
16 WE'VE HAD NO OCCASION SINCE YOU RAISED IT.
17 THE COURT: I THINK IT PROBABLY WOULD BE BETTER IF
18 YOU PUT YOUR HEADS TOGETHER.
19 MR. HALLING: RIGHT.
20 THE COURT: AND YOU MIGHT ACTUALLY AGREE ON SOME
21 THINGS.
22 MR. SHULMAN: I ONLY HAVE TO CONFER WITH MYSELF, SO
23 I'M ALL RIGHT.
24 THE COURT: WELL, I'M SURE YOU'LL WANT TO CONFER
25 WITH YOUR COLLEAGUES IF YOU POSSIBLY CAN, MR. SHULMAN.
1694
ROSSE - CROSS / SHULMAN
1 MR. SHULMAN: ALL RIGHT.
2 THE COURT: ALL RIGHT. IS THERE ANYTHING THAT WE
3 NEED TO DEAL WITH BEFORE WE RECESS FOR THE DAY?
4 MR. HALLING: ONE SMALL MATTER, YOUR HONOR.
5 THE COURT: YES.
6 MR. HALLING: WE HAVE A DEPOSITION DESIGNATION AS
7 PART OF OUR CASE THAT'S JAMES RUTHERFORD. BOTH SIDES HAVE
8 AGREED ON THE DESIGNATION AND THEY'RE PRESENTED IN AN EXHIBIT
9 H-1192, AND I WOULD LIKE TO OFFER THAT. IT'S THE DESIGNATIONS
10 OF BOTH PLAINTIFFS AND DEFENDANTS.
11 THE COURT: LET'S SEE, WHO IS MR. RUTHERFORD?
12 MR. HALLING: HE WAS THE VERONIS SUHLER PERSON --
13 THE COURT: OH, YES.
14 MR. HALLING: -- THAT WAS INVOLVED IN THE SALE
15 PROCESS.
16 THE COURT: AND HIS ENTIRE DEPOSITION IS BEING
17 OFFERED?
18 MR. HALLING: NO, IT'S EXCERPTS BUT THEY'RE MARKED.
19 THE COURT: IN THE SAME WAY THAT THE EXCERPTS FROM
20 THE OTHER DEPOSITION WERE MARKED?
21 MR. HALLING: YES, YOUR HONOR.
22 THE COURT: ALL RIGHT. VERY WELL. 1192 WILL BE
23 ADMITTED PURSUANT TO STIPULATION.
24 MR. CONNELL: YOUR HONOR, MAY I ASK ONE QUESTION OF
25 THE COURT?
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1 THE COURT: YES.
2 MR. CONNELL: ASSUMING WHATEVER YOU WANT TO ASSUME,
3 IF THIS CASE IS NOT OVER ON FRIDAY, IS YOUR HONOR PREPARED TO
4 TAKE THIS CASE ON MONDAY?
5 THE COURT: YES.
6 MR. CONNELL: THANK YOU, SIR.
7 THE COURT: YES. NO, I THINK -- I THINK WE OUGHT TO
8 FINISH THIS CASE. NOW, THAT MAY INVOLVE A DELAY OF A CRIMINAL
9 PROCEEDING, AND THAT'S PRETTY UNUSUAL; BUT IF WE'RE NOT
10 COMPLETED ON FRIDAY, I SUSPECT WE'LL BE PRETTY CLOSE TO
11 COMPLETED.
12 MR. ALIOTO: YES.
13 MR. HALLING: YES, YOUR HONOR.
14 THE COURT: I'LL ASK FOR FURTHER CONFIRMATION OF
15 THAT IN THE MORNING. ACTUALLY THAT MIGHT AFFECT MY DECISION.
16 IF WE'RE NOT CLOSE TO BEING COMPLETED BY THE CLOSE OF TESTIMONY
17 TOMORROW, THEN MAYBE WE WILL HAVE TO RECESS AND I'LL HAVE TO
18 TAKE THE CRIMINAL CASE. THE CRIMINAL CASE IS, AFTER ALL,
19 SUBJECT TO THE SPEEDY TRIAL ACT AND THERE ARE LIMITATIONS ON
20 HOW MUCH WE CAN CONTINUE THAT CASE.
21 AND ONE OF THE LAWYERS IN THAT CRIMINAL CASE HAS A
22 DEATH PENALTY CASE STARTING I BELIEVE IN EARLY JUNE. I BELIEVE
23 RIGHT IF NOT THE FIRST OF JUNE VERY CLOSE TO THE FIRST OF JUNE,
24 AND SO HE NEEDS TO GET THIS CASE OUT OF THE WAY. SO I
25 CERTAINLY OWE HIM THE COURTESY OF ATTEMPTING TO TRY HIS CASE
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1 HERE SO THAT HE CAN GET ON WITH HIS OTHER CASE.
2 SO THOSE ARE THE CONSIDERATIONS THAT I'M TRYING TO
3 ACCOMMODATE.
4 MR. ALIOTO: YOUR HONOR, I JUST HAVE ONE MATTER. MY
5 DAUGHTER IS GETTING MARRIED THIS WEEKEND AND I'M INSTRUCTED BY
6 VERY HIGH AUTHORITY TO REMOVE MYSELF TOMORROW ABOUT 4:00
7 O'CLOCK, AND I'D LIKE TO HAVE PERMISSION FROM THE COURT TO BE
8 ABLE TO LEAVE THE COURTROOM TOMORROW AT ABOUT 3:30, 4:00
9 O'CLOCK.
10 THE COURT: THAT WILL BE FINE AND I TRUST YOU WILL
11 CONVEY THE COURT'S BEST WISHES TO THE BRIDE.
12 MR. ALIOTO: I CERTAINLY WILL, YOUR HONOR. THANK
13 YOU VERY MUCH.
14 THE COURT: VERY WELL. ANYTHING FURTHER?
15 (NO RESPONSE)
16 THE COURT: VERY WELL. SEE YOU TOMORROW AT 8:30.
17 (WHEREUPON PROCEEDINGS ADJOURNED AT 2:57 P.M.)
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