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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